Home Sales Stall: Millions of Homes in Real Inventory

Editor’s Comment: Any lawyer who does not think that issues relating to foreclosure will not dominate his or her practice of law is in a state of denial and delusion. The 16% drop in new home-sale contracts (see article below) means a similar or worse drop in sales over the next 30-60 days.

As we have said repeatedly along with the major newspapers, there is no relief in sight without principal reduction on mortgages. It’s not a matter of ideology or even law. It is a matter of pure practicality. The choice is between a total loss and a partial loss.

More and more articles and reports are emerging that clearly show that millions of homes are going to be abandoned and suddenly added to the foreclosure lists simply because the owners choose to take the FICO credit score hit and rent a comparable house for a fraction of the payments demanded under their crazy inflated mortgages.  Really, why continue to pay on a $500,000 note for a property that is worth $300,000? Why? hope you will break even in 5-10 years? Just not a good business decision.

In the anti-deficiency states like Arizona the “lenders” (who incidentally don’t qualify as creditors) can only take the house. In the states that permit pursuit of the deficiency judgment, it is a waste of time and money because nearly everyone is basically cleaned out — no cash, no savings and no available credit. So there is no point in continuing this farce any further. The homes are not worth what is owed and never will be worth that amount even after the market “recovers”.

Now add to the equation that the parties being ordered into mediation, modification or attempting short sales or settlements are mismatched: one of these things is not like the other. On the one side you have people who really own a home and on the other you have people who don’t even know who the creditor is much less possess the authority to approve a short sale or settlement or issue a satisfaction of mortgage.

There is no way out except through principal reduction or letting the entire housing market collapse into chaos. The real crisis is coming over the next few months. The “Great Recession” was just the appetizer and although there is time to avoid the full impact of what was done on Wall Street, it seems unlikely that anyone in office is willing to “call it” like the doctor announcing the time of death.
January 6, 2010

Slowing Pace of Home Sales Raises Fears of New Retreat

The number of houses placed under contract fell sharply in November in the first drop in nearly a year, figures released Tuesday show. It was the clearest sign yet that predictions of another downturn in real estate may become a reality.

The National Association of Realtors said that its index of pending home sales plunged to 96 from a revised level of 114.3 in October. Analysts had predicted a drop, but nothing like that.

“We thought it would drop 2 percent,” said Jennifer Lee of BMO Capital Markets. “When you see 16 percent, the first thing you say is, what the heck happened here?”

Since the majority of pending sales become final in six weeks to two months, the index is considered a reliable indicator of where the market is headed. The index is calculated by comparing the number of pending sales with the level of 2001, when the index was formulated.

The data indicates that the weakest parts of the country are the Northeast and Midwest, both of which fell 26 percent in November from the previous month after adjusting for seasonal variations. The South dropped 15 percent, while the West was off 3 percent.

Ms. Lee called the drop from October to November “unnerving” but said that the index remained well above the level of a year ago. In November 2008, when the financial crisis was at its peak and buying a home required a faith in the future that many did not feel, the index was 83.1.

As the overall economy improves and the employment situation grows a little less dire, the question becomes whether real estate can muddle through — or if it will need a new round of government support to ward off another damaging downturn.

There are plenty of reasons for worry. The Obama administration’s effort to compel lenders and servicers to modify loans has not been a success. Many of these owners will eventually lose their homes to foreclosure.

Meanwhile, a quarter of homeowners with mortgages owe more than their houses are worth. If prices start dropping again, some will be induced to walk away, further undermining the market.

“I wouldn’t rule out more stimulus, especially in an election year,” said Ivy Zelman, an analyst.

Last year’s stimulus efforts, however expensive and divisive, calmed a market where prices had plummeted by a third. Even now, the government’s efforts to push down interest rates and entice buyers with a tax credit appear to be having an effect, keeping a weak market from getting weaker.

Walter Martin and Paloma Munoz, artists in Dingmans Ferry, Pa., are a stimulus success story. They are paying $360,000 for a new home 10 miles away without even having an offer for their current home.

“The new home has enough space for us both to have studios,” Ms. Munoz said. “The price is amazing, we are getting a mortgage at a 5.125 rate, and we qualify for a $6,500 credit.”

It is a leap of faith, she acknowledged, but an eminently sensible one. “When houses were expensive, everyone wanted to buy, and now that they’re cheap everyone is scared,” she said.

Buyers like Ms. Munoz and Mr. Martin are outnumbered, however, by people who think the market still has room to fall. While some of these may indeed be scared, others simply see a virtue in patience.

“With two growing boys, we are busting out of our small house,” said Stephen Sencer, deputy general counsel at Emory University in Atlanta. “But I’m still waiting for sellers to capitulate.” His agent is telling Mr. Sencer that may happen in the spring.

Starting from a low of 80.4 last January, pending sales rose for nine consecutive months in 2009. The index proved a harbinger of both completed sales, which began climbing in April, and prices, which started rising over the summer.

As the Nov. 30 expiration of the tax credit drew near, would-be buyers hastened to secure deals. Sales in November roared at a 6.54 million annual pace, the highest since February 2007.

At the last minute, Congress extended and broadened the credit. The urgency immediately dissipated. “We were really, really pushing hard, and I think everyone just wore out,” said Steve Havig, president of Lakes Area Realty of Minneapolis.

Buyers now have until April 30 to qualify for the credit. Many analysts say the effect this time around will be mild.

“It could turn out the second credit has such a small impact it doesn’t show up in the data,” said Patrick Newport of IHS Global Insight.

Nevertheless, he predicts the downturn this time will be gentler. “The economy is improving, and that is what the market needs to get back on a sustainable path,” Mr. Newport said.

Long before the tax credit ends, another stimulus effort is due to disappear. The Federal Reserve has bought more than a trillion dollars of mortgage-backed securities in a successful effort to push down mortgage rates. The Fed is scheduled to wind down the program by March 31.

Rates are already moving higher, exceeding 5 percent in some lender surveys. Perhaps as a result, mortgage applications to buy homes in late December were a third lower than during the corresponding period in 2008, the Mortgage Bankers Association said.

The Fed’s Open Market Committee left itself leeway in its December meeting to start buying again, saying it “will continue to evaluate the timing and overall amounts of its purchases of securities.”

Rising rates could hamper Mr. Martin and Ms. Munoz’s search for a buyer for their old house.

“It’s been on the market for almost three months,” she said. “We have had very few viewings.”

7 Responses

  1. Hi,
    Wondering if there are lawyers in the San Antonio, TX area that can renegotiate by mortgage terms, previously had a very bad loan modification, now my loan is more than the actual value. My loan went up 40K approximately when modified. Also violations regarding RESPA & TILA, plus force placed insurance. Any help would be appreciated! I am starting to request QWR from the lender & docs from title company regarding loan paperwork. Please email any helpful information pertaining to this matter only at alitcity@yahoo.com
    Hope the truth gets uncovered soon in TX and everywhere and blessings to all who are truly helping.

  2. The problem I see with loan modifications is one of the requirements is the borrower acknowledge that a certain amount is due. So in essence, by applying the homeowner is forced to agree that a certain amount is due [“accurate amount or not”] to parties that it is due [‘or not’] to pretender lenders/servicer’s who by in large are not authorized to modify any loans. This is the underling reason the program has failed.

    So, who would want to be taken out of a loan they can’t foreclose on [“most”] to be placed in one that they can?

  3. ForeclosureFraud :

    If “SERVICERS are in fact REQUIRED to offer short sale or “deed in lieu” alternatives when they make sense”, then that will possibly close some of the loopholes and many defenses as they relate to “chain of title” – “secuitized trust issues” – “quiet title efforts” etc.

    In other words, the local county Judges will probably use the short sale – deed in lieu theories through mediation and if an agreement can’t be met then they will more likely rule for the Plaintiffs.

    This actually sounds like potentially bad news for many of us.

    Do you agree or see it differently?

  4. Think it is bad now? Wait until April 5th when HAFA goes into effect…

    HAFA – New Program Offers Borrowers Foreclosure Alternatives

    Also from the Market Ticker…

    x_http://market-ticker.org/archives/1811-HAFA-Foreclosure-Warning-Dead-Ahead!.html

    “HAMP”, the Treasury’s program to “prevent” foreclosures, did not originally appear to have a “stick.” Well, here’s the stick folks – for those who cannot qualify for a modification, or who “blow it” while on a trial program and simply don’t get a permanent change servicers are in fact required to offer short sale or “deed in lieu” alternatives when they make sense.

    Come the spring selling season you’re going to see the inventory of homes that were “HAMPd” and failed for whatever reason hit the market.

    This is not a trivial number of houses – there are close to 750,000 homes currently under trial modifications, and only a tiny number of them – something like 30,000 – have converted to permanent payment changes.

    4closureFraud

  5. I would say it could start with the governments MBS holdings if they would just concede to starting the process. Mark everything to market and destroy the BS trading such as shorting mortgages which is the toxic effect that ruins retirement accounts and such.

    Give people real relief and the economy can spring back over a shorter period of time. Audit fraudulent loans and forgive them in fair and equitable ways to limit losses thus making everyone able to hit the reset button.

    Where’s the Easy Button when you need one?

  6. I seem to recall that, in a typical securitized trust, when the underlying loan is in default, there is no allowance for a principal reduction of the loan.

    If that is the case, can this Catch-22 be resolved without a total housing market collapse or the government’s intrusion on private contracts?

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