Thursday, September 30, 2010
An Article from CNBC September 30, 2010
JP Morgan Chase told CNBC on Wednesday that it will delay more than 56,000 foreclosure proceedings due to paperwork that was signed, "without the signer personally having reviewed those files."
Weitz- great news for the strategic default crowd - this will delay the foreclosure process indefinitely for many of the major institutions. Your period of free rent/ mortgage just grew longer.
That came on the heels of GMAC halting foreclosures and evictions in 23 states for roughly the same reason. All this leads anybody with a heartbeat to figure that other large servicers will likely follow suit, as potential lawsuits abound.
So what will that mean to the larger foreclosure crisis and the already weakening housing recovery?
"It's clear the pace of foreclosures will slow down," says Laurie Maggiano, Policy Director in the Treasury Department's Homeownership Preservation Office.
"I would suspect that most responsible lenders are going to be looking at their processes and making sure that they've done everything properly, so they're not subject to the same accusations and lawsuits."
So far the largest lender/servicer, Bank of America has not returned my request for information, but you can imagine the level of scrambling going on right now at all the major servicers, now that a big name like JP Morgan Chase has made its move.
Whether or not the foreclosures are bad, and I suspect the majority of them are valid in their claims if not in their procedures, the potential for a much bigger mess is high.
"As of right now this is a policy and procedure issue until proven otherwise, but never underestimate mid-term electioneering," says mortgage consultant Mark Hanson. "If this does go to the next level (i.e. national foreclosure moratorium, fear that hundreds of thousands of foreclosures have been performed illegally, etc.), the unintended negative consequences on the mortgage market, MBS investors, banks' balance sheets and ultimately the housing market will be significant. "
We're already seeing threats of ratings agency downgrades on all the major servicers, not to mention the threat to housing's overall recovery. If the bulk of these cases are valid, then delaying them is only going to prolong the pain.
"Worst case is that the current foreclosure problems turn out to be industry-wide and trigger a landslide of legal challenges that lock up foreclosures resolutions for a year or more," says Guy Cecala, publisher of Inside Mortgage Finance.
That means all kinds of borrowers would sit in their homes free of charge, banks would be unable to get any return at all, and the housing market would still be facing the inevitable: "We may then see a [foreclosure] surge at some point in the future," notes Treasury's Maggiano.
We've talked an awful lot about artificial government stimulus skewing the housing recovery as it tries to help; that's nothing compared to the potential for this latest scandal to wreak havoc on housing yet again.
Weitz- Things like this simply prolong the process of getting to a bottom in real estate. That said, if you can't make the rules, use them to best of your advantage.
For more informationon the short short, or foreclosure process, consider contacting a Seattle Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
at 6:00 PM
Sunday, September 26, 2010
Whenever I get into a conversation about banks, it is unnerving that so many people believe they have paid back Taxpayers in their entirely from the bailouts!! TARP was a fraction of the bailouts/ benefits bestowed upon the banks during the crisis.
Click here for a video that I believe truly characterizes how the banks benefitted from the Bailouts, how they continue to operate, and why we cannot and will not recover until we fix some fundamental problems in America.
CLICK HERE FOR THE BIG TARP LIE
To simplify as much as possible:
1) First and most importantly, Banks, as a result of a gift from Congress at the height of the crisis, DO NOT NEED TO FAIRLY VALUE THEIR ASSETS. The accounting term is 'mark to market'. Remember ENRON? Remember what liars and cheaters they were?
Guess what?...the very things that Enron did to deceive shareholders is A COMMON PRACTICE FOR BANKERS TODAY!!
2) Ever wish you could borrow at 0% and borrow hundreds times more than you are worth? Think how great that would be!...you could invest in United States Treasuries at 3.5% (risk free) and make more than any job could ever pay you.
Guess what...that is exactly what a select group of banks get to do. Go to Ben Bernanke at the Discount Window – take out a ton of money at slightly over 0% - then go to Tim Geithner at the United States Treasury and have the US Govt (taxpayers) pay them 3.5% to borrow that very money from the bank.
3) Fannie/ Freddie - wouldn't it be great if the government would assume (pay off) your debt from you? You could go to the Mall, spend a ton a money you don't have, but not have to worry about it because the government would 'flip the bill'.
Guess what? That is essentially what banks are doing!!..Here is how is happens. Banks borrow money from the Federal Reserve to issue home loans. They take fees for 'originating' the loan, and then pass the risk to the taxpayer when Fannie Mae, Freddie Mac or the FHA buy it from them...not a bad deal for the banks, heh?
In sum, here is how I see the US banking system in its current state. Many banks, if forced to actually account for their bad loans properly would be insolvent, and thus bankrupt. They know it… which is exactly why they are not lending money at their historically normal rate.
Instead, they use their money to 'gamble' in the stock market, and buy US Treasuries (sending the US government/ taxpayer further in debt)...why loan money at 5% (which has a chance to not be paid back) when you can loan money to the Government at 3.5%?! Not a bad gig...if you can get it.
That said, the banks, with the help of our political leaders (both republicans and democrats), get to siphone money out of the system from homeowners paying interest on loans that shouldn't have been issued, and continue to pay themselves enormous bonuses while the rest of the country is still in the dumps.
What can we do about it?
We must force our political leaders to be accountable. Either they are not bright enough to understand the issues we face or they are intentionally deceiving us. Neither is acceptable. As a country, we need to stop trying to cure a broken leg with band-aids. It won't work long term, and the longer we 'kick the can', the harder it will be to recover.
at 5:23 PM
Kudos to the Seattle Times for running a nice, well informed article:
AP- The Obama administration's flagship mortgage-relief effort is failing to ease the foreclosure crisis as more than half of those who have enrolled have fallen out of the program.
As of August, approximately 680,000 homeowners who applied to get their mortgage payments lowered, or about 51 percent, have been disqualified, the Treasury Department said Wednesday. That's up from about 48 percent in July.
Weitz- so more than half of those who apply don’t get any aide. I would argue even those who do get modifications are not helped out long term because the banks do not make the modifications permanent.
The report gives ammunition to critics who say the program has failed to slow the tide of foreclosures. They say it's better to let troubled homeowners lose their homes and home prices fall.
Weitz - I wonder how many tax dollars it took for the Treasury Department to create a report that outlined the obvious. Let the market place determine the market...what a novel concept.
"The problem is just so huge in magnitude that there's no viable solution that can come out of the government to solve it," said Anthony Sanders, a finance professor at George Mason University.
About 2.5 million homes have been lost to foreclosure since the recession started in December 2007, according to RealtyTrac, a foreclosure listing service. An additional 3.3 million homes could be lost to foreclosure or distressed sale over the next four years, according to Moody's Analytics.
Weitz – Note that Moody’s, who is notoriously optimistic, suggests that we are not half way to the total number of foreclosures.
Foreclosures and distressed sales are major reasons the economy has struggled to regain its footing after the recession ended in June 2009. They have forced down
home values and battered housing markets in many parts of the country.
Weitz – Anyone who thinks the recession has ended defines it differently than I do. Its almost comical that an economist would suggest the recession ended last year! Look at the Bankruptcy and Foreclosure stats…they are both way higher than 2009!! (see links for Western Washington)
Homebuilders have struggled to compete with the deeply discounted prices. Potential sellers of existing homes have also been too discouraged to list their homes for sale.
The Obama administration had grand hopes for its relief effort in February 2009. At the time, officials said the government could help as many as 4 million homeowners lower their mortgage payments to help avoid foreclosure.
Yet as of last month, only about 449,000 borrowers have received permanent loan modifications and are making their payments on time. That's only 34 percent of the 1.3 million who enrolled.
The administration's effort has been plagued by problems.
Banks weren't prepared for the volume of calls from borrowers and were slow to process requests for help.
And the Treasury Department initially allowed banks to sign up borrowers without collecting proof of their income. In the end, many homeowners were unable to provide that information or simply gave up when the process became too bureaucratic.
Borrowers are now required to provide proof of their incomes at the start of the process. As a result, the number of people enrolling has dropped dramatically. Fewer than 18,000 new borrowers signed up last month. That's a far cry from last year, when more than 100,000 were enrolling each month.
Many homeowners have concluded that walking away from their mortgages made more sense than waiting for help.
Obama officials say most borrowers who exit the program are not headed for foreclosure because many ultimately get help from their lenders. Still, they say they are not ruling out expanding or reworking the government's housing efforts.
"We're certainly not going to stop fighting to turn things around," said Raphael Bostic of the Department of Housing and Urban Development.
But some housing experts doubt there's much more the government can do. The Obama administration may tweak its existing programs but is unlikely to make dramatic changes, said Howard Glaser, a Washington-based mortgage-industry consultant and official during the Clinton administration.
"There really is no federal policy approach that is going to have a significant impact," Glaser said.
Weitz- The government can only prolong the problem. They simply cannot fix it. In the end, the market forces will determine when the crisis is over.
Others say the economy is too fragile to give up. In recent weeks, Wall Street economists and academics have suggested the government could back the refinancing of all homes with mortgages backed by Fannie Mae, Freddie Mac or other government entities. Christopher Mayer, a real-estate professor at Columbia Business School, said that could benefit about 37 million homeowners.
"Why not help a much broader group of consumers, not just people who are in trouble," Mayer said.
And others say the Treasury Department could do a lot more to enforce the rules of its existing program.
Alan White, a law professor at Valparaiso University, said the Treasury should be more aggressive about punishing mortgage companies that are doing a bad job of modifying loans. One way to do so, he said, would be to transfer many loans to companies that are performing better.
For more information on your rights in Foreclosure or Short sale, consider talking to a Seattle Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300 begin_of_the_skype_highlighting (425) 889-9300 end_of_the_skype_highlighting
at 10:05 AM
Tuesday, September 21, 2010
Below is a well thought op-ed piece in the Wall Street Journal today. As usual, I will high-light and expand on some of the more important points.
A decent house has long been a symbol of middle-class American family life. Practically, it has been a secure shelter for the children and provided access to a good public education. And financially, it has been regarded as a safe store of value, a shield against the vagaries of the economy and a long-term retirement asset.
All that seems a distant memory for the millions of American families who must confront the decline in the value of their homes. The pressure to meet mortgage payments on properties that have lost value has been especially shocking for those who have lost their jobs in the Great Recession. Their houses have become a ball and chain, restricting their ability to seek employment elsewhere. They cannot afford to abandon the remaining equity they have in their houses—and they can't sell in this miserable market.
New home sales, pending home sales, and mortgage applications are down to a 13-year low, despite long-term mortgage rates that plummeted recently to an average 4.3% before rising slightly. New home prices have fallen by an average of 30%. According to David Rosenberg, chief economist at Gluskin Sheff, this has reduced home occupancy cost to 15% of family incomes, down from the conventional 25%.
The fall in house prices has eaten away at the equity Americans have in their homes. About 11 million residential properties have mortgage balances that exceed the home's value, notes Mr. Rosenberg. And given the total inventory of homes and the shadow inventory of 3.7 million empty (foreclosed) homes, he notes that prices might fall another 5% to 10%. That would leave an estimated 40% of American homeowners with mortgages in excess of the value of their homes.
Weitz- I believe this 5%-10% more is optimistic in an area like Seattle. The reality is the technical indicators of Econ 101 do not look good. The demand is incredibly weak as there were only 1313 closed sales in King County last month (which is down 18.5% from a year ago); while the supply is quite large (there are nearly 15,000 single family homes and condominiums on the market currently). Anyone trying to sell their home right now knows that it typically takes more than a 5%-10% drop to solicit an offer. Each of these homes that sells after price drops further depresses the market. Throw in that foreclosures are still at or near all time highs, and you have the recipe for a very weak Seattle market for the foreseeable future.
Disappearing equity invites strategic defaults. Homeowners with negative equity are tempted simply to mail in their keys to their friendly lender even if they can afford the mortgage payment. Yet banks don't want to take the deflated properties onto their books because they will then have to declare a financial loss and still have to worry about maintaining the properties. Little wonder, according to Mr. Rosenberg, that foreclosure has not been enforced on a quarter of the people who haven't made a single mortgage payment in the last two years.
Weitz - Great point. I stress this to my clients often. It is possible to get away from your home without owing the bank any money, and yet you have had the ability to pay off credit card debt, and other debt while not paying your mortgage for a period from 6-36 months.
A staggering eight million home loans are in some state of delinquency, default or foreclosure, Alan Abelson reported in Barron's in July. He noted that another eight million homeowners are estimated to have mortgages representing 95% or more of the value of their homes, leaving them with 5% or less equity in their homes and thus vulnerable to further price declines.
The pace of foreclosures slowed briefly thanks to loan modifications by the Home Affordable Modification Program and other government efforts. But the programs have not been working as hoped—it's been reported that half of the borrowers have been redefaulting within 12 months, even after monthly payments were cut by as much as 50%.
Weitz- My typical feeling is that these modification programs do very little to help a borrower long term. That said, they provide a great opportunity to extent the foreclosure process.
While the foreclosure pipeline remains clogged, as it unclogs a new wave of homes will wash into the market and precipitate additional downward pressure on prices. The number of foreclosed homes put on the market by banks will be a more powerful influence on the further decline of home prices than either consumer demand or interest rates.
A well-balanced housing market has a supply of about five to six months. These days the inventory backlog has surged to about a 12½ months' supply. This explains why average sale prices have been declining for so many months. The high end of the market, in particular, is under great pressure.
Weitz- Note that months of supply in King County is well over 12 months when taking condos and single family homes into account.
The mortgage market is also deeply troubled. Conventional lenders now insist on a substantial down payment and impose other more stringent financial requirements. Household formation (marriages) is also shrinking now, down to an annual rate of about 600,000, compared to net household formation in excess of a million annually during the bubble years.
The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value. So it is not too difficult to understand why demand for housing has declined and will not revive anytime soon.
This is a disturbing development for those who believe that housing is going to lead America to an economic recovery, as it did during the Great Depression and every recession since. In the past, residential construction preceded the recovery in the larger economy. This time a lead weight on recovery has been the disappearance of some $6 trillion of home equity value, a loss that has had a devastating effect on consumer confidence, retirement savings and current spending.
Every further 1% decline in home prices today lowers household wealth by approximately $170 billion, according to Goldman Sachs. For each dollar lost in housing wealth, Goldman Sachs estimates that consumption is lowered by 5 cents. Add to this the fact that we are building a million-plus fewer homes on an annual basis from the peak years of the housing boom. With five people or more working on each home, we have permanently lost over five million jobs in residential construction.
That is why housing was such an important generator of normal economic recoveries. To give this context, residential construction was 6.3% of GDP at its recent peak in 2005 and 2006 but has fallen to 2.4% this year, according to economist A. Gary Shilling. This is significant if you recognize that a 3% top-to-bottom decline in real GDP constitutes a serious recession.
There is no painless, quick fix for this catastrophe. The more the government tries to paper over the housing crisis and prevent housing from seeking its own equilibrium value in real terms, the longer it will take to find out what is true market pricing and then be able to grow from there.
Weitz- Mr. Zuckerman nailed it. The more we ‘extend and pretend’ or ‘kick the can’, the longer this crisis lasts. The reality is that many people who bought more than they can afford would be better served letting the house go, and paying significantly less in rent. You probably don’t need to file bankruptcy, and your cash flow would improve dramatically.
For more information on your rights in Washington Foreclosure, Short Sales, or other distressed Real Estate options, consider contacting a Seattle Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
at 9:14 AM
Friday, September 17, 2010
Being an Economic geek, I am constantly looking for intelligent, unbias opinions that provide differing or enlightening opnions on the financial prognosis for the United States.
While I could provide some great books on the subject, its safe to say that most people enjoy a good video. That said, I would highly recommend taking the time to review the following set of videos by Chris Martenson. He is a well renowned blogger than has created an incredible set of videos to provide a well researched, fact oriented overview of the current crisis. If you take the time to watch these easy to understand videos, I guarantee you will be able to talk economics with any MBA grad.
Enjoy: CRASH COURSE
at 10:04 PM
Saturday, September 4, 2010
A Recent AP article on another Government Program:
The Obama administration on Tuesday will launch its most ambitious effort at reducing mortgage balances for homeowners who owe more than their homes are worth.
Officials say between 500,000 and 1.5 million so-called underwater loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes. Some experts are warning, however, that the same knots that tied up prior initiatives could do so again.
Under the new "short refinance" program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.
While the program puts taxpayers at risk—officials estimate one in five loans in the program could default—the government has set aside $14 billion previously earmarked for housing aid from the Troubled Asset Relief Program to cover losses.
Weitz- $14 Billion is not nearly enough to adequately do a program like this. As with all other government programs that have been created thus far, I am very skeptical. Thus far, they have not proven me wrong.
The new program, which was announced in March, is starting as the housing market shows signs of renewed trouble and as the Obama administration's signature Home Affordable Modification Program, or HAMP, falls short of its goals of helping three million homeowners. Half of the 1.3 million borrowers that enrolled in temporary loan modifications have fallen out of HAMP because they didn't qualify. Only one-third has received permanent modifications.
The initiative also comes as mortgage rates fall to their lowest levels in more than 50 years. Average rates on 30-year fixed-rate loans dropped to 4.43% last week, down from 4.55% during the previous week, according to a survey published Wednesday by the Mortgage Bankers Association.
One of the biggest dangers facing the housing market is the glut of underwater homeowners who could default if their personal finances or home prices worsen. About 11 million borrowers, or 23% households with a mortgage, were underwater as of June 30, according to CoreLogic Inc.
But not every homeowner who is underwater can participate. The bank or investors that own the loan must be willing to write down its value.
The administration's plan doesn't target loans held by Fannie Mae and Freddie Mac, which own or guarantee half of the $10 trillion in U.S. first-mortgage debt, to avoid inflicting big upfront losses.
Weitz – If Fannie and Freddie are not a part of this program, it will be ineffective as Fannie and Freddie own or insure approximately half the mortgages in the U.S.
Instead, officials hope to reach more loans that were bundled by Wall Street firms and sold to investors as mortgage-backed securities. For more than a year, many of those investors, which include hedge funds and pension funds, have been clamoring for such a program because they have already had to mark down the value of their holdings.
Weitz – why haven’t these private institutions done this on their own accord? Ding Ding Ding...they have been waiting for government to bail them out. They may not be calling this a ‘bailout’, but that is exactly what it is...we are favoring the private sector over the tax payer.
"It'll take some really crappy loans out of the marketplace…and replace them with
much higher-quality" mortgages, said Scott Simon, a managing director at Pacific Management Investment Co.
Weitz – this should say ‘ the taxpayer is buying lousy loans from private institutions’ so they can be off the hook for the future losses.
But that could be hard to do because mortgage servicers, which handle loan payments and decide which loans should be modified, are overwhelmed. And some borrowers might be discouraged from taking part because receiving a principal reduction will show up on their credit score.
Weitz- most of my clients would gladly take a credit hit if the banks were willing to write down principal significantly.
Moreover, investors may not be able to participate as hoped because certain contracts that govern mortgage securitizations say modifications can only proceed if there is an "imminent" risk that the borrower would default.
Reducing balances for borrowers who are current could open mortgage servicers to lawsuits from investors that hold the riskiest slices of bonds. Those investors would be wiped out if balances are greatly reduced. For that reason, "lenders are going to be especially reluctant to do short refinances on folks who are current," says Alan White, an assistant professor at Valparaiso University in Indiana.
Weitz – great point. If you’ve read previous posts, you know that I am firmly against the bank’s ability to mark their assets to ‘fantasy’. For those unaware, congress repealed ‘mark to market’ accounting standards at the height of the crisis. This is essentially what ENRON did that eventually put them out of business. It’s a terrible public policy. Accordingly, banks are allowed to commit accounting fraud, and they have no incentive to modify loans or work out distressed loans because doing so would force them to accurately account for this loans....stocks prices would go down...bonuses to bank execs would be smaller, and the party would stop for banksters....that would not be fun. We would have to admit the 'recovery' doesn't exist.
Officials stress the new program isn't going to be a panacea. But they say that it should give servicers flexibility to modify current loans, and that they are "cautiously optimistic."
"We've heard a lot of positive feedback from servicers and from investment groups to be able to write down" loans, said Vicki Bott, a senior FHA official.
Analysts say that the program is most likely to succeed on loans that banks already own in their portfolios. It could also provide investors with a vehicle for getting rid of loans that have been modified and are current again. "It's going to be a 'take out' for modified loans," said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York.
Weitz – Of course they love it. They get to hand their problems off to taxpayers...what’s not to love?
The program must resolve a stubborn problem that has hindered every other modification program: how to deal with second mortgages. The program says second liens must be reduced so that the total mortgage debt is less than 115% of the home's current value. The government will make partial payments for banks to reduce those loans, but banks have been very reluctant to write down seconds that are current.
Investors that hold first mortgages are leery of writing down their loans without extinguishing the second because junior-liens are in a first-loss position. On a loan that has a second behind it and is heavily upside-down, "do I take the write-down and effectively pay off the second? I don't think so. That second is worthless," said Vincent Fiorillo, portfolio manager at Doubleline Capital, a Los Angeles-based fixed-income manager.
Weitz – to paraphrase: this MAY work if 1) the loan is not owned or insured by fannie and freddie, and 2) no 2nd mortgage exists...great...that takes out most mortgages from qualifying.
He said the program could work for loans without seconds, though he says it's possible many borrowers will still have too much debt to qualify for an FHA-backed loan.
For more information on your rights in Foreclosure, Short Sale, or Distressed Real Estate, consider taking a Seattle Foreclosure Attorney.
Weitz Law Firm, PLLC
5400 Carillon Point, Building 5000
Kirkland, WA 98033
T: (425) 889-9300 begin_of_the_skype_highlighting (425) 889-9300 end_of_the_skype_highlighting
at 9:15 AM