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Archive for May, 2012

Banks cannot force a short sale. So what, you say? Well, this simple fact has eluded the banks and the pundits who believe banks can simply shift their liquidation efforts from REOs to short sales. The major banks in the settlement deal want to complete more short sales to reach their write-off quotas. Short sales count toward their settlement amount, and foreclosures do not. This explains much of the recent dramatic shift away from foreclosures. However, foreclosures are within the control of banks; they can force foreclosures. Short sales are not within the banks control. Sure, they can approve more short sales, and they have over the last few months, but they can do nothing to force delinquent mortgage squatters…[READ MORE]

How do we taxpayers protect ourselves against Ponzi mortgage theft? Prior to the collapse of the housing bubble, when lenders gave free money to loan owners, it was theirs to give -- and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps and the dramatically increased market share of the FHA, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have every reason to inflate another housing bubble. Another bubble would generate enormous fee income at origination and interest income through ever-increasing…[READ MORE]

Unfettered capitalism has its drawbacks. The two most notable among them are key issues in the housing bubble and bust: Ponzi schemes, and monopoly price fixing. Ponzi schemes are destructive because they create artificial demand for goods and services based on unsustainable growth in investment or debt. A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an…[READ MORE]

Lenders are intent on maintaining inflated house prices to avoid write downs on their mortgage loans. Since prices are inflated, they only way they can sustain them is to make borrowing so inexpensive that the large sums required to buy a home are relatively affordable. Hence, we have lower and lower interest rates. US 30-year mortgage rate falls to record 3.79 pct. By MARCY GORDON -- The Associated Press May 17, 2012, 10:17AM ET Average U.S. rates for 30-year and 15-year fixed mortgages fell to record lows for the third straight week. The steady decline has made home-buying and refinancing more affordable than ever for those who can qualify. Mortgage buyer Freddie Mac says the rate on the 30-year loan…[READ MORE]


NAr couldn't care less about the greater good. They lobby for their own narrow interests, irrespective of the impact it will have on the housing market, the rental market, or the broader US economy. Their latest self-serving battle is against bulk REO sales. Obviously, they don't want to lose MLS commission sales to bulk transactions which generate no commissions to them. There is no other reason to oppose these bulk sales. Bill would stop bulk REO sales in California NAR backing sponsor Gary Miller's reelection bid By Inman News, Friday, May 18, 2012. California Rep. Gary Miller -- who's getting major backing from the National Association of Realtors as he runs for reelection to Congress in a new district --…[READ MORE]

Many market pundits claim lenders should focus on short sales rather than foreclosures. They contend short sales offer better capital recovery than foreclosures and they are less harmful to market pricing. This is not an accurate assessment. First, not all foreclosures become REO. About a third of all foreclosures are purchased by third parties who either flip them or hold them as cashflow investments. Flippers generally improve the property and sell for full market value, so their activities don't push prices lower. And obviously, cashflow investors don't push prices lower because they don't sell their properties. Both short sales and REO resales require discounts to sell. REOs require a discount because lenders are loathe to spend any money fixing them…[READ MORE]

Like any business, banks adjust their business plans quarterly based on both internal and external forces. Internally, banks respond their need for additional capital to fund operations. Externally, they cope with a declining housing market, recent regulatory changes, and new conditions imposed by the bank settlement. When banks adjust their business plans, it may have sudden and dramatic effect on their policies. In the first quarter of 2012, the major banks which control most California REO dramatically reduced the number of properties they purchased at auction. The precipitous declines in REO were not due to improving borrower delinquency. Far too many people are not paying their mortgages, and banks haven't made significant progress in reducing shadow inventory. In short, they…[READ MORE]

Many loan owners made mortgage payments over the last few years when they would have benefited more from strategic default. Many of those loan owners were motivated by the false hope of a government bailout bringing principal reduction or other goodies. California led these sheeple down the path and garnered much public attention for the tough stance the Attorney General took in favor of loan owners. Everyone rejoiced. Loan owners could taste the debt relief. Kamala Harris stoked her political ambitions as a pandering lefty. The banks got relief from further lawsuits. There was only one problem. Governor Jerry Brown and others in the state legislature decided giving money to loan owners wasn't the best use of taxpayer funds --…[READ MORE]

Many borrowers chose not to struggle with onerous house payments early in the housing bust and strategically defaulted. Most of these borrowers recognized their payments were greater than the cost of a comparable rental, and with falling prices, there was no return for this added investment. The wise choice then as now was to strategically default. Many did. Early strategic defaulters are being rewarded with much lower ownership costs due to lower house prices and lower interest rates. By the time prices recover to the peak when many of their cohorts will just be emerging from the depths, the early defaulters will have lower payments and significant equity. Strategic default was the best possible decision, and today's buyers are making…[READ MORE]


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In Memoriam: Tony Bliss 1966-2012