Banks are slowing foreclosure rates yet again, and it isn’t because they are out of borrowers to foreclose on. With the settlement earlier this year, banks began to clear out their existing REO inventory, and they slowed foreclosures in the Southwest in order to modify mortgages to meet their requirements under the settlement (note the uptick in cancellations last month). Ideally, the banks would like to modify loans to keep borrowers in place and complete short sales for those who want to leave. They don’t want to resolve there legacy toxic loans by foreclosure. Unfortunately, borrowers are not cooperating. Borrowers benefit more by squatting until a foreclosure.
BofA Give-Away Has Few Takers Among Homeowners: Mortgages
By Hugh Son – Jul 11, 2012 9:13 AM PT
When Bank of America Corp. sent letters to 60,000 struggling homeowners offering to slice an average $150,000 off their loans, the lender got an unusual response from most of them: silence.
I think most people recognize these are bait-and-switch tactics of the banks. Lenders generate big headlines about giving away free money, but when the borrowers apply, they are offered something far less palatable. However, the lack of response goes beyond a basic distrust of the bank’s motives.
Homeowners who fell behind on their payments began receiving the mailings in May, part of the bank’s effort to meet terms of the $25 billion industry settlement over foreclosure abuses. More than half haven’t responded as “borrower fatigue” causes them to tune out the offers, said Dan Frahm, a spokesman for the Charlotte, North Carolina-based bank.
This is more than borrower fatigue. Most people aren’t going to respond because they benefit more by simply squatting until the foreclosure. Underwater borrowers are not completely stupid. Many recognize a loan modification is paying more for their house than it’s worth. Plus, once they complete the loan modification, they have to start paying again. If they do nothing, they can stay payment-free indefinitely while the banks wait for their answers and finally begin foreclosing on the non-responders.
“The number of customers responding is lower than we expected, given the significant assistance available,” Frahm said in an interview. “We are working very hard to determine why response rates are lower than expectations.”
Let me clue you in, Mr. Frahm. Your borrowers are not going to respond to you because it’s in their best interest to ignore you. Another year or two of free housing is preferable to a loan modification that causes them to pay $300,000 for a $200,000 house.
… Previous efforts to bolster the housing market haven’t helped as much as expected. When President Barack Obama announced the Home Affordable Modification Program, or HAMP, in 2009 he set a goal of 3 million to 4 million renewed loans. Fewer than one million have been permanently modified.
And of those one million, more than half will fail again within 18 months. Very few of these loan modifications will be truly “permanently” modified.
Principal Reductions
Bank of America, the second-biggest U.S. lender by assets, will offer principal reductions to more than 200,000 clients by August, Frahm said. Other steps include cash incentives to sell a delinquent borrower’s home for less than the amount owed and a pilot program to turn owners into renters, he said.
Modify, short sell, or rent the property back from the bank. They are pulling out all the stops.
Homeowners are exhausted from fighting foreclosure and may think offers to cut loans by one-third aren’t legitimate, Ron Sturzenegger, head of the lender’s Legacy Assets Servicing unit, said last month at a conference in Denver.
… Initial solicitations went to those who were delinquent for the longest and may have abandoned their homes, Frahm said. The response may improve as the lender reaches those who have been behind for shorter periods, he said, declining to give specific figures.
Most of these people haven’t abandoned their homes, they have merely abandoned paying their mortgages.
‘Incredible Dysfunction’
The company has about 1 million customers who have missed at least 60 days of payments,
Whoa! Wait a minute. Remember yesterday’s discussion about shadow inventory? CoreLogic says there are only about a million delinquent borrowers nationwide. Bank of America has a million on its books alone! If B of A has a million delinquent borrowers, how many do the other major banks have? And what about the MBS pools they manage? How many people aren’t paying their loans?
about 85 percent of whom were inherited from the 2008 takeover of Countrywide Financial Corp.
Angelo Mozilo must be laughing his ass off.
The bank, which has posted more than $40 billion of costs tied to faulty home loans and foreclosures, has about 50,000 people working to help distressed homeowners. …
Lost Paperwork
Hassan Fallah, 59, said he has been trying to modify his Countrywide loan on his Brentwood, California home since late 2009. The hotel manager’s tax returns were lost by Bank of America, service representatives didn’t return calls or referred him to people no longer employed by the lender, and he was eventually told he didn’t qualify for the government’s Home Affordable Modification Program.
This year, Bank of America reviewed his case for the settlement’s debt forgiveness program. A May rejection letter overstated his monthly income by $1,400 and left blank inputs that should have stated potential savings, he said.
“It’s been nothing but a horrible experience with Bank of America,” Fallah said in an interview. “I would not want anyone to go through what we went through the last two and a half years.”
Boo hoo. If he were paying the mortgage, and he wouldn’t have those problems. Am I really supposed to feel sorry for a guy squatting in a house in Brentwood?
Bank Rules
The lender requires only verification of income for the modifications, he said. Those who qualify must be at least two months behind on payments on a mortgage that’s larger than the value of the property. Bank of America can’t make the offer to most of its delinquent borrowers because loans owned by Fannie Mae or Freddie Mac aren’t included in the settlement.
So the million delinquent loans are only counting the ones on B of A’s books. If that isn’t “most” of their delinquent loans, how many GSE loans that they service are now delinquent? Apparently, it’s more than a million.
The February settlement was hailed by Housing and Urban Development Secretary Shaun Donovan as providing “immediate relief” to distressed homeowners. That could be in jeopardy if servicers fall short and foreclosures aren’t prevented, which may cause the U.S. housing market to dip again, said Mike Calhoun, president of the Center for Responsible Lending.
You can count on the servicers to fail, not because the deals they are offering aren’t good, but because borrowers are committed to squatting until foreclosure.
Here’s what’s going to happen going forward
Based on the current circumstances, let me break out my crystal ball and see what’s ahead.
Lenders will spend the rest of 2012 trying to amend-extend-pretend to meet the terms of the settlement agreement. They will modify a large number of loans which will then transfer the inevitable redefault losses to the US taxpayer. Most of these loan modifications will fail. They will not meet their stated goals for principal reduction, but they will make up the difference on losses on short sales.
I expect to see incentives for delinquent borrowers to complete short sales to increase. If these short sales don’t happen, we won’t have any MLS inventory for the next few years. There will be larger direct cash payments for people who help the bank sell the house without a foreclosure. These cash payments will need to be large to overcome the built-in incentive to simply squat and live for free. The banks will make these large cash payments because the short sale losses will count toward their settlement quotas whereas the foreclosure is just a loss.
Eventually, lenders will give up on the most committed squatters, and they will ramp up their foreclosure machinery one last time, probably in 2013 but perhaps later. It will take another two or three years to process the deadbeats. As the numbers in this article allude to, there are a lot of delinquent mortgage squatters. In the meantime, the redefaults on the bad loan modifications will also add to the foreclosure pipeline. Lenders will not flood the MLS with foreclosures, but instead they will meter them out over time just as they have for the last several years. If lenders are lucky, the super low interest rates will keep prices rising.
Interest rates will remain low, even if it sparks inflation, because lenders need cheap mortgage rates to push prices back up near the peak to allow those who are currently underwater the ability to escape without a short sale. The number of strategic defaults will decline significantly because lenders will approve more short sales, and if house prices keep rising, most will opt to wait to save their credit scores.
All the delays and overhead supply will prevent prices from rising as fast as most hope over the next five years, but in the short term, we may have a price spike caused by the withholding of inventory today. Right now, very few of the delinquent mortgage squatters have their homes for sale, and with lenders slowing their foreclosure processing, very few will enter the MLS as REO. The 2012 low inventory price spike will be a direct result of lenders complying with the settlement agreement. It may cause a nominal price bottom to form, but it won’t be the start of a robust rally. The next three years will be choppy like the last three.
Extraordinary Ponzis
The former owners of today’s featured property were Ponzis of extraordinary prowess. They bought this property with an FHA loan putting just a few thousand dollars down at the bottom of the last cycle, and then they managed to extract about $400,000 out of this crappy little house. They will be anxious to repeat that again on the next cycle. Why wouldn’t they? 
- This property was purchased for $135,000 on 11/24/1997. The owners used a $132,958 first mortgage and a $2,042 down payment.
- On 1/31/2000 they extracted their down payment and then some with a refinance of their first mortgage for $139,647. The rest was truly free money.
- On 10/19/2000 they obtained a $50,000 stand-alone second.
- On 1/15/2002 they refinanced with a $191,311 first mortgage.
- On 12/3/2003 they refinanced with a $232,000 first mortgage.
- On 7/9/2004 they obtained a $60,000 HELOC.
- On 3/18/2005 they refinanced with a $330,000 first mortgage.
- On 6/21/2006 they obtained a $53,800 stand-alone second.
- On 11/28/2006 they refinanced with a $423,000 Option ARM with a 1.5% teaser rate.
- On 5/10/2007 they refinanced with a $480,000 Option ARM with a 1% teaser rate.
- On 10/26/2007 they refinanced with a $411,400 first mortgage and a $111,100 stand-alone second.
- Total property debt was $522,500.
- Total mortgage equity withdrawal was $389,542.
That house was an extraordinary cash cow, and these borrowers milked it well.
Fullerton Overview
Median home price is $365,000. Based on a rental parity value of $548,000, this market is under valued.
Monthly payment affordability has been improving over the last 4 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased to $245/SF to $245/SF.
Resale prices have been weak for 12 month(s). Price momentum suggests weak prices over the next three months.
Median rental rates increased $107 last month from $$2,124 to $$2,231.
Rents have been slowly rising for 5 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 5
Proprietary OC Housing News home purchase analysis 
900 South JEFFERSON Ave Fullerton, CA 92832
$349,900 …….. Asking Price
$135,000 ………. Purchase Price
11/24/1997 ………. Purchase Date
$214,900 ………. Gross Gain (Loss)
($10,800) ………… Commissions and Costs at 8%
============================================
$204,100 ………. Net Gain (Loss)
============================================
159.2% ………. Gross Percent Change
151.2% ………. Net Percent Change
6.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$349,900 …….. Asking Price
$12,247 ………… 3.5% Down FHA Financing
3.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$337,654 …….. Mortgage
$88,532 ………. Income Requirement
$1,545 ………… Monthly Mortgage Payment
$303 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$87 ………… Homeowners Insurance at 0.3%
$352 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,287 ………. Monthly Cash Outlays
($233) ………. Tax Savings
($518) ………. Equity Hidden in Payment
$15 ………….. Lost Income to Down Payment
$107 ………….. Maintenance and Replacement Reserves
============================================
$1,659 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,999 ………… Furnishing and Move In at 1% + $1,500
$4,999 ………… Closing Costs at 1% + $1,500
$3,377 ………… Interest Points
$12,247 ………… Down Payment
============================================
$25,621 ………. Total Cash Costs
$25,400 ………. Emergency Cash Reserves
============================================
$51,021 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # P828215 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$378,200 601 South WOODS Ave |
0.24 miles 3 bd / 1.5 ba 1,415 Sq. Ft. |
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$325,000 460 W KNEPP Ave |
0.41 miles 3 bd / 1 ba 1,189 Sq. Ft. |
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$345,000 655 W ROBERTA |
0.42 miles 3 bd / 2 ba 1,408 Sq. Ft. |
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$335,000 1312 West OLIVE Ave |
0.49 miles 3 bd / 1.75 ba 1,291 Sq. Ft. |
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$299,000 1036 West HOUSTON Ave |
0.51 miles 3 bd / 1.75 ba 1,415 Sq. Ft. |
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$330,000 1104 West COMMONWEALTH Ave |
0.58 miles 3 bd / 1 ba 1,200 Sq. Ft. |
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$359,000 724 West AMERIGE Ave |
0.62 miles 2 bd / 1 ba 1,000 Sq. Ft. |
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$320,000 601 South TAMARACK Dr |
0.73 miles 5 bd / 1.75 ba 1,358 Sq. Ft. |
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$349,900 1313 West MALBORO Ave |
0.74 miles 4 bd / 1.75 ba 1,257 Sq. Ft. |
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$349,900 608 South TAMARACK Dr |
0.75 miles 3 bd / 1.75 ba 1,336 Sq. Ft. |
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44 Responses to “Bank of America has one million customers who missed at least two payments”
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Since the solutions proposed only preserve financial model structural failures, any ”price spikes” that may be reported are nothing more than noise around the declining trend.
In other news….
Shadow Housing Inventory Resumes Upward Climb
http://www.zerohedge.com/news/so-much-housing-has-bottomed-shadow-housing-inventory-resumes-upward-climb
Thanks. I put that chart in the post.
The Dark Inventory Rises.
For $349,900 you can’t green grass. If want green grass then please see the $500K plus neighborhood. It’s funny, not one penny of improvement was spent on the outside.
Yes, all $389,000 they took out as free money was spent on something other than the house.
I think they bought their own spy satellite.
Why the Mortgage Interest Deduction is Terrible
There are few tax breaks more beloved than the mortgage interest deduction. It’s the IRS’s way of paying you to buy a house — by letting you deduct your mortgage interest payments from your taxable income. There are also few tax breaks more wasteful than the mortgage interest deduction.
It’s no secret the mortgage-interest deduction is regressive. Richer taxpayers have 1) houses, 2) bigger houses, and 3) get bigger deductions because their tax brackets are bigger. But the bad policy doesn’t stop with subsidies for those who least need them. There’s also the small matter of incentivizing leverage. In other words, households that take on more debt get more of a tax break. That’s a head-scratcher in our post-bubble world.
None of this has been a secret for decades. The mortgage interest deduction was rotten policy in the 1980s and it’s rotten policy today. Back then Michael Kinsley made the case against this taxpayer sacred cow — along with his classic definition of a gaffe — when President Reagan hinted at eliminating it. Spoiler alert: We didn’t. Three decades on, it’s depressing how much of Kinsley’s analysis reads like it was written today.
We spend $100 billion every year — that’s the annual cost of the deduction — subsidizing bigger houses for the upper middle class. This should be among the lowest of low-hanging fruit when it comes to tax reform. It would be nice to end welfare for the well-off.
I’m not sure which is worse…the mortgage interest deduction or Prop 13. There is no way my parents should only be paying 1% of $254,000 since they bought their place in South OC 25 years ago…while the new family next door pays 1% of $450K. This is a bailout for grandmas.
We got them back though…..baby boomers are only getting 1.5% on treasuries and 0.25% in savings and not likely to put their capital to risk in the market or end up having to go back to work till they are 80.
“end up having to go back to work till they are 80.”
That’s what’s going to happen for the Ponzis and others who didn’t save anything. There will be pressure to increase social security payments, but that requires workers to pay more taxes, and that will be resisted.
Please explain how Prop 13 is unfair. The alternative would require your parents to pay dramatically higher property tax bills every year. Your parents bought a house for $X and their property tax bill is based on that amount plus a reasonable rate of growth. Why should your parents be punished for increasing values?
The unfairness issue is embedded within the growth rate. The 2% allowable growth does not track inflation, and it does provide a subsidy for long-term owners. If they were to change the index to the California CPI, I think much of the unfairness would be mitigated, and it wouldn’t cause property taxes to skyrocket in a housing bubble.
That’s a reasonable proposed change. One of the few benefits of home “ownership” is fixing your costs. There needs to be some certainty as to your property tax costs. This benefits homeowners and the government. Property tax revenue has grown steadily in CA outpacing inflation since Prop 13′s inception, yet the Left attacks it all the time. Unlike income tax revenue to the state that fluctuates wildly with the economy.
You’re right, if the cost to maintain goods and services for a City, County and Schools go up at a minimum rate or at a rate equal to what Prop 13 allows, then yes they should not be punished for their increasing values. But when government budgets increase by CPI/CCI at 5-8%, the newer home owners are subsidizing not only their “Fair Share” of the cost allocation, but the cost to maintain the services for others who bought in at a lower rate. I agree, new should pay for new, but new should not pay for existing services. I think they should conduct a cost study to determine how benefits are allocated and I am sure the newer home owners are paying for more than their “Fair Share” of service. This is not a “You bought early so you benefit” argument, but a “what is fair and reasonable argument.” Fair and reasonable to me means you pay for your fair share of the benefits that you receive.
IR,
It looks like we came up with the sane argument.
And then you have the “gifting” of a property and its Prop 13 tax basis to family members (kids, grandkids, etc). If anybody can explain how this is even remotely fair…I’ll be all ears.
Prop 13 has helped distort the real estate market for desirable areas of CA in a big way. It’s not just granny who has lived in her house for the past 50 years. Even people who bought 15 years ago in desirabe areas are receiving a huge break. Their house has tripled in value and their property tax bill has only gone up by 34%. You tell me if that is fair?
I would support a Prop 13 system only for a primary residence when the owner reaches federal retirement age. Then this would truly not tax granny out of the house. No rental property welfare, no inheritance welfare and certainly no corportate welfare.
Pay your fair share.
Perspecitve, your parents benefitted from endless housing appreciation. Is it asking too much for them to pay current market value taxes on that property?
Definitely a case of having one’s cake and eating it too! Many people in California want all this nice stuff (aka services) but they want somebody else to pay for them.
I personally can’t wait until Prop 13 gets repealed or altered. It’s not fair in any shape or form.
I come from a single-parent working class home. My mom bought a small house in South LA in the 60s for $24K. She/we would have lost that home to property taxes way before she reached retirement age if Prop 13 didn’t control the increase in property tax costs. She still lives in this home. Is it fair that someone could buy the house next door for $300K today and pay 3x the property tax? Um, yes.
I’ll give you this. It’s not fair that I and my brothers can inherit this house and its Prop 13 protections.
And I have this opinion as someone who bought an OC house in 2007 paying 1% in property tax + another 80 bps in mello roos.
And if we’re talking about tax fairness, why start/stop at property taxes? Isn’t the federal and CA income tax code far more unfair?
e.g. My two brothers were raised in the same family, house, schools, etc. They chose to work in HS and after. They’re both blue collar guys earning slightly above the median household income in their cities. I chose college, grad school, and a spouse who made similar choices.
Now my household pays 30% of every dollar earned to federal/state income & payroll taxes while their households pay less than 10%. Is that fair? Why?
Perspective,
I agree. The tax code is not fair and reasonable. I think the upper 50% pay 97% of the tax revenues. I am not an accountant, but know that the tax code is overly complicated and has expanded many times over. I bet they have employees at the IRS who’s sole job function is to modify the tax code every year.
I guess I see two options:
1. Flat tax – maybe 25%
2. VAT tax based on consumption
Life isn’t fair and most of the taxes in this country aren’t fair either. Prop 13 just strikes as something that really needs to be fixed. I agree that longterm owners shouldn’t be kicked out of their homes if they can’t afford market value taxes. And absolutely no Prop 13 protections for investment property or inherited property. Prop 13 was probably a godsend when it came to be in the late ’70s, but it defintely has morphed into something very questionable today.
I would even propose means testing for it. Sounds unamerican, but Prop 13 is discriminatory. Either you screw the old timers or you screw the next generation. Right now the old timers hold all the cards…that will be changing in the not so distant future.
You’re arguing over the small potatoes. The large break is for corporate owned business property. The corporation keeps the property in their name, but sells the corporation with property to another. That has changed the percentage of property tax paid by business to private individuals. Any thoughts on the cost to put a house in a corporate name and change ownership of the corporation. Additional expenses of year corporate filing and fees would also need to be factored in to see if their a benefit to an individual. But if you’re already filing, it’s likely worth the paperwork
There’s alot of similarities between the great depression and now. The federal government restricting supply for higher prices to combat deflation, massive unemployment, the media proclaiming the president as a messiah or “Cyrus” for BHO, proclaiming great success and care for the economy and people, expansion of federal authority to spy and imprison citizens without trial and war brewing overseas. The “safety net” is much greater today and the people much more pacified than the 1930′s. I’m an observer of history rather than maker of history. I accept my lot in life.
” The large break is for corporate owned business property. The corporation keeps the property in their name, but sells the corporation with property to another.”
That is the real travesty of Proposition 13. Back when it was passed, taxing authorities got 50% of their revenue from residential properties and 50% from commercial. Now its only about 30% commercial because they all locked in their basis from 1978.
Two thumbs up.
I firmly believe that government at all levels has got to keep its paws out of the housing markets.
That includes the MID, FHA, Fanny, Freddy, Prop 13, Section 8, HAMP, and every other stupid give away, market distorting, make work bureaucratic subsidy program.
The housing markets need a financial enema.
I feel better now. <;)
Homeownership Rate Likely to Continue Falling: Capital Economics
For the first quarter of 2012, the Census Bureau reported the homeownership rate dropped to 65.4 percent, which was a yearly (66.4 percent) and quarterly drop (66.0 percent). Even more significant was the fact that the drop was a 16-year low from when the rate was 65.1 percent in 1996.
According to Capital Economics, the low homeownership rate is likely to get a little lower.
In a report, Paul Diggle of Capital Economics wrote, “it’s plausible that tight credit, subdued confidence and many more foreclosures will drive the homeownership rate down to 64%.”
The report explained that tight credit keeps young households from being able to qualify for a purchase, falling prices and a lack of confidence prevents households from deciding to own even if they could qualify for a loan, and foreclosures are turning former homeowners into renters.
Even though it might seem as though the homeownership rate should rise considering the current climate of low interest rates and prices that seem to be recovering, Capital Economics still expects to see a slight drop.
“After all, while credit conditions should loosen a touch over the next few years, and consumer confidence in the housing market is already returning, it is unlikely that the resulting improvement in housing demand will be enough to offset the cyclical rebound in household formation,” the report stated.
The research firm expects to see the rate to fall to about 64 percent by 2015, and pointed out that up to 1.7 million households may lose their home to foreclosure in the next few years, which means more renters.
Hence, the positive news from the drop in the projected drop in the homeownership rate is the impact on the rental market, which would be good news for investors.
However, following the next two to three years, the homeownership rate is projected to stabilize and even start rising again as credit conditions ease and credit scores rise along with an improving economy and fewer foreclosures, according to the research firm.
“Finally, while survey evidence suggests that homeownership aspirations have cooled somewhat since the bursting of the housing bubble, owner-occupation is still the tenure of choice for a substantial majority of Americans,” the report stated.
How does your crystal ball prediction play out if wages don’t grow to support the insane prices the banks need? In LA a family needs to earn $300k minimum to support this housing market when you factor in raising kids, cars etc. Can families even afford the $4k+ rents owners are demanding for sfh’s? I don’t think so. Not if they want to save anything. I get that the banks have a lot of latitude to delay price declines, but that doesn’t mean much when wages have been stagnant for a decade with little hope of that changing.
Eventually, if the federal reserve prints enough money, it will make its way into wages. Until then, the inflation will lower everyone standards of living, and as other costs rise, the amount people have left over to pay rent or a mortgage will drop putting more pressure on prices. In all likelihood, we will see price inflation before wage inflation, and then when wages start rising, we will get both.
That’s not necessarily true. It’s perfectly possible to have rising prices without wages keeping up. Tune your crystal ball to about 1977 for an example. All you need is productivity growth so crappy that population growth outpaces it, so that the market-clearing real price of labor steadily falls. Prices rise, but unemployment is always high enough to prevent wages from rising proportionately. Welcome back, Carter!
More like tune your crystal ball to circa 2012 to see rising prices and declining wages.
I don’t want to belabor the point but I don’t think wages will catch up to today’s certifiably insane SoCal RE pricing for decades.
Carl,
I agree wtih you. Looks like our median incomes peaked around 2001 (I assume this was due to the tech bubble):
http://www.zerohedge.com/news/median-male-worker-makes-less-now-43-years-ago
From approximately 2001-2006 we had big jumps in home prices most likely because of old man Greenspan. So like the days of Carter, we have seen times of decreasing incomes and increasing cost of living/housing.
There are some data to support we are stagflating which is scary and much worse than inflating or deflating economies. That’s the problem with increasing the money supply. The money does not really go to Main Street. About $2.43 of debt is needed for $1.00 of GDP.
Times like these usually lead to people with bad mustaches or trains of people being sent to the Gulags.
IR,
Your hit the nail on the head. Price inflation before wage inflation. People are afraid of losing their jobs. even without true COLA and poor working conditions, unpaid overtime…, so they stay for a “sure thing.” The productivity per worker has gone up during this down turn, but I think it has reached it maximum using the current models.
I know some extremely talented people that have been out of work for over a year. With high unemployment – “I can hire one half of the working class to kill the other half.” Jay Gould,
Anyone notice SB 1069 approved by the Governor earlier this month?
http://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml
In CA starting Jan 1, 2013, rate & term refis will maintain the anti-deficiency protections of the initial purchase money mortgage. I was already planning to delay my refi (of two purchase loans) a few months, and now I’ll wait til Jan 2013. Then, if for some reason I subsequently default and there’s a deficiency, I can’t be held responsible for it.
This also gives my servicers a few months to offer me the promised National Mortgage Settlement refinances or rate reductions. Yeah right…
Prop 13 does allow up to 3% in property price rise very year. And historically, a 3% rise in property prices is the norm so it’s not Prop 13 that’s out of whack, it’s people’s greed that keeps bidding up properties to bubble prices. You want grandma to be thrown out of her home because millions of debt-owners couldn’t resist the temptation to buy at bubble prices just because they could?
Mitesh,
I think Prop 13 allows for up to 2% increase every year. Much lower than CPI/CCI.
http://ballotpedia.org/wiki/index.php/California_Proposition_13_(1978)
You’re right in that speculation, greed and lack of underwriting has allowed for bubbles….but if Prop 13 did not exist, then maybe those prices will not be allowed to escalate too high (like Texas where taxes are over 3%..but no state income tax). Greed got the best of us, but I still do not agree with any mis-allocation of cost and benefit.
One way around it…maybe Counties should take the total cost of service then divide by the total equivalent dwelling units (EDU):
Tax obligation =Total Cost/Total EDUs
FYI – “Equivalent Dwelling Units (EDUs) are units of measure that standardize all land use types (housing, retail, office, etc.) to the level of demand created by one single-family housing unit.”
This way everyone pays for their “fair share” of cost of services.
I’ll agree to this, when CA eliminates public employees right to collectively bargain. Until then…
Bubble prices and bubble taxes!. If the real estate bubble deflated then local governments lose tax money. I can see why CA politicians want to the keep the bubble going it brings in more property tax and transfer tax revenue.
Ditto to just about everything posted today.
Prop 13 failed the common man for it was sold limit CA government spending to RE taxes collected, but only reduced RE taxes collected. Prop 13 was essentially reduced a drunkard wages but drinking on unlimited credit. Prop 13 and MID are sacred cows — no matter how little the middle class benefits from them. There real winners are the corporate business and banks.
My hat’s off to the author of this piece! Dang if this isn’t precisely the kind of investigative journalism that we need to see in EVERY U.S. media venue!
I completely concur with the inventory outlook moving forward. I agree it’ll be YEARS before properties both fall back in line pricewise with actual earnings AND/OR even become available again in significant numbers. This was a topic of much debate in our family, as we were in the process of trying to buy a house with a substantial downpayment. The question was whether to sink our continuously-devaluing savings into a home or buy physical precious metals instead (we believe the dollar will be toast very soon!).
Thanks in part to your article, I believe the right thing to do is wait for a price dip and then hedge our money into bullion. We’ve always trusted precious metals and already more than doubled the value of our original investments.
Also, and I know this statement might sound ridiculous to many people out there, we believe that the way things are going the time might soon come when we might want to FLEE the U.S.. Not that other countries might be BETTER, but with America’s decling standard of living they might ultimately prove to be the SAME …for LESS. Not to mention the free healthcare that countless other nations provide for their citizens & legal immigrants.
Good work & thanks again!
Thank you for the kind words. I greatly appreciate it. I’m glad you find value in the blog.
Good article, IR. But I disagree slightly with this:
Interest rates will remain low, even if it sparks inflation, because lenders need cheap mortgage rates to push prices back up near the peak to allow those who are currently underwater the ability to escape without a short sale.
The mortgage market isn’t that important to The Bernank and Team Obama. A much more relevant factor is the cost of the wholly unprecedented level of Federal borrowing that Obama’s Master Plan calls for. If interest rates bump up even a teensy bit, that $1.5 trillion they have to borrow every freaking year from now until the crack of doom would face jumps in the cost of interest that would blow the ship of state entirely out of the water.
That’s why they keep the interest rates down. So the Feds interests costs are manageable, and secondarily so that everybody with money is driven by sheer necessity to buy Treasuries, allowing them to borrow forever (or at least until they’re out of office and retired comfortably on the talkshow circuit).
Making it easier for people to buy houses is just icing on the cake, if they care at all, plus a very nice way to spin for public consumption what is otherwise complete banana republic bullshit monetary irresponsibility.
Whoever wrote this article is spot on! Homeowners in their sixties who paid $525,000 for a house now worth $225,000 are not receptive to a principle reduction of $100,000. The math doesn’t work and that is why there is a low response for modification. The ideas are great but they are four years too late. The ship has sailed because the market has dropped too low. So today, the foreclosures should just be released and the hard numbers acknowledged by the bank for the short term. Inventory is low and multiple offers abound. The banks could release three to five times the inventory and still receive multiple offers pushing prices up. The market has crashed too low for the original offer of loan mods to be desirable. Real estate inventory employs realtors, lenders, appraisers, painters, flooring contractors, roofers, pool professionals, chimney inspectors, home inspectors, electricians, plumbers, septic inspectors, well inspectors, home warranty companies, handymen, landscapers, house cleaners, locksmiths, eviction companies, attorneys, police officers, insurance agents and many more. Those, gainfully employed use home improvement stores, buy cars and boats, use salons, shop at retail stores, buy jewelry, take vacations, go to restaurants, and invest money in the stock market etc. Now you have low unemployment. Let the market correct itself. No government intervention needed. It is common sense.
Great comment & recommendations Sheila. Unfortunately for the rest of society the Too Big To Jail firms that run this country simply REFUSE to eat their losses … no how, no way.
And the American people thus far have proven to be completely INCAPABLE of FORCE FEEDING it to them.
So strap yourself in and assume the fetal position, this is gonna be one helluva rough ride down!
“And of those one million, more than half will fail again within 18 months. Very few of these loan modifications will be truly “permanently” modified.”
IR – The latest HAMP delinquency numbers show that only 26% redefault after 18 months, and 33% after 24 months. Say what you will about the failures of HAMP, but the redefault numbers have exceeded all expectations.
Well BAC also has one customer that they got in the Countrywide purchase who has actually just paid off his mortgage…me. I know, it’s unheard of that someone would actually pay what he contractly agreed to pay but then I’m old school. It was quite easy to do. No fancy vacations, no weekly or monthly restaurant meals, three cars with an avg age of 14 yrs, no boats, no jetskis, no HELOC, just steady monthly payments for 15 years. Would someone pay me what I paid for my house? I have no idea and that does not even enter into the equation. I made a deal, I signed the paperwork, I carried out my part of the bargain.
Congratulations! I wish there were more people like you in the world.