HOUSING CRISIS BARELY HALF WAY OVER: STRATEGIC DEFAULTS HANG OVER MARKET

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MORE HOMEOWNERS WALKING AWAY FROM BAD DEAL

As more homeowners fall underwater, strategic default has become a bigger headache for mortgage lenders. A recent study by the MBA’s Research Institute for Housing America found that strategic defaults tend to cluster around homes already in foreclosure as friends, family and neighbors exchange advice on whether to walk away.”

Since the mortgage meltdown began in 2007, roughly six million homes have been lost to foreclosure. (Estimates vary somewhat because multiple foreclosures are often recorded on a given property as the homeowner and lender try to avoid it.) Another four million homes are estimated to be at some stage in the foreclosure process. New foreclosures are currently started at the rate of about two million a year.”

Dales figures there were something like 4.2 million homes waiting to hit the market at the end of the third quarter. As they do, they’ll continue to depress home prices, which have begun falling again after stabilizing this summer. Falling prices put more borrowers at risk of foreclosing as they burn through the remaining equity in their home and end up “underwater,” owing more than their house is worth. Some 11 million homes, or about 22 percent of all mortgaged homes, are currently underwater. Another 2.4 million have less than 5 percent equity, according to CoreLogic.

EDITOR’S COMMENT: I would agree that we are somewhere between the bottom of the 4th inning or the top of the 5th inning. Taken into perspective, that means with all the millions of homes, failed banks, banks like BOA on the endangered list, we have another 4-5 years to go, each year seeming to be the equivalent of an inning in a baseball game. With housing being a primary driver in economic recovery it seems perplexing that lawmakers, law enforcement and policy makers and regulators are not doing all they can to stop the free-fall.

If you talk to people, you will find, as the article points out, that people go for strategic default (they just stop paying) in clusters as friends and relatives get together to discuss the “moral imperative” that is applied only only to those who are stuck in the housing crisis. The rich people who can afford to take the loss, businesses of all types, and others walk away from bad investments all the time.

As more and more people realize that they will never recover the value of their home the threshold for that “moral imperative” will decline until everyone is doing it. This will more than double the number of homes coming on the market at distressed prices and will enlarge the number of areas hit by the foreclosure mess into areas that were thought to be safe.

It all comes down to money. This was a financial transaction that went bad. It went bad because it was defective from the outset and everyone knew it except the borrowers. The story that borrowers intentionally got into into deals where they would lose the roof over their heads is ridiculous. Wall Street needed to move more money to cover the sales they had made of bogus mortgage bonds to investors.

After running out of homes and borrowers, seeing the decline in housing activity they simply increased the “appraised” value used in the transaction. The inflation of the value of the home was known to be false by everyone except the borrower who relied on the appraisal and relied on the “lender” who was supposedly reviewing and approving and verifying the details of the deal to assure this was a viable transaction where payback was expected.

But the value was false as was the representation that the “lender” was a lender. No underwriting procedures took place except to make sure that the paperwork “looked right.” If it didn’t look right, they changed it themselves without telling the borrower. Nobody cared if the borrower didn’t pay because they weren’t using their own money to lend.

They were using money advanced by pension funds and other institutions to buy bogus mortgage bonds in pools of non-existent assets. And they all knew that when the deal failed, the extra fees they had made on the front end would be multiplied when the market went down and there was a rush to sell the properties. That is why the National Association of Realtors wants to facilitate foreclosures, short sales etc.. That activity represents their only chance of earning a living. 

All the rationalizations in the world though won’t eliminate the basic reality: the value used for the homes was unsupportable by any standards of appraisal or underwriting, the prices fee as anyone who knew what was going on would expect and now they are continuing to fall because the inventory that is counted and the “shadow” inventory is many times the demand for the homes. In the end the only solution is to set things right and put people back in their homes with the right deal, if they can afford it, or to bull doze the homes because the maintenance of those homes is not something the banks are willing to pay.

SEE FULL ARTICLE: CRISIS BARELY HALF WAY OVER

FROM BOTTOMLINE.MSNBC

By John W. Schoen, Senior Producer

If the U.S. foreclosure crisis were a baseball game, we’d probably be in the bottom of the fourth inning.

That’s roughly the message from the latest data on home foreclosures and delinquencies released by an industry association Thursday.

The pace of new home foreclosures edged up again in the third quarter and the number of borrowers falling behind on their payments eased a bit, according to the Mortgage Bankers Association. The good news was that the rate of borrowers who have fallen three or more months behind on their payments has dropped to about 3.5 percent of all mortgages. That’s down from a peak of 5 percent in late 2009. But it’s still three and a half times the “normal” rate of about 1 percent that prevailed before the mortgage meltdown hit in late 2007.

“If you look at the pace of improvement I think we’re three to four years away from the typical pattern of seriously delinquent loans,” said Michael Fratantoni, MBA’s vice president of research and economics.

Since the mortgage meltdown began in 2007, roughly six million homes have been lost to foreclosure. (Estimates vary somewhat because multiple foreclosures are often recorded on a given property as the homeowner and lender try to avoid it.) Another four million homes are estimated to be at some stage in the foreclosure process. New foreclosures are currently started at the rate of about two million a year.

That pace of new foreclosures may begin to ease more, though. The delinquency rate –- the number of borrowers who have fallen behind on their payments — fell in the third quarter to the lowest level in nearly three years. For all loans, the rate fell to 7.99 percent from 8.44 percent in the second quarter. That’s down from 9.13 percent a year ago and the lowest level since the fourth quarter of 2008.

Borrowers with subprime adjustable mortgages saw the biggest jump in new foreclosures in the third quarter. Some 4.65 percent of those subprime loans entered the foreclosure pipeline. That’s up from 3.62 percent in the second quarter, a 28 percent increase. The MBA said the rise was due in part to an increase in the number of loans that failed to get lender approval for a modification. Some states also ended their moratoriums on foreclosures during the quarter. Overall, the pace of new foreclosures for all loans edged up to 1.08 percent in the third quarter from 0.96 percent in the prior three month period. That’s down from 1.34 percent in the same period a year ago.

A lot depends on the outlook for the economy which, though showing gradual signs of improvement, is not creating jobs fast enough to put much of a dent in the unemployment rate, which is hovering at around 9 percent.

The uptick in the pace of foreclosures comes as the U.S. homebuilding industry is beginning to show a pulse three years after nearly shutting down. Though still on track this year to set a record low since 1960, when data were first collected, single family housing starts were up 3.9 percent, and permits jumped 10.9 percent. (Many economists believe permits are a better barometer of housing market strength because they are less affected less by weather and signal a pickup in future construction.)

“This was a good report,” said Patrick Newport, an economist at IHS Global Insight. “It has supporting evidence that the single-family market is finally getting off the mat.”

Continued improvement in home sales and prices, though, will depend heavily on the volume of foreclosed homes coming back on the market. Thursday’s MBA data showed that lenders have barely made a dent in the overall backlog of foreclosed homes. Since it began rising in 2007, the foreclosure inventory rate -– the percentage of loans in foreclosure -– has remained stuck at roughly 4.5 percent. That’s four and a half times the “normal” rate of about 1 percent of all homes in the foreclosure pipeline.

Not all of those homes will eventually be seized. Some foreclosures can be “cured” with a loan modification or by a homeowner catching up on missed payments.  But the remainder will sit on a lender’s books until they can find a new buyer, often at a “distressed” price. Each new home that enters the foreclosure pieline becomes part of that “shadow” inventory. 

“The large number of homes still in the shadow inventory will cast a cloud over the housing market and the wider economy for a few years yet,“ said Paul Dales, a senior economist at Capital Economics.

Dales figures there were something like 4.2 million homes waiting to hit the market at the end of the third quarter. As they do, they’ll continue to depress home prices, which have begun falling again after stabilizing this summer. Falling prices put more borrowers at risk of foreclosing as they burn through the remaining equity in their home and end up “underwater,” owing more than their house is worth. Some 11 million homes, or about 22 percent of all mortgaged homes, are currently underwater. Another 2.4 million have less than 5 percent equity, according to CoreLogic.

Underwater borrowers are more likely to enter a so-called “strategic” default by simply walking away from their home and no longer making mortgage payments. The rate of that default varies widely from state to state, based on both housing market conditions and state laws governing a lenders’ ability to collect the unpaid debt. Some “non-recourse” states protect homeowners from those collection efforts.

As more homeowners fall underwater, strategic default has become a bigger headache for mortgage lenders. A recent study by the MBA’s Research Institute for Housing America found that strategic defaults tend to cluster around homes already in foreclosure as friends, family and neighbors exchange advice on whether to walk away.

“It’s a concern because of the manner in which it’s become part of the public conversation,’ said Fratantoni.

Estimates of the levels of strategic default are all but impossible to make, the study found, largely because it’s very difficult to determine whether a default was truly “voluntary.” But the study found that one of the most critical variables affecting the pace of such defaults was the length of time a given home was in the foreclosure process.

The longer that process takes, the longer the idea of strategic default has to spread from one borrower to another. Today, foreclosures can take several years to play out in some parts of the country, up from historical levels of three to five months, according to the study.

“This is disastrous for a housing sector trying to recover from a crisis,” the MBA researchers said.

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13 Responses

  1. Was this article generated by the Mortgage Bankers Association? Who cares what they say, if so. They defaulted on a 75 million dollar loan for their headquarters! What hippocrits. They’re lobbying for banks, and trying to end the legitimate Occupy protests because they are part of the Global elitest agenda–folks who think they’re God–to rule the slave caste with a purchased police force and destroy the whole planet in a two fisted grab for power.
    I hear all the people protesting the fraud the bankers perpetrated on us, and the fact that nothing has been done after three years. The WS bankers are an integral part of the scheme to rule the world through central banks, funded by the wealthy families in the cartel who pull the strings and use their influence (campaign donations) to install whoever they want in office to do their bidding, and implement a police state to control the masses.
    What can be done? Plenty. It won’t be comfortable or familiar but it will bring down the houses of the evil ogliarchs: Take your money out of the banks. Close all lines of credit, cut up credit cards. Stop paying them. Stop buying stocks and bonds, stop trading. Convert your stock to cash and get physical posession of all the gold you can buy with it. Tell everyone you know to do these things too. Don’t buy a house with a bank loan, and specifically don’t buy a foreclosure.

    The only thing their immense wealth can’t over come is a MASS REVOLT, and it’s the only thing they fear because they lose control they have worked so hard to set up. Buy guns & ammunition. If you are armed, they are less likely to try to trample your rights. Find a source for unbiased news and read the important books that chronicle their rise to power, so that you know who the enemy really is. All the things you thought were true are not. Arab Spring was organized, funded and initiated by the U.S. government to destabilize that region. The Ford foundation, the Rockefeller foundation, Carnegie, etc., are rotten to the core. With control of medicine, education, the food supply, water systems, transportation and politics, they have all the pieces in place to impose their unsustainable one world order crap. It’s been underway since the first central bank was chartered here. We the people have all the true power, and we can smother them. When we cut off their source of funds by boycotting all the giant corporations, and stop enabling them to enslave us, their madness will crumble. Stop buying their newspapers, stop advertising on their media. Turn off the drivel on TV. Declare this the year you will not buy anything from a retail giant. Pass up the magazines they publish. Resist tirelessly! The secrecy has been penetrated and we know about their obsurd agenda, which is failing, and no one wants but them. They can only enslave those willing to be enslaved by their own ignorance or lack of conviction to the principles of freedom and liberty.

  2. Enraged,
    this is Florida , my People’s Trust canceled and now I have Tower Hill (no Sinkhole) .Every other Insurance leave Florida or is w/o Sinkhole except Citizen (Gov) . But I agree , I should pay only for the
    $ 125,000.00

  3. It wasn’t that Banks didn’t care if the borrower didn’t
    pay because they weren’t using their own money to lend.,
    it was Banks didn’t care because what the banks were lending you
    only their credit.

    The Banks got your signature on the Banks credit then the banks went on to pass along their fraud to the pensions funds and other institutions to buy bogus mortgage bonds in pools of non-existent assets

  4. Eule,

    Come to think of it, your agent seems to be either a jackass or a not-so-honest guy. Shop around for dwelling and personal property replacement value.

  5. Eule,

    Who is your insurance company? I have Liberty Mutual. I contacted them last January and I told them that I didn’t understand why I was paying insurance for $210,000 coverage. I have a very big yard and the house on which it stands. Even it there was tornado or a fire, the yard stays. I renegotiated based on what it would cost to rebuild the house, with the documents from my city tax assessor. The tax assessor clearly spells out the value of the land and of the dwelling. L.M. cut down my insurance by $300 when I showed them a quote from another insurer based on a replacement cost equal to the tax assessor’s estimated value of the house.

    Sit down with your agent and go over the exact numbers, docs in hand. What you bought is land + house. You want to insure only the house. Unless, of course, your state sees things differently…

  6. Mortgage crisis no where near being resolved.

    US economy 70% based upon consumption. GDP cannot recover without a recovery in consumption, and there can be no recovery in consumption without a recovery in housing (and unemployment).

    But, how many of you were out shopping today – pretending that all is okay in order to be happy at the holidays??? What will you do come January?? What will you do when housing continues to fail??? When unemployment continues to not recover? When your job is sent overseas?? What will you do then??? Will you continue to shop??? And, eat out in your favorite restaurant?? Problems have long been eating away at US economy.

    And, do you know that the top income brackets accounts for a large part of consumption??? Stock market artificial for quite some time due to monetary policy.

    Many hoping someone will fix all. But, no easy fixing is available, especially when administration refuses to acknowledge mortgage fraud. Refuse to fix the US economy long given away. Income distribution continues to suffer. The top will soon not be able to support an economy based on 70% GDP consumption. Simple economics.

    Problems are deep. By far, not easily correctable.

    So ironic — so many foreclosures, so many underwater, and yet, the US economy needs YOU!!!!!!!!! US NEEDS YOU!!!!!! So ironic.

  7. I never get an answer , who is engineering the Underwater prices ?
    I just need to renew my Home Insurance , and I told the agent :
    I am CORELOGIC underwater ,and the AVM show $125,000.00 .
    The Agent : you can not insure for only $ 125,000.00 because ,if
    your home burn down , we have to pay the Bank $ 270,000.00

    How work that ?

  8. Enraged ,

    Agree 1000% ,, it burns me to no end to hear “but the banks paid it all back” when we know it isn’t true .. JPM/Chase which runs SLV on the CME is short (and has taken in payments on the silver shares sold short) equal to 7 times the actual physical silver available on Earth. Even I could pay my bills if I could sell things that don’t exist in astronomical quantities.

  9. Zurenarrh ,

    Here’s the latest on Chine … THEY’RE TOAST … their version of Bernanke will try to keep things going but they’re out of ammo too … their trading partners can’t buy enough to keep China afloat… and black friday here in the US was flat ,, no increase ,, per the credit card $$$’s crossing the wires … and they usually always report an increase even if they later revise it down ..

    China factory sector shrinks most in 32 months

    (Reuters) – China’s factory sector shrank the most in 32 months in November on signs of domestic economic weakness, a preliminary PMI survey showed, reviving worries that China may be slipping toward a hard landing and fuelling fears of a global recession.

    The steep fall in the HSBC flash purchasing managers’ index (PMI) to 48 in November from 51 in October largely reflected domestic weakness as both output and new orders shrank even as export orders continued to grow.

    The flash PMI, the earliest readout of China’s industrial activity, was the lowest since March 2009 and suggests the factory sector contracted during the month. A PMI reading of 50 demarcates expansion from contraction.

    The PMI unnerved financial markets already roiled by the euro zone debt crisis and a downward revision in U.S. economic growth and underscored expectations that Beijing will lean more on policies to support growth than ones to fight inflation.

    “They are not going to want this to go too far,” said Tim Condon, head of Asia research at ING in Singapore. “I’m not sure if it (PMI) is a tipping point but I think it adds to the evidence.”

  10. http://mandelman.ml-implode.com/

    Great interview of April Charney on Mandelman this morning. I learned a lot.

  11. to enraged:
    I could’nt agree more

  12. In China, they execute bank fraudsters. Wonder if tbat’ll ever be imported from China?

  13. Another 4 to 5 years… Farmers struggling to recover from the FM Global debacle… Unemployment nearing 16% (officially 9% but it doesn’t take account the people who stopped receving any assistance). None of that augures really well for the immediate future.

    We need to shut down/dismantle the TBTF banks and start on a new footing. BofA owes us 19.5 billions. Chase owes 32 billions. Other banks are in the same position. Until we shut them down, confiscate their assets and jail the culprits, it will not get any better.

    No two ways about it.

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