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Are Loan Mods Actually Helping Anyone?

Current data shows that 10% of borrowers in California are in default and that 73% of borrowers have negative equity. Ouch.

If you are a homeowner facing foreclosure, you have a number of options available to you. Of them, the first that most borrows try is for a loan modification. On the surface of it, a loan mod seems like a good deal, but the more I think about it, the more I wonder if that is truly the case.

Getting your loan modified is no easy task. The lender is going to be very difficult to deal with and this is going to add to the your already high level of stress. If you are successful, you can expect that the lender will likely reduce the interest rate and the payment. They may also set aside some of the principle on the “back end” and not charge you interest for this balance for some time.

Make no mistake about it though, you will still owe this (extra) money.

At first glance, getting a lower payment and being able to stay in your home (for now) may seem like a very good idea. The reality, however, is often much less appealing.

Why?

Well, there are a number of reasons.

First, you still likely owe far more than your house is worth. This is probably the biggest reason that most loan modifications eventually end up back in foreclosure. Initially, the borrower is very happy to have been able to stay in the home, however, as time passes, the reality of the size of the debt versus the value of the home sets in, and the motivation to keep making those payments eventually weakens.

Remember, in your neighborhood, the vast majority of homes in default do not get their loan modified (if you don’t have a job, you CANNOT get a loan mod). When a loan is not modified, the home is either sold via short sale, or sold at the trustee sale, or taken back by the bank and sold as an REO. In all cases, the sales price(s) of the houses that surround yours are going to be lower than a home that was not sold “in distress”.

What does this mean for you? In means that “comparable sales” are going to keep going down for a while yet, and each time that happens, your house is going to be worth less. The amount you owe, even after a loan mod, is still going to be the same. Bummer.

Making matters worse, in some neighborhoods, homeowners who are capable of making their payments simple stop doing so because they no longer see the point. Their house value is far less than the loan, none of the neighbors are making a payment, and no one has yet been evicted.

This is what we call a “strategic default”.

Regardless of what you call it, the result is still the same; foreclosure takes place and the house is eventually resold at a much lower price – which in turn results in much lower sales comparables.

Fannie-Mae is not ignorant to this problem and that is why they recently introduced their deed for lease program. In this program, the qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

For many homeowners, this will allow them to stay in their homes, get debt relief, and cut their monthly cost of shelter in half. Not a bad deal for most people.

What has not yet been announced, but what I think is highly likely, is that in a year or two after you deed your home to the lender, you will then be offered a option to buy it back. If that plays out, that is absolutely wonderful for the homeowner.

Think about it; you deed it back to the lender, you get to stay in your house, your debt is eliminated, and eventually you get to buy it back at its now current (lower) market value!

There’s just one problem with this. What about the other 90% of homeowners who aren’t in default but are under water? Don’t you think they are going to want their discount, too?

I’m guessing they will, and if I’m right, that is going to mean a whole lot more strategic defaults.

Very clearly, we are not out of the woods by any stretch of the imagination – despite what you may be reading in today’s news.

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Foreclosures Spread to Middle Class

The foreclosure crisis may be coming to a middle-class neighborhood near you. As joblessness continues to rise and as a person’sunemployment lasts on average 6.5 months, roughly 3.4 million homes are expected to go into foreclosure by the end of 2009. That’s up from 1.2 million homes in 2007, according to RealtyTrac, a subscription-based site that tracks foreclosures nationwide. “We’re not out of the woods yet,” says Rick Sharga, RealtyTrac’s senior vice president.

Sharga recently spoke to NEWSWEEK’s Nancy Cook about the various waves of the foreclosure crisis, the future of homeownership and why the Obama administration’s loan-modification program won’t stem this latest crop of foreclosures. Excerpts:

What’s this new “wave” in the foreclosure crisis?
The first wave was caused by bad loan products, while the second will be driven by unemployment. Right now, we’re at the beginning of wave two. There are virtually no more foreclosures that are the result of subprime lending. The demographics of the foreclosure crisis are changing and affecting people who were blue collar and entry to midlevel white collar. We’re now seeing foreclosures on properties with higher loan values. Probably the single best predictor of the areas hardest hit in next wave will be where you will see rising unemployment rates. The third wave is going to involve borrowers who had adjustable rate loans, in which they had the option of deciding what payment to make including interest-only payments. These loans are going to default at ridiculous rates, and that wave will go from the middle of next year until 2011.

If more middle-class people are expected to lose their homes, is the geography of the foreclosure crisis also expected to change?
We’re already seeing some shifts. Four or five states—California, Nevada, Florida, and Arizona—will always be among the top in the foreclosure parade. They overbuilt and overpriced those homes and sold them with horrific loans. What’s happening now is that you’re seeing places like Michigan and Ohio that were devastated by unemployment have an increase. Those foreclosures are much harder to salvage because those people have no income.

But even as the numbers of foreclosures rise, the housing market seems to be stabilizing.
We will see a L-shaped recovery in the housing market if this scenario plays out until 2013 and if the financial institutions meticulously manage the disposition of these properties. We won’t see a huge dip in home prices, but you also won’t have a huge run-up in the building part of the industry that contributed a fair number of jobs to the economy. The housing market will not feel healthy for a few years. This is not a short-lived recession.

What will this mean for the future of homeownership?
We had sort of gotten to an illogical point with the high levels of homeownership. In practice, it turns out that not everyone can afford a house. I think there is more of a realization among potential homeowners that they won’t do it until they can afford it.

If more people will rent, what will this mean for the rental market?
People assume that apartment rentals rates will go up, but in many markets in the country, the rental rates are the lowest they’ve been in years. In Las Vegas, Arizona, Florida, and California, people now rent a whole house instead of an apartment, so these cycles have an affect of lowering apartment rental prices and increasing vacancy rates.

Do you think the Obama administration has done enough to prevent foreclosures?
By sheer volume, the Obama administration’s plan is really having a minimal effect. The administration’s loan-modification program won’t have any success with the types of foreclosure you see now. If you’re unemployed, you don’t qualify for a loan modification.

Find this article at http://www.newsweek.com/id/220080

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How to Qualify for a Loan Modification

(Online-Artikel.de) – Qualifying For Loan Modification Plan Newly Announced

The final aim of loan modification program is to modify mortgage terms. One should fulfill the eligibility criteria and qualify to avail the loan modification program. Obama’s home loan modification plan is like the twilight at the end of the tunnel. One has to qualify to avail the facilities of this plan. Some of the terms and conditions to qualify for this mortgage loan modification plan are as follows:

• The current mortgage should be insured by either Fannie Mae or Freddie Mac.
• The home for which the home loan modification plan is being sought should be the primary residence of the applicant. If the house is being used for some other purpose, the application for the loan modification plan is going to be rejected.
• The applicant should have received the current loan or mortgage before the 1st of January, 2009
• The amount of the first mortgage or loan should be equal to or less than $729,750.
• The monthly payment required to service the first mortgage should be more than 31% of the annual income.
• One should be regular at filing the income tax returns. If the applicant is found to be irregular at filing the income tax returns the probability of the application getting rejected is very high.
• If one has been late at paying the recent monthly payments, then again the chances of the mortgage modification approval are very bleak.
• If one wants to avail the loan modification services one should be able to demonstrate and convince the authorities that the future monthly payments of the mortgage will not be possible unless and until the loan modification program is approved.
• Most of the people want to modify mortgage just because they are not able to pay the monthly payments. If one fulfills the above-mentioned terms and conditions most of the loan modification companies will volunteer to offer professional loan modification services.

First things first, to qualify for Obama’s home loan modification plan, your mortgage must be insured by either Freddie Mac or Fannie Mae. Currently, only these types of loans are eligible for the MHA plan. Also, the home must be your primary residence. Once you’ve met these two requirements, Obama’s home loan modification plan gives you choices. You may either refinance or modify your current mortgage. Homeowner’s who are current on their mortgage payments and have a loan balance less than 105% of the current value of the home are eligible for a refinance. If you have fallen behind on any payments, refinancing is not the route for you.

Do not lose hope. Obama’s home loan modification plan also provides for those who are experiencing financial difficulties and have fallen behind on their mortgage payments. A loan modification under the MHA plan is open to both those who are current on their payments and those who have missed a few payments. You must own the home as your primary residence and have a monthly payment, which is greater than 31% of your gross monthly income. Obama’s home loan modification plan is geared towards at-risk borrowers in danger of losing their homes. Help is given by adjusting various loan terms to make the monthly mortgage payment more affordable. What is considered affordable? By using a debt-to-income ratio, or DTI, lenders can compute a new monthly mortgage payment that does not exceed 31% of a borrower’s gross monthly income. Once the new payment is determined, the lender must then adjust various loan terms to arrive at that payment. A lender will first reduce the interest rate of the loan to as low as 2% to try to arrive at a 38% DTI threshold. If 38% cannot be reached by the interest rate alone, the lender can extend the term of the loan up to 40 years, or they can forbear principal on the loan. Once the 38% is reached, the lender and the Treasury will institute a dollar per dollar matching program to adjust the rate even more and bring the new monthly payment to the 31% DTI limit.

Once a loan modification is achieved, borrowers have a “trial run” of three months to ensure that the new payment and loan terms are realistic. After three months of on-time payments, the new mortgage terms will be fixed for five years. Obama’s home loan modification plan and the MHA plan is intended to stop the tide of foreclosures affecting the US economy and keep millions of American homeowners in their home. Loan modification program means the applicant applies to modify mortgage terms.

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Loan Modification and Fighting Foreclosure

I recently went through nine months of trying to get my loan modified ["Why Obama's Housing Rescue Hasn't Prevented Record Foreclosures," usnews.com]. All I asked for was a reduction in the interest rate. Then, after approving the modification, Wells Fargo decided not to give it to me after all! I’m still waiting on the letter that is supposed to tell me why. The modification department personnel didn’t even have the decency to call me back after I left several messages over the course of a month. Wouldn’t it make more sense to keep me in my home (I have a good job) by just reducing the interest rate than to take my home and sell it for one third of what I purchased it for?

Comment by Carol of NV

It takes an irresponsible lender to create an irresponsible borrower. It does little good to modify someone’s mortgage if they no longer have a job. The time for write-downs, as opposed to write-offs, has largely passed. Foreclosure rates aren’t coming down anytime soon. Regarding “toxic assets,” if it’s toxic, it’s a liability, not an asset.

Comment by Rich of MO

Anyone who thinks that the government regulating more of this sector will provide for sustained improvement and long-lasting stability is not paying attention. If banks and lending institutions were willing to “bet their dollars” on a government-backed system of support and regulation, then why are the “successful” banks in such a hurry to pay off their bailout money? The free market will weed out the irresponsible; people will be taken advantage of, and people will get hurt; the lenders that “force” through these “bad” loans will be exposed and their prosperity as a business will suffer. Owning homes/property is not a right; it is a privilege, a privilege that most of us believe that you must work very hard to achieve and sustain. Government has as much business in lending regulation as they have in regulating what light bulbs I use in my home.

Comment by Conor of WA

Banks are also contributing to the foreclosure rate. Yes, they grant the loan modification trial period; after that some clients just cannot get a solid commitment nor even written communication from these banks. From personal experience—when I asked where should I go from here? They told me that my file was now in limbo, and I should return to paying the original mortgage premium. All the money I paid during the trial period has not been applied toward the mortgage account but deposited to a special account on which, I am sure, the bank accrues interest. My home is therefore in jeopardy of foreclosure through no fault of mine. My conclusion: Banks are sabotaging the loan modification program.

Comment by F. Wood of NY

I went through the loan modification program with my mortgage company and was denied based on lack of income. On a certain level, I see their point about me having no income as a guarantee of future payments, despite not being behind and living off my savings. Be that as it may, the program needs to allow people without income for a reasonable amount of time to modify their loans. Moreover, the rate of foreclosure will only really slow down once Congress allows homeowners to force banks into lowering the principle owed. In my area of West Atlanta, the landscape is littered with homes that sold for $400K-$600K. Since all of these homes have lost so much of their value, who exactly is going to buy them, and why should a short sell be the only option? Everyone (banks, buyers, sellers, builders, RE agents, et al.) is to blame.

Comment by Jay of GA

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Do Loan Servicers Really Prefer Foreclosures?

By Mark Huffman
ConsumerAffairs.com

October 20, 2009

Foreclosure • FDIC Launches Foreclosure Prevention Initiative • Foreclosure: Losing the American Dream • Buying a Home in Foreclosure: What You Need to Know • Mortgage Crisis? Act Now to Avoid Foreclosure • Foreclosure Not Inevitable, Fast Action Needed • Avoiding Foreclosure Takes More Than Hope — News • Do Loan Servicers Really Prefer Foreclosures? • New North Carolina Law Tries To Slow Foreclosures • August Foreclosures Up 18 Percent Over 2008 • Foreclosures Still Rising Along With Unemployment • Prevention Needed to Curb Foreclosure Rescue Scams • How Can You Benefit From The Obama Mortgage Plan? • Devil Is In the Details of Foreclosure ‘Bargains’ • Foreclosures Rise 28 Percent in November • At Last: Bailout Trickling Down to Struggling Homeowners • Mortgagees Who Live In Home Less Likely To Default • Foreclosure Activity Increases At Double-Digit Pace • Lenders See Foreclosure Situation Worsening • One-Third Of Recent Home Buyers “Underwater” • Worst Foreclosure Activity Limited To Four States — • More …

At the start of the foreclosure crises, personal finance experts urged struggling homeowners to contact their lenders if they started to fall behind on their mortgages. The lenders want to do everything they can, homeowners were told, to avoid a foreclosure.

Now, the experts aren’t so sure that’s the case.

Consumers who have jumped through a frustrating series of hoops to achieve a mortgage modification – a lower interest rates or more manageable payments – are convinced that old conventional wisdom is flawed.

Jason, of San Diego, says he’s become frustrated trying to complete a loan modification.

“I have gone through the modification process but have been denied, although no clear explanation was provided,” Jason told ConsumerAffairs.com. “I have been seeking assistance and guidance from quite a few bank representatives and have only received rude, misguided information.”

In the last year ConsumerAffairs.com has received hundreds of complaints from consumers who said they followed loan modification instructions, faxing requested documents repeatedly, only to have their applications disappear into a black hole.

“I faxed papers repeated times and was told that I need to fax more or that they never received them so they can start a modification,” Maria, of Sussex, N.J., told ConsumerAffairs.com. “I made payments and they never credited my account. Now they calls in October 2009 and they tell me that they stopped the modification because I never faxed out the papers. Is this a joke!”

The same story

Regardless of the loan servicer, the story seems to be the same. Consumers start down a road they think will lead to a modified mortgage, only to meet a wall of incompetence and indifference at the mortgage company.

“We sent all information requested by certified mail,” Regina, of Whitefish Bay, Wisc., told ConsumerAffairs.com. “As the others have described, we have had to make contact. They do not respond. The usual answer is ‘Whoever told you that is wrong.’ I actually have a tape of one of their agents stating ‘I can’t be responsible for what someone else told you.’ Should not they be required to respond in writing? Is this not a government funded program?”

The Treasury Department did, in fact, begin a loan modification program in March 2009 to encourage loan servicers to modify troubled loans to prevent foreclosures. But the process has proved slow, and for many, frustrating. Meanwhile, foreclosures continue unabated.

A new report by the National Consumer Law Center says its no mystery why loan servicers seem to be dragging their feet in modifying troubled mortgages. The report suggests these companies actually stand to profit if the troubled property goes to foreclosure.

The report, “Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior,” reveals that servicers, unlike investors or homeowners, generally don’t risk losing money on foreclosures.

“One common sense solution to the foreclosure crisis is to modify the loan terms in more instances,” said Diane Thompson, a NCLC attorney and author of the report. “Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes.”

Doesn’t own loan

In almost every case, the loan servicer doesn’t own the loan. It’s simply a company — usually a bank — hired to collect the money from the homeowner and deliver the funds to the investors who own the mortgage. The investors lose money if the property goes to foreclosure, but the servicer doesn’t.

Homeowners seeking to save their homes by modifying unaffordable loans typically deal with servicers. That is why the financial interests of servicers have the potential to hurt homeowners, the report says.

And too many of those financial incentives encourage servicers to ignore the interests of homeowners. For example, the report suggests that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners’ debt burdens.

“Loan modifications inevitably cost the servicer something,” the report says. “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed.”

The NCLC report also found that the lack of third-party oversight allows servicers to pursue foreclosure instead of effective loan modifications that would benefit homeowners as well as investors. While credit rating agencies and bond insurers do monitor servicers, their oversight too often encourages servicers to foreclose.

The NCLC report includes a detailed examination of loans in foreclosure from 1995-2009 and how components of servicer compensation affected the likelihood and speed of foreclosure. It also looks at the rise of the servicer industry as a by-product of securitization; and the limited, but only effective oversight of servicers by credit rating agencies and bond insurers.

No incentives

“The people who could change the way servicers are doing business — Congress, the Administration, and the Securities and Exchange Commission — and the market participants who set the terms of engagement — credit rating agencies and bond insurers — have failed to provide servicers with the necessary incentives to reduce foreclosures and increase loan modifications,” Thompson said.

The report suggests that rule changes remove the financial incentives for servicers to block modifications and mandate loan modifications before a foreclosure as a matter of law. Until it does, the report says, the foreclosure crisis will continue.

“I feel that I have been set up to lose my house,” Alesea of Kinston, N.C., told ConsumerAffairs.com. “Where is the justice in this?”
Read more: http://www.consumeraffairs.com/news04/2009/10/foreclosures_preferred.html#ixzz0UWlc9DGe

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Fitch Projects More RMBS Re-Defaults as HAMP Disappoints

Servicers of residential mortgage-backed securities (RMBS) continue to increase loss mitigation resolutions, including a significant push in the number of loan modifications, according to a report from Fitch Ratings.

As of September 2009, roughly 10% of all RMBS loans and 25% of all subprime loans received at least one modification. A year ago, servicers modified only 3% of all loans, and 7% of subprime loans, according to the report.

Fitch estimated a “conservative” projection of 65% to 75% of subprime delinquencies of 60 days or more that will re-default after 12 months post-modification.

“As in prior statements, market pressures to allow more aggressive [modifications], continued home price declines, and the economy’s effect on job losses factor into this projection,” according to Fitch analysts.

The projection includes re-defaults on loans that received a second and third modification after the first one failed. Roughly 11% of all modified RMBS loans received a second modification, and of the modifications done in Q308, 17% were re-modified, according to the report.

The monthly modification volume dropped from the peak in the middle of 2009, because loan modifications under the Home Affordable Modification Program (HAMP) are not considered complete until a three-month trial finishes.

Through HAMP, the US Treasury Department allocates capped incentives to servicers for the modification of loans on the verge of foreclosure.

HAMP’s first modifications did not begin to complete the trial period until early July and are not included in the January through June 2009 results, according to the report. But cumulative modifications increased during the first half of 2009 as servicers continued non-HAMP modifications.

“Initial indications suggest the conversion from trial mod under HAMP to actual finalized
modification status has been disappointing,” according to Fitch analysts.

Through September 2009, there has been no “pick-up” in modification activity stemming from the completion of HAMP trial modifications.

According to[1] a report from the Congressional Oversight Panel (COP), which reviews actions taken by the Treasury, only 1,711 of the 360,000 trial modifications started passed out of the HAMP trial period and into permanence as of September 1.

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Foreclosures Drove September Prices Up Six Percent

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Subprime Uncle Sam

The FHA makes Countrywide Financial look prudent.

The Treasury has announced new “capital cushion” requirements for financial institutions to reduce excessive risk and prevent taxpayer bailouts. Seems sensible enough. Perhaps the Administration will even impose those safety and soundness standards on federal agencies.

One place to start is the Federal Housing Administration, the nation’s insurer of nearly $750 billion in outstanding mortgages. The agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. (See nearby table.) Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.

The reason for this financial deterioration is that FHA is underwriting record numbers of high-risk mortgages. Between 2006 and the end of next year, FHA’s insurance portfolio will have expanded to $1 trillion from $410 billion. Today nearly one in four new mortgages carries an FHA guarantee, up from one in 50 in 2006. Through FHA, the Veterans Administration, Fannie Mae and Freddie Mac, taxpayers now guarantee repayment on more than 80% of all U.S. mortgages. Sources familiar with a new draft HUD report on FHA’s worsening balance sheet tell us that the default rates have risen most rapidly on the most recent loans, i.e., those initiated or refinanced in 2008 and 2009.

All of this means the FHA is making a trillion-dollar housing gamble with taxpayer money as the table stakes. If housing values recover (fingers crossed), default rates will fall and the agency could even make money on its aggressive underwriting. But if housing prices continue their slide in states like Arizona, California, Florida and Nevada—where many FHA borrowers already have negative equity in their homes—taxpayers could face losses of $100 billion or more.

So far Congress has pretended that these liabilities don’t exist because they are technically “off budget.” They stay invisible until they move on-budget when a Fannie Mae-type cash bailout is needed. The Obama Administration is at least finally catching on to these perils and last week proposed some modest reforms. These include appointing a “chief risk officer” at FHA, tightening home appraisals, requiring that FHA lenders have audited financial statements, and increasing the capital requirement of FHA lenders to $1 million up from $250,000. The scandal is that these basic standards weren’t in place years ago.

Unfortunately, Washington won’t touch more significant reforms for fear of angering the powerful nexus of Realtors, mortgage bankers and home builders. As we’ve written for years, the FHA’s main lending problem is that it requires neither lenders nor borrowers to have a sufficient financial stake in mortgage repayment. The FHA’s absurdly low 3.5% down payment policy, in combination with other policies to reduce up-front costs for new homebuyers, means that homebuyers can move into their government-insured home with an equity stake as low as 2.5%. The government’s own housing data prove that low down payments are the single largest predictor of defaults.

Private banks know this. Burned on subprime mortgages, they are back to requiring 10% or even 20% down payments. Congress should at least require a 5% down payment on loans that carry a taxpayer guarantee. If borrowers can’t put at least 5% down, they can’t afford the house.

As for rooting out fraud that contributes to high loss rates, the obvious solution is to drop the 100% guarantee on FHA mortgages. Why not hold banks liable for the first 10% of losses on the housing loans they originate, a reform that has been recommended since as far back as the early Reagan years? No other mortgage insurer insures 100% loan repayment. Alas, while offering its minireforms, the Obama Administration reassured its real-estate pals that FHA insurance will continue to carry “no risk to homeowners or bondholders.”

Which means all the risk is on taxpayers. David Stevens, the FHA commissioner, nonetheless declared this month: “There will be no taxpayer bailout.” That’s also what Barney Frank said about Fannie and Freddie.

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A Peferct Foreclosure Storm

I came across the following quote in my morning reading this morning, and, as I believe it to be absolutely true, thought I’d be remiss if I didn’t pass it along.

Oh, and one other item I thought I’d share was some points that were covered in a conversation I had recently with a Realtor in San Diego who does a lot of business in Rancho Santa Fe (where are the very, very expensive homes are). He told me that he is starting to see more and more million-dollar-plus price drops in that market as well as more and more of these “wealthy” owners are coming to him asking how much they could get if they sold their house in today’s market.

In other words, the super-rich appear to be starting to feel the pinch just like everybody else.

——

“If the economy is improving, do we really have millions more
foreclosures coming? According to the U.S. Treasury, the answer is
yes. In written testimony to Congress, Assistant Secretary for
Financial Institutions, Michael Barr said that, regardless of the
success of mortgage modification efforts, we should still expect
millions more foreclosures.

Mr. Barr’s testimony is certainly not welcome news for those
anticipating a significant recovery in the housing market. In fact, it
is an indication that significant recovery is still years away.

And there are other factors that confirm the fragile state of both the
economy and the housing market. Recent reports have indicated that
there are almost 3 million active, interest-only loans with a total
value of almost $1 trillion, with loans of about $500 billion set to
reset within the next 30 months. Then we have a large group of Option
Arm mortgages set to recast during the next 2 years. These loans have
a combined value of more than $125 billion.

The rising number of bankruptcies, up 36% in the second quarter over
last year, with wealthy families filing at double that rate, creates a
“perfect storm” of disastrous consequences for the housing market.
With the likely prospect of millions more foreclosures coming, home
prices and home sales will remain depressed until the market can
achieve stabilization. And achieving stabilization will be a slow and
painful process.”

—–

Your comments are always welcome,
TRD

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San Diego County Median Home Price Up Third Month in a Row

The following clipping paints a picture that I think could confuse some investors.

The article reports that prices have been on the rise as of late, and while I don’t dispute that, I believe the trend is going to be short lived. Why?

Shadow inventory.

For example, Bank of America has 20,000 REOs on their books in San Diego County alone. These houses are not yet for sale, and therefore are not reported in the “months of unsold inventory” statistic that you can find on this site. My contacts at BofA tell me that these properties are going to be brought to market in Q4. In the interim, foreclosures continue to pile up due to the huge volume of Alt-A mortgage resets that are now taking place.

Given the dire employment situation, and the data noted above, how can price increases be sustained? If you have ideas, I’m all ears.

Your comments are always welcome,

TRD

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