We would be having negative rates on a fair number of houses. Borrower
gets money back every month? Just pays taxes and interest? Pays principal
amount he would have paid if the payment was as scheduled?
Prices have already fallen too far. Even this wouldn't work AllenM.
I wonder how these severities compare to what was assumed in the now-forgotten stress tests.
LL, I am glad you enjoyed the show. I got a high-rise Boston apt July 15 last year without realizing that the side with 50 ft of windows to the ceiling faces directly over the Charles River exactly where the fireworks are set off. Spectacular. And very comfortable.
Liz, that is 1% off for each 10% drop- at a drop of 60% you hit zero interest and start just paying taxes, insurance, and principle.
This would drop the payment to ridiculous at about half off, providing tremendous incentive to remain in place and keep paying.
Essentially just declare whole counties disaster areas eligible for this treatment.
Not good for the bond holders, but with these loss severities this would be much cheaper.
It would drop my mortgage by about 70%, but it sure would ensure that I was interested in maintaining my payments and property- one could incentivize prepayments too- matching up to 5% for each year in the program.
But hey, that would cut losses and keep folks in houses.
LL, I confess I had the TV set to a National Geographic special on National Parks - Yellowstone, Yosemite, and the Everglades. But the quality of the fireworks surprised me enough to hold my attention, so I think I missed a lot of crocodiles and manatees.
By the time a mod is possible, the borrower has awakened from
financial sleep, and after a few payments realizes that they are continuing
to be screwed. That's what I'm seeing anyway.
You mean alligators. Crocs are very rare.
Alligators, manatees, yawn.
Any time I want to I can take a longish walk to Manatee Cove park where
actually manatees hang out. Gators, I've seen within walking distance,
but luckily not often. Gators, I don't want to see except sunning themselves
by the road, while I'm in a car. I think gators are like roaches, for every one
you see, there are 40 you don't see, hanging out. They usually aren't interested
in anything as big as adult people, but small dogs, yum.
Nothing beats the Macy's fireworks in NYC...this year they returned to the Hudson. Spectacular, with NY Phil on the deck of the Intrepid.
Boston, pffft.
The path of least resistance is to simply reduce everyone's principal. For any one case, that makes sense. But to do it for entire segments of society, with taxpayers backstopping all the losses, means that we are simply avoiding consequences. Moral hazard again.
LL, I am pretty sure they said they were crocs. Apparently there are some crocs down there in FL, as well as the much more numerous alligators that popped up all the time.
Against that, you have the issue that going delinquent now when
everybody else is, will mean nearly nothing in 5 or 6 years. But if
you get that deal, you will still be screwed in 5 or 6 years, and if
you default then, lenders will be less understanding. Except the
prepayment thing might make some sense.
How far under are you anyway. I really should go to bed.
Crocs are very rare, but they do exist. One was hanging out near here--well, not that near, but ]near enough. Mostly they are in the Keys. People were upset and wanted him or her moved.
Nope was the answer, this is part of their territory, and this one isn't doing anything, just
hanging out.
Do we that bought responsibly and paid our mortgage, or postponed buying while you speculated with easy money get anything ?
I know we get to pay for it.
Think about it- if you have a very severe underwater moment you can most likely be reduced below what rent currently is for your house.
That is the problem right there... review NPVs. Whether you call it 'principal' or 'interest'... if the cashflow backing the asset collapses then the asset valuation has collapsed... it's just a mind game to pretend this part is interest, this part is principal and we can tweek this or tweek that and all will be okay.
It's only 8:44 here on the coast, so the war hasn't started yet. About a mile from me there's a five-six-mile stretch of coast, mainly beach, upon which wait 20-30000 people with every form of firework known to man -- legal, illegal, professional, amateur. It all starts firing in about half an hour, when the light dies. The cops always do their best, but they're outgunned.
Of course maybe one municipality within 30 miles of here can afford a professional display (and that one's uptight, and won't let you drink on site). So it's private initiative to the rescue, along with various fire engines, ambulances, police cars, and paramedics.
Let's do the math- Paid 644k with 20% down- got 6.375% on fixed 30- currently owe 490k-
House worth 400k-340k according to tax assessment- so my interest rate should drop by 2% roughly- which would put my mortgage down to $2600 from $3800 piti included.
We would stay for that deal.
This is ignoring the second we took out when I noted things were really tanking to have some cash available- the second that Chase froze a year and a half ago with no notice.
Not gonna do a refi- Arizona is a nonrecourse state- only a mod.
I just wanna keep housing from collapsing further. It is
actually pretty affordable here now. Further price losses will
cause further unemployment. I wanna get out of this death
spiral.
The asset value being the value of the mtg, right?
Yes.
The 'value' was predicated on a cash flow over time given an interest rate. If the cashflow declines to make the house more affordable... the asset [mortgage] value takes a hit regardless if it is interest rate or principal. They may or may not 'book' the loss but the loss is there. An interest rate cut is in effect a 'de facto' principal reduction...
If the problem is deterioration in the home due to vacancy, then the solution is to dramatically speed up the foreclosure and sale process. Aim to get the house sold before the prior owner vacates, and pass custody to the new owner within a day or two after the prior owner does vacate. If the energy being put into schemes to avoid responsibility were instead directed to making this happen, it could be made to happen. The problem is that too many people want to avoid consequences.
But whether housing is affordable is not going to have much of an effect on another wave of defaults, will it? So prices have fallen to a level that some people want to move into an area. But on account of the economy, you have more and more people that fall behind. If they sell their houses at the prices that are prevailing today, we still see the same thing we've seen so far, right?
dryfly- at 64% loss severity it is simply a matter of when you would like to recognize the losses, not their existence!!!
Exactly.
But that is why if I were the bank I'm not sure what I would do - I doubt I would make mods easy - if too easy every one will want them again and again - it doesn't slow the death spiral.
This is a classic asset price collapse and there is no out. Everyone will get ruined - or nearly everyone - before it is over.
remember the Palm Beach judge with 40,000 foreclosures. More to come of course.
Need to clone her by 5 to get anywhere. State can't afford it, well maybe with the stupendous raise in filing fees they will accumulate enough, but I doubt it.
lawyerliz,
nah, they will eventually deal down on the interest rate- at which point it will be cheap enough to keep paying, remember I am also betting on long term inflation, so those principle dollars will be worth much less than today.
At least that is the current viewpoint- I have advocated a ruthless default for quite a while, but my wife is hesitant. I also think they will mod us down on the interest rates.
The houses WILL deteriorate. In fact, lots already have. This is a disaster for just
Miami-Dade County the size of Hurricane Andrew at least. With no insurance.
Condolences and wouldn't want to be in your shoes.
FWIW, concur with Liz, go ruthless. It's a contract, not a moral obligation.
At this point, I could probably even convince my wife to do likewise if we were in your position. And there's no - repeat - no guarantee that that won't happen.
Don't get confused on the inflation/deflation. Houses will deflate due to asset collapse and overbuild. However, there'll be other inflation as the other countries/oil suppliers look for payment in something other than dollars.
I think it was either Dry or RD who phrased it as "deflation in what you want, inflation in what you need."
nah, they will eventually deal down on the interest rate- at which point it will be cheap enough to keep paying, remember I am also betting on long term inflation, so those principle dollars will be worth much less than today.
They believe there is going to be inflation too so are doubly determined to NOT give you the mod until they absolutely have to... and might risk taking the asset [even if held off the market] waiting for that inflation.
And with the trillions in new debt it is coming but when? What was it that guy said about markets, irrationality, solvency and time?
House prices have fallen to the lows of the last major housing cycle in just a few places. So housing is still not affordable according to the standards that have prevailed for centuries, or even according to more liberal modifications of those standards intended to justify the huge run-up in prices in the last 5-30 years.
Getting to historical standards of affordability in a housing downturn will take a lot more. The only way to avoid this is to artificially boost prices with vast rivers of taxpayer money. That is happening, and is slowing and softening the downturn, but prices will continue to want to go down unless we inflate vigorously and for a long time. So for the next year or two, before that inflation engine can be engaged, defaults will continue to rise.
In So California, the last downturn reached the bottom in 1996. Prices now are still mostly way higher than 1996, after adjusting for CPI or wage inflation, except in a few areas. I suspect that is true elsewhere too.
That 200K is definitely not coming back, but as long as you're planning on staying put (or at least retaining & renting the place out) for the remainder of the mortgage, a lower interest rate could work.
HOWEVER, how do you know that going "recourse" isn't a condition of a loan mod???
Smart lady. Possession is 9/10 of the law. You have the house, they have to have the paper.
They'll find the paper - Tanta debunked that one long ago.
The thing is it was smart because she let them know via a well placecd shot across the bow this was NOT idle talk, nor an exercise - nothing like a lawyer suggesting they will walk away.
Hey Liz I am currently staying at an rv park on the Oregon coast - the park host is a guy who lost his house in West Palm Beach this year... He told me he paid $256k for it 2 years ago and this year it sold on a short sale for $96k.... He has a brand new big 5th wheel rv and a 1ton pickup to pull it - also new pickup.... So his lender took the hit for over $150k, he still has a nice place to live and a free parking space for helping to run the rv park.... Whatta country - God Bless the great American way....
What you need to know is who owns it now. Ever heard of MERS?
And this is where the rubber also meets the road for the slice and
dice securities.
Agreed bondgirl. Call them up on the last business day, when
you are late. You have to pay a small late fee, but so what. Then whine
at them for all you are worth.
I have friends in the same position and my advice to them was to walk away.
they wont listen now, just like they didnt listen when I told them not to buy.
the truth is you will walk away before its all said and done anyway.
the house will continue to deflate. who can afford a 400,000 house in our brave new world? YouTube - Tool - Ænema [uncut version - hq - fullscreen]
Getting to historical standards of affordability in a housing downturn will take a lot more. The only way to avoid this is to artificially boost prices with vast rivers of taxpayer money. That is happening, and is slowing and softening the downturn, but prices will continue to want to go down unless we inflate vigorously and for a long time. So for the next year or two, before that inflation engine can be engaged, defaults will continue to rise.
Fully 100% agree. Best description of separating 'deflationary pressure' from 'inflationary policy' I've read here in quite awhile.
TJ- then they can have it- I can do ruthless default without breaking a sweat.
What can they do to me? Mark down my credit rating? Gee, go ahead.
Bond Girl, we will at some point do that.
Right now a foreclosure, uncontested, here in AZ is taking 9 to 12 months. If they are even doing what they should.
This place is swamped with bad paper.
Well, the wife is pleading exhaustion- but I will note I have another 26.5 years on a fixed mortgage, so their losses are potentially immense too.
Mexican standoff, but I have the ruthless card.
Now, how many millions are in the same boat- we can pay the freight, but if I can get a better deal, well, I better get it on a silver platter, or meet my ruthless.
Inflation isn't going to hit housing any time in the next five years, maybe ten. Just pumping money into specific sectors of the economy isn't going to do damn for housing; way too many headwinds out there. Even hyperinflation won't do it, because (as history shows) the bad effects totally outrun any possible good.
They can't keep housing from deflating no matter what they try; all they can do is slow it down.
From the original report used by GM in her article, 27% of the loan modifications resulted in an increase in monthly payment. I guess I'm unclear on the concept, but isn't inability to make monthly payments what got the borrower in trouble in the first place?
My neighbor two doors down just lost thier home for $360K at the auction. They owed 490K on the first plus 165K on the second. Three years ago when I moved in, that house would of sold for $785-800 a year. 2400 SF.
My next door neighbor the other direction has a home that is 800 feet smaller, and he and his wife paid $650 the month before my wife and I moved in. I estimate that the couple living there makes 60-80K a year.
Inflation isn't going to hit housing any time in the next five years, maybe ten. Just pumping money into specific sectors of the economy isn't going to do damn for housing; way too many headwinds out there. Even hyperinflation won't do it, because (as history shows) the bad effects totally outrun any possible good.
Hyperinflation would do it TJ BUT one of those 'bad effects' you mentioned would be house price inflation - with a lot of inflation everywhere else. A lot of people like me who believe inflation is coming & that it will 'fix' the current problems don't believe problems in general will go away - just different problems and some of them are as bad or worse than the ones they are trying to 'fix'.
Well if the employment rate in Elkhart Indiana is any measure - I'd guess this bust hasn't been too kind on RV producers & salesmen even if a few homedebtors made the switch to RVers.
IIRC, the reason some modifications result in increased monthly payments is that the homeowner is financing out of an exotic mortgage with an existing insane teaser into a fixed rate mortgage.
Dry, many years ago worked in commercial insurance operations for major PC carrier. They merged with another carrier and took on that carrier's smaller PC line.
Laid off scads of people and the rest got so pissed that they walked. In course of typical corporate "co-locations" (old MCI term for office closing/retrenching), all of the actual old policies got moved and no one knew where they were. Field underwriting offices had the newer, still-in-effect policies, but old ones? Nah, in archive. But where in the hell was the archive?
Actually had to run down leads figuring out where the archives were. No luck. Solved my own immediate problem by at least finding the archived reinsurance claims before they were set for destruction. Don't know if they ever found the old policies.
This stuff is all paper driven. Move the paper around enough and it'll get lost. Sorry, but I lived that one.
I just occurred to me that a mod resulting in a higher payment may have been the moderation of an impending reset that would have resulted in even bigger payments.
Why aren't our Congressional leaders passing laws that make the foreclosure process less damaging to the housing stock? An individual judge in FL or AZ can't overcome the systemic problem of a too slow passing of custody of a home to the new owner in the existing foreclosure process. The existing process was designed for sporadic foreclosures, not the broad foreclosures we need to execute now.
This stuff is all paper driven. Move the paper around enough and it'll get lost. Sorry, but I lived that one.
RE transactions are recorded by gov't - courthouses & stuff. Not like private company contracts w/ mere consumers. That stuff only gets lost after Katrina sized F/Us...
BTW my sis had property in New Orleans that was being contested in court [estate hassles]... they even recovered THOSE docs eventually.
property law has historically been within the purview of the states, primarily because the actual characteristics of the land often define the playbook. after all, before the advent of modern communications, it wouldn't make sense for Kansas to have the same foreclosure guidelines as say NYC. today, the bigger hindrance is that foreclosure, in many states, is a judicial process, and therefore federal guidelines could be seen as unconstitutional meddling.
of course, the feds usually get around that by using the Spending Clause. e.g. federal blood-alcohol standards.
But with a lot of the mortgages being sold, and then sold again, I think that there's a good chance that the ops side of the house isn't set for handling all of the actual public sector paperwork. My own mortgage got sold last year and they effed up the tax stuff. It turned into a cluster when the county was found to have their own information wrong as well. That took months to fix and it would've taken longer if I hadn't driven the process.
Coming from an operations background, there are too many instances of brainiacs in the front room making commitments/promises that have to be actually made workable by the backroom guys.
Jesus, I grew to hate insurance underwriters and insurance producers. Their motto was "promise 'em anything, but give 'em a Pez."
homedad, if we walk away from all this with 100 million intact homes, that beats ending it with 98 million intact homes. Each home will have owners and occupants. There will be more happy people with the 100 million home outcome than with the 98 million home outcome. Our problem was putting the wrong people in many homes. The existing process resists making those changes, and will end up hurting us more in the aggregate as a result.
Soldiers fight to save every one of their buddies. Generals must be able to sacrifice some soldiers in one field to save more in another. We need generals running this crisis.
Allen, Arizona does not follow the California rule on refinancing. A refinanced purchase money mortgage on single family residential property in Arizona is still non-recourse. The second is probably recourse.
Liz, Arizona has plenty of problems, but I don't think it's quite as bad as Florida, at least not in town. Out on the fringes will be like Mad Max, but in town we're still OK. I bought in 2003 and I'm still not quite underwater.
Renters should be worried that evicted or defaulted and moved mortgage homedebtors may be/are pumping up or maintaining rental prices articficially (higher demand, less qualification) - thus distorting the rental to purchase ratio. It is clear that rentals haven't fallen, even though vast tracts of houses are empty.
I occasionally wonder if mortgage contracts shouldn't convert to rental contracts automatically (in the present emergency) after some number of missed payments (3-6), keeping people in the houses at current rental rates. But this makes sense only if rents are kept in ratio to income, and there's danger they won't if artificial demand from former mortage homedebtors grows large.
now that i'm back in the states, the studying's definitely picked up. pretty much poring over the books (with the computer in the background) about 16 hours/day. helps being at the parents' house and not having to worry about all the little details of life (e.g. laundry, food, etc).
but i definitely enjoy the macro stuff a hell of a lot more than whether State X is a lien or title state. Law sure is boring....
But with a lot of the mortgages being sold, and then sold again, I think that there's a good chance that the ops side of the house isn't set for handling all of the actual public sector paperwork. My own mortgage got sold last year and they effed up the tax stuff. It turned into a cluster when the county was found to have their own information wrong as well. That took months to fix and it would've taken longer if I hadn't driven the process.
Coming from an operations background, there are too many instances of brainiacs in the front room making commitments/promises that have to be actually made workable by the backroom guys.
Jesus, I grew to hate insurance underwriters and insurance producers. Their motto was "promise 'em anything, but give 'em a Pez."
I agree with most back office processes but NOT county court house real estate - the damned processes are positively 19th century and very robust. I did some gopher work to help my sis clear our late-father's estate... what an eye opener. EVERYTHING gets recorded. Microfiche was 'cutting high tech'. Getting answers fast? Impossible... Eventually though? Almost assuredly.
Very very few papers get lost 'permanently'... and if one was - it might be even worse for the likes of Allen - might make it equally difficult for HIM to prove title should he ever want to 'cash out'. He can't prove they own it but they could possibly stop him from proving he owns it free and clear too.
Soldiers fight to save every one of their buddies. Generals must be able to sacrifice some soldiers in one field to save more in another. We need generals running this crisis.
But the problem is that we have 100M homes but only the need for 98M. And with people downscaling - moving in together, moving home - and the HB still churnin' 'em out, then it simply perpetuates the oversupply. And increasingly scarce resources are spent keeping up these monuments to a stillborn dream.
The grunts can't select, but they can reject thru scorn and disgust the current guy. Gen. Patton comes to mind, after the 'slapping' incident that led to Patton's subordinate (Omar Brady) becoming his boss.
It's as much about where the houses are as how many. They can continue bulldozing Flint, MI and it won't help because nobody wants to live there -- no jobs.
I could use a break from laundry. That pile of socks needing matched and folded violates the Physics law that matter can neither be created nor destroyed.
Damn near like when you're chewing Brussels Sprouts.
As did pirates - those were days when plunder was the number one 'job benefit' of soldiering.
There is always 'consent' of the ruled - even in armies or they mutiny & desert in droves - but by in large the officers are NOT chosen by the men. We on the other hand have elected our 'mortgage generals' - for better or worse. Two situations are very different.
Dryfly, title documents are recorded, but not necessarily loan documents. In states where most loans are made on deeds of trust rather than mortgages, the note is often not recorded. Subsequent assignments even less so. If I recall, Tanta's main point was that if the original note was missing, eventually the Court would hold a hearing to determine what the note said, and would usually enforce based on a copy or whatever evidence exists. It is only the accelerated processes that can be stopped by lack of an original note.
Homedad, there is plenty of demand for the higher number of homes (100 million in our hypothetical example). The problem for some people is that the prices at which the larger amount of housing stock gets fully allocated without any funny money is lower than they'd like. That's not the same as saying that there are too many houses. I'd like a house, but I can't responsibly afford it at today's prices. I am competing against people who earn and save much less than I do, and yet are prepared to sign up for huge prices, because they can use other people's money. If prices were lower, I'd buy the house, and I could actually afford to really pay for it. That transfer of ownership to people who can actually afford the houses cannot occur as long as prices are elevated by funny money.
If you even see it through to that point. LL made an interesting observation about how many foreclosures judges are dealing with now, whether you would even get much consideration in demanding documentation in the first place.
If I recall, Tanta's main point was that if the original note was missing, eventually the Court would hold a hearing to determine what the note said, and would usually enforce based on a copy or whatever evidence exists. It is only the accelerated processes that can be stopped by lack of an original note.
Exactly.
And because the courthouses archive all kinds of crap they can almost always piece most of this together - given time & effort. The brilliance of AllenM's wife asking for proof wasn't that she could stop it [she couldn't]... it was a shot across the bow to the bank & servicer that any FC & eviction could be slow and very expensive... "So once you find the notes can we set up a meeting to discuss a possible modification?" says a lot more than just 'find the note'...
OK, closing the windows (10:00 PM) since the fireworks barges in the river are only a block away. First year I lived here, I thought Stalin's generals were shelling Berlin. (Pictures shake on the wall).
patientrenter, I do understand the point that you make and yours of 1253 was in a form that I hadn't considered.
My beef with the whole mess is this. We clearly live in a period of demands far outstripping resources to meet them. I understand that HB have to build to turn the cashless land bank into something that supports minimal life support for them. But I continue to see larger homes being built.
I object to spending additional resources to maintain these turkeys when there are other more pressing needs. It's sunk money. Gone. Move on.
My spouse certified someone as hospice eligible because he's too young for Medicare and has no health insurance, nor money for medications necessary to fight his cancer. That's what's driving my irritation at the moment. No money to help some poor out-of-work schmuck but we're going to spend the money to protect the housing stock. And with CA rolling back the medical benefits to lower income, this kind of situation will only grow.
Usually, I enjoy your posts and see your point, but gotta respectfully disagree.
I too just say Phaedrus's last comments in the prior thread. Adding $400 per $250K transaction to insulate appraisers better from upward price pressure from mortgage brokers is not a problem in the larger economic picture. It sounds like it's taking business away from mtg brokers, so maybe that needs to be looked at. But mtg brokers as a group wrote much worse loans than direct lenders, so reducing the volume going through mtg brokers isn't bad in the big picture either.
If we go back to mostly vanilla loans, then the need for mtg brokers should decrease.
Phaedrus, you say you personally didn't tell your appraisers to increase their numbers. But you're not the only mtg broker, and even the ones who didn't say anything controlled the aggregate outcome. If an appraiser knows the mtg broker decides where the case gets appraised, then that appraiser won't follow any instinct that says homes are becoming overvalued. It's indirect, but very effective pressure.
Bond Girl, Since lenders are drawing from a pool of lenders, An appraiser I know has lost 50% of his buisness. I've known these people for years and they are hardworking and honest. They worked hard to become the preferred appraiser of several lenders that now have to use a rotation of possibly less experienced and dilligent appraisers. Yes, they may be dolphins caught in a tuna net, but I hate to see them lose what they have worked so for.
No money to help some poor out-of-work schmuck but we're going to spend the money to protect the housing stock.
They aren't protecting the housing stock - they are protecting the banks. Never forget that for a minute... Right now everything that is done for 'housing' is done to protect the banks and NOT the home 'owners'.
Nice of you to stick around and reinforce that point, which cannot be emphasized enough. It's all about the banks -- they don't give a damn about housing and homeowners.
My suggestion for rapid foreclosures to minimize aggregate damage to the housing stock doesn't take any money from our (too high) spending on health care, homedad. In fact, it would really hurt the investors who carelessly loaned the money to people who couldn't afford the houses at the prices they were sold at. I don't see it resulting in a bigger real hit to taxpayers, although the hit would happen more quickly and transparently.
Nice of you to stick around and reinforce that point, which cannot be emphasized enough. It's all about the banks -- they don't give a damn about housing and homeowners.
I was shutting down & doing some backups... saw that and just had to pipe up. It drives me crazy but that is what it is about. Until banking is brought back into perspective [as part of a healthy economy not THE economy] we will continue to suffer. Your Goldman Sachs dig up thread was right on. Nytol.
The 64.7 % loss severity number is probably wrong.
.
"In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance."
but
"Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts."
.
So there are roughly 250K foreclosures/month in the data set, of which only 32K are "liquidation sales."
Most likely the "liquidation sales" are those sold at cash auction on the county steps, pre-REO.
It really says nothing about what the REOs eventually go for.
No need to decide whether it's the homes or the banks being bailed out; the banks OWN the homes.
Yeah but "homes" sounds like some family's home, not a building that can be evaluated strictly in economic terms.
My suggestion for rapid foreclosures to minimize aggregate damage to the housing stock
I suggested accelerating foreclosures to minimize damage to the economy in 2007. It occurred to me as a joke, but after I thought it, it made sense to quit pouring someone's paycheck into a declining asset. The banks would take a faster hit, but if you're going to give them money anyway, why take down the rest of the economy, too?
Ooooops, now I realize we're also pumping money into the economy via 'free' rent to those who are still living on the property but not making payments. I guess we should encourage that aspect, too. Hmmmm, I guess we are encouraging it.
They will not fix the housing price problem, simply because they cannot. The banks, as dryfly and others stated, are the ones that must be protected, given the course of action we've already taken. The only people who could modify things fast enough to get to a new equilibrium in many markets are the banks, but they wont make fixes detrimental to their own health. They will drag this out as long as they can suck as much blood as possible from as many borrowers as possible. It's already far past the point of realistic mods. Even if you took all you could from the borrower, adding up all the mods would crush the banks, and we'd be back at square one of the financial crisis, trying to find a bigger rug to sweep the bad numbers under. This absolutely positively cannot happen. Which is why we are doomed to a long slow deflation and a long painful credit crunch.
I may have posted this before, but a retired banker in my building (.. did CRE loans) says that bank can't lower the amount of a mortgage without taking the loss out of the bank's capital. If they did this multiple times, the bank would eventually run out of capital and go BK. So not modifying the loan amount is "cut off your nose to spite your face" proposition or maybe it's just a play for more time. Postpone modifying home loans now and increase the probability of the bank going BK in the future, unless inflation or the government bails out the bank . As DRY points out, this is about the bank. I might add that it's also about saving the banker's job...
"And for your July 5 spirituum, breaking news: Vatican Runs Deficit..."
We contribute to Peter's Pence, but our little check is not going to make up for a million euros. I see that most people where we attend Mass throw a buck or two in the collection basket, maybe not even enough to fix the leak in the roof.
July 5 (Bloomberg) -- Service industries in the U.S. probably shrank in June at a slower pace, signaling the worst recession in a half century is easing.
The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90 percent of the economy, rose to 46, according to the median estimate of 37 economists surveyed by Bloomberg News. Readings less than 50 signal contraction. Higher oil prices widened the trade deficit and boosted the cost of imported goods, other reports may show.
July 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the risk of deflation has yet to materialize in Europe. Speaking at a conference in Aix en Provence, France, Trichet said the financial crisis had “validated” the Frankfurt-based central bank’s focus on the medium-term and managing inflation expectations. “There has been an enormous change in view,” he said.
What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.
.....The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures........
just read this in the Times:
"Sarah Palin may be looking to the next few years to do what Nixon did to prepare for his successful run for the White House in 1968"
I believe I said this very thing in one of my posts yesterday... after reading Palin get beat down in the comments I said I was neither for her or
against her but disagreed with many who said she was finished. IMO, that was a mis-reading of political history, I then noted how Nixon in '62
was finished...
I also lambasted Gore's county chairmen in the 2000 election, there was no excuse for all the mistakes they
made in the run-up to election day...
I don't think the loan amount and the selling price is all that goes into calculating loss severities. There is lost interest (i.e. matched deposit costs), legal fees, maintenance fees, sales commissions etc. So in other words, the loss severity is worse than this.
By Mohamed El-Erian
Published: July 2 2009 16:16 | Last updated: July 2 2009 16:16
What if the US unemployment rate rises above 10 per cent and stays there for an extended period? This is a question that is not being asked enough, even though it entails yet another historical anomaly that will further complicate policy formulation and open it up to greater political interference. The unemployment rate is traditionally characterised as a lagging indicator and, as such, is viewed as having limited predictive power. After all, unemployment is a reflection of decisions taken earlier in the cycle so the rate always lags behind the realities on the ground – or so says conventional wisdom.
Governor Arnold Schwarzenegger, optimistic California can finish its budget negotiations in a few days, is willing to reconsider his proposed cuts to education in hopes of averting a cash crisis, the San Francisco Chronicle said Saturday. A compromise between the Republican governor and Democratic lawmakers may help clear the way for an agreement on an overdue state budget and avert a cash crisis for the government of the most populous U.S. state. California already is issuing billions of dollars in "IOUs" and, without a deal, is on track to run out of cash this month.
The Banks are not afraid of the mortgage borrower because they know that the mortgage borrower has no rights.
The Congress is afraid of the banks because it has not passed and legislation to curtail the aberrant lending behavior of the banks.
The Regulators are a government facade which gives the illusion that that the United States of America is protecting the very citizens that use the services and products of the federal banks.
I am fortunate to be from the State of Ohio with three do nothing, say nothing elected officials that have sat by and watched the banks financially rape homeowners. Senator Sherrod Brown, Senator George Voinovich, Representative Steve LaTourette. Brown and LaTourette are attorneys. They know how to say something that means nothing.
In fact Voinovich and LaTourette as reported by the Wall Street Journal on April 24,2009 told the regulators "hands off " the AmTrust Bank" based in Cleveland Ohio. This is a federally chartered thrift bank that has been issued a Cease and Desist Order by the Office of Thrift Supervision for unsafe and unsound banking practices concerning the banks financial ratios in November 2008. This regulator on the other hand has failed to investigate this same bank for violaltions of Ohio and Federal laws, rules and regulations. This same bank settled a 22 year old class action lawsuit
in September 2007 for 14 million dollar cash payment for the manipulation of the calculation of mortgage interest that involved 27,000 borrowers. This is also a violation of The Truth in Lending Act. The Office of Thrift Supervision never cited the Am Trust bank.
There have been millions and millions of foreclosures. There are many millions that are forecast in the near future.
Nothing will change until the borrower has the right to answer the bank in a foreclosure procedure with in the same regulatory system that the banks lends its money.
These government programs to “help “ the borrower are nothing more than a financial pass through from the government to the bank from the mortgage borrowers. These government programs want to keep the borrower in the home to keep the payments up to protect the cash flow of banks, insurance companies and local municipalities.
If the bank does a modification it is out of their desire to make more money. The borrower normally owes more on the house than it is worth. Most of the banks refuse to do modification unless they are rewarded financially by the government programs.
The borrower has one protector-Chapter 7 Bankruptcy.
Other wise the financial torture will go on for years unless the banks tires of the game and forecloses. The bank by the way do not loose money in a foreclosure. The insurance, write offs, tax laws and accounting lies offset any losses they pretend to have otherwise the amount of foreclosures would not be in the millions.
Congress is the problem. We need to change the way we elect people and the length of their terms in office. It is that simple. These people have made a career of financially extorting money through power and control.
The financial taste of Congress is dangerous to the homeowners well being.
gretchen nemo
first on the fourth?
Well, she did say there was so little logic...
second on the last of the fourth of the oughts. not bad.
sorry. second on the lasts of the fourth EST. Maybe something will happen in CA. Happy holiday to all on CR.
Bond Girl, I figured I'd find at least one funny ... it took 15 seconds. If I spent more time, I could probably find more!
best wishes
Jim said there is no normal. Hurrah.
Those losses are incredible. Are they mostly in bubble areas?
You want to keep folks in the U-Boat houses, give them really cheap interest rates.
How about just do blanket mods:
Each 10% underwater according to Zillow is 100 basis points off the loan interest rate!
Simple, fast, and we reset every six months.
Gee, I guess that is too simple.
I guess I have no future in the Obama administration.
Real world solutions. Send me an email, Timmay!!
Someday this war's gonna end...
The Boston pops fireworks was the best.
We never went out, too wet.
gretchen got a flowery review in the Nation? a little hardball to Blankfein.
We would be having negative rates on a fair number of houses. Borrower
gets money back every month? Just pays taxes and interest? Pays principal
amount he would have paid if the payment was as scheduled?
Prices have already fallen too far. Even this wouldn't work AllenM.
It's toooo Laaaaaate!
I wonder how these severities compare to what was assumed in the now-forgotten stress tests.
LL, I am glad you enjoyed the show. I got a high-rise Boston apt July 15 last year without realizing that the side with 50 ft of windows to the ceiling faces directly over the Charles River exactly where the fireworks are set off. Spectacular. And very comfortable.
Did you turn the music on the tv?
I love Boston, but it would be too cold for me.
She's missing a discussion of how many modifications fail.
Liz, that is 1% off for each 10% drop- at a drop of 60% you hit zero interest and start just paying taxes, insurance, and principle.
This would drop the payment to ridiculous at about half off, providing tremendous incentive to remain in place and keep paying.
Essentially just declare whole counties disaster areas eligible for this treatment.
Not good for the bond holders, but with these loss severities this would be much cheaper.
It would drop my mortgage by about 70%, but it sure would ensure that I was interested in maintaining my payments and property- one could incentivize prepayments too- matching up to 5% for each year in the program.
But hey, that would cut losses and keep folks in houses.
Someday this war's gonna end...
LL, I confess I had the TV set to a National Geographic special on National Parks - Yellowstone, Yosemite, and the Everglades. But the quality of the fireworks surprised me enough to hold my attention, so I think I missed a lot of crocodiles and manatees.
It would be nice to have the actual data that she was looking at.
Or to make people take out more debt elsewhere.
By the time a mod is possible, the borrower has awakened from
financial sleep, and after a few payments realizes that they are continuing
to be screwed. That's what I'm seeing anyway.
You mean alligators. Crocs are very rare.
Alligators, manatees, yawn.
Any time I want to I can take a longish walk to Manatee Cove park where
actually manatees hang out. Gators, I've seen within walking distance,
but luckily not often. Gators, I don't want to see except sunning themselves
by the road, while I'm in a car. I think gators are like roaches, for every one
you see, there are 40 you don't see, hanging out. They usually aren't interested
in anything as big as adult people, but small dogs, yum.
Nothing beats the Macy's fireworks in NYC...this year they returned to the Hudson. Spectacular, with NY Phil on the deck of the Intrepid.
Boston, pffft.
Yeah, if you added in the prepayments too, that might work.
By the time they figure out what we are sayin', it will be too late
for that, too.
Nitey-nite.
I like the 5 rockets at once thing in NY.
But I like Boston better.
lawyerliz,
I am in the truly screwed category- but I would take a mod deal like I suggested in a minute flat.
Think about it- if you have a very severe underwater moment you can most likely be reduced below what rent currently is for your house.
Remember, most of what folks pay for the first decade of any loan is interest- drop that payment by 70% and most would stay bar destitution.
Desperate times call for desperate measures.
Someday this war's gonna end...
The path of least resistance is to simply reduce everyone's principal. For any one case, that makes sense. But to do it for entire segments of society, with taxpayers backstopping all the losses, means that we are simply avoiding consequences. Moral hazard again.
LL, I am pretty sure they said they were crocs. Apparently there are some crocs down there in FL, as well as the much more numerous alligators that popped up all the time.
Against that, you have the issue that going delinquent now when
everybody else is, will mean nearly nothing in 5 or 6 years. But if
you get that deal, you will still be screwed in 5 or 6 years, and if
you default then, lenders will be less understanding. Except the
prepayment thing might make some sense.
How far under are you anyway. I really should go to bed.
Crocs are very rare, but they do exist. One was hanging out near here--well, not that near, but ]near enough. Mostly they are in the Keys. People were upset and wanted him or her moved.
Nope was the answer, this is part of their territory, and this one isn't doing anything, just
hanging out.
On the other side, you have the consequence of rotted houses. With
projectiles of various kinds blowing off in hurricanes.
We may well disagree over which is more hazardous.
Do we that bought responsibly and paid our mortgage, or postponed buying while you speculated with easy money get anything ?
I know we get to pay for it.
Think about it- if you have a very severe underwater moment you can most likely be reduced below what rent currently is for your house.
That is the problem right there... review NPVs. Whether you call it 'principal' or 'interest'... if the cashflow backing the asset collapses then the asset valuation has collapsed... it's just a mind game to pretend this part is interest, this part is principal and we can tweek this or tweek that and all will be okay.
The asset value being the value of the mtg, right?
It's only 8:44 here on the coast, so the war hasn't started yet. About a mile from me there's a five-six-mile stretch of coast, mainly beach, upon which wait 20-30000 people with every form of firework known to man -- legal, illegal, professional, amateur. It all starts firing in about half an hour, when the light dies. The cops always do their best, but they're outgunned.
Of course maybe one municipality within 30 miles of here can afford a professional display (and that one's uptight, and won't let you drink on site). So it's private initiative to the rescue, along with various fire engines, ambulances, police cars, and paramedics.
Well, in a sense, there is no way around the losses for the investors. It is just a matter of timing and timing of accounting.
Let's do the math- Paid 644k with 20% down- got 6.375% on fixed 30- currently owe 490k-
House worth 400k-340k according to tax assessment- so my interest rate should drop by 2% roughly- which would put my mortgage down to $2600 from $3800 piti included.
We would stay for that deal.
This is ignoring the second we took out when I noted things were really tanking to have some cash available- the second that Chase froze a year and a half ago with no notice.
Not gonna do a refi- Arizona is a nonrecourse state- only a mod.
So we wait and see.
Someday this war's gonna end...
Hence the severity, dry.
I just wanna keep housing from collapsing further. It is
actually pretty affordable here now. Further price losses will
cause further unemployment. I wanna get out of this death
spiral.
The asset value being the value of the mtg, right?
Yes.
The 'value' was predicated on a cash flow over time given an interest rate. If the cashflow declines to make the house more affordable... the asset [mortgage] value takes a hit regardless if it is interest rate or principal. They may or may not 'book' the loss but the loss is there. An interest rate cut is in effect a 'de facto' principal reduction...
dryfly- at 64% loss severity it is simply a matter of when you would like to recognize the losses, not their existence!!!
Someday this war's gonna end...
If the problem is deterioration in the home due to vacancy, then the solution is to dramatically speed up the foreclosure and sale process. Aim to get the house sold before the prior owner vacates, and pass custody to the new owner within a day or two after the prior owner does vacate. If the energy being put into schemes to avoid responsibility were instead directed to making this happen, it could be made to happen. The problem is that too many people want to avoid consequences.
Orwell's Fargo, the last staged in banking.
But whether housing is affordable is not going to have much of an effect on another wave of defaults, will it? So prices have fallen to a level that some people want to move into an area. But on account of the economy, you have more and more people that fall behind. If they sell their houses at the prices that are prevailing today, we still see the same thing we've seen so far, right?
Oh, my Allen. Oh, my.
My advice would be a ruthless default, I think, no matter how nice they were to
you. You are more than 200k under.
It's hopeless.
Unless not paying would cause you to stop sleeping at night. Sleeping
at night is worth anything.
I'm really really sorry, but that would be my advice if you were here.
You speed up foreclosure, you speed up losses. Not good for banks.
dryfly- at 64% loss severity it is simply a matter of when you would like to recognize the losses, not their existence!!!
Exactly.
But that is why if I were the bank I'm not sure what I would do - I doubt I would make mods easy - if too easy every one will want them again and again - it doesn't slow the death spiral.
This is a classic asset price collapse and there is no out. Everyone will get ruined - or nearly everyone - before it is over.
remember the Palm Beach judge with 40,000 foreclosures. More to come of course.
Need to clone her by 5 to get anywhere. State can't afford it, well maybe with the stupendous raise in filing fees they will accumulate enough, but I doubt it.
It can't be done quickly.
lawyerliz,
nah, they will eventually deal down on the interest rate- at which point it will be cheap enough to keep paying, remember I am also betting on long term inflation, so those principle dollars will be worth much less than today.
At least that is the current viewpoint- I have advocated a ruthless default for quite a while, but my wife is hesitant. I also think they will mod us down on the interest rates.
They have to, or face the ruthless default.
Someday this war's gonna end...
The houses WILL deteriorate. In fact, lots already have. This is a disaster for just
Miami-Dade County the size of Hurricane Andrew at least. With no insurance.
Allen M:
Condolences and wouldn't want to be in your shoes.
FWIW, concur with Liz, go ruthless. It's a contract, not a moral obligation.
At this point, I could probably even convince my wife to do likewise if we were in your position. And there's no - repeat - no guarantee that that won't happen.
And I thought that long-term, you were a deflationista.
So many views, so many people...
Just miss a payment or 2, you can catch up if you want to. Your
credit will recover.
They will be on you like white on rice.
I wish I agreed; all I see is housing deflation, as far as the eye can see.
Well, since she is an attorney- we are starting to get some traction in our discussions about modding.
I think Citibank started getting nervous when she asked for the current owner of the lien- and was told it is Citibank Investments.
She has asked for the proof already.
Nothing like an active defense- find the paper!!
Someday this war's gonna end...
And I think Az is worse than Florida.
If possible.
Liz:
Don't get confused on the inflation/deflation. Houses will deflate due to asset collapse and overbuild. However, there'll be other inflation as the other countries/oil suppliers look for payment in something other than dollars.
I think it was either Dry or RD who phrased it as "deflation in what you want, inflation in what you need."
Most want more house than they actually need.
nah, they will eventually deal down on the interest rate- at which point it will be cheap enough to keep paying, remember I am also betting on long term inflation, so those principle dollars will be worth much less than today.
They believe there is going to be inflation too so are doubly determined to NOT give you the mod until they absolutely have to... and might risk taking the asset [even if held off the market] waiting for that inflation.
And with the trillions in new debt it is coming but when? What was it that guy said about markets, irrationality, solvency and time?
House prices have fallen to the lows of the last major housing cycle in just a few places. So housing is still not affordable according to the standards that have prevailed for centuries, or even according to more liberal modifications of those standards intended to justify the huge run-up in prices in the last 5-30 years.
Getting to historical standards of affordability in a housing downturn will take a lot more. The only way to avoid this is to artificially boost prices with vast rivers of taxpayer money. That is happening, and is slowing and softening the downturn, but prices will continue to want to go down unless we inflate vigorously and for a long time. So for the next year or two, before that inflation engine can be engaged, defaults will continue to rise.
In So California, the last downturn reached the bottom in 1996. Prices now are still mostly way higher than 1996, after adjusting for CPI or wage inflation, except in a few areas. I suspect that is true elsewhere too.
True, homedad, but we are only talking about his house, for now.
Allen M:
Smart lady. Possession is 9/10 of the law. You have the house, they have to have the paper.
I am seeing actual affordability. Don't know what year it equates
to. Boston is not good, but way better than Fla, Cali or Az.
AllenM,
That 200K is definitely not coming back, but as long as you're planning on staying put (or at least retaining & renting the place out) for the remainder of the mortgage, a lower interest rate could work.
HOWEVER, how do you know that going "recourse" isn't a condition of a loan mod???
Actually not. You can reestablish lost documents. They never plead
it properly in my humble opinion.
Asking for the lienholder probably won't help unless you are going to back it up at some point with the threat not to pay, which you could do anyway.
Smart lady. Possession is 9/10 of the law. You have the house, they have to have the paper.
They'll find the paper - Tanta debunked that one long ago.
The thing is it was smart because she let them know via a well placecd shot across the bow this was NOT idle talk, nor an exercise - nothing like a lawyer suggesting they will walk away.
incentives are slightly different when the bank is the lender vs. when it is the servicer...
Hey Liz I am currently staying at an rv park on the Oregon coast - the park host is a guy who lost his house in West Palm Beach this year... He told me he paid $256k for it 2 years ago and this year it sold on a short sale for $96k.... He has a brand new big 5th wheel rv and a 1ton pickup to pull it - also new pickup.... So his lender took the hit for over $150k, he still has a nice place to live and a free parking space for helping to run the rv park.... Whatta country - God Bless the great American way....
Good point, Basel Too
Recourse, grumble, grumble.
What you need to know is who owns it now. Ever heard of MERS?
And this is where the rubber also meets the road for the slice and
dice securities.
Agreed bondgirl. Call them up on the last business day, when
you are late. You have to pay a small late fee, but so what. Then whine
at them for all you are worth.
Agreed Basel.
I have friends in the same position and my advice to them was to walk away.
they wont listen now, just like they didnt listen when I told them not to buy.
the truth is you will walk away before its all said and done anyway.
the house will continue to deflate. who can afford a 400,000 house in our brave new world?
YouTube - Tool - Ænema [uncut version - hq - fullscreen]
Have you talked to the bank and asked for a modification yet?
I'm not sure I'd walk away, but I'd sure as hell morph into a bully.
Yep, yep Shadow. You think that judge with the 40k foreclosures is gonna start
hearing deficiency judgments? NOT GONNA HAPPEN.
Getting to historical standards of affordability in a housing downturn will take a lot more. The only way to avoid this is to artificially boost prices with vast rivers of taxpayer money. That is happening, and is slowing and softening the downturn, but prices will continue to want to go down unless we inflate vigorously and for a long time. So for the next year or two, before that inflation engine can be engaged, defaults will continue to rise.
Fully 100% agree. Best description of separating 'deflationary pressure' from 'inflationary policy' I've read here in quite awhile.
TJ- then they can have it- I can do ruthless default without breaking a sweat.
What can they do to me? Mark down my credit rating? Gee, go ahead.
Bond Girl, we will at some point do that.
Right now a foreclosure, uncontested, here in AZ is taking 9 to 12 months. If they are even doing what they should.
This place is swamped with bad paper.
Well, the wife is pleading exhaustion- but I will note I have another 26.5 years on a fixed mortgage, so their losses are potentially immense too.
Mexican standoff, but I have the ruthless card.
Now, how many millions are in the same boat- we can pay the freight, but if I can get a better deal, well, I better get it on a silver platter, or meet my ruthless.
Someday this war's gonna end...
patientrenter,
Inflation isn't going to hit housing any time in the next five years, maybe ten. Just pumping money into specific sectors of the economy isn't going to do damn for housing; way too many headwinds out there. Even hyperinflation won't do it, because (as history shows) the bad effects totally outrun any possible good.
They can't keep housing from deflating no matter what they try; all they can do is slow it down.
From the original report used by GM in her article, 27% of the loan modifications resulted in an increase in monthly payment. I guess I'm unclear on the concept, but isn't inability to make monthly payments what got the borrower in trouble in the first place?
They are counting playing catch-up temporarily, I guess.
Liz,
Allen's situation is not that uncommon.
My neighbor two doors down just lost thier home for $360K at the auction. They owed 490K on the first plus 165K on the second. Three years ago when I moved in, that house would of sold for $785-800 a year. 2400 SF.
My next door neighbor the other direction has a home that is 800 feet smaller, and he and his wife paid $650 the month before my wife and I moved in. I estimate that the couple living there makes 60-80K a year.
I rent for $1750 a month.
Inflation isn't going to hit housing any time in the next five years, maybe ten. Just pumping money into specific sectors of the economy isn't going to do damn for housing; way too many headwinds out there. Even hyperinflation won't do it, because (as history shows) the bad effects totally outrun any possible good.
Hyperinflation would do it TJ BUT one of those 'bad effects' you mentioned would be house price inflation - with a lot of inflation everywhere else. A lot of people like me who believe inflation is coming & that it will 'fix' the current problems don't believe problems in general will go away - just different problems and some of them are as bad or worse than the ones they are trying to 'fix'.
Shadow,
Where on the OR coast?
Does he own the 5the wheel & pickup free & clear?
Maybe his story explains all the huge RVs & big new pickups I've been seeing driving up & down 101 on the coast this year.
Well, what you are really betting on is that their attitude toward modifications changes in the near future.
Well if the employment rate in Elkhart Indiana is any measure - I'd guess this bust hasn't been too kind on RV producers & salesmen even if a few homedebtors made the switch to RVers.
IIRC, the reason some modifications result in increased monthly payments is that the homeowner is financing out of an exotic mortgage with an existing insane teaser into a fixed rate mortgage.
Dry, many years ago worked in commercial insurance operations for major PC carrier. They merged with another carrier and took on that carrier's smaller PC line.
Laid off scads of people and the rest got so pissed that they walked. In course of typical corporate "co-locations" (old MCI term for office closing/retrenching), all of the actual old policies got moved and no one knew where they were. Field underwriting offices had the newer, still-in-effect policies, but old ones? Nah, in archive. But where in the hell was the archive?
Actually had to run down leads figuring out where the archives were. No luck. Solved my own immediate problem by at least finding the archived reinsurance claims before they were set for destruction. Don't know if they ever found the old policies.
This stuff is all paper driven. Move the paper around enough and it'll get lost. Sorry, but I lived that one.
I just occurred to me that a mod resulting in a higher payment may have been the moderation of an impending reset that would have resulted in even bigger payments.
Why aren't our Congressional leaders passing laws that make the foreclosure process less damaging to the housing stock? An individual judge in FL or AZ can't overcome the systemic problem of a too slow passing of custody of a home to the new owner in the existing foreclosure process. The existing process was designed for sporadic foreclosures, not the broad foreclosures we need to execute now.
nice post on the old inflation/deflation debate
naked capitalism
and one more song
YouTube - Don McLean - American Pie better quality
This stuff is all paper driven. Move the paper around enough and it'll get lost. Sorry, but I lived that one.
RE transactions are recorded by gov't - courthouses & stuff. Not like private company contracts w/ mere consumers. That stuff only gets lost after Katrina sized F/Us...
BTW my sis had property in New Orleans that was being contested in court [estate hassles]... they even recovered THOSE docs eventually.
If only houses made campaign contributions.
patientrenter:
I just want to see them actually do something that will help the truly-in-trouble homeowner. Screw the housing stock.
no offense, but that kinda appears to be the neutron bomb approach. The really effective legislation saves the housing, but the homeowner is toast.
And, depending on what happened with the loan, I'm sure some trustee - overwhelmed as it may be - has the docs.
property law has historically been within the purview of the states, primarily because the actual characteristics of the land often define the playbook. after all, before the advent of modern communications, it wouldn't make sense for Kansas to have the same foreclosure guidelines as say NYC. today, the bigger hindrance is that foreclosure, in many states, is a judicial process, and therefore federal guidelines could be seen as unconstitutional meddling.
of course, the feds usually get around that by using the Spending Clause. e.g. federal blood-alcohol standards.
How's studying for the bar exam going?
Dry, I'd normally concur.
But with a lot of the mortgages being sold, and then sold again, I think that there's a good chance that the ops side of the house isn't set for handling all of the actual public sector paperwork. My own mortgage got sold last year and they effed up the tax stuff. It turned into a cluster when the county was found to have their own information wrong as well. That took months to fix and it would've taken longer if I hadn't driven the process.
Coming from an operations background, there are too many instances of brainiacs in the front room making commitments/promises that have to be actually made workable by the backroom guys.
Jesus, I grew to hate insurance underwriters and insurance producers. Their motto was "promise 'em anything, but give 'em a Pez."
homedad, if we walk away from all this with 100 million intact homes, that beats ending it with 98 million intact homes. Each home will have owners and occupants. There will be more happy people with the 100 million home outcome than with the 98 million home outcome. Our problem was putting the wrong people in many homes. The existing process resists making those changes, and will end up hurting us more in the aggregate as a result.
Soldiers fight to save every one of their buddies. Generals must be able to sacrifice some soldiers in one field to save more in another. We need generals running this crisis.
Allen, Arizona does not follow the California rule on refinancing. A refinanced purchase money mortgage on single family residential property in Arizona is still non-recourse. The second is probably recourse.
Liz, Arizona has plenty of problems, but I don't think it's quite as bad as Florida, at least not in town. Out on the fringes will be like Mad Max, but in town we're still OK. I bought in 2003 and I'm still not quite underwater.
Renters should be worried that evicted or defaulted and moved mortgage homedebtors may be/are pumping up or maintaining rental prices articficially (higher demand, less qualification) - thus distorting the rental to purchase ratio. It is clear that rentals haven't fallen, even though vast tracts of houses are empty.
I occasionally wonder if mortgage contracts shouldn't convert to rental contracts automatically (in the present emergency) after some number of missed payments (3-6), keeping people in the houses at current rental rates. But this makes sense only if rents are kept in ratio to income, and there's danger they won't if artificial demand from former mortage homedebtors grows large.
Thanks, Basel II. I agree that Congress could find a way, if they had the will.
bond g:
now that i'm back in the states, the studying's definitely picked up. pretty much poring over the books (with the computer in the background) about 16 hours/day. helps being at the parents' house and not having to worry about all the little details of life (e.g. laundry, food, etc).
but i definitely enjoy the macro stuff a hell of a lot more than whether State X is a lien or title state. Law sure is boring....
But with a lot of the mortgages being sold, and then sold again, I think that there's a good chance that the ops side of the house isn't set for handling all of the actual public sector paperwork. My own mortgage got sold last year and they effed up the tax stuff. It turned into a cluster when the county was found to have their own information wrong as well. That took months to fix and it would've taken longer if I hadn't driven the process.
Coming from an operations background, there are too many instances of brainiacs in the front room making commitments/promises that have to be actually made workable by the backroom guys.
Jesus, I grew to hate insurance underwriters and insurance producers. Their motto was "promise 'em anything, but give 'em a Pez."
I agree with most back office processes but NOT county court house real estate - the damned processes are positively 19th century and very robust. I did some gopher work to help my sis clear our late-father's estate... what an eye opener. EVERYTHING gets recorded. Microfiche was 'cutting high tech'. Getting answers fast? Impossible... Eventually though? Almost assuredly.
Very very few papers get lost 'permanently'... and if one was - it might be even worse for the likes of Allen - might make it equally difficult for HIM to prove title should he ever want to 'cash out'. He can't prove they own it but they could possibly stop him from proving he owns it free and clear too.
Meanwhile that war never seems to end...
Soldiers fight to save every one of their buddies. Generals must be able to sacrifice some soldiers in one field to save more in another. We need generals running this crisis.
Armies don't let soldiers elect the generals.
Agree about the Generals, patientrenter.
But the problem is that we have 100M homes but only the need for 98M. And with people downscaling - moving in together, moving home - and the HB still churnin' 'em out, then it simply perpetuates the oversupply. And increasingly scarce resources are spent keeping up these monuments to a stillborn dream.
I'm sure it will go very well for you.
In some places, you are assuredly right, Dry.
But there are plenty of locations in which I have to respectfully disagree.
Ah well...
Armies don't let soldiers elect the generals.
I believe some Roman Legions did (informally).
The grunts can't select, but they can reject thru scorn and disgust the current guy. Gen. Patton comes to mind, after the 'slapping' incident that led to Patton's subordinate (Omar Brady) becoming his boss.
homedad43,
It's as much about where the houses are as how many. They can continue bulldozing Flint, MI and it won't help because nobody wants to live there -- no jobs.
Hey Basel, can I move in with you?
I could use a break from laundry. That pile of socks needing matched and folded violates the Physics law that matter can neither be created nor destroyed.
Damn near like when you're chewing Brussels Sprouts.
Jim,
Bradley. General Omar Nelson Bradley.
Sorry if I'm a bit pissy tonight.
MI and WI are candidates for returning to dense forests. The bears wil love it, and they do crap in the woods.
Thanks TJ on the last name correction: too ****ing hot in Portland to think str8.
I believe some Roman Legions did (informally).
As did pirates - those were days when plunder was the number one 'job benefit' of soldiering.
There is always 'consent' of the ruled - even in armies or they mutiny & desert in droves - but by in large the officers are NOT chosen by the men. We on the other hand have elected our 'mortgage generals' - for better or worse. Two situations are very different.
Dryfly, title documents are recorded, but not necessarily loan documents. In states where most loans are made on deeds of trust rather than mortgages, the note is often not recorded. Subsequent assignments even less so. If I recall, Tanta's main point was that if the original note was missing, eventually the Court would hold a hearing to determine what the note said, and would usually enforce based on a copy or whatever evidence exists. It is only the accelerated processes that can be stopped by lack of an original note.
So Harvard Law isn't West Point? lol
Homedad, there is plenty of demand for the higher number of homes (100 million in our hypothetical example). The problem for some people is that the prices at which the larger amount of housing stock gets fully allocated without any funny money is lower than they'd like. That's not the same as saying that there are too many houses. I'd like a house, but I can't responsibly afford it at today's prices. I am competing against people who earn and save much less than I do, and yet are prepared to sign up for huge prices, because they can use other people's money. If prices were lower, I'd buy the house, and I could actually afford to really pay for it. That transfer of ownership to people who can actually afford the houses cannot occur as long as prices are elevated by funny money.
But there is plenty of demand.
If you even see it through to that point. LL made an interesting observation about how many foreclosures judges are dealing with now, whether you would even get much consideration in demanding documentation in the first place.
We on the other hand have elected our 'mortgage generals'
...and the only party from which candidates can be nominated is called "Goldman Sachs".
If I recall, Tanta's main point was that if the original note was missing, eventually the Court would hold a hearing to determine what the note said, and would usually enforce based on a copy or whatever evidence exists. It is only the accelerated processes that can be stopped by lack of an original note.
Exactly.
And because the courthouses archive all kinds of crap they can almost always piece most of this together - given time & effort. The brilliance of AllenM's wife asking for proof wasn't that she could stop it [she couldn't]... it was a shot across the bow to the bank & servicer that any FC & eviction could be slow and very expensive... "So once you find the notes can we set up a meeting to discuss a possible modification?" says a lot more than just 'find the note'...
OK, closing the windows (10:00 PM) since the fireworks barges in the river are only a block away. First year I lived here, I thought Stalin's generals were shelling Berlin. (Pictures shake on the wall).
...and the only party from which candidates can be nominated is called "Goldman Sachs".
LOL!!! Too true. With that I'm crashing...
Goldman Sucks.
Goldman Sacks the Economy
Goldman Sacks the Economy
Quoted for Ruth
Phaedrus,
If you are still out there, thanks for answering all my questions about appraisals. (I just saw them on the last thread...)
patientrenter, I do understand the point that you make and yours of 1253 was in a form that I hadn't considered.
My beef with the whole mess is this. We clearly live in a period of demands far outstripping resources to meet them. I understand that HB have to build to turn the cashless land bank into something that supports minimal life support for them. But I continue to see larger homes being built.
I object to spending additional resources to maintain these turkeys when there are other more pressing needs. It's sunk money. Gone. Move on.
My spouse certified someone as hospice eligible because he's too young for Medicare and has no health insurance, nor money for medications necessary to fight his cancer. That's what's driving my irritation at the moment. No money to help some poor out-of-work schmuck but we're going to spend the money to protect the housing stock. And with CA rolling back the medical benefits to lower income, this kind of situation will only grow.
Usually, I enjoy your posts and see your point, but gotta respectfully disagree.
G'night folks.
Hope no offense taken, patientrenter.
I too just say Phaedrus's last comments in the prior thread. Adding $400 per $250K transaction to insulate appraisers better from upward price pressure from mortgage brokers is not a problem in the larger economic picture. It sounds like it's taking business away from mtg brokers, so maybe that needs to be looked at. But mtg brokers as a group wrote much worse loans than direct lenders, so reducing the volume going through mtg brokers isn't bad in the big picture either.
If we go back to mostly vanilla loans, then the need for mtg brokers should decrease.
Phaedrus, you say you personally didn't tell your appraisers to increase their numbers. But you're not the only mtg broker, and even the ones who didn't say anything controlled the aggregate outcome. If an appraiser knows the mtg broker decides where the case gets appraised, then that appraiser won't follow any instinct that says homes are becoming overvalued. It's indirect, but very effective pressure.
No offense taken, homedad. G'night and good luck matching socks!
Good night, everyone.
Bond Girl, Since lenders are drawing from a pool of lenders, An appraiser I know has lost 50% of his buisness. I've known these people for years and they are hardworking and honest. They worked hard to become the preferred appraiser of several lenders that now have to use a rotation of possibly less experienced and dilligent appraisers. Yes, they may be dolphins caught in a tuna net, but I hate to see them lose what they have worked so for.
No money to help some poor out-of-work schmuck but we're going to spend the money to protect the housing stock.
They aren't protecting the housing stock - they are protecting the banks. Never forget that for a minute... Right now everything that is done for 'housing' is done to protect the banks and NOT the home 'owners'.
I thought it was interesting how the quality of the appraisals was affected. OK, I really am going to sleep...
dryfly,
Nice of you to stick around and reinforce that point, which cannot be emphasized enough. It's all about the banks -- they don't give a damn about housing and homeowners.
My suggestion for rapid foreclosures to minimize aggregate damage to the housing stock doesn't take any money from our (too high) spending on health care, homedad. In fact, it would really hurt the investors who carelessly loaned the money to people who couldn't afford the houses at the prices they were sold at. I don't see it resulting in a bigger real hit to taxpayers, although the hit would happen more quickly and transparently.
Nice of you to stick around and reinforce that point, which cannot be emphasized enough. It's all about the banks -- they don't give a damn about housing and homeowners.
I was shutting down & doing some backups... saw that and just had to pipe up. It drives me crazy but that is what it is about. Until banking is brought back into perspective [as part of a healthy economy not THE economy] we will continue to suffer. Your Goldman Sachs dig up thread was right on. Nytol.
Hey if the Fed really wanted to hasten inflation, why couldn't they just drop say $40,000 into everyone's paypal account?
That's about $10^13
The 64.7 % loss severity number is probably wrong.
.
"In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance."
but
"Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts."
.
So there are roughly 250K foreclosures/month in the data set, of which only 32K are "liquidation sales."
Most likely the "liquidation sales" are those sold at cash auction on the county steps, pre-REO.
It really says nothing about what the REOs eventually go for.
Apples & oranges.
No need to decide whether it's the homes or the banks being bailed out; the banks OWN the homes.
No need to decide whether it's the homes or the banks being bailed out; the banks OWN the homes.
Yeah but "homes" sounds like some family's home, not a building that can be evaluated strictly in economic terms.
My suggestion for rapid foreclosures to minimize aggregate damage to the housing stock
I suggested accelerating foreclosures to minimize damage to the economy in 2007. It occurred to me as a joke, but after I thought it, it made sense to quit pouring someone's paycheck into a declining asset. The banks would take a faster hit, but if you're going to give them money anyway, why take down the rest of the economy, too?
Ooooops, now I realize we're also pumping money into the economy via 'free' rent to those who are still living on the property but not making payments. I guess we should encourage that aspect, too. Hmmmm, I guess we are encouraging it.
sdtfs -
Yeah but "homes" sounds like some family's home, not a building that can be evaluated strictly in economic terms.
Give it time, the banks will have their pound of flesh from the borrower or from the taxpayer.
"Give it time, the banks will have their pound of flesh from the borrower and from the taxpayer."
There. Fixed it for you.
They will not fix the housing price problem, simply because they cannot. The banks, as dryfly and others stated, are the ones that must be protected, given the course of action we've already taken. The only people who could modify things fast enough to get to a new equilibrium in many markets are the banks, but they wont make fixes detrimental to their own health. They will drag this out as long as they can suck as much blood as possible from as many borrowers as possible. It's already far past the point of realistic mods. Even if you took all you could from the borrower, adding up all the mods would crush the banks, and we'd be back at square one of the financial crisis, trying to find a bigger rug to sweep the bad numbers under. This absolutely positively cannot happen. Which is why we are doomed to a long slow deflation and a long painful credit crunch.
I may have posted this before, but a retired banker in my building (.. did CRE loans) says that bank can't lower the amount of a mortgage without taking the loss out of the bank's capital. If they did this multiple times, the bank would eventually run out of capital and go BK. So not modifying the loan amount is "cut off your nose to spite your face" proposition or maybe it's just a play for more time. Postpone modifying home loans now and increase the probability of the bank going BK in the future, unless inflation or the government bails out the bank . As DRY points out, this is about the bank. I might add that it's also about saving the banker's job...
homedad43 - LMAO! I had my Sock Entropy moment earlier in the evening...
Just checking the stats for my zip. Lot of big-ass places being sold. Very strange. Because we're special.
C
And for your July 5 spirituum, breaking news: Vatican Runs Deficit...
Vatican Runs Deficit Amid Global Economic Crisis
Guess those power reverse duals on the denarius didn't work out so well.
C
hello boyz, and grils wat'd we learn overnight?
"And for your July 5 spirituum, breaking news: Vatican Runs Deficit..."
We contribute to Peter's Pence, but our little check is not going to make up for a million euros. I see that most people where we attend Mass throw a buck or two in the collection basket, maybe not even enough to fix the leak in the roof.
volker - that excessive liquidity has subsequent downsides...!?
C
pavel: I would think you guys could miracle it done.
Delusional..
Service Industries Probably Contracted: U.S. Economy Preview
France Says Changing World Requires More Currency Coordination - Bloomberg.com
By Bob Willis
July 5 (Bloomberg) -- Service industries in the U.S. probably shrank in June at a slower pace, signaling the worst recession in a half century is easing.
The Institute for Supply Management’s index of non- manufacturing businesses, which account for almost 90 percent of the economy, rose to 46, according to the median estimate of 37 economists surveyed by Bloomberg News. Readings less than 50 signal contraction. Higher oil prices widened the trade deficit and boosted the cost of imported goods, other reports may show.
Denial..
Trichet Says Deflation Risk Has Yet to Materialize in Europe
Trichet Says Deflation Risk Has Yet to Materialize in Europe - Bloomberg.com
By Mark Deen and Fabio Benedetti-Valentini
July 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the risk of deflation has yet to materialize in Europe. Speaking at a conference in Aix en Provence, France, Trichet said the financial crisis had “validated” the Frankfurt-based central bank’s focus on the medium-term and managing inflation expectations. “There has been an enormous change in view,” he said.
C: so, all the good news is that the bad news is nicht so schlecht...
Well, excessive liquidity won't patch a roof either.
C: you have a way with the euphemism
So it was not irresponsible minorities.. hoocoodanode
New Evidence on the Foreclosure Crisis: Zero money down, not subprime loans, led to the mortgage meltdown.
New Evidence on the Foreclosure Crisis - WSJ.com
By STAN LIEBOWITZ
JULY 3, 2009
What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house -- that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.
.....The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures........
Frank Rich says that compared to American banksters, Madoff is penny ante..
OP-ED COLUMNIST; Bernie Madoff Is No John Dillinger - NY Times
just read this in the Times:
"Sarah Palin may be looking to the next few years to do what Nixon did to prepare for his successful run for the White House in 1968"
I believe I said this very thing in one of my posts yesterday... after reading Palin get beat down in the comments I said I was neither for her or
against her but disagreed with many who said she was finished. IMO, that was a mis-reading of political history, I then noted how Nixon in '62
was finished...
I also lambasted Gore's county chairmen in the 2000 election, there was no excuse for all the mistakes they
made in the run-up to election day...
I don't think the loan amount and the selling price is all that goes into calculating loss severities. There is lost interest (i.e. matched deposit costs), legal fees, maintenance fees, sales commissions etc. So in other words, the loss severity is worse than this.
PIMCO guy...
American jobs data are worse than we think
FT.com / Comment / Opinion - American jobs data are worse than we think
By Mohamed El-Erian
Published: July 2 2009 16:16 | Last updated: July 2 2009 16:16
What if the US unemployment rate rises above 10 per cent and stays there for an extended period? This is a question that is not being asked enough, even though it entails yet another historical anomaly that will further complicate policy formulation and open it up to greater political interference. The unemployment rate is traditionally characterised as a lagging indicator and, as such, is viewed as having limited predictive power. After all, unemployment is a reflection of decisions taken earlier in the cycle so the rate always lags behind the realities on the ground – or so says conventional wisdom.
Diversion... French noise on currencies:
France Says Changing World Requires More Currency Coordination - Bloomberg.com
C
How does that address the real problems.
Schwarzenegger Signals Key Budget Concession
Schwarzenegger Signals Key Budget Concession - Economy * US * News * Story - CNBC.com
By: Reuters | 04 Jul 2009 | 04:05 PM ET Text Size
Governor Arnold Schwarzenegger, optimistic California can finish its budget negotiations in a few days, is willing to reconsider his proposed cuts to education in hopes of averting a cash crisis, the San Francisco Chronicle said Saturday. A compromise between the Republican governor and Democratic lawmakers may help clear the way for an agreement on an overdue state budget and avert a cash crisis for the government of the most populous U.S. state. California already is issuing billions of dollars in "IOUs" and, without a deal, is on track to run out of cash this month.
I miss Tanta's snark.
"American jobs data are worse than we think
FT.com / Comment / Opinion - American jobs data are worse than we think...
By Mohamed El-Erian"
Pimpco guy is always long bonds, he may be talking up his position.
The Banks are not afraid of the mortgage borrower because they know that the mortgage borrower has no rights.
The Congress is afraid of the banks because it has not passed and legislation to curtail the aberrant lending behavior of the banks.
The Regulators are a government facade which gives the illusion that that the United States of America is protecting the very citizens that use the services and products of the federal banks.
I am fortunate to be from the State of Ohio with three do nothing, say nothing elected officials that have sat by and watched the banks financially rape homeowners. Senator Sherrod Brown, Senator George Voinovich, Representative Steve LaTourette. Brown and LaTourette are attorneys. They know how to say something that means nothing.
In fact Voinovich and LaTourette as reported by the Wall Street Journal on April 24,2009 told the regulators "hands off " the AmTrust Bank" based in Cleveland Ohio. This is a federally chartered thrift bank that has been issued a Cease and Desist Order by the Office of Thrift Supervision for unsafe and unsound banking practices concerning the banks financial ratios in November 2008. This regulator on the other hand has failed to investigate this same bank for violaltions of Ohio and Federal laws, rules and regulations. This same bank settled a 22 year old class action lawsuit
in September 2007 for 14 million dollar cash payment for the manipulation of the calculation of mortgage interest that involved 27,000 borrowers. This is also a violation of The Truth in Lending Act. The Office of Thrift Supervision never cited the Am Trust bank.
There have been millions and millions of foreclosures. There are many millions that are forecast in the near future.
Nothing will change until the borrower has the right to answer the bank in a foreclosure procedure with in the same regulatory system that the banks lends its money.
These government programs to “help “ the borrower are nothing more than a financial pass through from the government to the bank from the mortgage borrowers. These government programs want to keep the borrower in the home to keep the payments up to protect the cash flow of banks, insurance companies and local municipalities.
If the bank does a modification it is out of their desire to make more money. The borrower normally owes more on the house than it is worth. Most of the banks refuse to do modification unless they are rewarded financially by the government programs.
The borrower has one protector-Chapter 7 Bankruptcy.
Other wise the financial torture will go on for years unless the banks tires of the game and forecloses. The bank by the way do not loose money in a foreclosure. The insurance, write offs, tax laws and accounting lies offset any losses they pretend to have otherwise the amount of foreclosures would not be in the millions.
Congress is the problem. We need to change the way we elect people and the length of their terms in office. It is that simple. These people have made a career of financially extorting money through power and control.
The financial taste of Congress is dangerous to the homeowners well being.