Foreclosures

Occupying Homes As A Solution?

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Seriously..I am torn.  I just don’t believe this is the right way to deal with a lender when you can’t make your previously AGREED TO payments.

I recently became aware of the website OccupyOurHomes.org.  The site is full of heart tugging stories of people who can’t make their mortgage payments and the issues they have had with the banks in attempting to get a modification or stop an eviction.

I have to start with a basic idea here.  All of these people signed mortgage contracts under lawful circumstances.  If it could be ruled they were not of a right mind, or capable of understanding what they executed, then by now the attorneys would be attempting to void out mortgages based on the incompetence of the borrowers.  Not heard that case being made.

As I wander through this site, I see that the one thread that ties all of these people together is that they can’t make the payments they agreed to make, and getting to live in their homes at a lower cost (or even no cost) is a right extended to them by living in America.  Or under God..or some other deity.   The theme, as we now have heard it from the media so many times, is the 99% will have their voices heard.

The reasons I am torn?  A bunch really.

1. I do feel bad for people who are able to enter agreements (contracts) and really not understand the possible repercussions.  On a different scale..I assume most of these folks purchased cars on credit and signed notes for the cars.  If they can’t make the payments, the car gets repossessed.  No modification programs are being advocated by the government for car buyers.  I have heard talk of them for student loan borrowers.  I suppose cars are next..and I guess OccupyOurCars.org has already been acquired.

2. Admitadely, the banks have not shown a lot of excitement to provide modifications.  They have done it under the strong arm-twisting of the federal government..but the reality is they are complicated beasts with a VERY high rate of failure.  As I have witnessed so many times, the people who are unable to make their house payment also often choose to not spend money on maintenance.  The longer the situation exists, the more the value of the home drops (as do the ones around it).  Modifications, due to the high rate of failure, don’t stop this cycle..only prolong it.

3.  As I review the website, it appears there is a lot of good money being spent on this cause.  It in fact troubles me as to where the funds are coming from.  Yesterday, a press release found on AOL Real Estate brought me to my tipping point on this issue:

NEW YORK – Aug. 22, 2012 – The “Occupy Our Homes” movement is taking its anti-foreclosure message to the airwaves. The protesting group, part of the Occupy Wall Street movement that has a network of participants across the country, announced it has launched a national television ad campaign to speak out against foreclosures and show struggling homeowners how they can fight against evictions.

In recent months, the group has staged “sit-in” protests at properties of homeowners facing foreclosure.

The TV ads direct viewers to the OccupyOurHomes.org (Link: http://occupyourhomes.org) website for a field manual on how to “start an occupation,” which details how homeowners can protest a foreclosure using sit-in strategies.

The ads are set to appear on networks like CNN, FOX and MSNBC.

This is not inexpensive advertising!

The great thing about America and our system is there is plenty of room for groups like this to exist.  We do have laws and at some point those laws will need to be enforced.  There are thousands and thousands of people involved in the housing business who have all kinds of empathy for people who made bad decisions.  Nobody really wants people to be put out on the street.  Don’t worry..they won’t be.  There are so many options for renting and public assistance today.  What I have on my mind is who is funding this anti-capitalism, anti-law, protest movement?  And why?

That is what we all should start to be concerned about.   If you have information on this please comment and share so we can all draw our own conclusions.

What Would You Do About Foreclosures?

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The headline screams and grabs my attention.   I think I have done a pretty good job sharing my thoughts on this issue for many years now…dating back to when George W was President.   But this time it is being asked for!  By the Obama administration!  The policy wonks are out of ideas?  Publicity stunt?  I am so confused in this world where right is wrong and down is up!  Now the Obama Administration wants my opinion?

As I read on I learn the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Treasury Department are looking for ideas for strategies to clear the high inventory of foreclosed properties owned by the government.  This is great!  But can I risk sticking my neck out..sharing my thoughts and opinions?  Is the risk higher than the reward when for almost twenty years I have served the default industry and actually might be able to offer some perspective…but if it is the wrong perspective could I risk losing business that is now dependent on this same government?

I am not sure anybody really wants to hear the ideas I have because they are not glamerous, wonkish, or even new.  As I learn more I find out the government wants to set up rent to own programs in which previous home owners (the ones who can’t make their payments) can lease their foreclosed home back on a path to purchasing it from Uncle Sam.   Or how about bulk sales to investors who commit to set up rental programs for these properties.   The same investors who buy these properties in bulk and two years later our “No Trespassing” signs are still in the windows?  Interesting ideas.  I have quite a few thoughts on how each of these ideas might turn out.  Maybe I can share them with the Obama administration since they seem interested in learning from little old guys like me.

I follow the  link to the place where I expect I can just enter a few thoughts and go on my way.  If they want to include me in the decision making, this will let them know I have some experience and knowledge about what is wrong (and right) in the process as it works today with the disposition of government owned properties.   After all, the way this announcement is written I believe they are interested in people like me.

The link takes me to the FHA website where a pdf document appears.   A five page Request for Information.   It starts out saying in the second paragraph that “comments are requested from all interested parties.”   By page three I realize this is not what I had hoped but a fairly complex document with a 23 point specific list of items to address.   It is to bad that they are missing the opportunity to simply get some feedback from the participants in this industry.  We have a full day with 23 tasks per government owned property due today so I am not going to find time to share my thoughts in this complicated format.  It also tells me a lot about who they are seeking opinions and input from..and it is not the small business people who are the workers in this industry.

If they want to know…they know where to reach me.  Hint..my suggestions are not that complicated.  One agency already has done a great job with creating structure.  Another agency has addressed the credit issue.  And the third has done it right for giving owner-occupant buyers security in their purtchase.  Instead of worrying about the effect of selling these homes on the market, they just need to combine these pieces and tap the hunger of home buyers who are waiting for the market to get better.   We assume they do not exist.

In the meantime, I have to go to work.

Foreclosure Delays Likely Drag Housing Market Into 2012

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Actual foreclosures are down 30% for the first half of 2011 compared to 2010.  Sounds like great news..right?  We only wish that is the case.  The drop in foreclosures did not come from an improving housing and economic climate.  It is the result of increasing delays in processing of foreclosures.  Simply put, it is taking lenders much longer to move against defaulting homeowners.  How much so?  On average a homeowner now has an average of 318 days from the time they receive a notice of default and an actual sale of their property.  Add to this that a homeowner behind or not making payments has access to several possible modification or assistance programs prior to any foreclosure notice being filed, and it is not unreasonable to believe that people are able to live up to 18 months without making a payment when they decide to let their home be foreclosed.

The potential results of these delays?  A housing market that drags its feet for up to another five years and resulting lack of appreciation of values from their current depressed levels.   The question remains..is this the best course for the economy and how many people are specifically being helped with these delays?   If the efforts are helping people to save their homes, then maybe it is worth it.  If these delays are resulting in more vacancies and blight in our communities, then clearly a faster approach is needed.

What do you think?

Three Not So Equal Branches of Our Government

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If you ever cared, or thought that the founding fathers of these United States, thought that it was very important to have three branches of government as a way to have checks and balances, then you will find this news disturbing.  At least I did.

While Congress has on multiple occasions not approved and specifically frowned upon the process of a mortgage cram-down, we now have activist bankruptcy judges who think they can alter contract law all on their own.  I have a limited amount of legal education, but this just does not seem correct and a gross over-stepping of the boundaries established as a foundation of our government. 

If you are not familiar with the concept of mortgage cram-downs..let me explain.  Say, you borrowed $400,000 five years ago on your home that was valued at $450,000.  In some cases this was what was called a cash out refinance and you were able to grab a couple hundred thousand from the supposed value of your home and use that cash for whatever.  I have written about this many times, but for some time we saw and experienced “investors” who thought homes would increase and never stop so they bought a few more with their cash out refinances.   Now, fast forward to 2011 and these real estate investments are now worth 50% of what they were bought for, and the home that has the $400,000  mortgage is worth…$200,000!  This story plays out everywhere due to the housing bubble and easy financing. 

We have bankruptcy laws that allow people to go to court and write off their bad debts.  With a few other bad debts created during the false sense of security the housing bubble created, these same people file bankruptcy.  Facing a lack of cash flow to make their mortgage payment, they are about to default and they really do not care because they see no way to ever recover the lost phantom equity.  But, our social policy in America today frowns upon making people take responsibility for their bad decisions, and apparently judges are going to go wherever they want with no legislative approval for doing so.  A bankruptcy judge decides to help out these folks and “crams down” the balance on their mortgage to the value of the property!  It magically becomes a $200,000 mortgage.  Wow!  Isn’t that cool! 

Except it is real money and these are real investments that make our mortgage markets and other investment markets work.  These “free” markets depend on just these sorts of things NOT happening.  Mortgage cram-downs may sound like wonderful social policy but they are horrible fiscal and financial policy. 

I am really alarmed by this news.  It just seems wrong on several levels.  If  judges can alter investments and contracts this easily, in order to provide social engineering, how can anybody invest in anything with confidence?  Also, do not think the lenders, many of them your local bank, will not have to recover these funds-most likely adding more fees and charges on your accounts!   Maybe I do not understand this correctly?  If so , please comment and explain.  If you agree with me, then show me that I have some company that someone else feels this is a breech of the fundamental structure of our three branches of government not to mention very bad policy!

How Meaningless Are Foreclosure Statistics?

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Apparently quite meaningless.  All the ways that defaulting borrowers can stall the process seem to be working.  Working to basically juice the statistics to not really provide an indicator of free-market defaults, but often a whole lot of borrowers who finally just give up from trying the latest modification program offered. 

Interesting that when the day is over, the market actually seems to win out.  I am not a cheerleader for people going into default and eventually having a foreclosure on their home, but the sad reality is getting clearer every day.  We can’t change these situations with homeowners who are treading water.  No matter how hard somebody comes up with a new twist for modifications, in the end I wonder if significant principal reductions would even matter.  People do not get into these problems overnight and artificial mechanics won’t fix the problems any faster.  At best.  More likely, as this story points out, we are just postponing the inevitable.

National Mortgage News

Repeat Defaults Boosting Foreclosure Sales

Friday, March 4, 2011

The January Lender Processing Services Monitor report shows frequent moves in and out of loan delinquency and foreclosure traffic is one of the reasons why apparent improvements in the nation’s distressed mortgage market are relative, if not meaningless, when seen as part of the overall picture.

LPS reports that repeat foreclosures or loans that had cured in one way or another but have fallen back into foreclosure now account for over 35% of foreclosure starts.

It means the fact that foreclosure starts decreased 11.4% in the first month of 2011 compared to December and 20.1% annually does not call for rejoicing even though the good news is that there is some stability in the number of those who are adding up to the existing number of distressed borrowers. (Similarly, new seriously delinquent loan rates also improved as all states reported significant annual declines in new seriously delinquent loan inventory.)

The bad news is that despite government/private sector efforts to help keep these distressed borrowers in their homes the assistance given to many of those who repeatedly go into foreclosure may be futile and just postponing the inevitable.

Since ultimately foreclosure starts still outnumber foreclosure sales by almost three-to-one—plus it is equal to 25 times January 2011’s level of foreclosure sales—the current foreclosure inventory is poised for faster growth.

This trend appears to be consistent in the long term. In January the total U.S. foreclosure inventory rate was 4.16%. It increased 0.2% on a monthly basis and 7.9% compared to January 2010. By the end of January foreclosure inventories were at nearly eight times the historical average while delinquencies more than doubled historical norms.

At 8.9% the total U.S. loan delinquency rate increased 0.8% on a monthly basis but decreased 18.8% on an annual basis bringing the total U.S. noncurrent loan rate to 13.1%.

Whether the primary driver of loan performance change is borrowers’ unemployment, other financial distress, or foreclosure moratoria, what appears to be adding to that list is longer foreclosure timelines that consistently continue to extend.

LPS data show the average loan in foreclosure has not made a payment in over 500 days. It finds the foreclosure process “continues to drag out as the timelines for foreclosure starts, days in inventory and sales all continue to extend.”

It means that along with the increase in the number of serious delinquencies, or loans that were 90 days or more delinquent, the number of future foreclosure prospects is growing. According to LPS, a large number of loans were transitioned out of foreclosure back into the seriously delinquent category.

Data show deterioration in the seriously delinquent category “increased last month, for the first time since May 2010” marking overall growth with the largest increase in the over 12-month delinquent category as more loans were removed from foreclosure.

As of Jan. 31, 2011 over 2.2 million loans were 90 days or more delinquent but not yet in foreclosure bringing the total number of loans in some stage of delinquency or foreclosure to over 6.9 million.

Furthermore, refinance activity—which could help reverse the status of some delinquent loans into current—has declined significantly due to increasing rates and the fact that the market seems to have exhausted these opportunities during several months of strong refinance volume.

As to where the most problematic areas are, the story has not changed.

The state with the highest number of noncurrent loans, including foreclosures and delinquencies as a percent of active loans, is Florida, followed by Nevada, Mississippi, Georgia and New Jersey.