July 26, 2013

Bubbles Aren’t Punctured By External Factors

It’s Friday desk clearing time for this blogger. “The U.S. Treasury Department needs to do more to learn why more than a quarter of the borrowers in a federal mortgage workout program have re-defaulted, costing taxpayers at least $815 million, according to an audit. The report underscores a disagreement between the auditor and Treasury over the performance of HAMP, which has used TARP funds to pay lenders incentives to modify loans for nearly 1.2 million delinquent borrowers since February of 2009. More than 300,000 of those homeowners had re-defaulted by the end of April this year. SIGTARP also said it found an ‘alarming’ number of HAMP re-defaults in an April audit.”

“The audit found that struggling borrowers who entered the program in 2009 and 2010, who make up more than half of all HAMP participants, had re-default rates of 46 percent and 38 percent, respectively. ‘It is important to keep in mind that HAMP targets borrowers in demonstratively difficult financial situations,’ Treasury Assistant Secretary Timothy Massad wrote. ‘While the program is designed to reduce the default probability of these loans as much as possible, these loans present a higher-than-usual risk of default to begin with.’”

“A group of around 50 people gathered outside the San Francisco home of Wells Fargo CEO John Stumpf Saturday calling for changes in the way the bank handles foreclosures. Wells Fargo spokesman Ruben Pulido said that, on average, customers who had completed a foreclosure over the past six months were 25 months past due on their payments. Manuela Alvarez said she is to stay in her home following foreclosure proceedings, and would be back in court on Monday to fight an eviction order. ‘I’ve been holding out for almost four years, but its getting harder and harder,’ Alvarez said.”

“A woman who’s losing her home to foreclosure, picketed outside the office of her Boca Raton lawyer on Monday. Gail Zamore held signs at the office of C. William Berger. Zamore says she paid Berger thousands, but only found out about the foreclosure auction sale of her Tequesta home two days after it happened. ‘I did not get the help of $25,000 that I gave this lawyer,’ said Zamore. ‘I received nothing– except my home is gone.’”

“Berger called us later, and defended his work on Zamore’s case. He said he’s kept her in her home for more than 3 years.”

“Retired postal clerk Jaymie Kelly of Minneapolis, Minnesota, is holding onto her home by a thread, despite having paid five times its value in ballooning monthly payments. ‘We bought this house for $74,900 in 1983, and I’ve paid $425,000 for it so far,’ Kelly said. ‘I wouldn’t have gone into foreclosure if these house payments weren’t so high. I’m in one of the poorest neighborhoods in Minneapolis. It started with a predatory lender after my husband died. I had insurance money and thought I was paying off my house, but instead I was signing off on a loan at 5.5 percent interest. It went up 13.5 percent, and it had a prepayment penalty. I had to buy my way out of the deal. I was so ignorant. This was someone who I met in church who basically took advantage of the situation. I was trying to get out of that and refinanced several times.’”

“Since the bankruptcy was announced on July 18, talk of snapping up Detroit housing for a pittance has picked up on Sina Weibo, reports Sina Finance. Caroline Chen, a real estate broker in Troy, Michigan, says she’s received ‘tons of calls’ from people in mainland China. ‘I have people calling and saying, ‘I’m serious—I wanna buy 100, 200 properties,’ she tells Quartz, noting that one of her colleagues recently sold 30 properties to a Chinese buyer. ‘They say ‘We don’t need to see them. Just pick the good ones.’”

“Chen says that Chinese investors sometimes pick up and fly to Detroit without notice and call her to say, ‘Hey, I’m at the airport.’ Because Chen is unwilling to risk her safety for a $3 commission on a home sale, she recommends that they hire a taxi to drive them through downtown Detroit. So far, most haven’t called her back. ‘Once they see the scary area, they give up,’ she says.”

“The housing market in Halifax and Dartmouth has taken a dip over last year, and realtors say many houses are staying on the market longer before selling. Some homeowners told CBC News they have been waiting as long as 14 months, without so much as an offer. Realtors can’t say exactly why buyers aren’t biting, but some like Margot Aldrich say, sellers need to be realistic about their expectations. ‘In the last two years, you could get really cheeky with your asking price. You can’t do that anymore, you have to list very realistically,’ she said.”

“An easing in mining activity, political uncertainty and the state of the local housing sector may have all combined to kill off a well-known Canberra business. Unless a ‘white knight’ investor emerges, Fisher Discount Workshop Machinery in Fyshwick will close at the end of the month. ‘Everywhere you go - interstate as well - builders are not building houses,’ said Rob Chambers, who bought the business in April. ‘Builders I know in Canberra have got houses they built 12 months ago that still haven’t sold. They’re hardly in a position to go out building more. We need to sell nails by the pallet load in Canberra, now you’d never sell a pallet of nails.’”

“PT Sinar Mas Land corporate strategic director Ishak Chandra said prices of residential units at their projects had risen by between 40 and 70 percent since the start of the year. Sinar Mas Land subsidiary oversees the Bumi Serpong Damai City township in Serpong, Banten, which borders Jakarta. ‘At the start of last year, the price was roughly Rp 4 million (US$397) per square meter, but prices are around Rp 8 million per square meter this year,’ Ishak said in a recent interview.”

“He said that the rising prices did not amount to a bubble forming because property investors here were not desperate to score sales. ‘A bubble partly happens when investors are forced to sell or rent their units at low prices. As a result, they default on their mortgage payments, triggering an increase in non-performing loans at banks,’ he said.”

“More than 400 people who had booked or bought flats in Teen Kanya - a much hyped Bengal Shelter housing project in New Town - are in shock after SBI announced that it was taking possession to recover dues in excess of Rs 176 crore. Rajesh Ghosh has already paid Rs 45 lakh for his flat. ‘Only the last tranche is left. We were supposed to get the flat in mid-2010 but three years on, there has been little progress. If work starts now, it will still take 16-18 months to complete. But Bengal Shelter officials cannot say if they can find the money to complete the project,’ said Ghosh.”

“The Town Hall is calling for new powers to stop overseas investors buying up flats in Islington and leaving them empty – driving up property prices and depriving residents of accommodation. Housing chief Councillor James Murray made the call after research revealed that two-thirds of the 127 flats in the curved Bezier luxury development in City Road, built in 2010, are empty. Many have been bought by investors in Hong Kong, Singapore and Malaysia, he added.”

“Labour councillor Claudia Webbe added that the Bezier, in her Bunhill ward, was not a one-off. ‘There are a lot of developments in Central Street which they call the Clerkenwell Quarter,’ she said. ‘This includes the Orchards development, which they sold in one evening and the cheapest one-bedroom flat started at £550,000. We are insisting that all new developments have 50 per cent affordable flats. But there is a row over the definition of affordable. One so-called affordable flat in my ward was valued at £700,000.’”

“Professor Robert Shiller made his prognosis for Norway after taking stock of a 35-percent price rise across the country’s residential housing market in the last five years. ‘This really does look like a bubble,’ he told business newspaper Dagens Næringsliv. The professor, who is in Oslo, said it was difficult to be sure whether a collapse was imminent. ‘But it does look like it’s pretty close to the end,’ he said.”

“The professor added that bubbles weren’t usually punctured by external factors. It wasn’t the financial crisis that caused the US housing market to crash, he said. In fact, it was the other way around. ‘It was the drop in real estate prices from 2006 that eventually triggered the financial crisis,’ said Shiller.”

“If Norway wants to dampen its bubble tendencies, he said, the country should seek political solutions that might include freeing up new areas for property construction. ‘For centuries, towns have been spreading out ever further. I can’t imagine that would be a problem in Norway. If there’s one thing you have enough of, it’s land,’ said Shiller.”

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