Archive for July, 2012

There is no commonly accepted definition of shadow inventory. This creates a great deal of confusion, and as a result, many casual observers dismiss it as an unreal bogeyman. It's out of sight, so it's out of mind. CoreLogic has the most widely accepted definition of shadow inventory, but it's wrong, and their numbers under report the actual figures. CoreLogic, counts visible bank-owned inventory and borrowers who have been served notice. These properties are visible, and although they may not be on the MLS yet, they are not hiding in the shadows. The real shadow inventory is the total number of delinquent mortgage holders who haven't been served notice. These people aren't picked up on any foreclosure reports because they…[READ MORE]

When I first began writing about the housing bubble in early 2007, I believed prices would crash because the cost of ownership using conventional financing far exceeded people's ability to pay. I predicted prices would fall about 40% as rents and incomes increased and prices went down. I originally predicted a bottom around $425,000 in 2012 (see below). Assuming prices have bottomed, the lowest tick was $470,000 in March of 2012. The nominal price decline was not as bad as I predicted staying about 10% above my predicted number. However, my reasoning was based on the total cost of ownership, and that declined much more than 40%. In fact, in Irvine, the cost of ownership fell from $3,800 in June…[READ MORE]

Economists are correct in their forecasts less often than weathermen. Some of the better ones have learned how to make their predictions vague enough so nobody notices, and the best ones revise history and make people believe they were right all along. Right now, the consensus among economists is that the housing market has bottomed. Perhaps it has, but there is also good reason to believe it has not. First, although delinquency rates are dropping, they are still almost double their historic norms. Delinquency precedes foreclosure, and foreclosure rates are still 10 times historic norms, and these rates are not dropping. In fact, we have not yet turned the corner on foreclosures. The reason foreclosure rates are so high and…[READ MORE]

Prices crashed in 2007 and 2008 down to levels of relative affordability due to shrinking loan balances from the withdrawal of toxic loan products. Each of the loan owners who used unstable loans lost their houses and their creditworthiness. As a result, millions of foreclosures hit the market and there were not enough buyers to support prices at historic levels of affordability, so many markets crashed well below fundamental values. The group who ordinarily take equity from a previous sale to support a move-up market is absent because they have neither the credit nor the equity to complete the sale. The absent move-up buyer is keeping sales volumes relatively low as compared to historic standards. realtors have been touting the…[READ MORE]

The latest false-hope-for-loanowners news story is San Bernardino County's idea of using eminent domain to foreclose on mortgages. The idea is completely untenable, and it will not come to pass, but many loanowners hoping for principal reduction are latching on to this "hail Mary." With as awful as this idea is, there is one bright spot I can embrace. If lenders really thought a local government body could force them to write down underwater mortgages through eminent domain, they would be much more concerned with the prospect of inflating another housing bubble. In the post Strategic default is moral imperative to prevent future housing bubbles, I argued strategic default was necessary to force lenders to recognize their losses and deter…[READ MORE]

The FHA has been the lender of last resort throughout the housing bubble crash. They insured loans which didn't properly price in risk during a declining market. No private lender would have made such loans, particularly as the super-low interest rates engineered by the federal reserve. The FHA has tried to raise its cost of money to cover the risk by increasing the insurance fees which drives up the effective interest rate, but their onerous fees have fallen short of covering the upcoming losses. In the FHA's defense, the loans they underwrote were of high quality, and although they reached pretty low for FICO scores, the documentation and underwriting was sufficient to protect the taxpayer from unqualified borrowers. What the…[READ MORE]

With millions of delinquent borrowers facing foreclosure, the death cries of so many desperate people was bound to have political ramifications. The unprecedented need to process tens of thousands of foreclosures spawned foreclosure mills like David Sterns law office and other who robo-signed documents. Such a process was bound to have a few errors. Although nobody who was making their payments faced foreclosure, the so-called robo-signer scandal prompted the major banks and services to negotiate a settlement agreement with the government to settle all claims and shield themselves from future litigation. Related to this same scandal, the federal reserve also got involved: Background The Federal Reserve Board issued enforcement actions against four large mortgage servicers--GMAC Mortgage, HSBC Finance Corporation, SunTrust…[READ MORE]

I have made mistakes in my life that made me want to go back in time and undo them. Sometimes you can, but sometimes you can't go back and reverse the damage. Taking on a reverse mortgage is one mistake that is very difficult to undo. I don't like reverse mortgages. I don't like many forms of debt, but reverse mortgages are one of the worst forms out there. According to the Department of Housing and Urban Development: A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike…[READ MORE]

The California legislature passed the so-called Homeowners' Bill of Rights, and Jerry Brown has indicated he will sign it into law. So how does this new law change the foreclosure process? Let's take a closer look. Calif. Legislature OKs homeowners' bill of rights Marisa Lagos and Wyatt Buchanan -- Updated 11:33 p.m., Monday, July 2, 2012 What the legislation does: Delays: Bans banks from proceeding with a foreclosure when a homeowner is seeking a loan modification, a practice known as dual tracking. Dual tracking has always been part of the foreclosure process. Foreclosure is supposed to be a threat to compel a borrower to either pay up or sell and move out. Foreclosure is a threat designed to compel action.…[READ MORE]

The amend-extend-pretend policy of America's banks is most pronounced in New England, particularly New York where the lenders live. There have been very few foreclosures despite high default rates, partly because the judicial foreclosure process in these states is log-jammed, and partly because lenders don't want to foreclose and recognize their losses. Of course, this policy has prompted a great deal of strategic default among loan owners who recognize they can live for free, but it has succeeded in making everyone else believe their neighborhoods are somehow immune to the housing bust, at least until the last year when prices because to fall precipitously. I have gotten to know Keith Jurow over the last year or so. He authors articles…[READ MORE]

In Memoriam: Tony Bliss 1966-2012