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Why Real Estate Will Hold The Economy Back
This article originally appeared in The Daily Capitalist.
Commercial real estate loans and residential housing will continue to be a significant drag on economic performance. Until the mass of over-built homes and commercial properties are liquidated credit will remain tight and unemployment will remain high.
The unfortunate fact remains that credit for most of America is still tight, banks are still trying to repair their balance sheets, and the overlying problem is real estate, the detritus of the Fed's reckless monetary policy. Credit expansion fueled by the Fed's easy money policy of the early 2000's drove private debt to fuel housing over-production, and drove commercial debt to fuel commercial real estate (CRE) over-production. It was the greatest such expansion of money and credit the world has ever seen and it went primarily into real estate. We are now facing the consequences of that expansion and boom: the bust.
The FDIC released its Q4 report on the health of our banking system and while banks are improving, credit is restrictive as evidenced by sluggish loan growth.
Total lending fell for the ninth time in the past 10 quarters, with the largest reduction in real-estate construction loans and non-credit-card consumer loans, the FDIC said. Credit card and home mortgage lending grew. Total loan and lease balances fell 0.2%, or $13.6 billion, while total assets for the industry fell 0.4%, or $51.8 billion. Real estate construction and development loans were largely responsible for the overall loan decline, falling more than 9%.
The problem with the data is that most of the positive news was restricted to the big money center banks. However the FDIC did report that 62% of all banking institutions (7,657 of them) turned a profit in Q4. Most of their bottom line improvement wasn't related to loan growth but rather to loan write-offs. As banks report loans to be in default, they are required to reserve a certain amount of funds to account for the loss. But, once the losses are taken or the loan is otherwise resolved, the reserves move back into the revenue side of the ledger and boost earnings.
Much of the year-over-year reduction in provisions was concentrated among some of the largest banks. Seven large institutions accounted for more than half of the $31.3 billion reduction. However, a majority of insured institutions (54 percent) reduced their provisions in the fourth quarter compared to a year ago."There is a limit to the amount that smaller loan-loss provisions can contribute," to banks' bottom lines as revenues remain stagnant, [FDIC Chair Sheila] Bair said. "A key reason why revenues haven't grown faster is that loans have not been growing."
But, the positive is that reserves requirements are being reduced as banks deal with bad loans:
Insured institutions set aside $31.6 billion in provisions for loan losses in the fourth quarter, almost 50 percent less than the $62.9 billion they set aside a year earlier. This is the smallest quarterly loss provision for the industry since third quarter 2007.
The FDIC said that they currently have 884 banks on their"problem list." Bank failures in 2010 were the highest in 18 years (157 failed, another 197 were "absorbed" through forced mergers).
In a further sign that we are not out of the woods yet, the FDIC extended their full guarantee of non-interest bearing deposits, the TLGP program (i.e., on top of the $250,000 guarantee).
The other side to this issue is that businesses, especially small businesses which employ about one-half of the workforce, are not borrowing, contrary to what some of the big banks are reporting. A recent survey by the National Federation of Independent Business (businesses employing up to 250 employees) reported:
Though most small businesses use credit of some kind, more than half said they didn't need any new loans last year, according to the survey. Of those who applied for loans, 41% got what they needed, 16% didn't get any credit, while the rest obtained some. A small number of businesses rejected the credit they were approved for because they didn't agree with the terms. The survey also found that business owners who use credit cards as the only source of borrowing do so by choice rather than because they didn't get a bank loan.
"The economic atmosphere for small businesses did not improve much in 2010," said Denny Dennis, NFIB Research Foundation senior fellow, in a press release. "We don't expect credit levels to reach the levels they did a decade ago."
Which is one of the reasons jobs growth is sluggish as well.
One may ask why businesses aren't expanding and borrowing. The obvious answer is that they don't see sufficient demand to warrant expanding and borrowing. (We will discuss the current producer indices in another article.) Another less obvious answer is that a lot of small business owners were negatively impacted by the decline in real estate.
The NFIB report was quite revealing. The bottom line is that one-half of survey respondents who wanted credit couldn't get loans, especially the credit lines that so many small businesses rely extensively on. And, unlike large businesses, these people have no real alternatives.
Why? It turns out that small businesses owners own homes, the buildings in which they do business, and have made real estate investments:
These assets were a substantial part of their net worth and as real estate has collapsed, their ability to borrow was substantially impaired. As the report concludes:
The more serious issue affecting creditworthiness is real estate. Small business owner possession of real estate is a major reason why their firms have not yet begun to recover, why larger businesses have been able to recover more quickly than small businesses, and why this recession is different, at least for small business owners, from recent ones. It has damaged balance sheets and they will need to improve before small business can be expected to resume its traditional place in the economy.
I need not remind you of the problems with housing (see "Woe Is Housing").
CRE is not much better: it is continues to decline. While some of the trophy and "A" class properties are finding buyers, the rest of the market, the types of properties that most small investors own are not faring well. One way to follow the CRE market is to follow the commercial mortgage backed securities (CMBS) secondary market. It isn't good. This is the 30 day+ delinquency report from Trepp:
Moody's CRE price index remains gloomy:
What all this means is that the majority of banks who hold CRE (most loans below trophy and investment grade are held by local and regional banks) still have a long way to go before their balance sheets have been resolved. While the trend is improving, these banks have yet a lot of loans to work off.
On the other side of the loan window, small business borrowers, those who employ one-half of U.S. workers, have problems of their own with housing and CRE values continuing to decline. When one looks at the overall problem these entrepreneurs have, the question of why they are not borrowing or not obtaining credit is not difficult answer.
It isn't as if there isn't progress in writing down loans by banks. Loan writedowns are finding their way onto the markets as foreclosed properties, thus continuing to depress CRE markets across the country. According to Costar, "Distress sales as a percent of the total has been increasing in each of the four quarters in 2010 with just over 20% in the 4th quarter with 18.5% for all of 2010."
We have a long way to go until our economy recovers. Until the malinvested real estate from the boom phase has been liquidated, the economy will continue to stagnate and unemployment will remain high.
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Would I be off track thinking they are in fact shooting themselves by allowing NO END in SIGHT to the continued massive asset depreciation? At what point would one want to stop the bleeding? I'm back in FL. now. Homes that sold for $150,000 can be had for $35,000.
While that home was'nt worth $150,000 to me it should be worth more than $35,000.
Numbers are the same all the way up to the high end.
If i can buy them for pocket change, (a few silver eagles) it might make sense, if the neighborhood is stable, and it can rent for 2-3x property taxes + insurance.
What i'm seeing in the NE is: decently built homes that used to be 300K+ are now 200K+ and falling, but rents run $11-1500 and taxes and insurance eat most of that and are rising. Add upkeep between tenants plus normal maintenance and you pay to be landlord even without mortgage expense.
If it was built with illegal labour, and of cheap materials, why shouldn't it be worth only $35k? Why is it that people cheer on low prices at Wal-Mart, and the benefits of mass production by foreigners, but, heaven forbid, if the same psychological construct is applied to houses, they shit their pants?
The real cost of housing in the long run is not its construction cost, or acquisition cost, but rather, the operating costs. And those are just going one way these days, and it certainly isn't down....
With dividend yields and bond yields so low it may be time to return to the traditional way to get wealthy, real estate.
Save up your money and offer cash for properties. People have to have a place to live, and more people in the future are going to rent. There are small 10 to 20 unit apartments that are rundown and going for a.good price right now. A seven percent cash return that should increase if inflation increases is better than an inflation adjusted bond.
They're probably "going for a good price right now" because they are, as you put it, run-down.
Better double that purchase price due to all the repairs that will need to be made in order to get a decent rent.
In which case, that 7% is looking mighty optimistic....
Why would people have more money to give in rent, if inflation picks up and all their money goes to the basics like food and petrol?
In extreme cases of hyperinflation, rents and real estate prices go to zero.
Old news.....
the important news is here>>>>
>> YouTube >>
Currency Extinction Event ; U.S. Pledged to
the Chinese.
When will housing recover?
When the financial sector recognizes home values have dropped significantly and marks their paper down accordingly so empty homes can be sold at current street value.
But it's not going to happen. Why? Because marking their paper down would bankrupt a lot of financial firms and collapse the securitization bond market with ripple effects in the broader bond market.
Instead of letting firms bankrupt and letting the securitization market collapse, as it should, the Fed comes in with mountains of freshly-printed cash to maintain cash-flows, allowing firms to keep their paper at unrealistically high values, maintain an appearance of solvency, pay bonuses, and keep the securitization market going, as if the housing collapse never happened.
Since mortgages aren't an exchange-traded market there is no price discovery and no margin calls. As long as the Fed keeps pouring money in maintaining cash-flows, firms can hold mortgages on their books at inflated values while the physical market collapses.
The securitization market is exchange-traded, but Fed-supported cash-flows keep it propped up.
This artificial paper bubble can be maintained long after the physical bubble has popped and collapsed ...as long as the Fed keeps up its cash-flow support, which the Fed has every intention of continuing as long as necessary until the physical market recovers to paper bubble levels ...which it never will do ...except in one case, severe debasement of the dollar.
If bank paper says a home is worth $250,000 while the physical home's street value collapses to $100,000, severely debasing the dollar until the home's street value is $250,000 again solves the problem, the physical market again matches the paper market, homes start moving again, fee income resumes, mortgage payment cashflows resume, banks start making money again, Fed can stop cash-flow support, everybody's happy.
... well ... not everybody actually ... just Wall Street.
Main Street is fucked. The dollar had to lose 60% of its value for that home to be worth $250,000 again.
This is already happening. Banks are required to set aside and reserve for defaulted loans. They are also required to establish values of their loans and write down their asset base. Also, most home loans are securitized anyway and the prices of the tranches reflect the decline of the pool's asset base. The real problem with local and regional banks is commercial RE, not housing. But I firmly agree with you on the Fed asset bubble.
How Main Street has Destroyed Wall Street.
I guess now would be a good time to shoot the greedy homeowners.
It’s crystal clear. From the very beginning the homeowners have gamed the system. They started by tricking the property appraiser (lender’s agent) into submitting an outcome-based appraisal.
Then, millions of homeowners shrewdly conned the “lenders” into dismissing all agency and fiduciary responsibility in the underwriting process….going so far as to force the “lenders” into forging documents.
Then, the greedy homeowners forced the “lenders” to securitize the loan in such a fashion as to bifurcate the mortgage from the note.
On top of that, the homeowners secretly cooked up the concept of “Credit Default Swaps” and forced the “lenders” to insure the collateral at the full (outcome based) value 30X over.
Having successfully pulled the wool over everyone’s eyes – these irresponsible homeowners showered themselves with well deserved bonuses.
Realizing they were too big to fail, these irresponsible, reckless homeowners lined the pockets of legislators and received enormous sums of taxpayer bailouts.
The result of these cunning maneuvers by the fraudulent homeowner scheme has them sitting fat and happy in the cat birds seat. Yup, that’s how they did it. And they’re getting away with it.
Savings drained – check, 401ks all gone – check. Kicked out of their homes – check. “Lenders” made whole many times over via Credit Default Swaps – check. Homeowners foreclosed and “lender” buys back property for pennies on the dollar – check.
Follow the money and you’ll find the culprit. It’s about time we hold these homeowners accountable.
Good call. The websites below are sponsored by a well-healed, politically connected, PR machine of greedy volunteers… and contain detailed information on how the collusion on Main Street has ripped off Wall Street.
Don’t look though… it’s just spam.
http://www.4closurefraud.org
http://www.foreclosurehamlet.org
Ever since I got struck by lightning I no longer require sleep. Sometimes I am chunga and sometimes I am Capt. Jack. Sometimes I argue with myself like I am doing now. Other times chunga plagiarizes from Capt. Jack but neither care.
Capt. Jack/chunga
Administrator
Foreclosure Hamlet
Love the villification of almost unabridged access to virtually free capital -keep up the good work.
We all pitch in for things like toner cartidges. Little Hamlet has done more than SEC, OCC, DOJ combined. Heck, we've learned more than the Dept. of Absurdities. The truth doesn't cost too much.
I can't speak for anyone else but I can safely say I am not "anti-capitalist". It's the best way.
Innovate. Work hard. Produce. Succeed. These are all things that should not be punished but encouraged.
To suggest that all these investigations (do I really need to list them - it would take all day) are politically motivated commie witch-hunts would require genuine insincerity.
What we create are bubbles. We inflate them, bet against them, rate them, insure them, pop them. When the Ponzi grows too big to fail we bail them out. Then we steal the bailout money.
All this money goes in one direction. The "regulators" and policy makers have relationships with those who create the bubbles.
It doesn't require a master of a level two screen to see what's happening. Derivatives, hedge funds, credit default swaps, and naked shorts do not make a good economic foundation.
The funny thing about a Ponzi scheme is that they are much like Jenga castles. A poke from the side, preferably at the bottom, and they tumble. A little poke in just the right place and it all comes falling down.
Our present path is not sustainable and we must change. I do not advocate replacing capitalism, rather, I wish to see it flourish. In order for that to happen we need to remove the rampant fraudulent plaque clogging our economic veins.
I prefer to see the Jenga castle collapse than our country. If someone brands me a commie for thinking that way, so be it.
track the charts of a $500,000 home and $100,000 worth of silver from 2005 till now.
So it has happened already.
.. But i tell anyone if they can make their mortgage payments, keep doing it and get their credit rating as high as possible.. so if the real crash happens, they can then go buy 3 or 4 great properties to make up any value. If it doesn't and they just inflate it all away, then your PM's can be used to buy off your home in full
track the charts of a $500,000 home and $100,000 worth of silver from 2005 till now.
I see an "X" pattern.
Am I close?
yes, especially in places like Vegas. Silver goes up 5x since then while homes crash on avg of 50%
here are some random ones
http://www.zillow.com/homedetails/10380-Pilot-Mountain-Ct-Las-Vegas-NV-89129/59917526_zpid/
http://www.zillow.com/homedetails/4037-Laurel-Flat-Ct-Las-Vegas-NV-89129/53363958_zpid/
and my favorite (public record, sold ~$900k in '07!!)
http://www.zillow.com/homedetails/8254-Bowman-Woods-Cir-Las-Vegas-NV-89129/82529722_zpid/
I should clarify what I mean by "backlog", since most people using that term mean something different.
Most people mean the backlogs of unsold REO properties. This is all around the country. Some of these backlogged houses have been sitting on the market for ages, some are just sitting on the banks' balance sheets, not listed for sale, because they don't want to flood the market with too many offers. When some real estate talking head on TV talks about the backlog of unsold foreclosures, he probably means these properties that have already been foreclosed and maybe sold to a fix-em-and-flip-em investor but have not yet been sold to a natural buyer / owner-occupier.
What I mean about New York is it has a huge backlog of properties in pre-foreclsure. These are properties where the owner is in default, and usually has been for more than a year, but because the foreclosure process is extraordinarily slow in NY especially Brooklyn these houses have not yet been foreclosed. And so whenever the number of new defauls starts to taper off, while other states with speedy foreclosure start to see some recovery almost instantly, NY is still going to have elevated foreclosures for a while longer. And in Brooklyn and Queens where the process is particularly slow and default rates very high, that could go on for many years.
Again I'm not aware of anybody even attempting to measure this backlog but I know because I personally track these properties that this backlog is huge and growing. As I said there's about 10 properties per day each in Queens and Brooklyin entering the foreclosure process, by which I remain getting their first lis pendens. That's 50 a week or 100 total for Queens and Brooklyn. And this week, they managed to foreclose a whopping two, count em, two properties. Bronx is similar but a slightly smaller borough, I don't follow it.
Now granted a lot of those roughly 100 properties that start the foreclosure process every week in Brooklyn or Queens will be resolved without foreclosure, either through a settlement or a short sale. The slow foreclosure process does give more time to negotiate short sales compared to states where foreclosure is faster. But in my estimation at least half of all properties that enter the foreclosure shun any attempt whatsover to get out of it - they don't want to short sell and they don't to negotiate any mod, they just want to drag it out as long as possible and have the property till the last possible moment, without paying on their mortgage and often also not their taxes. So at the very least we are looking at 50 properties per week total in Brooklyn and Queens getting added to the backlog of properties that will eventually foreclose. And this week they foreclosed just 2 total in both boroughs. Some weeks they manage as many as ten, but average is around five. With ten times as many foreclosure-bound properties receiving their first lis pendens as properties being foreclosed, you can imagine how big that backlog is by now and how quickly it's growing.
ps ... And just a further clarification I am counting only houses (actually any kind of building) and condos. NY co-op apartments are foreclosed much faster, because they don't go through the courts.
Having spent the last 22 years as an environmental consultant to the RE business, I'd like to make a few observations:
1. 80% of our backlog is either bank owned or short sales by owner. 3 years ago it was maybe 1-2 jobs a year out of 350 or so. As a Freddie Mac Homebase Suppplier, we get over 20 leads alone per week in the Charlotte & the Winston-Salem/Greensboro markets (about 3.7MM population combined).
2. There are homebuyers who are going to live in a 3,000 sq ft 60 year old colonial in an established part of town who would rather go to hell than live in a McMansion. Two of the houses we are working on currently are 7,800 & 9,200 sq ft out in far Submerbia (my name for the underwater McMansions), and they have been vacant for 24+ months. Next week we're going to a 16,000 sq ft turkey in Union Co., NC, which is appropriate, because Union Co. produces more real gobblers per capita than any other co. in the US.
3. Even at a 50-60% haircut, who has the income stream to qualify for these 3? And pay for $3.50-4.00 gas to drive the 25-30 miles to work every day? It's over 4 miles to the nearest shopping center for all 3, not to mention skool, etc.
This trend shows no signs of abating, IMO it appears to be gaining momentum and will take 3-4 years for things to equilibrate, provided the economy doesn't crash and burn.
The condo market is even worse. Downtown Charlotte has a 9 year (yes, 9 year) backlog of unsold condos. At 9-10 being sold every month, that dog don't hunt. One 5-6 story building has 3 units occupied.
And all one has to do is ride around our region and see what is what with the commercial/industrial sector. Places like Lexington & Lenoir NC have over 1MM vacant sq ft of industrial buildings. And there's no retail without jobs.
If we had just let the whole system go to hell quickly hopefully we'd be recovering by now instead of suffering in Limbo.
Lamont, I liked your post.
One good thing about the residential real estate downturn is that it is forcing people to think really hard about the kind of home that makes most sense for them, as well as the ones who will someday buy it from them. I wake up every day and thank my lucky stars that I found my way into a nice 2700 sf ranch in Calabash, NC with no mortgage and a total carrying cost for maintenance, insurance, and taxes of $5-6k per year. My view of the 12th hole and lake in our community golf course is nice too. My next house will be smaller than this one.
The two large submerbian homes you describe in your post are not the answer for most people, even those who can afford them. Rather than being something to dream about owning and impress your friends with one day, they now stand as perhaps the most embarrassing example of reckless exuberance that led many owners and developers to financial ruin while dragging the entire real estate market down with them. Even those owners who aren’t financially strapped in them are probably trapped in them, weather they realize it or not. Now, if we could just get the newspapers to stop advertising these white elephants on the front page of their real estate section.
DTL-
Appreciated. It never ceases to amaze that you drive seemingly forever outside of cities that are 250k+ population with the same crap that is built like crap. Doesn't matter if it's Lanner, Fort Worthless, ElLay, Indy, etc. Bad flashing, caulking that allow water infiltration, which is $$$$ for me. Tree stumps used for fill and the driveway settles & cracks. And are poured 1" lower than the garage. Underground gutter drains that clog. It goes on and on.
Just like Detroit, we'll have to scrap & bulldoze lots of submerbia one day. And for those who think living self-suffficiently on their 5 acres in Hootersvilleis the cat's ass, may I suggest a few episodes of Green Acres while remembering you don't have Mr Douglas' $$$$ and you're dealing with the Monroe Bros for your intellectual stimulation.
DTL says -
Just like Detroit, we'll have to scrap & bulldoze lots of submerbia one day. And for those who think living self-suffficiently on their 5 acres in Hootersvilleis the cat's ass, may I suggest a few episodes of Green Acres while remembering you don't have Mr Douglas' $$$$ and you're dealing with the Monroe Bros for your intellectual stimulation.
That's hilarious! Myself. I'm still going GALT,
ASAP. What "The Monroe" brothers lack in IQ they more than make up in HONESTY and the smarts to live a quiet, simple life.You try and pull that crap (theft,dishonesty, etc,) and you'll be run out of town. Or shot!
and ain't HOV still building these fuckers???
I'm seeing the same trend in San Diego. The young people don't share their parents love affair with suburbia. 3000 sq feet, giant kitchens, pools, lawns, upkeep, big yards to maintain, long commutes, mega malls, are all the dream of an earlier generatrion. Today's young people want condos in town, trendy streets with gallerias, coffee houses, socializing with friends, plays, theater, and museums. It's a new era.
Wait until those young people get married and have children.
They don't want kids. They'll interfere with their lifestyles. They don't see any upside to a family. That's the principle reason the old socialist countries of Europe, Japan, the U.S. etc. have a dying population. I know an awful lot of parents now who won't be having Grandchildren. If you ask the young men they say they can shack for sex and women only want to marry to get pregnant, divorce and get child support forever. They say young white women are rude, nasty, selfish, and impossible to deal with. The young women say the men will never commit to anything.
Obviously the long arm of the state is at work here. None of the young people worry about old age because the state will take care of them.
What I see is the real estate market getting more and more polarized, with the worst still getting worse and the best starting to recover. I see this in recovering prices for high-end NYC properties, still declining prices in eastern Queens, and totally bombed-out, practically giving em away prices in the poor neighborhoods of Miami, where there are small and run down but livable (and lived-in) houses with $10k of tax debts not even selling for that much at auction and instead becoming the property of the investors who bought the tax liens for like $9k, who are crying over this because they wrongly assumed they would be repaid plus interest in cash from the auction proceeds, and now the only way they're going to recover anything from these houses is by becoming a slumlord. I suspect transactions like those and probably most foreclosure auctions are not included in the official statistics that say average house prices are still above $210k.
At the same time I also see huge differences in the paces at which houses are being foreclosed. Everybody's dumping on Florida for its rocket docket, but actually it's a very smart plan to just ram all those foreclosures through as fast as possible. It ain't pretty and I'm sure there are some mistakes being made amid all the hurry, but hey, if you've really been wronged, you do have the right to appeal. The advantage is that when this wave of defaults finally subsides, states like Florida that hurried their foreclosures will start healing right away.
Compare that to New York, where they already had an insanely long foreclosure process, and reacted to the crisis by making it even longer. Now every mortgage foreclosure has a right to court-arbitered modification negotiations. These are totally redundant, since banks already negotiate during the entire process, right up to the auction, or a complete waste of time, since most defaults these days are by people who are too far underwater to even want a mod, and they don't even show up to the negotiation when it's scheduled for them. Besides, at least half of NYC foreclosures are rentals, so the notion that you're helping some troubled homeowner is completely beside the point, and what you're actually doing is screwing some renter by being overly lenient with his deadbeat landlord who is taking the rent and not paying the mortgage or doing any maintenance, because he knows he's going to lose the property eventually - all he wants to do is drag this situation out as long as possible and that's exactly what the stupid negotiation conference does. Or the property is boarded up and all the slow foreclosure process does is worsen urban blight.
To anyone who lives in NYC I really recommed you go check out one of the weekly foreclosure auctions in Brooklyn or Queens, you will see just how ridiculous this situation is. In Brooklyn literally half the foreclosures coming up for auction today defaulted back in 2007 or earlier! In Queens only slightly better. The banks send out something like 30 default notices a day in Brooklyn and Queens (each), of which about 10 each are for properties that haven't previously received default notices, and they foreclose usually two or three properties each per week. I don't know of anybody who has tried to measure the backlog of properties in pre-foreclosure in NYC but I know it is e-friggin-normous. I guess about four years worth in Brooklyn and three in Queens, but that's at the rate they are defaulting - at the present rate at which they're foreclosing, it could be ten years of backlog. So whenever the rate of default drops off, they will take that much longer for the actual foreclosures to taper off.
Meanwhile the default notices keep coming, haven't slowed down at all so far as I can tell. I understand some of the subprime loans that reset to higher rates are still doing that, but my impression is that what we are seeing now is mainly strategic default. People are waking up to the fact that housing prices are not going to re-bubblize and it makes no sense to pay the principal they owe for the house they've got. Personally I can't recommend strategic default stongly enough to anybody who is significantly underwater. I know a lot of people on here believe that the government's plan to solve this crisis is to inflate the hell out of everything in which case why worry about your nominal debt, it will all get inflated to nothing soon enough anyway. Personally I doubt it. The way I see it the government is doing everything it can to prop up the banks to the detriment of all else, and that all else includes you, buddy.
Excellent comment and good data. Thanks, Buzz.
The Bank's bet or actuarial theory is and has been twofold: (1) That they have a backstop with the Fed/Govt. on mortgages. They assumed and still do, very little if any risk with nothing but blue sky and profits ahead. Because the risk was so low or non-existent, they invested very little in terms of rightly administrating origination, securitization, etc., ergo the utter slipshod and even fraudulent manner in which they executed contracts with home buyers. (2) They factored in only a tiny fraction of litigation on the homeowner side and even less on the investor side and actual loss related.
Well, they had horrendous Actuaries. Unlike insurance companies that pay and properly invest in this area, the Banks gave us (on the consumer side) such grand entities such as MERS and pawned off the due diligence on HS dropouts and car salesmen, real estate brokers and other self-interested but not truly capable entities when it came to extending a loan. That has come home to roost in a big way.
The number of class actions and individual lawsuits in the last twelve months has been staggering and is accelerating. A case as important (I think) as any is a mass-joinder filed in LA named Ronald v. BOA. I understand dozens of plaintiffs are being added weekly.
This is only going to grow and is why the recent SEC reports by the banks setting aside increased reserves was news recently. Wait til next quarter. That number is going to only grow.
You are on to an important point. Let me expand a little. I am a finance guy in one of the big life insurers. We are known for being one of the best from an actuarial perspective. We tend to insure high net worth individuals so we have to have our actuarial assumptions and systems right. However, on the RBMS side (our investments), we made some poor assumptions that the mortgage lenders were actually producing a good product that we consumed. Now with some of those investments we have come to the realization that the banks have sold us repackaged dogshit. We have as yet not joined the lawsuit by New York Life and some of the other life insurers against the banks. However, as we look under the hood and evaluate our options with the dogshit smelling up our investment strategy, I suspect we will soon be joining them. I don't see how the Banks can even think that they are out of trouble yet. I predict tons of putbacks.
you sound like you've been to the 'outside'.... is the sky still blue? are the robocops nice? i really miss chocolate truffles... oh, for just one chocolate truffle
So you're OK with the banks abrogating the 4th Amendment and foreclosing on RE on which they hold no note ? You're fine with the banks not only committing fraud in the securitization but also fraud on the "homeowner" and courts ? Nice.
Any RE that has a mortgage thru MERS has, in essence, an unsecured loan, not a mortgage. The rocket docket courts in FL blew right past that inconvenient factoid, which is why they are now looking at a foreclosure mess not only in upcoming foreclosures but those already "settled". You need to spend some time over at 4closurefraud.org.
It's really not a good idea to ignore settled law of hundreds of years regarding property title issues.
Two dicked man : one dick named Big bank, the other named RE; both now locked in deadly combat. "Why oh why did God give me two dicks! I thought it a blessing during the heyday of subprime bubble bonanza. Both my dicks were supercharged. Beach partied all night long. Boy, was I in demand. Now look at these two tits tearing my insides out as they bite and kick each other to death. Cut em off, cut em off, dear god!"
Uhh...maybe something was lost in translation here?
Maybe is channeling his Charlie Sheen.
So allowing anyone to borrow as much as they wanted was a bad idea?
No fear soon the banks will be unloading the repos for deconstruction purposes to recycle the underlying raw materials and we can read how those bastard bankers planned it that way all along.
What a crock-of-shit article.
Shitty housing market isn't holding the economy back.
It's the other way around. Shitty economy holding the housing market back.
No housing bottom until all mortgage credit is liquidated from the system and purchases are entirely made fully paid-up in cash.
All the douchebags who bought more than 2 or 3 rentals and are running such as a 'business' need to be wiped out. A house is a place to live, not something you make money on, either as an owner, or a landlord.
And when we finally all agree on this again, real estate might be cheap enough again to be worth buying.
its already going that way, if you track the crash vs silver for the last 5-6 years
Well shit, a good portion of 'small business owners', the ones dependant on credit, didn't really deserve to be in business anyways. How many HELOC-financed quickie-lubes, or sandwich counters does the United States really need anyways? I certainly have no sympathy for any of those guys who built capacity providing services that are intrinsically wasteful.
We will continue to see house prices fall as RE Fraud continues unabated. Here is a good example...Sonoma Valley Bank (video):
http://www.youtube.com/user/GlassShopPetaluma?feature=pyv&ad=8996457809&...
maybe the chairtard of the frb has a method to his madness....suppose he reasons that banks are highly constipated then he knows that his massive abuse of the frb balance sheet will not have a torrential hyper inflationary effect because the banks can't lend...however, all of his debased currency will find its way to the equity markets because the primary dealers are not so impaired...thus the chairtard believes that he can safely remove excess reserves in time....
unfortunately the chairtard is too clever by half...we are witnessing massive inflation nonetheless and the usd is being abandoned in droves even on our shores....
I have noticed that the "for sale" signs that usually pop up with the spring flowers are sprouting in the snow this year.
The banks are moving some of the "shadow" inventory. But is it increasing at a faster rate?
I wonder if, in twenty years, we tell kids about realtors like some folks mention milkmen, rag men, and sharpeners that used to exist?
My neighbor finally lost his home this month after 15 months' struggle. Bank put his house on internet, an Indian bought it at $290k which was at 1998's price but he bought this house at $400k in 2002. I believe he lost anything he put into house in past 10 years plus 10 years' saving prior 2002. So 20 year's income and lifetime were wasted thanks to Alan and Ben. I cruise San Jose daily, new trend is 'for sale' signs now pop up in old neighborhoods where people lived there for many decades, which means people are losing their lifetime investments?
Motherfucker, a house isn't an investment, its consumption. One should naturally expect its price to go down over time, and eventually, to decay to zero. If someone came up with an 'investment' plan based on their house, a consumption asset, then, although sad, we really shouldn't cry a tear.
And all those Indian H1-B's and Green Card holders in San Jose are a giant problem which is dragging down the country. They weren't needed when they started coming to the area, and they most certainly aren't needed now.
don't worry - in a few years they will have to migrate to Canada for jobs and then we can focus on drug wars here
Loss is no fun, that's for sure. Not knowing the terms of purchase, however, it might be impossible to know the "loss". The family had a home (which was necessary anyhow), and the down payment may have been little, or nothing, or negative. All the stories are not those of the poor home owner who lost it all due to the real estate debacle. As they say, all stories have more than one version. I hope the neighbors fare well.
all stories have more than one version, but in Bankster America, they all have just one ending
When the dollar index hits 10 and $3000/mo rent for a 2/1 inner city apartment seems dirt cheap there won't be any more walk-away defaults. Don't worry, Bernanke is "solving" this problem even as we speak.
The landlords who have been asking too high a rent are finding themselves with empty units.
Only when they come down to more realistic levels do they find interest.
I don't see this changing anytime soon.
*shrug*