CA Housing Market -Beneath the Headlines / REO Surge to Hit
Posted on January 27th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Beneath the Headlines — the Housing Market is Languishing
The chart below shows a CA housing market languishing with ‘organic’ sales (pink) at an all-time low. This, while loan defaults (yellow) – a leading indicator of foreclosures, REO and home price depreciation – are at an all-time high. Note that organic sales in a part of total sales and not to be added together.
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Existing Home Sales rose month-over-month in Dec. Everyone is giddy over the possible implications –signs of a robust reversal in the housing market leading the consumer and banks out of the devastating asset valuation nose dive. Of course, this will lead to asset price mark-ups and a ‘v’-shaped, full-blown economic recovery. That would be nice.
But it can’t happen this way and accepting the existing home sales data without looking inside the numbers will lead to incorrect assumptions about the housing market and subsequent losses if you make bets according to the faulty data.
Yes, on a national basis existing home sales were up 6.5 over November but also down 3.5% from Dec of last year. This is just one blip up like four or five others we have seen in the past year – they are always greeted the same way. A large percentage of this came from CA so let’s focus there because other bubble states are very similar. The overall month-over-month rise was a function of crashing prices, lower rates and the CA law SB1137 keeping a flood of REO inventory off of the market. This is all good stuff…or is it.
It’s All About Organic Sales
Organic sales - me selling a home to you – gauges to true health of the housing and mortgage markets and are at record lows. Two years ago organic sales were 95% of all sales and in Dec they made up 42.5% of all sales in CA. Foreclosure-related sales make up the rest. Nationally in December, only 55% of all sales were organic. The foreclosure market is now the housing market crowding out Ma and Pa Homeowner who can’t compete against banks and servicers ‘dumping’ properties.
Organic sales plummeting means that home owners are not freely able to transact. This tells me a few things a) that home owners are stuck upside down in their home and can’t sell b) the all-important move up buyer is non-existent and can’t even afford to buy the home they presently live in given present-day sensible lending guidelines c) home owners with equity can’t sell their home in order to get the down payment for the new home. Organic sales plummeting is a leading indicator to foreclosures that most have not put together yet.
Are Falling Values Good for Housing?
The pundits preach that falling values are great for housing because more people can buy. That is not the whole story. In this market after such a devastating past year and a half for home prices, lower prices are a leading indicator of two things – more loan defaults and more zombie home owners ‘stuck’ in their home unable to sell or refi.
Both of these are a leading indicator of future home price depreciation. Thus, the negative feedback loop in housing that has devastated the sector.
Show me a month where a) organic sales rise b) values stay flat or rise and c) new loan defaults and foreclosures stay flat or drop d) foreclosure related sales rise – that would be a positive. At present, ‘d)’ is the only factor in place.
Those citing a drop in inventories as the ‘mustard seed of hope’ forget that from Dec through Feb many that had no luck selling the prior year keep their homes from the MLS awaiting the Spring selling season. Inventory always surged from Mar to May. Additionally, they also forget about ‘shadow inventory’ in the form of REO that is not listed. Realty Trac said in a recent story that they show that only about a third of all REO is listed and trackable as inventory. The rest is sitting rotting at the banks/servicers. These numbers are very close to numbers I have quoted in the past through independent research.
A Flood of REO Properties About to Hit
Looking forward a few months, the REO inventory ‘wave’ that has built up in the past 12-months is about to hit hard. In CA, the SB1137 law exacted on Sept 5th forced a 60-day moratorium on Notice-of-Defaults and Notice-of-Trustee Sales. A Notice-of-Trustee Sale is needed before an insti can take a home to foreclosure. The law essentially kicked the can down the road where all of the inventory will hit as the Spring/Summer selling season kick off. In this respect, the plan worked.
Below is a chart of monthly chart of monthly Notice-of-Defaults, the first stage of foreclosure. NOD’s are filed after three to four missed monthly payments. NOD’s are a very leading indicator to foreclosures by 4-6 months in addition to an indicator of future supply/price depreciation. The massive wave of NOD’s from Jan to Aug and then again in Dec (post-SB117) is still out there waiting to turn into REO beginning soon.
The chart below shows monthly Notice-of-Trustee Sales, the second stage of foreclosure, which follow NOD’s by 4-6 months. At this stage the date and time of the actual foreclosure sale is given – foreclosure typically follows by 21 to 60-days. If you look at all of the NOD’s above from Jan to Aug in the chart above, where are all of the corresponding NTS? From Aug – Dec, NTS would have remained at that 37-40k level if not for SB1137 in addition to select full-moratoria by banks such as Countrywide. This just delays the inevitable. Despite that, NTS are growing and the chart below will look much like the chart above in the near-term – NTS will be back at all-time highs.
The chart below shows the monthly REO taken back by banks — 93-97% of all foreclosures go back to the bank as REO. Like the other two charts the numbers nose-dived as a result of SB1137. So where is all the REO??? The answer is it was delayed and coming quickly to the NTS phase. Additionally, Fannie and Freddie are on full foreclosure moratorium.
From the NTS phase properties are quickly taken back as REO. Supply coming out the other side is all dependent upon each institution, their capacity and willingness to take the associated hit. But as you can surmise from the charts above their dams are overflowing.
Note – at Field Check Group, my research firm, we track all of this by bank and servicer daily. Drilling down into each insti independently reveals that their actions are all over the map. Some do try hard to make this process smooth and transparent. Others are experts at playing ‘hide the REO’.
Who is Left to Buy?
Despite prices and rates coming down there are just not enough available buyers to sop up the entire present and future inventory. Remember, we went into this with about a 69% homeownership rate.
Move-up Buyer
Although purchases always accounted for a small portion of all mortgage loans and still do, move-up buyers were the largest segment of buyers during the bubble years. Easy lending made it a no-brainer for folks to always get something newer and bigger in a better location. Each quarter brought about new and innovative loan programs designed by the investment banks to bring payments and down-payments lower making homes more affordable.
With very little to no down payment required and housing rising double-digit percentages per year it was easy to sell, pocket the profit and buy the new home with little expense and even a lower payment if you chose a Pay Option ARM!. The new home was furnished on easy credit terms from their favorite furniture chain.
EVERYONE qualified due to stated income, no ratio and no doc loans. Now, the move-up buyer is virtually non-existent because most can’t sell for what they owe; can’t sell for what is needed to extract the large down payment needed to buy the new home given today’s sensible financing; can’t get good financing above $417k; or can’t qualify for a mortgage without an exotic or liar loan. The move-up buyer segment is not a driving force.
First-Time Buyer
First time home buyers in their early to mid 20’s are a group that can benefit from lower rates and prices at the lower end of the price range. However, historically they were one of the smallest housing market segments. Now the question is, how many 20-something’s have a large enough down payment, 2-year job history, very little debt and good enough credit score to take advantage of the low base rates available?
This group as a whole will not be able to get the low base-rates being thrown around because they are not seasoned borrowers with large cash positions. An LTV and credit score that was considered ‘Super-Prime’ two years ago can result in a 1.5% hit to the rate bringing them from 5.5% to 7% very quickly. While the 7% rate may fall further, I believe that this group is more price-sensitive and looking for a ‘great deal’ on a foreclosure-related property vs waiting for rates to drop to buy. This seems to be the case with most buyers given over half of all home sales in the bubble states come from the foreclosure stock. The first-time buyer segment is not a driving force.
Renters
Renters can also benefit from lower rates but the same rules apply as with First-Time Buyers. This segment also has historically been one of the weakest, as many are renters for a reason. In many cases those reasons prohibit them from buying. The renter segment is not a driving force.
Second Home/Investment Buyer
Once again, it is more about getting a ‘great deal’ on a foreclosure related sale vs hitting an interest rate level that prompts a purchase for this group. For those not paying cash, most investors have significant interest rate adjustments on their loan taking the rate up substantially over 5.5%. For investment properties, the 3-point hit for LTV’s above 75% alone takes the 5.5% to 6.75% – most will have multiple hits.
The second/vacation home buyer can get more aggressive rates than investment buyers, but I sure hope that economists are not staking their reputation on vacation home buyers saving the housing market. The investment buyer is one of the driving forces in the purchase market today but that cannot be sustained over time.
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January 27th, 2009 1:25 pm
This is great news, thanks for reporting. The only people being hurt by this are bubble buyers or people that liquidated their equity to spend lavishly. Lower home prices improve the quality of living for a great many people more now and in the future.
January 27th, 2009 1:43 pm
I urge everyone to resist responding to the antagonism that this comment was submitted to induce.
January 27th, 2009 1:50 pm
Mr. M. from what I have come across I get the feeling that there is a very large movement underfoot to sell of packets / bundles of homes by these lenders. Do you hear or see any of that yourself? I suggest that this may be the reason for the moratoriums. It has allowed the lenders to have the time to shed or prepare to shed much of their REO stock in order to make room for the next wave about to come onto their books. I also suspect this is why the chatter of “Cram Downs” and “Write Downs” has gathered steam and especially from the Obama camp. They know that there are 3-4 million potential foreclosures coming and the lenders simply cannot take all of those losses and stay in business without the Governments help. “Cram Downs” / “Write Downs” could be a way for them to do so at a slower pace and with Government support. I could see further moratoriums if this were the case to keep the flood to a wave and allow more time to address the matter. Prices are plummeting with or without them just the same, but this would allow for some of the inventory piling up to dissipate somewhat don’t you think?
If not, then what are the lenders looking to do with this inventory? To your point that there are not nearly enough qualified buyers to absorb it isn’t the only place to get rid of this inventory is with bulk sales to investors / speculators? If that is the case wouldn’t you want to be the first in line to sell fearing there won’t be enough of them either to purchase all of the inventory that exist already? The banks are now doing what homeowners were doing before they got foreclosed on… catching a falling knife!!!
In my opinion the only way our lending industry does not get either nationalized or simply crushed from the weight of all of this is to stop foreclosures immediately. What other solutions is there that would allow for these lenders to survive? Even if you wanted to just allow them to fail, do we really want to nationalize our banks? I have a tough time swallowing that bitter pill and it is just one more foot towards the socialist door. Once we open that door and walk through the threshold their will be no going back, or at least anytime soon that is. I see it coming if things don’t change and that will affect everybody and not just underwater homeowners.
January 27th, 2009 1:56 pm
I don’t know Stu – I track the bulk market fairly closely and I think the banks are holding and praying for TARP 2, the bad bank.
January 27th, 2009 2:13 pm
“we track all of this by bank and servicer daily”
Your data is your data, and thanks for sharing what you do. Any chance you can share some of the individual bank/servicer data… or at least for say, the top 6-8? Their relative positions should indicate which will support cramdowns and sell-offs more than others. Or if the data is uniform between them, that’d be worth knowing as well.
January 27th, 2009 2:23 pm
Thanks for the nice stuff.
January 27th, 2009 2:23 pm
This quasi free market (to many hoops to jump through to be considered free) or capitalist money making machine doesn’t function in a socialist environment. You’ll have a gray area or transition period during the leap to nationalism, if that in fact occurs. A depression either way.
Consumers not spending causing markets to correct are a natural event in all forms.
Government feels the need to interfere with a natural event by trying to cap selling when they should have tried to cap buying in the bubble and very well could have by just leaving the standards in place instead of removing them.
About the only thing that can be done now is guarantee foreign holders of our debt and internally the masses rot for generations to payoff those guarantees or we lose reserve status and rot anyway.
January 27th, 2009 2:28 pm
Regarding depreciation in CA, I just updated a graph for the Bay Area w/ the new Case-Shiller numbers including CME futures data out through November 2009.
A home that was worth $600k at the peak is worth $371k as of Nov 08… and according to the futures will be worth $313k in Nov 09.
January 27th, 2009 4:08 pm
Organic sales include short sales, For a true picture of how bad the market is add REO + Short sales and subtract that from Total Sales.
January 27th, 2009 4:33 pm
Q. Are Falling Values Good for Housing?
A. Yes.
House prices will fall until they are affordable again. Then they will stop falling. It’s all good.
January 27th, 2009 4:49 pm
Very good Pongo – I don’t have that data though.
January 27th, 2009 6:42 pm
For an idea of how bad this market is fastly becoming take a look at the MRA numbers for condos in Boston. They fell 8% MOM, 14.1% YOY and $20,000.00 in prices 30 days!!! In a place only months ago deemed to be insulated by many due to the Case-Shiller Index reports. Well obviously that was not true then or now. This is getting really bad and really fast folks. Look at S.F. and especially the always insulated silicon valley.
January 27th, 2009 7:23 pm
What it a healthy number for % organic sales?
January 27th, 2009 9:08 pm
This just in! We are finally rescued!!!!
http://money.cnn.com/2009/01/27/news/economy/fannie_fed/
January 27th, 2009 9:26 pm
be prepared to share your home with the gov’t.
January 27th, 2009 9:44 pm
od, I have said all along that the Fed didn’t require any special votes or bills to pass bills in regards to Fannie and Freddie. Fannie and Freddie are owned in essence by us tax payers and the Government (even against our will as a people) will do whatever they deem necessary with them to help (even if disillusioned) the tax payer out. I suspect they will do actually anything that will help themselves out, but I digress…
Benzy, I don’t know what a healthy number would be for organic sales but my gut tells me 95%. Organic sales represent healthy sales where as a qualified buyer is purchasing a home from a willing seller. Unhealthy sales are a unwilling seller is forced to short sell or be foreclosed on and thus create a REO sale which is not what that seller was wanting to do.
Next movie on tap:
“Principal write downs coming to a lender near you”
Not that I think this is the best thing to take place, but it is the only thing that will help right now, we have some serious issues to resolve in this country. PWD’s will only help get this moving in the right direction. It won’t solve everything and it won’t be the last step that we need to take, but it is a necessary evil in my mind to get this situation our country is in under some sort of control.
January 27th, 2009 9:57 pm
First-time salaried buyers who have decent credit & can buy within FHA range (won’t work for San Fran, I know) can get a 3.5% down 30 yr fxd FHA loan @ 5% with 1 pt/orig. I agree, though, that there aren’t enough of them to stop the decling in values.
Investors can’t mop up the excess inventory either, since both FNMA & FHLMC have now instituted their “4 max financed properties” rule. So someone who owns a primary res + a 2nd home – each of which with one or more mortgages – could only buy two rental properties, max. Considering how small the pool of would-be landlords is, the “4 financed properties” rule could really inhibit absorbtion of foreclosed properties.
January 27th, 2009 9:58 pm
Dee Said:
January 27th, 2009 1:43 pm
I urge everyone to resist responding to the antagonism that this comment was submitted to induce.
Joan Said:
Sorry DEE, anything you say antogonises me, so no dice. I am induced to antagonism by your comment.
Kevin, true dat!
BobJ, simple, elegant, profound, wise.
Stu, a new record for you. Just 2 posts in on the new thread and you start beating the Principal Reduction (PR) drum. Please keep paying on your mortgage, I hear that the PR legislation is scheduled to stay just a week away.
January 27th, 2009 9:59 pm
Dan, there is not a market for the inventory at any cost. That is why we must keep people in their homes.
January 27th, 2009 10:03 pm
Joan, you are already whining… what a total surprise!!
January 27th, 2009 10:05 pm
Dan, there is a market for the inventory at historical costs. Why we must keep people in the bank’s homes?
January 27th, 2009 10:08 pm
You usually follow up your first whine with 10 or so irrelevant post, but hey maybe you have actually watched and listened to what is going on and have changed?
Well you may never change, but maybe you realized the error in your ways (I suppose it could happen with my help) and know that the Obama BAIL OUT is WRONG!!!
January 27th, 2009 10:15 pm
Dan, please don’t weaken because you actually realize the reality of this and understand what is going on. Without some plan that allows people to stay in their homes there will not be enough people to pick up the slack!!! If foreclosures continue at there current pace they will totally over run (p.s. they already have) any possible sales numbers even at there height!!
January 27th, 2009 10:22 pm
Actually I have listened. I am really starting to think twice about buying any time soon. That may not be good for the economy but I am hardly in a position to shoulder any of the burden the toy hauler HELOC crowd has put on us.
C.C., Ex-owner, Kevin, BobJ, Stevo and a few other speak wisdom. I now believe we are in for something most are by no means ready for.
I will buy, just maybe a little later in the year, so I am still someone amongst millions, waiting to mop up the “excess inventory” or as I like to call it “housing affordably priced in reality”.
As I have said before, housing will become within reach of McDonalds employed DINKs. Try and capture this…affordability will make buyers out of millions and millions who sat on the sidelines and watched you crazies go nuts with your bidding wars, Re-fis and HELOCS. How is granite in everyday life anyway? Is it easy to clean?
Still, I will continue to blow holes in your PR comedy. It’s just too easy.
January 27th, 2009 10:41 pm
Joan, but you continue to fail to see my logic. Try as you may, but you just continue to come up short! BIG PICTURE my lady! You will believe when your taxes get raised by 2% to help pay for your ideals… Unless off course you believe in Obama’s money bomb about to HIT!!!
January 27th, 2009 10:42 pm
housing will become within reach of McDonalds employed DINKs
I don’t know, Joan. Especially with all you “renters for a reason” bidding up the prices with your high incomes and stellar credit.
January 27th, 2009 10:45 pm
Innocent Bystander Said:
January 27th, 2009 2:23 pm
This quasi free market (to many hoops to jump through to be considered free) or capitalist money making machine doesn’t function in a socialist environment. You’ll have a gray area or transition period during the leap to nationalism, if that in fact occurs. A depression either way.
Joan Said:
The manipulation in the stock market is so patently obvious to even the casual observor now. The PPT was once thought of as urban myth, now I bet few doubt it’s existance. That transition from mild meddling to actually making the markets worse than a casino is part and parcel of the “grey area”. Depression agreed!
Innocent Bystander said:
Consumers not spending causing markets to correct are a natural event in all forms.
Joan Said:
And all the kings horseman can’t people spend what the housing ATM took away.
Innocent Bystander said:
Government feels the need to interfere with a natural event by trying to cap selling when they should have tried to cap buying in the bubble and very well could have by just leaving the standards in place instead of removing them.
Joan Said:
Well said! I have always maintained that the fault lies in with the Gov. for setting the lax rules and equally with the housing gambler, HELOC, Re-fi junkies.
Innocent Bystander said:
About the only thing that can be done now is guarantee foreign holders of our debt and internally the masses rot for generations to payoff those guarantees or we lose reserve status and rot anyway.
Joan Said:
And yet another healthy thank you to our housing gambler members of the forum. No really, you deserve all the credit, this could not have happened without you.
Do we have to make the foreign holders of Stu, DEE and Benzy’s toy hauler, Jet-skis and Cabo vacation debt, whole? Sure that would be the right thing to do, but what say we stiff them and point a finger at the housing gamblers? What’s Japan gonna do anyway, throw Ninja Stars at us?
Nice post Innocent Bystander
January 27th, 2009 10:59 pm
A few questions for the bubble people here:
Does granite stain?
Are Sub-Zero appliance really as good as everyone says?
Is 3800 sq’ hard to vacuum?
Is 4 bathrooms convenient or just more cleaning?
Is a 3 car garage enough or should I hold out for a 4 car?
Sorry for the ignorance, but I’ve been holding down the fort here in REALITY while you folks went and HELOCed the global financial system into a massive coronary, so I am not familiar with these luxuries which you chatted my ear off over and over again of at cocktail parties. Not to mention the whole 7 year non-stop rubbing my face in your success, mojito bash.
January 27th, 2009 10:59 pm
Joan you do amuse me… I was smart and I am not caught up in this mess. Whine as you will, but the workers like myself laugh at your entitlement way of thinking!!!
January 27th, 2009 11:09 pm
From now on, I’m taking a shot of McCallan every time she cries about the mojito parties.
January 27th, 2009 11:32 pm
Touche!
A drinking game why not! Evertime Stu says Principal Reduction I’ll drink Hornitos. When Susan posts a long winded story we will all shoot Motrin.
When Average Jane makes a “we are the world” post we all shoot what ever is in the cabinet!
When DEE does a drive-by how about a boiler-maker?
January 28th, 2009 12:24 am
This one is for Kevin, enjoy !!!
In a bold effort to unscramble complex mortgage-backed securities at the heart of a financial crisis sparked by the housing market decline, the Fed said it would encourage mortgage servicers to modify loans at risk of default.
It will also “assist” the loan servicer in making modifications, according to a document made public by the Fed on Tuesday, entitled “Homeownership Preservation Policy for Residential Mortgage Assets.”
The Fed has said it will purchase up to $500 billion of mortgage-backed securities by the end of June to make home loans more affordable to boost demand for houses.
Mortgage-backed securities pool many different mortgages, which makes them extremely tricky to separate in a loan modification designed to prevent foreclosure.
The Fed said it would consider reducing the interest rate paid on mortgages at risk of default, extending the term of the loan, and accepting “a deferral or reduction of the outstanding principal balance of the loan,” according to the Fed document.
(Additional reporting by Rachelle Younglai in Washington and Helen Chernikoff in New York; Editing by Jan Paschal)
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January 28th, 2009 12:26 am
NOW THE QUESTION BECOMES DO I TAKE MY PRINCIPLE REDUCTION NOW OR DO I WAIT FOR THE VALUE TO DROP EVEN FURTHER AND TAKE IT AT ITS LOWEST POINT !!!….lol
January 28th, 2009 12:30 am
ACTUALLY THE FIRST QUESTION IS, DO I KEEP MAKING MY MORTGAGE PAYMENT OR DO I LIVE MORTGAGE FREE FOR 6 MONTHS AND THEN TAKE MY PRINCIPLE REDUCTION , I NEED SOMEONE LIKE JOHN THAIN OR HENRY PAULSON TO HELP FIGURE OUT WHATS BEST FOR ME ….lol
(damn sorry about the caps again)
January 28th, 2009 12:36 am
Mr. Mortgage is right on the money again. The analysis makes a strong case for a continuing bad California real estate market. The one-month increase in sales doesn’t make a trend when you analyze the situation in detail. What is amazing is how the media reacts to an increase in sales for one month. It’s just one data point. They extrapolate from that one point and make predictions, laced with the usual weasel words like “may” and “might”, that the housing sector is recovering. But what really surprised me was to hear Professor Case of Case-Shiller fame on Bloomberg today sounding upbeat and optimist for housing based on the one-month increase. You would think that someone of his reputation would know better not to predict a trend based on one data point, especially after not analyzing the underlying data.
By the way, how will California’s budget crisis affect the California real estate market? Given that all other things remain the same, it can only be a negative factor. Mr. Mortgage, can you post something that shows what California’s budget problems will do to real estate?
January 28th, 2009 12:48 am
“I am induced to antagonism by your comment.”
unintended consequence I’m sure. I hope you get everything you need in life Joan. Can’t help but think that there’s much more to life than hoping for bailouts and PR’s. It’s all a distraction…
January 28th, 2009 1:02 am
NOW THE QUESTION BECOMES DO I TAKE MY PRINCIPLE REDUCTION NOW OR DO I WAIT FOR THE VALUE TO DROP EVEN FURTHER AND TAKE IT AT ITS LOWEST POINT !!!….lol
LOL indeed.
Whoops, just spilled some scotch on my granite.
January 28th, 2009 1:08 am
Please educates an ignoramus.
What is to stop the 1)banks 2) the service agents setting up rental companies to get cash flow from their REO in areas where there is a rental market.
If the reply to that is all negative, what can the gov/Fed do to facilitate this because most of this Reo is not going back into the owner occupier market in a hurry.
January 28th, 2009 1:21 am
This is most likely the best piece I have seen you write. I remember when I worked at Intel as a Strategic Planner, the rule was, “data is your friend.” Data driven decisions always make sense. You have provided excellent data.
One point I think that everyone misses though. In the end, the powers that be cannot tell us the truth. If Obama and his team were to come out and say… “we have a wave of foreclosures coming, the requirements to get loans are going make it near impossible to bring buyers to the market and the real estate market is going to get worse so whatever you do, don’t buy.” This would wreak havoc on the market. Whatever you do, DO NOT LISTEN TO THE POLITICIANS, NEWS, THE REAL ESTATE COMMUNITY OR THE LENDERS. They cannot afford to tell us all the truth.
Is it the end of the world… no way… but our economy is in a major retraction overall and it is not near the bottom yet.
January 28th, 2009 1:55 am
Graham,
Banks are notorius,(in a bad way), historically speaking, at servicing any operation that is not cash flow positive. Despite what the talking heads say, CA houses are not cash flow positive even for professional investors/landlords. REO’s have a lot of hidden costs as the former tenent left in a huff and the site was left unattended for too long before the bank could step in again. These houses need attention and TLC which is just too costly for the banks with all the man hours required. Also the taxes don’t reset with a bank the way they would with a investor/buyer, on some of those Jumbo homes the taxes run 20k+ a year.
I have talked to a few house sitters in hidden REO’s that pay a minimal rent and promise to keep the yard watered and the crap out of the pool and the interior somewhat clean. They are the next best solution but they don’t come close to being cash flow positive and the bank is on the hook if anything goes wrong with the house.
At this time anything thats not profitable will not be undertaken by the banks. Their best case scenario is tosell the assets off their books.
January 28th, 2009 2:26 am
The outflow of business and now population leaves California in their own self-created dilemma. The governor has stopped running his mouth off about free health care and has fallen back on more stringent emission standards. WTF? Is it any wonder taxing sunshine doesn’t draw home buyers.
January 28th, 2009 2:33 am
I waited many years to buy a house in LA. Should I wait more??? How long..Pl give some good advice!
January 28th, 2009 3:36 am
Been a renter for 5 years, have 790 Fico, 170k in Savings, 150k in 401k. 4k+ savings every month.
Some ppl rent because buying was the worst option. Some renters rent for a reason–to save gobs and gobs of money.
January 28th, 2009 4:59 am
Benzi, Javagold… you may be celebrating too quickly! AS A COUNTRY WE’RE SCREWED!
First of all not everyone will get saved! Fredie/Fanie is 1/2 of the mortgages… and they’re considering if a forclosure can be saved, and it won’t be necessary in mort bal reduction (that’s one of the options).. you’ll also need to be late.. BTW, WHO PAYS FOR THIS? And how they’re going to get rid of Fredie/Fanie after? they won’t.. stays a gov entity.. LOSES WILL CONTINUE
IN ANY EVENT THIS CONFIRMS DEPRESSION! FROM THE GOV’S MOUTH!
A lot of people are/will be unhappy:
- ex owners
- renters
- owners that paid cash
- onwers that paid a big down payment
- owners that won’t get a reduction
- owners that won’t qualify/lost job
PRICES WILL CONTINUE TO DROP..
THANKS BEN, OB.. for dividing the country!!!! GREAT JOB!!
January 28th, 2009 4:59 am
BO STINKS
January 28th, 2009 5:04 am
expect CRAZY inflation!
January 28th, 2009 5:34 am
thank you, Mr. Mortgage. another great posting.
Andy S, if you want extra info, pay Mr. M. for it. I’m sure it’s worth the cost, and then some.
one thing that makes this all interesting is that the possible cram downs are coming *after* the subprime stuff is largely over. in other words, the sort of people one would feel sorry for (poor people, recent immigrants)(who bought in not-so-great areas) won’t be helped. the ones who will be helped – their mortgages possibly reduced – will be exactly the sort who so annoy Joan Jett. I think it will only take a few examples in the media of heloced fancy-vacationing SUV yuppies to cause the public to go berserk.
January 28th, 2009 5:36 am
From happy renter and former home “ownder” in the bubbly Bay Area: Folks like me uninterested in ever doing it again. Renting is just fine. No maintenance, no tax issues, no moving hassles, no fretting over phony equity “wealth” (I’m STILL trying to figure how DEBT EQUALS WEALTH!!!!). Homeownership is vastly overrated. Anyone who “buys” for the foreseeable future is a sucker. Sorry, but this “crisis” was so laughably predictable that my sides are splitting from the never ending drama. Too bad responsible folks like me have to bail out greedy idiots and those who can’t manage money–and who never should have gotten into homes in the first place.
January 28th, 2009 6:35 am
I’m luv’n me the crash! Last year, I went from being a lifetime renter to a 2 property owner(paid cash for both – no mortgage). Let the housing prices continue to “Fall, baby, fall!”, and maybe I’ll pick up a 3rd property(for cash, of course:) before this year is over;-))
January 28th, 2009 7:57 am
Joan Jett said: “housing will become within reach of McDonalds employed DINKs.”
It already has, Joan, it already has. I’m living proof. While this is certainly a “revoltin’ development”(as Ralph Kramden would put it) for
the over-leveraged, underwater, re-fi/HELOC-addicted crowd – especially the crowd who bought at peak – it’s great news for those of us at the bottom of the economic pyramid. Right now, almost anyone even marginally
employed(such as myself) can realistically aspire to not only own their own home, but to own it free and clear with little or minimal financing.
Right now, you can pick up a home for the price of a car – and with increasing frequency, often, for the price of a *used* car – and in a decent neighborhood to boot.
For those with McMansions whose value is falling like Icarus after getting too close to the Sun(unlike the balance of your jumbo mortgage and your property taxes;), well, it sux2bu.
But for those of us who it seems have always been stuck in the economic underbelly of America, those of us always on the fringes of polite society, those of us who have(and probably always will) struggle to make ends meet on p/t or not-much-above minimum wage jobs, while paying exorbitant rents, there is now, for the first time(in a LONG time, if ever) the prospect of one of the main components of The American Dream – homeownership – falling into reach. And the best part? You don’t even need a mortgage to buy a home anymore:)
January 28th, 2009 10:00 am
Karen, this was the plan all along. To create jobs and induce spending again in the overall economy you don’t give money to the poor. Nothing was done or even talked about until the subprime crowd got weeded out. They caused far less damage to the economy and took far less wealth from Cities and Towns budgets than the crowd going under now. The subprime resets are now a thing of the past. Most of their foreclosures will get eaten up by the speculators and investors waiting to pounce on the opportunity. Even some first time buyers will be able to get in on the action so to speak.
The crowd going under now isn’t nearly as easy to deal with. Investors and speculators are not interested in their homes at 500K-900K, and far fewer people can qualify for them anyway. These homes will sit for years if they are allowed to be thrust onto the market via foreclosures in large numbers. The Government knows this and won’t allow it to happen so PR’s are on the way!!! Many of these people are the ones that own businesses and help to create jobs and stimulate the economy. Have you ever worked for a poor person? It is what it is…
January 28th, 2009 10:22 am
Hey JavaGold, they are coming just as I have been saying all along. Not if, but when they arrive… from the WSJ:
http://online.wsj.com/article/SB123309817136221693.html
WASHINGTON — A measure to allow judges to reduce the principal amounts of mortgages for troubled borrowers in bankruptcy cleared a key hurdle Tuesday when it was approved by a U.S. House panel.
Proponents contend it will act like a stick, spurring mortgage servicers to complete more loan modifications.
“While bankruptcy reform may not provide all of the answers to this crisis, surely it provides a common sense and practical approach to helping stop the spiral of home foreclosures,” Mr. Conyers said in remarks before his panel.
January 28th, 2009 10:41 am
Why am I paying for my neighbors Vacation and cruise to Hawaii and Monte Carlo, their multiple trips to Vegas and the exotic chandelier and other high priced furniture in their home?
Here is the story of a friend who bought a New home in Tracy in 2004. The cost of the home at that time was 350K. I paid 20% down. My neighbors also bought the same model at the same time with a 3% down payment.
They refinanced with a 3/1 Arm cash out in 2005 for 500K because the value of the home had gone up. They quickly spent the money on buying the exotic chandelier and other high priced furniture in their home and went on a Vacation to Hawaii and then on a Cruise to Monte Carlo. In between they had time to party out in glitzy Vegas.
In 2008 their first re-set took their payment way above what they could afford and they fell behind on their payments. The current value of the home is back to what it was valued in 2004 – 350K.
Now, per Mr. Mortgage, is it your case that the government use my tax dollars and force the bank to write down my neighbor’s principle amount back to 350K? Thus forcing me to pay for my neighbor’s luxuries?
Both of us have teenaged kids. I did not indulge in any of the splurges that my neighbor indulged in. I just saved my money in a CD so that it could help pay for my kids college tuition fees!
January 28th, 2009 11:18 am
I guess Principal write downs (drink up Joan) are going to be happening in Massachusetts pretty soon. State Attorney General Martha Coakley has filed a measure to “mandate loan modifications”
I suspect if this goes off successfully then other states will follow their lead. So it appears with or without Obama and cabinet on board this is getting done. I had not realized that this was an option, and I am still not sure that it is. Maybe someone else knows the legal issues on whether or not they will be able to do this and can share.
Question though… What state does Barney Frank work for? Hmm, interesting to say the least, don’t you think?
http://www.bizjournals.com/houston/othercities/boston/stories/2009/01/26/daily21.html
Some excerpts (Coakley in quotes):
“Would essentially mandate loan modifications in certain circumstances,”
“The bill requires that creditors take commercially reasonable efforts to avoid foreclosure upon mortgage loans securing homes that are owner-occupied,”
“While we are hopeful that the new administration and Congress will step up to the plate and address the need for loan modifications,” she said, “we are again taking matters into our own hands here at the state level.”
The proposed law would apply to owner-occupied residences only.
Coakley acknowledged that the state is engaging in regulation often left to federal authorities.
January 28th, 2009 11:24 am
Stu, did you just say that housing gamblers need and should be given FREE money, and poor people should not?
I’ll refer to this whacky idea as “Stu’s Trickle Down” gift act of 2009.
Or STD for short.
Trickle down has really worked great for us so far, so why not? Oh wait, I guess the rich folks just ended up keeping all the money, off-shoring our jobs and now are firing us all.
Stu, studies show that stimulus to the poor is actually the best way to get consumption going. Poor people have nothing and therefor buy stuff (and stimulate) if you give them money, in an effort to acquire some of the stuff you already have. You have everything you need so STD just goes in Stu’s IRA.
January 28th, 2009 11:45 am
I know you deadbeats are eagerly awaiting my tax dollars to subsidize your foolish bubble house purchase, and I really hope you never see it. But I’m curious, should these principal reductions include those who liquidated their equity? Say I bought in 1995 for $300k, then refied for $900k and now owe way more than the house is worth. What I did with the money is inconsequential as nobody will ever know if it was spent on health bills or invested overseas. Fact is I owe way more than the house is worth and am likely to walk away. Does that entitle me to dumbass bailout principal reductions as well?
January 28th, 2009 11:47 am
Joan,
“did you just say that housing gamblers need and should be given FREE money”
Not me. You must be confused from doing too many shots. I don’t think housing gamblers should be given anything, and especially free money. Whatever would give you that idea?
“and poor people should not”
Correct! I don’t think anyone should be given free money including the poor.
“studies show that stimulus to the poor is actually the best way to get consumption going”
What study (I will guess it came from Harvard if there is one)? Show me just one study and I will show you an incompetent professor. Just the idea alone is ridicules in nature. Bush’s plan worked really well… both of them. Look what subprime loans did for the overall health and well being of our society. Are you really this naïve?
“Poor people have nothing”
I know, and that is why they are called poor.
“and therefor buy stuff (and stimulate) if you give them money”
No they don’t! They pay bills with it or use it for necessities. Stimulus is done through people having disposable income. I will help you out on this one… poor people don’t have any of this which is again why they are called poor. When the disposable income is spent it creates jobs, which is why we need to keep people in their homes through principal write downs (drink up Joan). Those jobs help the poor out so that they can get on their feet and not be poor any longer. Eventually they will have disposable income and so it goes. That is why the Bush plans both failed miserably. Give a man a fish he eats for a day, but teach him how to fish and he can eat for a lifetime. Get it?
January 28th, 2009 12:02 pm
Stu said:
To create jobs and induce spending again in the overall economy you don’t give money to the poor.
The Government knows this and won’t allow it to happen so PR’s are on the way!!!
Joan said:
Stu, PRs are free money dude.
Stu said:
Give a man a fish he eats for a day, but teach him how to fish and he can eat for a lifetime. Get it?
Joan Siad:
Give Stu your money and he eats lobster, give money to the poor and their kid gets a computer.
Stu, it is the middle class that pay down bills with stimulus. Poor people live paycheck to paycheck. They don’t have HELOCs to pay down. They need stuff so they buy stuff if they get money, capiche?
January 28th, 2009 12:03 pm
Stu, please answer Kevin’s question.
January 28th, 2009 12:40 pm
Is it just me or does it seem that posts are disappearing?
January 28th, 2009 12:43 pm
Joan,
“PRs are free money dude”
No money changes hands but rather paper money is removed or written down. We are cleansing our lenders of assets on their books that are not real. In fact it is the opposite of money as it is the removal of wealth. It will represent a rare time in our country where money is not thrown at the problem by our politicians which has been proven time and time again to be a colossal failure. By writing down the wealth of peoples homes we are removing money from the system that is already gone but just not realized. This is needed and in more than just peoples homes. Companies need to start writing down paper and lenders need to clean up their L3 assets and value them at their real worth.
A bad bank is being discussed for this very reason. They want to remove the paper wealth from the system. We need to do this first in order to move forward. By giving money to people it doesn’t do any of that. Stimulus has never been accomplished by throwing money at the economy in our countries history. It has been attempted many times, but has never worked. To do so takes money from the economy via higher taxes and inflation and thus reduces disposable income which hurts the economy and causes it to do the opposite of stimulating. In the extreme short period of a quarter you may see a slight uptick in spending, but shortly there after a drop which nullifies the uptick. Jobs create stimulus by producing disposable income to families which in turn spend it on things they do not need and would not buy if not for having disposable income.
Look how welfare and food stamps have stimulated the economy. Oh, they haven’t, have they? Welfare should be banished and replaced with a training and educational plan that pays it attendees. Once retrained they move over to the jobs bank program which helps them find a job. They get paid their too while they create resumes and search for a job. Food stamps are a necessity for many families but unfortunately the corruption removes any benefit to the real families in need and the overall success of the program.
January 28th, 2009 12:51 pm
Joan
Is this Kevin’s question you want answered?
“But I’m curious, should these principal reductions include those who liquidated their equity? Say I bought in 1995 for $300k, then refied for $900k and now owe way more than the house is worth. What I did with the money is inconsequential as nobody will ever know if it was spent on health bills or invested overseas. Fact is I owe way more than the house is worth and am likely to walk away. Does that entitle me to dumbass bailout principal reductions as well?”
Well all I can say is yes! This is America! Bailouts are American and supported by congress, our elected officials. Does it make it right? Of course not, right does not matter and has no bearing on anything anymore. What matters is what is, and what is is. Expecting what is right will only lead to letdown.
Keep in mind that bailouts are for the bank, and the bad bank is for the banks, only to keep people from bitching about publicly traded bank bailouts. The new bank will be the government bank owned by the people and should the government bail out itself? Of course they should, the money is free. You likely were brought up thinking you had to work for money and that is just not so, all you do is sign a debt package and you are done.
January 28th, 2009 1:05 pm
Kevin, not in my view, but I have not seen the guidelines as of yet. I would think that this would fall under a homeowner who cannot be saved due to the amount owed being too high above the value of the property. Also their may be restrictions on how much was levered by the homeowner. In this case they over indulged by taking out massive amounts of money totaling double the homes initial value. I certainly wouldn’t include this homeowner in your example to qualify for anything. I must repeat however that I have not seen the guidelines.
January 28th, 2009 1:11 pm
BertDilbert, cool, I just wanted to make sure that my parents’ lessons about integrity, honesty, and morals were all bullshit and we should live our lives like Gypsies and pickpockets. Foolish me, I should be out scamming honest people for a living rather than trying to be honest. Maybe it’s not too late to start my own ponzi scheme too.
Hopefully this country can shed whatever remaining reputation its citizens have for paying their debts and having integrity. It caused confusion with the Soviets and Sheiks in the Mid-East who expect people to lie, steal, and fuck each other over. Glad to see we’re conforming to their standards.
Stu,
I don’t see how the amount owed being too high makes them ineligible since this whole genius plan is supposed to bail out those that owe the most compared to their home’s value. Right? I mean, refi’ing at the amount of its peak value is pretty much the same as buying at peak value.
January 28th, 2009 1:14 pm
Bert -
“What matters is what is, and what is is.”
“Well I think it depends on what your definition of ‘Is’, is…” Ah yes, the ‘good ole times’ of the Macarena administration…
Innocent Bystander Said:
January 28th, 2009 2:26 am
“The outflow of business and now population leaves California in their own self-created dilemma. The governor has stopped running his mouth off about free health care and has fallen back on more stringent emission standards. WTF? Is it any wonder taxing sunshine doesn’t draw home buyers.”
California (the legislature, the bond measures and the voters that put them there) await their collective economic spanking – which, is actually in progress right now. It’s going resemble more of a caning however, than a spanking in due course I think.
SwanSong Said:
January 28th, 2009 3:36 am
“Been a renter for 5 years, have 790 Fico, 170k in Savings, 150k in 401k. 4k+ savings every month.”
You sir, in addition to being raised well, are going to be in the proverbial Drivers Seat! Good job Man.
-C.C.
January 28th, 2009 1:21 pm
Kevin,
“I don’t see how the amount owed being too high makes them ineligible since this whole genius plan is supposed to bail out those that owe the most compared to their home’s value. Right? I mean, refi’ing at the amount of its peak value is pretty much the same as buying at peak value”
The plan will not help everybody underwater and there will be guidelines on who qualifies. Once again I will state that I do NOT know the guidelines. I personally would not allow someone who took on 2X the original value in loans and now is crying poverty to be included… call me silly.
January 28th, 2009 1:30 pm
C.C.
I am just making the point that a lot of people are expecting “What is right” out of a society that is wrong. Having fixes now and jobs now have no bearing on future consequences, nor is there a plan to make our country work. Think about it, we do not even have a national goal.
January 28th, 2009 1:37 pm
one would think if you had any cash out refis in the years 2002-2007 you should not qualify for a penny, as you already received your bailout and can still walkaway….however if thats not the case and they are getting PR as well, then like i keep posting, count me in !!!! as i am in no way passing on this when everyone else who already fooled me once takes advantage AGAIN !!
im 40, and figure the 1st half of my life is over, the old conserv ative javagold can/will be left behind and the new take advantage of every loophole and entitlement javagold will be around for the next 40 years…..and surprisingly it didnt hurt at all to crosss over to the other side and still like a baby at night…..however i was having tough time sleeping every night knowing i was the sucker all along ….VIVA OBAMA
January 28th, 2009 1:47 pm
Stu,
“I personally would not allow someone who took on 2X the original value in loans and now is crying poverty to be included… call me silly.”
Me neither, or anybody for that matter. But if we’re supposed to put our outrage aside for the betterment of society which means bringing all loans to current market value, these people certainly would fit in the same underwater category as a peak bubble buyer. That would be a great gift to all those house flippers that got in way over their head.
I know a guy in fact that had made over a million dollars by the age of 30 flipping houses. He didn’t get out in time, owned too many depreciating properties, and is on the cusp of bankruptcy. Cramdowns will restore his wealth, and he’ll once again be a young millionaire. He never worked for his properties, just kept buying and selling, turning profits, like Casey Serin. Maybe he’ll hit the $2m taxpayer jackpot and continue living like a rich douchebag. And why not? Millions of other people would.
January 28th, 2009 1:51 pm
PR’s should happen to all the loans that the “Bad Bank” gets because that’s the govt. The private banks are stalling as long as possible because if they actually process or reduce, or in any way record the loan at a lower amount….they’d have a balance sheet that makes them insolvent. SO, of course they’re going to avoid this day of reckoning at all costs.
MM, is there any way to calculate how many of the REO sold were to owner occupied buyers verses investors looking to rent-out the house? I’ve heard much talk in the investor community about buying the REO’s and making them rentals.
January 28th, 2009 1:53 pm
Kevin, no they won’t due to the fact that they only apply to your primary residence for one and again their is no money swapping hands. In this scenario he gets a reduction on one home and his payments are reduced on just that home. If he still can’t afford to make his other payments, and in this scenario he wouldn’t, then he gets foreclosed on and loses his homes. Hopefully he has a job and makes enough money to pay for his primary residence or he loses that home as well. You must qualify for the new payment with facts like W2′s, paystubs, bank paperwork, etc. This is if he even qualifies for it based on the guidelines for qualification.
Speculators, Flippers, Investors need not apply!!!
January 28th, 2009 3:22 pm
In California, is the first-time buyer really in their 20′s? The way prices have been at least since 2000 have pushed first-time buyers in Southern California into their 30′s and 40′s. There’s a lost decade of organic buyers, pushed out by investors/flippers. First time buyers are rightfully bitter about it and won’t come to the rescue until buying a home comes more in-line with rents. I see first time buyers coming into the market when the true bottom arrives in 2013-2015, what’s another 5 years or so when they’ve been waiting for 10?
BTW, I attended an REDC auction a couple of weeks ago for LA and the only bargains I saw in this market were for 4-plexes.
January 28th, 2009 3:51 pm
Been a renter for 5 years, have 790 Fico, 170k in Savings, 150k in 401k. 4k+ savings every month.
That’s superb, Swan. How many homes do you plan to buy?
January 28th, 2009 4:17 pm
For the Brits, the “Bad Bank” is already been called the “Septic Bank” – yeah, it’s for the banks to discharge all their toxic assets.
January 28th, 2009 4:32 pm
I have been reading on FannieMae and FreddieMac’s websites and they are proactively offering modifications to SFR owner-occupied residences who are 90+ days delinquent. However, they are offering 40-year loans at 4% with absoultely no principal reductions. This is their stance at this point and it seems unlikely to change. One thing Freddie Mac has done (and possibly Fannie Mae, didn’t see this on their site though) is extend the foreclosure process in 21 states, mainly bubble states, to 300 days. I don’t see how this does anything beneficial for them as the longer a homeowner is delinquent, the more expensive it is for the lender and the less likely the owner is to start performing on the loan. It looks like another move to try to turn the tsunami into a series of waves.
A possible unintended consequence of lengthening the foreclosure process is that an underwater owner may give even more consideration to walking knowing that they may have 12 months instead of 6 months of free rent in their home. Seems like a pretty odd strategy to me from Freddie and Fannie’s perspectives.
In addition to this, Fannie and Freddie have issued a series of incentives to their servicers to make modifications on delinquent loans. Everything from $15 for each door hanger placed on a defaulted borrower’s door, to $2200 for a successful modification which performs for at least 3 months.
One interesting tidbit is that they will not consider modifying a loan which is a recourse loan. I think I saw that on Freddie’s site. If the loan is recourse it is an automatic disqualifier for modification. Presumeably this is because they feel they will have more success extracting money from the owner via long term collection actions than from a modification. This means that all HELOCs and most refis are out of luck.
I find it somewhat ironic that all of the people on this blog who are irate at the thought of paying for modifications via principal reductions are actually paying for doorhangers and shitty mods which will undoubtedly result in re-defaults. Fannie and Freddie are govt owned and therefore get their money from all of our taxes. It seems that this situation will indeed cost us all regardless of the methods and outcomes from their modification attempts. Kevin and Joan…try not to get alcohol poisoning from the shots of Everclear in your near futures.
January 28th, 2009 4:51 pm
I am watching C-Span right now and the Reps have an alternate plan that will create 6.5 Million jobs over 2 years and cost only $450 Billion.
So twice the jobs for half the cost. Unfortunately seeing as how the Dems do not need a Rep vote, their plan will never be voted on. At least their is hope now for party line voting in the Senate with an alternative they can back and still look good doing it.
The Dems (House Ways and Means Chairman for one) are now saying that not voting for Obama’s plan is a direct slap in the face to the Prez and Americans wishes.
Did anyone tell them that Americans widely object this bailout?
Did anyone tell them that the Rep plan creates twice as many jobs and cost half as much?
Did anyone tell them that this is not our way or nothing because the public is watching now. Old politics will not continue to work.
I like this Paul Ryan dude from Wisconsin!!
January 28th, 2009 5:37 pm
any idea how many unforeseen scenarios will come up where people will abuse these ……every day someone will come up with a new idea to take advantage of…..nobama is so far out his league here, this isnt handing out cigarettes to sign people up to vote….all loopholes and entitlements are glady accepted to be emailed to me daily
January 28th, 2009 5:45 pm
Partyboy, I agree with you. Your research on Fannie and Freddie yields information that makes no rational sense to me either. It has been proven that moratoriums on foreclosure do not work and cause additional problems. 40 year loans are absurd even at 4% which is also absurd to even offer.
I guess it is now obvious that the Government is running the show over at Fannie and Freddie based on this new information. These agencies were bad, but this is lunacy! Must be something in the punch bowl over their.
January 28th, 2009 5:50 pm
Paul Ryan and Ron Paul (coincidence in names?) are the only two congressmen who are actually working for the people.
January 28th, 2009 5:54 pm
I give up on this country. Lets face it, it’s the beginning of the end. The minority of congressmen who actually work for the people, are a small minority. It will be a sad day when all this incompetence ends up with people rioting in the streets.
January 28th, 2009 6:02 pm
od, that makes a nice ticket don’t you think?
January 28th, 2009 6:05 pm
as long as the rioters lynch , dodd, frank, pelosi, reid (politicians), raines, oneal,fuld (corporate) etc….the riots will be the real clensing this country needs
January 28th, 2009 6:32 pm
I’m fortifying my McMansion with an impenetrable granite facade as you speak.
I’m also stockpiling limeade and mint.
To get a principal reduction, does the Gov need to verify my house is still standing post riots?
January 28th, 2009 7:42 pm
Sadly, I don’t think people will be rioting against the people who got them there. No, the mob will be rioting when the system fails and when people can’t feed their families.
The fat cats who made the mess will be long gone by then.
January 28th, 2009 8:58 pm
[...] News Family takes lives as a result of job loss CA Housing Market -Beneath the Headlines / REO Surge to Hit Where Housing Is Headed by City Value of our $600,000 Home Falls to $371,699… Predicted to Fall [...]
January 28th, 2009 10:30 pm
“The panel approved a Republican amendment barring people who committed mortgage fraud from receiving court-ordered modifications.”
This makes the legislation useless; at least in my markets.
How about your?
With any luck those who were responsible will be disgorged.
January 28th, 2009 10:37 pm
As a side bar to the discussion about “who will buy homes.” In some areas so many homes have been converted to rentals that appartment owners are starting to experiance higher chronic vacancy rates. My guess is that investers buying rentals will find it more difficult to find renters willing to pay top dollar. Nevertheless, because many homes are priced below their value as rent generators some investors will still find rental home buying attractive. But for those working on a thin margin, a little caution seems in order.
January 28th, 2009 10:58 pm
side issue: you used “negative feedback loop” instead of “positive feedback loop”. Negative feedback is where a change away from an equilibrium results in movement back towards that equilibrium. Positive feedback is where a change away from an equilibrium results in more change away from that equilibrium.
The term ‘positive’ and ‘negative’ with respect to feedback does NOT, I repeat NOT, refer to the direction the variable being fed back moves. An accurate analogy is a ball on the outside of the top of a sphere being under positive feedback, while a ball on the inside of the bottom of a sphere being under negative feedback. If you push the ball on the top of the hill a little bit, it is then on an outward slope, which then gives it even more outward velocity, etc. If you push the ball on the bottom of a trough, it is then on an inward slope, which will reduce its outward velocity. Outward velocity leading to even more outward velocity = positive feedback, outward velocity leading to less outward velocity = negative feedback.
Similarly, rising housing prices attracting more bids based on the premise of rising RE prices is positive feedback, and falling housing prices based on mortgage defaults due to falling housing prices is still positive feedback. Negative feedback would be, say, people deciding to rent instead of owning a house due to higher than the historical equilibrium of house prices as a multiple of rent, or people deciding to own a house instead of rent due to low house prices with respect to rents.
January 28th, 2009 11:36 pm
Well..I’ll keep saving..to buy in 2012..with cash! so much for helping the demand..of organiC buyers now.. I GUESS THE MARKET will stop declining.. with all this forclosures being worked out, and all the hiring going on..
January 28th, 2009 11:46 pm
damn I’m spiting wiskey too..it is nice to be free of debt.. and saving!
Can someone help? What’s a better state to move to away from Cali? I’m making 100K and I want to get away from taxes here.. border Wahington/Oregon? any suggestions?
January 28th, 2009 11:57 pm
Oh Joan, really. I agree with you more often than not. A pollyanna I’m not.
We The People have not been vigilant, my dear. We have allowed the bankers to rule our lives. And they have destroyed us.
In my opinion, not one of us should even consider buying a home right now. It’s utter insanity. The Masters of the Universe are hard at work figuring out more ways to extort us. We are teetering on the brink and believe you me, they will push us over the precipice without a second thought.
To the extent I cannot be forced to participate in this rape and pillage of the middle class, I will not put myself at the mercy of these thieves.
I’m done. No mas. I’m mad as hell and I’m not gonna take it anymore. I may wind up out in the street, but at least I won’t owe any money to any damned thief.
January 29th, 2009 12:06 am
I guess time to celebrate Jane! Have a shot, I’m having another..
January 29th, 2009 12:45 am
Michael Blomquist Said:
January 28th, 2009 10:30 pm
“The panel approved a Republican amendment barring people who committed mortgage fraud from receiving court-ordered modifications.”
Well, I guess that leaves out the bubble states…. Looks like the ports are going to be down around 30% for January. Anyone claiming that GDP is only going to fall 1% is full of beans. You cannot have imports drop 30% and only claim 1% to GDP. Port seems to have even more cars stacked with no buyers
This is going to add 3% unemployment for LA county, so we are looking at future unemployment of 12%, don’t let anyone kid you otherwise. Lots of rentals out there, friend has rental on market for 2 months and no views yet. Look for rents to fall in the near future. Stores shuttering.
January 29th, 2009 12:52 am
commercial RE and CREDIT CARDS defaults have not even begun to start to fall apart, thats coming this spring….and we all no what happens when its get real hot and humid and tempers start to flare….summer of 2009 could be a SCORCHER…..be prepared and stay safe
January 29th, 2009 1:04 am
I think we should start giving principle reductions to commercial and credit card holders. Most people didn’t realize during the bubble years that credit cards are in business to make as much money as possible encouraging people to buy things they don’t need, and pay huge interest charges. The consumer had no choice, but to buy that jet ski!
January 29th, 2009 1:07 am
commericial already getting it in a big way.
January 29th, 2009 4:57 pm
Javagold:
“commercial RE and CREDIT CARDS defaults have not even begun to start to fall apart, thats coming this spring….and we all no what happens when its get real hot and humid and tempers start to flare….summer of 2009 could be a SCORCHER…..be prepared and stay safe”
__________________________
Interesting observation – perhaps a prescient one. The last time our society was tested economically – at least to the degree and pace at which we are currently running, was in the early 1930′s.
My Dad remembers the effects as a child right into 1940. He also has a clear recollection of America’s social fabric of the time – decency, dignity, decorum, self-respect, self-reliance and a general sense of unity under the banner of America.
I’m not sure the aforementioned attributes exist today – at least not in the quantity as they did then. We will have to see what happens when money runs dry, if decency and dignity hold the day.
-C.C.
January 29th, 2009 5:28 pm
Look at the bright side…Prices are falling faster than the “run up”. Therefore, the train will stop sooner and allow for stabilization sooner. It may be stopped at a rock bottom level but you have to start over somewhere…IMHO
January 29th, 2009 6:01 pm
“We will have to see what happens when money runs dry, if decency and dignity hold the day.”
A disintegration of our way of life as we know it. One can only hope things look better at the other end. Could be the best thing for this country in the long run.
D
January 29th, 2009 6:05 pm
CC:
I just read my father your reply and he agrees with your father with one exception, there was also good will toward each other.
He wants me to tell you the story of my god-father, deceased now. My Dad was on a work line during the Depression and he was one of the unlucky ones for a couple of days straight. Around the 4th or 5th day, the man in front of him was picked as the last worker needed for the day. My father remembers mumbling something under his breath, and the gentlemen who was picked turned around and said “take my turn today” and walked away.
During WW11, while in the NAVY, his commanding officer turned out to be the same gentlemen. Over drinks one night, the conversation turned back to that faithful day. My father couldn’t remember what he had said to make Donald King give up his turn to make money, but Donald could, my father had mumbled, “Lord, how am I supposed to feed my family today?”
January 29th, 2009 6:20 pm
My father is 96 years old and wants to “post” the following :
It is my opinion and experience of living in America for 95 years, that the USA will unite again as one Nation, eventually after much hardship.
The economic recession we are experiencing will never be allowed to reach a depression stage by our government. But the recession we are in is just beginning, and it will be a long one.
Principal reductions will happen when it is the governments (taxpayers) loss entirely, not Wall Street’s. The sharing of losses with be by the majority but the profits will remain with the wealthly.
End of my Dad’s opinions.
January 29th, 2009 6:33 pm
I know where way of topic here, but my parents and especially my grandparents (rest their souls) would always tell me stories and I was always facinated. I loved to know what things cost and how economies operated without the technology of today (then). Things like ice trucks and out door ice boxes etc.
One thing I always took away from those stories is how much nicer it sounded, and more pure it seemed. Everyone appeared at least to work together for the common good. Painting the local church and things like that. I don’t once recall hearing any “I got mine” stories or ever hearing a self pity type attitude. They told stories of dispair proudly and with success in their voices. I don’t hear stories told in this manner anymore. I miss them…
January 29th, 2009 6:35 pm
i am sure your dad has much more wisdom than i ever will, but i believe he is incorrect about things this time, i do not believe the people will allow for the wealthty to remain with the profits this time…..this time the fraud has been too much and has been too in your face and people have had enough….im not sure if it will be ugly and messy or nice and clean but i think , some will be in for a rude awakening ….just my 2 cents
January 29th, 2009 6:46 pm
Java Gold, our country is lazy. People simply do not really care. We have a very ho hum society in my opinion. Demanding in nature for stuff, but indifferent about politics and the financial world.
France had 1,000,000 people protest today against their Government. That is a big number! We can’t even get 500 people to do a peaceful protest in front of a Government building in any major city in the entire country. Sad? You bet, and it is not changing anytime soon.
January 29th, 2009 7:09 pm
My bad 2.5 Million!!!
Java Gold, go here:
http://www.marketwatch.com/video/asset/french-workers-join-nationwide-strike/051C5337-DCFB-4153-9D6D-039AFEEF8A12?dist=hplatest
and here:
http://news.yahoo.com/s/nm/20090129/wl_nm/us_france_strike
January 29th, 2009 7:20 pm
Susan thanks for your Dad’s comments. My 85-yr. old grandmother, who was born in the Deep South and lived through the Depression as a small child, has also shared many stories w/me over the years. She too, like your father, feels that this will be a long haul situation, and one that could be seen coming from early on – I remember her adamantly telling me two years ago that we were facing another depression and that she was going to pull all of her $ out of the stock market and “put it in a fruit jar” as her grandmother had done in the 1920s-30s! – “Our country doesn’t make things anymore, we don’t *manufacture* anything to sell to other countries! And foreign countries keep buying us up. It won’t come to any good!” she’d loudly proclaim. This from a woman w/ barely a high school education who’s never read an economics or financial article in her life. Our elders are very instinctive about things….
Stu I have also always enjoyed hearing stories about prior times and how hardships were handled. Now I think I know why. I agree with Java that perhaps this time the wealthy might not get away scot-free as they have in the past. One can dream anyway.
January 29th, 2009 7:40 pm
You’re right Stu, apathy rules the day, but I think people still haven’t fully come to terms with what is happening yet. There isn’t a consensus of who to blame. After 9/11 you could get a sense of how galvanized people here could get because there was an (obvious) villain and the government took advantage of that and channeled it. Now, there’s a concerted effort and unwillingness to accept responsibility for what is occurring and it isn’t so clear for everyone to determine what the cause of the pain is or what to do about it. The French figure anything that goes wrong has to be the government’s fault and everyone demonstrates against it. Here I think there has to be a more defined point of rally. Also, there maybe an unwillingness to accept that we’ve all been duped. And for quite some time.
January 29th, 2009 8:06 pm
France had an average of 16% unemployment BEFORE this recession.
We have a bit further to go before we look like France. (We are on our way) When we get there, I bet you will see more protests.
January 29th, 2009 8:07 pm
correction..not 16%..7% my bad.
January 29th, 2009 8:54 pm
Susan/Stu/Mel My 84 year old mom is in town and she says this is going to be worse than the last depression. She was in the south and blacks would come by asking for food and they would feed them on the back steps as they lived on a farm. They never turned anyone away asking for food, they always found something.
At current, the western world is without a business plan. They think that once credit returns everything will be OK. This however does not deal with the fact that low wages in China, India etc. is what we have to compete against. The “high paying” union jobs that the common taxpayer cannot afford is what is offered by the government as an interim fix! This baby is going to have a bad ending.
January 29th, 2009 9:40 pm
I for one would like to thank you all for the great stories of wisdom from our family members who have been there, done that.
I do not have anyone to get that sort of personal wisdom from.
I would LOVE to hear more if anyone can share?
PS; don’t think this means I won’t open up some more whup-ass if you all start with that PR stuff again!
January 29th, 2009 11:33 pm
My grand daddy died in 1994 at the age of 90. I once asked him why he owned no stocks or investments. He said I lived through the 30′s by roofing homes for a nickel a day and when that ran dry worked for the TVA building roads bridges and dams. I said and what;s the point? He said I know what it means to earn a living by working and I saw those vultures/robber barons making off with all the gold while we suffered. I vowed never to give those bastards control over my hard earned money ever again. See my grand daddy lost a LOT of money in the market and took offense when Rockefeller seemed to cash out…just before it all hit the fan. He thought the Wall Street insiders had info that we “common folk” were not privy to. Jamie Dimon was on CNBC defending Chase because they seemed to avoid the Madoff scandal by just a few weeks and took almost NO losses. First my gramps gets burned, it skipped a generation, and now I get the shaft. I will follow his advice from now on an leave investing with brokers and investment bankers to all the SUCKERS! Confidence is not purchased, nor is respect, and that is something they will have to EARN from the American People because their credibility is completely TRASHED.
January 29th, 2009 11:57 pm
Stu.. this country is not lazy.. personally I work hard, extra (without pay), so I can succeed.. I also see coleagues that work hard.. We americans work the hardest..especially compared with the french that have 6 weeks + vacation and 35 or so work week
I was greedy I guess for buying at the top, worying to get a home for my family! what I don’t understand .. is the 16 rate increases of .25 by the government right after I bought.. they sure did more the cooling off the inflation…
I also aggree that confidence is out of window.. we’ve now turn too even more.. to how can I help myself? How can you help yourself? BAILOUTS are crazy.. and if any of your parents that lived through the 30′s… ASK THEM.. DID IT HELP?
STOP ASKING FOR A BAILOUT!.. as generations from now.. they’re going to look at us to blame..that we’ve messed up their life style..so we can try to mantain it today at HIGH STANDARS.. yes go ahead and have some more wiskeY on your granite!
January 30th, 2009 9:01 am
ex_owner_now_renter Said:
“this country is not lazy.. personally I work hard, extra (without pay), so I can succeed.. I also see coleagues that work hard.. We americans work the hardest”
Compared to whom? Sure we like to kick around the French, but the French are not our problem. Do we work harder than the Chinese or the Vietnamese? If so, does the wage differential take up the slack? American companies move operations offshore because of why? American companies say they get better value outside of America. Other than law, what will it take to return that job?.
Even if we bombed Asia to smithereens, we still have Mexico, where a lot of companies move operations to take advantage of lower wages. Bottom line is what does it take in order to have a job not subsidised by the government. The issue becomes standard of living, which we take as entitlement.
The housing bubble was a false economy stimulus no different than the stimulus applied today in the form of deficit spending to provide jobs. The underlying problem still remains and it is not the French.
January 30th, 2009 10:24 am
BertDilbert, let’s not compare ourselves to countries where people make a slave’s wage just to bring home some rice to their family. In the modern, industrialized world, we have a work ethic that is number one. We don’t take long siestas, and most people I know work well over 40 hours a week without compensation. My 62 year old father puts in close to eighty hours a week, including weekends, without compensation. He just feels it’s his duty. Most bosses I have had are like that too. Maybe we don’t work as hard as the slave labor in Hanoi or the industrial wastelands of Communist China, but for a free and wealthy society, we work damn hard.
January 30th, 2009 10:49 am
Kevin Said:
“BertDilbert, let’s not compare ourselves to countries where people make a slave’s wage just to bring home some rice to their family.”
Yeah but they still have our jobs. That is with your dad putting in 80 hours a week with no pay, not even a bowl of rice.
Ignoring the problem and setting ourselves above our competitors does not make them go away. OK so we are better, but they still have our jobs. As Harry Summers said to the Vietnamese Colonel Tu, “We never lost a battle” to which was replied “Yes but that is irrelevant”.
We are better, but that is irrelevant.
January 30th, 2009 11:34 am
Anybody care to answer my question??
BAILOUTS are crazy.. and if any of your parents that lived through the 30’s… ASK THEM.. DID IT HELP?
January 30th, 2009 12:11 pm
Ex Owner Now Renter,
“this country is not lazy.. personally I work hard, extra (without pay), so I can succeed.. I also see coleagues that work hard.. We americans work the hardest..especially compared with the french that have 6 weeks + vacation and 35 or so work week”
Please don’t take that comment personal as I don’t even know you. I was referring to the ability to come together in big numbers and fight for something. We are lazy and that is a fact. Do you know personally everyone that lives on your street? How about who owns every business within 1-3 miles of your home? I don’t and that is my point. Not many do because we don’t take the time to go out and be part of the community and get to know people that live within 3 miles of us. It is possible that you personally do, but I am saying on the whole I know people don’t. If they did then I would know all of my neighbors and the shop owners of the local businesses. We have no sense of community anymore, but that is about to change. One thing that will happen to this country is people coming together (I hope). I bet you see more people taking walks instead of going to the gym, having cookouts as they go out to eat less often, and, maybe even pulling people together to assist some local business owners. I started volunteering for the Special Olympics last year as they were short help and money and I found the time. Now I am a regular with that group and volunteer throughout the year. I love it!!
“I also aggree that confidence is out of window.. we’ve now turn too even more.. to how can I help myself? How can you help yourself? BAILOUTS are crazy.. and if any of your parents that lived through the 30’s… ASK THEM.. DID IT HELP”
Off course they didn’t help! They have never helped and yet we do this over and over again in an attempt to push free markets into a direction the Government may want them to go. They have tried to do this through new laws, stricter regulations, new rules, new departments created to oversee all of this new stuff etc. Bailouts will never help unless we become a socialist country where they must be done for the betterment of the masses or a communist country where the people don’t have a say. Where just getting this shoved down our throats and if we were not so lazy we would be forming peaceful protest in front of all the FED buildings and Congress this weekend to send a clear message that we are sick and tired of this crap. We won’t even see crowds of 100 doing so, but everyone you talk to at work or at home will be crying about it all.
France was simply an example of record from yesterday, but think about this for a moment… 2.5 Million people gathered through the country of France to protest the Governments handling of their economy. 2.5 MILLION PEOPLE!!! So lets put that in perspective shall we…
France’s Population = 65 Million people which means 4% of their entire countries population came out to protest on the same day together.
United States Population = 300 Million meaning it would take 12 MILLION people to equal the same size protest of its people.
We can’t even get 1,200 people together for a protest, never mind 12 million. Heck, we find it hard pressed to get 100 parents together to watch a little league game. Unless or until this country rises up together for a common good of the people then nothing will change in this country. We can also vote out these individuals but to date that doesn’t seem like its working. In fact we can’t even get people to do that never mind protest. Most just don’t care and think their vote means nothing. People on this board have even said they stopped voting because it makes no difference. Well it does make a difference and if we had 100% participation then maybe we could actually see the difference it would make. We won’t however because we are lazy!!!
January 30th, 2009 12:32 pm
ex_owner_now_renter
Bailouts don’t work for the simple fact is that it will leave too many players is a smaller playing field. The end result is that nobody makes a profit because the excess competition is not removed and the sector remains unhealthy. On the bright side, more people have jobs.
Obama complains about 18 billion in bonuses for bank employees while presenting a bailout package with 360 billion of infrastructure jobs.
The infrastructure jobs are to go to minorities and chronically unemployed or democrats, while the bankers are more likely republicans. The unionized infrastructure jobs are ones that we cannot afford although Obama huffs his chest out and claims they are “high paying jobs” What is wrong then with people receiving bonuses making them high paying jobs? Is it because the people receiving high paying jobs are not democrats? One can make the argument that the banks are getting subsidies but yet the union jobs are subsidies as well. It seems right to income is now based on race and political party.
If Obama was for the taxpayer he would move to banish the Davis Bacon Act. Clearly he is not for change.
January 30th, 2009 1:46 pm
We, the people/sheepe are being led again.
Our focus is being pointed to bonuses must stop, not on the rest of the statement that it is going to take more than the remaining $350 Billion Dollars left to spend to maintain our financial system.
1.4 Trillion in FDIC guarantees
2.3 Trillion in Fed commercial paper
2.2 Trillion in Fed lending and commitments
200 Billion to FNMA and FRE
29 Billion to Bear Stearns
85 Billion to AIG
306 Billion to Citigroup
800 Billion in Asset Backed Debt purchases
700 Billion in TARP
300 Billion H4H
That is what we the taxpayers spent already to correct an INDUSTRY MADE problem of losses (foreclosures) in profits to the INDUSTRY.
President Obama is telling you that bonuses will be stopped/reduced but it will take more money to maintain the remainding banks, then the above funds.
If a program/plan is not proposed and acted on to correct the banks actions for MAIN STREET totalling at the PRESENT time approximately
1.598 Trillion Dollars if 33% of all mortgages are underwater. (12.1 x33% x 40% reduction)
The longer the government takes to address the real problem (foreclosures), the more the problem will cost to correct and it will totally be on the taxpayers entirely, not the banks where they belong.
January 30th, 2009 2:06 pm
Our opinions only matter if they are pertinent to the situation. It is no longer on whether a bail out should be done or not.
The situation is:
The government has decided it will use taxpayer funds to regain the economy thru borrowing power by maintaining all banks and protecting shareholders (investors confidence).
That is the situation, not whether or not funds will be alloted, they have already been.
We, the people only get to decide who benefits from the governments actions thru a majority rule action of writing letters, calling our reps, etc…
Is our jealously so great that we would rather Wall Street members including shareholders continue to receive profits at our(taxpayers) expense or
Do we, the people of Main Street accept that to correct housing and mortgages for the majority of Main Street, principal reductions have to be done to avoid further foreclosures and that housing values have been reduced to the same value that one could purchase a REO for today.
The principal reduction loss would benefit a member of Main Street but would cost a member of Wall Street the loss first.
Some banks would indeed fail but not all.
Should the banks take the loss or should taxpayers?
That is our only question.
January 30th, 2009 2:09 pm
Susan, if you view the housing bubble as stimulus, then it belonged to the taxpayer to begin with. Crying now saying that the stimulus and thus the cost belongs to the banks is missing the big picture IMO. The Federal Reserve turned the other way and pretended not to see.
January 30th, 2009 2:15 pm
I keep coming back to my notion.. HELP ALL!
- HELP UNDERWANTER OWNERS
- HELP OWNERS THAT PAID CASH, OR DON’T NEED A REDUCTION .. with matching credit on income tax
- HELP EX-OWNERS TO GET BACK IN NOW!
- HELP RENTERS TO GET IN NOW!
- HELP OTHER THAT CHOOSE NOT TO BUY A HOME, WITH TAX CREDIT.. (for years, if it must match) they will spend in the economy!
HELP ALL ! or unintended consequences..
January 30th, 2009 2:17 pm
YOU CAN NOT PICK AND CHOOSE WHO YOU HELP..get it??
STOP CONCENTRATING ON JUST UNDER WATER OWNERS.. THAT ARE UNDER FOR DIFFERENT REASON:
- pull out $ from home atm, vacations, cars, granite etc..
- bought at the top
- bad investors
THE ECONOMY IS MADE OF ALL OF US!.. do you people get that??
January 30th, 2009 2:18 pm
Susan: “The longer the government takes to address the real problem (foreclosures), the more the problem will cost to correct and it will totally be on the taxpayers entirely, not the banks where they belong.”
The foreclosures are a result of the problem which was the housing bubble. Trying to stop the symptoms by recreating the cause is detrimental and self-defeating.
January 30th, 2009 2:31 pm
Bert,
Due to global economy, since we’re going to screw the currency.. help ALL USA citizens fairly!.. or let it correct ifself.. it always will (but due to choices, on who gets help (government is trying to help) .. this will play out for a long time!
January 30th, 2009 2:38 pm
STU,
I clearly get your point about a demonstration, for which we americans are lazy at..
Who’s going to demonstrate?
underwater owners?
unemployed?
investors?
renters?
owners with no balace?
ex owners?
ALL OF US? what would the message be?
January 30th, 2009 3:12 pm
Foreclosures occur for the following reasons:
Homeowner can no longer afford the payment based on his income, such as in the case of adjustable mortgages. If they can refinance, perfect, if not foreclosure occurs.
Homeowner can not refinance or sell to get out of making his current mortgage payments, such as in the case of underwater homeowners. Since there is no other option, foreclosure occurs.
We are not talking about homeowners who still have an option of selling or refinancing but can’t due to having negative equity. A direct result of the banks actions, a governmental mandate needed to recall said defective mortgages. Which is growing as the deflationary cycle of housing prices continue.
AND the new wave to come:
Homeowner losses his job and total income, can’t afford any payment, foreclosures occurs.
In the past this section of homeowners always represented less than 1% of all homeowners, not affecting the overall economy or housing values.
This sector of homeowners will be greatly increased due to being overleveraged, no savings , contractions of employment and profits to every industry/field (except maybe medical)unemployment will continue to increase. There are not enough jobs for the public, with the bust of the credit cycle, over 25% of the income of the GDP came from the financial sector and it’s accompanying fields. One out of every 10 employees were employed in the financial sector.
This 25% is not being replaced yet by another field, so it is the governments attempt to maintain at least the profits from part of this sector delaying the outcome at the taxpayers expense.
Since you believe, purchasing a home is an investment the homeowner made:
Why would you purchase an investment (home), continue to pay more than double for the same investment as your neighbor monthly with no goal of ever seeing the return of your money?
No,if not, walk away, which is the problem coming. Foreclosures are being opted for instead of losing for the next 30 years based on negative equity, not affordability.
There is no moral contract to pay MONTHLY for an investment that is losing money and will never return, would you? The adult or responsible thing to do personally would be to cut your losses, and be foreclosed on, which is happening.
If everyone does the responsible thing for themselves as you suggest, what does the economy of this country look like?
January 30th, 2009 3:20 pm
Susan..
Either way is going to happen.. slowly (majority forclosed).. (and they get back in later)… or slowly.. save some now.. and the decline stops a bit from its velocity (a maybe)
You want instant stop, and be able to deal with global economy.. help all! my .02 cents..
January 30th, 2009 3:21 pm
Correction:
Either way is going to happen.. FAST(majority forclosed).. (and they get back in later)… or slowly.. save some now.. and the decline stops a bit from its velocity (a maybe)
You want instant stop, and be able to deal with global economy.. help all! my .02 cents..
January 30th, 2009 3:23 pm
Use the lowering of the $ to our advantage.. which means then more jobs.. more export power.. which means increases in pay.. which means everyone gets lifted.. that’s my thought..
January 30th, 2009 3:47 pm
Susan: “There is no moral contract to pay MONTHLY for an investment that is losing money and will never return, would you? The adult or responsible thing to do personally would be to cut your losses, and be foreclosed on, which is happening.”
No, that is not the adult or responsible thing to do. That might be the financially SMARTER thing to do, but it is pretty much the opposite of being responsible. You pro-PR folks really are wired funny. A complete void of morals, responsibility, and integrity.
January 30th, 2009 3:53 pm
Susan,
This is our nr# problem in thinking:
“a home is an investment the homeowner”
NOT FOR YOUR JOE THE PLUMBER..SALLY THE RECEPTIONIST..
Everybody wanted to invest in homes..was such a sure thing.. it goes only up! NOT!
If it’s an investment.. then homeowner can take a loss? right?
with stocks when you loose .. you get 3000 every year in deductions.. carry the loss from year to year
Maybe we should have a loss deduction.. on what? payments made? downpayment made? improvements with your home with owners saved money/banks money?
If the owner leaves in it.. it’s a liability!
January 30th, 2009 3:53 pm
ex_owner_now_renter, since removing itself from gold convertibility in 1971, the USD has been the standard which other countries value their currency against. It has thus been the USD against the world. Not having the ability to lower itself against a target currency leaves us open to currency manipulation by other countries. The French suggested a new Brettton Woods. At least the French understand the problem. (so it seems) Unless the USA takes steps to not maintain the value of the USD but to place it competitively on a world basis, then our problems of false economy will remain. Obama signed union supportive legislation today.
http://finance.yahoo.com/news/Obama-touts-middleclass-task-apf-14209599.html
However France is all union and they came out in mass protest. I guess after we are all unionized we will be more effective in organizing against the government as there will be no “bad guys” left lol. Hell, a few decades ago, unions were too powerful and scared the government. I think that is the way government likes it, just big enough to make sizable political contributions but yet not big enough to tell government what to do.
January 30th, 2009 3:55 pm
corection: Lives in it
January 30th, 2009 3:58 pm
Ex Owner,
Q1 Who’s going to demonstrate?
A1 Millions of American Citizens and their families.
Q2 underwater owners?
A2 Hopefully
Q3 unemployed?
A3 Hopefully
Q4 investors?
A4 Hopefully
Q5 renters?
A5 Hopefully
Q6 owners with no balace?
A6 Hopefully
Q7 ex owners?
A7 Hopefully
ALL OF US? what would the message be?
This is about our country as a whole. This is about not only jobs today, but jobs tomorrow. This is about helping each other out, which is my point about being lazy. People won’t do it because it doesn’t affect them. Little do they realize that it didn’t affect Alt-A borrowers 3 years ago, but it does now. It didn’t affect the finance industry 2 years ago, but it does now. You can’t say it won’t affect me so I don’t care because eventually it will. Either directly or through your family we are all being affected. I have freinds that have lost jobs, homes, pets and even gotten divirced and this really just got started.
People in this country need to realize that you don’t turn the cheek when it is not in your back yard because it finds its way over to your yard eventually. By helping to stop it spreading to your neighbors yard maybe it never gets to yours!!!
January 30th, 2009 4:02 pm
Message: STOP spending our children’s children money on pork barrel projects, political endeovers, and union jobs. STOP trying to keep insolvent companies afloat. Let them go under or support their break up, but enough is enough!!! JUST STOP for a moment and look at what you are doing!!! We need a plan for our country!!!
January 30th, 2009 4:10 pm
BertDilbert:
Yes, I never outright stated that the housing and credit boom was a stimulus but it was, it kept our economy going in:
jobs
creation of wealth
availability of spending, mostly thru borrowing
and most important of all greed for more profits. There was government involvement with “greed for more profits” with the de-regulation that occurred.
We were all active participants of the boom, either directly or indirectly. That is what capitalism is about. If you lived, worked or purchased a product or service in this country, you were involved whether you purchased or sold a house or not.
You are mistakely taking me for “giveme, giveme” individual because the banks and realtors fooled the homeowner with:
*you better get in now, before prices go up again. My reply: you as a mortgaged homeowner had a reasonable, moral and legal right to expect no financial harm to be done to the agreed upon value as a direct result of the bank. The price agreed on though was a decision of your own actions.
* you only qualify for an adjustable for this house, don’t worry though you can sell or refinance out of it before the adjustment hits. My reply: you as a homeowner had a reasonable, moral and legal right to expect not that values would increase but the availability of a similiar mortgage program would still be available to refinance you out of the adjustment re-set, even equal to the value you were mortgaged at but as a direct result of the banks actions with their REO’s your value was lowered causing you financial harm.
My point is that the mortgages including all programs and products were agreed upon by the two remainding parties to the transaction, the homeowner and the banks (investor) at the agreed upon value.
Our government did played a role in the boom, allowing it to happen. All I am proposing is a governmental mandate of the recall of the defective mortgage, enforcing the banks to correct and stop doing financial harm to their own customers, making them underwater as a direct result of their actions.
Everyone has perfect 20/20 hindsight, that is not my arguement.
The banks knew in advance what would happen to property values with a large influx of REO’s into the market and did it anyway.
January 30th, 2009 4:13 pm
Government mandate needed to correct the underwater homeowner who was INTENTIONALLY financially harmed by banks.
There is no bail out involved. It is a recall and replacement of a defective product.
January 30th, 2009 4:23 pm
Kevin:
To have morals, responsibility and integrity involved, you have to have both sides of the transaction having the same traits to be equal or it will not work.
January 30th, 2009 4:25 pm
Ex renter:
I don’t know why you were foreclosed on instead of selling?
Were you able to sell? Or was there a short sale involved?
January 30th, 2009 4:32 pm
Bottom line the problem is not about one person or the 20-25% of homeowners already affected, it is about all of us.
Those that were already foreclosed on.
Those that are waiting to be foreclosed on.
Those that are thinking about walking away.
Those that own a house.
Those that wish property values will keep falling so they can qualify.
It is about all of us, what exactly is our message to our government?
Keep going with bailing out the banks with our money instead of
forcing the banks to correct their actions to the homeowners, their customers at their own expense. (no matter that they may become insolvent and fail, it is capitalism at work)
January 30th, 2009 4:35 pm
Susan: “To have morals, responsibility and integrity involved, you have to have both sides of the transaction having the same traits to be equal or it will not work.”
Cute. That sounds like the foundation of a society that ought to reject all morals and responsibility period, since subjectively one side can always claim the other lacks responsibility and morality, therefore giving permission – obligating them – to do the same.
When you make these things up, you should pause and think about how truly cynical and destructive your philosophy is.
January 30th, 2009 5:59 pm
That might be the financially SMARTER thing to do, but it is pretty much the opposite of being responsible.
That’s interesting, Kevin. Responsible to who?
Even if you were able to absolve every instance of fraud committed by the lenders, brokers, appraisers and agents and shouldered the entire fault on the buyer, foreclosure is STILL the responsible (and completely legal) thing to do for many.
Now if the banks believe they can better protect themselves by changing their recourse options on default, so be it. I’d like to see them try. But every 1st mortgage is non-recourse. This is not a rule change*.
It’s interesting that while you have voiced your opposition to banks and government subsidizing bubble values, you are all for overleveraged buyers to do just that by continuing to make an inflated payment.
It just drives home my belief the most callous of you have an irrational (an unachievable) desire to see buyers suffer. That is your engine, not ethics or “responsibility”.
*A 2007 law/act provides that forgiven mortgage debt for owner-occupied homes is non-taxable.
January 30th, 2009 6:14 pm
Susan,
I don’t remember this being the people’s idea:
Keep going with bailing out the banks with our money
Instead is the FEDERAL RESERVE’s idea!
January 30th, 2009 6:16 pm
The Fanie/Fredie.. is the government’s idea (backed by tax payer).. who do you think looses?
January 30th, 2009 6:16 pm
Responsibility
n., pl. -ties.
1. The state, quality, or fact of being responsible.
2. Something for which one is responsible; a duty, obligation, or burden.
Don’t play games here Benzy. A written agreement is clearly an establishment and proof of obligations. That is, the lender is responsible for giving them money, and they are responsible for paying it back with interest.
I’m not saying that continuing to pay is smart, legally binding, or even “the right thing to do”. But don’t play semantics here when talking about responsibility. Makes you sound like a petulant idiot.
January 30th, 2009 6:17 pm
the MBS market, CDS.. etc.. who’s idea is that? what are the losses there?
Has wall street have figured out new ways to make money. and they’ve lost.. who’s buying in the that market? the FED.. with who’s money?
January 30th, 2009 6:18 pm
the supply and demand model.. where is demand now?
January 30th, 2009 6:34 pm
Answer my question, Kevin.
Responsible to who?
January 30th, 2009 7:19 pm
Kevin I think you’ve taken the responsibility thing as far as you can. Family needs to be the first responsibility and if the decision to walk from a contract is best for the family then that’s where it is.
January 30th, 2009 7:42 pm
Kevin. Kevin. Kevin. Everyone who ones a home is hurt by the foreclosure crisis due to lost equity.
January 30th, 2009 8:55 pm
Benzy: “Responsible to who?”
Anybody that has a lien on your house. You are being childishly annoying with your games.
Dee: “Kevin I think you’ve taken the responsibility thing as far as you can.”
Because you Marxists are diminishing the meaning of it. That’s intellectually dishonest. I never said it was one’s highest responsibility, or their most important purpose. Of course family is. READ MY COMMENTs — I SAID IT WAS FINANCIALLY SMART. But don’t call it being responsible. My god you people are so full of shit that you unnecessarily try to mangle the most simply understood “positive” adjectives there are.
January 30th, 2009 9:14 pm
The problem with bailouts and the reason they do not work is because they are just rearranging the deck chairs. Nothing is changing so there is no benefit, so it is as if you simply did nothing in the end. So it stands to reason that the same affect of doing nothing is eventually felt, but at a much larger cost due to the extra funds wasted in the process. You have kicked the can down the road only to pick it back up later. The cost has risen for the clean up is all. Let’s just look at a real quick and easy example.
Scenario:
Private company “A” wants to build solar panels and then sell them for profit. They will need investment money and people to do so. The Government comes up with an idea to create jobs to stimulate the economy. They choose some green jobs and solar panel’s is one of them. They borrow future uncollected tax dollars as the investment money. They higher company “A” to do the job.
What is wrong with this?
No jobs were created because company “A” was going to hire these people anyway to build the panels.
Instead of a company borrowing the money and paying for it the tax payers are now paying for it.
Scenario:
Union company “A” needs work for their union members. They are all trained in doing large infrastructure jobs. They get paid well above the private sector and have twice the benefits. They are hoping that they get hired by private companies to do work or maybe some state or Federal jobs pan out. They are in trouble, but not unlike the rest of the country. The Government comes up with an idea of creating large amounts of infrastructure jobs. These jobs are all jobs that the unions are qualified to do. They borrow future uncollected tax dollars as the investment money. They hire the unions to do the work.
What is wrong with this?
No jobs were actually created, but more like they were saved due to the lack of work. No different as to what is happening in the private sector where those folks simply get let go.
A chance for the unions to be downsized in membership and to change the contracts to lower cost by doing away with pensions and adding 401K’s and having the workers pay for some of their medical cost.
If no companies are hiring the unions then that means the work doesn’t exist. Why should tax payers foot the bill for these unions to stay falsely working? No private jobs are created and very few are removed from the ranks of the unemployed. Yet somehow expecting these same people out of work collecting to cover the cost of these higher priced union jobs makes sense. I don’t think so.
Much of these jobs are temporary in nature and once done the job is gone. We need sustainable jobs created that will be around in 5 or 10 years if the company and its business model deserve to still be around.
With these two examples (I know simple in nature) we see a pattern exist already.
The Government is borrowing money off of the backs of an already tapped out tax payer. In fact as a result of this, the bill will have to be paid over decades, which means they also borrowed the money off of the backs of our children and probably their children’s back to do this. Is that really a smart thing to be doing?
No jobs were actually created by this. We added some temporary jobs that will disappear in short order and we added public jobs that the private sector would have added on its own and at their expense and not the tax payers.
We lose a lot of export business due to the cost of the goods that we do manufacture in this country. A huge reason for this is union contracts. The unions have large salaries and bloated benefits packages that the rest of this country does not receive nor does most of the rest of the world for that matter.
Due to these high cost we cannot compete with most of the world and therefore we are losing manufacturing jobs and our trade deficit continues to grow. This was a chance to address that but we failed and just gave them more of what they want at our countries over all expense.
We borrow this money so we actually have to pay more back than what we borrow. The cost is always higher than what is reported.
A year or so has passed and guess what? We still need jobs again in this country!!!
What should have happened?
We should be cutting payroll taxes to put money in the pockets of hard working Americans. Let them decide where and on what to spend it.
We should be giving tax incentives for companies to ramp up R&D in their industries. How are we going to offer affordable goods down the line if we are not investing in new technologies that will cut cost, and allow us to build things smarter and faster?
We should be providing cash incentives to companies that create jobs and a bonus over time if the numbers stay elevated (hire 100 / company now has 300 / one year later they have 300 still = bonus! 2 years later another bonus and then the full amount is reached.
We should Increase unemployment to assist those currently out of work. This is not their or their families fault.
We should be cutting hoards of programs that are just bleeding our system dry. Welfare should be replaced with a paying retraining and work program that trains people in current fields where jobs are needed (nursing for example), and see them through the resume and interview process until hired. They
get paid but must come to work (so to speak) 8-5 every M-F until they get hired somewhere at which time the benefits stop.
They need to stop the food stamp give away and open centers that give food away. This will create jobs as well as feeding the hungry. This group will work closely with local restaurants for example. You need to work at the center X amount of time to continue to qualify for the food stamps for example. Food will be standardized and healthy. A huge undertaking, but it will eat up some vacant office space, create jobs and still feed the hungry. It will allow us to cut down on fraud and waste. It will ensure the money goes where it is supposed to go. It will get these folks out working in the real world and helping to cut cost at the centers because we are already paying them through food.
Any line item that does not create an immediate job should be eliminated from the bill. Down the road we can re-address things if needed, but we just need help right now.
Any job that is created needs to be a job that will exist for a minimum of 1 year. No 3 month jobs as they can be done in other ways and not be a part of this bill.
Much more can and should be done, but only with the horizon in view, immediate needs at hand and a plan to pay for it in place up front. No more pay now and worry about it later actions. A comprehensive plan including the phasing out of Government jobs while increasing taxes over time. You can’t say well if we end the war we can use that money so t is no additional cost. That doesn’t fly any longer. We can’t afford the war and need to reduce that cost out of our budget and not move it over to somewhere else. Every single dollar spent must be paid back so we need to know how before we spend it.
January 30th, 2009 9:31 pm
Take the middle man out (the banks)!
Borrow directly to businesses and people from the FED.. at .25% to 1%.
Problem solved!
January 30th, 2009 9:43 pm
Benzy: “Responsible to who?”
Kevin: Anybody that has a lien on your house.
This actually is a concept I have been trying to elucidate with respect to Japan’s housing fallout. I’d like to know how the Japanese reconciled all of those multi-generational loans.
So, it’s not so much a case of one of your usual asinine obfuscations from the sidelines. But ridiculous to say the least, Kevin, considering the well chronicled fraud perpetrated by my humble lender, WaMu, that I should feel like I have some responsibility to them.
Oh, there I go again being childish.
January 30th, 2009 11:41 pm
“Because you Marxists are diminishing the meaning of it.”
diminishing it for who? In keeping with intellectual integrity, I’ll just use one of Bert’s responses to this kind argument “ad hominem”
January 30th, 2009 11:41 pm
Mr. Mortgage, thanks for the great analysis and the great website–I just discovered it today.
I appreciate the point you and others make here about how the CA market is in the doldrums with much more pain to come. I live in the Bay Area, and it’s been fascinating to watch the transition from boom to bust.
Now there’s one point that some make about the Bay Area: the broad aggregated statistics like the ones you use here do not reflect the significantly different conditions in different segments of the market. Although the subprime mortgage problems and foreclosures are indeed a huge problem in lower-end markets, they may be much less severe in the higher-end ones. For example, there may be tons of foreclosures in East Palo Alto but very few in neighboring Palo Alto. Hunter’s Point in San Francisco might be a disaster, but Pacific Heights in the same city is a different matter.
To what extent do you think that the bleak prognosis you have for the CA market is true for the higher-end real estate markets (in the Bay Area, for example, that would be San Francisco, Marin, the higher-end towns on the Peninsula, etc.)?
The residential market for >$2 million houses does seem to be dead these days. Houses are staying on the market for months and price reductions have been rampant. Do you think that the wave of foreclosures and the tidal wave of inventory in the spring will occur in this segment of the market as well? Or is this more of a low-end phenomenon?
Thanks again for the great work!
January 30th, 2009 11:57 pm
MM, I too apreciate your service..thought I say it again before you move.. and thought I ask if you know now your new website name? or will it be the same one?
January 31st, 2009 2:47 am
Susan you said:
“You are mistakenly taking me for “giveme, giveme” individual because the banks and realtors fooled the homeowner with:”
Hmmmm, I have not now nor have I ever said or thought that your were a “giveme” person. I pegged you as a “fixer” that is going to open the med kit, rub some ointment on the wound and whip out the right bandage and patch it all up.
January 31st, 2009 4:03 pm
BertDilbert:
I have a nursing background and am a mother and grandmother, so I do have the tendency to “fix” things. For the past 30 years, I have worked in Real Estate or mortgages though. I am one of those “damn mortgage brokers” but I do understand the mentality of homeowners, past, present and future.
My proposal of a government recall mandate is a valid one, one that can stop the flow of losses to the general public of homeowners and the banking industry. It puts a dollar number on the amount. The only parties involved are the homeowners and the banks. Not the “renters”.
It does not turn around the industry to be a boom again, nothing will except for incomes in general to double or for the “special” programs to return qualifying more “potential homeowners”. Neither in my opinion will happen it the next decade or two, but it does stabilize the housing market and stops the losses to the banks/investors.
I am not attacking the over inflated prices, which I agree were extremely over inflated. The prices were agreed to by both parties involved.
I am not attacking the special programs nor the liberal underwriting, the programs and underwriting were agreed to by both parties involved.
What I am attacking is the banks actions of releasing massive foreclosures sales into the market place with the knowledge that “these sales” would lower the values of the surrounding area affecting their existing customers financially.
Where is the consumer protection needed for the mortgage product? The mortgage itself became defective based on the business actions of the banks.
In the orginial proposal, I addressed and corrected the actual problems of our foreclosure epidemic from the homeowners point of view with the banks involved:
homeowners who weren’t underwater had the option of refinancing at 4%. (increases the homeowners spending power)
Homeowners who were underwater but current had the ability to refinace at the current appraised value at 5%. (increases the homeowners spending power and leaves them at 100% loan to value, the banks write down the dollar amount of reduction at 3x the loss)
Homeowners who were underwater and DELINQUENT had the ability to refinance if qualified within 31/41% ratios at the reduced appraised value at 6%. ( should increase the homeowners spending power and leaves them at 100% loan to value and again the bank writes down the reduction at 3x the loss for qualified borrowers)
Homes that were foreclosed on due to borrowers inability to qualify would be sold to the general public at the appraised value with a 4% interest rate. The banks would be able to write down the dollar loss at 2x the dollar amount.
If found, that the qualified potential borrower pool was insufficent to purchase said foreclosures, a subsidized auction would be done. This would be the only governmental money used for the proposal, to subsidized the potential homeowner with purchasing a property at the current appraised value.
What the proposal does not address is the credit default swaps that the government is trying to protect at taxpayers expense.
Until our government actually changes its focus to protect the public and not the banks bets, there will only be band aids offered.
No where in my proposal am I myself aided, nor is my daughter (for JoanJett sakes).
A bandaid is the TARP program, the modifications or even the bad bank proposed, they all just cover the problems up. The cut has become infected, it needs to be cut off and replaced which my proposal does.
January 31st, 2009 4:09 pm
Thank you all for posting, I have enjoyed the discussions.
Till we meet again, I hope everyone stays healthly and happy. Enjoy your life.
January 31st, 2009 10:47 pm
Jimbo, great post. I hope that MM responds. When I read that Phoenix home prices have gone down 35%, or so, over the last year, I too have questions like your’s about what areas contributed to this the most. In the Phoenix area, the price of a home is determined largely by the uniqueness of the area. The unique, hilly/mountain land went first. The “cotten land” developments (formerly agricultural) on the flat (Gilbert and southern suburbs) are hurting badly.
I can remember looking at real estate ads in the LA basin a few years ago and seeing 20-25 year-old 2,400 feet, wood-framed houses going for $750,000. Unbelievable! Twenty years ago houses (Upland, etc.) going for $100/foot!
February 7th, 2009 9:09 pm
Mr. M, I saw you on CNBS. It’s true what they say; the camrea add 10 lbs! LOL!
Well done, sir.
Dick
May 14th, 2009 9:28 am
Hey gang — try this blog for information. It is just as good as the Mr Mortgage blog.