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I Warned That Banks Will Soon Be Forced To Walk Away From Homes… Guess What!
About 4 months ago, I claimed that Banks Will Be Forced to Forgo Certain Foreclosures, Even If the Borrower Has Admittedly Defaulted! In summary:
Without an economic incentive to
foreclose, it would not be in the bank shareholders best interests to
pursue foreclosure even though borrowers clearly defaulted & owe
money to the lender. The economics of distressed assets in mortgage and
commercial banking are quickly changing. I am quite open to discussing
this in the mainstream media if any are interested in hearing the “Truth go Viral!” I want all to keep this in mind when pondering the release of reserves by the banks.
This was taken by many readers as sensationalist and unlikely. As a
matter of fact, much of my writing is taken in a similar way, most
likely due to the fact that I have an uncommon proclivity to state
things exactly as I see them, sans the sucrose patina. This is not a
pessimistic (bearish) outlook, nor an optimistic (bullish) outlook. It
is simply called, the TRUTH! Realism! Something that is increasingly
hard to come by in these days of media for a purpose and embedded
agendas.
You see, the United States, much of Europe, and China
have sever balance sheet issues that are ravaging their respective
economic prospects. The media, analysts, and investors are gingerly
mozying along as if this is not the case. Well, no matter how hard you
ignore certain problems, no matte how hard you try to kick the can down
the road – the issues really do not just “disappear” on their own.
With these points in mind, let’s peruse this piece I picked up from the Chicago Tribune: More banks walking away from homes, adding to housing crisis blight: the bank walkaway.
Research to be released Thursday, the first of its kind locally, identifies 1,896 “red flag” homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.
Abandoned foreclosures are
increasing as mortgage investors determine that, at sale, they can’t
recoup the costs of foreclosing, securing, maintaining and marketing a
home, and they sometimes aren’t completing foreclosure actions. The
property, by then usually vacant, becomes another eyesore in limbo
along blocks where faded signs still announce block clubs.
“The steward relationship between the servicer and the property is broken, particularly in these hard-hit communities,” said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and advocacy group. “The
role of the servicer is to be the person in charge of that property’s
disposition. You’re seeing situations where servicers are not living
up to that standard.” City neighborhoods where 80 percent of
the population is African-American account for 71.1 percent of
red-flag properties, according to Woodstock.
Don’t fret, this is definitely not an “African American” thing. As a
matter of fact, the reason that this is concentrated in this primarily
“African American” community is that this is one of the demographic
groups that have been heavily targeted by predatory lenders. You will
see other demographic “concentrations” start to show similar attributes
and behavior from the banks – lower income, lower educated, higher LTV,
lower mean rental income, lower property value, higher mean time to
disposition from commencement of marketing areas, etc.
In some cases, lenders might be skirting city rules for property upkeep even after they repossessed properties.
This is where, if the cities and municipalities are on their Ps and
Qs, local governments can successfully hit the banking industry for
revenues. Charge and fine the banks heavily, just keep the charges below
the level of what it will take the bank to maintain the property. Then
use the properties for public housing facilities and/or raze the
properties.
Woodstock found that as of the end of
September, 57.1 percent of the estimated 4,468 single-family, likely
vacant homes that became bank-owned from Jan. 1, 2006, to June 30,
2010, were not registered with the city as vacant, as they are
supposed to be. “The whole concept of charging off creates this limbo
land,” said Dan Lindsey, an attorney at the Legal Assistance
Foundation of Metropolitan Chicago. “There’s still a lien that can
follow the borrower.”
In November, a U.S. Government
Accountability Office report on the frequency and impact of abandoned
foreclosures noted that Midwestern industrial cities, including
Chicago, seem to bear the brunt of bank walkaways, leaving
neighborhoods in deeper distress and cities left to shoulder the
associated costs of dealing with unsafe, often unsecured homes. The
GAO report, derived from information provided by six loan servicers,
found that servicers nationally charged off loans on 46,000 properties
from January 2008 to March 2010, with 60 percent of the charge-offs
occurring before an initial foreclosure filing was made. That report
listed Chicago as having the second-highest number of
servicer-abandoned foreclosures nationally, behind Detroit, with 499
properties charged off during the foreclosure process. An additional 361
properties were charged off without a foreclosure filing.
For its report, Woodstock culled data
from the city’s vacant properties registry, as well as buildings
identified to the city as vacant by municipal departments, foreclosure
court filings made from 2006 to the first half of 2010, foreclosure
auctions and property transfers. Some of the 1,896 properties flagged
by Woodstock as likely walkaways could, in fact, still work toward a
resolution in the foreclosure process, but 40 percent of those homes
had been in the foreclosure process for more than 18 months. Woodstock
believes its projections are conservative because lenders also decide
to write off their investments in properties before filing initial
foreclosure actions. For only those 1,896 homes, Woodstock pegs the
cost to the city, if it needed to seize, secure and demolish them, at
$36 million.
And here is a list of the favored banks…
In Chicago, the mortgage servicers and trustees most often associated with the properties flagged by Woodstock are Bank of America, with 314 properties; Wells Fargo (234); U.S. Bank (185); Deutsche Bank (178); and JPMorgan
Chase (165). When asked to comment generally on bank walkaways, several
banks either declined to comment or did not return phone calls.
Why should they comment? The banks are reporting record [accounting]
profit increases as release their bad credit reserves back into the net
earnings category. Good times are hear to stay. See As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves. and After
a Careful Review of JP Morgan’s Earnings Release, I Must Ask – “What
the Hell Are Those Boys Over at JP Morgan Thinking????
Neighborhoods on the city’s West and South sides seem to be most at risk of bank walkaways. The city’s Roseland neighborhood, on the city’s far South Side, is one example. In 2007, some of the pictures of the homes taken by the Cook County assessor’s office showed properties that were reasonably well cared for by homeowners.
A little more than three years later,
the number of eyesores has grown. Windows are broken, fences are
missing and plywood covers some of the broken windows. Even if the
houses look secure from the front, back doors are sometimes missing or
open. Public records show that foreclosure actions initiated were
never completed and titles to properties never transferred.
Now, let’s run through this Chicago nightmare scenario from the BoomBustBlog analytical perspective, excerpting Banks Will Be Forced to Forgo Certain Foreclosures, Even If the Borrower Has Admittedly Defaulted!
About a week or so ago, I posed a controversial question, Is the US Government About to Forgive Mortgage Debt? Let’s Crowdsource Our Way Through a Scenario or Two!
In that missive I warned that the recovery rate on many of the
repossessed properties was not only at a historic low, but actually
approaching zero, save a few blips from .gov bubble blowing and
shenanigans by banks in the form of kicking cans down the road. I also
said that the time may very well come when there may be no economic
incentive for banks to foreclose on certain properties, and that pool of
properties may grow larger than many could imagine. I know it is
difficult for many to come to grips with this, but the math really ain’t
that hard.
Even Tyler Durden, whose controversial
ZeroHedge site I read and contribute to with a passion, is being too
optimistic. Yeah, that’s right! You know things are bad when ZeroHedge
is too optimistic! In his post “Quantifying The Full Impact Of Foreclosure Gate: Hundreds Of Billions To Start“, he
assumes there WILL be something to foreclose upon. I assert that in
increasingly more common instances, there will be no economic interest
to foreclose upon. It is starting at the fringes and the margin, but
it is moving closer to the center faster than many think. And the longer, and deeper “Fraudclosure” investigations continue, the closer and faster to the center it will get.
Well, since I penned this piece, new developments have arisen. In
particular, the likelihood that banks will be set back even further as
they face additional legal pressures and foreclosures are judicially
rolled back and undone. See Less
Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking
Industry, The Massachusetts Supreme Court Drops THE BOMB!
This is, of course, not even considering
the fact that all of this investigating and shining the light in dark
corners will reveal the true elephant in the room (and it is not
hastily signed affidavits that can be quickly fixed) which is that
many, if not most, high LTV mortgage originations were fraudulent to
begin with. That means that not only would it not be cost effective to
foreclose, but everybody and their momma will be scrambling to put
the fraudulent loans back to the originating banks – see The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf
2008! for my realistic take on the situation and the expenses that
it entails. Yes, the elusive recovery rate is going to be pushed that
much lower. Long story short, bank expenses will skyrocket, along with
efficiency ratios, which were already increasing to begin with at the
same time housing sales economic activity and prices will drop and
credit losses will spike. Oh, what fun we have in store.
Here is an excerpt from Is the US Government About to Forgive Mortgage Debt? Let’s Crowdsource Our Way Through a Scenario or Two
to refresh your collective memories and then I will run through an
example that clearly shows a high LTV property in Nevada that the lender
literally has no economic incentive to foreclose upon if there is
litigation to be had.
As you can see, the charge-offs on
1-4 family residential housing skyrocketed nearly 1,500% (yes, that
is a lot) from the bursting of the bubble in ‘06.
Both recoveries have increased and
the charge-offs decrease, giving us an increase in recovery rates
over the last two quarters. Now, before we get all giddy about the
improvement in the credit situation in residential real estate
finance and blow out all of our provisions, let’s take a more
careful look at the chart. For one, although the recoveries have
increased very slightly, it is the drop in the charge-offs that has
served to boost the recovery rate. So, that leads us to ask “What
has changed so positively in the market to cause such a drop in
charge-offs?” Well, for one the Case Shiller Index has shown a rise
in prices. Of course, BoomBustBloggers don’t really go for that,
because the Case Shiller Index rise fails to capture many of the
elements that are causing aggregate housing values sold to fall on an
economic basis. See Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading! then reference this chart below.
I will make the analytical model that created this chart available to all paying subscribers
in my next post on this topic, which will drill down on why a lagged,
highly filtered price model (no matter how sophisticated, and they
did do a good job on it) will often mislead you in regards to the
true economic direction of assets as such as housing. You must
measure sales activity (which has slowed to a level that nearly
approximate 1963 levels) as well as sales prices – and those prices
have to capture all aspects of housing. The CS index excludes the
most distressed categories, which causes it to have an optimistic
skew.
So, if it is not the rising prices of
indicated by the Case Shiller index that caused the drop in
charge-offs, then what was it? Well, I believe it was something much
more old fashioned and mundane. It’s called LYING! See Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate, as excerpted…
Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel:
- Without the FTB tax credit, the housing market is receiving
artificial demand and price support from the FHA loan guarantees and
banks sitting on mortgages of homes once valued at $300,000 - Banks in areas that were severely damaged by the downturn in
domestic real estate (Cook County, Illinois, Miami-Dade County,
Florida, Orange County, California) have significant inventories
of homes worth more than $300,000 that they will not put on the
market, even after foreclosures lasting more than 2 years
If that doesn’t get you going, reference “They ARE trying to kick the bad mortgages down the road, here’s proof!” and “More on kicking that housing can down the road…“.
Now, taking the above into consideration, let’s run through an example of a high LTV single mortgage home purchased in Nevada.
| Sales price | Loan, expenses | Equity | ||
| $ 250,000 | $ 312,500 | $ (62,500) | Starts off with negative equity | |
| Current retail value | $ 100,000 | $ 300,000 | $(200,000) | prices drop |
| Distressed value | $ 64,000 | $ 300,000 | $(236,000) | distress discounts |
| Carrying costs/maintenance@5 m, taxes/utilities@24 m | $ 12,480 | $ 312,480 | $(248,480) | can’t hold the property for free! |
| foreclosure costs | $ 6,000 | $ 318,480 | $(254,480) | cost to foreclose |
| Broker costs@6% | $ 3,840 | sales costs | ||
| Recovery to bank if sold withing 4 months and not drawn into litigation | $ 41,680 | net recovery in a perfect world | ||
| Recovery if marketing period=12M | ~35000 | recovery if sales continue to slow | ||
| Recovery if litigated (win or lose?) | $ - | If there is a legal battle (there cropping up all over the place), the bank is better off letting it go. |
This example is not far fetched, and can
take place in condos in Florida, California and New York where extra
costs can drive down recovery, or the humid coastal regions (ex.
Florida) where humidity can drive down recovery over time, or cold
weather states, or high crime areas (theft, vandalism), etc.
Methinks it is time to start rethinking
the dynamics of distressed real estate, foreclosures, REOs, and
recoveries for the economics are definitely starting to morph on the
margin and that morphing can quickly spread to the more mainstream.
It is imperative that my site’s paying subscribers review this blog
post in light of the shadow inventory study that I released late last
year. This is the key to how deep this mess will get, and it will get
very deep. All readers should read the following post, subscribers should download the pdf and read it, then re-read it. I will be issuing an update this weak.
The
3rd Quarter in Review, and More Importantly How the Shadow Inventory
System in the US is Disguising the Equivalent of a Dozen Ambac
Bankruptcies! Wednesday, November 10th, 2010 by Reggie Middleton
I feel this month has thrown enough
events at the market to force it to start taking the real fundamentals
into consideration. Of course, battling this ideal is the US Federal
Reserve and their QE 2.1 policy. This should be a time to reflect upon
exactly where we stand thus, I will review my thoughts and observations
over the last 30 to 45 days and then summarize a truly unbiased and
independently calculated view of the downright nasty side effects of
the US shadow inventory of distressed housing. All paying subscribers
can download the full shadow inventory report here: 
Foreclosures & Shadow Inventory. Professional and Institutional subscribers should also download the accompanying data and analysis sheet in Excel – Shadow Inventory.
Over the last few weeks, I have commented on my belief that the big banks who optimistically release reserves
and provisions to pad lagging accounting earnings under the auspices of
increasing credit metrics are simply setting their investors up for a
major reversal which will bang those very same accounting earnings: JP
Morgan’s 3rd Quarter Earnigns Analysis and a Chronological Reminder
of Just How Wrong Brand Name Banks, Analysts, CEOs & Pundits Can
Be When They Say XYZ Bank Can Never Go Out of Business!!!
_________________________
More Reggie Middleton on residential real estate:
- Less
Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking
Industry, The Massachusetts Supreme Court Drops THE BOMB! - As
JP Morgan & Other Banks Legal Costs Spike, Many Should Ask If It
Was Not Obvious Years Ago That This Industry May Become The “New”
Tobacco Companies - The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf
2008! - As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves
- The
Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks
Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf
2008! - The Truth Goes Viral, Pt 1: Housing Prices, Economic Sales and the State of Depression
- Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!
- Those
Who Blindly Follow Housing Prices Without Taking Other Metrics Into
Consideration Are Missing the Housing Depression of the New
Millennium. - Is the US Government About to Forgive Mortgage Debt? Let’s Crowdsource Our Way Through a Scenario or Two!
- Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!
- More Doom and Gloom: Homebuilders Making Better Money as Hedge Funds than Home Builders
- Yes, Housing Prices Have Much Farther to Fall. We’re Talking Years…
- Even at Marquis Trump Properties, Your Lyin’ Eyes are Belying the Real Estate is Bottoming Mantra
»
- advertisements -
reggie I'm still lookin' for that short aussie housing bubble etf you promised? has one been made
My suspicion is that the over-riding concern of the FED in keeping the stock market up is to allow the Corporate Insiders enough time to dump their holdings over a period of time. I believe they do this each month "into whatever flow of money still comes in from funds, retirement plans etc. In other words a calculated front-running operation.
So, the top executives at the banks, must see what Reggie sees, although he puts it together more comprehensively, and are dumping all they can while at the same time getting their passports in order.
Who will take the housing losses? I bet it's everyone who holds MBS investments ... pension funds, stable value funds, PIMCO, et al ... and of course the American taxpayer via Fannie Mae and Freddie Mac.
And why should everyone but the banks take the hit? Because failure of the TBTF banks will bring down the entire global economic system and America with it ... or so we will be told ... again!
This is a huge opportunity for "the government" to create a huge new government agency within the housing dept, the Dept of Family homes, the possibilities and scope are even bigger than healthcare.
Think about the takeover, rehab, management, upgrade and maintainance of a huge new pool of millions of state owned homes full of state owned employees, state owned voters, and state owned tenants.
SEIU nation.
This was Obama's plan all along.
"..pad lagging accounting earnings under the auspices of increasing credit metrics.."
They moved a paltry $2 billion. With <4 billion shares outstanding it clearly served only to pad the earnings. As MLK, Jr. professed; "No lie lives forever".
The property taxes (& IRS liens) are superior to the mortgage. All states have property tax sales where a new investor can pay the delinquent tax and accrue interest.
After a period of time, typically three years, the property tax purchaser is able to get a deed and eliminate the mortgage. It will be interesting to see if that occurs with greater than the historical rate of about 1%.
I don't know if IRS liens are auctioned and if those are superior to the local real estate tax liens.
Oh, they are. IRS trumps everything. But they usually prefer to wait and see where the property (= value, in their mind set) goes, and then land with a hammer. That methodology may not work particularly well for them in the New America.
Reggie--
Great stuff. Being a Freddie Mac Homesteps vendor let's me see unbelievable deals, like an 1800 ft sq house on 0.75 acres, OK neighborhood for $38,500 - and in Charlotte, not Detroit. How about a decent trailer on 0.5 acres - for $13,200? You'll get $500/mo rent!
This whole debacle is just getting started.
I can see it now: On the front page of the real-estate section of The Tehran Times Daily - "Ocean front property for sale in beautiful downtown Detroit - you're perfect American vacation home!" Send your payment, in gold, to JPM for immediate possession of this historic dwelling.
I live in Connecticut Reggie, in my neighborhood there are now two GMAC properties that have been abandoned. They sent workers out in the summer of 2010 to close up the properties and no one has been back since.
I knew one of the homeowners very well. The guy was a drywall installer who lost his job about a month after he bought the home. It was a zero down property with a $1500.00 monthly note. He bought the home for $185,000.00. He ended up making one payment on the home and ended up living there for 26 months rent free before they threw him out. The house has begun to decay and the for sale sign disappearred a few days ago.
I'm not quite what sure what comes next for the property, but you did call this one, your crystal ball seems to be in fine working order as usual.
The mortgage crisis has accelerated a collapse in some real estate markets that was destined to happen anyway. For example, areas with a higher than normal concentration of aging second home owners.
Specific case: I just got back from vacationing in a private community in the Florida Keys where 95% of homes are not a primary residence and the average age of owners is around 65-70 years. The market price of these homes has fallen over 50% from the peak and about one in four homes are now listed for sale. Owners have discovered that they can now rent a home for the 3-6 months of the year they want to use it for much less than the carrying cost of ownership. The real crunch comes when the kids become responsible for the property by inheritance or other means. Most of these 50 somethings have little or no liquid assets of their own, nor the surplus cash flow to even pay the taxes on the property, let alone condo fees, storm insurance, maintenance, and other costs which amount to around $20k per year for an average home. Many of these homes require between $50k-100k of rehab before they would meet the quality standards required by the community for entry in the rental market. In short, the kids are f*@&%d with no option but to dump their inherited property “as is” to an investor (local landlord or flipper) for whatever they can get. By my estimates, that price is now about 20% of the price where these properties peaked at around 2006-2007. It’s painful to watch as the kids slowly discover how the inheritance they were counting on for a blissful retirement of their own is now threatening to become a burdensome financial nighmare.
Funniest end of civilization ever according to my friend Veeshir.
the banks will do absolutely everything but the one thing that will solve the problem, which is to negotiate and write down the principal so the homeowner can stay and pay off a mortgage that represents the fair value of the real estate.
Nice interview Reggie. Supply-demand & equilibrium price... what a concept. To sum up Reggie's interview
"This shit ain't over!"
Why do vacant homes in predominantly African-American neighborhoods always suffer vandalism? I have a vacant home in my all white neighborhood and no one is throwing rocks through its windows....why do blacks want to destroy. It makes no economic sense as it hurts everyone in the neighborhood. I think we could cure some racial tensions if this issue was addressed.
a breath of fresh air in a blizzard of lies
thanks reggie ,,
Thanks Reggie. (I think my head is going to explode!)
Reggie & Dian Chu have really come on strong as outstanding Zero Hedge contributors.
Reggie, you have constructed a compelling case that things will get worse, not better, that banks still have yet to realize the full impact of this mess (many thought the crisis peaked in 2008, but it did not), and that the Federal Reserve is merely providing cover and concealment for banks, for the time being, and that this ability will ultimately fail.
I want to add one factor that will lead to the drop in home prices that hits on a very personal note: student loan debt will preclude many potential buyers from buying a home in the next few years.
My wife and I recently applied for a loan to acquire a home inside the perimeter in Atlanta. The home was in a good area inside the northern arc southwest of Peachtree Dekalb airport. The home was $105,000. My wife and I currently made $45,000 last year, but that will be improving as: 1, my wife just started working again (part time) and will make $10K this year, as opposed to only $3k, and; 2 I am in law school at night and will graduate in two years (with a position as an attorney at $80k lined up with my current employer).
However, we were denied the loan due to my student loan debt, currently at $40,000 and likely to be double before all is said and done. The inability to borrow due to the student loan debt will likely keep us from buying a home for a decade. We can't be the only one in this position and I expect it will have a huge impact on the ability of move-uppers to sell their homes to young buyers over the next decade...
The next bubble to burst will be the education bubble.
Went with the grand kids to a College Financial Aid Night at the local high school. Presenters explained to the kids and parents the funding sources available for college. Part of the presentation was given by the local attorney general, explaining to the parents and the kids all the conflicts of interest, colleges and banks who profit at the "expense of student schemes". The legal difficulties to discharge this debt once occurred, (student loans survive a trip through bankruptcy). The AG was very clear that some these practices are semi-legal, and very difficult for the attorney general to successfully prosecute and very common. The point of the lecture to the kids, was how to recognize these practices and to avoid them.
It made me very thoughtful about the values of our society and were we are headed.
Until I read your post it had not occurred to me that the student loans would preclude the ability to obtain a mortgage to buy the "first home". That has the potential to be a very substantial percentage of the real estate market.
So, you mean that lenders are actually looking at real income/expense ratios for a change, instead of filling in the blanks with their own numbers? What a novel idea.
The truth is always refreshing !
This is no surprise. These properties end up as tax foreclosures. The bank is entitled to the "overage" - the extent, if any, by which the winning bid at auction exceeds the tax debt. If there is no bidder willing to pay the tax debt - and that is happening in really poor neighborhoods - then depending on which state it's in, the property either reverts to county ownership, or becomes the property of the investor who previously bought the tax lien from the county (and who was hoping to be paid in full in cash).
The prevalence of high-interest subprime loans is a reason for numerous foreclosures, but it's no reason for banks to abandon properties.
Banks tend to abandon properties in black and immigrant neighborhoods for two other reasons. First, that is where property values are lowest. Second, that is where the risk of plundering, vandalism and arson while wresting control of the property are highest.
You can see this even in NYC: in white neighborhoods, the banks will usually outbid everybody at the courthouse auction and sell it through a realtor, whereas in black and immigrant neighborhoods, even better ones, the banks bid far less aggressively and far more properties are bought by third parties at the courthouse auction. I'm not accusing anybody of racism, I'm just saying, the big banks seem to use coarse statistics and basically judge the plundering/vandalism/arson risk by the predominant ethnicity of the neighborhood. So the best deals for third parties at NYC courthouse auctions tend to be in "Huxtable family" neighborhoods. It's a fact.
Reggie, your writings are wonderful, plain spoken, lucid, with supporting data.
The banks are insolvent, the government is propping them up. Can the government not only continue to support the banks but assist/provide a structure for the generation of real growth in our economy? Scott Minerd referred to the "Europe's Gordian Knot", this is the US' Gordian Knot? In his recent article he states "I expect 2011 growth in the neighborhood of 3-4 percent.", how can he support this prediction with these underlying issues?
It is critical that American homeowners understand how viable the option is of ceasing to make their mortgage payments. In fact, tens of millions of American homeowners have this option at their dsposal and I fear that most do not understand how reasonable and beneficial (collectively and individually)it would be for them to exercise this "nuclear option." Indeed, it is the nuclear option of the American Middle Class--and having this option at our disposal is the only leverage anyone seems to have against the Too Big To Fail Banks.
At the core of this issue, and this CANNOT be drowned out, is that American homeowners truly do not know to whom their mortgage debt is owed; they suspect it is not the party who would attempt to foreclose in the case of a default.Their suspicion is well-founded, in that, when asked to do so, virtually none of these "lenders" can seem to come up with the paperwork and documentation to prove they are the proper party in interest-without blatatantly falsifying, fabricating, and forging such evidence. (Why would American homeowners NOT be suspicious?)
It is incumbent upon all American homeowners, ethically and morally, NOT to pay any debt to the wrong party in interest. Paying the wrong party in interest is comparable to putting the wrong man in prison for rape. Not only does it result in the benefit to the actual rapist, it results in great harm to an innocent man. Indeed, if a woman is raped--we don't just throw any random man in jail for the crime. Likewise, if a homeowner defaults on a mortgage--we don't just give the asset to any random parties that show up in court asserting that the asset belongs to them. The parties need to offer proof that they are the proper parties of interest in this asset. It is blatantly obvious that those parties foreclosing over the past several years, when asked to actually prove they are the proper parties in interest, cannot do so.
This, "Well, the homeowner owes a debt--it doesn't matter to whom it is paid" attitude MUST STOP. It matters. Homeowners are right to question this.
Those Fukerz Have R Money--and this is the only way the American Middle Class can get it back. Really fast.
+++++++++100
During the housing boom, I watched many people live well beyond their means. If I can't pay cash, I don't need it!!! I have owned everything free and clear since the 1980's. I drive my cars until they die. Something is wrong when the bag boy at the grocery store has a newer (way more expensive) car than me (and I have considerably more discretionary (many times more) income then that young pup has)! One of the main reasons "Those Fukerz Have R Money" is because they (the ones living beyond their means) were foolish and gave it to them!!!
There are many parties "guilty" of moral hazard in this dilemma and I feel very little pity for the "greed/ignorance" of the middle class. NO ONE MADE THEM ENTER INTO THESE LENDING AGREEMENTS!!!!!!
The cost to the taxpayers to address this "middle class" spending spree/stupidity/greed is going to dwarf the cost of supporting the legendary "welfare queens"! And I don't see a whole lot of difference between the two!!
"If your going to be stupid, you had better be tough." Yeah, that's you "Joe Six Pack" that I am talking to, stupid and proud of it, our new welfare queens!!!!
thanks again reggie ( i told you so ) middleton. i have told some people to look up your blog because they were thinking of buying in florida or nevada months ago. sure hope they did,( look you up i mean).
Reggie u know if it gets that bad that many people who pay their loans will be angry and never vote for a democrat ever again. They will be truly exposed as the party of the parasites if the government puts its stamp of approval on free homes for losers. It will be president rick santelli the father of the tea party. He hates all politicians and bureaucrats and has no love for banks.
+1
This has been coming on for several years. On the creditinfocenter.com website a few years back I exchanged messages with a poster whose loan had been purchased by a junk debt buyer who then omitted to foreclose. The individual was facing a dilemma since they were still the record owner of the home and on the hook for upkeep and taxes. One suggestion was to record a quit-claim in favor of the current mortgagee.
Property (vacant land) claims generated by way of paying taxes in arrears, brings a property lien into existence, that in effect will put the lien bearer in partnership with the local government. Who are more than happy to accommodate anyone because of their severe cash strapped status.
This is a way to accumulate property through liens, on claims generated by having little money in play. It is a long term holding and a way to park cash now, in something that will provide a good return at a future date when property values return to higher valuations.
You have none of the responsibilities of the property owner(s) other than maintaining your legal status as a lien holder against said property. In some cases, property owners sign over the deed in consideration of getting out from under their overhead position. Future land barons take note!
Don’t fret, this is definitely not an “African American” thing. As a matter of fact, the reason that this is concentrated in this primarily “African American” community is that this is one of the demographic groups that have been heavily targeted by predatory lenders.
I didn't see one mention of the Community Reinvestment Act in the post. To suggest that banks 'targeted' these communities without discussing the role of the federal government in stopping redlining and pushing banks to make high risk loans is kind of like ignoring the elephant in the room.
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
The banks were only too happy to abuse safe practices with the encouragement of government officials and the guarantees of public money, but it was but one peice of a much larger, global fraud designed to expand fraudulantly packaged and sold MBS that was deliberately composed of bad debts:
The Best Way To Rob a Bank is To Own One, by William Black.
An interview: http://www.portervillepost.com/pdf/The_Best_Way_To_Rob_A_Bank.pdf
The banks were given quotas of these loans to meet. Kind of hard to maintain lending standards under those circumstances. I'm not saying the banks were blameless, but we need to look at the whole picture.
Blaming CRA for this is BS. That meme has been long debunked.
...approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA, and another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. Barr noted that institutions fully regulated by CRA made "perhaps one in four" sub-prime loans, and that "the worst and most widespread abuses occurred in the institutions with the least federal oversight".
According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made risky "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.
There's nothing wrong with filling in the picture, as long as it doesn't obliterate our view of the entire picture--and focus upon the CRA usually does just that. NINJA loans were not a necessary or actual outcome of the Community Reinvestment Act.
MBS mills had "quotas" for making bad loans to everyone . . . on wildly inflated property values. Their quota was essentially "don't stop until this bitch drops."
Reggie,
As a guy who has been proved right over and over and flying against the establshed mindsets perhaps you could add a few lines defining "predatory lending". I would be curious if you have any numbers breaking down these loans as a percentage of the population and further by ethnicity.
Thanks in advance.
The Monster : How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America--and Spawned a Global Crisis
Michael W. Hudson
Introduction:
Bait and Switch
A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/10/25/how-a-gang-of-predatory-lenders-and-wall-street-bankers-fleeced-america-and-spawned-a-global-crisis.aspx
Lots of specific info on the predatory rackets in the continued quote of the book at the linked site.
Bob - The Monster: A fantastic book, I am not finished yet but I remeber the names of the crooked S&Ls and banks from watching them on afternoon TV when I was a kid. The book puts the people's names to the companies and presents a detailed picture of how the mortgage disaster started long ago and how it was built and supplied for decades by wall street crooks. A must read.
Thank you, Reggie!
As always, very informative, insightful, and well documented.
Foreclosure stories still on the rise where I live. I expect much much worse to come.
I love ZH too. And, like those you mentioned, I too am far more pessimistic than the over all tone at ZH.
It's amazing how long the Fed has managed to prop up this facade of a market. Of course, the market is not the economy. How ironic the market indices are the Fed's last line of defense used to control the greater perception of the health of the economy---to prevent panic.
"far more pessimistic than the over all tone at ZH"
if you think you are pessimistic, try this on for size: Martin Armstrong's cycle work predicts that the current housing downtrend won't bottom until 2032 - that's 21 more years of decline!
some factors that will contribute to this ongoing decline:
- Boomers downsizing into coffins and urns
- clouded titles/ownership due to robo-signing, fraud-closures, etc
- popped real estate bubble causing people to avoid the popped asset category for a full generation (study bubble dynamics)
- overbuilding / excess supply - at least 2 years of for-sale inventory on MLS and who knows how many years of shadow inventory yet the builders continue to build
- 22% unemployment (igore the BS from the BLS - see shadowstats.com for the real numbers)
- increasing duration of unemployment once unemployed
how's that for pessimistic?
As a 1962 vintage Boomer, I find that very pessimistic...
(:-<
good thing I am enrolling in mortuary science!
- Boomers downsizing into coffins and urns
LOL!
I'm in the North Shore suburbs of Chicago, where the inventory of $1 million+ homes is staggering. Builders kept up with the spec work well into 2009.
Only this weekend, I was showing my spouse the number of homes in just our town listed as "Bank Owned" (80) on RealtyTrac vs. the number of bank owned homes that were also for sale (8). Factoring in the credible stories I've heard from realtors about the number of people living in their McMansions without paying for them for yearS and I'm wondering whether this problem is truly limited to the south and west sides of Chicago.
As of December, our suburb had 44 months of supply in the $1 million+ category. The suburb directly south had 68 weeks in that category. The suburb directly north-- 114 months! I have personally seen "ruins in progress"-- newly built McMansions/McCastles, never occupied in a state of deterioration. One has an obstructed view of Lake Michigan, a bright orange sticker on the door and a rotting-- formally brand new, high end-- garage door. There is even an entire block of mansions directly on the lake that have been for sale for upwards of a year.
When I complained to the the city about the number of architecturally significant and historic homes that had been neglected right into teardown condition by speculators (burst pipes, etc.), the local building department emailed me that there were HUNDREDS of vacant homes in town and they could do nothing about it.
I can PM anyone my sources, which I wish to protect so they stay in business (and I can keep reading their reports).
Banks have no problem walking away from $30,000 homes. But if word got out about the McCastles and those prices started plunging-- the banks will have a MAJOR problem. I think they're afraid to foreclose these homes for fear of holding the bag on homes previously worth millions of dollars a pop.
What's that saying that I've read? Goes something like: If you owe the bank $1,000, you have a problem. If you owe the bank $1,000,000, the bank has a problem.
I have seen similar here in an upscale neighborhood of one of the five boroughs of NYC. The wife and I were looking at the files of some houses we were interested in on Property Shark and we were shocked to see that they had been in foreclosure for about 3 years.
I reside in River North--city sector with residents of similar both income and education to Northern Burbs--so am affected by Northern Burb sentiments; please PM me your sources. Thank you.
Either there's no way to PM or I can't figure it out. Use this link for the source for inventory levels:
http://chicago.craigslist.org/nch/rnr/2165360620.html
I'll delete it later so they don't take any heat from industry folk looking to spread the sunshine and lollipops.
I ask again, and when will The Banks be forced to realize these losses? Reggie?