Tag Archives: Mortgage

Bankruptcy or home price rebound: What will save the day?

Morgan Brennan of Forbes.com runs a fantastic commentary and blog upon economic issues.  I have read a recent post she made and I refer to it because I think it is so important.

Many people are “holding on” to houses that are way under-water e.g., much more is owed against the home than it is worth.  These hopefull folks want the good old days of the early 2000s – they hope that housing prices will rebound and that they can perhaps sell their home or borrow against new-found equity in order to pay off medical bills, credit card debts and other obligations.

But Ms. Brennan thinks otherwise – she doubts that there is really any true national “recovery” in housing set to take off anytime soon.  She provides lots of good explanations and reasons why.  She also discusses with clarity something I have long sought to express – that houses are not necessarily “investments”, but rather a localy based asset that has utility for household needs – like a washing machine, fridge or station wagon.

Here is what Ms. Brennan has to say:

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“The Foreclosure Crisis Isn’t Over Just Yet”, December 1, 2012, by Ms. Morgan Brennan of Forbes.com

 

‘As we move into the last month of 2012, real estate pundits have been eagerly pouncing on the notion of a recovery in housing.

Looking at the national numbers, they are somewhat right to do so. Pending home sales hit a five year high in October, according to the National Association of Realtors, and the brisk pace of existing home sales is 11% higher than a year ago.  Just this week the S&P/Case-Shiller Home Price Index reported that September home prices were up for the sixth consecutive month. Even in terms of economic growth, housing has provided a so-called bright spot, contributing 0.3% to gross domestic product in the third quarter, according to the Commerce Department.

Looking at these relatively rosy statistics, it’s easy to see why the word “recovery” is getting tossed around and why many housing-sector stocks have been teetering in over-bought territory. Now, the positive numbers even have media outlets like Bloomberg.com asserting that the

It’s a gutsy assertion — and one that I’m prone to disagree with.

A major reason the housing crisis was not staved off when the first warning signs manifested in the mid-2000s was the fact that Wall Street, Washington and even Main Street America had stopped assessing housing as what it truly is: a locally-based asset class, not a national one.  Housing is local and as we have been relearning since the downturn, market health — including foreclosures — breaks down by state, city, neighborhood and in some places, even street. The wave of foreclosures has been manifesting at these more local levels — even while national-level data reflects a recovery.

Since 2007, the foreclosure crisis, which has claimed nearly four million homes, has played out very differently across the U.S. After the robo-signing scandal of late 2010, lenders, flush with defaulted mortgage notes, delayed their processing of foreclosures, most notably in judicial states, where filings circulate through a  court system. That delay created an artificial decrease in the rate: 830,000 homes were foreclosed upon in 2011, a 24% decrease from the year before, according to CoreLogic, a Santa Ana, Calif.-based data firm. With the advent of the $25 billion mortgage relief plan in February, real estate experts projected a notable pick-up in activity since lenders sitting on delayed filings would hopefully process them more quickly.

This expected uptick has been referred to as a so-called second wave of foreclosures. It’s this second wave — which is technically distressed inventory overhang from the bursting of the housing bubble — that Bloomberg is asserting has been averted.

Nationally the number of foreclosure filings in October was down 19% from a year earlier, according to Irvine, Calif.-based data firm RealtyTrac. And lenders are finally instituting better foreclosure-prevention policies like loan modifications and short sales that keep homes from hitting their books as REOs. But it comes back location. Dig into the more local data and the wave is evident. You’ll find it playing out in the states where the foreclosure process has been taking the longest and backlogs have built up.

“There’s been a pronounced shift in foreclosures from the Sand States to the East Coast, in particular the judicial foreclosure law states with the longest time lines like Florida, New York and New Jersey,” says Mark Fleming, chief economist for CoreLogic. According to CoreLogic, Florida, as of October, now leads the country in terms of foreclosures with an 11% rate. New Jersey is second with an 8% rate and New York has a 5% rate. (In general, 1% is considered a healthy rate in a healthy market.)

The average time for a mortgaged home to transition from default to bank reposession in each of these three states has been over two years. Now those backlogged filings are pushing through the system at robust rates — in a wave of activity, if you will. New Jersey experienced 140% increase in filings in October year-over-year and New York nearly a 123% increase, according to RealtyTrac. Florida’s rate has been high for years, and while other hard-hit Sun Belt states like California and Arizona have seen activity decrease dramatically by about 35%, Florida’s rate has not.

“There are a set of states that are not improving year-over-year like the others,” adds Tim Martin, group vice predisent of U.S. housing at TransUnion, which tracks mortgage delinquencies of 60 days or more. That set includes New Jersey, Arkansas, Washington, New York, New Mexico, Connecticut, Maine, Maryland and Washington, D.C.  Martin says most of these locales still have incredibly high rates of mortgage delinquencies. In New Jersey for example, 8.3% of mortgage borrowers have missed two or more payments. Once those borrowers miss third payments, their homes officially fall into default and foreclosure filings eventually follow.

 

Here is a link to Ms. Brennan’s excellent article:  http://www.forbes.com/sites/morganbrennan/2012/12/01/the-foreclosure-crisis-isnt-over-just-yet/

A look at FHFA home price data for the third quarter indirectly reflects the renewed wave of foreclosures in these states also. The states posting the largest home price drops this year are many of the same states where the foreclosure rate has increased this year, including New York, New Jersey, Illinois and Maryland. Foreclosures add downward pressure to overall home prices.

Still, there’s good news on the horizon even in these markets. New borrowers aren’t significantly adding to the default pile and TransUnion projects that the fourth quarter will register a decrease in delinquencies. CoreLogic and others believe the worst of the foreclosure crisis has passed. But in the states where foreclosures are finally pushing through the system, it won’t necessarily feel that way for some time. Thanks to the ‘wave’.

“The housing market is like a large ocean vessel that when heading one direction, takes a while to turn around” explains Fleming. “So it will take time in terms of clearing out all of these foreclosures.”’

 

Again, this is a great article.  Here is a link to it: http://www.forbes.com/sites/morganbrennan/2012/12/01/the-foreclosure-crisis-isnt-over-just-yet/

 

-What to do with your underwater home?

– What to do with a first and second mortgage?

-What to do about a pile of medical bills, credit cards and car loans?

Come in to consult with James H. MaGee, Washington Bankruptcy Attorney in order to gain some fresh perspective as you organize your game plan.  We have offices in Bremerton, Chehalis, Olympia, Puyallup, Renton and Tacoma where you can meet for a private and confidential consult with Mr. MaGee  Just give us a call 253-383-1001!

Round Two: Countrywide/Bank of America now attacks those from whom it purchased loans. See my earlier post: “Round One: Bank of America under attack for selling lousy mortgages to investors Pimco Bonds and Black Rock”

First off, many kudos to Joe Nocera of the NY Times, the source of much of the info and inspiration in this post in his 11/27/2010 article:

"Liar Loans" a/k/a "stated income" loans were the forte of Countrywide, which may come to represent the dirtiest of all the subrime lenders. However, other companies also made stated income loans, in all fairness, and stated income loans have been around in one form or another since the 1980s.

However, Countrywide went around looking to purchase the "stated income" loans made by other companies, banks and lenders.

To help you understand this "behind the scense" squabbling between the banks and government, I quote from Stephanie Strom’s November 27, 2010, NY Times article:

"Take, for instance, that litigation between Countrywide and the Mortgage Guaranty Insurance Corporation (Ginnie Mae). For some time now, the mortgage insurer has refused to pay claims on thousands of stated-income loans it insured, on the unsuprising grounds that the loans were fraudulent at their inception and thus violated the terms under which the company insured them. In December, Bank of America (Countrywide) filed suit on behalf of its Countrywide unit, arguing, in effect that it doesn’t matter whether the loans were fraudulent. Since the insurer never asked for income verification – and accepted the fact they were stated income loans – it has to pay up. (Nearly a year later the litigation is just getting started.)

Now contrast that stance with Countrywide’s (B of A’s) effort to force smaller mortgage originators to buy back loans it had purchased. In these cases Countywide makes the exact opposite argument: because the loans were made fraudulently, the smaller companies have an obligation to buy them back. [ ]

Thus, when it serves Countrywide’s purposes (now owned by B of A) to argue that everyone knew the loans were fraudulent, it happily makes that case. But when it is better served by arguing that it is shocked – shocked! – to discover gambling in the casino, it makes that opposing argument wtih similar ease. Isn’t that the dictionary definition of hypocrisy?"

See "The Give and Take of Liar Loans", by Joe Nocera, NY Times Saturday, November 27, 2010.

http://www.nytimes.com/2010/11/27/business/27nocera.html

Many Kudos to Joe Nocera – a nicely written article!

Round One: Bank of America under attack for selling lousy mortgages to investors Pimco Bonds and Black Rock

Investors are mad, hopping mad, and Bank of America (and others) are in the crosshairs. Between 2004 and 2008 B of A assembled some $2 trillion in mortgage securities, and sold many of them off to investors, including Pimco and Black Rock, large money management companies.

These angry investors want to shove the cruddy mortgages down Bank of America’s throat.

This Nelson D. Schwartz October 20, 2010 NY Times Article is telling:

http://www.nytimes.com/2010/10/20/business/20bond.html

"But while the human toll of the foreclosure crisis has grabbed the headlines, the fight over how these loans were created in the first place could last much longer and ultimately cost the banks much, much more. And it is setting the stage for a huge battle between mortgage holders like the government (Fannie Mae, Freddie Mac and Ginnie Mae), hedge funds and other institutional investors on one side and teh big banks on the other. ‘It’s very serious said Glenn Schorr, an analyst with Nomura Securities. ‘The numbers are all over the map’ If the Fed and the investors succeed, it could cost Bank of America billions of dollars. On Wall STreet and in bank boardrooms,the question of whether investors can force banks to buy back, or "put back" bad mortgages to the banks that sold them is dominating the debate and worrying analysts, money managers and banking executives."

"The danger posed by angry – or opportunistic – investors ‘putting-back’ mortgages to the banks is hardly limited to Bank of America. Other giants like Citigroup and JPMorgan Chase face similar claims, and [on approximately October 14, 2010] JPMorgan set aside $1.3 billion just for the legal costs, including put-backs"

Buying a spanking new home or a recently built used home in a housing development? CAUTION! Beware of developer 99 year “resale fees” hidden in the covenants.

The NY Times reported on September 12, 2010 that "re-sale" fees creeping into the fine print development covenants, as reported by Janet Morrissey. See Business Section 9/12/10, front page NY Times.

A WHAT????

A "re-sale fee" is a 1.0% fee that must be paid to the developer for 99 years at any time the home changes hands after the original sale to homeowner #1. They are terms that are now being quietly and sneakily drafted into the Homeowners’ Association covenants and/or sales contracts all over America.

Ms. Morrissey reports that "A growing number of developers and builders have been quietly slipping "re-sale fee" covenants into sales agreements of newly built homes in some subdivisions. In one case detailed by Ms. Morrissey concerning a family of seven (five children) who purchased in Utah, the "re-sale fee" language was ina aseparate 13-page document – called the declaration of covenants, conditions and restrictions – that wasn’t even included in the closing papers and did not require a signature by the buyers.

Sometimes the "re-sale fee" is labeled in a difficult to understand nomenclature and is then called a "capital recovery fee" or a private transfer fee".

Ms. Morrissey presents the scenario: "Someone selling a home for $500,000, for example, would have to pay the original developer $5,000. If the home sold again two years later for $750,000, the second seller would have to pony up $7,500 to the developer, and so on." Even if a home declines in value, the seller still must pay the 1.0% fee to the original developer, even years and years later.

Ms. Morrissey reports that the Federal Housing Finance Agency (FHA) is considering a proposal to prohibit the transfer fees on all mortgages financed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. 17 states have already placed limitations or bans on such "re-sale fees". However, even should such practices be eventually curtailed by a rule or law, the rule/law is unlikely to apply retroactively to older "re-sale fee" terms.

As a lawyer, I would comment wrly how ironic it is that it is often so difficult for homeowner #2 or #3 to sue a builder/developer for shoddy construction and defects in the home, yet that same shoddy contractor/developer may be able to reap rewards for 99 years from each and every homeowner that comes to own and sell the shoddily constructed residence.

See link to NY Times article: http://www.nytimes.com/2010/09/12/business/12fees.html?_r=1&scp=1&sq=developers&st=nyt

IDEAS FOR ACTION: Whenever you purchase a home: (1) secure a written acknowledgement and written representations from the selling homeowner that there is no such "re-sale fee" tassociated with the residence or condominium. (2) ensure that you closely review the "exceptions page" of the title insurance policy and all of the homeowners’ association covenants to carefully look for such "re-sale fee" language. or documents. I(3) if you are going to be the 3rd, homeowner, ask the 2nd homeowner (from whom you are purchasing) to produce a copy of the settlement statement from the prior transaction between 1st homeonwer and 2nd homeowner which should disclose any such fee paid to a developer. (4) ensure that you obtain a written representation from the seller that you have been provided with a copy of any and all documents which govern and affect your purchase, use, enjoyment, future/ongoing fees to be paid with respect to the parcel and sale of the parcel.

Financial Reform: Will the Dodd-Frank Financial Reform Law destroy the private mortgage industry and lead to risky government lending?

Banks lend money (a mortgage) against your house. The banks then put 1,000 mortgages or so together and sell the package of mortgages to an investor in a “pooled mortgage”. Some pooled mortgages have held a government guarantee of performance through FHA (Federal Housing Administration), Fannie Mae, or Freddie Mac, other pools were not insured because they were supposedly riskier loans, as the borrowers did not qualify under loan risk guidelines established for Fannie Mae or Freddie Mac.

Under the new rules contained in Dodd-Frank, the original lender must retain 5% of the risk in the pool if it is not a federally guaranteed (e.g. FHA, Fannie Mae or Freddie Mac) loan pool.

CNBC.com editor John Carney writes that exempting FHA, Fannie Mae and Freddie Mac from the 5.0% risk retention requirement will destroy the private mortgage industry and make the US government the unintentional backer of all mortgages:

“…a little-noticed provision of the Dodd-Frank act threatens to undermine efforts at rebuilding an innovative and healthy private sector for mortgages. Under Dodd-Frank, financial firms that securitize mortgages are required to retain 5.0% of the risk of those securities. The goal, a laudable one, is to encourage companies to more closely monitor the quality of the mortgages they securitize (sell off in pooled bundles). But it is also likely to increase the cost of affected mortgages, because banks will seek to pass on the costs of the risk to home buyers. Mortgages guaranteed by the F.H.A., however, are exempt from the 5 percent risk-retention requirement. This means that lenders will find that it costs far more, and involves more risk, to offer mortgages they back themselves than those covered with a guarantee from the agency. There’s little doubt this will lead to a huge increase int he volume of business done by the F.H.A., as banks creating securities will seek out mortgages on which they don’t have to cover the risk. Purely private mortgages will quickly be pushed out of the market.”

The complete article by Mr. Carney was published in the NY Times on August 12, 2010.

10 Worst American Real Estate Markets – SUPRISE! Not all of them are in Michigan!

Now folks, this link was just too darn interesting to pass up, so here it is for a quick read. You may have to wait a moment for the iritating “pop up screen with shade over the article” to pass, but after it passes in about 20 seconds,you will be able to read a fascinating (and shocking) article with eye-popping statistics on the current state of real estate markets in America. Who would have thought Santa Cruz, CA would make the list…read on….