FedUpUSA

Archive for the ‘real estate’ Category

You have to wonder….

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

You mean like, for example, Nevada deciding to actually treat perjury as the felony that it is, and issue a 606 count indictment (along with materially beefing up laws that criminalize this practice.)

It seems to me that perhaps — just perhaps — banks are coming to the conclusion that recovering something on an improperly-documented loan beats recovering nothing, and the latter is becoming increasingly likely.

The better question however is what sort of title is something who buys such a short sale getting?  Is the chain of title any good and did they actually get marketable title?  If not, and they bought owner’s title insurance, is that insurance able to pay (and is the defect not excluded)?

For homeowners who are dramatically underwater and not paying, however, these sorts of “bribes” do make sense.  Recovery value is going to be dramatically impaired if the person in the house is uncooperative and simply sits and waits for the sheriff to show up.  It’s also often that person’s best move if their credit is already trashed, and if they haven’t paid in a year, it is.

One item I’ve noted in the local area is that banks are stringing along short-sale buyers for months, often allegedly telling them they’ll approve a deal in 60 or 90 days and then when there’s a week or two left they ask for more time — usually another month.  Not only does that prevent the house from becoming part of the “cleaning” in the market it also holds the proposed buyer off the market — they are neither a homeowner or looking for another, conventional deal!

To the extent that we’re actually getting decisions and clearing of the market, even as a small incremental step, this is a positive development — even if the motive of the bank making the offer is questionable at best.

A reader asked me to comment on historically low mortgage rates and their effect on housing. He asked because Realtors are telling him mortgage rates prove now is a “great time to buy”.

That comment prompted me to write Five Rules to Remember When Dealing with Real Estate Agents

Rule Number One

Real estate agents will always say “Now is a Great Time to Buy” no matter what the trend of prices, mortgage rates, or inventory.

Here are some phrases to expect depending on current conditions.

1. Prices are going up, better act fast.
2. Alternatively, prices are falling, homes won’t last long at these prices.

1. Interest rates are going up, better buy quick before you get priced out.
2. Alternatively, mortgage rates are falling, they won’t go much lower.

1. Inventory is huge. It’s a buyers’ market.
2. Alternatively, Inventory is shrinking fast. Don’t let your dream home pass you by.

Rule Number Two

Unless you specifically have a buyers’ agent negotiating on your behalf, the agent represents the seller.

Rule Number Three

The agent has only two missions:

• To get you to buy something
• To get you to pay as much as possible so the agent make the largest commission possible

Rule Number Four

As a result of rules one, two, and three, it is imperative to be skeptical about anything positive your agent says.

Rule Number Five

It’s equally important, if not more important, to take cues from what the agent does not say. For example, if the agent does not say anything about the school district, it is probably a poorly rated school district. Also, don’t expect the agent to tell you if a crack house is next door, gangs have taken over a neighboring block, the tap water tastes like sulfur, or the street floods every April. At most, agents will only disclose what the law says they must.

How Big is the Pool of Eligible Home Buyers?

Here is a set of questions that will explain what is happening now.

How many people ….

1. Don’t have a house?
2. Want a house?
3. Can afford a house, upkeep, and property taxes?
4. Have a needed cash cushion in the bank?
5. Have a decent down payment for a house?
6. Have a salary that can support interest and principal payments even at these low rates?
7. Are not scared s*less about the loss of a job, assuming they do want a house and meet the rest of the conditions?

Someone needs to meet all of those conditions before they will buy a new house. How many is that?

I just happen to have the answer.

New Home Sales at 1963 Levels

The Los Angeles Times reports New home sales drop to six-month low

Sales of newly built homes fell in July to the lowest level in six months, as the nation’s housing market continues to struggle.

Newly constructed single-family homes sold at a seasonally adjusted annual rate of 298,000, putting the industry on a pace to post the lowest annual sales since the Commerce Department began keeping data in 1963.

Is the eligible buyers’ pool getting bigger or smaller?

The trend says smaller, in spite of  falling interest rates and falling prices. Many items on my 7 point list are more important than interest rates, notably 1, 2, 3, 5, and 7.

That is the psychology of the situation and I see little reason for it to change until the labor market changes first.

Mike  “Mish”  Shedlock

The Global Economic Analysis

82 percent of American households have internet access.  Of those with internet access, a large number are homeowners.  The vast majority use Google to search for many things including foreclosure advice or investigating the real estate market.  The online trends give of a sense of what is happening in the collective psyche of our country that really isn’t revealed through the conventional press.  The housing market seems to be entering a second leg down and many are now predicting nationwide home prices to fall by 5 to 10 percent in the upcoming year.  With that being said, very few articles have made their way to the popular press regarding real estate as a bad investment.  Even today, there is still a sense that no matter the price, real estate will always be a good financial choice.  Let us examine the online trends and market behavior that surround the current real estate digital psychology.  

Strategic default the rage in 2010 

Google Trends offers a view into the machinery of the internet and what people are searching for.  In 2010 strategic defaults went viral: 

You can see that in 2009 the momentum was growing but in 2010 it has spiked off the charts as many Americans debate whether walking away from their underwater home is a good choice.  Yet this isn’t a nationwide trend necessarily.  It seems to be concentrated in the large bubble markets: 

Las Vegas by far has the most searches for strategic defaults given over 6 out of 10 mortgage holders are underwater.  The other familiar states of Arizona, Florida, and California show up as well.  It is also interesting that Seattle shows up as the fifth city with the most queries for “strategic default” yet is rarely clustered with the typical foreclosure areas. 

Is real estate a good investment?  

You would think that by now, some news source would have put together an article showing real estate is a bad investment under certain circumstances but not only does this not show up, those exact words don’t even pop up in Google News: 

Now it is obvious that some articles have talked down real estate but out of the millions of articles online, this string doesn’t pop up in any news article.  Again I tend to believe that there is still this strange primordial fixation with housing and this is largely why the bailouts have focused completely on banks and housing.  In fact, the focus has been so narrow that the government coupled with Wall Street has missed what is going on in the real economy: 

The headline unemployment rate has hardly improved and the underemployment rate is over 17 percent.  Combine this with the massive glut in housing: 

It is obvious that Americans are shifting priorities here.  The low sales rate of new homes is troubling for two reasons.  New family sales and construction serve a double purpose.  First, they put people to work building homes and second, new home sales do well in a good economic climate.  The above chart hasn’t responded at all to all the trillions of dollars in bailouts.  The bulk of home sales in the last two years have been foreclosure re-sales and these have moved because of lower prices.  The consumer is completely price conscious when it comes to housing. 

All the bravado coming from banks shows us a very different trend when it comes to them putting their money where their mouth is: 

While the banks are all the willing to lend out government backed mortgages, they have pulled back putting their money into play in the mortgage market.  In other words, banks have no faith in working and middle class Americans.  They are willing to take handouts through bailouts but their actions speak louder than words.  Just follow the trend and you’ll see where the money is going. 

My Budget360

Watch the full episode. See more Nightly Business Report.

Tomorrow, a bank—not your bank, but any bank—could evict you from your home. Even if you didn’t know the bank was foreclosing. Even if your mortgage is paid off. Even if you never had a mortgage to begin with. Even if the bank doesn’t hold a single piece of paper that you signed. And major banks not only know this fact, but have spent millions of dollars to defend it in court. Why? The answer starts with a Jacksonville homeowner named Patrick Jeffs.

In 2007, Deutsche Bank sued Jeffs for his home, which is a necessary step in the process of foreclosing on a homeowner in the state of Florida. Curiously, despite the fact that he immediately hired a law firm to defend his property when he found out about the foreclosure, neither Jeffs nor his attorneys were at the trial. That’s because it had already happened. Deutsche won by default because Jeffs wasn’t able to travel backwards in time to attend, even though the trial featured a signed affidavit indicating that he had been served his court summons.

The only problem with the summons Jeffs supposedly received was that it had been conjured out of thin air.

In June of this year, a Florida court ruled that the document was fraudulent, as the person who was supposed to make sure Jeffs was served had mysteriously received a copy of the summons before the lawsuit had even been filed, and Jeffs never even saw the copy. The text of that ruling was posted on various financial news websites in September. The lawyers that Jeffs hired to defend his case say that fraud such as this is not uncommon. It’s a widespread problem, and it has cost countless families their homes.

“I think it’s safe to say that 95% of the foreclosure cases in Florida involve some form of fraud on the part of the bank,” David Goldman of Apple Law Firm, PLLC told The Daily Caller in a phone interview. “It’s probably closer to 99%. And the court system is helping them get away with it.”

A 95% rate of fraud sounds preposterous, but the number was repeated by a paralegal familiar with the case, Lisa Beasley, as well as Michael Redman, who was prompted to create a website called 4closurefraud.org after enduring personal experiences with the matter. There’s a reason for them to say so—they take and report on a lot of foreclosure fraud cases—but there’s also a reason they devote so much of their time to these cases, just like there’s a reason that multiple states are suing major banks for the same type of fraud.

The Sunshine State has something called the “Sunshine Law,” which states that unless very specific conditions, such as the need to protect a witness, are met by a trial, it must be open to the public. But over the past several months, Goldman says that attempts to observe foreclosure proceedings have been met with bailiffs and locked doors. Then, banks successfully argue that because they own the paperwork behind mortgages and don’t want anyone who doesn’t have to see those titles to see them, the public doesn’t have the right to ask for them as part of an examination of court records.

Representatives of Deutsche Bank told The Daily Caller via email that the bank’s involvement in the Jeffs case was merely nominal, as it had to be named as the plaintiff in the case because it ultimately held the right to foreclose, not Chase, which originally made the loan and which was accepting Jeffs’ payments and forwarding them to the proper recipients. But Chase had tried to work out a loan modification with Jeffs, and he was current on his payments when Chase abruptly informed him that his modification was denied without explanation. Several days later, Jeffs found out that he supposedly no longer owned his home. He stopped making payments, and he hasn’t made them since. But no bank has been able to successfully repossess and sell the property. To the banking system, the asset backed by the house—the mortgage—has simply vanished into thin air.

Does that mean that Jeffs is finally in the clear? Not exactly. “Quite often, what happens in these cases is the bank creates new documents to fix the old documents,” said Goldman. “One of the most common things we see is a paper with a notary stamp that gives the bank the legal authority to foreclose. Well, anyone can buy those stamps. I can buy those stamps. A lot of what’s going on is law firms desperate to win a case are hired by banks who don’t know what those law firms are up to. Then the bank thinks it can foreclose, even though other banks also think they have that right, and those banks might not figure out what happened for a long time because the system is absolutely overloaded with foreclosures. And even if they do figure it out, suing to repossess a property that another bank already sold is a long and arduous process. So you wind up with a scenario in which the left hand doesn’t know what the right hand is doing.”

The “right hand” took three years to figure out the Jeffs case. Meanwhile, the fraud continues. Earlier this year, Goldman worked with Jane Doe, an elderly woman whose real name couldn’t be disclosed for legal reasons. She had just spent several weeks outside of her home state of Florida visiting relatives, and she was current on her mortgage payments, which she had been paying for the past 15 years. She even called up her bank during her trip to ask about the best way to send in her latest payment. The bank told her that it wasn’t allowed to discuss the mortgage with her because her husband was the property owner, not her. But the bank couldn’t discuss the mortgage with her husband, either. Why? Because he was dead. And he had been for five years. Confirming this fact would have taken mere minutes.

The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.

Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets.  As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs–Fannie, Freddie and FHA–and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.

The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.

But then the private owners and managers of the “too big to fail” banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.

Could anything be sweeter for the big banks? No.

The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.

One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the “enforcer” which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.

But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal is not just a “scandal” in which various frauds were brought to light; it is the failure of the entire system of originating mortgages that props up the entire real estate market.

I recently reported on the depth of the crisis for AOL’s Daily Finance: The Foreclosure Crisis: Eroding Trust — and Ending the Recovery?

The Mainstream Financial Media has been forced to gingerly poke around the delicate topic, and surprise, it is difficult to put a positive spin on the crisis:

Document Questions Cloud Recovery: Agents Fear Housing Could Stall as Uncertainty on Foreclosures Unnerves Buyers, Especially Investors.

“Title companies would be crazy to ensure title on anything remotely associated with a foreclosed property because we don’t know how this is going to resolve itself,” said Mark Hanson, an independent housing analyst in Menlo Park, Calif.

The result: Not only could sales slow on foreclosures now listed for sale, but it could also become harder to sell or refinance properties that have been foreclosed upon at some point in the past few years.

Real-estate agents are particularly worried about the situation’s impact on investors, the buyers who fix up foreclosed homes for resale. Investors accounted for 21% of all home sales in August, according to the National Association of Realtors. 

Little-Known MERS Faces Big Challenges in Foreclosure Battle:

Success in challenging MERS’ role in a foreclosure could mean the owner of a mortgage holds a loan without claim to the house as collateral, Mr. Weissman said. That result could set off a chain reaction reducing the value of mortgage servicing rights, an asset many banks keep as an investment.

Are We Headed for Housing Armageddon?

So to summarize:

1. The banks which depend on revenues collected from mortgage servicing are facing the possibility that millions of distressed mortgages will enter legal limbo and not be paid; additionally, millions of underwater homeowners realize they can stop paying their mortgages with no near-term consequence because the foreclosure system is frozen.If you doubt this, please read Gonzalo Lira On The Coming Middle-Class Anarchy.

2. The mortgages which the banks are holding on their books as income-producing assets at full face value are in effect either worthless or depreciated to some significant but unknown degree. If this fact were reflected in their balance sheets, all the big banks would all be insolvent.

3. Evictions based on foreclosures can be halted, delayed or even cancelled. Consider this alternative response to wrongful eviction: Evicted Family Breaks Into Their Former House (WSJ.com)

4. Pending sales of properties that were foreclosed are now of dubious legality.

5. Anyone buying a house in foreclosure, or a house that was foreclosed, cannot get title insurance.

6. Investors who have been propping up the housing market by snapping up properties in foreclosure (REOs or “distressed properties”) face high risks and uncertainties in buying any real estate that was in or is in the foreclosure pipeline. That means markets will lose 30% to 50% of their buyers.

7. Buyers who closed on foreclosed homes now face legal challenges to their ownership and potentially even “clawback” of the property as the previous owner can claim he/she was defrauded by a flawed/defective foreclosure process.

8. Real estate attorneys can rejoice: everyone will get sued, in every court in the land. Banks will get sued, title insurance companies will get sued, realtors will get sued, foreclosure mills will get sued, MERS will get sued, and so on. The attorneys general of the states will all sue the banks and mortgage mills, claiming billions in damages.Anyone who thinks this is all trivial technicalities is wrong.

9. The real estate market will collapse as the imbalance of buyers and sellers swings to extremes. Buyers vanish as trust in the institutions of real estate finance and property rights has collapsed, and millions of distressed/defaulted mortgages don’t get paid. Underwater sellers have a stark choice: either dump the house for cash (assuming the bank allows a short-sale and eats a massive loss) or stop paying the mortgage and see what happens.

That sets up a new positive feedback loop in a very tenuous market: millions of underwater homeowners will realize their homes are plummeting in value and “recovery” is hopeless. Millions more who were on the edge will be pushed underwater as prices fall. The incentives for the newly underwater are clear: stop paying the mortgage, since price “recovery” is hopeless and the foreclosure process is frozen.

The imbalance between few buyers and millions of properties on the market or in the shadow inventory has only one “capitalist” resolution: the destruction of price down to levels that clears the inventory.

Las Vegas offers a example of this clearing: condos are selling for 15% or 20% of their bubble-era valuations–and this is with massive Federal subsidies of the mortgage market.

10. There is a fundamental legal battle playing out between the property rights and rules of law embodied in state laws, and the Central State/Federal laws which enable MERS to transfer ownership of mortgages as securities. You can’t have both systems at the same time; either transfers of mortgages and ownership and the procedure of taking real property (foreclosures) meet state laws or these laws have been rendered moot.

Either there is due process of law or you have a kleptocracy/”banana republic” oligarchy. At present, that is the decision we face as a nation. If the banking Elites and their partners in the Central State (Fed and Treasury) are allowed to “win” and gut the property laws of the states, then the U.S.A. will be revealed as a kleptocracy/”banana republic” oligarchy.

If state laws are upheld, then the “too big to fail” banks are insolvent and they will fail. Then the question of kleptocracy arises once again: will the banks be allowed to fail as per Classic Capitalism, that is, their owners and managers will have to absorb the losses of that bankruptcy/failure, or will the Central State use its powers to collect taxes and cover the private losses of the Bank/Financial Power Elites? Privatizing profits and socializing losses has been the entire game plan since the global house of cards collapsed in 2008.

It’s decision time, citizens. Either the banks/Central State “win” and we are a kleptocracy/ “banana republic,” or they lose and the U.S. mortgage/ banking sector implodes and is either formally socialized (i.e. owned lock, stock and barrel by the Central State) or rebuilt from scratch without big banks, Federal guarantees and the Fed’s incestuous interventions. (“We create the credit that enables the mortgage, you issue the mortgage, and then we buy the mortgage.”)

There is no “fix” or half-measure that can patch this over now.The non-mainstream media can speak the truth directly. For example, here is the excellent Acting Man blog:

Total Chaos:

The biggest question of all, is there anyone working on a solution? I know the answer to that: No.We now have socialized housing. If you disagree, just imagine the consequences if government intervention were withdrawn. Real estate markets would collapse immediately. The government is the market. There is no exit strategy. 

The feedback loops are in full runaway mode, and the end-state will be a collapse of one system or the other: either the incestuous banking cartel/Fed/Treasury system of “private profits, socialized losses” implodes, or property rights and the real estate market implode.

Right now, both are imploding, and each system’s implosion reinforces the other’s collapse.

Of Two Minds