January 7, 2014

Accepting Lower Prices And Ponying Up The Difference

The Fayetteville Observer reports from North Carolina. “After a dismal 2012, home sales in the Fayetteville area improved significantly in 2013, according to people in the real estate business. ‘We’ll probably never see 2006 and 2007 again,’ said Greg West, president of Westan Homes, referring to past booming sales years. ‘But 2012 was bad; 2013 was better.’”

“Sales of existing homes picked up in 2013 after declining for several years. Brokers said some sellers have given up on waiting for their home’s value to rise enough to cover the costs they have in the property and are accepting lower prices and ponying up the difference in order to move on. ‘They’re taking their losses,’ said David Evans of Manning Realty. ‘It’s finally sinking in.’”

The News & Observer in North Carolina. “William Van O’Neal, a 57-year-old truck driver from Garner, was laid off from his job last January. He received an unemployment check for six months, but when “the money ran out,” he had to scramble to take care of his family. O’Neal, who is raising three children – ages 7, 11 and 17 – had worked for the same company for 17 years when he lost his job. He looked for other work while on unemployment without luck.”

“With money running out and his home in jeopardy of being foreclosed on, he turned to Triangle Family Services for financial counseling. With their help, O’Neal was able to get help with his mortgage and save his three-bedroom, two-bathroom home. He also learned how to pare expenses (the cable was among things to go) and ask for help. He now receives food stamps, and his children are on Medicaid.”

“Now to make ends meet, he relies on landscaping jobs around the Triangle and would like to be able to start his own landscaping business, but his credit – hurt by his unemployment – isn’t good enough to let him buy the needed equipment. Rick Miller-Haraway, regional director for Catholic Charities for Wake County, doesn’t see much relief coming in the new year. ‘It’s not going to change. We have an economy that has replaced good paying jobs with low paying jobs.’”

The Aquarian Weekly on North Carolina. “The housing crisis of 2008 wiped out a staggering amount of wealth, especially among minority and low-income Americans. While this was going on, Wall Street hedge funds, such as the Blackstone Group were busy buying up the foreclosed homes, often outbidding families that qualified for traditional financing, because they were able to pay cash up front for the property, and turning those homes into rental properties.”

“Two occurrences—violently increased police presence and aggressive acquisition of foreclosed properties at the expense of actual families—were not unrelated. In Charlotte, NC—where Blackstone has purchased over 2,000 homes—this manifested in a curious new strategy by local police. A friend who grew up in the southwest part of the city, where the foreclosure crisis hit like a jackhammer, described how police on dirt bikes started appearing out of nowhere. ‘It was like they were trying to clear the place out,’ he said.”

The Herald Mail in Maryland. “Although property assessments have increased in some areas of Maryland, home values in Hagerstown and some nearby areas have decreased by an average of 5.6 percent since they were last assessed three years ago, according to the Maryland Department of Assessments and Taxation. The lower assessments are ‘bad in a number of ways,’ Hagerstown homeowner Brett Wilson said. ‘First, for the city, it’s getting less revenues.’”

“For property owners wishing to sell their homes or commercial properties, it means they will get less value, Wilson said. The value of a property in some cases will be less than what a person or company paid for it, especially if they purchased it in the past few years when the housing market collapsed, he said. While home sales have been up recently, Wilson said he thinks that is bad, if prices are down. ‘It’s indicative of people fleeing the city because they don’t believe it is headed in the right direction,’ Wilson said.”

News 4 I-Team in Maryland. “Foreclosure rates are skyrocketing in Maryland, according to reports obtained and reviewed by the News4 I-Team, and the state’s efforts to protect homeowners could be fueling the problem. Montgomery, Frederick and Howard counties each suffered from 100 percent increases in home foreclosures between autumn 2012 and autumn 2013. There was a 50 percent increase in Prince George’s County. In Anne Arundel County, the spike is much larger: 400 percent. ‘This is just the beginning of the wave of foreclosures,’ RealtyTrac analyst Darin Goodwin said. ‘There are homes that haven’t hit the housing market yet.’”

“On the steps of the Montgomery County Courthouse in Rockville, News4 I-Team cameras captured images of one of the dozens of recent home auctions outside local courthouses. Auctioneers contracted by Montgomery County disposed of more than 10 foreclosed homes in an hour. A Gaithersburg townhouse was purchased for $210,000, about 30 percent less than the estimated price of neighboring homes.”

“Ann Lytle, of Capitol Heights, is trying to escape the foreclosure of the Addison Road home in which she’s lived for 65 years. Lytle said she’s fought a yearlong battle with her bank, which she said was triggered by a dispute over a missed monthly mortgage payment. ‘It’s like somebody took a nail and drove it through your heart,’ Lytle said. She’d taken out a new mortgage on the house in 2009 to help pay for repairs and remodeling.”

The Virginian Pilot. “You wanted a reliable pot of money to tap when your kids started college. Or to pay for a new car when the old clunker finally conked out. Or to splurge on a tropical vacation. So you asked your bank for a home equity line of credit back during the housing boom, when money was easier than ever to borrow and equity was through the roof.”

“You’ve probably enjoyed low, interest-only payments for years – but the honeymoon may be over. Starting this year, monthly payments could more than double for millions of Americans who will have to begin paying back the money they’ve borrowed for life’s major expenses. Nearly 50 percent of outstanding HELOCs were originated between 2004 and 2006, according to Lender Processing data, and the majority of borrowers will have to begin paying the principal on the oldest of those this year.”

“The number of delinquent HELOCs that have already passed the 10-year mark – and presumably are costing borrowers more money – is going up, said Herb Blecher, senior VP of Lender Processing Services. The low monthly payments during the draw period are attractive to borrowers. ‘Often, someone is going for an interest-only loan to get the lowest payment because that’s all they can afford,’ said Johnna Strahle, manager of equity lending at Navy Federal.”

“Some banks allow borrowers to extend their lines of credit so they can continue paying interest only. The rub here is that homeowners have to go through the loan-qualification process all over again. In the wake of the financial crisis, home values are lower, credit standards are higher and the amount of money you can access is smaller. Monarch Bank and TowneBank both offered HELOCs worth 90 to 95 percent of the value of a home in the mid-2000s, but neither lend more than 80 percent today.”

“‘People were taking on more debt,’ said Brad Schwartz, CEO of Monarch Bank and Financial Holdings Inc. ‘We probably took on some risks that, looking back, we wish we hadn’t. We’ve tightened our underwriting standards since then.’”

“Locally, payments for a $50,000 HELOC at TowneBank could jump to $401 from $175, based on a 15-year repayment schedule and assuming the prime interest rate climbs a percentage point, said Robin Cooke, director of retail banking. Some borrowers may be hit with a balloon payment instead of a price increase. At Monarch Bank, HELOC balances are due all at once at the end of the draw period, said Debbie Morgan, senior VP in charge of consumer lending.




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47 Comments »

Comment by Mr. Banker
2014-01-07 05:17:17

First you suck ‘em in:

“So you asked your bank for a home equity line of credit back during the housing boom, when money was easier than ever to borrow and equity was through the roof.”

Then you shake ‘em out:

“You’ve probably enjoyed low, interest-only payments for years - but the honeymoon may be over. Starting this year, monthly payments could more than double for millions of American who will have to begin paying back money they borrowed for life’s major expenses.”

These FBs could have had it made at this point in their lives but they chose to open door number two instead, and by doing so they transformed their peace of mind to their banker’s peace of mind.

They work, their bankers reap. They toss and turn at night while worrying about money and their bankers sleep like newborn babies because, for the bankers, FB money endlessly floods in and fills up their coffers.

One way to look at all this is to realize that:

“People are smart.”

Another way is to realize that:

“If God did not want them sheared then He would not have made them sheep.”

Comment by Mr. Banker
2014-01-07 06:06:51

One of my favorite players in this HELOC saga is David Lereah, the one-time Chief Economist for the national Association of Realtors, who said in 2005:

“If you paid your mortgage off it means you probably did not manage your funds efficiently over the years.”

I REALLY do love this guy! He spent his own money - or rather he spent the dues money of his NAR followers - to persuade homeOWNERS (note the term “homeowner” is not the same thing as the term “homebuyer”) to do the “smart thing” and to CASH OUT the equity of their homes so they could spend it. And this cashing out thingy is a term that is used in place of the more accurate term “borrowing against the equity of their homes” because this cash out term sort of downplays the hard cold miserable fact that if money is “borrowed” rather than simply “cashed out” then this borrowed money will someday - and somehow - HAVE TO BE PAID BACK!

And if the borrowed money isn’t paid back then the borrower may just possibly LOSE HIS HOUSE!

Lol! David Lereah preaches, the bankers profit!

David Learah spends money to coax homeowners to become FBs and this is done by convincing these future FBs to willlingly come to the bank so as to sign a sheet of paper with a dotted line at the bottom. And when these dotted line signers sign the dotted line they secure to me for the life of the loan (life of the loan equals forever if I can arrange it) hundreds of monthly payments of money that HAS NOT EVEN BEEN EARNED YET!

Lol! Life does not get much better than this!

Comment by inchbyinch
2014-01-07 06:52:12

“If you paid your mortgage off it means you probably did not manage your funds efficiently over the years.”

After NAR, David Lereah then went to work for a dot com in my area “m*ve on” and eventually became self-employed (I take that as unemployed). He is a low form of life in my opinion. Yeah, living in a paid off home is a result of bad decisions. Hardly.

How does slime sleep at night? Answer: No conscience.

Comment by Mr. Banker
2014-01-07 06:57:36

“How does slime sleep at night? Answer: No conscience.”

And having no bills helps a bit.

What is really neat about all of this, from a banker’s point of view, is guys such as David Lereah take all the heat while we bankers take all the profit.

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Comment by Housing Analyst
2014-01-07 06:58:32

“David Lereah then went to work for a dot com in my area “m*ve on” and eventually became self-employed (I take that as unemployed). He is a low form of life”

And how about LesterAppletonYoung?

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Comment by Whac-A-Bubble™
2014-01-07 09:33:31

Wasn’t he more-or-less channeling Alan Greenspan when he said this?

 
Comment by snake charmer
2014-01-07 16:35:07

Famously, there is a second part of that quote, in which Lereah compared paying off a mortgage to keeping money in your mattress.

http://articles.latimes.com/2005/aug/28/business/fi-homedebt28

Also from that 2005 article was the following gem:

“If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or could even find that their homes are worth less than their mortgages.

Such a prospect seems unimaginably distant to Doug Levy, a university administrator in San Francisco.

When his two-bedroom condominium rose in value by 10% — which took nine months in the hot Bay Area real estate market — Levy refinanced. That increased the size of his mortgage but gave him $25,000 to pay bills and take a modest skiing vacation in British Columbia. He’s considering tapping his equity again if his condo continues to appreciate.

“It’s like I’m sleeping in my piggy bank,” said Levy, 44. “In this market, real estate is a liquid asset.”

Bill and Barbara Brockmann have a different view of their house. The retired Huntington Beach couple is sitting on half a million dollars of equity, but they’re ignoring it. They aren’t drawing on it to buy a new car or invest in a condo in Miami.

“I don’t like debt,” said Bill Brockmann, 79. “I don’t buy anything I can’t pay for.”

Such thriftiness has gone out of fashion. What was once considered undesirable — taking on large debt — is now seen as smart. And what used to be smart — becoming debt-free — is described as imprudent.”

Comment by Puggs
2014-01-07 17:00:29

“Debt is dumb and cash is king!”

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Comment by Professor Bear
2014-01-07 18:55:47

“If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or could even find that their homes are worth less than their mortgages.”

He is starting to look prophetic!

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Comment by overpaid government contractor
2014-01-07 06:32:32

‘the honeymoon may be over’

i used to sell heloc’s when i worked for tarp bank. glad to have been of assistance to you, mr. banker.

Comment by Mr. Banker
2014-01-07 06:45:02

Thank you for your service. I especially like the term you used which was “used to sell helocs”, which implys that you no longer do so.

You sold HELOCS and you got paid, and when you sold HELOCS your employer - the banker - also got paid. And when you stopped selling you stop getting paid, but this was not so for the banker; The banker continued to get paid long after you made the sale.

The banker continues to get paid because the FB (thanks to you) continues to pay him. You no longer work for the bank so the banker no longer has to pay you.

The banker gets to continue to collect for the work you did for the bank but the banker no longer has to pay you. He gets to collect for what you set in motion but after it is set in motion then he no longer needs your services.

IOW, you were used.

Comment by overpaid government contractor
2014-01-07 06:59:31

i feel bad that i may have contributed to tarp bank getting in trouble and needing to take tarp bailout funds, but mr. banker must be made whole, one way or another.

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Comment by Mr. Banker
2014-01-07 07:11:22

Yes, God’s work must continue.

The word “tithe” suggests “a tenth”, and this is the cut - one tenth - of what banks deserve from every transaction.

EVERY transaction.

So far it isn’t every transaction and the cut isn’t yet a tenth; Truly more work needs to be done in this area.

 
Comment by Mr. Banker
2014-01-07 07:14:30

Oh, I almost forgot: Regarding the cut the bankers get from every transaction? This cut should be taken from BOTH SIDES of every transaction - one tenth from the seller and one tenth from the buyer.

 
 
 
 
 
Comment by Martin
2014-01-07 07:11:32

I’m happy to see to Marylanders facing the music now. They thought they were invincible and DC metro is protected from any downward fall in prices.

I hope this nonsense corrects by 50% or more in Mont Co. as prices have been outrageous here for more than a decade now especially areas like Bethesda, Kensington, Rockville and N/Potomac.

Comment by Whac-A-Bubble™
2014-01-07 09:35:18

Is there any chance the Maryland ‘foreclosure crisis’ will become contagious, infecting DC suburbs in other surrounding states?

 
Comment by Neuromance
2014-01-07 10:36:45

It’s really quite amusing to see the sales history on houses in some areas in Maryland. It’s not uncommon to see 100% increases between 2003 and 2005 - and that’s after a price ramp up from 2000.

Comment by Housing Analyst
2014-01-07 12:47:26

Prices had already doubled from 1998 to 2003, doubled once again in 2004 and yet again by 2006.

Current resale asking prices are still at 2004 levels. In other words, the losses are built in if you bought a house since 2004 to current. Massive losses.

 
Comment by Whac-A-Bubble™
2014-01-07 18:56:57

Maryland and San Diego home price movements have a lot in common!

Comment by Whac-A-Bubble™
2014-01-07 18:59:33

I know a fellow who could have bought in San Diego in 2000, but didn’t, as his dad (a Realtor®) advised that prices were “too high” and would eventually come down to saner levels.

As history shows, prices more than doubled beyond that point. And now, with the dead cat bounce, San Diego prices are right back in the same range as they were at the peak of the mania.

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Comment by Whac-A-Bubble™
2014-01-07 09:31:56

“‘This is just the beginning of the wave of foreclosures,’ RealtyTrac analyst Darin Goodwin said. ‘There are homes that haven’t hit the housing market yet.’”

That is clearly the case in California as well. Check out the Zillow pre-market listings for Sacramento, for an example. You’ll see there are over 1000 foreclosure homes still waiting to hit the market, and we aren’t even out of the first week of January yet. Just think how many premarket Sacramento foreclosure homes might show up by the time of this spring’s red hot sales season!

Comment by Housing Analyst
2014-01-07 10:35:14

Remember…. There are 4.4 MILLION excess empty and defaulted houses in the state of California alone.

 
 
Comment by cactus
2014-01-07 09:50:28

“Two occurrences—violently increased police presence and aggressive acquisition of foreclosed properties at the expense of actual families—were not unrelated.”

Oh great

Comment by Wittbelle
2014-01-08 01:14:52

This was curious to me.

 
 
Comment by Gentrific-outtahere
2014-01-07 11:38:53

I just ponied up 33k to get out of my mistake of a home in Baltimore City (bought in 2005 in a gentrifying neighborhood). The house, while lovely and adequate in size, resided in a neighborhood that quickly degenerated into a row of foreclosures, Section 8 rentals, and crime. We tried to hold on, but came to realize that we were in a losing situation. Now we will be licking our wounds in 2014 and avoiding real estate like the plague!

Comment by Whac-A-Bubble™
2014-01-07 19:02:10

Why didn’t you just walk away? $33K is a lot to pay for a “mistake” when so many others are stiffing their creditors and getting away Scot free.

Comment by oxide
2014-01-07 20:45:28

Maryland is a recourse state. That is also probably why foreclosures have to go through the court system.

 
 
 
Comment by Puggs
2014-01-07 12:34:10

“William Van O’Neal, a 57-year-old truck driver from Garner, was laid off from his job last January. He received an unemployment check for six months, but when “the money ran out,” he had to scramble to take care of his family. O’Neal, who is raising three children – ages 7, 11 and 17 – had worked for the same company for 17 years when he lost his job. He looked for other work while on unemployment without luck.”

Kids at 50?!?!?? Dude, yer werkin’ till yer 70!!!

Comment by In Colorado
2014-01-07 14:22:54

Given the age differences, I’m guessing that either they’re either not all his or not all hers. I’ve learned to NEVER assume that a litter of kids all have the same two parents.

 
 
Comment by Housing Analyst
2014-01-07 12:54:54

“After “throwing money away on rent” every month I have so much money left over I don’t know where to throw it.”</b.

Why buy when you can rent for half the cost?

 
Comment by Albuquerquedan
2014-01-07 14:51:25

The News & Observer in North Carolina. “William Van O’Neal, a 57-year-old truck driver from Garner, was laid off from his job last January. He received an unemployment check for six months, but when “the money ran out,” he had to scramble to take care of his family. O’Neal, who is raising three children – ages 7, 11 and 17 – had worked for the same company for 17 years when he lost his job. He looked for other work while on unemployment without luck.”

“With money running out and his home in jeopardy of being foreclosed on, he turned to Triangle Family Services for financial counseling. With their help, O’Neal was able to get help with his mortgage and save his three-bedroom, two-bathroom home. He also learned how to pare expenses (the cable was among things to go) and ask for help. He now receives food stamps, and his children are on Medicaid.”

Something does not seem right about this. I travel all over the country and all I see are ads for truck drivers. If he is willing to drive interstate he should not have any trouble getting a job. A CDL usually ensures some type of employment.

Comment by Albuquerquedan
2014-01-07 14:54:49

Quick internet search, there appear to be almost five thousand open truck driver positions in NC:

http://www.indeed.com/q-Truck-Driver-l-North-Carolina-jobs.html

Comment by DaniW
2014-01-07 18:33:12

They are not going to hire a 57 year truck driver.

plus a lot of those sites with ads are internet companies that repost ads from other sites to draw traffic to their website so the number of jobs looks amplified.

Same with looking for a used item online - there are legitimate website with for sale items and then there are the repeater sites that take and repackage/repost those ads even though the item was for sale long ago and is no longer available.

 
 
Comment by tresho
2014-01-08 12:53:07

If he is willing to drive interstate he should not have any trouble getting a job.
Just how can he do that and raise 3 kids?

 
 
Comment by Albuquerquedan
2014-01-07 16:45:14

Obama says Watt you talking about Willis, there was never a housing bubble:

http://finance.yahoo.com/news/regulator-watt-signals-shift-u-181032237.html

Comment by Ben Jones
2014-01-07 17:33:54

‘Even before taking office, Watt had said that he would delay a series of Fannie Mae and Freddie Mac loan-fee hikes that were announced by the FHFA a day ahead of his confirmation by the U.S. Senate in December. Industry and consumer groups decried the increases as driving up the cost of borrowing.’

‘Jaret Seiberg, a senior policy analyst at Guggenheim Securities, said there were high hopes that Watt would “focus on expanding the mortgage credit box”.

Here’s what the media has completely missed, and the government isn’t talking about:

‘Fannie Mae and Freddie Mac were seized by the government in 2008 as mortgage losses mounted. They have received $187.5 billion in taxpayer funds to stay afloat, while paying about $185.2 billion in dividends to the government for that support.’

What’s the problem here? They needed $180B and they paid it back. Let’s get them out on their own or whatever is going to happen.

Here’s the thing; if they were solvent the discussion would be much different. On the face of it, these corporations are wildly profitable. The fact that the fed’s are still talking about doing away with them or replacing them indicates to me there are hidden losses somewhere. Add that to the loans they’ve made in the past 5 years, and hello bail-out. But where’s the money going to come from?

Comment by DaniW
2014-01-07 18:40:58

The losses are not hidden - all you have to do is go to the investor pages and see. The losses are so huge they will never be able to climb back out and be profitable. Plus they didn’t pay back the 180 billion - that money is still outstanding - the government is taking the dividends and not counting it against the money lended to them.

I held onto stock in Fannie Mae until I looked at the complete balance sheet and realized there’s no way this company can ever reach profitability.

I view this as a way for the government to get back some of the losses that otherwise cannot be reached and to serve as a vehicle by which the companies that engaged in malfeasance can be sued .

Comment by Whac-A-Bubble™
2014-01-07 19:16:40

” - the government is taking the dividends and not counting it against the money lended to them.”

Is government accounting to FASB rules?

Oh wait a minute — the rules can be arbitrarily suspended for an indefinite period of time. Never mind.

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Comment by Whac-A-Bubble™
2014-01-07 19:18:24

“Is government accounting subject to FASB rules?”

Never post when teenagers are talking.

 
 
Comment by Ben Jones
2014-01-07 19:37:26

‘go to the investor pages and see’

What page numbers? Also, have these loses been recognized? If not, they are future losses. Meanwhile, back at the ranch:

‘Federal taxpayers have nearly recouped their $188 billion investment in Fannie Mae and Freddie Mac, the mortgage finance giants taken over by the government in 2008. Third-quarter profit rose sharply at both companies, each reported Thursday, letting Freddie Mac finish reimbursing taxpayers for its bailout and bringing Fannie within about $2 billion of repaying what it received.’

‘Freddie said the gain represented a decision that it will be profitable enough over time to eventually use all of the massive tax benefits it built up while losing tens of billions of dollars during the financial crisis.’

‘Freddie said it will finish reimbursing the government for its $71.3 billion bailout by year’s end, including a $30 billion payment it will make by December. In fact, the total of its payments will exceed the amount it received from the Treasury by $9 million. Fannie said it will pay $8.6 billion in December, leaving it about $2 billion short of the $116.1 billion it received from the government.’

‘For now, the two entities will keep operating under 2012 agreements with the Treasury Department that require them to pay much of their profits as dividends to the government. That means taxpayers will begin reaping multibillion-dollar returns on the investment by next year, barring a reversal of the housing recovery.’

http://www.usatoday.com/story/money/business/2013/11/07/fannie-earnings/3456709/

‘Tim Mayopoulos, Fannie Mae CEO, said in a conference call Thursday morning that his company is quickly approaching a positive return for taxpayers, and that its results are “evident” that the steps the company has taken over the past few years has “righted the ship.”

“Overall I’d say that the increase in interest rates and the lack of refi activity doesn’t have a very big impact on our revenues. Most of our revenues come from two sources: guarantee fees off of book of business and second from the carry we get from certain investment portfolios we have,” Mayopoulos said, emphasizing the effect of home prices on his company’s revenue and noting that the significant rise of those prices this year may not continue in the future. “If home prices do not continue to rise and let’s say plateau or even decline, we’d clearly see less release from loan loss reserves and that would moderate our earnings,” he said.’

http://www.forbes.com/sites/maggiemcgrath/2013/11/07/fannie-mae-sending-treasury-8-6-billion-of-its-profit/

This is interesting:

“If home prices do not continue to rise and let’s say plateau or even decline, we’d clearly see less release from loan loss reserves and that would moderate our earnings,” he said’

So some of these “profits” are book entries reflecting a higher market value of houses. In other words, not real operating profits; just a book keeping profit. And should a bank holding a house that’s worth less than it loaned, they don’t have to recognize that.

Book profits when it goes up, book no loses when it goes down. Nice!

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Comment by Whac-A-Bubble™
2014-01-07 19:14:51

“…hidden losses somewhere…”

Got millions and millions of homes in undisclosed shadow inventory?

 
 
Comment by Whac-A-Bubble™
2014-01-07 19:11:08

…he hoped to “develop a strong foundation for moving this system forward for the benefit of all Americans at this critical point in our nation’s history.”

Whenever a politician offers to move policy in a direction that will benefit “all Americans,” it’s a good time to take stock of whether or not you qualify under his definition of “American.”

 
Comment by Whac-A-Bubble™
2014-01-07 19:20:58

Are cramdowns coming (again)? And would suggesting they are bad policy be racis’?

Comment by Whac-A-Bubble™
2014-01-07 19:26:00

“This would, in turn, reduce the amount of money available to lend on houses.”

With the Fed pumping in $40 bn a month in MBS purchases and a newly-appointed Democrat chair at the helm of the Fed, why is there any concern whatever about not having enough money available to lend on houses?

Senate Battle Stalls Key Real Estate Regulator Nomination
by Jason Van Steenwyk on November 5, 2013

Senate Republicans have successfully stalled the nomination of Congressman Mel Watt as Federal Housing Finance Agency director. And they make no sign of relenting anytime soon.

While this seems like a minor political spat over a backwater subcabinet post – we’re not even talking about the secretary of housing and urban development here – there’s actually potentially quite a bit riding on the nomination for those in the real estate and mortgage business.

The nomination of Mel Watts as FHFA director has been stalled in the senate, which could impact real estate business. Mel Watt is widely regarded as an economic liberal and pro-homeowner, when push comes to shove, in that he generally favors forcing banks and other mortgage lenders to make substantial concessions to struggling borrowers. Watt is even on record as advocating forced “cramdowns,” or reductions on balances owed. Naturally, lenders aren’t too keen on this, since every dollar of cramdown comes directly out of the balance sheets of mortgage lenders, all other things being equal. That reduces return on investment, and conservatives argue that unless lenders are free to make their own decisions regarding when to foreclose – to the extent of actually enforcing mortgage contracts as written – they will eventually take their money and find something else to do with it that gets better returns. This would, in turn, reduce the amount of money available to lend on houses.

Comment by Whac-A-Bubble™
2014-01-07 20:07:33

Naturally, lenders aren’t too keen on this, since every dollar of cramdown comes directly out of the balance sheets of mortgage lenders, all other things being equal. That reduces return on investment, and conservatives argue that unless lenders are free to make their own decisions regarding when to foreclose – to the extent of actually enforcing mortgage contracts as written – they will eventually take their money and find something else to do with it that gets better returns. This would, in turn, reduce the amount of money available to lend on houses.

With the Fed standing buy to “cleanup” bank balance sheets of bad MBS debt, why is this any worry whatever? I’m really missing the point of so much of the handwringing currently in play, unless it’s all political window dressing to hide never-ending bailouts.

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Comment by Whac-A-Bubble™
2014-01-07 20:37:52

Can bailouts such as Fed MBS purchases go on at their current rate forever?

Thursday, January 2, 2014 - 14:28
US Mortgage Memo: MBS Widen On New Year Sales; Fed Buys $6.25B
By Isobel Kennedy

NEW YORK, (MNI) - The first trading day of the new year brought wider spreads versus Treasuries to the agency mortgage-backed securities market and several factors were cited for the move.

First, New Year’s Day occurred on Wednesday meaning many desks will still be half-staffed until next week.

Second, a winter storm, dubbed Hercules, has already pounded parts of the Midwest and similar amounts of snow and blizzard conditions are predicted for parts of New York and New Jersey over the next two days. This could cause problems getting to work on Friday.

Under these circumstances, traders and investors were likely hesitant to take on new positions that they might be forced to hold for a longer period than expected.

Third, the MBS market has performed very well over the last month and this week, some analysts started recommending selling into this strength.

The agency MBS strategy team at Nomura, led by Ohmsatya Ravi, initiated a short-term underweight on Tuesday, Dec. 31.

Nomura said the MBS basis had a “great run” over the last four weeks and nominal spreads on production coupon MBS versus the average of 5-year and 10-year Treasuries had tightened by about 20 basis points since hitting the recent wides on Dec. 4. On Thursday morning, this spread was around 123 bps and Nomura continues to believe it will widen to 155-160 bps after the Fed ends its MBS purchase program.

MBS spreads are expected to “remain fairly volatile over the next several months because liquidity in the MBS market has been changing meaningfully as the Fed continues to grow its balance sheet,” Nomura said.

Nomura also said “the timing of initiating an underweight is crucial to reap benefits from the likely widening of MBS spreads after the QE3 program ends.”

 
 
 
 
 
Comment by Bubbabear
2014-01-07 22:42:35

Two Numbers: The Housing Market Breathes Under Water

The housing market exited the trauma ward in 2013. Prices rose as much as 30 percent in some areas, bidding wars broke out and the foreclosure rate halved from its peak. But the patient is by no means fully recovered. In fact, five years after the housing bubble collapsed, a staggering one in five mortgage holders still owe more than their home is worth.

http://www.newsweek.com/two-numbers-housing-market-breathes-under-water-225429

 
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