Real estate? Believe it or not, the NYT gets it…
Yeah, shocked the hell out of me too...
If I didn’t know better I’d think I’d been drinking. From the New York Times, and yes I usually refer to them as the DNC TalkingPointsMemo, but apparently some editors were out with hangovers today.
This story popped at an opportune time. We’ve been having an interesting discussion over here, a diary written by a brand new Redstater. It’s worth reading. Anyway, one of the points of discussion was mortgage modifications. My opinion – yes, I do have an occasional opinion – is that The BoyPresident™ is just trying to prop up the real estate market with a few hundred billion of our dollars and it’s a total waste of both time and money. Think of burning cash to stay warm on a bitter cold Phoenix winter night in the 60s.
The residential real estate market is a total mess. Pay no attention to any positive spin by the national realtor organizations, and if you need to know why just look at their newsletters from about 2004 through 2008. Bottom line, the market is buried in supply. MLS is choked, banks are holding REO off MLS in quantities about equal to what’s on MLS. God only knows how many people would love to sell for whatever reason but can’t because they’re upside down. Banks are holding off on trustee sales (foreclosures) because they can’t deal with the inventory they’ve got so we constantly hear stories of people living in homes for a couple of years and never making a payment. Banks loan portfolios are crap. Well, maybe they’re not quite that good. BofA is holding about 6% of their residential portfolio at 90 days delinquent. Wells Fargo is over 11%. Don’t look for those delinquencies to cure. The top five banks are holding almost $100 Billion in 90+ day delinquencies. And it’s rising fast. You can research the details here if you’re interested. Have alcohol handy.
Oh, and to throw another pebble on the pile, about 18% of FHA mortgages are delinquent. None of those properties have any equity. Option ARMS are going to adjust this year, mostly in the second half just before the election, and those are going to drive a stake through the heart of what’s left of the high end housing market. Lenders are going to raise the minimum credit score for an FHA loan from 620 to 660 in short order. If you’ve got a score below 660 and an application that’s not already approved, don’t expect to see it approved anytime soon. The net effect of raising the minimum score (remember FHA had no scoring requirements until about a year ago) will be to take out about 35% of the currently eligible buyers from the market.
OK, now to the NYT article, starting with the shocker of a headline:
U.S. Loan Effort Is Seen as Adding to Housing Woes
Followed by this:
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
Emphasis is mine.
And then we get to the part that I’ve been harping on for years.
Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.
As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation. [Note: trial modified loans are said to have default rates well in excess of 30%. There are no reliable published numbers on this and I don't expect to see any. MRB]
And then we get to the bottom line…
The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.
“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”
Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.
“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”
A good question, Mr. Geithner conceded.
“What to do about it,” he said. “That’s a hard thing.”
And the bottom line, gentle reader, is that the asylum is being run by the inmates. I said, a couple of years ago, that if the government would stay out of “fixing” the market it would stabilize in about five years. A whole bunch of home owners would be renters (actually, most are simply “renting from the bank anyway”), the banks would take a pounding and real estate would be at market levels and could recover. At the time I estimated that if Uncle got involved the problem would last ten years. I was wrong. At this rate it will last at least twenty and the pain will be a whole lot greater than even I could have imagined.
It’s time, Timmy, to do the “hard thing”. That’s why you make the big bucks.