April 3, 2012

Example’s Of How The Process Is Broken

A report from the NLPC. “The Washington Post’s March 4 print edition features a lengthy cover story on a suburban Maryland couple, Keith and Janet Ritter. The Ritters in 2006 bought their home for nearly $1.3 million with almost no money down and, in the ensuing years, haven’t made a single mortgage payment, having adroitly used state law to avoid foreclosure and eviction. Yet even now, they’re mounting a last-ditch effort to get their property back. ‘We don’t believe in living for free,’ says Mr. Ritter, without irony. They’re an extreme example of what’s become a common syndrome across the U.S.”

“Maryland until recently had a fast-track system. But beginning in 2008, urged on by Democratic Governor Martin O’Malley, the legislature enacted laws designed to throw as many roadblocks as possible into the foreclosure process. The intent is to give homeowners temporary respite from creditors and protect them from mortgage rescue scam artists. But it may have had the unintended effect of encouraging distressed borrowers to make their stay permanent and free of charge. Keith and Janet Ritter surely qualify for this category.”

“Thomas Lawler, a former senior VP at Fannie Mae, knows something has gone awry. ‘How is it people can stay in a house for five years without ever making a mortgage payment?,’ he asks. ‘That’s a screwed-up process. It’s an example of how the process is broken.’”

From CNN. “During the housing bust, the frequent moves have come at an even higher cost for some military families. When Scott Haselden, an operations officer for the Air Force, received a permanent change of station in 2007 to Moody Air Force Base in Georgia from Andrews Air Force Base in Maryland, he and his wife, Laura, were unable to sell the home they had bought for $314,900 in 2005.”

“In a bind, the Haseldens rented the property out instead, but the rental income was not enough to cover the payments on their adjustable-rate mortgage. ‘We were paying $700 a month out of pocket to cover the difference,’ Haselden said.”

“The couple finally sold their home, with the help of the Department of Defense’s Homeowners Assistance Program, or HAP, for $220,000 last year. HAP covered the $90,000 difference between the mortgage and the purchase price but in the years before it sold, the Haseldens lost more than $30,000 on monthly carrying costs.”

The Tennessean. “Mortgage loans of $1 million and above in the Nashville area were delinquent 278 days longer than loans under $250,000 at the end of January, according to LPS Applied Analytics, which tracks the industry. Many lenders are taking a much longer time to chase well-off borrowers who owe more on their mortgages than their homes are worth, say real estate analysts, because those homes are hard to sell and costly to maintain.”

“‘Banks don’t want to take the hit now,’ said Mike Ayotte, who heads Morganton Federal bank in North Carolina. ‘Where do you think they’ll find a buyer in this economy? If they can postpone it for a little while, maybe it will make it easier to digest.’”

“Consider a two-story brick home with a four-car garage on 5.5 acres of land in Brentwood. It sold for $2.2 million in 2005. Now, the property is worth around $1.6 million, according to a recent assessment. The owner is a financial services industry professional who now lives in Michigan and has two other homes there. She lost all the equity invested in the Brentwood home and hasn’t made a mortgage payment in about seven months. The house remains on the market as a short sell. So far, though, the highest offer has been just shy of $1 million, and no deal has been struck with a new buyer, the owner and a Realtor marketing the home said in late March.”

“Investors who snap up affordable properties in distress are less interested in multimillion dollar homes, according to Trey Ellis, distressed property broker with Nashville-based ReMax, who recently sold a Franklin home whose borrower had not made a payment since February 2008. Banking executive Ayotte agreed. ‘Nobody wants a nonperforming asset,’ he said. ‘Banks are playing that game of kicking the can down the road,’ added foreclosure expert and short-sale specialist Jim McCormack. ‘They’re extending and pretending.’”

The Washington Post. “Home prices continue to fall, a key index showed Tuesday. Sales of new and existing homes recently declined. U.S. borrowers owe a collective $700 billion more on their mortgages than their homes are worth. Foreclosures are ramping up again in many places — more than 25,000 Maryland homeowners have received notices this year. Given those and other dismal statistics, it might seem surprising that experts such as Moody’s Analytics chief economist Mark Zandi are increasingly optimistic.”

“‘I feel as confident as I have since the crash began that it’s now coming to an end,’ Zandi said. ‘With a little luck, I think we’re going to be feeling better about housing six months from now and certainly a year from now. . . . All the fundamentals for housing are much, much better today than at any time since the crash.’”

“Ted Gayer, co-director of economics studies for the Brookings Institution, noted that the housing market has experienced occasional spurts in recent years, leading some experts to predict prematurely that it was on the mend. But he said those short-lived periods happened largely because of artificial factors such as the federal government’s first-time home-buyer tax credit, which expired two years ago. Not so today. ‘There’s not substantial government intervention in the way there was before,’ he said. ‘It’s more driven by the market.’”

“The Washington area is faring better than many other metropolitan areas in the country, with its relatively stable economic growth and modest job growth forecast this year. Real estate professionals say they expect to see a slight improvement in the number of houses sold this year and one to three percent growth in price appreciation — the first annual appreciation the region has seen in years. But several challenges make this market far different than it used to be. For one, it’s much smaller.”

“‘Since the peak of the market — and this is a frightening statistic — since 2005 to now, the dollar volume of sales in those close-in, most accessible areas went down 46 percent,’ said Donna Evers, president of Evers & Co. ‘If you had a pie, the pie was almost diminished in half.’”

“Another firm, McEnearney Associates, which does a large portion of its business in Northern Virginia but also has clients in the District and Maryland, says the total number of houses for sale right now is roughly half what it was a year ago. David Howell, executive VP at McEnearney, said some of the higher median prices in Northern Virginia reflect the lack of inventory, particularly for houses priced at less than $300,000.”

“‘The slowness of this recovery is indicative of the hole that got dug up when the bubble burst,’ he said. ‘The reality is there are folks who took a beating here. They can’t sell because they’re upside down and it will take some time to get right side up.’”

The Capital. “Because Annapolis has so much going for it, living here can be expensive. Homes are priced at a premium and property taxes are some of the highest in the state. Right now, there are 245 properties on the market in Annapolis, and the average asking price is just over $603,000.”

“But, the diverse nature of Annapolis results in a very wide price range. The least expensive property currently available will run you $85,000. It’s on Clay Street, just a stone’s throw from the State Capital complex. On the other end of the spectrum, the most expensive house on the market isn’t far away in the neighborhood of Wardour. The list price on that one is $4,400,000. Annual property taxes for the Clay street house are $1,730. For the Wardour property, taxes alone will run you over $40,000 a year.”

“Despite being a sought after area, Annapolis wasn’t immune to the downturn in housing. Back in 2007, the average price of an Annapolis house was $528,503. But, like other popular places to live, home prices in Annapolis were slower to fall as the bubble burst, and so far, it looks like prices for an in-town house might be quicker to recover.”

“The supply of homes isn’t growing, so the pressure of high demand keeps prices high. Last year, the average sales price in Annapolis was $431,933, but the average price in Wardour, Murray Hill and Eastport was twice that at $866,200.”

The Times Dispatch. “Booms become busts because justifiable confidence becomes foolish optimism. Believing the world less risky, people took more risks. Investment banks and households increased their debt. Lending standards eroded, regulators relaxed oversight, ethical standards frayed; criminality increased. The rest, as they say, is history.”

“The latest issue of the academic Journal of Economic Literature has two review articles; one summarizes 21 books on the crisis by economists and journalists, and the other analyzes 16 scholarly papers and studies. None — so far as I can tell — suggests this long boom-bust crisis explanation. The only ‘boom’ that matters is the housing boom. There is no sense of history: a recognition that today’s events may ultimately result from events years or decades ago.”

“Among the public, the press and politicians, the disdain for historical explanations is no mystery. The crash was a crime against society; the public wants culprits. The press pursues wrongdoing. It’s a good story. President Obama blames his predecessor’s policies. It’s good politics. A narrative rooted in mass and bipartisan delusion does not serve these purposes. Everyone wants blood.”

“Economists presumably crave truth, but their blind spot is their self-identity. Modern economists portray their discipline as a ’science’ that can better manage the economy for growth and stability. In particular, this repudiates the fatalism of the 1920s that, as Sylvia Nasar describes in her book ‘Grand Pursuit: The Story of Economic Genius,’ saw business cycles as unavoidable and, in part, desirable: ‘Judging by newspaper headlines of the early 1930s, popular wisdom viewed economics through a biblical lens: recessions were the wages of sin. When good times lasted too long, businesses and individuals threw caution to the wind and behaved badly. Recessions … occurred when private businesses and households unwound past excesses, wrote off bad investments, and behaved with restraint once again. … [Recessions] were regrettable but necessary correctives, like a detox program for a drunk.’”

“The problem for economists is that the crisis has, to some extent, reaffirmed this dour and previously discredited view. Prolonged prosperity from 1983 to 2007 bred bad habits and overconfidence. This does not mean that we know nothing or that we have no tools to combat savage recessions. But it does mean that one promise of modern economics — to extend economic expansions and shorten slumps — can create the conditions for its own failure. Although the conclusion is obvious, economists ignore it. The most likely reason is that it undermines their self-appointed role as agents of social progress.”

Bits Bucket for April 3, 2012

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