Jun242015
Moratorium on mortgage defaults would solve housing crisis
Is the crisis in housing due to toxic mortgage products or people refusing to pay their mortgage obligations?
Have you noticed that eight years after housing collapsed and three years after housing bottomed, people still refer to housing as being in a crisis? As long as millions of delinquent mortgage squatters refuse to pay their mortgages, and as long as lenders refuse to foreclose on the deadbeats, then housing is still in crisis.
362,000 American delinquent mortgage squatters refuse loan modifications, so obviously we can’t modify our way out of the problem. Further, bailouts like loan modifications by their nature create moral hazard by preventing an individual or family from enduring the consequences of their bad decisions. 
It simply is not possible to have a bailout without moral hazard; it’s only a matter of degree.
So what would happen if we simply banned all evictions? Is this solution any better?
Housing-rights group seeks changes to eviction policies
Meaghan M. McDermott, Staff writer 4:54 p.m. EDT June 18, 2015
Following a failed effort earlier this week to keep a Rochester man from being evicted from his foreclosed Webster Avenue home, a local housing-rights group is asking the city to modify the way the Rochester Police Department handles eviction actions.
“We want a conversation between the banks and the homeowners…”
Banks communicated with homeowners; the problem is no lack of communication. The problem is a lack of agreement on terms: banks want to get repaid with interest on the loan; borrowers want a free ride at the expense of those who provided the loan capital in good faith with the belief they would get repaid according to the terms on the promissory note. The banks offered to modify the loans with very generous terms, and 362,000 Americans simply refuse to take the deal. 
and the only way for that to happen is if the city doesn’t make it easy to remove the homeowners by supporting the banks via police enforcement,” said Julie Gelfand, with the Rochester chapter of Take Back the Land.
They can’t change the law, so they are asking police not to enforce it. Really? Do I need to explore the insanity of that idea further? Perhaps the mafia should lobby local police not to enforce laws that infringe on their business activities? Oh wait, we already have that — it’s called bribery and extortion.
The national network of Take Back the Land organizations is dedicated to elevating housing to the level of a human right and securing community control over land.
(See: What is the minimum level of housing quality people are entitled to?)
Last week, the group vowed to help Joe Woods of Rochester stay in the home he’s lived in on Webster Avenue since 1990 despite an eviction order filed with the City Marshal.
On Wednesday, Gelfand said, the marshal and police arrived at the house to enforce that order around 9 a.m. She said volunteers attempted a blockade, but Woods was coaxed out of the house after police arrested his 20-year-old daughter Audrey when she stepped outside to see what was going on.
Ultimately, six volunteers and Audrey Woods were arrested, with charges ranging from trespassing to obstructing governmental administration, Gelfand said.
Woods said he and his daughters are temporarily staying with other family members for the time being. He is working with lender MidFirst Bank to set up a time he can re-enter the house to retrieve his family’s belongings.
He and his wife Glenda purchased the house in 1990 for $59,000. It currently has an assessed value of $28,000. According to foreclosure documents filed in 2010, the couple owed at least $58,000 on the property following two mortgage modifications.
How many times have we seen this before? The couple bought the property 25 years ago, but rather than having their mortgage paid off, they actually owe more than they originally borrowed. How do you suppose that happened? It certainly wasn’t due to the two mortgage modifications as the report suggests.
Woods said he was simply unable to work out agreeable payment terms with lender MidFirst.
“All I ever wanted was a fair deal and a fair negotiation on the home,” he said.
The bank did not respond to emails seeking comment.
What is there for the bank to say. They obviously don’t want to foreclose on a house worth $28,000 when they have a $58,000 loan on it, so they were undoubtedly very amenable to modifying the terms to avoid foreclosure. They only way they couldn’t come to an agreement is if the borrower was asking for what amounts to a free house. Any payment the bank could get from this borrower is better than foreclosure.
On Thursday, Take Back the Land called on the city to take four actions, including: impose a moratorium on police-enforced bank actions; an investigation into allegations of civil and human rights violations related to Woods’ eviction and the eviction of other struggling homeowners;
Human rights violations?
the implementation of community land trusts that would allow for community control over housing stock;
And what would this community land trust do with the land? Remember, Socialist solutions to housing affordability problems suck.
and a civilian control board over the Rochester Police Department.
They already have that; it’s called a city council. If they don’t like the civilian control board in place, they can work to replace them at the next election.
Jessica Alaimo, city spokeswoman, said Warren’s administration is “always concerned about residents and homeowners and tries to strongly advocate for ways to keep people in their homes.”
There are better ways to keep people in their homes: they could pay their mortgages.
A better solution to the housing crisis
The following is fiction… or is it…
Washington D.C., June 23, 2015 — Housing and Urban Development Secretary, Julian Castro, announced a moratorium on defaults today. “We have been considering a moratorium on foreclosures,” said Castro, “but a moratorium on defaults will be much more effective.”
While other lawmakers are still considering foreclosure moratoriums, Castro is convinced a default moratorium is a better approach. He hopes others in State and Local legislatures will follow his lead. “We want to keep people in their homes,” said Castro, “and we need to keep our lending institutions healthy.”
When asked how a default moratorium would help, Castro had this to say, “Foreclosures are the result of defaults, and defaults are also causing lenders to take write-downs on mortgage loans. By putting a moratorium on defaults, we solve both problems.” Castro provides clear guidance on how the program would work, “Homeowners need to keep making their payments. That will put an end to the housing crisis.”
Experts agree that falling home values are not the root of the problem. Castro goes on, “But let me emphasize that we do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity. Negative equity does not affect borrowers’ ability to pay their loans. Homeowners who can afford their mortgage payment should honor their obligations.”
When pressed for more details on how such a moratorium would be implemented when so many homeowners cannot afford their payments, Castro responded, “We are still working on the details. Lenders are already modifying as many loans as possible, and we may provide direct government assistance to the banks through paying citizen’s mortgages directly. The American people are kind and generous, so they certainly won’t mind helping out their fellow citizens with tax dollars as necessary.”
When confronted with the possibility of creating a moral hazard, Castro scoffed at the notion, “Homeowners need this help to stay in their homes. It would be immoral to throw them out on the street.”
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3.5 Million Foreclosures Delayed Through Can-Kicking
Fannie Mae and Freddie Mac combined to complete 65,960 foreclosure prevention actions in Q1 this year, bringing the total of such actions up to almost 3. 5 million between the two GSEs since September 2008 when the conservatorships began, according to the Federal Housing Finance Agency (FHFA)’s Q1 2015 Foreclosure Prevention Report released on Tuesday.
Out of those 3.5 million foreclosure prevention actions in nearly seven years, 2.9 million borrowers completed home retention actions that helped them stay in their homes. About 1.8 million of those borrowers received permanent loan modifications, according to FHFA. Borrowers completed 41,321 permanent loan modifications in Q1, a slight increase from 40,922 in Q4. Approximately 31 percent of borrowers receiving permanent loan modifications in Q1 saw their monthly mortgage payments reduced by 30 percent or more. FHFA reported that as of the end of the first quarter, approximately 17 percent of loans modified in the first quarter of 2014 had missed two or more payments.
Of those nearly 66,000 foreclosure prevention actions completed during Q1, 56,451 of them were home retention actions (loan modifications, repayment plans, forbearance plans, or charge-offs-in-lieu). According to FHFA, 9,509 of those Q1 foreclosure prevention actions were home forfeiture actions (short sales or deeds-in-lieu of foreclosure).
Third-party sales and foreclosure sales totaled 34,873 during the quarter, foreclosure starts totaled 70,267, and REO inventory for both Fannie Mae and Freddie Mac was 100,279, according to FHFA.
Non-Current Inventory, Foreclosure Starts, and Delinquencies All Rise Month-Over-Month
May saw month-over-month increases in foreclosure starts, non-current residential housing inventory, and mortgage delinquencies, according to Black Knight Financial Services’ First Look at Mortgage Data for May 2015 released Wednesday.
Non-current inventory, which is comprised of all residential properties 30 days or more delinquent or in foreclosure, totaled approximately 3.3 million in May – an increase of about 89,000 from April, according to Black Knight. It was the second consecutive month-over-month increase for non-current inventory.
The delinquency rate, which is the percentage of properties 30 days or more overdue but not in foreclosure, represented 4.96 percent of all residential mortgage loans nationwide in May – a 4 percent increase from April. May marked the second consecutive month-over-month increase in delinquency rate.
Overall, the number of delinquent mortgages jumped by 98,000 up to about 2.5 million in May.
Foreclosure starts climbed by 11 percent nationwide from April to May, from 73,500 up to 81,900.
The foreclosure pre-sale inventory rate ticked slightly downward month-over-month by about 10,000 properties to 754,000 in May, representing 1.49 percent of all mortgages nationwide.
Refi, purchase applications both rise in MBA survey
The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index was unchanged compared with the previous week and was 18% higher than the same week one year ago.
The Market Composite Index, a measure of mortgage loan application volume, increased 1.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1% compared with the previous week. The Refinance Index increased 2% from the previous week.
Analyst warns O.C.’s luxury homes may be overpriced
Orange County real estate watcher Steve Thomas has a warning for the local luxury home market: Price matters.
Thomas’ latest edition of ReportsOnHousing notes that as of last Thursday, homes listed above $1.5 million are 20 percent of the active inventory but just 6 percent of all new escrows. He blames overpriced listings for this imbalance.
This can be glimpsed in Thomas’ “market time” benchmark, a tally tracking how long it would take to sell all the inventory in the for-sale listing network of local brokers at the current pace of dealmaking.
The market time for homes priced under $750,000 was 43.2 days compared to 84 days for homes between $750,000 and $1.5 million and 215 days for all homes listed at more than $1.5 million.
“Many of these homeowners may hear how the housing market is on fire and homes are obtaining multiple offers and selling above their asking prices just moments after the For Sale sign is pounded into the ground. There is no fine print that informs them that it does not apply to luxury homes,” Thomas writes in his latest ReportsOnHousing.
“As they continue to keep their home in showing condition day in and day out, they are all hoping to become one of the lucky 187 (now in escrow) who are priced right and have the exact right mix of location, upgrades, amenities, and condition,” he says. “The number one, most important ingredient today is price.”
Inventory Numbers are still wrong
As of last Thursday, there were 6,534 Orange County homes listed for sale compared to 6,276 two weeks earlier – an increase of 4.1 percent. A year ago, however, there were 7,363 homes listed, so we’re down 11.3 percent in a year.
According to Redfin in May 2014, 7,801 were for sale, and in June 2015, the number is 8,290, a 6.3% increase.
Your numbers for Redfin are inaccurate. If you type ‘Orange County’ into the search browser and exclude multi-family, raw land, and ‘other’ from the results it shows 6,410 homes for sale.
They aren’t my numbers, they are Redfin’s numbers. The chart and the data speak for themselves.
The simple difference is that you are using numbers inclusive of pending contracts, while Steve Thomas does not, and then you’re making a giant leap in claiming his numbers are wrong. Both Redfin and Thomas source the MLS for their data which is why the totals match up when a consistent set of criteria is used.
Assuming both use a consistent set of criteria, why is there a Y-o-Y difference between the two? Not just are the aggregate numbers different, which may be answered by the inclusion of pending or not, but the change in those aggregates are different as well, and whether or not pendings are included or excluded doesn’t explain that difference.
Economy Expected to Recover From First Quarter Decline
After a decline in economic activity in the first quarter, research has shown that a complete turnaround is expected for the second quarter. Fannie Mae’s Economic & Strategic Research (ESR) Group found indicators of the U.S. experiencing a moderate rebound in economic growth for the current quarter.
“The first-quarter slump wreaked more havoc than expected, particularly as real consumer spending grew only 1.8 percent annualized despite significant savings at the gas pump,” said Doug Duncan, Fannie Mae’s chief economist. “We adjusted our full-year growth projection down to 1.9 percent from 2.3 percent in the prior forecast, in light of the downward revision to first-quarter GDP. However, our forecast for the current quarter and the rest of the year is little changed as recent developments support our expectations for a second-quarter pick-up.
“Labor market conditions are providing more near-term support for consumers, indicating that the acceleration in income growth this year should be sustainable,” Duncan said. “Additionally, the decline in gas prices could lead to a delayed boost in consumer spending as we saw in May with auto sales posting the strongest pace in nearly a decade, further signaling that consumer spending is gearing up for a rebound.”
Don’t Blame Subprime For The Foreclosure Crisis — It’s About Strategic Default, Period
The popular narrative explaining the worst financial crisis since the Great Depression is that greedy bankers induced borrowers, many of them from minority groups, to take out predatory subprime mortgages they couldn’t possibly repay, then foreclosed when they defaulted.
The default and foreclosure parts are correct. Nearly 5 million homes have slipped into foreclosure since the onset of the crisis in 2008, according to Corelogic, which tracks the mortgage industry. Bank of America, JPMorgan Chase, Citi and other banks agreed to pay $25 billion for their supposed sins, including using computers to draw up foreclosure papers and dragging their feet on loan modifications.
But a new study by a pair of researchers at the University of Pennsylvania’s Wharton School of Business casts serious doubt on the rest of this narrative, popular as it is. Subprime borrowers were more likely to default, especially in the earlier years of the crisis, but over time twice as many prime borrowers lost their homes as subprime, with correspondingly higher total dollar impact on the financial markets. And the key variable driving all foreclosures wasn’t the type of loan, the amount of leverage, or the socioeconomic or ethnic status of the borrower, but whether a given house was underwater, or worth less than its mortgage.
Loan-to-value was the single characteristic that best explained why one home would go into foreclosure instead of another. People tend to stop paying their mortgages, it turns out, when their house is worth less than they owe.
It’s about unscrupulous creditors and deadbeat borrowers.
If subprime borrowers did not blow up then the prime borrowers would not have experienced the losses which encourage their default. This is like stating the little bit of snow which started to fall at the top of the mountain didn’t cause the avalanche.
The fact more and more of these articles are being published makes me think the gov and banks are on a full court press to bring back risky mortgages.
Yes, when you consider the implications of what they are saying, bringing back risky mortgages is the natural extrapolation.
If negative equity was the primary determinant of strategic default, and if lenders learned how to buoy prices by can-kicking bad loans to prevent negative equity, then bringing back unstable loan products is a safe option. This is the kind of fallacious thinking that forms the essence of the moral hazard left over from the housing bust.
If you really look at their study then the GSE and FHA should make it mandatory that a borrower have 20% down if not 30% down. A massive down payment is the real defense against a housing crash (although it would likely cause a huge loss of equity to current owners).
The reporter made this erroneous conclusion:
I agree with you that this study screams out for higher down payment requirements. The cushion is all we have, so it should be as high as it practically can be.
Last In, First Out. Lowering credit standards increased buyers. More buyers drove prices higher. Higher prices created demand for affordability products. Property ladder failed for want of adequate foundation. Prime buyers took brunt of correction since they were the last buyers with financial means to pay peak prices.
Subprime default rates are a red herring. The run-up is more critical than the collapse. Once the bubble formed the demise was inevitable. Those on the first level of the Ponzi Pyramid get their money out before the fall, or when the fall comes, there are plenty of bodies to cushion it.
Subprime buyers suddenly had credit access and rushed in to buy. First In. Prime buyers reacted to rising prices. Last In. Prices fell and washed out the prime buyers 20% down. First Out. Subprime buyers still had equity. Last Out.
Sure, sub-prime default rates were no more than prime borrowers. But this is explainable by the abrupt change in market dynamics. Early sub-prime entrants were able to sell while prime buyers had to short-sell, or default. If home prices doubled from 2000-2006 and then fall by 50%, subprime buyers can still sell without defaulting. We really don’t know what the true subprime default rate would have been. You can’t compare subprime apples to prime oranges and learn anything meaningful.
The missing factor in your analysis is the mortgage equity withdrawal. Even many of those that were first in ended up being among the first out because they refinanced out the equity and put themselves in the same precarious situation as those who entered at the peak.
True. Probably a safe assumption that subprime borrowers were also heloc abusers. Funny how the authors omitted this from their analysis. Would the fact that subprime borrowers spent their heloc booty make them more or less responsible for the collapse?
US new home sales rise to 7-year high in May
New U.S. single-family home sales increased in May to a more than seven-year high, further brightening the outlook for the housing market and the broader economy. (Tweet this)
The Commerce Department said on Tuesday sales rose 2.2 percent to a seasonally adjusted annual rate of 546,000 units, the highest level since February 2008. April’s sales pace was revised to 534,000 units from the previously reported 517,000 units.
Economists polled by Reuters had forecast new home sales, which account for 9.3 percent of the market, rising to a 525,000-unit pace last month.
Home prices rise less than expected
Home prices rose 0.3% in April according to the latest report from the Federal Housing Finance Agency.
Expectations were for the reading to show home prices rose 0.5% in April, up from a 0.3% increase in March.
The index is now 2.3% below its March 2007 peak and is around the same level as it was in February 2006.
Over the prior year, home prices rose 5.3% in April.
Some much needed…. pellucidity
The Morality of Strategic Default
First, a mortgage contract, like all other contracts, is purely a legal document, not a sacred promise.[14]
A mortgage contract explicitly sets out the consequences of breach.
In other words, the lender has contemplated in advance that the mortgagor might be unable or unwilling to continue making payments on his mortgage at some point—and has decided in advance what fair compensation would be. The lender then wrote that compensation into the contract. Specifically, the lender probably included clauses in the contract providing that the lender may foreclose on the property, keep any payments previously made on the property, and may opt to pursue a deficiency judgment against the mortgagor if state law so allows.[15]
By writing this penalty into the contract and then signing the contract, the lender has agreed to accept the property and (in most states) the option to pursue a deficiency judgment in lieu of payment. Of course, even in states where they can, lenders frequently don’t pursue borrowers for deficiency judgments because it’s often not economically worthwhile to do so.[16] Nevertheless, that’s the agreement. No one forced the lender to sign—or write—the contract,[17] and the lender wouldn’t hesitate to exercise the right to take a defaulter’s house if it were financially advantageous to do so. Concerns of morality or social responsibility wouldn’t be part of the equation.[18]
In short, as far as the law is concerned, choosing to exercise the default option in a mortgage contract is no more immoral than choosing to cancel a cell phone contract. The borrower must simply be willing to accept the consequences, which, in the case of a mortgage contract, typically include foreclosure and the risk of a deficiency judgment in most states.
Even though the law doesn’t treat breach of a mortgage contract as a moral wrong, it might be argued that one should still keep one’s promises.[19] That’s a fine belief as far as it goes.
http://www.uclalawreview.org/the-morality-of-strategic-default/
I think it’s been demonstrated ad infinitum that legality does not equal morality. It’s entirely possible to follow the rule of law while living an immoral life. It’s also possible to be living morally while violating the rule of law. Both of these statements have proven true throughout the course of history. Therefore, looking to the law to justify one’s immoral behavior (in this case, theft) shows an infantile understanding of both morality and the law.
Why am I not surprised that a Law Review would argue that the letter of a contract is more important than a man’s (or woman’s) word?
Being lectured by a bunch of lawyers on MORALITY (for heaven’s sake!) is laughable to say the least.
It’s like reading an Op-Ed from Bill Clinton on why extra-marital affairs are not immoral. After all, the aggrieved party is free to break the marriage contract, right?
I’m still laughing… a lawyer righting about morality and social responsibility? The cognitive dissonance is strong in this one.
Using morality as an inducement to pay the mortgage is a crutch utilized be residential lenders to reduce the consequences of making bad loans to shaky borrowers and to reduce their up-front diligence.
Commercial lenders spend more time and effort on due diligence and borrower qualification because they know their borrowers will strategically default if it’s in their best interest to do so. Even the Mortgage Bankers Association strategically defaulted on the mortgage of their national headquarters. It’s hypocrisy in the extreme for them to point the finger at residential borrowers as immoral.
a huge +1
Besides, there is NO loan; ie., the priciple is created.
It’s just a minor ethical judgment that doesn’t affect anyone. If you were able, but decided not, to pay your mortgage payment, then you’re a deadbeat. No biggie. Just accept the judgment.
So many people get so offended on both sides of this issue. I would need to be provided great detail to fairly judge any specific instance of default. There are degrees.
I had to look this one up…
Full Definition of PELLUCID
1: admitting maximum passage of light without diffusion or distortion
2: reflecting light evenly from all surfaces
3: easy to understand
A moratorium on default? Sounds great! Why didn’t I think of that?
While we’re at it, let’s have a moratorium on murder. That should clean up the streets good and proper.
Then let’s have a moratorium on homelessness.
How about a moratorium on hunger?
This is brilliant! We’ve finally found the silver bullet to solve all of America’s problems!
Exactly! The simple solution was staring policymakers in the face from the beginning, but they weren’t able to see it. Hopefully, this post will open their eyes.
California housing market slows considerably
California’s massive housing market is slowing down in almost every way imaginable, according to the latest California Real Property Report from PropertyRadar.
California single-family home and condominium sales dropped 3.5% to 36,912 in May from 38,249 in April.
However, the report explained that what is unusual this month is that the decrease in sales was due to a decline in both distressed and non-distressed property sales that fell 8.6% and 2.5%, respectively. The monthly decline in non-distressed sales is the first May decline since 2005.
On a yearly basis, sales were up slightly, gaining 2.3% from 36,096 in May 2014.
“With the exception of a few counties, price increases have slowed considerably,” said Madeline Schnapp, director of economic research for PropertyRadar. “You cannot defy gravity.”
“The environment of rising prices on lower sales volumes was destined not to last. Higher borrowing costs since the beginning of the year and decreased affordability was bound to impact sales sooner or later. We may also be seeing the fourth year in a row where prices jumped early in the year, only to roll-over and head lower later the rest of the year,” Schnapp continued.