Whenever I make a prediction that goes against the conventional wisdom, I take the risk of looking the fool. On those occasions when I am right, it’s very satisfying. Even though I know I shouldn’t, internally, I enjoy a silent I-told-you-so.
Almost four years ago now, lenders embarked on their plan to modify loans to get people over the “rough patch” caused by the recession. From the beginning I said these programs would fail largely because the people being helped simply couldn’t afford their homes. They were Ponzis. When a borrower has gone Ponzi, the “rough patch” is when they are cut off from more Ponzi borrowing. Their diminished income has nothing to do with lower wages they earn due to the recession. Ponzis became dependent upon fresh infusions of borrowed money to sustain their lives and their debts, and lenders are foolish to continue to enable this behavior because Ponzis don’t have the capacity to repay the loans. They don’t earn enough money.
Since I firmly believed the problem was one of permanent Ponzi dependency rather than a temporary decline in income due to a recession, I stated on many occasions that all loan modification programs would fail. Conventional wisdom was that these programs would succeed because the US economy would recover from recession and the people receiving loan modifications would go back to work and regain their earning power. It hasn’t worked out that way. It never could. Diminished earning power was never the problem — unless they count the Ponzi borrowing as earning power. Ponzis certainly do.
My view is even more cynical. Despite the widespread ignorance spread in the mainstream media, I think bankers themselves always knew these programs were going to fail. I believe they were using loan modification programs merely as a ruse to get a few more payments out of hopeless Ponzis. Any income is better than no income, and since they were already processing foreclosures faster than the market could absorb them, modifying loans and getting something was preferable to letting the loanowner squat and pay nothing. Loan modification programs were classic can-kicking. Lenders pushed the problem off into the future when they could more effectively deal with the necessary foreclosures. We are three years into their can-kicking policy, and the policy is starting to unravel as defaults are rising. And the end is nowhere in sight.
Modified-Mortgage Defaults Soar 24% in Looming Housing Challenge
By Jody Shenn – Nov 19, 2012 11:52 AM PT
New delinquencies on reworked mortgages held by bonds without government backing jumped in September, a sign that some of the fuel for housing’s recovery isn’t sustainable, according to JPMorgan Chase & Co. (JPM)
At least the US taxpayer is not going to eat those losses.
A record of more than 28,000 modified home loans within so- called non-agency securities turned delinquent, a rise of 24 percent from the prior month, JPMorgan analysts said in a Nov. 16 report. …
Aggressive modification activity has partly driven the sharp decrease in the housing market’s “shadow inventory” tied to bad loans, the analysts led by John Sim wrote. While individual homeowners with reworked mortgages are performing better, an increase in the total number who’ve gotten aid means they represent a threat to rising property prices.
The declines in shadow inventory this year are almost entirely due to loan modifications which will ultimately fail. This “good news” on declining shadow inventory is an illusion.
“We are now seeing a wave of re-defaults from the modifications over the last two years that failed,” the JPMorgan analysts said. “This wave should last through 2013.”
Can-kicking. Fail.
And this will get worse. The loan modifications from 2012 will fail in large numbers as well. Most of the new loan modifications were given to deeply underwater borrowers, investors, Ponzis and others who were excluded from most previous loan modification programs. There is no reason to believe lowering the standards for loan modifications to include more borrowers will increase the effectiveness of these failing programs.
Shadow inventory in the U.S. fell to 2.3 million homes as of July, down 10.2 percent from a year earlier, according to a report last month from CoreLogic Inc. The firm’s tally includes seriously delinquent loans, homes in foreclosure and bank-owned properties that haven’t been listed.
As I said, this is a complete illusion created by loan modifications almost certain to fail.
…A jump in first-time delinquencies seemed largely contained to loans serviced by Bank of America Corp., according to the analysts from Amherst, and those at JPMorgan, who wrote that “it may be possible there were reporting lags or other operational problems” that “artificially” boosted the lender’s figures.
“Contained?” Aren’t you suspect whenever you read the word contained when referring to the housing crisis? Also, notice the glib excuses offered for the problem.
While modified loans are increasingly important to non- agency investors, there’s “significant uncertainty” about their future performance “given the lack of historical precedent for the current situation,” Nomura Securities International analysts including Paul Nikodem wrote in a Nov. 16 report.
The only significant uncertainty is how bad these loans will perform. There isn’t much chance of the performance of these loan exceeding expectations.
Subprime Loans
About 35 percent of outstanding securitized subprime loans have been modified and more than 25 percent of so-called option adjustable-rate mortgages, according to the report. About $216 billion of securitized non-agency mortgages are being paid on time after previous delinquencies, Amherst data show.
Recidivism rates after 12 months for modified subprime mortgages have declined to about 40 percent from almost 80 percent for loans reworked in the third quarter of 2008, reflecting loan servicers offering larger payment reductions and more cuts to balances, according to the Nomura analysts.
A 40% failure rate is being touted as a great success? A full 40% of these loan modifications fail within one year. That’s atrocious. After a few years of 40% attrition rates, none of these loans will be left.
I guess a 40% failure rate is better than the 80% failure rate they used to have, right?
Think about it, why would anyone continue to pursue a policy with a 40% failure rate? Can-kicking anyone?
Fannie Mae and Freddie Mac’s burgeoning holdings of modified mortgages, which drove non-performing loans at the government-supported companies to a record last quarter, also cast “doubts on the true health of the housing recovery,” Jim Vogel, an FTN Financial analyst, wrote in a Nov. 16 report.
Non-performing loans at the GSEs are at record levels? That wasn’t touted in the mainstream media. They were too busy calling the bottom to notice the shaky foundation.
As the various loan modification programs unravel over the next several years, the foreclosure machinery will continue to plod along processing foreclosures a the rate the market can absorb them. Lenders will continue to kick the can to delay foreclosure as long as possible, but eventually they will need to force out those who can’t afford their homes, and they need to boot out the committed squatters who merely want a free ride. When the inevitable foreclosures occur, the fools who thought the problems were behind us in 2012 will be surprised as foreclosures continue for three to five more years at a measured pace. We will see reports about the few success stories, and politicians will justify the enormous taxpayer expense of the bailouts and other failed programs as saving the economy. Only a few of us who are paying closer attention will realize it’s all bullshit.
Cashed out at the peak
The former owners of today’s featured property — multiplied by several million borrowers — illustrate why loan modification programs fail. These owners when Ponzi. They developed a lifestyle based on frequent cash infusions and piling on debt. They more than doubled their original mortgage , and even though interest rates have cut in half since then, they couldn’t afford the payments without the continued infusion of borrowed money, so they imploded. The house is now REO.
- The house was purchased for $378,000 on 9/19/2001. The owners borrowed $378,000 in a seller carry-back loan. They put nothing down.
- On 12/12/2002 they refinanced with a $384,000 first mortgage.
- On 9/13/2004 they obtained a $150,000 HELOC.
- On 9/7/2006 they refinanced with a $690,000 first mortgage.
- On 10/20/2006 they opened a $100,000 HELOC.
- Assuming they maxed out the HELOC, the total property debt was $790,000, and total mortgage equity withdrawal was $412,000.
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
We're sorry, but we couldn't find MLS # S718589 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
720 GRIFFITH Pl Laguna Beach, CA 92651
$599,900 …….. Asking Price
$378,000 ………. Purchase Price
9/19/2001 ………. Purchase Date
$221,900 ………. Gross Gain (Loss)
($30,240) ………… Commissions and Costs at 8%
============================================
$191,660 ………. Net Gain (Loss)
============================================
58.7% ………. Gross Percent Change
50.7% ………. Net Percent Change
4.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$599,900 …….. Asking Price
$119,980 ………… 20% Down Conventional
3.41% …………. Mortgage Interest Rate
30 ……………… Number of Years
$479,920 …….. Mortgage
$108,422 ………. Income Requirement
$2,131 ………… Monthly Mortgage Payment
$520 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$150 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,801 ………. Monthly Cash Outlays
($330) ………. Tax Savings
($767) ………. Equity Hidden in Payment
$127 ………….. Lost Income to Down Payment
$170 ………….. Maintenance and Replacement Reserves
============================================
$2,001 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,499 ………… Furnishing and Move In at 1% + $1,500
$7,499 ………… Closing Costs at 1% + $1,500
$4,799 ………… Interest Points
$119,980 ………… Down Payment
============================================
$139,777 ………. Total Cash Costs
$30,600 ………. Emergency Cash Reserves
============================================
$170,377 ………. Total Savings Needed
The property above is available for sale on the MLS.
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37 Responses to “Loan modification defaults soar 24%, can-kicking fails”
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Once reality sinks-in, it’s too late.
The banks hope that once reality sinks in, they will be past the crisis and the problem will resolve itself. Wishful thinking.
A very apt quote, especially considering the source. Does this mean you finally acknowledge that housing has bottomed?
P.S. Hope you and the Twins had a happy Thanksgiving.
I’m holding my breath waiting for capitulation…
Naturally, only very naive people would equate a policy/speculator-driven bounce to ”bottomed”. just say’n
Had a very nice Thxgiving. Thank you. Hope you did too, and with your recent family addition, the memories you make are much more special.
I just took the ‘Twins’ out for a run to make sure they’ll be good to go for the upcoming bay parade season. All good, but ended up on a vessel assist mission, so about half the day was spent at idol. >:-@!
I always knew there was some good left in you. I’m sure the satisfaction of helping your fellow man more than made up for the loss of a day out on the water.
The Newport boat parade didn’t seem to impress as much last year as I remember in previous years. I think we were there on the last night so maybe some of the captains took the night off.
IR,
If a modified loan fails are the losses even bigger? Would it have just been more cost effective to let the loan go into default without the modification?
If we are talking about 80% failure rates, then this program is just delay the shadow inventory. Maybe that’s why we are seeing sub 3% 15 year fix mortgages.
Since they couldn’t foreclose on so many people all at one time, it becomes cost effective to modify loans despite the high failure rates because they squeeze a few more payments out of people who otherwise would simply have squatted.
Lingering Headwinds Make Recovery ‘Disappointingly Slow’
While various economic reports hint at improvements in the nation’s economy since the economic crisis was in full swing, improvement is meek and “recovery” seems too strong a word to describe the progress thus far. Federal Reserve Chairman Ben Bernanke calls the pace of recovery “disappointingly slow.”
In a speech before the New York Economic Club Tuesday, Bernanke pointed out some of the lingering headwinds preventing the economy from more momentous progress.
Significant among these headwinds is the housing sector itself.
To make his point, Bernanke quoted a few notable statistics.
“House prices declined almost one-third nationally from 2006 until early this year, construction of single-family homes fell two-thirds, and the number of construction jobs decreased by nearly one-third,” he said.
Home sales, prices, and construction have shown some forward movement this year, which Bernanke said is “encouraging” and expects to see residential investment become a “source of economic growth and new jobs over the next couple of years.”
However, a “powerful housing recovery” is still being prevented, and one of those obstacles is tight lending, according to Bernanke.
Outside the housing market, the credit and capital markets serve as another financial headwind for the nation’s economy. In particular, the financial situation in Europe has been and continues to be a cause of stress and uncertainty.
The third financial headwind Bernanke mentioned is U.S. fiscal policy. This concern can be divided into three major categories – the fiscal cliff, the federal debt limit, and monetary policy.
“Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy,” Bernanke said.
The fiscal cliff that looms if tax laws remain unchanged “would pose a substantial threat to the recovery,” Bernanke said. Similarly, failing to approve a new federal debt limit would damage the economy.
While the third category, monetary policy, “can do little to reverse the effects that the financial crisis may have had on the economy’s productive potential,” Bernanke asserted the Federal Reserve is doing everything in its power to contribute positively to the economy.
Such actions include additional mortgage-backed-securities purchases and an extension of the maturity of the Fed’s Treasury holdings. While it is still early to assess the impact of these actions, Bernanke says research suggests they are already having a positive effect.
GSEs see home prices rising a paltry 1.6% in 2013
Given improvements seen in housing, Fannie Mae revised its housing forecast higher for 2012 and 2013 in its November economic outlook report.
According to the GSE, the fundamentals are set in place for a “solid” housing recovery, such as low interest rates, rising prices, and a labor market that’s healing.
Considering these developments in housing, the GSE’s Economic & Strategic Research Group anticipates single-family housing starts will jump 25 percent this year, then rise by another 22 percent in 2013.
Existing-home sales should also rise and see a 9 percent increase in 2012 and a 4 percent gain in 2013.
When combining new and existing-home sales, the increase is expected to be 10 percent this year and an additional 6 percent in 2013. And if there’s any risk in this forecast, Fannie Mae says it’s that housing demand may actually result in stronger housing activity than currently anticipated.
Based on the Federal Housing Finance Agency’s purchase-only index, home prices should see an increase of 2.9 percent for the remainder of 2012 and a 1.6 percent increase in 2013.
Fannie Mae was also optimistic about originations and expects originations to reach $1.81 trillion in 2012 and $1.54 trillion in 2013. The refinance share of originations should rise to 71 percent in 2012 before dropping to 62 percent in 2013, according to the report.
The 30-year fixed-rate mortgage is expected to stay low and average 3.5 percent in 2013.
The GSE also expects the Federal Reserve to continue buying $40 billion in mortgage-backed securities (MBS) each month through 2013.
Unemployment is expected to dip further into 2013 and fall to 7.6 percent. GDP is expected to grow at a rate of 2.2 percent in 2013.
Even though reports on the housing sector give reasons to be optimistic, Fannie Mae still warned “data continue to show a sluggish recovery overall.”
The GSE also noted consumer spending was the largest contributor of growth in Q3. However, consumer confidence may be weakened in coming months due to the the fiscal cliff and debt ceiling debate, which “are likely to create the most significant barriers to meaningful growth,” Fannie Mae stated.
In addition, Fannie Mae Chief Economist Doug Duncan cautioned, “While the pick-up of activity in the third quarter is encouraging, it is compared to the weak pace seen in the second quarter and doesn’t portend a robust recovery in the near term.”
Watch Fannie and Freddie are increasing their fees in 2013. Have to pay for all these modifications that are failing.
Fiscal Cliff Concerns Hinder Consumer Confidence
Consumer confidence hit the wall in November as Americans sweat the rapidly approaching fiscal cliff, according to monthly survey results released by Thomson Reuters and the University of Michigan.
The Thomson Reuters/University of Michigan Survey of Consumers showed confidence over the economy increased just 0.1 percent from October to November, hitting 82.7 on the Index of Consumer Sentiment. Preliminary data released earlier in November put the index at 84.9, and economists polled by Reuters expected a median index of 84.5.
As budget negotiations begin on Capitol Hill, it seems Americans are growing more concerned about looming tax increases and spending cuts.
“When asked to identify any recent economic news, consumers more frequently made unfavorable references to potential changes in future federal tax and spending programs as well as the inability of the political parties to reach a timely settlement,” a release issued with the survey said.
The November survey is one of only a handful in the past half century in which more consumers “spontaneously mentioned their uncertainty about government policies.” Other past occurrences were also related to taxes, spending, and the federal deficit. While consumers remain optimistic—the index is at its highest level in five years—“that optimism is contingent on the promise of no higher taxes, except on the wealthy.”
While the overall Sentiment Index was slightly above October’s 82.6 (and well above November 2011’s 63.7), the Expectations and Current Conditions sub-indexes moved in opposite directions: The Expectations Index slipped to 77.6 from 79.0 in October, while the Current Conditions Index rose to 90.7 from 88.1. Both components were well above last November.
In addition, more households reported gains in personal finances in November’s survey than in any other survey since March 2008. Although a slightly larger number reported worsening finances, Americans seem to be much better off than they were in November 2011, when worsening finances were reported twice as frequently as improving financial situations.
Anticipated economic gains also boosted consumer expectations about the job market. The survey recorded the most favorable outlook for the unemployment rate since 1984, with nearly one-third of consumers saying they expect a lower unemployment rate in the coming year.
Credit Suisse in trouble for ripping off clients
New York Attorney General Eric Schneiderman announced a complaint was filed Tuesday against Credit Suisse Securities (USA) LLC and its affiliates for allegedly misrepresenting residential mortgage-backed securities (RMBS) sold to investors.
The complaint is the result of investigations carried out by the RMBS Working Group, a federal task force created by President Obama in early 2012. The lawsuit marks the second complaint from the group.
The suit alleges that from 2006 to 2007, Credit Suisse led investors to believe the bank carefully evaluated the loans
underlying the RMBS and encouraged originators to implement “sound” practices.
Instead, Zurich-based Credit Suisse “systematically failed to adequately evaluate these loans, and kept investors in the dark about the inadequacy of their review procedures,” the complaint states.
Thus, loans in the bank’s RMBS included loans made to borrowers who were likely to go into default.
The group alleges that from 2006 to 2007, Credit Suisse issued $93.8 billion in RMBS. As of August, losses from those securities reached over $11.2 billion, or about 12 percent of the total.
The New York AG’s complaint seeks to recover investor losses and “other equitable relief.”
In October, the RMBS Working Group brought on its first suit against JPMorgan Chase.
During a conference call, Schneiderman, who serves as co-chair of the group, revealed there are other institutions being “scrutinized,” and says the working group still has a long way to go.
While other financial companies are being investigated, as of now, Schneiderman says there have been no claims brought out against individuals.
He comes the first proposed FHA fee increase. Also, this guy is crazy is he thinks FHA will not need a bailout.
FHA is tweaking programs to improve revenue and cut losses
By Kenneth R. Harney November 25, 2012
WASHINGTON — You may have seen headlines last week about the Federal Housing Administration needing a taxpayer “bailout” by the Treasury and wondered: Uh oh. Is the FHA heading down the fiscal drain like Fannie Mae and Freddie Mac, which have required billions in federal assistance just to stay in business?
The answer is no, which is good news for the FHA’s traditional borrowers, who are primarily moderate-income, first-time purchasers, people with limited cash for down payments and less-than-perfect credit histories.
There is a strong possibility that the FHA will not require any money transfer from the Treasury, which in any event would not occur until September. Meanwhile, the FHA is making tweaks to its program rules that could affect some loan applicants in the months ahead, and which are designed to improve revenue flows to the agency and cut back on losses.
Among the most immediate changes, new borrowers early next year are likely to be charged slightly higher annual mortgage insurance premiums — 1.35% of the loan balance rather than 1.25% at present. On loans above $625,500 in high-cost areas such as California and metropolitan Washington, D.C., the annual premium will go to 1.6% from 1.5%.
This will not be a major problem for most people, but it could cause some buyers to check out the FHA’s competitors: private mortgage insurers whose monthly premiums on loans for applicants with high credit scores may be more attractive than the FHA’s.
To increase revenue streams long term, the FHA also is abandoning its practice of allowing borrowers to cancel their annual mortgage insurance premium payments when their loan balance drops to 78% of the property value. In effect, this will mean that borrowers who obtain 30-year FHA loans could be paying premiums for decades.
Is this a big deal? Clem Ziroli Jr., president of First Mortgage Corp. in Ontario, thinks it could encourage some borrowers with higher credit quality to “refi out” of their FHA loans and seek better deals in the conventional marketplace.
But Paul E. Skeens, president of Colonial Mortgage Group in Waldorf, Md., sees it differently. With fixed 30-year mortgage rates in the mid- to upper-3% range and virtually certain to increase — maybe significantly if the economy improves in the coming years — “Everybody is going to want to keep these loans forever,” he predicts. “They’re not going to want to refi.”
Other changes on the FHA horizon:
• More financial counseling for applicants who have low FICO credit scores, are purchasing their first homes and are seeking to make minimum 3.5% down payments.
• A new short-sale program that reaches out to existing FHA homeowners who are seriously delinquent and heading toward foreclosure. FHA Acting Commissioner Carol J. Galante said the agency plans to streamline the short-sale option — where owners are permitted to sell their house for less than the balance on the mortgage — to avoid the huge costs of foreclosures.
• Structural alterations to the FHA’s reverse mortgage program, which enables senior homeowners to withdraw funds based on the equity in their properties. The program dominates the industry and accounts for the vast majority of outstanding reverse loans in the country, but has produced inordinate losses to the FHA insurance fund because of home-value declines and the failure of some borrowers to make their property tax and insurance payments, thereby triggering foreclosures. Although few details are yet available and Congress would have to approve any statutory changes, Galante said the agency plans to restrict the amounts that seniors can draw down in a lump sum upfront, among other remedial actions next year.
He will eat those words about no bailout. The FHA will at a minimum require some kind of bridge-financing loan. Perhaps it won’t be called a bailout, but that’s what it will be.
FHA just recently revised their modification guidelines to basically throw out any relevant ratios (Housing Ratio, Total DTI) Essentially we all see this as a sign of, “For the love of god just get some payments coming in on these mods”. We see clearly that their liquidity is drying up and they are getting crushed by claim payments, particularly on short sales where they’ve insured the full balance of the mortgage and are taking enormous losses. They’ve basically decided, as you stated above, that these squatters making some payment is better than none at all. The crazy thing is, it’s just like the housing bubble, where anyone who could fog a mirror was offered a loan. Now FHA is offering anyone who can fog a mirror, a mortgage modification, completely irrespective of their ability to pay (for instance, giving people with a 70% housing ratio a mod, instead of foreclosing on them because they clearly cannot afford even the reduced payment)
They are now extending and pretending, within the extend and pretend program itself. FHA’s insolvency is a 100% certainty.
And I can tell you from firsthand eperience (I work in Loss Mitigation) that your assertions have been, and continue to be, dead on with regards to modificaitons and their abject failure. Banks never intended to help anyone, they are using loss mitigation as a way to restrain supply of foreclosed homes from the market, and squeeze blood from a stone. Anecdotally I can tell you (I do short sales myself) that 85% of the people who submit for a short sale, have been through MULTIPLE attempts at modifying their mortgage. They want to game the system, and the banks are happy to let them play their game, because being left to hold the bag is the greater of two evils. Were the banks in any position to liquidate the potential foreclosures without crashing the market, these people would have been out on their ass years ago.
What’s more disturbing to me, is the amount of people allowed to short sell their home, who purchased the property after 2009. We have people who closed in 2011 asking for a short sale. We’ve even had people state on the application, that their reason for default was, “Property value is below what I paid”. Strategic Default has now become the order of the day, thanks to permissive extend-and-pretend policies.
All in all, things IMO are getting worse, not better. If people who bought in 2011 are allowed to short sell on a whim, why not everyone going forward? The minute you have no equity, default. It’s the governments (taxpayer’s) job to ensure private property owners have positive equity in their homes in today’s America.
If anyone in this day and age doubts the existence of “Moral Hazard”, come to my office. I’ll show you the application for a short sale from a man who bought his home in December of 2011, and said he needs a short sale because, “Property values have declined and the home is not worth what I paid for it last year”. The fact that someone could make that claim with a straight face in 2012 shows you how far this situation has deteriorated, and it continues to get worse by the day.
Keep up the good work IR
If you don’t mind, I plan to quote you in an upcoming post. I particularly enjoy getting confirmation of my ramblings from insiders who see what’s really going on.
By all means
I’m sure I live in the alternative universe. This can’t be the real one.
Home Equity Loans Make Comeback Fueling U.S. Spending
By Kathleen M. Howley
Home equity lines of credit that fueled a spending spree during the U.S. property boom are back.
After six years of declines, lending for so-called Helocs will rise 30 percent to $79.6 billion in 2012, the highest level since the start of the financial crisis in 2008, according to the economics research unit of Moody’s Corp. Originations next year will jump another 31 percent to $104 billion, it projected.
Lending tied to real estate is reviving as record-low mortgage rates spur the housing recovery while an improving job market makes it easier for people to borrow. A rise in home equity lines is in turn helping the economy, fueling purchase of goods like televisions and refrigerators. Consumer spending, the biggest part of the economy, accelerated to a 2 percent annual rate last quarter from a 1.5 percent pace in the prior period.
“If house prices continue to rise, home equity lending will keep rising,” said Mustafa Akcay, a Moody’s Analytics economist in West Chester, Pennsylvania. “Lenders have been worried about the ability of consumers to pay back their loans, and as the economy improves, that concern is easing.”
The median U.S. home price will probably gain 8 percent this year, the fastest pace of growth since 2005, according to the Mortgage Bankers Association in Washington. The amount of equity homeowners had in the second quarter rose by $406 billion to $7.3 trillion, the highest level since 2007.
‘Positive Impact’
“People will spend more of their equity,” said Chris Christopher , an economist at IHS Global Insight in Lexington, Massachusetts. “It won’t be as much as they spent when prices were gaining at a rapid pace in 2005 and 2006, but it should have a positive impact on consumer spending.”
The revival in Helocs comes as lenders including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) are still coming to grips with bad loans made during the housing boom that ended in 2006. Pressed by regulators earlier this year, banks are writing off vintage Helocs wiped out by a housing retreat that stripped about a third of home values in four years. Banks charged off — or declared worthless — $4.5 billion of equity loans in the third quarter, the most in two years, according to Federal Reserve data.
Americans had used their homes like credit cards to go on spending sprees during the 2000 to mid-2006 real estate boom, tapping their equity to buy cars, televisions and luxury cruises. Consumers used about $677.3 billion, or about $113 billion a year, from home equity loans for consumer spending, according to a 2007 paper by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy.
[...] posted here: Loan modification defaults soar 24%, can-kicking fails » OC Housing … Filed Under bernanke, CIA, default, economy, federal reserve, housing, loan modification, [...]
The six out of ten could have gotten out from under their burdensome debt (loan mods add lost interest, fees and charges to the loan balance). The lower prices would have enabled them to reenter the housing market at a much lower basis and loan amount. So I don’t see avoiding foreclosure as any great benefit to them. It certainly does benefit the banks though.
And screws you and me and the other renters who would have otherwise been able to purchase those homes at reasonable prices, had the foreclosures been allowed to happen.
Re: ” The lower prices would have enabled them to reenter the housing market at a much lower basis and loan amount.”
Please, you know these people are not going to be able to reenter the housing market for years because of the damage the foreclosure does to their credit score. I bet most of these people are stuck at 6+% and if they could just refi to today’s low levels, their payment would probably put them into positive cash flow territory. The banks get their money for negative real interest rates but won’t let the people who really need to refi do it. The banks don’t have to mark the houses on their books to market, but the poor homeowner has to to get a refi.
And for the comment that these are the people clogging up the system preventing house prices from being lower, that is spurrious reasoning also. You just said you work in a bank and the banks have no intention of making loan mods work for people, but they do it just as a mechanism to artificially hold inventory off the market. The banks are pushing up prices in bubble 2.0. If the loan mod program went away tomorrow, the banks would still find a way to keep the inventory off the books. Put the blame where it belongs at the banks feet. They let people into the loans to begin with during their underwriting process.
By “working”, they only mean that they didn’t default within 12 months. Hardly what I’d call unequivocal success.
The original quote didn’t make it into my last post:
The system of loan mods and short sales don’t work because of stupid politics driving housing policy rather than common sense and the greed of bankers gaming the system at the expense of the homeowner. There is a sane solution for a loan mod combined with a loan write down to leave homeowners in homes if people put there minds to it and used common sense. The ones that can’t afford the modified payments and should be foreclosed could be put into homes as renters in the inventory that is sitting idle so you can solve 2 problems at once. Just foreclosing on everyone and dump it out on the market is not a viable solution. They know that so the govt and banks are gaming the system hoping growth will happen and take everyone out of the mess.
There are many valid reasons why some homeowners will also try and maximize the system to their ability just as the banks are doing and just as the govt is doing. All these articles just focus on the poor homeowner at the bottom of the rung of the whole mess. The power to fix this lies with the govt and banks.
See this example of how the banks work. How the hell is a person suppossed to get a loan mod or short sale through when one can’t even get Bank of America to acknowledge a person is dead:
http://consumerist.com/2012/11/26/bank-of-america-is-really-good-at-losing-documents-really-bad-at-believing-my-mother-is-dead/?source=Patrick.net
All this talk about homeowners gaming the system and you can see by this article who is really gaming the system, the banks. How is it possible that Bank of America can keep accurate records of all financial transactions but somehow can’t keep a copy of any paperwork that people send in and always “looses it”?
[...] Monday’s post, Loan modification defaults soar 24%, can-kicking fails, I found a very astute observation from an industry insider working in loss mitigation. It provides [...]
[...] the “rough patch” is when they are cut off from more Ponzi borrowing. … – OC Housing News Share this:TwitterFacebookLike this:LikeBe the first to like this. November 29, 2012 by [...]
Loan modifications have been a HUGE success for the lenders. The lenders have included receivables as income and show loans as par assests, (mark to fantasy), therefore displaying solvency and claiming income and profits. Maybe the largest success for the lenders is that many of the securitized loans could not show legal ownership. When the loans are “modified”, the property owner signs an exculpatory which collateralizes the property on the new modified loan, negating any legal need for a previous loan ownership proof.
Loan modifications have been a HUGE success for the lenders.
Until people understand that the government and the banks created this mess, the problems will get worse.
Foreclosure on homedebtors and GAAP accounting for banks are the solutions, not the problem.
[...] I don’t know what data these people are looking at, but it clearly isn’t the rate of redefault. I reported last week that Loan modification defaults soar 24%, can-kicking fails. [...]
[...] Monday’s post, Loan modification defaults soar 24%, can-kicking fails, I found a very astute observation from an industry insider working in loss mitigation. It provides [...]
[...] I don’t know what data these people are looking at, but it clearly isn’t the rate of redefault. I reported last week that Loan modification defaults soar 24%, can-kicking fails. [...]