This New York Times piece, written by Andrew Martin and David Streitfeld, highlights the latest “foreclosure-gate” debacle — that is, the shoddy preparation of mortgage documents which has stalled foreclosures in 23 judicial foreclosure states — and the effect it has on home sales. While the article focuses on sales declines, it altogether ignores the issue of price stability. With fewer homes released into the market, supply is constrained, creating a bit of temporary price stability that otherwise may not have existed. Either way, like most efforts under the current administration, this series of events will simply slow the decline to where the housing market will end up anyway. Here’s a link to the article:
I am quoted in today’s Los Angeles Times, on a piece by E. Scott Reckard related to a slight decrease in California homeowner delinquencies. In a separate report, the Mortgage Bankers Association announced in its Q1 report that delinquencies nationwide were slightly lower while foreclosures were slightly higher, indicating that we are gradually working through the logjam of excess shadown housing inventory. All good news. Link below:
I had stumbled upon this great little video a while back, and have been sharing it with many of my students, particularly those new to real estate and the secondary markets. It provides a very entertaining, yet fairly factual account of the events that led to the collapse of the financial markets toward the end of 2008. It was created by Jonathan Jarvis, a design student out of Pasadena, as part of his graduate thesis. Perhaps a tad simplistic, but still conveys many key points. I particularly get a kick out of the “subprime family” caricatures. I hope you’ll enjoy it as much as I do.
Today the Treasury released the February 2010 Making Home Affordable (aka HAMP) Servicer Performance Report, which depicts very informative statistics on the success of the program to date. I decided to do a little digging, since the academic quarter at UCLA ended today and I had a bit of free time…
If you look at page 4 of the report, you will see that we have reached a cumulative total of 1,094,064 trial modifications through the end of February 2010. The success of this program, however, is dependent largely on the percentage of trial modifications which are converted to permanent modifications, a step which requires 90 days of solid borrower performance under the new modified terms. Thus, we need to evaluate those trial modifications which are at least 90 days old, taking us back to November 2009. At that time, there were 822,075 trial modifications. Of those, 32% have achieved permanent status. I did a little math to get the breakdown: 168,708 (20.5%) are “permanent modifications” and 91,843 (11.2%) are “pending permanent modifications.”
That’s great, so what about the remaining 68%? I bet it’s safe to say that this is the redefault rate. A bit of fishing may help out. Hmmm…on page 6, they tell us that a WHOPPING 54% of modifications were made due to loss of borrower income! So what difference does it make whether the interest rate is 7% or 2%? Out of work borrowers still can’t make the payments, and this is the fundamental drag on today’s housing market. No window dressing can ever hide the fact that incomes are the only real cure for an ailing housing market. Link below:
David Haldane’s piece in this week’s Los Angeles Business Journal discusses the continuing decline in local median home prices. Haldane quotes me fairly liberally, and then in the end, pits my views against my good friend and colleague Chris Thornberg. And all along I thought I was the pessimist. Link below:
New York Times writer David Streitfeld’s piece this past week, “No Help in Sight, More Homeowners Walk Away,” highlights a serious dilemma in today’s housing market. However, in reading this article, we should recall the critical piece of legislation that reversed decades of tax law to make strategic defaults so appealing: the Mortgage Forgiveness Debt Relief Act of 2007. This act, passed under the prior administration, allows homeowners to walk away from cancellation of their debt obligations tax free, whereas in the past any such cancellation would have been taxable. Mortgage broker Steve Walsh may have thought twice before advising 60 people to walk away from their mortgages if doing so were accompanied by a hefty tax bill at year end. Unfortunately, these costs are now passed along to taxpayers, banks and the neighbors of defaulting homeowners. Here’s the link to the article:
Bloomberg ran a great piece today on lenders pursuing borrowers for deficiency judgements after foreclosure of their homes. While several states are recourse states, California is non-recourse for purchase money mortgages. In other words, if the borrower defaults on the loan used to buy the home, the lender is left with only the collateral, regardless of whether it covers the loss on the loan. Many other states do not afford borrowers this privelege.
All this is out the window, however, if the borrower refinanced or put on a second mortgage. In these instances, the lender has recourse, and can pursue a judicial foreclosure, as opposed to a trustee’s sale, and seek a deficiency judgment. Should this happen, remember that California is a “single action state,” meaning that the lender can either pursue a trustee’s sale, or pursue a judicial foreclosure and seek a deficiency judgement, but not both. Finally, for short sales, I encourage sellers to consult with legal counsel and ensure that the lender waives its right to a deficiency judgment. This should be a point of negotiation in the transaction.
DataQuick today reported a decrease in overall foreclosure activity during Q4 2009, but noted a transition in foreclosure activity from entry-level markets into the pricier, more established communities. This trend is consistent with what I’ve predicted through several media sources; that is, there exists a strong linkage between markets at all levels. Some are insulated, but none are immune.