Does Anybody Have An Idea?
Readers suggested a topic on what to do with the foreclosures. “Uncle Sam got stucco with 248,000 repossessed homes and needs your suggestions by September 15 on what to do with them. I say quietly auction them off to the highest bidder, just like mineral rights are auctioned, and be done with the REO biz. What good does it do the U.S. taxpayer to hold on to vacant homes until they eventually fall down to the ground? You can’t store vacant homes in caves, the way government cheese is stored.”
A reply, “I think we need to form a group of renters/responsible owners who are willing to be more active in representing the interests of those of us who are neither irresponsible lenders or irresponsible borrowers. Anyone up for this? We can exchange e-mails and focus on letter writing campaigns and possible lobbying efforts, perhaps getting involved with some other groups who are interested in seeing justice done WRT housing.”
One said, “I like your idea, but it is time consuming, and can the ground swell meet the deadline? Bruce Norris (The Norris Group) was part of the roundtable to have infestors get govt. funding to buy up the stock and rent it out.”
Another added, “Here’s what I sent them:
Um… how about we let housing fall back to market prices and quit trying to re-inflate a popped balloon? Prices are not going to ‘come back’ until the last of the Baby Boomers sells the McMansion and dodders off to assisted living.
Quit lying to us and get real in your assessments. (Literally. Use the county tax records for appraisal values.) Seriously, I can buy tulip bulbs for less than a dollar apiece now. Mentally cut a zero off the price of housing and we’ll be back on track.
I applaud the DOJ’s announcement of intent to sue major lenders for mortgage fraud. Please hold their CEO’s (Anthony Mozillo, I’m talking to you,) personally accountable and put the bloody lot of them in prison after confiscating their ill-gotten assets. Then go after all the greedy citizens who lied on their mortgage applications, HELOC’ed out ‘their’ equity, and bought multiple ‘investments’ on the government dime.
Hey, a girl can dream….
FNMA/FRMC FHA– Let’s all pretend it’s 1980 again.
-Require 20% down-payment– from verified personal funds held more than six months.
-Mortgage can not be more than 3X annual income (as documented on income tax statements over last three years.)
-Guarantee no loans over $175,000. Yes, in California and New York, too. There’s not a first-time buyer’s house in this country that’s worth that much.
-FHA loans for veterans and first-time buyers ONLY. (And by first-time buyers, I mean first-time buyers, not the first time in three years buyers.)
-Require mark-to-market accounting.
-Loans for primary owner-occupied single-family residences only.
-Subject the MLS to anti-trust prosecution. Make all listings available online on your website and at no charge. -
-Quit pandering to and partnering with the NAR. Employ salaried sales staff (FNMA employees,) to move govt inventory. AGAIN: Use the county tax assessors’ figures to ascertain fair market valuation– NOT some dubious “appraiser.”
-Require banks to hold back 10% of any mortgage loan they make.
-Eliminate the mortgage interest deduction
Eliminate Fannie Mae entirely over the next ten years. (By the time you get this passed, all the fifteen year loans will fall within its purview.) All loans must convert to private within that period.
-Convert unwanted inventory (especially tract housing,) to “green” Section 8 and Senior housing. Employ out-of-work and youth labor to do so, with preference to military veterans who are NO LONGER IN AFGHANISTAN or making war of dubious necessity. Pay them no more than the equivalent military pay grade.”
One said this, “We are being played. The PTB do not care what we sheeple think, they only want to mollify and shape our outrage.”
And finally, “After visiting w/childhood friend who made real good as mtg broker in PHX, he said his 800k+ went to 1/4 of that. Asked me what was property doing in the desert here. I did notice that one house in the swanky portion of town went from over 2+mill a few yrs ago to 900k 2 yrs ago to REO now at 389k. When it gets to 200k then it will be back to 1994 prices.”
From BusinessWeek. “For sale or rent by distressed owner: 248,000 homes. That’s how many residential properties the U.S. government now has in its possession, the result of record numbers of people defaulting on government-backed mortgages. With even more homes moving toward default, Fannie Mae, Freddie Mac, and the Federal Housing Administration are looking for a way to unload them without swamping the already depressed real estate market.”
“Trouble is, they haven’t figured out how to do that. The government admitted as much in August, when Fannie, Freddie, and FHA issued a joint plea to the public for ideas about how to solve the problem. (Give it your best shot: You have until Sept. 15 to submit ideas to reo.rfi@fhfa.gov.)”
“‘It isn’t necessarily our preference that FHA is going to itself continue to hold these properties,’ says FHA Acting Commissioner Carol Galante. ‘We want to move homes through the system so we can recover.’ The agency has to be careful as it goes, she says. ‘If you’re putting too much through that system you are helping to drive down prices.’”
“The government’s call for ideas is a sign it is deluged with repossessions, commonly known as real-estate-owned properties or REO. ‘It’s almost like having the captain of the Titanic go on the public address system and say, ‘Does anybody have an idea?’ says Mark Wiseman, a former director of Cleveland’s foreclosure-prevention program.”
Some details from the PDF, available at the link at the top of this page.
The RFI calls for approaches that achieve the following objectives:
- reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner;
- reduce average loan loss severities to the Enterprises and FHA relative to individual distressed property sales;
- address property repair and rehabilitation needs;
- respond to economic and real estate conditions in specific geographies;
- assist in neighborhood and home price stabilization efforts; and
- suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.
FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI’s objectives. Proposed strategies, transactions, and venture structures may also include:
- programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”);
- strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO;
- a mechanism for private owners of REO inventory to eventually participate in the transactions; and
- support for affordable housing.
“- assist in neighborhood and home price stabilization efforts;
…and
- support for affordable housing.”
My high school tennis coast was very fond of telling his team, ‘Boys, you can’t have your cake and eat it, too.’
That’s what caught my eye, too.
On one hand, they want “price stabilization” at bubble levels or levels that are not warranted by the current economic environment. On the other hand, they want “affordable housing.”
It’s one OR the other. You can’t have both.
Would also add how the S&L Crisis was cleaned up.
1500 bank executives in jail
Clawbacks on their pay and bonuses
Get all these properties off the government books.
“1500 bank executives in jail
Clawbacks on their pay and bonuses”
Apparently either the penalties were not harsh enough, or else the banksters thought it was different this time, perhaps because they believed they had fully captured everyone who could possibly want to send them to jail with outsized campaign contributions. Because my impression is that the illegal behavior among the highest and mightiest bankers on the planet has reached the point where international finance has morphed into an episode of ‘The Wild, Wild West.’
Would also add how the S&L Crisis was cleaned up ??
Bundling…Thats how they did it then but you must remember most of that inventory was commercial so the profile of the potential buyer would be much different today then it was then…
With that said, I suppose bundling could work again in that it would clear the inventory quickly off the government books…Bundling also would not torpedo the valuations because the price paid would be for multiple properties and post appraisals would not be able to use the previous sale as a comparable…
But, the common joe will not get the benefit of the super discount…Those same bundled properties will ultimately come back on the market at single sales with a higher price…
“But, the common joe will not get the benefit of the super discount…”
This is why the homes should be auctioned, not bundled and sold off at a discount to monopoly banks with low-interest (aka discriminatory) loans from the Fed.
I agree Pbear….
Amen, PB!
“We are being played. The PTB do not care what we sheeple think, they only want to mollify and shape our outrage.”
…plus avoid pesky lawsuits.
“For sale or rent by distressed owner: 248,000 homes. That’s how many residential properties the U.S. government now has in its possession, the result of record numbers of people defaulting on government-backed mortgages. With even more homes moving toward default, Fannie Mae, Freddie Mac, and the Federal Housing Administration are looking for a way to unload them without swamping the already depressed real estate market.”
I am still looking for the answer to the question I posed yesterday, which I will reword in the hopes that somebody will address it:
We saw an LPS power point posted here a couple of days ago which suggested the number of homes with mortgages either in foreclosure or default (one or more missed payment) is around 6.5 million = 26 X 248,000 (good enough approximation for government work).
How does the problem of selling 248,000 current federally-owned REO homes square with the other problem of a potential shadow inventory of around 6,500,000 future REO homes that will need to somehow clear the U.S. housing market over the next little while?
I’ve got an idea! Let’s bundle all of these homes together in a few packages, sell them for pennies on the dollar to vulture funds consisting of the same rich Wall St. pigs who brought the economy to its knees, and make taxpayers eat the losses! Oh, wait..
Yup…
X2
‘Use the county tax assessors’ figures to ascertain fair market valuation– NOT some dubious “appraiser.”’
What do county tax assessors know that private appraisers don’t? I look at county tax assessments from time to time, and they are often orders of magnitude below what the homes whose values they putatively describe would sell for today.
That’s right. I forgot about the GAAP criminality with the “mark to market” fraud allowed by the banks. They get to represent to their shareholders that the properties are worth either what is owed or what the buyers paid. THAT, in and of itself would collapse the system if changed. Buy BOA stock. The Govt. WILL step in and take over the major lenders. The fraud is TOO deep. In BK court here in San Diego we are just now seeing the judges catching on to the fraudulent assignments, the MERS debacle, and standing issues that are shaking the Mtg./banking industry to its core. We will break them down. The question is whether the Feds will cut deals with the banks to stop us in our legal actions. They’re trying with all the “settlements” being floated.
In BK court here in San Diego we are just now seeing the judges catching on to the fraudulent assignments, the MERS debacle, and standing issues that are shaking the Mtg./banking industry to its core. We will break them down.
That is awesome. America needs a financial system backed by a strong Rule of Law in which we can place our collective trust. Don’t let the high and mighty destroy what the Founding Fathers paid so dearly to establish. We deserve better.
Thank you for doing what you can to reintroduce a Rule of Law to our corrupt financial system. If all good Americans stand up against those who want to tear down our civil society, we can prevail. Those who would destroy what is dear to moral and law-abiding Americans can first rot in jail, then next in Hell, so far as I am concerned.
N.Y. Lawmakers Protest Schneiderman Mortgage Panel Removal
By David McLaughlin and Margaret Cronin Fisk -
Aug 30, 2011 2:48 PM PT
New York lawmakers sent a letter to Iowa Attorney General Tom Miller saying they were “troubled” by the removal of New York Attorney General Eric Schneiderman from an executive committee of state officials negotiating a nationwide foreclosure settlement with U.S. banks.
“Raising legitimate concerns about elements of the proposed settlement is a responsibility of every member of the executive committee and should never be the basis for silencing a viewpoint,” 21 members of the New York congressional delegation said in an Aug. 25 letter. “Your removal of Attorney General Schneiderman sets a dangerous precedent for other attorneys general who, out of fear of what might happen, may choose silence over voicing valid concerns.”
Schneiderman, who doesn’t want a settlement to bar further investigations of mortgage practices by individual states, was removed because his office “actively worked to undermine” the attorney general group, Miller said last week. Schneiderman had already declined to be part of a smaller committee negotiating with the banks, said Miller, the leader of the attorney general group.
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In some quarters, the MSM is just waking up to the gravity of the economic problems at hand. Perhaps a latter-day Mariner Eccles will rise up from the ashes of the Utah economy and head to DC to help the Fed sort through the economic wreckage left behind by the Housing Bubble’s collapse.
Data, poll results show Utah’s middle class under siege
By Paul Beebe and Lesley Mitchell
The Salt Lake Tribune
First published Sep 03 2011 07:24AM
Updated Sep 4, 2011 12:28AM
As bad as the recession and feeble recovery have been to Utah’s psyche, the biggest meltdown since the 1930s has laid bare a more sinister plight — our middle class is slipping backward.
It may be hard to see. The counties along the Wasatch Front, home to three of every four Utahns, look the same as they did during the boom years, when the stock market and housing bubble fueled the impression that most families were doing well in spite of incomes that barely budged.
In hindsight, the impression may have been an illusion. Empirical evidence and Utahns’ responses to a Salt Lake Tribune opinion poll in which most described themselves as middle class show that their financial foundations are eroding, the rich-poor gap is widening and most believe that their elected officials lack the ability to fix the economy.
According to the recent survey conducted by Mason-Dixon Polling and Research Inc:
• Utahns feel stuck in their tracks. One in three has lost ground in the past five years — a fact certified by the Census Bureau. Adjusted for inflation, median Utah household incomes fell to $58,491 in 2009 from $59,226 a decade earlier.
• Incomes have fallen in one-third of respondent households, even though two-thirds (63 percent) have at least two wage earners contributing income.
• Close to one in three of the respondents said someone in their household has lost a job in the past five years, while similar percentages of Utahns are struggling with debt or fear they won’t have enough savings to retire comfortably.
“I feel a sense of hopelessness, and I’m the most optimistic person I know,” said Marcia Timmins, a Herriman business owner whose income has fallen almost by half since 2008. “Middle-class security is long gone. People are depressed. It’s like Russia in the winter of 1916.”
…
‘It’s like Russia in the winter of 1916…and I’m the most optimistic person I know’
This reminds me of the quote from the movie Scarface:
‘..and you’re eating this f*@*ing s@*t… …and you’re looking like these rich f*#@ing mummies in here.’
‘Come on. It’s not so bad. It could be worse.’
http://www.subzin.com/s/Come+on.+It%27s+not+so+bad.+It+could+be+worse
Looking for that, I I found my favorite quote from that movie:
‘Elvira: Can’t you stop saying f*@# all the time?’
http://www.imdb.com/title/tt0086250/quotes
The really bad news for SLC Mormons: Unemployment is driving up the demand for coffee! (Albeit there appear to only be two customers at the coffee shop shown in the photo which accompanies this caption…)
(Steve Griffin | The Salt Lake Tribune) Jaren Angerbauer was laid off in 2008, so he went into business for himself and is doing well. But he is going without health insurance to save money, and he has no retirement plan. He was working in his father’s home, but since his father passed away, he has no office and is looking for affordable space. He’s been using free public Wi-Fi at places such as Coffee Break in Salt Lake City, where he worked July 8.
If you read through this article, there is some frightening material further in…
“Deeper economic worries » The source of Utah’s middle-class anxiety goes beyond the recession to a deeper economic reality — of the world’s developed democratic countries, the United States has the highest level of income inequality, according to the CIA and the World Bank. Edward Wolff, a New York University economist, says the top 5 percent of U.S. households own 62 percent of the nation’s wealth, while the bottom 40 percent own almost none.
That is hardly trivial. Income inequality is a standard for assessing the health of a country’s economy, as well as the well-being and standard of living of its citizens. According to the CIA, which assesses such matters as part of its intelligence gathering, the extent of household income inequality in the U.S. is on par with:
• Jamaica, where economic growth is threatened by high crime, corruption and widespread joblessness;
• Ivory Coast, racked by a civil war since 2002;
• And Iran, whose state-directed economy is hobbled by high inflation and unemployment.
Edmund Bench, a 66-year-old Duschene County farmer, has watched the arc of America’s metamorphosis from post-World War II agricultural and industrial giant to a service-oriented economy that has exported its manufacturing jobs overseas. The result, he believes, has been downward mobility for millions of Americans.”
…
What’s funny is they’re saying this as though it’s a new revelation.
This is what so many of us have been saying (and complaining about) for YEARS!
I think that what changed is their leadership now allows them to put it in print.
This is what so many of us have been saying (and complaining about) for YEARS!
Recovery In the Housing Market Does Not Mean Higher Prices: Is the Post Still Listening to David Lereah?
Dean Baker, CEPR | Sep. 3, 2011, 9:19 AM
Dean Baker is the co-director of the Center for Economic and Policy Research
During the days when the housing bubble was inflating to ever more dangerous levels its main source on the housing market was David Lereah, the chief economist at the National Association of Realtors (NAR) and the author of the 2006 best-seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Remarkably, its main source now for the housing market is Lereah’s replacement at the NAR, Lawrence Yun.
It seems that the Post still doesn’t understand that there was a housing bubble. This means that prices fell from bubble-inflated levels and that they are not coming back. This is just like the NASDAQ which peaked at over 5000 in March of 2000. More than 10 year later it stands at less than half this level.
…
There are plenty of good ideas, both on this board and floated elsewhere. The problem is that none of these good ideas is conducive to the wealthy and well-connected making hay on the situation. So, we will get policies which enable rich and well-connected folks to continue to may hay at the expense of the masses. The end.
Just remember, when plankton dies, whales die, too. It will come back to haunt them, and I will be sure to say, “I told you so” when it does.
+1 Gbear…I think thats how it will play out because the people that will lobby for it will make the argument;
“But We Can Make This Problem Go Away Fast For You”….
To tempting for the weak kneed and paid for politicians in D/C….
As a chess player I would call this a Stalemate…
If the foreclosed empty homes are dumped on the market (I believe this is the correct action) and prices are allowed to fall, millions of additional homes will then be underwater and are likely to follow over the cliff further depressing home values.
I actually feel bad for the idiots that bought into this mess, but keep in mind one guy I worked with bought a home in 2002 and SOLD in 2005 with a cool tax free $500,000 in profit, so not everyone lost in this battle. The big problem I see is the situation where folks are walking away from obligations even though they have the ability to repay the loan, so it is possible the non recourse laws should be changed in such a way that it discourages folks who still have say over $10,000 in assets from walking away…
The MOST important thing we need right now? Hate to bring this up but a healthy dose of inflation would devalue our currency helping with our trade imbalance and making off-shoring less palatable while income increases would erode the value of mortgage debt like it did for our parents. I remember when my friends folks bought in South Orange County in the early 70’s for $60,000 and after their large down the payment was $300 a month which required his mom get a job to help. Later when rents, incomes and property prices rose, I was renting at $900 a month and they were paying diddly squat. Yeah Yeah, I know this will harm Social Security recipients and pensioners…
“…millions of additional homes will then be underwater and are likely to follow over the cliff further depressing home values.”
Just because most MSM-favored real estate ‘experts’ are not looking under the water, doesn’t mean the millions of homes you refer to aren’t already down there. I have never witnessed such a mass of confusion over the gap between economic reality and perception thereof. It seems like many economists believe that if you never look reality in the eye, it will somehow magically go away.
This reminds me of a little baby who, on noticing Mommy has left the room, starts crying because it thinks she will never come back again. Don’t worry — Mommy is still there, even though you can’t see her. Infantile thought processes are not what we need at the moment.
One of the things I realized about economic & political reality was that during the Bush administration when they decided to go in to Iraq the anti-war groups were always about 2 steps behind were Bush & Cheney were. So while we were trying to figure out how to stop the build up in Afghanistan, Bush was mobilizing 50,000 troops and 60 billion dollars to pre position the Iraq invasion. They only way to beat them is jump ahead of their next move and block it. In today’s world that might take help from powerful external sources like Russia or Saudi Arabia. That Putin fella looks like he could handle it. Really shake things up by joining OPEC and selectively putting the screws to America Inc..
Are you saying that you’re considering joining forces with Putin and OPEC to defeat your political enemies in the US?
are likely to follow over the cliff further depressing home values ??
Not necessarily…Prices are set by a willing buyer and a willing seller…It is then confirmed by an appraisal in that most transactions are financed…
If they allowed all these government owned houses to go to Auction, one at a time, many, many responsible people will benefit by some truly affordable housing…
Appraisers can only use comparable transactions that have closed within the past 6 months…Point being, any foreclosure Auction of a house, no matter what the sale price is, would “expire” as a usable comparable after six months of the closing…
I don’t think liquidation of this inventory would “crash” the housing market as much as we may think…There may be a period of a year or two that it would “stifle” the market but after that, it would be water under the bridge…
“If they allowed all these government owned houses to go to Auction, one at a time, many, many responsible people will benefit by some truly affordable housing…”
The pace of the govt-owned REO is the tricky part: How do you move millions of homes on to the market quickly enough to prevent them collapsing into rubble before they are sold, yet slowly enough to avoid exacerbating the crash in housing prices that has already occurred.
exacerbating the crash in housing prices that has already occurred ??
I guess I tried to answer that in my last paragraph…
Let me take it one step further…Legislate that the Auction Sales prices cannot be used as comparable sales for lenders in any future underwriting of loans…Even a step further would be that the county recorders office conceal the value transferred…
“…Legislate that the Auction Sales prices cannot be used as comparable sales for lenders in any future underwriting of loans…”
Not sure if your sarcasm tags were meant to be on, but I maintain that Auction Sales prices and all other sales prices should be a matter of public record, in easy places to find them and use them as comps. There is no better information about market values than what things are actually selling for under current market conditions; why hide this information in a way that enables Realtors© to use insider information to scam their customers? Generally speaking, the freer information flows through markets, the better off consumers are.
From your post above Pbear;
The pace of the govt-owned REO is the tricky part: How do you move millions of homes on to the market quickly enough to prevent them collapsing into rubble before they are sold, yet slowly enough to avoid exacerbating the crash in housing prices that has already occurred ??
And there-in lies the rub…If you flood the market with foreclosure Auctions it will drag everybody else into it also creating a death spiral…So, if these Auctions are not allowed to be used as comparable appraisals, then it may not drag everyone else with them…
Furthermore, the definition of market value is “A willing Buyer & A Willing Seller” coming to terms…A auction foreclosure can hardly be considered a “Willing Seller” since it is by definition considered a distressed sale…
I guess if the transfer values were disclosed, it may or may not have an impact on the remaining inventory.
So, the question remains; How do we allow the market to clear, in a timely manner with out handing the lions share of the lower prices to wealthy investors and crashing the market ??
“If you flood the market with foreclosure Auctions it will drag everybody else into it also creating a death spiral…”
Explain why you think there would be a death spiral? Any good Realtor© will assure you that won’t happen, as everybody has to live somewhere.
The problem at hand is that everyone knows the market values are lower than the available price information suggests, at least in high-end areas artificially inflated by $729,750 F&F lending. This is making prospective buyers afraid to buy and banks afraid to lend, as nobody wants to catch themselves a falling knife. Better information about current market values, plus stable current market values supported by high quality information on prices, is what is needed to eliminate fear and restore confidence in the housing market. If the true market values are ‘lower than expected,’ then so be it — let the chips fall where they land.
Explain why you think there would be a death spiral ??
I believe that using foreclosure data as a basis for establishing “Market Value” of non-distressed sales are a huge mistake….
Lets look at it in another context…
Commercial property on this corner is Bank Owned and has a lot of vacancies due to the fact that they came to market late in the cycle….
On the other corner is basically a Identical product…Its owned by a owner that not only has long term leases but is capable of reducing his rents to keep his tenants…
Property on first corner sells for $100. per foot at Auction…Does that automatically make the property on the opposite corner worth $100. per foot ?? An appraiser may say yes or give some incremental increase due to the fact that it had less vacancies…
If the strong corner needed to roll over a loan, they would have a problem with their appraisal due to the distressed sale data on the opposite corner….
Same would be true if Auction foreclosure data on house sales were used for people who were non-distressed trying to sell or refinance their property…
“If the strong corner needed to roll over a loan, they would have a problem with their appraisal due to the distressed sale data on the opposite corner….
Same would be true if Auction foreclosure data on house sales were used for people who were non-distressed trying to sell or refinance their property…”
Your model appears to depend on the assumptions of really dumb markets, dumb lenders, or rigid appraisal rules that reduce or eliminate lender discretion in the loan approval decision. I can’t believe markets are so dumb to not be able to figure out that a trashed foreclosure home might not be worth as much as a well-maintained home of similar description, or that a home sold in a distressed-sale (e.g. auction) might go for a lower price than if the same home were sold at arm’s length on the MLS over a period of time.
I’m not so sure about lenders, especially if the pre-2006 era is any indication. The entire industry seems to have succumbed to a collective Will to Stupidity.
As for appraisal rules, I don’t know how these work in a world where 90%+ of mortgage loans are federally guaranteed and securitized. But I have a vague suspicion the rules may be approximately as restrictive as a straight jacket. This is only necessary in a too-big-to-fail regime, where lenders don’t bear the direct consequences of their own underwriting mistakes.
Comment by scdave
2011-09-04 10:36:04
From your post above Pbear;
The pace of the govt-owned REO is the tricky part: How do you move millions of homes on to the market quickly enough to prevent them collapsing into rubble before they are sold, yet slowly enough to avoid exacerbating the crash in housing prices that has already occurred ??
And there-in lies the rub…If you flood the market with foreclosure Auctions it will drag everybody else into it also creating a death spiral…So, if these Auctions are not allowed to be used as comparable appraisals, then it may not drag everyone else with them…
Furthermore, the definition of market value is “A willing Buyer & A Willing Seller” coming to terms…A auction foreclosure can hardly be considered a “Willing Seller” since it is by definition considered a distressed sale…
I guess if the transfer values were disclosed, it may or may not have an impact on the remaining inventory.
So, the question remains; How do we allow the market to clear, in a timely manner with out handing the lions share of the lower prices to wealthy investors and crashing the market ??
———————
First, we have to get rid of the notion that there will be a deflationary “death spiral.” Deflation will happen, but prices will not go to zero unless there are legitimate reasons for it (houses in cities that are dramatically losing population, and have no work, that are unlivable liabilities, etc.).
What will happen is that prices will reach levels that reflect the unwinding of the credit/housing bubble and the reality of our current economic situation (no jobs, no assets, and tons of debt that needs to be repaid). All of the transactions that shouldn’t have happened need to be unwound, and all of the price increases caused by those transactions need to be reversed.
We cannot continue to pretend that the housing bubble was “reality” or that bubble prices, or prices seen during much stronger economic times like during the stock market bubble, are still viable. They are not. The sooner we come to this realization, the sooner we can push on with the correction that NEEDS to happen if we are ever going to bottom out so that we can rebuild our economy, from the ground up, in a healthy and sustainable way.
Great post, CA Renter.
“Hate to bring this up but a healthy dose of inflation would devalue our currency helping with our trade imbalance and making off-shoring less palatable while income increases would erode the value of mortgage debt like it did for our parents.”
Wipe out the Baby Boom generations’ fixed income pensions in the wake of the lost value of their housing market wealth, stock market wealth and savings — that’ll fix it!
“…would devalue our currency…”
Dollar price of an ounce of gold in 1965 = $35
Dollar price of an ounce of gold today = $1800
Dollar devaluation since 1965 in gold terms:
(35/1800-1)*100 = -98%.
I lived like a rock star for a decade; selling in 2004 for 500k profit; then making 300k more in 2006. However, gambled on more properties and lost $$.
But not complaining; as it allowed us to raise our kids with both parents at home. Kids are thriving. Still have one paid off home to move into when our home gets foreclosed on.
It has been a hell of a party; now its time to get back to working for a living.
We will likely not have “yer daddy’s” inflation.
The era of salary keeping up with inflated goods seems longs past.
Keep in mind inflation today is gamed (hedonics, substitutions, skipping categories) allowing posted inflation to be far less than real inflation. Heck, just tolls into NYC have doubled the last decade. Have incomes?
Correct, evildocs.
I have no idea why people think devaluing our currency will lead to higher salaries. There are billions of people around the world who are willing to work for less.
What will happen with inflation (and what we’ve already seen) is that prices will rise while our wages stagnate or continue to go down. Inflating from here is the WORST possible solution.
That means chasing down the Tan Man and Casey Serin and giving them perp walks. Like yesterday.
I honestly think we’re beyond perp walks at this point. Maybe not. I don’t know. I just feel like it would have happened by now.
I like all the suggestions listed above.
Given this was the Mother of all Housing Bubbles, it is taking “longer than expected” for the aftermath to play out. Just keep the faith a little longer!
If Obama can’t get it done, maybe his successor will. In fact, I would vote for any candidate who made bringing financial sector criminals to justice part of her platform.
Coming Soon: Bank CEO Perp Walks, Jail Time
By Barry Ritholtz - August 11th, 2010, 7:15AM
Over the past few months, we have learned about extraordinary levels of excessively bad corporate behavior.
As bad as the Bailouts were from an economic, wealth transfer, and moral hazard perspectives, it turns out that the grim reality was an order of magnitude worse than previously believed.
We have since learned that many TARP recipients, bailed out banks and other ne’er-do-wells were actively engaged in cooking their books. I don’t mean various FASB 157 permission to lie, and other legal but nefarious activities. I am referring to the 2002-2007 era of scams, frauds, and outright theft.
The public’s righteous indignation over the lack of just desserts for the perpetrators of these frauds has morphed since September 2008 into an unresolved, unfocused anger. When this all plays out, we might very well see bonus clawbacks, fines and penalties, disgorgement of ill gotten gains, and criminal arrests for some of the major names at the biggest brokerage houses.
Why do I think that 2 years later, some justice might be done? The truth is slowly coming out, as insiders provide testimony, release papers, and even offer up recordings of conversations to various investigators and prosecutors.
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This is important. Assigning a face to these generic elements of the Housing Crime Syndicate is progress rather than belaboring “the evil banks” or “NAR”. Going after the human leadership has a humbling effect on the entire organizational structure.
Start with;
Jamie Dimon (#1)
Fed Reserves 12 Roman Governors
Kurt Pfotenhauer
Larry (fun)Yun
Franklin Raines
Daniel Mudd
Herb Allison
Charles Haldeman
David H. Stevens
Ken Lewis
Blankfein
Lereah
The Inside Job movie made great strides in the direction of putting names and faces into the story.
To Whom it May Concern:
I am writing in reply to the FHFA’s call for ideas on what to do with the 250,000 foreclosed homes it’s GSEs own.
You now finally have a real way to promote affordability in the housing market, which is part of your mission. Liquidate the 250,000 homes you possess and drive down prices. Let the housing market recover by finding the bottom. My family is ready and able to buy a home, but we refuse to participate in this senseless market still grossly inflated by the housing bubble.
The best thing for Main Street America would be to spend less on housing, freeing up hundreds of billions of dollars to go into the greater economy. Why does everyone always talk about lower house prices as if it is some sort of bad thing? Would we celebrate the high cost of any other good or service?
Cordially,
CCC & Spouse
Nicely struck. Now would you kindly read the 5-page .pdf guidance on how to provide input to the FHFA and follow up by properly submitting your suggestion?
Request for Information:
Enterprise/FHA REO Asset Disposition
August 10, 2011
The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, is issuing this Request for Information (RFI) to solicit ideas for sales, joint ventures, or other strategies to augment and enhance Real Estate-Owned (REO) asset disposition programs of Fannie Mae and Freddie Mac (the Enterprises) and the Federal Housing Administration (FHA). The agencies are exploring alternatives that will facilitate the current and future disposition of REO, improve loss recoveries compared to individual retail REO sales, help stabilize neighborhoods and local home values, and where feasible and appropriate, improve the supply of rental housing.
Comments are requested from all interested parties. Generally, the agencies expect comments to be one of two types. First, comments may be from a wide range of market participants, stakeholders, community groups and industry observers with specific suggestions for enhancing market outcomes in the process of disposing of REO properties, whether by an Enterprise, FHA, or both. Second, the agencies look forward to responses from market participants that have the technical and financial capability to engage in large-scale transactions with the Enterprises and/or FHA involving the disposition of REO.
A specific goal is to solicit ideas from market participants that would maximize the economic value that may arise from pooling the single-family REO properties in specified geographic areas. Under the management of a third-party, a joint venture or some other structure may respond to local economic and real estate conditions more effectively than individual sales. For instance, there may be certain metropolitan areas (or some narrower geographic designation) with a substantial number of REO properties and a strong rental market. In such locales economic value in REO disposition may be enhanced (and real estate markets begin to be stabilized) by turning a large number of REO properties into rental housing. The agencies specifically seek comment on how to structure a request for proposals that could involve Enterprise and/or FHA properties and the capital and management expertise of private parties to achieve outcomes that reduce taxpayer costs, stabilize neighborhoods, and respond appropriately to market demands.
After considering the responses to this RFI, one or both Enterprises and/or FHA may issue requests for proposals to implement one or more transactions or structures arising from the RFI responses. The Enterprises and FHA may engage jointly or separately in transactions with third-parties.
Objectives
Potential structures and strategies proposed in response to this RFI should achieve the following:
reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner;
reduce average loan loss severities to the Enterprises and FHA relative to individual distressed property sales;
address property repair and rehabilitation needs;
respond to economic and real estate conditions in specific geographies;
assist in neighborhood and home price stabilization efforts; and
suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental or, in certain instances, demolition.
FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI’s objectives. Proposed strategies, transactions, and venture structures may also include:
programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”);
strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO;
a mechanism for private owners of REO inventory to eventually participate in the transactions; and
support for affordable housing.
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No way, they wouldn’t listen to me. What box would I check at the end? “Private Capital?” Hahahahahahahaha.
Just do it. You might be surprised. An original, unique letter may carry far more weight than some NAR propaganda that gets rubber-stamped by an army of Used Home Salespeople©.
To Whom it may concern:
How did you end up with all these houses? I’ll tell you how. The defaulted owners *paid grossly inflated prices*. Housing prices are still grossly inflated and you have an opportunity to correct it. Release these houses to the market at *reasonable* prices to END USERS. That’s right….. retail customers.
Grossly inflated prices are the problem. Affordable prices are the solution. Do not dismiss the fact. The consequences of doing so exacerbates the moribund housing market and economy. Releasing these houses to end users at affordable prices will result in a vibrant, elastic housing market.
Under FHFA conservatorship, it is your job to force Fannie’s and Freddie’s to adhere to their charter of “affordable housing”. They’ve failed miserably due to the external influence of monoliths like National Assocation of Realtors, Mortgage Bankers Association and banks in general.
Finally, your actions are being closely observed by the general public, specifically the retail customers. Influence by those monoliths I mention is unacceptable. You have an obligation to the voting public, not NAR, MBA, NAHB.
Sincerely,
xxx & xxx
I love it, exeter!
I’m also going to include the part about the general public closely watching their actions.
Well done!
Thank you CA Renter.
I agree w/you. There doesn’t seem to be a recognition among the decision makers that there are people waiting on the sideline, money in hand that refuse to come forward until this correction happens. I wonder if they think the numbers are too low to matter.
One slight correction though:
Would we celebrate the high cost of any other good or service?
Not as consumers but as investors we most certainly do.
bulldoze them and landscape the lot, anyone who objects can buy them for the amount owed
lacking any coherent policy, the number of foreclosed home will increase but their value will decrease, 10 years of inaction you will be left with 500,000 useless properties. If you’re lucky.
“…bulldoze them and landscape the lot, anyone who objects can buy them for the amount owed…”
Bzzz… wrong answer, unless you are the lender who owns the mortgage on the underwater collateral which won’t sell for the amount owed.
“10 years of inaction you will be left with 500,000 useless properties. If you’re lucky.”
Let prices fall to market-clearing levels. Poof! Problem solved…
well Cantankerous I feel the same way, that if you drop the price they will sell
I’m Canadian and I won’t be left with US properties
In the case of Canadian properties, CMHC is on the hook for the mortgages in case of default but it still doesn’t end up owning the properties.
I really like this bulldoze and landscape suggestion. Cheapest solution for the government, meets other stated objectioves, and creates jobs for heavy equipment operators and landscape gardeners. Win-win any way you look at it.
Just as long as the owner of the home and the lender take the full loss on bulldozed properties, I am perfectly happy with the idea. Perhaps a clause could be added to all those federal mortgage guarantees to state that no claims will be paid on homes that get bulldozed.
Thank you, PB.
Win win for everybody EXCEPT the people who could have gotten it cheaply and used it for its intended purpose before it fell apart…but were not allowed to in order to artificially maintain prices.
You know…us.
Only the interest of the wealthy matter in today’s political calculus. Let the renters and po’ folks eat cake.
Real estate appraisers should never use forced sales, foreclosures, or REO sales as comparables, without making adjustments to said prices.
MARKET VALUE
Market value is generally defined as the price a willing buyer would pay a willing seller for a property in its present condition with neither buyer nor seller under pressure to act (such as career relocation, death of a family member, divorce, etc.). A market value sale also is known as an arm’s length transaction.
I always made adjustments to sales prices when arriving at what I though was a fair market value.
Appraising is easy when home prices go up, and damn hard, when home prices are falling.
Shouldn’t appraisers also take into consideration the FACT that so many home buyers could NEVER afford their mortgages as agreed?
Why are appraisers allowed to consider fantasy prices caused by foolish lending decisions, but when those FAKE prices are unwound, the new CORRECT prices aren’t supposed to be considered as comps?