Rolf Englund IntCom internetional
Some 5.6m US home loans are at least three months in arrears on payments
California produces about a quarter of America’s farm production with immigrants from south of the border doing the back-breaking work in the fields of the Salinas Valley, which was made famous by John Steinbeck.
But the most visible “crops” sprouting up these days are For Lease or foreclosure signs in the real estate market.
CNN September 2, 2010
"There has been an effective moratorium on foreclosure," said Roubini.
And the beginning of the end of that moratorium means more housing supply is about to become available on the market.
"The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year," Roubini says.
Both factors, taken in concert, set up a scenario where market fundamentals put downward pressure on prices: "Supply will increase, demand will drop," Roubini said.
One of the foreclosure cascade's not-so-hidden secrets is that the banks and investors who hold millions of busted mortgages are in no hurry to kick debtors out of their homes.
The markets hardest hit by the foreclosure crisis are already stuck with an enormous and growing inventory of repossessed houses, now estimated by Lender Processing Services, which tracks foreclosures, at 1 million to 1.2 million bank-owned homes nationwide.
Banks have steadily slowed down the foreclosure process: The average homeowner in foreclosure now is an amazing 461 days behind in his payments.
Force me out if you can.
Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
America slides deeper into depression
Given the combination of the expiration of the home buyer tax credit
Twenty-six percent of sellers on the market in August, according to Trulia.com, had lowered their expectations, and hence their prices.
Webmaster Rolf Englund: Diana Olick is one of my economic Gurus.
Home Sellers Slashing Prices, While Banks Mow the Lawn
CNBC 14 Jul 2010
"People are sitting in their houses not paying their mortgages, and the banks are letting those delinquencies extend longer and longer periods of time before they put them in foreclosure,"
Realty Check takes you from the housing boom to bust and beyond. Led by Diana Olick, we were here when the house came crashing down and we have the singular expertise to explain how it will be rebuilt. The goal of this blog is to bring the market, the rescue plans, the politics and the pontification home to you
The number of US homes being repossessed hit an all-time high last month
This year the housing market /in the US/ showed signs of life.
According to RealtyTrac, nearly 2 million housing units in the U.S. are in foreclosure or bank-owned, and millions more are likely to join them.
As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier
Mortgage loans: Record number are late
"Strategic defaults" now account for nearly one in three foreclosures
More evidence has arisen that the "strategic default" consumer spending thesis is correct
All this time, I thought working hard for my money and staying debt free was wise. I thought sticking with one credit card - paying down the balance every month, no exceptions - was prudent. I thought driving a five-year-old car - fully paid off, nothing flashy - was a sensible thing to do.
Two weeks ago your humble editor asked, "Did the Housing Bust Fuel the Consumer Spending Binge?" In that piece, it was explained step by step how the phenomenon of "strategic defaults," i.e. homeowners walking away from their mortgages, may have fueled a surge in retail spending by way of freeing up cash."Did the Housing Bust Fuel the Consumer Spending Binge?"
In keeping short-term rates near zero, the Federal Reserve has given the banks a license to print money.
Interest rate cuts work their way through to the real economy by a number of transmission channels.
Can't pay or won't pay?
Because US mortgages are “no-recourse” loans (lenders have no recourse to the house’s owner beyond the value of the house),
"The losses for the financial system from people walking away could be of the order of one trillion dollars when
The Obama administration's foreclosure prevention program
The multipronged fix calls for companies to help as many 4 million struggling borrowers by modifying loans so housing payments are no more than 31% of monthly gross income.
Separately, homeowners who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity.
The plan, released in broad-brush terms two weeks ago, has three components.
The third component provides for $75bn of subsidies for modifications to home loans owned by banks and investors. This will provide mortgage servicers with incentive payments to modify loans and borrowers with inducements to stay up to date on their payments.
Hope for Homeowners gives the FHA the authority to back 300 billion dollars worth of restructured loans,
Senate Banking Committee Approves Housing Bill
The proposal marks Washington's most ambitious response to the nation's housing crisis, which has so far thrown more than 1.5 million homeowners into foreclosure. With foreclosures rising, home prices have fallen by more than 10 percent, leaving many borrowers both unable to make their mortgage payments and unable sell or refinance because they owe the banks more than their homes are worth.
To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.
The US federal government has tried to stabilise residential real estate, but nationwide prices have dropped by 13 per cent in the past 12 months.
The writer has created the US’s second largest servicer of subprime mortgages by acquiring American Home Mortgage and Option One
Back in April 1999, didn't the Chairman of the Federal Reserve, the Chairman of the SEC, The Secretary of the Treasury and the Chairperson of the CFTC jointly prepare a 140 page report on the Lessons of LTCM in which they stated that:
"The principal policy issue arising out of the events...is how to constrain excessive leverage. By increasing the chance that problems at one financial institution could be transmitted to other institutions, excessive leverage can increase the likelihood of a general breakdown in the functioning of financial markets. This issue is not limited to hedge funds; other financial institutions are often larger and more highly leveraged than most hedge funds...The LTCM episode well illustrates the need for all participants in our financial system, not only hedge funds, to face constraints in the amount of leverage they can assume."
G7 försäkrade att deras centralbanker ska fortsätta att samordna åtgärder för att lindra kreditkrisen.
För dem som har haft en övertro på marknadens självreglerande krafter
är förstås den internationella kreditkrisen en allvarlig missräkning.
What Exactly Is The G7 plan?
BusinessWeek is reporting Powers back plan to halt financial crux:
President George W Bush has outlined plans to freeze rates on sub-prime mortgages
By Bush administration standards, Henry Paulson, the Treasury secretary, is a good guy.
He isn’t conspicuously incompetent; and he isn’t trying to mislead us into war,
justify torture or protect corrupt contractors.
Paul Krugman, NYT, December 10, 2007
US Treasury Secretary Hank Paulson can be forgiven for pushing through a rescue plan last week that amounts to a flagrant abuse of contract law and capitalist principles.
What we are witnessing is essentially the breakdown of our modern day banking system, a complex of levered lending so hard to understand
The trouble with the Paulson plan
Is there a housing-finance market on the planet that is more pervasively manipulated and distorted by government than that of the US – even before this latest intervention?
Start with virtually unlimited tax relief on mortgage debt.
The tax deduction alone is nearly $80bn a year.
It would be surprising if dissenting investors did not challenge these modifications in court.
Normally it falls to conservatives to cry “moral hazard” when policies such as this, expressly designed to reward imprudent behaviour, are announced. This time, the indispensable Barney Frank, the Democratic chairman of the House financial services committee, is leading the chorus.
From now on, every mortgage foreclosure will be seen as proof of the policy’s failure – and partly the administration’s fault.
The US government’s attempt to stem the growing housing crisis involves arbitrary judgments, rewards for reckless behaviour and variations of contracts.
There are concerns that investor lawsuits protesting at breach of contract could derail the plan.
Sanctity of contract is indeed an important principle. But ....
There is moral hazard in rewarding foolish borrowing and it is exacerbated by a design flaw in the plan.
But authorities around the world have already found that this crisis demands extreme measures.
The promise and pitfalls of the Treasury's plan
Mr Paulson's attitude to the subprime mess has, to put it charitably, evolved over the past few months.
The Treasury has now embarked on a third approach. Worried that the avalanche of resetting subprime mortgages (some 2m in the next 18 months) would bring a surge of foreclosures and further weaken house prices, Mr Paulson has prodded lenders and mortgage servicers to come up with “an aggressive, systematic approach” to get “able” borrowers into modified loans.
One reason to step in is that the Treasury solves a co-ordination problem. All lenders would be better off if a downward price spiral from unnecessary foreclosures could be prevented. Individually, however, each mortgage servicer might prefer foreclosing now, rather than waiting and possibly seeing the value of his asset fall. A second argument is that government involvement offers mortgage servicers some legal protection against investor lawsuits by, in effect, creating an industry standard for loan modification.
But set against those gains are some risks.
A second worry is that the plan is a form (albeit a gentle one) of government meddling in private contracts, one that could have far-reaching consequences for investors' willingness to hold future subprime debt. America's debt markets will be permanently damaged if investors fear that government will simply change the rules to suit the times.
"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com,
"S&P Says Mortgage Freeze Plan May Cause Downgrades"
S&P, the largest ratings company, said bondholders may benefit from mortgage modifications if they result in fewer foreclosures....
Mortgage Meltdown 2007
The current economic crisis, with its roots in the sub-prime mortgage and real estate markets is just the latest example of an old classic, the speculative market bubble.