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Foreclosure follies

By: Cargosquid (Diary)  |  September 24th, 2009 at 08:10 PM  | 

RESIZE: AAA

When I take a break from blogging, I’m a real estate title abstractor. I’m….in-between…. employers at the moment. Why? Nope. Not because of the foreclosures. If every house on the market that should be foreclosed was being sold, I would have a job. My industry depends upon the transaction, the sale, of homes. And responsible banks and buyers get titles checked before they buy. And lenders and buyers need title insurance.

THIS is why I’m sittng at home, blogging.

About 1.2 million loans out there are in limbo : The borrower is in serious default yet the bank has not started the foreclosure process. Another 1.5 million are in early stages of the foreclosure process but the bank hasn’t yet taken possession of the home. Counting these and loans that are highly likely to end up in default, one analyst estimates three million to four million foreclosed homes will come on the market over the next few years.

…state mortgage-mediation schemes as well as the Obama Administration’s Home Affordable Modification Program, which at last count had managed to prevent 235,247 homes from coming onto the market…

Between ACORN (ie, the government) pressuring banks to give out bad loans, bank bailouts reducing the risk of the banks, and Barney Frank and co. wanting to reignite the housing mortgage bubble, and the press not wanting to give any bad news to the public because that would make their heroes look bad, we are screwed. The banks don’t want to take the loss that reduced prices would bring. Remember, when the owner is the bank on an "underwater" mortgage, they are in the same boat as the previous owner. They want the money to pay their debts. No one is willing to take the loss and Congress wants to save their investment money bail them out.

You think that the FDIC is broke now? That banks are going under now? Just wait.

A comment from the post:
The FHA is writing about a third of all purchase mortgages, most of them with no money down (after the 8% tax credit). Believe it or not, USDA mortgages are gaining market share too. Yeah, USDA. And the mortgages the private sector writes, it quickly turns around and sells. The biggest buyer is, you guessed it, the government.

God forbid that any possible Democrat voters have pain. We must buy their vote help them! The government can buy all that debt! We have our money invested in those banks! We have to help the poor! We’re with the government and we’re here to help.

But all that money is going to be for naught.

Because the commercial real estate foreclosure crisis is on the way. Won’t THAT be fun?

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  • http://UnitedConservativesofVirginia Cargosquid

    Actually, I really like your analysis. I look at at the Barney Frank, et al, portion, not as the only cause, but the tipping point.

    Thanks for your comments. Take a look around and let me know what you think.

  • revivefederalism

    A threesome of economic destruction for the ages….

    I’m honestly not clear as to the purpose of having three federal entities with explicit federal backing tasked to increase lending for home purchases.

    We’ve set up excessively complex ‘homeowner’ rescue programs and massive bank bailouts to keep people living in homes they can’t afford. The simple truth is that if you have been living in a home for a few years that you didn’t make a down payment on, via an interest only mortgage, then you are a renter, not an owner. if you can’t make the principal payments when they come due, you probably need to switch places with a fiscally prudent renter.

    We haven’t even seen what will happen when the unemployment benefits run out. Are there any statistics out there on the percentage of ‘homeowners’ who are currently on unemployment benefits?

  • Jack_Savage

    Good diary. I’ll wait to buy my new home. Looks like I’ll be moving up a notch or two….

  • mbecker908

    I just don’t have time to deal with it right now. I disagree on tangential points but on the central point of foreclosures – and I haven’t look specifically at his numbers – he’s directionally right at least.

    With respect to buying a new home, where do you live? It’s not necessarily a bad time to that all things considered. I’ll comment on that too if you live anywhere I know anything about. And if you’d prefer to chat privately, my email is my redstate username =at= gmail =dot= com. And it will be tomorrow at the soonest before I can get back to you.

  • SG_Lominac

    My wife and I bought a place way, way lower than it was just a few short years ago and though a bit painful, a couple of rehabs that we now have for rent. It’s kept me busy the last 4-5 months but hey, somebody has to try to set a bottom!The Obama administration it seems is fighting tooth and nail in NOT letting it bottom out.

  • mbecker908

    Sorry it’s taken so long to get to this. This is not meant to be a diary on the subject of the housing markets, just comments on Cargosquid’s diary.

    First of all for Cargosquid, I’ve been in the mortgage banking business for about 15 years. My primary markets have been Arizona (where I live), CA and FL with some very occasional forays into the midwest. Second, you’ve done a good job for your first diary Cs and while I’m going to quibble with some of your comments, your conclusions are pretty much right on track, for both the reasons you state and some you’ve left out. Please don’t take my commentary as criticism, all the regulars here know my criticism doesn’t look anything like this comment. :-)

    Unless I note otherwise, my comments are intended to be general in nature and do not relate to specific markets.
    1. The housing market.
    Note that yesterday (gosh a Friday) news reports came out showing that residential sales were down for August. Gee. Note also that KB Homes came in under analysts expectations. Another gee.

    Cs you are correct that there are lots of defaults that haven’t been pursued by lenders. But that’s just the tip of the iceberg. If you’d like a REAL eyeopener, go here.The major reasons why lenders are not pursuing these loans is two-fold. First they don’t want to hand the Administration more ammunition to increase regulation in what is arguably already the most regulated industry around. Second, and probably more to the point, lenders have HUGE inventories of REO that is sitting on their books and hasn’t been listed yet. It’s very difficult to get accurate numbers (or even a reasonable WAG) as to units by market, but in the major housing markets (Phx, LV, SoCA, FL) it’s a big number.

    With respect to stuff that nobody is even talking about, and that I’m not going to attempt to quantify, there are a number of apparent negatives still hanging over the housing market in the US. In no particular order:

    • Developers have basically abandoned partially completed developments in major markets.
    • Loan restructuring is a joke. It’s my guess that a large percentage of “restructured” loans will default.
    • Option ARMS!! There’s still a whole bunch of those out there, especially in big dollar markets like SoCA.
    • The $8,000 “rebate” is scheduled to go away very soon.

    With respect to your comments on the causes of the housing boom, I don’t necessarily agree with the idea that Barney, etal were the proximate cause of the problem. They certainly laid the regulatory groundwork for what happened, but the end result was a whole lot more complicated than “government” and the fools at ACORN could construe. It’s really a subject for a separate diary because it’s a long write and doesn’t relate to your specific subject here.

    Commercial real estate? You’re right, it really sucks.

    Fannie/Freddie? Heh. They’re gonna make Social Security look like a good investment.

    So, overall, don’t look for the residential housing market to be anything but a drag on the economy for years.

    With respect to buying real estate, a couple of points. One, if it’s your primary residence, treat it as your “nest” not a line item on your personal balance sheet. As far as investment property is concerned, remember IT IS NOT LIQUID. If it’s not running a positive cash flow – not including any tax considerations – don’t even consider it unless you’ve got money to burn. Literally. Real estate is, and always has been, a good investment for very sophisticated investors. It’s always been a road to bankruptcy court for most everybody else. (I know that’s a broad generalization and it’s a subject for yet another diary I just don’t have time to write.)

  • http://UnitedConservativesofVirginia Cargosquid

    As I’m new to RedState, I don’t know who you are, mbecker908, but any expert opinion is welcome.

  • Jack_Savage

    Looking at some short sale homes that are on the market, but have seen plenty that look empty but are not on the market in any way.

    Around here it looks like this: On the market, then price reduction, then short sale, then no activity.

  • mbecker908

    I know better to write before I’m caffeinated. The points I made, I stand by. The formatting is atrocious. I apologize.

  • mbecker908

    I know from nothing about Chapel Hill. Other than it’s a nice area.

    From your comment, I’m guessing the banks have huge inventories that they’re sitting on. That will depress the market for years to come. Another good indicator is to take a look at housing developments that were started about three or four years ago. Especially those that were initiated by regional or local developers. Is there activity? If not, and if the developments remain idle with vacant lots, that’s a huge problem.

    The bottom line on buying a “home” for me is this. Do not look at it as an investment. Look at it as a place to build family memories NOT your balance sheet and certainly not your retirement account. If you’re not planning on staying in the home for a significant while, think REALLY hard about it because real estate is about the least liquid thing you can lay your hands on.

  • mbecker908

    in the big markets anyway. And, it’s not just the Administration, it’s the banks hanging onto REO and pretending their defaults aren’t really defaults.

  • Jack_Savage

    He said that government intervention would draw this thing out for ten years, and I believe he is exactly right.

    Sounds like we are on the same wavelegth. I also have some rentals that are cash flow positive, which is just fine. If the market goes up, great, if not, I’ll just get my houses paid for.

  • Jack_Savage

    The further I look into this, the more I am convinced that inventory around here is being kept off the market so developers don’t go belly up. There are several developments that are idle, or moving VERY slowly. The local ones are stopped cold, but it seems the national ones (Toll Brothers, for example) are selling to out of towners, although much more slowly. They offer 1/2 price upgrades, special financing, etc. Local guys are dead – they can’t sell for market price because that would shaft the people who bought during the bubble.

    It really seems that there is a bit of a conspiracy between banks, realtors and developers around here. Sort of like a Wal Mart – the shelves are re-stocked when inventories get low. The banks have been made whole, so they have no reason to dump REO properties right now.

    You are dead on about the reasons to buy a home, and I just can’t see putting the required 20% + down on real estate right now. I swear I might sell my home (great area, great price point) and rent for a few years – I could get a great home and let someone else worry about the maintenance for a while.

    Thanks, mbecker.

  • mbecker908

    On “renting”… The very concept of “home ownership” for the vast, vast, vast majority of people is smoke and mirrors. Damn near nobody “owns” – or every will “own” – their home or even a significant portion of it. It’s more correctly termed “renting from the bank”. subject for yet another diary I won’t write anytime soon.

    With respect to developers, the national guys like Toll Brothers and KB can afford to take a hit on the houses as a trade off for the cash flow. The locals and regionals typically can’t. Why? Think “dot com”. The nationals are public companies, they can raise money in the stock market. The locals and regionals are either private or closely held and have to raise money the old fashioned way – borrowing it from a [drum roll please] BANK. No freaking banker in his right mind would loan these guys money. They won’t loan money to Toll Brothers or KB either.

    With respect to banks holding onto inventory to keep developers solvent, that’s not why they do it. They don’t give a damn about the developers, they’ve already taken their hits related to them. They’ve also taken their hits related to the REO on their balance sheets. Their problem is that if they start dumping inventory they drive the market into the tank for the short term and have to take new and bigger write downs. Which will raise more hell with their balance sheets and they’ll have to make up the difference with cash or the feds will shut them down for being technically insolvent. Think the S&L mess, a mess incidentally that was CAUSED by the feds and destroyed a bunch of perfectly healthy S&Ls and the real estate market for about five years.

    Story about renting. We were renting a house at the height of the RE bubble. Rent was about $1,200 a month. The owner put it on the market for $475,000. The idiot realtor came by and gave me first option to buy it. I looked him in the eye and said “What are, f*ing crazy???” I really insulted him. He went into this dialog about how I was missing out on a great tax deduction by renting. I smiled and pointed out that a mortgage payment, PITI, would be about $4,000. Given a 30% tax bracket, that left me with a net housing payment of about $2,800 but I had to front the extra $1,200 every month in order to take advantage of the “write off”. I noted that I DID go to engineering school and I AM good at math and that I really didn’t need higher order differential equations to conclude that $1,200 rent – net – was less than $2,800 net as a mortgage payment. Not to mention that hell would freeze over when he ever got more than about $200K for the house. It never sold.

  • Achance

    that is cash flow positve and no debt. I’d really like to modernize it and move it up market but in this economy I don’t think I could up the rent and I don’t want to subsidize it until the economy improves – if I live so long.

  • mbecker908

    is bull. It’s cash flow, cash flow and cash flow.