2nd Foreclosure Tsunami Coming-Look Out Below

[UT1986]

The Link

So much for the housing recovery.

"In what appears to be surprising news for some, Reuters has an article titled "Americans brace for next foreclosure wave" whose key premise is that "a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures." Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America's attorneys general, but far more importantly to the country's crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America's record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here's the simply math: there will be no housing bottom until the 9 million excess homes clear. Period. Until then it is a buyer's market, even if said buyer is unable to obtain bank financing, as ultimately it will be the seller who is forced to monetize (or vacate if underwater) their home in a world of ever diminishing cashflows. The fear of the supply onslaught will only make the dumpage that much faster."

 

[Horn6721]

Ouch!
I missed this post earlier.
This unsettlling prospect should be of concern for more of us.

That said there also isn't anything we can do to soften this blow is there?
This will adversely affect us all.

 

[UT1986]

Yeah, it going to be hitting the hard working folks who have been laid off, like me and other middle class Americans. I'll do everything I can to prevent foreclosure.

The thing that pisses me off the most is that the banks got us into this mess, they reaped the rewards from the bailouts, received cheap money through the Fed in their ZIRP, made tons of money in the stock market to cover losses, but are now unwilling in most cases to work with homeowners who have been laid off through some sort of loan modification until folks can obtain a job.

"In 2011, the "robo-signing" scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.

Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January.

More conclusive national data is not yet available. But watchdog group, 4closurefraud.org which helped uncover the "robo-signing" scandal, says it has turned up evidence of a large rise in new foreclosures between March 1 and 24 by three big banks in Palm Beach County in Florida, one of the states hit hardest by the housing crash

Although foreclosure starts were 50 percent or more lower than for the same period in 2010, those begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo's rose 68 percent and Bank of America's, including BAC Home Loans Servicing, jumped nearly seven-fold -- 251 starts versus 37 in the same period in 2011. Bank of America said it does not comment on data provided by other sources. Wells Fargo and Deutsche Bank did not comment.

Housing experts say localized warning signs of a new wave of foreclosure are likely to be replicated across much of the United States."


"One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products -- with high interest rates where banks asked for no money down or no proof of income -- is that today it's mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times."

"The subprime stuff is long gone," said Michael Redman, founder of 4closurefraud.org. "Now the folks being affected are hardworking, everyday Americans struggling because of the economy."

 

[Horn6721]

AS long as Banks can get zero interest money from the Fed they won't be willing to work with honest people like you who are trying to do the right thing.

How it can be to their benefit to have so many more properties in foreclosure is beyond me.
I wish Musberger, who understand this things, would explain

 

[dheiman]

In reply to:

---

---

 

[Horn6721]

dh
I know you are right, But it sure screws people like 1986 who want to do the right thing and make payments.

It is pretty bad when a bank won't even talk to you even when you explain you want to make payments

 

[dheiman]

In reply to:

---

---

 

[UT1986]

Back during the crash in 2008, a mutual fund manager/owner of Hussman Funds sent a letter to the US Congress with a proposal to minimize a "crash" prior to the passage of TARP. The dude is pretty darn sharp. In his letter he also provided a resolution for the housing situation and mortgages that are underwater, etc.. Of course we know the story after TARP passed and now once again the US is faced with more foreclosures that likely could be prevented if the knuckleheads in Washington would have implemented ideas such as Hussman and others. Interesting concept.

"5) To assist homeowners, the bill should allow for a reduction of mortgage principal during foreclosure, but the mortgage lender should also receive a Property Appreciation Right (PAR) that gives the original lender a claim on future property appreciation up to that original mortgage amount. In other words, the homeowner receives a substantially lower mortgage balance and payment burden now, but the lender stands to be made whole over time through property appreciation rather than immediate burdens on the homeowner to make payments. "

"With regard to assisting homeowners, purchasing the bad mortgage securities from financial institutions will do nothing to help those homeowners because it does nothing to alter the cash flows expected of them. Congress will be a far better steward of public funds by offering distressed homeowners what amounts to a refinancing, coupled with a partial surrender of future appreciation.

In practice, when a homeowner defaults on an existing mortgage, the bankruptcy court would be allowed to "push down" the principal value. Alternatively, government could purchase the foreclosed property at an amount near existing foreclosure recovery rates (presently about 50% of mortgage face value), and the government would then sell that home back to the owner with a zero-equity mortgage, allowing individuals to keep their homes. In either case, there would be an additional obligation placed on the property owner in the form of what might be called a “Property Appreciation Right” (PAR), which would be provided to the original mortgage lender. Though it would accrue no interest, it would provide a claim to the original lender on any appreciation in the value of the original home (or other property subsequently purchased by the homeowner) up to the difference between the foreclosure proceeds and the original mortgage amount. Note that the PAR would only become relevant at the point that the government was fully repaid.

For example, consider a homeowner with a $300,000 mortgage balance on a home now worth less than the mortgage balance itself. The government would buy the foreclosed property at say, $200,000 and mortgage it to the existing homeowner. The original lender would receive $200,000, plus a Property Appreciation Right (PAR), giving it a claim on $100,000 of any future appreciation of property. If the homeowner was to sell the property later for, say, $250,000, the owner of the PAR would receive $50,000, and there would be a remaining lien on future appreciation of property purchased by the homeowner. At any point the recovery from price appreciation satisfied the $100,000 claim, the PAR would be fully repaid.

Some provision would have to be made for the appreciation of an unsold home, but that detail could be accomplished through some form of equity extraction refinancing. To account for time value, the claim on future appreciation could be increased at a small rate of interest. Though the credit impact of a mortgage default would likely be sufficient to dissuade solvent homeowners from making inappropriate use of the program, the government could impose additional costs or eligibility requirements to avoid such risks.

In summary, the Treasury proposal to address current financial difficulties places corporate bondholders ahead of the public, rewards irresponsible risk-taking, and sets a precedent for future bailouts. Moreover, we know from a long history of economic experience across countries that a major expansion of government liabilities is invariably followed by multi-year periods of extremely high inflation, particularly when it is not matched by a similar expansion of economic production. Such inflation would initially be modest because of the current weakness in the economy, but could pose unusual challenges to the United States in the coming years.

Congress can benefit the American public by maintaining a focus on responsibly assisting homeowners in distress rather than defending the stockholders and bondholders of overleveraged financial companies. It is essential to recognize that the failure of these companies need not result in “financial meltdown” provided that the “good bank” representing the vast majority of assets and liabilities is cut away, protecting customers and counterparties, so that the losses are properly borne out of the capital base of the companies that incurred them."
The Link