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  1. No Housing Recovery Yet: Home Prices Fall to Record Lows in December

    By on February 28, 2012

    This morning the S&P/Case-Shiller Home Price Index for December was released (the Index is a three-month moving average that is two months delayed).  It showed that home prices are still declining across the country.

    The 10- and 20- city indices both declined by 1.1% from November to December, while the indices fell by 3.9% and 4.0% year-over-year, respectively.  The national composite index was down by 3.8% over the fourth quarter, and was down 4.0% over December 2010.  All indices are at their record  lows.

    Of the 20 metropolitan statistical areas survey, only two (Miami and Phoenix) saw increases from November to Decemer (0.2% and 0.8%).  Detroit was the only market surveyed that saw year-over-year appreciation (0.5%).  David M. Blitzer, Chairman of the Index Committee at S&P remarked:

    “In terms of prices, the housing market ended 2011 on a very disappointing note,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “With this month’s report we saw all three composite hit new record lows. While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.

    After a prior three years of accelerated decline, the past two years has been a story of a housing market that is bottoming out but has not yet stabilized. Up until today’s report we had believed the crisis lows for the composites were behind us, with the 10-City Composite originally hitting a low in April 2009 and the 20-City Composite in March 2011. Now it looks like neither was the case, as both hit new record lows in December 2011. The National Composite fell by 3.8% in the fourth quarter alone, and is down 33.8% from its 2ndquarter 2006 peak. It also recorded a new record low.”

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    Category: Mortgage Rates

  2. Some Lenders Paying Borrowers Thousands to Short Sell Their Homes

    1 By on February 7, 2012

    According to a new article on Bloomberg by Prashant Gopal, banks have begun to incentivize troubled homeowners to short sell their homes by offering them sizeable checks:

    “Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

    Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan.  Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices.  Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some case providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York”.

    A short sale is when a homeowner sells their house for less than they owe on the mortgage, and the lender forgives the outstanding balance on the loan.  For instance, a homeowner may have a home that is worth 200,000 but has a 250,000 mortgage due to declining home values.  The homeowner might be able to petition the bank to do a short sale, and sell the house for $200,000.  The bank would then forgive the $50,000 remaining on the mortgage (although the homeowner may be liable for taxes on the forgiven debt). The reason a bank would approve a short sale is because it is a way to mitigate losses.  Often a short sale costs a bank less than a foreclosure, according to the Bloomberg article, losses are 15 percent lower on short sales than on foreclosures.

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    Category: Mortgage Rates

  3. Missouri AG Files Criminal Charges Over Alleged Mortgage/Foreclosure Fraud

    By on February 7, 2012

    This morning I learned that Chris Koster, the Missouri Attorney General, is pursuing criminal charges against DocX over alleged robo-signing.  I learned of this action as a result of a post by Yves Smith on her blog NakedCapitalism, as well as a report by Gretchen Morgenson of the New York Times.  In a press release, Missouri AG Chris Koster commented:

    “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.  Mass-producing fraudulent signatures on millions of real estate documents across America constitutes forget.  When you file those documents in our state, you are committing a crime under Missouri law”.  

    We’ve talked about robo-signing ad infinitum on this blog, but in the event you are totally unfamiliar with it, it is alleged that banks had employees sign hundreds or even thousands of affidavits without actually verifying the information therein or possibly even reading them.  The paperwork was then used in the foreclosure process.  60 Minutes had a pretty good feature on robo-signing here.

    This is, to my knowledge, only the second attorney general to pursue criminal charges over robo-signing.  The first to do so was Nevada Attorney General Catherine Cortez Masto back in November.  It is curious to me that more attorneys general have not filed criminal charges over what appears to be an open and shut case.

    This could be interesting, we shall see where it goes.

     

     

    Category: Mortgage Rates

  4. California Rejects Mortgage Settlement Despite Promise of $15B

    By on January 27, 2012

    I’ve written about the proposed mortgage settlement a lot over the past year or so.  I have made no secret that I believe it is a bad deal all around.  The proposed settlement figure – $25 billion – seems to me to be totally inadequate compared to the scale of the damage resulting from mortgage fraud (and according to the terms of the proposed settlement, much of this figure would come from pension funds that own mortgage backed securities).  This is a pittance when you consider the damage is most likely well into the trillions of dollars.  The investigation into mortgage abuses (if you can call it an investigation) has been virtually nonexistent.  The settlement includes no criminal charges.  The settlement would possibly preclude states from pursuing additional judgments down the road.

    I think this is a horrendous deal all around.  Nevertheless, there is considerable political pressure on state attorney generals to sign off on the plan.  A group of attorney generals, including California AG Kamala Harris, is holding out from signing off on this settlement.

    Today, Shahien Nasiripour from the Financial Times reports that California was offered a whopping 60% of the proposed $25 billion settlement, and still turned it down.  Last Wednesday Harris called the settlement “inadequate“, and according to the FT article, Harris’ office deemed that the settlement lacked transparency, real relief, and accountability.

    I have no doubt that the settlement is indeed lacking in all these areas.  That California would turn down 60% of the proposed settlement seems to indicate just how inadequate it is – for the entire country.  Dave Dayen of FireDogLake does a nice job of further breaking down the inadequacy of the settlement here.

    It is worth dwelling on this for a moment.  If Nasiripour is correct (and I trust that he is), the cut of the settlement for the remainder of the country would be $10 billion.  The whole settlement, as proposed is absurd.  This is even more absurd.  This country needs a real investigation into mortgage and foreclosure abuses, this is not an issue that can be allowed to be swept under the rug.  The largest financial market in the world was decimated.  Millions lost their homes.  This cannot be allowed to stand.

    Recently there was an uproar over the proposed anti-online piracy bills SOPA/PIPA (and rightfully so in my opinion).  There should be a furor over this magnitudes of order larger than what we saw a few weeks ago.  People should be up in arms about this.  That they are not saddens me.

    Category: Mortgage Rates

  5. DOJ Workshop Finds Mediation a Viable Alternative to Foreclosure

    By on January 17, 2012

    The fundamental problem with the housing market in the United States is that there is an acute imbalance in the supply of homes and the demand for them.  A coherent housing policy (which this country lacks) would attack both ends of this issue, and would work to increase demand and reduce supply (or at the very least, keep the excess supply from growing).  One of the best ways to attack the supply side of the problem is to do whatever we can to reduce the number of foreclosures.

    Avoiding foreclosure is fundamentally about mitigating losses.  Foreclosure is expensive for investors, and ultimately to taxpayers (not to mention destructive to the people living in the house, the surrounding community, and other homeowners).  Once a home gets to the point of foreclosure, it is all but certain that there will be a monetary loss.  Our goal should be to reduce that loss if at all possible.  One potential way of doing this is through aggressive, compulsory foreclosure mediation programs.

    In December the Department of Justice released the results of a workshop on mediation as a means of avoiding foreclosure. In March 2011, the DOJ sponsored a workshop on foreclosure mediation.  Broadly speaking, the purposes of the meeting were to identify what type of mediation program works, and best practices for implementing mediation throughout the country in order to avoid additional foreclosures. According to the report:

    “Jurisdictions around the country are increasingly offering, or even requiring, mediation as a device through which lenders and homeowners can attempt to reach mutually agreeable and beneficial alternatives to foreclosure.  The challenge for communities weighing the mediation option has been to assess what works and to identify reliable processes that are effective”.

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    Category: Mortgage Rates

  6. Even More AGs Bolt From Foreclosure Settlement

    By on January 13, 2012

    Today I learned of a very interesting development in the foreclosure settlement talks from a post by Yves Smith at Naked Capitalism and an article by Loren Berlin on the Huffington Post.    Even more state attorneys general are backing away from the 50-state settlement and may be considering a group effort of their own.

    Attorneys General from California, New York, Nevada, Delaware, Massachusetts, and New York as well as representatives from Hawaii, New Hampshire, Montana, Minnesota, Oregon, Kentucky, Missouri, Mississippi, and Maryland met to discuss a possible lawsuit against banks and servicers over a myriad of mortgage abuses.  Delaware Deputy Attorney General Ian McConnel was quoted in the Huffington Post article as saying:

    “This past Tuesday, a group of like-minded Attorneys General met in D.C. to discuss ongoing and future investigations into the mortgage finance and foreclosure industries.  The talks weren’t just about investigations.  They were also about the attorneys general offices feeling uninvolved in a process by which their federal colleagues have been negotiating on their behalf.”

    For several months now, I’ve been saying that the 50-state attorney general settlement is effectively dead.  When the attorneys general from New York and California backed out of the settlement talks, it seemed clear to me that the banks would never sign on to an agreement that didn’t grant them a broad release of liability.  Many other AGs followed suit, including those from Delaware, Massachusetts, and Nevada.  Now that even more AGs have backed away from the settlement, I cannot see any way that the Obama administration can even pretend that the settlement will move forward.

    The original “probe” into mortgage abuses was/is lead by Iowa AG Tom Miller, who promised to pursue criminal charges against mortgage abuses, and later backed away from these promises.  As time went on, it became increasingly apparent that the investigation was more of a white-washing, and little actual investigating had been done.

    Things are going to get real interesting, real soon.  I am hopeful that this group of AGs will bring about some sort of settlement that makes sense, and I hope they will conduct a real investigation into the bad actors behind the credit/housing bubble.

     

    Category: Mortgage Rates

  7. HUD Housing Scorecard: “Overall Outlook Remains Mixed”

    By on January 10, 2012

    The Department of Housing and Urban Development and the Treasury Department released their December Housing Scorecard today.  The official outlook for housing remains mixed, despite increasing affordability and record low mortgage rates:

    “Housing data available through November show some subtle improvements in the market over the past year, but underscore fragility as the overall outlook remains mixed. For example, new and existing home sales rose compared to the prior month and remain higher than a year ago, but home prices showed a slight dip from the prior month and stayed below year ago levels. Also, fewer homeowners fell into foreclosure in November as the Administration continues to push servicers to provide more effective assistance to troubled borrowers; but the year-over-year decline in foreclosure actions is also due to delays in lender processing.”

    The report claims that “the Administration’s recovery efforts have helped millions of families deal with the worst economic crisis since the Great Depression”.  They note that 5.5 million mortgage modifications were started since April 2009, including 1.7 million HAMP trial mods and 1.1 million FHA loss mitigations.  Almost 910,000 homeowners have qualified for HAMP permanent mods.  They say that “the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market”.

    Despite the numbers cited above, I would argue that the Administration has not done anywhere near enough to help the housing market.  Specifically, nearly nothing has been done about the $700 billion of negative equity spread throughout the housing market. Negative equity is probably the biggest factor holding back the housing market.  There is a distinct lack of cohesive housing policy, which is evident given the piece mail efforts that have been made to help the housing market (HAMP, HARP 1.0, FHA Short Refi, home-buyer tax credits, etc).  HAMP, which was touted above, was repeatedly slammed by the former Special Inspector General for the Trouble Asset Relief Program (SIGTARP), Neil Barofsky, for failing to preserve homeownership and offering “false hope”.

    As noted by New York Fed President William Dudley in a speech where he called for “earned principal reductions” among other things, home prices are down by nearly a third since 2006.  There are 2 million homes that are in some stage of foreclosure, and another 1.5 million are at least 90 days delinquent.  Eleven million homes have negative equity, accounting for about 22 percent of all homes with mortgages.  Ben Bernanke and his staff released a white paper last week that detailed many of the same problems with housing, and suggested a variety of possible solutions.

    It may be true that the administration’s efforts have helped millions of homeowners.  But there are many millions more who need help, who have not received it, and I cannot see any help on the horizon.  If we want to see an economic recovery, the problems in the housing sector simply must be addressed.

     

    Category: Mortgage Rates

  8. Fed Governor Sarah Bloom Raskin Addresses Foreclosure Crisis and the Rule of Law

    1 By on January 10, 2012

    One of the most galling things to me about the foreclosure crisis has been the flagrant and apparent total disregard for the rule of law.  The rampant and blatant abuses committed in the processes of mortgage origination, securitization, and foreclosure have only started to be addressed in the past couple of years, and we still have seen a paucity of criminal investigations over what appears to be naked fraud.

    These issues have been publicized in blogs (such as Barry Ritholtz’ The Big Picture, Yves Smith’s Naked Capitalism, Adam Levitin’s Credit Slips, and many others), some state attorney generals are beginning real investigations, and there has been some judicial pushback over mortgage abuses, yet there has been little action from government officials over the trampling of long held property rights.

    For this reason, it is sort of refreshing to see someone in officialdom address these issues.  In a speech over the weekend at the Annual Meeting of the American Association of Law Schools, Federal Reserve Governor Sarah Bloom Raskin addressed foreclosure abuses and the importance of the rule of law. She said that:

    “The failure of timely enforcement leads to the entrenchment of bad practices and an increase in the costs of correction.  For example, turning to what will be the focus of my comments today – the role of mortgage servicers in the foreclosure crisis – the longer it takes for mortgage servicers to make the operational adjustments necessary to fix their sloppy and deceptive practices, the costlier and more difficult it becomes for them to sort them out and correct them”.

    “More fundamentally, a failure by regulators to enforce the laws and regulations as strong antidotes to financial misconduct and unsafe and unsound practices by the institutions they regulate establishes de facto acquiescence to the dominant norms of the financial marketplace”.

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    Category: Mortgage Rates

  9. NY Fed President Calls for “Earned Principal Reductions”

    3 By on January 6, 2012

    In a speech to the New Jersey Bankers Association Economic Forum in Newark, New York Fed President William Dudley called for Fannie Mae and Freddie Mac to enact a form of principal writedowns on mortgages in order to help the housing market recover.

    We’ve discussed the problems in the housing sector ad nauseum, but it they are worth briefly recapping.  Home prices are down by about a third on average since 2006.  There are 1.5 million mortgage that are at least 90 days delinquent, and another 2 million in some stage of foreclosure.  There is a massive overhang of housing supply both on the market and in shadow inventory, and there is a dearth of demand for housing due to unemployment, economic uncertainty, and lack of household formation.  This imbalance in supply and demand is still causing home prices to fall.  Additionally, nearly 11 million homes with mortgages have negative equity, which accounts for about 22 percent of all homes with mortgages.  There is about $700 billion worth of negative equity in the housing market.  Dudley says that

    “Persistent weakness in housing is particularly problematic because it acts as a drag on spending and job creation in an environment in which such weakness can not be easily offest by other policy adjustments.  Housing policy should seek to break adverse feedback loops [Dudley is referring to the way that price declines lead to foreclosure, which in turn drives more price declines, which leads to more foreclosure], promote more economically efficient outcomes in housing, and support growth”.

    In order to help the housing market, Dudley calls for “improved access to mortgage credit, reduced obstacles to refinancing, lessening the flow of homes into foreclosure through bridge financing and accelerated principal reduction, and facilitating the absorption of REO back into use as owner- or renter- housing”.  The proposals for improving access to credit and turning REO into rentals are fairly straight forward.  More interesting to me is the proposal for what Dudley calls “earned principal reduction”.  Dudley proposes:

    “I believe we should also develop a program for earned principal reduction for borrowers who are underwater but keep on making their mortgage payments.  Such a program would strengthen the incentives for mortgage holders who are underwater to continue to stay current on their loans, and reduce the likely number of defaults and REO sales.  

    One option developed by my staff is for Fannie Mae and Freddie Mac to give underwater borrowers on loans that they have guaranteed the right to pay off the loan at below par in the future under certain circumstances, including that the borrowers have continued to make timely payments.

    The borrower would be protected from further declines in home prices, but in return would give up a portion of any upside from future capital gains on the home via a shared appreciation agreement”.

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    Category: Mortgage Rates

  10. Bernanke: “Continued Weakness in the Housing Market Poses a Significant Barrier to a More Vigorous Economic Recovery”

    By on January 5, 2012

    In a letter to the Congress, Ben Bernanke presented a white paper (“The U.S. Housing Market: Current Conditions and Policy Recommendations“) that details some of the Federal Reserve’s recommendations for healing the ailing housing market.

    The paper states that home prices are down about one third from their 2006 peak, and the loss in value has accounted for about $7 trillion worth of losses in household wealth.  The problems plaguing the housing market are well-documented, but are encapsulated neatly within this quote:

    “The extraordinary problems plaguing the housing market reflect in part the effect of weak demand due to high unemployment and heightened uncertainty.  But the problems also reflect three key forces originating from within the housing market itself: a persistent excess supply of vacant home on the market, many of which stem from foreclosures; a marked and potentially long-term downshift in the supply of mortgage credit and the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities”.  

    Bernanke and his staff recommend three things that could help alleviate some of the problems facing the market:

    • Policies that would help decrease the supply of unsold homes
    • Making it easier for creditworthy borrowers to access mortgage credit
    • Limiting foreclosures

    To accomplish these goals, the paper recommends several courses of action.  The first is to make it easier to convert foreclosed properties to rental units.  The second is to loosen credit, particularly by making it easier for borrowers to refinance their mortgages.  The third is to more aggressively avoid foreclosures and to pursue mortgage modifications and provide greater incentives to lenders to avoid foreclosure.

    The white paper does not lay out specific blueprints as to how to achieve these goals (and in fairness, it does not aim to do so).  Bernanke mostly lays out different ways that these goals could be achieved, and the potential pros and cons to some of these possibilities.  I do not want to recap the entire paper here, but it contains some interesting data and is well worth reading in its entirety.

    Of course, achieving these goals is easier said than done.  The current toxic partisan atmosphere in Washington is one that seems to discourage cooperation and encourage knee-jerk obstructionism (see the debt ceiling fiasco, the payroll tax extension nonsense, and the current presidential campaign for just a few examples).  The problems that face the housing market have existed for at least three years, and many of Bernanke’s solutions are common sense ideas that it doesn’t take a team of highly-trained economists to identify.

    The lack of any sort of cohesive, cogent housing policy/vision from the White House and congress represents a critical failure on the part of our elected officials, republican, democrat, or otherwise.  The whole situation smacks of Nero fiddling while Rome burns, and I am not optimistic that anything will be done to fix the situation anytime soon.

     

    Category: Mortgage Rates

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