bostonbubble.com

[HousingStorm]

http://housingstorm.com/2009/09/whats-the-real-reason-that-banks-arent-foreclosing/

Daniel Indiviglio writes for The Atlantic The “Shadow” Foreclosure Inventory

…Driving around Fort Lauderdale, it became extremely clear just how big a hit its economy has taken as a result of the real estate market’s collapse. It’s like a different world compared to what it was like just a few years ago: overgrown grass rises above many curbs and sidewalks; homes and businesses sit empty and abandoned; most blocks display multiple “for sale” or “for rent” signs.

…

During my trip to Florida I heard about families who have lived in their homes as long as two years without paying, because the banks haven’t gotten around to foreclosing. And that’s a problem. Until the real estate market recognizes all its losses — including accounting for all foreclosures — it won’t be able to regain real stability and move on. Of course, that has implications for the broader economy as well.

…

But what are the actual numbers as they pertain to this shadow inventory of foreclosures? They’re hard to get exact, given the very nature of the problem — these foreclosures have not yet been completed. But the (Wall Street) Journal does provide some statistics to work with:

As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages

Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.

…

So why do we have this shadow inventory? There are three possible causes:

The first is explained in the WSJ piece. It’s taking quite a long time to figure out which borrowers qualify for the Obama administration’s mortgage modification program. It’s also taking time to process the deluge of applications. During the wait, borrowers remain in their houses which, otherwise, would be in foreclosure. Those who don’t get the modification will ultimately face foreclosure.

Second, with so many foreclosures, banks likely just have logistical issues getting them all processed in a timely manner. There’s a heap of paperwork and other red tape involved in making a foreclosure happen. Banks have never experienced a flood of foreclosures like this, so they aren’t equipped to handle so many very quickly.

Third, banks may not want to foreclose on all of these homes immediately. A WSJ source above used the analogy of foreclosures hitting the market like “a fire hose or a garden hose or a drip.” Which do you think would be better for housing prices? The drip.

While it’s clear that the “shadow inventory of foreclosures is enormous, I don’t agree that any of these reasons are the real reason why banks aren’t foreclosing.

First, banks have had plenty of time to sort out who qualifies for a modification. In the couple of months after the modification plan was announced NODs and NTSs began to increase rapidly…indicating that the banks were able to sort through their customers quickly. However, in the last couple of months, NOD and NTS activity has fallen dramatically. See the chart below from ForeclosureRadar. There must be another reason why banks aren’t foreclosing.



Second, banks have been gearing up for the tidal wave of foreclosures for 2 years now. I work with asset management companies that hired and trained new employees in 2007 and 2008, only to let them go in 2009 because the business isn’t coming. And, none of the asset managers I work with at banks are very busy either. Being overworked isn’t the problem.

Third…I think this is where the reporter comes close, but misses the bigger picture. Banks don’t care about home prices. They care about not losing money. Because the government changed mark-to-market accounting rules, the link between low prices and losing money is broken.

Banks make more money by NOT foreclosing on homes. Banks are dragging out the foreclosure process for their own selfish reasons. Until the day they foreclose, the amount of money owed to them is an asset…sure, it’s an asset that isn’t paying interest payments…but it is still an asset. The day they foreclose, a $400,000 asset could become a $150,000 asset and a $250,000 loss.

Multiply that loss by 10, 20, or even 30 times leverage and there are several million dollars worth of new loans that the bank can’t make.

Faulty government programs and doctored accounting rules have produced the fiasco before us: There are roughly 4 million homes that should be foreclosed on but they won’t be any time soon. This enormous can is continuing to get kicked down the road.

Economists are predicting a recovery. They say that our various programs are making an impact. In reality, all they’ve done is kick our can of reckoning a little further down the road.
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[GenXer]

Banks are raking in record revenues. I guess they can sit on this inventory till kindgom come. So basically, they don't care to sell, and they can sit on this as long as they are making record profits. Why should they sell?

The economy is recovering, but not for consumers. I'm still surprised banks are doing so well, but I guess free cash courtesy of Obama is doing its job. The consumer is getting shafted as they can't get decent rates on their deposits, but banks are again profiting by taking too much risk with our money. Bailouts are to blame for this. So basically, thank the government for keeping the prices high. I think they succeeded. Even though there is a huge disconnect between the prices and jobs/earnings, I believe that unless we have another huge crash, this can possibly be the future.

[balor123]

No, finance is recovering, at the expense of everyone else. After all, you can't have an economy without big banks right? And if you had to choose, which would you rather have, Main St or Wall St? Or more correctly, if you let representatives from Wall St choose, which do you think they would choose?

[Former Owner]

Real Estate Mortgages are the cornerstone of the Banking system. Foreclosure leads to lower Real Estate prices - this would cause the Market value of all property going lower and reduce the value of the Banks Collateral - Houses.

Banks won't foreclose until they need to reduce their costs or there is no other avenue for Revenues.

Foreclosing is JUST BAD for the Banking Business.

[john p]

You're looking for a logical formula. I think most of your assumptions are in the strike zone. Bottom line, I think sometimes on a case by case situation running the numbers is the best way to reverse engineer a decision.

I remember watching the 1986 Chicago Bears and watching this big guy they called the "Refrigerator" come out and line up to be a ball carrier when they were trying to get 1 yard to the end zone. I was like W.T.F. but then I saw him run over the defense and was like "Ok, that worked, whatever"....

Another logical formula was my wife and my decision to refinance. We had a 6.5% 30 year note that we took 3 years ago. We just locked in a 25 year 5% note and we can save like a couple hundred bucks and we've shortened the term a bit... Some would think, "No Brainer". I said wait just a second, we need to model out the cash situation of refinancing (closing costs). So let's say or closing costs are between $3-5k, how many months would it take to get a payback with the monthly savings? If it takes 5 years to get that back and you're thinking about moving in a couple of years, it doesn't make sense to refinance. Further, if in a couple of years I might be in a position to get into a 15 year note and get in the mid to low 4's, hell, I'll pay the 6.5% for a couple of years and save the money for the closing costs and use it perhaps to help buy down the principal when I refinance in a couple of years. From a macro perspective, however, if we get inflation which makes sense, mortgages rates will most likely go up because the future value of the dollar will be less (inflation premium) or I have to worry about Obama making some wild change that messes up the market. I remember consolidating my student loans for 9% back in the early to mid 90's, and then I watched them reduce interest rates on student loans to like 2%. Which we know of course just resulted in hiking up college tuitions.... Anyway, a populist President is a wild card. Because he doesn't have much experience, we don't have a track record to predict his moves. When he goes to Russia with a "Reset" button, it looks like amateur hour. I give him credit for trying, but it is hard to just "reset" a lot of the dealings in the past. Now think about a bank handling $Billions, they're going through the same types of thinking as the guy who disengaged and said screw, if my house is worth 50% of what I paid, I'm a fool to keep shoveling into this deal.

The cost of foreclosure bleeds the banks, but more importantly, the people that are obligated to the home CAN'T MAKE ANOTHER MOVE UNTIL THEY RESOLVE THEIR CURRENT OBLIGATION. I also think there may have been a moratorium on foreclosures recently that is soon to expire.

Just a very quick Obama rant. Obama is saying that he "inherited a 1.2 Trillion Dollar Deficit". He blames the economic collapse and the Wars. Now Obama voted to fund the Wars and voted for the last two years of Democratic controlled Congresses Budgets, and he voted and pushed for the Stimulus (which the Democrats like Krugman said was too little). Now the Stimulus that Obama is claiming is partially responsible for this "recovery" (which is another point that is hard to stipulate). Now drilling down, we know that the Subprime mess was caused by Democrats forcing Banks to lend to "subprime" or people who couldn't afford their homes. God knows if this ever gets figured out by the main stream... Obama is trying to stake claim on the "Recovery", yet the resources that went into that he's trying to pile onto Bush's tab. He's trying to have his cake and eat it. It is so absurd and he's getting away with it, that people do feel like they are in some Kangaroo Court in a banana republic. People don't know how to govern themselves because when the President can get away with complete fabrications and the Press is in lock step, it is surreal.

[Boston ITer]

balor123, Genx, John, and others:

What we have is a financial economy. When the govt decided to save Wall St for democracy, what they did was a exactly that.

This is in stark contract to the days when we were a real economy, if anyone's parents' recalls those times, 'What's good for GE (or some other Nifty Fifty) is good for the country', the focus was the authentic economy, the one which resolves around Main St with an eye on Wall St, but not vice versa. Today, GE is a financial company.

Right now, much of the USA will be propped up, much like Iceland was before the crash. The difference being that *Iceland* as the USA will have half the world's total currency supply and thus, be more crash resistant.

Think about it, during the IT/Telecom boom, the idea of ridiculous P/Es was somehow justified, where projections became a fictitious version of present time reality. As a subsequent behavior pattern, anyway to reflate any asset class, even if they're opaque derivatives, based upon other derivatives, was good for the country. Hence, the serial bubble blowing machine had become a part of the political fabric and thus, Wall St had taken over Main St's former position in America.

I think what's interesting is that many scientists and engineers had instinctively sensed this, starting with the increase in postdocs (early 90s) vis-a-vis reports of imminent shortages of engineering graduates, to the collapse in R&D for physics/applied chemistry, etc, in place of IT programming in the late 90s, and finally, the Nasdaq crash when half those careers were lost forever. Thus, there was a disconnect between hard core hi-level tech education vs the mainstream business types. Throughout this time, Main St types (see insurance claims adjusters, nurses, firemen, truck drivers, carpenters, etc) were oblivious to the circumstances as to why they had employment to begin with. So finally, when the real economy slid this past year, they were not able to connect the dots and only saw the blatant corruption between the Goldman/AIG boys and Washington but not how it could have happened, starting with a financial economy becoming another Main St.

[Guest]

[john p]

Watch this and then talk to me:

http://www.youtube.com/watch?v=1RZVw3no2A4


You can't put dividers on subject matter to make life convenient and understandable. If politics significantly affects the housing market, your study of the housing market needs to absorb this influence; sorry, but that is reality; inconvenient truth...

What you need to consider was that the boom years during Clinton were the dot-com bubble years in the stock market. People have trouble making the connection between that bubble and the fact that the income bubbles provided income tax revenues which created the Budget Surpluses during Clinton. People don't have trouble conceding that we were in a bubble economy during Clinton, but don't align that with the bubble Surpluses that we had. The stock market was correcting towards the end of Clinton and it bottomed out after 9/11. After that, we needed to engage in a War on Terror (which the majority of Democrats and Republicans voted for) and after the stock market crash, people found sanctuary in investing in real estate. Add these investors to the sub prime surcharge to the market and fuel it further with low interest rates and we have a real estate bubble. On top of that we have an older population and skyrocketing health care costs; not to mention that we’re in a Global Economy where Union wage earners make 50 times that of their counterparts in emerging nations, but that’s Bush’s fault right? But it is ok that Obama makes all these promises while this is going on? He doesn’t really mention the limitations when he is a candidate, does he? In fact he claims that he “underestimated the hole that Bush dug”. Isn’t that a convenient way to wiggle your way out of all your campaign promises? Aren’t leaders supposed to be able to gauge reality? So his trillion dollar deficits won’t have anything to do with the future of the housing market you say?

I honestly can't imagine how one could think that politics have nothing to do with the housing market. Have you ever done any research about Fannie Mae and Freddie Mac and seen how Democratic politicians got bought off to fight legislation.

The fact is that Democrats want to put up a divider and don't want to see politicians influence on the housing market because if the truth got out people would be asking "Why did Barack Obama get the second most amount of political graft from Fannie Mae and Freddie Mac?" And "What the hell is Chris Dodd or Barney Frank doing trying to come up with a solution, they helped mess this all up?”

Do you think that it is a coincidence that the one Network News Station that covered this truthfully is being vilified by the Obama Administration?

Let me tell you about Chicago Style Politics: What they do is make a general promise to everyone and don’t explain anything. Everyone jumps on board and tries to wiggle their way to the center. Eventually this vessel of hope gets smaller and smaller as reality sets in and the politicians sell one group out, and then another, and another. The ones still on the life raft don’t want to complain much because they will be the next one thrown overboard. It’s kind of like a Union. If you complain, you don’t get picked to get a job. Unions want to bear down on members and intimidate just like Obama and Emmanuel want to intimidate anyone who dissents. After the liberals start to understand that this is a charade they will find out what fools they have been. Liberals at their core love liberty. Their hearts go out for Unions because they root for the little guy, but when they finally see how the Unions aren’t protecting the little guy and are actually hurting them, they will act on their values and won’t be deluded any longer. Liberals are blinded with teenage love with a dreamy politician.

[Renting in Mass]

After the liberals start to understand that this is a charade they will find out what fools they have been.

Liberals are blinded with teenage love with a dreamy politician.

*YAWN*

You got that tingly feeling before writing this one didn't you?

[Boston ITer]

[Guest]

[john p]

Point to anything, anything that I said that isn't factual. Don't go on insulting, point to any facts, do you have any facts at all?

blah, blah, blah ohh, so tedious.... stall, stall, stall....

Obama got the God Dam Nobel Peace Prize. Straw Man Argument you say!

I don't want him to succeed any more than wanting someone who wanted to shoot his own foot succeed. I want him to be a little smarter, have a good plan, and then I'll support him.

Before I go and insult someone I do research and first give them the benefit of the basis of what I've read. You haven't done that, you have no interest in directing me to any research to counter any of my points. I would love to find factual information to make me believe otherwise. I don't choose to be unhappy about the situation, I'm just doing the math and the future won't be good if he continues down this path.

Did you actually watch that video?

My whole family are left wingers. I never voted for Bush. When I found out that Deval Patrick wrote letters to let a convicted grandmother rapist out of prison, and pushed for casinos, which I believe prey on the weakest of our bretheren, and that he lied about lowering our property taxes, etc. I did the math and realized that my liberal values didn't align with this Democrat. At this point, I opened my mind and realized that many of the liberal policies actually hurt the people they were mean't to help. If you watch the video I posted you'll see what I mean.

Ask yourself this, if you were corrupt and you lived in Georgia, you'd choose to be a Republican because it would be the party of power and it would be the path of least resistance. Now, if you're from Chicago or Boston, or New Jersey and you were corrupt, you'd be a Democrat. The Republicans had Jack Abramoff as their casino criminal; Massachusett's corrupt leading the charge on casinos will be a Democrat.

My relatives who worship Obama have never heard of Tony Rezko. From what I've gathered about Liberals, they don't want to see reality as how it is; like Bobby Kennedy said, "I see things that never were and say why not?", I think it is great to dream, but Bobby Kennedy was also a realist and a fighter and he squared off with evil when he faced it. Liberals today don't want to believe that Iran may nuke Israel. They want to focus their anger and believe the enemy is FOX News. JFK's taxation policy was pretty much what REPUBLICANS are saying today.

Read this and watch that video and tell me afterwards who cares more about the weakest of our bretheren?

http://mwkworks.com/onsheepwolvesandsheepdogs.html

http://www.youtube.com/watch?v=1RZVw3no2A4

[Boston ITer]

[Renting in Mass]

John, watch this: http://www.youtube.com/watch?v=Yu_moia-oVI

I guarantee it will change your perspective!

[john p]

Rick Ashley does provide a window to the self. You're preaching to the choir though.

I may have been a bit sanctimonious yesterday.

Bottom line is I am in the process of refinancing from a 6.5% to 5% and the only thing that I can't factor in intelligently is the "Government Interaction Factor".

I am trying to take measure as to how ridiculous the government will step into the economy. Last year I talked about how the FED was going to manipulate the mortgage rates. People laughed at me and said that the FED had nothing to do with the mortgage rates. Well after flooding $Billions into the lending market and the Government adding $8k down payments to first time home buyers and this whole Loan Remodification thing, I was right. I assumed a Government Interaction Factor, but what I'm saying now is how far is it going to go?

People always say work hard on what you can control and be at peace and accept what you can't control. Naturally people don't like it when others just change the rules on them. I guess people are entitled to feel a bit sanctimonious when the government is bailing out idiots who rant up their credit cards. It is very unfair. Instead of people getting mad at the irresponsible who created these problems, they try to sedate the responsible people who continue to be screwed. I know a lot of liberals are pretty educated and at times pretty critical thinkers, but with Obama I see them really just shutting off those mental gifts.

Yesterday, the White House for the first time ever, excluded a major news organization from the White House Press Pool. Thankfully, the other news network's executives protested the exclusion of FOX News and said if you exclude FOX News we won't participate. This is what I was talking about yesterday about when liberals wake up from their love affair and see that their liberty is being threatened by an Executive that is charming them into submission.

Bush pulled the whole fear thing to create this Martial Law State only to empower the executive and to allow him to take away freedoms in order to protect us (Patriot Act). Obama's Chief of Staff Raum Emmanuel is saying "a crisis is a terrible thing to waste". They are claiming economic martial law and using that as a veil to pass their liberal agenda. At its worst, the Bush Deficit was $450 Billion. The Deficit got worse under Bush during the Democratic Congress's tenure (last two years of his Term - coincidentally the two years Obama was in office). I just find it absurd that Obama votes to fund the Iraq War, voted to confirm Condi Rice despite also saying that she lied about the War.

Bottom line is I think Obama is a politician and a liar and most importantly, UNPREDICTABLE. It is hard to do personal finance with this, further; his moves are absolutely huge so a miscalculation in judgment could mean a big deal. What if Obama does some crazy government bailout and people can refinance for 3% or what if inflation kicks in and it goes to 12%. As bad as people thought Bush sucked, I don't think that people had this range of possible concerns.

Even from a foreign policy perspective, countries that we didn't like knew we didn't like them and we knew if they liked or disliked us. We knew where we stood and we weren't sending "Reset" buttons and apologizing one minute and lobbing criticism the next. Bush invaded Iraq not Iceland. I mean Bush met with the Dali Lama and Obama, the Nobel Peace Prize Winner doesn't? What do you think McCain would have done with the Iran Election atrocities? Obama gives a speech that the left claim is the catalyst for their protests but Obama leaves them out there high and dry to be beaten by a dictator. How is that "progressive"? The left want to leave Afghanistan to the Taliban who will rape and beat the women, how is this Christian?

I just don't want my Nation's thinking done by cowards and fighting done by fools.