-April Foreclosure Action — Preview of Market-Moving Headlines This Week
-Potential False Bottom as Servicers Game the System in March
-Nearly Half of the Decrease in April NOD’s was caused by Chase Gaming the System
-Mortgage-Mod Recidivism Update — We Can’t Modify Our Way Out of This
-Loan Mod Re-Default Rates at 80% at Countrywide and WaMu
-Large Bank Origination Default & Foreclosure Performance
-Large Servicer Action
Food for thought on housing: 50% of buyers in the bubble states are first timers buying at the low end of the market, vacating a rental. The majority of the remaining buyers are investors tripping all over themselves trying to get a deal — just like they have done all the way down — in hopes of renting the property to the very same renters (first time buyers) buying the low end properties. DOH!
Nowhere to be found are move-up buyers at the mid-to-upper end that is experiencing a default crisis identical to the beginning stages of the Subprime crisis with respect to supply/demand fundamentals. As the surge of for-sale listing of mid-to-upper end properties hits for the busy season and the major mid-to-upper end default wave — that began in earnest in Dec — turns into REO supply, an exact repeat of the beginning of the housing crash that began in 2007 with the Subprime sector and its housing supply will occur.
Most assume that because the low end is stabilizing after a 50%+ price drop that the mid-to-upper is also stabilizing. The fact is they are not connected and will bottom independently. The crisis yet to befall the mid-to-upper end will take its participants — the mid-to-upper end earners — through the same painful housing led de-leveraging as their Subprime counterparts. The macro economy can’t handle the sequels…Subprime Returns, The Son of Subprime and Subprime vs. Alt-Zilla.
Total April Foreclosure Activity Down M-O-M as Servicers Game the System in March, but Actual Foreclosures Rise
The April, market-moving popular foreclosure reports from RealtyTrac and others will be out this week and do much to confuse people — especially in CA. This, as new laws are planned for, moratoriums ceased, Administration plans kick into gear and banks and servicers continue to spin out of control managing the volume. Needless to say, getting a handle on what is really happening is difficult even if you have all of the data.
The West will see an aggregate drop in total foreclosure activity but only because in March we saw an artificial spike in Notice of Defaults due to a new law hitting the books July 8th dubbed ‘The CA Foreclosure Prevention Act”. This new law essentially stretches out the foreclosure timeline by adding three months between the NOD and NTS stages.
Because of the present timelines servicers had until the end of March to stuff the mailboxes with new NODs in order to get the NTS out under the July 8th law enactment wire. I estimate that about 15% of March’s total NOD count surge was due to front-running the new law.
Still, when all is said and done April’s NOD counts will be roughly 44k, down only 11k from March’s all time high of 55k and in-line with 2008 and 2009 highs.
April Notice-of-Trustee Sale counts also fell but less sharply than NODs — down only about 15%. This is because NTS are not constrained by the new law time line and are simply a function of how many properties servicers plan to take to the courthouse for sale. With no new laws or regulations in place since Obama rolled out his plan, there is little reason to fill the mailboxes with NTS unless the borrower does not qualify or does not want saving. The past two-month spike in NTS should be a fairly accurate near-term leading indicator of what is to come with respect to CA foreclosures.
The wave of foreclosures that I keep harping about is coming to shore — we saw signs of that in April as actual CA foreclosures jumped about 40% over March. Similar stats were seen in other significant foreclosure states. Expect to see actual foreclosures to continue to rise — likely sharply in May — going into the summer just in time for the busy real estate season. What a coincidence.
Drop in Notice-of-Default & Trustee Sale Counts Caused by Only Four Servicers – Chase (WaMu) Accounts for Nearly Half as They Game the Calendar
The chart below shows the monthly NOD counts for each top servicer that showed a significant month-over-month decrease. The four below account for the total 11k month-over-month decrease with Chase pulling a fast one.
In the month of March, Chase fired up the NOD machine at WaMu servicing for one month only in order to get more borrowers on record ahead of the new CA Foreclosure Prevention Act to be enacted on July 8th. The new law effectively stretches out the CA foreclosure process by 90-days. Borrowers that were not on NOD-record by the end of March could benefit by the new law.
When adding Chase and WaMu together, Chase now holds the record for the most NODs ever filed by a single company at nearly 12k in the month of March.
Mortgage-Mod Recidivism Update — We can’t Modify Our Way Out of This
Yesterday, FHFA director Lockhart was on CNBC talking about how they have to get even more aggressive with mortgage modifications. He shot down Bill Ackman’s GSE plan and scoffed at him within 30 seconds of laying out his plan — you should watch the clip.
How much more aggressive should they get with such terrible results attempting to re-lever homeowners? It is proving painfully obvious that mortgage mods are more exotic than the actual loans that put the homeowner in default in the first place and their effectiveness even at the margin questionable at best.
The Obama-mod does the same as most other mods — it turns the homeowner into an underwater, over-levered renter for life unable to sell, re-buy or refi. Modifications with combined loan to values of 150% to 200% are not uncommon. Many borrowers would be better off walking away today because their credit will be hurt for a shorter period of time than they will be underwater in their home. As a note — I think the Obama 105% GSE refi is a good thing but doubt many will fit into the tight box especially in the regions that need the most help.
Wide scale mortgage modifications will ensure that housing remains a dead asset class for years — every time a homeowner gets a mod they are taken out of the mortgage and housing economic equation indefinitely.
Below is a great chart taken out of a very interesting Barclay’s Securitized Products Weekly. This shows just how bad mortgage mods are even for borrowers that go into a mod current on their payments.
Bottom Line — after seeing these latest figures I am more convinced than ever that the next step is wide-spread principal balance reductions that will reduce the massive negative equity burden in America and be a first-step to solving the mortgage and housing crisis once and for all.
Large Servicer Action
For those of you that are interested in tracking what the large servicers are doing, the data on several are below.
Bottom Line — Notice-of-Defaults for the past 5-months have been massive. NODs turn into NTS’s within 4-5 months so in the past 2-months NTS counts have seen a sharp spike. Actual foreclosures/REO have been negligible but based upon the recent surge in NTS, the foreclosures are coming. When viewing like this it is easy to see.
Notes on chart above
Countrywide: New Notice of Defaults in past 4 months have surged. New Notice of Trustee Sales are growing rapidly. REO taken back from the foreclosure courthouse sale almost nil. This wave will break shortly and result in a massive foreclosure spike at Countrywide.
IndyMac: Perhaps the most interesting and a leading indicator because the loans are not owned by a large commercial bank any longer. New Notice of Defaults in Dec through March surged as the new portfolio owners made up for all of the wasted time during the FDIC ownership and sale process. There were a couple of months in 2008 leading up to the sale when they sent out very few Notice of Defaults. Actual foreclosures are ramping up hard — this chart pattern is what you are likely to see across other large servicers beginning in May.
Chase: The top servicer with respect to total volume in the nation. On the past 6 months Notice of Defaults have surged and are working their way to foreclosure. This can be seen in the last 2 month surge in Notice of Trustee Sales. However, actual foreclosures/REO have been very low for the past few months as they have also been on a moratorium awaiting the new Administrations plans.
Wachovia: On near-full moratorium for all stages of foreclosure. If you have one of the $122 billion in Wachovia Pay Options you are in no eminent danger of losing your home to foreclosure. If you are a Wells Fargo shareholder, don’t look for loan losses on their portfolio either because they have to foreclose in order to rack up losses. That is of course unless they continue to give principal balance reduction modifications which they are doing now. But I am certain they are only giving principal balance reductions that are within the limits of their forecasted merger losses. Ultimately this will not have the desired effects on modification recidivism they are looking for because most homeowners will remain trapped even with the principal balance reduction.
WaMu: This is very interesting. The WaMu servicing platform is virtually out of business after the Chase buyout. However, in March we saw Notice of Default surge as Chase fired up WaMu’s NOD machine in order to front-run the new CA Foreclosure Prevention Act. This was a one month event that effectively doubled the amount of new Notice of Defaults that Chase sent out to homeowners.
Wells Fargo: Wells has never really conformed with respect to moratoriums or what their peers are doing. They do things their own way. However, in the past 6 months their NODs have soared, in the past two months their NTS counts have spiked meaning foreclosures will follow in the next couple of months.
**Financial Institutions: For more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data provided by ForeclosureRadar.com
May 13th, 2009 at 3:43 pm
Great info Mark! The banks won’t eat principal reduction, they just won’t.At some point the big banks will break in a foreclosure/eviction stampede and the prices will crater in CA and the other bubble states – off unbelievable percentages and the Treasury/Fed will step in to create an “orderly market” and make the monthly mortgage payments to the banks and collect “fair” payments from the homeowners/tenants,
May 13th, 2009 at 6:23 pm
Re: Wow in CA
Same here! WaMu/Chase is now requesting more docs, new docs, updated docs that were already faxed in two months ago. They have no interest in a making a MoMo for us. I wonder what they’ll do with another wave of foreclosures from people like me: current, but nearing the end. I am hanging on for the credit rating. But after awhile, who cares? That will be a devastating Phase II for the economy and Treasury. And B. Hussein can go pound sand.
May 13th, 2009 at 9:19 pm
I think Mark’s right, no choice but to bail out the homeowner. Problem is that with 65% of GDP based on consumer spend, there is ZERO hope of this economy improving with 25% of US homeowners with a mortgage underwater. People just don’t spend when they are upside down.
So angry renters – choose – watch the homeowners around you get a “freebie” or sit in an economic malaise for years and years to come.
Total cost is likely $4T. Shoot the Fed has spent $9T and they don’t even know where it is. This has to be better than that.
May 13th, 2009 at 9:55 pm
I see some are asking who’s going to pay for the lost asset valuations when lenders are forced to consider principal reductions.
I sure hoe shareholders and depositors!
See, the bubble buyers should have been keenly versed in the nuances of how debt-income and price-income ratios, constant maturity treasury averages and credit default leveraging could effect their prospects of home-ownership. Yada yada ya…
And guess what? “Prudent” savers should have vetted these same financial institutions they themselves invested in and expected handsome savings yields from for the same transparent defects they’re now accusing defaulters of having ignored.
So, suck it savers. Be thankful for 1% APY while your savings devalue faster than an inland empire McMansion.
May 13th, 2009 at 11:43 pm
Alt-Zilla…. NICE!
May 14th, 2009 at 8:05 am
Mark,
Sometimes I think you see things that just aren’t there.
It looks like Chase/Wamu was justifiably behind in their processing of NODs (due to the takeover) and was finally able to catch up. Even if I believed you that they got aggressive to beat the clock, I wouldn’t call that “gaming the system”. They have since returned to a normal processing of NODs. I guess I’m just not seeing the conspiracy, nor do I see it say anything useful about the future. What is the takeaway?
May 14th, 2009 at 8:30 am
“I am more convinced than ever that the next step is wide-spread principal balance reductions.”
This step is already occuring in virtually every foreclosure these days. The beneficiary is just not the owner who got foreclosed on. Many of you are asking who will take the loss on a principal reduction. Why would it be any different than who takes the loss on a foreclosure? Whether a current occupant (”homeowner”) has their principal reduced or the principal is reduced via foreclosure/auction/REO sale, aren’t the same entities taking the loss? The biggest loss which may be realized in a full-scale owner-received principal reduction program may be felt by the law firms who are processing the foreclosures for the banks.
Anyways, I just think that it’s kind of funny to hear talk of principal reductions as the next thing to happen when it has been happening all along. And if the question is really, “Will owners start getting principal reductions?” the answer is, probably not. Once lenders start that ball rolling, every single homeowner will come knocking, asking for a reduction. And if the lenders require a certain amount of delinquency first, people will just stop paying. Who really knows what will happen? The only guarantee is that the next program which is offered up will have very little to no chance of working and will have administrative costs which render the program non-profitable anyways.
May 14th, 2009 at 8:41 am
I have heard there is increasing portion of houses suppose go foreclosure went to short sale. If that’s true, we may not see that many foreclosure houses in the future.
Do you have data about short sale?
May 14th, 2009 at 9:03 am
Bottom line, valuations are going down. That’s what matters. That’s what needs to happen.
May 14th, 2009 at 10:33 am
Just spitballin’ here…
Where’s the difference if we bail-out the homeowners by incentivizing lenders to do actual principal reductions or bail-out banks when their capital ratios plummet due to recognizing short sale/foreclosure losses?
May 14th, 2009 at 10:58 am
Where’s the difference if we bail-out the homeowners by incentivizing lenders to do actual principal reductions or bail-out banks when their capital ratios plummet due to recognizing short sale/foreclosure losses?
Righteous indignation
May 14th, 2009 at 11:09 am
Like many of here, the idea of “principal balance reductions” really pisses me off.
May 14th, 2009 at 11:20 am
The idea of our treasury paying banks to never face reality really pisses me off.
May 14th, 2009 at 12:56 pm
That too Benzy. Could we agree that the idea of our government paying off irresponsible people sucks?
Think about it, our government sticks their hands in a “free market” and says, “banks, bad bad bad, BUT you’re too big to fail and therefore, here’s some money”, then they say, “owners, poor thing, victim victim victim, we know you signed contracts, but clearly you’re just too dumb to understand. Therefore, we will stop banks from foreclosing your prop. We will also allow judges to re-write your contract. Because we love you, you little stupid people you.”
BUSH/OBAMA/PAULSON/GEITHNER = SAME
May 14th, 2009 at 2:21 pm
Wontan, about 50,000 people are foreclosed on every month. How many people have benefited from any one of the government plans? 200? 300? I know the first plan had a 50 or so beneficiaries. That’s Five-zero.
Your vigor is very misplaced. Nobody is making out except the banks. Period.
May 14th, 2009 at 2:34 pm
Thanks again Mark “Cutting Through the BS” Hanson for the fantastic breakdown of the numbers.
RE: “Bottom Line — after seeing these latest figures I am more convinced than ever that the next step is wide-spread principal balance reductions that will reduce the massive negative equity burden in America and be a first-step to solving the mortgage and housing crisis once and for all.”
Well, isn’t this what the Obama Economic Crisis Dream Team just announced? An updated hope/rescue plan to “save” the current “owners” by having the banks take it further on the chin by eating huge principal reductions and short sales (often well over 100K+ per home), while at the same time ensuring that said “owners” are forgiven for those differences (the principal reductions) and not held accountable for them? Including no credit blemishes for short sales?
I can’t understand how anyone in their right mind would be holding ANY of these financial institutions stocks right now. Nationalization is inevitable IMHO.
May 14th, 2009 at 3:08 pm
Bailouts just do nothing. Look at the automakers. Look at the stock market. Chrysler has said they are unlike to repaid any of the TARP money because guess what they are bankrupted. GM is likely to say the same… $15bil here $20bil there. What’s the point of extending a 3-month lifeline when the inevitable will still occur. They need to just let the market take it’s course and stop playing god. Remember Jurassic Park? “Nature will take it’s course.” And it did….
The best thing they can do it’s let housing crash. Let it find a bottom. Only then will we be able to rebuild from that. All this crap with the bailouts is making me ill as I will be paying for this for the rest of my life. ugh..
Oh, and look what happened when they imposed the stock market shorting band for few weeks. That was suppose to keep the stock market from crashing. Sure enough, as soon as band lifted, market tanked. Again, stop playing god. After the market crashed hard, we found that bottom and have recovered since then….Let nature take it’s course Obama.
People will buy housing again…let it fall. Go look at the prices in Santa Monica. Absolute joke. You’d think the year is 2006 all over again.
May 14th, 2009 at 3:23 pm
MM… I think you’re convinced wrong!
- reduce principal???? with gov’s money??? you must be smoking
WHAT’S NEXT?? NO MORE PAYMENTS?? JOBS?? RIOTS?? HYPER INFLATION??
May 14th, 2009 at 3:29 pm
WHAT’S HE REASON FOR ANYONE ANYMORE TO EVER MAKE A PAYMENT… ????
PRICES WILL KEEP GETTING LOWER AND LOWER, TROW YOUR MODEL IN THE TRASH! IF SUCH NON SENSE WOULD PASS…
WHAT HAPENED WITH BANKRUPTCY LAW??? NEVER MADE IT… KEEP ON WISHING MARK!
May 14th, 2009 at 3:30 pm
MM… where can I buy a crystal ball too??
May 14th, 2009 at 4:57 pm
buy from me. free 2 big balls
May 14th, 2009 at 5:41 pm
I guess this answers my question above-#7
http://www.latimes.com/business/la-fi-homes15-2009may15,0,7489359.story?track=rss
May 14th, 2009 at 5:42 pm
Quote from above link:
Guy Cecala, publisher of trade publication Inside Mortgage Finance, doesn’t expect to see large volumes of loan modifications before July or August. “The basic problem is that the program is very complicated and involved to set up,” Cecala said.
May 14th, 2009 at 6:57 pm
MM..which bank is paying you and how much?
May 14th, 2009 at 7:02 pm
Colin, I bet you like lolly pops…
May 14th, 2009 at 7:05 pm
Field Check Group’s unbiased real estate and mortgage research
unbiased? sure… you’ve been calling for this … for almost 2 years now..
May 14th, 2009 at 7:25 pm
Once you start reducing… every homeowner will want theirs reduced!
(if no balance, they could take the $ out/refi.. and stop paying)
(new buyers…stop making payments right after purchase, the 1st month)
(existing buyers with balance below value, refi) and stop making payments..
.. a down spiral you can’t stop!
We would be sure fixing this problem.. and start devaluation of the dollar with the borrowing for your 2ball prediction.. and household income would be used for food only.. great idea Mark.. NOT!
WIMPS! take a loss.. and move on, repair, rebuild.. let prices get low (normal) again…so new generations can take advantage…and we can be strong again
WAIT.. WHY DON’T WE JUST CONFISCATE HOMES FROM PEOPLE THAT HAVE MULTIPLES.. AFTER ALL YOU CAN ONLY LEAVE IN ONE.. START RATIONING.. !! and make sure everyone is entitled to a home!
May 14th, 2009 at 7:28 pm
let banks fail! and start new banks! let prices come down! the sooner the better! let owners refi (lower interst) or walk!
everybody needs to learn a lesson!
oh.. i forget… how man existing homes prior to 2003 have been sold? prior to 2000? how many homes in america?? WHAT PRICES WERE THEY SOLD FOR??
May 14th, 2009 at 8:46 pm
Been saying it since Mr Mortgages last blog…
PRINCIPAL REDUCTIONS ARE THE ONLY SOLUTION !!!
BUT THEY MUST BE ACROSS THE BOARD FOR ALL HOME OWNERS AND SET TO A FIXED % OR EVEN BETTER, A FIXED PRICE OF SAY 1999 PRICES OF THE PROPERTY
otherwise let the entire ponzi scheme continue for as long as possible, but the pain will eventually become unbearable FOR ALL !
the Making Homes Affordable has been/will be a waste of everyone time and is just another bone thrown at the masses to shut them and make them dizzy until get tired and they just give up
May 15th, 2009 at 10:55 am
I don’t want a principal reduction. I only want to be able to approach my lender and negotiate a solution without the government whispering into each of our ears.
May 15th, 2009 at 1:59 pm
If I wasn’t so stupid, I would have not sold my house in early 2008.
If I was smart I would have taken ALL of my equity via Home equity Line of Credit and bought Gold. Then, stopped making payments until the bank or the Gooberment helped me in some manner.
At the worst I would have lost my credit, but who cares, you can easily rebuild it these days.
Yes, if I had any brains I would have kept my house and lived in it “rent free” after withdrawing cash.
God, why was I born so stupid?
May 16th, 2009 at 8:18 am
I am not saying principal balance reductions are a great solutions but it is the only way to get the economy back on track. It is not only the banks that have to de-lever and raise capital. It is also the homeowner. There is no way for the homeowners to earn their way out of the massive national negative equity. In CA last month the average negative equity at foreclosure was $205k. That is a life time of savings and two decades of normal appreciation. Unless the homeowner is de-levered, the US will see several lost decades in succession.
May 16th, 2009 at 10:13 am
Mark,
Thank you for your wonderful research.
I couldn’t agree with you anymore on your conclusion of “wide-spread principal balance reductions” is the only way to go. Debt forgiveness is the only answer I’ve been able to see when t comes to getting the economy back on track. And the debt forgiveness especially includes the homeowners who didn’t ATM their equity over the last few years, and who are current on their contractual requirements.
Politically however, I don’t see this happening. Not as long as the banks own the Senate. A sad fact that we all have seen demonstrated in the last two weeks when it came to homeowner mortgages and credit card interest rate caps. And if anyone noticed, President Obama really didn’t try to spend any of his political capital on those two issues, either.
I think we’re headed for a lost decade or two now.
May 16th, 2009 at 3:25 pm
There is another way for homeowners to de-lever – it’s called foreclosure.
May 16th, 2009 at 3:27 pm
Right Dunbar — I am all for foreclose and get the props back in the hands of those who will one day own them. But since they keep spending trillions on the symptoms of the problem why not throw $3 trillion at the homeowners and buy down principal balances. They would never have to throw another dollar at the problem if they did so.
May 16th, 2009 at 4:41 pm
Mr. M
Can I get a tax credit for the average size of the principle write down then? No income phaseouts please!
May 16th, 2009 at 4:52 pm
Principal reduction? Horrible idea! As if we don’t have enough stimulus in the pipeline already and pissed away enough trillions. I am so tired of the bailouts. Every principal reduction would also be done at the expense of taxpayers. Think about it. The answer is the good old fashion FOREECLOSURE. If you can’t afford your home, then you need to let it go. Sorry.. welcome to finance 101.
May 16th, 2009 at 6:04 pm
“There is another way for homeowners to de-lever – it’s called foreclosure.”
There are not enough “prudent” renters to make a dent in this inventory at any price. So, if Alt-A and prime borrowers were to foreclose en masse this economy would absolutely implode.
I don’t anticipate wide spread PRs, but banks are going to continue to make trivial concessions that will fuel their manufactured illusion of solvency. And most underwater or near underwater homeowners from here on out will take the bone thrown at them, be it a below market rate or exotic refinancing options that keep them a faithfully remitting borrower for many years.
End result: The banks and the borrower are going to be absolutely strapped for a decade, and so will the “prudent”. The lender isn’t going to be making sh*t on their loans, so you prudent savers ain’t going to be making sh*t on your CDs.
It’s called a zombie economy with zombie banks and zombie borrowers.
And, those of you who think these zombie borrowers are low earning losers think again. The sub-prime low-lifes bounced in 2008. When confronted with an underwater home and a loan reset, they didn’t give it one thought – they walked and are renting again.
The Alt-A and prime zombie is a whole different walking financial corpse. They earn the bucks, and buy all that sh*t your company has to make to keep you employed. And they ain’t going to be buying your companies sh*t for a decade because they, unlike the sub primer, actually gave a thought or two about staying in their home – and decided they’d rather pay up the ass to keep their home and creditworthiness than to delve further into a the American consumer abyss.
I sure hope you “prudent” have income totally detached from consumer activity
May 17th, 2009 at 9:53 am
I’m unclear, are you suggesting simply because the house is worth more than the mortgage, that all those prime and alt-a borrowers will simply walk. If were talking about thoese with high DTI, I can understand. If you’re just saying all these people will walk away from their obligations and the country implodes, than were saying it’s the end of capitalism. Where does the walking away from our debts stop? When we look at the “stuff” we bought on credit cards, and realize it is not worth what the balance on our card is, do we simply stop paying? Same thing for our cars! This will eventually come down to a question of whether we have had a change in our culture, that says our words mean nothing, and therefore we default on everything. Our society simply reverts back to cash for all purchases, and no more credit. At that point it may not be even cash that’s accepted, but rather some sort of bartering system. I don’t see the solution as taking 3T of over leaverage that 25% of homeowners have, and instutionalize the debt across the entire tax base. We will simply have to raise taxes to then pay for it, thereby reducing standards of living going forward. Debt is debt!
Question Mr. M – Why should the person who bought a home with say 31-33% DTI walk away simply because the asset is trading at a distressed price. I would suggest that they intended to pay down that home over years regardless of the day to day market value. Where does the bailing out of bad decisions stop?
May 17th, 2009 at 9:59 am
I haven’t heard anything about the imputed income that mortgage forgiveness represents.
Does anyone believe the IRS won’t send you a tax bill for your reduction (income)?
Perhaps the President will means test this and pick winners…again.
May 17th, 2009 at 4:29 pm
Benzi.. you’re asking Obama..to forgive/reduce balance.. apply to the rich (prime + alt A)? Keep dreaming!
May 17th, 2009 at 5:08 pm
Housingrealist, not sure if you’re addressing me. But, to be clear, I am saying the opposite. I think from here on out, as negative equity becomes a reality for ‘higher quality’ people who do in fact take their obligations seriously, we will see a greater percentage of the whole deciding to hunker down and make due on their bloated mortgages at the expense of consumer spending. And, this will translate to very little economic growth, if any.
Call it stagnation, a zombie economy, lost decade, etc, one thing is clear. Unless your income is detached from consumer spending you will feel the pain irrespective of your involvement in the RE market.
May 17th, 2009 at 6:50 pm
I am more convinced than ever that the next step is wide-spread principal balance reductions that will reduce the massive negative equity burden in America and be a first-step to solving the mortgage and housing crisis once and for all.
The lending institutions said that they didn’t like their chances in court. They’re going to want that one back.
Benzy: So, if Alt-A and prime borrowers were to foreclose en masse this economy would absolutely implode.
yeah, it would
HousingRealist This will eventually come down to a question of whether we have had a change in our culture, that says our words mean nothing, and therefore we default on everything.
It’s coming down right now.
God bless America!
May 18th, 2009 at 12:38 am
First off, to a recent comment, I believe there IS a new law/rule from the IRS that says you won’t be taxed on certain forgiven debt. Amazing huh? If that applies to all these cash-out refi’s and HELOCs, then all those folks might be able to basically earn hundreds of thousands of dollars tax free. While us renters have to pay taxes on our “earnings” from a regular job/income source.
Speaking of renting: My wife and I made a smart, conscious decision in 2005 not to buy a house and to keep renting a house instead. It wasn’t luck or the lack of money to buy a house… just obvious economics. Why buy something for 3x the monthly price of renting it (and have no other expenses or risks)? Only made sense to buy if one was blind enough to think 20%+ annual appreciation was the new norm. I remember similar euphoria when the dot-com stocks were rising – that they’ll never go down! Ha. I digress…
Renting: why is it not a solution to this mess to turn all irresponsible borrowers into renters? Is it so horrible that folks should rent? Let their houses foreclose, and then the new owner can buy it at the true market value (based on rental income potential) and let those former owners rent it. Heck, all these folks are already getting to live in these homes “rent-free” for months on end… If they can pay a lower mortgage amount based on this principal reduction plan, then they certainly should be able to rent from the new owner, or there’s no point in trying to save them – they’ll never pay anything anyway (seems to be happening). Some small multiple of the NPV of rental income is around where your housing bottom will be found anyway. Let’s just get there and be done with it.
Otherwise, will we have any semblance of capitalism left? I don’t think anybody is too big or too small to fail — that’s the only way people will make better decisions and otherwise pay the consequences. The moral hazard growing in this country is shameful.
And all of us responsible folks are getting the real shaft-end of this.
May 18th, 2009 at 4:26 am
I love how the prevailing tone here seems to be “screw all you sh*tty little savvy renters! Prudence? Pfft! F*cking jerks!”
I get the feeling this lot is a bunch of whiny baby boomers with their sagging tits in the wringer, pining for the subordinate tax payer to come and rub in the Bag Balm. The checks in the mail, you spoiled brats!
It’s plain: if you bought a house in the last eight years, you had larceny in your heart, and deserve to feel the sting. It was a no-brainer, and I have no more sympathy for you than I do for the banks. I don’t even make a distinction anymore. Nobody forced anyone to sign a mortgage. There should be a lot more backlash here, but the sentiment is at best, abiding, and at worst, enthusiastic.
I am surprised by the moral and logical twilight many of these posters clearly enjoy. I guess the good news is that I am still surprised.
May 18th, 2009 at 6:05 am
No matter what you think about principal balance reductions, the massive negative equity around the nation will make the housing market a dead asset class for decades.
Remember, the average neg-equity on CA foreclosures last month was $205k. There is no way for most to earn their way out of that — good luck on appreciation.
I rather have nothing — no mortgage mods, foreclosure moratoriums or principal write downs because its the fastest way to the bottom But short to mid term, it will also be devastatingly painful. The choices made with respect to mortgage and housing will guaranty a ‘lost decade’ no doubt – at least one decade.
May 18th, 2009 at 7:21 am
I noticed above the Javagold suggested reducing principle on all homes back to 1999 levels. For those of you supporting principle write downs, how do you feel about that timeline? Should it be 1999, 1997, 2001, 1900 etc?
May 18th, 2009 at 7:53 am
Mr. Mortgage: “No matter what you think about principal balance reductions, the massive negative equity around the nation will make the housing market a dead asset class for decades.”
I say: “As well it should be.” Why should a house — a rotting box of wood in the rain — be anything other than shelter, an expense. Sure the land may have some value, but the house itself is a depreciating asset that rots and needs maintenance.
Don’t the statistics show that housing was relatively flat in real terms for most of the past 100+ years until this past 20-30 or so years of bubble? And in the past 10 years, it simply became the ponzi replacement for the .com stocks. People who bought into housing as a stock investment scheme should take the same lumps as those who bought pets.com for $100/share.
At the end of the day, it’s a blessing that housing would go up with inflation. A decade or more of that is a good lesson.
And the reason you don’t hear more outrage is that such a high percentage of Americans got into this mess that there’s not a loud enough voice from the rest of us taxpayers to drown out the sound of them sucking on the bailout teets.
May 18th, 2009 at 10:37 am
“I rather have nothing — no mortgage mods, foreclosure moratoriums or principal write downs because its the fastest way to the bottom But short to mid term, it will also be devastatingly painful.”
Mark, it will be painful, more devastating to some than others. But isn’t that what the free market is all about? People have been using their credit cards and mortgages as an ATM machine and now they’re shocked that they have to pay it all back.
May 18th, 2009 at 3:15 pm
“BUT THEY MUST BE ACROSS THE BOARD FOR ALL HOME OWNERS AND SET TO A FIXED % OR EVEN BETTER, A FIXED PRICE OF SAY 1999 PRICES OF THE PROPERTY”
Well, here’s a plan Javagold… instead of foreclosing properties, why don’t banks immediately approved short sales at 1999 prices? There are many first time homebuyers sitting on the side line waiting for this. Banks will clear out their inventories quickly, current homeowners out on their asses for not meeting their obligations and a new wave of homebuyers who can actually afford to own a home.