|
Foreclosure Nation
A couple of weeks back, the AZ Republic ran a front-page article essentially declaring that Phoenix real estate had hit the bottom. There were quotes from local experts about current trends indicating that the worse is behind us. However, throughout what was probably the most ambiguous article I have ever read, there were a couple of small yet very important words that kept popping up. The words BUT & IF were riddled throughout the article leaving a bad taste in my mouth like sand in a beer. You can still drink, but the enjoyment is gone.
The Schizophrenic article would, in one sentence, tell how the numbers look good and then state how we are now headed into a period of uncertainty as Foreclosure numbers shoot through the roof. One often-quoted expert exclaimed that while the economy is fraught with problems, the fundamentals are strong. Didn’t someone lose an election for saying that? He went on to say that while buying has been good the last few months, get prepared for a slow down, but if you are a homeowner “don’t worry.” It was also pointed out that all the analysts believe that there will be another “dip” in housing prices. Is that why we should not worry? By all accounts, the biggest IF’s regarding stabilization factored on unemployment. Ironically, the front-page headline the following day was “State jobless rate 9.2% and rising.” Maybe they should have run that article first.
Well, at least for some Americans there is “good” news coming out of D.C. Goldman Sachs, JP Morgan Chase, and B of A are all happy campers with their billions in profits. Meanwhile, the rest of us lose our jobs and watch our country sink into bankruptcy. No one ever mentions that, besides the TARP money, Goldman Sachs received $12 Billion from AIG to cover hedge fund losses. Where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from taxpayers…The same taxpayers that had to prop up all of these jokers because they were too big to fail. In retrospect, all I see is an endless cycle of taxpayer funds creating “wealth” for these clowns while the rest of us starve. That’s capitalism, right?
What does all this have to do with real estate? Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgages and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. The overall mortgage delinquency rate jumped to 9.24% in the second quarter of this year from 6.41% in the same period of 2008. That's the highest delinquency rate ever recorded. Could that number have anything to do with the also rising unemployment rate now over 10% in 30 states?
With no job or prospect of a job, when underemployed or working only part-time or sporadically, homeowners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated by Deutsche Bank that by 2011 50% of homeowners nationwide and up to 90% in PHX will be underwater.
Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it. However, if a homeowner has financial distress and the property underwater mark hits 30% loss of equity, it really makes more sense to try a short sale since it will be years before the equity returns, given the numbers involved.
What about the refi program? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify. If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do probably have a better rate and more manageable payments, but the debt is still there.
What about the loan mod program discussed in previous editorials? Well, there we are back to the big banks, Chase, B of A, and all the rest. These banks do most of the loans in the country, so borrowers have to apply to these banks to get loan mods. Obama’s Homeowners’ Stabilization program can only be described as, shall we say, less than effective. The total number of actual modifications stands at 9% and most of those (75%) end up in foreclosure within 6 months since the modification did no good and in many cases increased the monthly payment. Not much of a start, so far…
Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.
What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners? Yeah right! Just try to do a loan mod or a short sale with B of A / Countrywide. They take forever - 4 months is the minimum; there is no maximum time. The paperwork demanded is just stunning and the incompetence level is higher. So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refi’s and loan mods, will come onto the market, especially here in AZ. The only thing clear about their process is that they have ZERO interest in the common good and obviously feel no obligation to the taxpayers that gave them $100 billion dollars to stay afloat.
Last year foreclosures hit an all time high. Before this year is out, there is no doubt that we will beat that record. The real problems of the economy have not been solved by the Fed's easy money policy, by the big bank rescues or by the stimulus programs ...
The real issues — too much bad debt, over leverage, a sick banking sector, and an over-stretched consumer — are still with us. If history is any guide, a huge deleveraging process will weigh as a major negative on the economy for many years to come. That's why the prediction of a stabilizing real estate sector seems to be based much more on hope than on reality. Reality tells us there are more job losses to come coupled with a hell of a lot more foreclosures. When these two things stop then stabilization will occur, but not before.
So when I hear an expert talk about how the fundamentals are strong, I have to reflect back to the last time I heard that in 05,06,07, and wonder what fundamentals they are looking at.
|
