The Housing Bubble

It’s Friday desk clearing time for this blogger. “Economist Peter Morici has taken a look at the housing crisis and doesn’t see much hope. He does see one way out, however. ‘If the Fed could get the investors who buy Fannie and Freddie bonds to accept interest rates of minus 3 percent, then young folks could be offered mortgages with appropriately negative interest rates. To accomplish that feat, the Fed would have to buy all those bonds itself-that’s right the Fed would finance all federally guaranteed mortgages and write off 3 percent a year.’”

“Morici is getting at something here, while setting up a preposterous option for Ben Bernanke. The real problem of the cheap money that the Fed has been unleashing by cutting interest rates to nearly zero, promising to keep them there, and then trying to drive rates even lower by doing two rounds of ‘quantitative easing’ plus ‘Operation Twist’ is…that cheap money isn’t good enough! Right now we need…free money!’”

“The Federal Housing Finance Agency announced plans Monday to revamp the three-year-old Home Affordable Refinance Program [HARP] to allow more underwater borrowers to refinance. Anthony Sanders, a finance professor at George Mason University, said a ‘fundamental disconnect’ exists between HARP’s goal of lowering monthly mortgage payments and the larger economic issues facing many Americans.”

“‘There’s no evidence that lowering a mortgage payment a few hundred dollars a month prevents defaults,’ he said. ‘Giving $200 a month to people who already have a job doesn’t really make any sense.’”

“Rep. Dennis Cardoza blasted Obama for ‘failure to understand and effectively address the current housing foreclosure crisis.’ Obama’s new plan is a step in the right direction but doesn’t go far enough, Cardoza says. His idea is to make refinancing available to many more homeowners at very low rates and for terms up to 40 years. If that plan were to be enacted, the government may as well just buy the homes and lease them back.”

“He would allow homeowners with government-backed loans to refinance no matter how little their homes are worth. There is no relief for homeowners who have lost their jobs and can’t make their payments or who are already in foreclosure. And many homeowners no doubt will choose to walk away from their debt instead of refinancing it.”

“Another issue is how the market will feel about providing more money for a home than it’s worth. Banks will go along because the refinancing includes a waiver by Fannie Mae and Freddie Mac that the government-backed agencies will agree not to seek refunds from lenders who made irresponsible loans.”

“Mesa Mayor Scott Smith hosted President Barack Obama in 2009 when the president launched his first foreclosure relief plan. When the housing crisis first hit his city, Smith said about 8 percent of the housing stock in Mesa was empty — about 12,000 homes. While fewer for-sale and foreclosure signs dot the landscape now, he those numbers have held steady for about four years now.”

“A former builder, Smith says most of his friends from that business have been out of work for three years. Most have lost their homes and spent all their savings. Now they are just scraping by. Are they even talking about presidential politics? ‘Not really. Maybe some are,’ Smith said. ‘But they’ve lost so much hope in what Washington can do. They are so turned off by the posturing, the bickering, the partisanship, that it’s not even worth talking about.’”

“Many boomers are saying they’ll keep working during retirement: a total of 73 percent in the new poll, compared with 67 percent in March. That’s more than in any other generation. Sherry Wise, a 53-year-old agricultural economist in Lorton, Va., a suburb of Washington, said she is worried she will have to work well into her 60s and beyond in order to continue paying her mortgage, keep up an investment property in New Mexico and look after her two daughters.”

“‘The one thing I know is that you can’t count on anything anymore. This economy has gotten so screwed up,’ Wise said.”

“About 6 in 10 baby boomers say their workplace retirement plans, personal investments or real estate lost value during the economic downturn. Of this group, 53 percent say they’ll have to delay retirement because their nest eggs shrank. Financial experts say those losses, including home prices that have dropped by a third nationwide over the past four years, have left boomers anxious about moving and selling their homes.”

“‘There’s a mistrust of the real estate market that we didn’t have before,’ said Barbara Corcoran, a New York-based real estate consultant. ‘There’s a concern about whether people will get money out of their house. They envision the home as a problem, not an asset, and this unshakable belief in homes as a tool for retirement has been shaken to the core.’”

“For many, losing a home is the definition of hitting bottom. But some former homeowners are finding themselves in an even tighter spot than they thought possible. They’ve lost their homes and wrecked their credit ratings. Now lenders are pursuing them for the debt that remains. former homeowners can think they’ve moved on, only to find that the debt is still there. The National Consumer Law Center, a nonprofit consumer advocacy group, confirms that deficiency judgments appear to be going up across the country, but how that plays out depends on state law. Geoff Walsh, a staff attorney with the organization, says approximately 40 states, including Idaho, allow lenders to sue former homeowners for the amount of the mortgage that remains after a foreclosure.”

“‘They’ve definitely been under the impression that they walked away from a situation, or it’s over,’ says Walsh, ‘and then this deficiency claim in court just comes back and hits them.’”

“Nothing appears out of the ordinary in the Heather Croft condominium complex in Egg Harbor Township. But beneath the surface, there are problems. A letter sent out to homeowners several weeks ago lists the names of neighbors who have fallen behind on their maintenance fees, leaving the homeowners association with more than half a million dollars in uncollected funds, the letter stated. More than 30 percent of owners of the complex’s 385 units were in arrears.”

“As a last resort, the association can place a lien on the property and start foreclosure proceedings. But banks also are foreclosing on some units when the owners fall behind on their mortgages, which makes the financial institution responsible for paying maintenance fees. Banks sometimes are reluctant to foreclose and add more units to their already burgeoning inventory of distressed properties.”

“When a bank forecloses on a New Jersey unit, it must pay six months of back fees dating from the time it takes possession, said Jane Herbert, director of collection services for the Wentworth-affiliated Community Collection Services. But many banks are waiting until they actually sell the unit before giving the homeowners association its share. A delay in the foreclosure process just adds to the problem, said Michael Mendillo, president of Wentworth Property Management. ‘If you decide not to pay (your mortgage), you could be in there for three years before they actually pull the plug on you,’ he said.”

“Heather Croft employs a collection attorney who uses various methods to extract money from delinquent homeowners, including garnishing their wages and bank accounts, property manager Monica Sacchetti said. A policy of towing the vehicles of nonpayers ‘works beautifully,’ she said.”

“The expectation is to find glamour and over-the-top glitz at this condominium linked to business magnate Donald Trump. So it comes as a surprise to walk into the lobby of Trump Hollywood to find it oozing understated elegance and sophistication. Four years ago, Harry Polsky, a Florida resident with Toronto connections, watched the gleaming curved tower go up, but suites at that time ranged from US$1.3-million to US$7-million, so he thought ownership at Trump Hollywood was an impossible dream. ‘It was the crème de la crème, but I knew we couldn’t afford it, so I didn’t even look,’ Mr. Polsky says.”

‘Then in January, Mr. Polsky heard that BH3, the new owners of Trump Hollywood who took over in 2010 after lenders foreclosed on the previous owners, had discounted prices. ‘I was ecstatic,’ says Mr. Polsky, who was the first person to buy a suite from the new owners.”

“Mr. Polsky, who lived in downtown Toronto in the late 1990s, paid US$748,000 for his 2,100-square-foot residence on the 11th floor.’We keep pinching ourselves - we can’t believe we have been able to buy here,’ says Mr. Polsky, a broad smile on his face.”

“Although the water level at Lake Conroe is nearing seven feet below the mean sea level measurement of 201 feet, the area around the lake remains a hotbed of housing activity. News of the strong sales left one Lake Conroe realtor feeling ’shocked’ ‘I get calls from people asking, ‘Where’s the water?’ says Trey Mills, a 10-year sales veteran at Lake Conroe. ‘It (the lake) is going to come back – one day.’”

“Judi Foster, a realtor with Coldwell Banker, credits there lake area’s other amenities, including quality schools, for the sales. ‘There’s a quality of life available here,’ she said. ‘Granted, you don’t expect this when there’s a drought, but we’ve got some astute buyers.’”