The distorted prices of homes make it difficult. It is hard to refi a house that is way over priced. The idea that they were just taking out mortgages they could never afford is wrong.
The foreclosed homes are blights on the neighborhoods. They drop everybodies property values.Flipppers and speculators are long gone. They were a small component of the problem.
The foreclosures are still pounding the economy. Any bank bailout is temporary if the foreclosures keep hitting, and they will. Banks need mortgage payments to get stabilized. Without saving homes, we will be in a cycle of bank failures and bailouts. Settling mortgages is the only thing that will put us on solid ground. If the banks start getting more payments and waste less on taking back houses they can not sell, we all will be better off.
Sorry, but you just don’t know what you are talking about. A huge problem in this mess has been that people were buying homes they couldn’t qualify for in a traditional manner (hence the huge boom in subprime, and the even bigger boom in AltA lending). Read here for more: Calculated Risk: Reflections on Alt-A
Flippers and speculators are not long gone. Many are still hanging on or are in some stage of the foreclosure process: "As of June 30, in Nevada, 32 percent of all prime mortgages in default and 24 percent of subprime defaults were on non-owner occupied properties, according to the MBA. The numbers for Arizona were 26 percent prime and 18 percent subprime. In California, they were 21 percent and 15 percent respectively.
The default rates in Florida for non-owner occupied homes were 25 percent for prime loans and 14 percent for subprime ones.
In the rest of the nation, non-owners accounted for just 13 percent of prime loan defaults and 11 percent of subprime." Flippers fuel foreclosures - Aug. 30, 2007
Granted, that is from 07, I doubt the numbers are much different today. And, of course, I hope this (and my other cites above) prove how flippers/speculators are, in fact, a big part of the problem.
Foreclosed properties also present a great buying opportunity and you will probably see buyers coming back into the market sooner rather than later. California home sales have increase for the past 7 months as people swoop in to take advantage of the great prices.
Government should get out of the way and let market forces take care of this problem. How arrogant to assume that any effect of government is anything but artificial. This correction will take place one way or the other.
[url=http://www.businessweek.com/bwdaily/dnflash/content/feb2009/db20090218_423745.htm?campaign_id=yhoo]Here[/qurl] is a link mentioning the Federal Reserve study I alluded to. It says 6% of those with underwater mortgages faced foreclosure. The article gives some pros and cons about helping those with underwater mortgages.
Just about anyone near me who bought in the past 2 - 3 years is either underwater or has significantly reduced equity. I don’t think there are a lot of subprimes here, so assuming no job loss, there should be no credit problem. The situation when a move is required is very different. Being driving into default by an escalating rate is different also.
There is a tradeoff about staying in a house and paying more than you would for an equivalent rental vs credit issues from leaving. It seems a lot of people used to stay.
How would you handle this? Forcing banks to write down loans by some percentage of the decline in average market value might be good. They of course should get a piece of the upside. The holders of the securities seem to be a sticking point though. There doesn’t seem to be a simple answer, let alone one which could be implemented quickly.
The situation in my county is quite different. About 50% of sales are of foreclosed houses, and their price is the major factor in driving mean values down. In fact there are two clusters of home prices. The first, and biggest, are fairly small starter homes and condos - usually about 900 - 1500 sq ft., which are selling fairly well and are mostly foreclosures. This is at about the $200 - $250 K level, very cheap for my part of the Bay Area. The other node consists of larger houses, mostly not in foreclosure, which are going at from $700L - $900 K. The drop in prices has been around 10%, but DOM is way up. Real estate brokers aren’t giving out that info anymore on their fliers, but that is from observation near us. I’m just at the border of Silicon Valley - places further away where people bought to be able to get into the market, like Merced, have been hit much harder.
I don’t know about negotiations with banks - I haven’t noticed any news stories complaining, so it doesn’t appear to be a big issue. House sales around here are actually up,. but the increase is pretty much from cheap foreclosures.
Voyager that’s interesting. It might be the area that I’m in. Fairfax county is on the cusp of being “out” of buildable land*, so that might be keeping the prices up as well, at least in the areas I’ve been showing in.
The terms offered by the banks are what they are though. It’s not like they’re really trying either. One house I showed was full of trash, junk, and filth, including a pile of shit on the floor. Many of the others were just as bad (less the excrement). One home had such a roach infestation that after the spraying there were thousands of little dead roach bodies all over the place. And really, dirt isn’t my biggest concern. I’ve seen homes with leaking roofs, water damage from broken pipes, boarded up windows, and holes in all of the walls. My favorite was the one that had been stripped completely - including water faucets, light fixtures, and all. Yet this house was on market for the same price as an occupied, well cared for similar home that was trying to short sell.
I haven’t noticed any stories either, but I think that’s probably got more to do with the number of buyers vs. houses on market right now. If/when the buyer market picks up I think we’ll hear more about it. Even if we never do, I don’t see prices remaining stable any time soon - there’s just too much coming down the pike economy and mortgage-wise for there to be any real stabilization. The only thing the mortgage fix is going to do is prolong the pain.
Right now, houses are selling, but generally they’re the ones that aren’t trashed out junkholes. People are willing to pay for the houses that aren’t trashed, but there are a whole lot of them our there that are in rough shape.
*You hear Realtors say that around here all the time. In truth, we’re running out of land that is zoned residential. There’s still a bunch of other land that can probably be rezoned. It affects the market though.
Your cite argues that underwater homeowners are a looming (and big) problem. That 6% was from 91, a bubble that was, relatively speaking, tiny compared to the one we were just in. Here’s a quote:
“But Yale’s Geanakoplos says the danger is much greater this time. Housing prices have fallen more, and many more of the loans were made to people with bad credit. His research using more recent data finds that default rates skyrocket when subprime or option adjustable-rate mortgage borrowers owe more than their houses are worth. The default rate is about nine times as high for people who are way underwater as for people with substantial equity in their homes, all else equal, Geanakoplos found.”
I’m not arguing that we should or should not bail out upside down homeowners. What I was arguing is that, if we truly want to ‘fix’ the foreclosure problem (Legislatively speaking) then something has to be done in RE those underwater peeps… And, O’s plan doesn’t touch this issue. I’m not sure, as you point out, whether anything can be done at this point. It would simply take too long. We waited, and kept punting with these ineffective anti-foreclosure programs, that now doing anything significant seems impossible.
The article goes on to say there are big problems with any solution, even the one that sounds best to me. If the foreclosure program slows or halts the dumping of foreclosed homes on the market, perhaps the shrinking inventory will stabilize house prices, or even let them rise slightly. I’m aware that they are still historically high, but it is possible that a new floor can be set, especially with interest rate support. Perhaps the best way of keeping people from walking is a market where prices are either stable or are rising slightly. No matter - it is possible to add on to address this problem later, but if the housing proposal is too aggressive and fails, it is probably dead forever.
We more or less ran out of land years ago, and the overflow had been moving 50 miles away. So we have a good supply of buyers who are looking for close-in bargains.
12 years ago when we were looking here, when prices were relatively low, we toured quite a few houses with holes in the wall, rooms filled with junk, dirt on the carpets: and they were occupied, not foreclosures. We could never understand what those people were thinking. It will be interesting to see what happens when the supply of presentable foreclosures is gone. Will people move up, or will banks get a clue and fix them up?
Are realtors there marketing houses as foreclosed? A few around here seem to be marketed that way, though the online listings show we don’t have a lot near me.
Agreed, and I’m doing my share of taking advantage of those prices here in California.
Bought a short-sale last November for $70k (2bed, 1.5 bath), put about $7K in repairs into it, and just now mortgaged it to my oldest son who just got a job as a chef in a local hospital for a P&I of $375/mo. You just can’t find a similar house to rent for that price.
This weekend, I will be buying a fully upgraded model home (4bed, 4.5 bath) in a gated community that has been reduced in price…the deposit has already been made and the sale will go through if my appraiser (not theirs although they will appraise it separately with their own appraiser) finds its worth higher than the purchase price…not a problem, IMHO.
Not so much, no, but it’s stuck in every MLS listing. I do see the occasional “FORECLOSURE!” sign, but I think most agents are sort of avoiding that for fear of looking like vultures.
I am not going to add much to debate except to post this
Credit Crisis Explained which I would hope is informative to some folks, like myself who wasn’t really understanding too well.
It’s a reasonable explanation aside from the obvious liberal bias (financial folks are fat and wealthy; homeowners are a lovely nuclear family) but it ends where the credit crisis starts: shaky borrowers. And that’s where all the debates about what to do begin.
Whether to blame the shaky borrowers or the predatory lenders is probably more a matter of perspective than fact. A fool and his money are soon parted by a greedy lender and his schemes. It’s not one or the other that should be held accountable: it’s both. And of course the borrowing fools are equally greedy. They are just too stupid to calculate the effects of their greed.
What is going to happen is that any responsible borrower is going to be majorly pissed at irresponsible borrowers getting off the hook, and that cascade has not started yet. When it does, we’ll see the real numbers: how many people are going to be “made whole” --if temporarily–and how many people are going to be OK with funding someone else’s incompetence. If you go to the carnival and get snookered by a fast-talking carnie, should I pay up to make you whole?
The only cure for this crisis is to let lenders, investors and homeowners all fail, suck it up big time and let the free market pick up the pieces. Any new government regulation should be put into place going forward; the horse has already left the barn. We will accomplish nothing throwing money at this, but we are unwilling to bear any pain now. Easier to spend our kids’ income on it.
The problem is that so few of us in this society live within our means that a majority would feel pain if we let the dust settle without much intervention. That would be a lesson worth teaching but since the majority do the voting, it ain’t gonna happen.
But the mortgage backed securities are going to keep tanking anyway, garbage can never be more than garbage. And refi’s as well as foreclosures degrade these securities.
I took out a $192,000.00 home loan in 2005. I got paperwork on two loans, one was a 30 year fixed from Citibank and the other was some sort of trashy subprime interest only piece of crap from a mortgage broker that was a friend of mine up until the minute I read the fine print on this garbage loan.
The total of the payments on the 30 year fixed over a 30 year period was a little over $400,000. The total of the payments on the subprime loan over a 30 year period was 1.2 million. The monthly payment on the 30 year fixed loan was $1120
The monthly payment on the subprime loan was about $900 to start but escalated to over $5000 over the life of the loan.
The issue is that the value of the securities backed up by the subprime loan is predicated on most of the buyers making all the payments as scheduled over the life of the loan, netting whoever owns the loan almost a million dollars over 30 years. The problem is that there is no way that is going to happen, the people writing these loans knew it as the papers were being signed. The person with barely enough money to make the $900 payment will foreclose as the rates reset - this we know- but the guy who has money and credit will refinance. This refinancing still deprives the investor of most of their imaginary million bucks and degrades the security even further.
Say the homeowner refinances into a 30 year fixed loan, with the same terms as mine. This means the profit to the lender over 30 years is reduced to from 1.2 million to less than 200K and this will tank the security almost as badly as if the homeowner foreclosed.
Sounds good to me.
I’m one of the people who didn’t buy a home, because (drumroll…) I was being responsible by not buying things I couldn’t afford! I’m still kind of borderline, but if the values drop a bit more in the next year or two, there’s a possibility I could become a homeowner. And hey, people who are foreclosed on could go back to renting, like I’ve done for all my adult life! It’s a comedown for them, but maybe that’s what happens when you make poor choices. Meanwhile, I could get rewarded for making sound ones!
Wow, it’s funny how things could work out like that. Almost like there’s some sort of invisible hand that directs these kind of marketplace corrections.
Interesting. For the trash loan, were you given an indication at all about how much it escalated, or was it in the fine print? Did your “friend” say how long the $900 payment lasted, and what it was going to? Was there an accurate summary of the terms?
There have been many stories about tenants getting the boot, without warning, because their landlord is getting foreclosed on and hasn’t bothered to tell them there is a problem. You might not be as immune from this mess as you think.
Every loan package - good and bad alike- I got included a document titled - Truth in Lending Disclosure Statement (RESPA transactions) (Multi-state). Every lender used the exact same form and I was under the impression they had to give this to me in this exact format and type size.
The form is very well laid out with large print and relevant numerical values are also boldfaced. The top line includes 5 items with an explanation ( the explanation is in fine print) of what the number means. Here are the items and explanations
Anual Percentage rate – yearly cost of the credit as a percentage rate
Finance Charge — The dollar amount the credit will cost you
Amount Financed – the amount of credit provided to you
Total of payments – The amount you will have paid after making all payments as scheduled
Total Sale Price…The total cost of your purchase including downpayment
Below that there is a detailed list of the number and amount of all payments and dates of the resets. I don’t have this document from the garbage loan anymore but it looked something like this.
24 payments …$900.00…11/01/2005
36 payments…$1200.00…11/01/2007
36 payments…$1500.00…11/01/2010
I think there were mistakes in the document – the whole package was riddled with errors, but it was variable rate and had a negative amortization for a while, all which serves to raise the total return from the loan.
But the whole package was as clear as a sunny day to me and it had to be signed and returned. Further, if the loan was a variable rate there was another document to sign, and it clearly outlined the risks associated with variable loans- qnd the summary was in HUGE print.
Now a lot of these mortgage brokers were totally dishonest, and my loan officer at Citibank showed me how they alter some of the check boxes on forms after they are signed …since I heard that I alway write “this box not checked” and initial it under any open and relevant checkboxes. But still, I felt that anyone who took home one of these forms and reviewed it for 15 minutes would come away with a good idea of what the loan was about.
“Home prices post record annual decline in 4th qtr… The farther prices fall, the fewer homeowners may be able to qualify for President Barack Obama’s mortgage relief plan. If they don’t get (the plan) into place very soon, it will be out of our reach to help these people,” said Mark Zandi, chief economist for Moody’s Economy.com." http://finance.yahoo.com/news/Home-prices-post-record-apf-14450641.html
Obama’s plan is getting weaker by the day. It fatally misses the mark when it comes to helping people who are upsidedown: “almost 14 million homeowners are already under water.” I believe that the 14M number is a bit conservative, but whatever…