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More MERS and Robo-Signing (VIDEO)
October 16th, 2010 | 
Author: Watch the full episode. See more Nightly Business Report.
Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Foreclosuregate, Foreclosures, Fraud, real estate | 
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One Nation, Under Fraud
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.
Instead, when Jane returned home, the locks to her house had been changed and all of the property inside the house was gone. She still hasn’t recovered that property, and the bank hasn’t even told her where it is. According to Goldman, the wrongful repossession was first admitted, and then, inexplicably, the bank actually changed its mind and tried to make the outrageous claim that the homeowners’ association was actually the entity which had ultimately decided to change the locks and empty the house.
Stories like these are what prompted a class-action lawsuit against lenders in southern Florida, with Deutsche Bank being listed as one of the defendants. Unfortunately, the problem isn’t limited to Florida. California’s attorney general recently filed his own class-action lawsuit on behalf of all of his state’s homeowners regarding the use of fraudulent documents to foreclose. Ohio’s attorney general has announced that he will be prosecuting every single case of foreclosure fraud committed by Ally Bank, formerly known as GMAC, with an individual lawsuit. Each suit would carry with it a fine of up to $25,000 on top of the cost of repairing the damages caused by the erroneous foreclosure. Arizona’s attorney general has sent letters to more than 60 banks informing them that foreclosing on any homeowners with erroneous documents will be considered criminal fraud.
Things are particularly bad in states like Arizona because of a peculiarity of their respective state foreclosure laws. Banks don’t have to go to court to foreclose on a property in those states. Instead, they can simply show “proof” of rightful foreclosure to local officials, who then evict the homeowners. To fight back against fraud, the homeowners have to hire a lawyer—which many can’t afford to do—and win a lawsuit before the property is sold.
“A lot of this stuff gets by everyone,” said Kevin Harper of Harper Law PLC, which operates in Arizona. “State law says that if a bank makes a mistake when they foreclose and sell, they only have to pay for damages incurred by the rightful owners. And since so many homes are underwater, the banks often argue that the owners haven’t suffered any damage whatsoever. Even if there was rampant fraud, there really would be no way to stop it in Arizona. So many of these cases involve mortgages that have repeatedly been bought and sold, and what you get is some guy in a bank checking off boxes for a foreclosure without knowing why. The left hand doesn’t know what the right hand is doing.”
No, that’s not a typo. Both Goldman and Harper used the exact same cliché to describe what the American financial system, the one taxpayers “needed” to pay untold billions to save, has become. Two hands without a brain, not even aware of the reasons they had to be bailed out. This was best highlighted by an event that generated plenty of late-night chuckles last fall, when Wells Fargo sued … Wells Fargo.
Wells Fargo wanted to foreclose on a condo unit which had multiple mortgages attached to it. Wells Fargo also owned one of those second mortgages. So Wells Fargo spent money to hire a law firm and file suit against the irresponsible lenders at Wells Fargo. Then, Wells Fargo spent money to hire a different law firm in an understandable effort to defend Wells Fargo from the vicious legal attack coming from Wells Fargo. The second law firm even prepared a legal statement for Wells Fargo which called into question the dubious claims being made by Wells Fargo. Sadly, Wells Fargo won the case, crushing the hopes of Wells Fargo.
As business reporter Al Lewis wrote at the time, “You can’t expect a bank that is dumb enough to sue itself to know why it is suing itself.” So goes the unprecedented wave of foreclosures that has swept across the country since the housing bubble popped. Mortgages have been bought, sold, and repackaged so many times through such an opaque process that banks have no idea who owns what. When they foreclose, they simply guess, making up the documents and information necessary to do so.
That’s how Bank of America could foreclose on homeowners who paid for their property in cash up front—repeatedly. Earlier in the year, Bank of America “foreclosed” on Charlie and Maria Cardoso, removing all of their property and changing the locks even as a realtor employed by the bank itself told it that there was no mortgage on which the Cardosos could skip payments. Eventually, the papers used by Bank of America were shown to have the wrong address. Someone, somewhere guessed. And Bank of America didn’t learn from its mistake.
On September 23, the bank “foreclosed” on a Ft. Lauderdale house owned by Jason Grodensky. Phone calls and emails elicited no answers, and the problem was only resolved after Grodensky took the story to the media and received national attention. There should have been no way for Bank of America to take control of the property. Instead, Grodensky discovered that the title to that property had already been sold. The bank recovered the title at its own cost.
Other banks are keeping up. This week, Florida television station WFTV reported Nancy Jacobini’s story. JP Morgan’s lawyers had sent a contractor to change the locks on Jacobini’s house. She actually happened to be sitting on a couch inside that house at the time, which means that she could have simply opened the door for the contractor in response to a simple knock—and it also means, according to Jacobini’s lawyer, that changing the locks was illegal, because the house was still occupied. Instead of a knock, Jacobini heard someone breaking through her front door, grabbed her phone and hid in her bathroom, where she called 911. The breaking and entering was just an extra helping of crime. And here’s the kicker—not only was Jacobini occupying the house, but JP Morgan hadn’t even foreclosed. At every step along the way, the rule of law simply didn’t exist.
The implications of this foreclosure nightmare are enormous. In the rare cases like the Cordosos’, when the correct owner of a mortgage is the same bank which thinks it’s the correct owner, little is ultimately changed in terms of bank assets unless there’s a large disparity between the value of the properties. But a much more common occurrence is what recently forced Ally, formerly known as GMAC, to knock over the first domino by halting nearly all of its foreclosure activities, and what prompted the state of California to file a class-action lawsuit against foreclosing banks.
A man named Jeffrey Stephans testified on September 14th that he had signed off on affidavits which he didn’t actually examine. Those affidavits were used in thousands of Ally foreclosures, and the properties involved were subsequently bought and sold. The previous homeowners can now sue the banks that foreclosed, and the “they were underwater anyway” argument isn’t holding up in many states, where both civil and criminal penalties are being discussed. By admitting his actions, Stephans instantly invalidated all of the repossessions and sales that were based on those actions. And Stephans said his practices are common in the industry. They’re so common, in fact, that a term was developed to describe them: “robo-signing.” This is being performed at law firms that process thousands of documents a day, which have become known as “foreclosure mills.”
Tammie Lou Kapusta, a former paralegal for one of those mills, testified on September 22nd that she was instructed by the attorneys at the firm to officially notarize hundreds of documents a day with a notary stamp that she wasn’t legally allowed to use. When complaints started rolling in about stamp dates that didn’t match other dates within the documents, she and all of the other paralegals doing the same thing at the firm were instructed to make the date of the stamp match the other dates, no matter what day it actually was. The documents would then be signed with the name “Cheryl Samons” by three different people, only one of whom was actually named Cheryl Samons. Kapusta said she drew the line when she was instructed to use random Social Security numbers assigned to people who might not even exist in order to falsify documents regarding each hypothetical person’s military status.
At least she drew it somewhere. She told the court that others didn’t. Unless Kapusta, a paralegal, was looking to incriminate herself, and unless she somehow managed to file emails from Samons and documents from the firm as evidence, there are now countless fraudulent papers containing military-related claims which are making their way through the system, and the actual people attached to the Social Security numbers used have absolutely no idea they’re tied to legal documents that they’ve never laid their eyes upon.
Some local governments were even accidentally informed directly that an institution was committing fraud, but no one noticed for years. The public record of Florida’s Nassau County shows that American Home Mortgage Acceptance, Inc. filed forms which claimed that a mortgage had been sold to, astonishingly, “BOGUS ASMTS.” The same company filed papers with Fulton County, in Georgia, which claimed that a mortgage had been sold to “BOGUS ASSIGNEE,” a company apparently based out of the address “XXXXXXXXXX.” Wells Fargo filed papers with that same county which supposedly showed that a mortgage had been bought by “BOGUS.” (No word on whether or not Wells proceeded to take itself to court for this infraction.) Some documents contain names with signatures that don’t even match.
On top of it all, there are companies which provide banks with the convenient ability to purchase “recovered documents” to replace papers that are “missing.” (Of course there are.) Until 2009, a company called DOCX was one of these providers. What super-sleuthing ability allowed DOCX to “find” those papers? The ability to make them up, which DOCX openly advertised. Then banks used—and still use—them in court. Supposedly, DOCX only created papers when the facts behind those papers were correct according to electronic records. In reality, those electronic records are very, very flawed, and are now causing major confusion for banks that think they own mortgages which are actually owned by other banks, or sometimes not owned by any of them.
In August, the Shapiro & Fishman law firm had to file a second set of mortgage papers in a foreclosure case because the original DOCX papers had been proven to be fraudulent. Got that? Two different sets of papers regarding the same mortgage. DOCX was forced to stop providing its “services” in the face of growing complaints about the fact that the documents it was preparing were about as legitimate as Monopoly money. And which bank has been sued for using documents “found” by DOCX? Deutsche. Naturally.
One thing DOCX apparently didn’t do is file affidavits of lost summons. Those are legal claims that a defendant was informed of a case with a court summons that was supposed to be kept on file but was instead mysteriously lost. On Friday, 4closurefraud.org reported that Legalwise, Inc. had pulled a report on how many of these affidavits are being filed on behalf of banks. The site then posted a list of some of the affidavits of lost summons that have been filed in the past year alone; not the text of the affidavits themselves, just the identifying serial number and three names connected to the case. When copied and pasted into a word processing program, the list is 271 pages long. Many of the names of the defendants are either blank or John/Jane Doe, which could make one wonder exactly how the process servers figured out who to tell about the impending trial. Yves Smith, a well-known economics writer, reports that the entire list is from just one state—and from just one county within that state. If the process server signs an affidavit “confirming” that the summons was delivered and subsequently lost, then there’s no way to tell who was actually served until courts call into question all process server affidavits. An untold number of homeowners are missing their foreclosure proceedings, just like Patrick Jeffs did, because they’re never even told about them.
The first thing that’s insidious about the banking reaction to all of this is the timing. A Bank of America executive told a Massachusetts court in February that the practice of not examining mortgages intended for foreclosure is common. She added that she signed thousands of statements “confirming” examination of documents used to foreclose every month, and that she “typically doesn’t read them.” When did Bank of America begin to halt some of its foreclosures? Less than two weeks ago. That’s not a sign that Bank of America didn’t know what it was doing. It’s a sign that Bank of America thought it could get away with what it was doing.
Still, that’s not what’s most insidious about the reaction. What’s most insidious is where the foreclosure freezes are taking place. Many banks have only ordered foreclosures to cease in 23 states. Why 23? Because there are 23 states that require courts to review foreclosures. And every single one of those states is on the list.
The banks in question have been trying to claim that they only chose to stop most foreclosure activity in the 23 judicial review states because they think the problem is almost entirely contained within the robo-signing of the court documents needed to foreclose. That’s a bit strange, because Yves Smith writes that North Carolina lawyer Max Gardner has a running joke that when a group of over 100 lawyers he works with find a mortgage with proper documentation, the papers should be bronzed and hung on the wall—and North Carolina isn’t a judicial review state.
To be more specific, a mortgage has two basic components. One is the deed of trust attached to the property itself, and the other, called a note, is the homeowner’s IOU. Gardner’s lawyers have yet to find a single note that correctly documents the path the IOU has taken to arrive at the bank trying to foreclose. The notes were the things getting robo-signed during the housing bubble, not by foreclosure mills but by mortgage mills. And the signing was even more robotic because it could be done electronically through a system called Mortgage Electronic Registration Systems (MERS). When a note was sold into the system, “ownership” of the note could be traded via computer. Unfortunately for MERS, the law requires the physical note to prove ownership, so none of these trades were exactly what one might call legal, or even what one might call real. Hence the need for operations like DOCX, to fill in the missing paperwork.
To provide an understanding of just what kind of legal monster MERS has become, Christopher Peterson, a law professor at the University of Utah, has authored a working draft of a paper about MERS which says, among other things, that the company that runs the system, MERSCORP, does not actually have any employees, and that it licenses employees of other companies to use the title “Vice President of MERSCORP” in foreclosure lawsuits. It also sells its own corporate seals, used on paperwork to back up foreclosures, for $25 online. Peterson’s paper described the legal process used to foreclose on any mortgage within the system as reliant upon determining the owner of that mortgage to be “whoever the error prone, virus infected, customer service representative bulwarked computer records of mortgage servicers say it is.”
In addition, the AP reports that recently-released court depositions state that financial institutions hired hair stylists and Walmart floor workers to fill positions that would qualify for the term “foreclosure experts,” even though the so-called “experts” received barely any training at all. These were the robo-signers, and many of them couldn’t even answer questions as to what a mortgage is, or what an affidavit is. Some of those people have now testified that they knew they were lying when they signed foreclosure affidavits (the ones they couldn’t define), and that they agreed with the accusations of document fraud. As they signed, they both used information from and created new information for MERS.
A class-action lawsuit was just filed in California which asserts that MERS has no legal standing whatsoever in nearly any state to actually hold a mortgage. Many mortgage-backed security experts are not even aware that MERS has made the shaky legal argument that it’s both the actual owner of any given mortgage and also merely the entity holding onto any given mortgage for someone else. The same lawsuit states that Countrywide, which took over a larger and larger part of all mortgage lending in the state during the housing bubble, not only committed fraud by selling faulty mortgages to investors from 2004 onward, but knew that it was doing so. That means a lot of the original paperwork behind those mortgages will have to be changed, which poses a problem not just for Countrywide, but for nearly every lender in the United States.
For financial institutions, the problem isn’t the “missing” documents. It’s the missing documents—the real ones, which say much different things than the “missing” ones, and which the banks can’t seem to get their hands on. Everyone in the financial industry has been looking for them in more places than kids look for Carmen Sandiego, and they still can’t seem to find the X that marks the spot. There’s good reason for that—the industry destroyed the papers a long time ago. On purpose.
Banking officials happily told the Florida court system in 2009 that the documents had been shredded. At the time, lenders were trying to prevent some foreclosure rule changes, so they sent a letter to the Florida Supreme Court. Among other things, the letter stated that it was standard practice to destroy mortgage papers once the mortgages were sold into MERS in order to avoid confusion. (“A” for effort on that front.) Something funny happens when tearing up a contract, and it might best be explained by a certain common phrase. That phrase is, “Tearing up a contract.” Unless very specific conditions are met, the contract becomes null. Void. Not worth the paper it is printed on.
The fact that so many contracts were torn up explains why DOCX didn’t deal in affidavits of foreclosure, at least not according to a DOCX price sheet posted on attorney Matthew Weidner’s website. The sheet lists the going rates for tasks such as, “cure defective mortgage.” Nowhere on the document does DOCX say that its services were limited to 23 states. Quite the opposite, in fact—DOCX proudly boasts of its “nationwide” presence at the very top of the sheet. Any mortgage that became “defective,” something that tends to occur when banks can’t find anything signed by homeowners with “mortgage” written in nice big letters somewhere, could be “cured” by DOCX, no matter what state contained the relevant property.
DOCX also offered to “create missing intervening assignment,” which refers to something called an “assignment of mortgage,” the document used to sell a mortgage from one financial institution to another. The company would completely make up the document showing who owned any given mortgage, and would do so for the low, low price of $35. DOCX saved its best for last: “Recreate entire collateral file.” A collateral file is made up of several documents, including the note, deed, title commitment, and assignment. In other words, this was the combo meal on DOCX’s menu. And anyone willing to buy a whole lot of fresh papers even received a “volume discount” for their bulk orders.
Banks expect Americans to believe that this only occurred in 23 states, because doing so in the other 27 might be unethical. They also expect us to believe that not a single foreclosure has been challenged in those 27 states, and that the resulting paperwork didn’t come from a foreclosure mill. They also expect us to believe that the sales of houses that have already been seized, which are continuing as scheduled, are legitimate. Just like they expect Americans to believe that the reason DOCX didn’t also sell photocopies of personal checks is something other than the fact that copies of checks can’t be cashed. A check is actually just about the only thing a homeowner can sign without significant fear of being held hostage by a mere copy.
Americans have stopped believing. The attorneys general of every single state just opened a joint investigation into foreclosure fraud. As long as 50 is still a bigger number than 23, the problems aren’t contained. And banks are finally starting to react to the disbelief. The CEO of JP Morgan Chase, one of the founding members of MERS, has told CNBC that the bank has stopped naming the system as a plaintiff to foreclose. He actually said that JP Morgan had stopped naming it two years ago. The foreclosures that relied upon the information MERS holds, however, didn’t stop. Coincidentally, JP Morgan bumped up the reserves it was holding for “litigation and repurchase,” referring to events that would require buying back mortgages that had been mistakenly sold off. The Association of Financial Guaranty Insurers recently told Bank of America to prepare to be hit by lawsuits which will force it to buy back between $10 and $20 billion worth of mortgages. Similar numbers would apply to other nationwide banks. Bank of America’s entire federal bailout, before it purchased Merrill Lynch and needed additional funding, was worth $25 billion.
MERS, incidentally, also developed a commercial real estate program. The company even went so far as to declare that the commercial market had been “liberated from assignments” in the press release announcing the new program. The law has a much different opinion about whether or not MERS actually liberated anyone from anything. Inventing a product that gets around legal requirements doesn’t mean those requirements simply disappear. It only means that the inventor had better hope that nobody notices. Right now, the fraud investigations are mostly contained within residential real estate. Just like the problems in subprime lending were “contained” within subprime housing, according to Ben Bernanke in 2007. The owners of stores and offices around the country will soon be investigating the documents used to foreclose on commercial property much more closely.
The federal government recently tried to “fix” the mortgage mess with HR3808, a bill which would have required every state to recognize electronic records—the ones being robo-signed. Word of this legislation spread around the Internet quickly enough that an enormous amount of pressure was put on President Obama to veto it, which he ultimately did. The problem was that he had to. HR3808 was only on his desk because it had passed through the House with a simple voice vote and through the Senate by unanimous consent. Every single Democrat and every single Republican present in the Senate at the time approved of the bill. Which experts in blind rubber-stamping could possibly have been advising senators and representatives to let this legislation sail through Congress?
Smith also reports that when confronted with this information, the CEO of a major subprime lender replied, “If you’re right, we’re [screwed]. We never transferred the paper. No one in the industry transferred the paper.” The CEO used appropriate terminology. The decision to stop foreclosures in only 23 states is nothing less than a giant middle finger given to the collective intelligence of the American people. When it comes to each individual branch, the left hand doesn’t know what the right hand is doing, but it turns out that there’s a brain after all. The brain knows exactly what’s going on, and it knows that both hands can only get away with it as long as they can operate outside the law. That’s because what they’re doing is illegal. Fraudulent. Wrong. A forgery wrapped in a deception wrapped in a lie.
That’s why the final email The Daily Caller received from Deutsche did not contain any explanation at all. When questioned as to why its foreclosure proceedings are continuing despite the fact that its lawyers had been proven to be committing fraud, and why those proceedings are continuing despite the fact that the loan servicers which are a part of every major bank’s legal stature have been called into question, Deutsche offered no answer whatsoever. Its official response, sent directly to The Daily Caller, was that it “declined to comment.” Rather than stopping the fraud, Deutsche wants to cover its ears and keep kicking people out of their homes with fake documents, and wants to pretend that there won’t be repercussions for doing so.
Deutsche’s refusal to explain its actions is even more important than most would think because mortgages themselves aren’t the end of the story. When banks bought bunches of mortgages to create now-infamous mortgage-backed securities, they did so by forming trust companies to hold the mortgages themselves and forward money to the investors who bought the securities. One of those companies is technically who sued Patrick Jeffs—not Deutsche Bank, but the Deutsche Bank National Trust Company. When the companies were created, they had to abide by what’s called a pooling and servicing agreement, which defined the steps they had to take to acquire mortgages and send mortgage payments to the correct investors. The agreements allow the companies to enjoy tax-free status with the IRS, because the payments they receive aren’t considered income due to the fact that the role of the trusts is to send virtually all of the money to someone else.
The IRS has strict rules regarding these companies, and when the rules are broken, there’s a slight penalty. From 0%, the tax rate on payments received by a trust company that broke the rules jumps to 100%. One of the rules states that a trustee is supposed to acquire any mortgages it will hold within three months of the formation of the trust. There’s an exception for replacing a mortgage with another mortgage, but remember, the notes and assignments involved have either been destroyed or are so erroneously marked that they’re fraudulent. Even if the notes and assignments were all accurate and still in existence, the status of the mortgages in question has changed dramatically. Countless payments that were being made in 2005 have stopped in the aftermath of the housing bubble. The trusts can’t acquire anything close to the number of healthy mortgages they claim to hold, and even if they could, the IRS would take the payments or money from foreclosure sales away. Trusts haven’t been selling mortgage-backed securities. They’ve been selling nothing-backed securities. And as people discover this fact, the value of both the “mortgages” that banks only think they own and the nothing-backed securities will become $0, unless homeowners decide to get their jollies by giving banks money for no reason.
It gets worse. The equally-infamous credit-default swaps that bankrupted AIG will come roaring back with a vengeance as the foreclosure process grinds to a halt. Credit-default swaps are financial instruments called derivatives, which are assets with values determined by other assets. When a mortgage isn’t really a mortgage, a derivative based on that mortgage is suddenly called into question. Banks own trillions in derivatives. They also own derivatives of derivatives. Amazingly, they even own derivatives of derivatives of derivatives. The total dollar value of all derivatives in the American financial system is listed by the Office of the Comptroller of the Currency at an absolutely incomprehensible $233 trillion. And much of that will simply vanish into thin air, crashing major banks into the ground.
They can’t survive without the fraud. So they’ve decided to rob America blind. They just don’t want you to know. Thus, only one question remains. When do we foreclose?
The Daily Caller
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Foreclosuregate, Foreclosures, Fraud, Government, Money, real estate |
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The Coming Collapse of the Real Estate Market
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:
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.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Foreclosuregate, Foreclosures, Fraud, Government, Money, real estate |
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The Real Horror Story: The U.S. Economic Meltdown
This October, millions of Americans are going to watch horror movies and read horror stories because they enjoy being frightened. Well, if you really want to be scared, you should just check out the real horror story unfolding right before our eyes – the U.S. economic meltdown. It seems like more bad news for the U.S. economy comes out almost every single day now. Unfortunately, things are about to get a whole lot worse. The mainstream media has been treating “Foreclosuregate” as if it is a minor nuisance, but the truth is that the lid is about to be publicly lifted on years and years of massive fraud in the U.S. mortgage industry, and this thing has the potential to cause economic chaos that is absolutely unprecedented. Over the past several days, expert after expert has been coming forward and warning that this crisis could completely and totally paralyze the mortgage industry in the United States. If that happens, it will be essentially like pulling the plug on the U.S. economic recovery.
Not that there was going to be a recovery anyway. The truth is that economic statistic after economic statistic has been pointing to incredible trouble for the U.S. economy.
For example, the U.S. government just announced that the U.S. trade deficit went up again in August. According to the U.S. Census Bureau, the U.S. trade deficit was $46.3 billion during August, which was up significantly from $42.6 billion in July.
So how much coverage did this get in the mainstream media?
Well, just about none.
We have gotten so used to horrific trade deficits that it isn’t even news anymore.
But these trade deficits are absolutely killing our economy.
How long do you think that the U.S. economy can keep shelling out 40 or 50 billion more dollars than we take in every single month?
If you look at the countries around the world that have become very wealthy, almost all of them have gotten that way by trading with the United States.
Meanwhile, many of our once great manufacturing cities are turning into open sewers.
Every single politician in the United States should be talking about the trade deficit.
But hardly any of them are.
Is it because Americans have all become so dumbed-down that we don’t understand these things anymore, or is it because we are so distracted by the various forms of entertainment that we are addicted to that we just don’t care?
But the trade deficit is not the only economic statistic that is getting worse.
According to the Department of Labor, for the week ending October 9th the advance figure for seasonally adjusted initial jobless claims was 462,000, which represented an increase of 13,000 from the previous week.
We have an unemployment epidemic going on in this country, but what did the mainstream media do in response to this news?
They yawned. Instead, many of the “financial experts” were busy talking about how wonderful it is that the Stock Market is going up, up, up.
Well, as one reader recently reminded me, if you want to evaluate an economy by how much the stock market is going up, then the economy of Zimbabwe has had an absolutely wonderful decade!
The truth is that the stock market is not a good barometer for what is actually going on.
What is really happening is that the U.S. economic system is literally coming apart at the seams.
Yet another piece of really bad economic news that just came out is that the number of home repossessions by banks set a new all-time record during the month of September. The record total of 102,134 bank repossessions was the first time ever that bank repossessions climbed over the 100,000 mark for a single month.
The good news is that bank repossessions are about to come to a screeching halt.
The bad news is that it is because the U.S. mortgage industry is about to become completely and totally paralyzed by this foreclosure fraud crisis.
The following are three basic points to remember about this foreclosure mess….
A) Massive Fraud Was Committed At Every Stage By The Mortgage Industry
In a previous article entitled “Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds“, I attempted to describe just how widespread the fraud in the mortgage industry has been….
The truth is that there was fraud going on in every segment of the mortgage industry over the past decade. Predatory lending institutions were aggressively signing consumers up for mortgages that they knew they could never repay. Many consumers were also committing fraud because a lot of them also knew that they could never possibly repay the mortgages. These bad mortgages were fraudulently bundled up and securitized, and these securitized financial instruments were fraudulently marketed as solid investments. Those who certified that these junk securities were “AAA rated” also committed fraud. Then these securities were traded at lightning speed all over the globe and a ton of mortgage paperwork became “lost” or “missing”.
Finally, when it came time to foreclose on these bad mortgages, a whole lot more fraud was committed. Thousands upon thousands of foreclosure documents were “robo-signed”, but the truth is that investigators are starting to discover a lot of things about these mortgages that are a lot worse than that.
B) Nobody Really Knows Who Owns Or Who Has The Right To Foreclose On Millions Upon Millions Of Mortgages
The legal rights to millions of U.S. mortgages has been scrambled so badly that it might actually be impossible to fully sort this mess out. In particular, MERS (Mortgage Electronic Registration Systems) has created a paperwork nightmare that may never be able to be completely remediated.
On a previous article, a reader named William left a comment that did a great job of describing the very serious problem that we are now facing because of MERS….
MERS – potentially the most serious problem because it affects who really owns the loans. Securitization mandates that loans be transferred into REMIC trusts within a strict timeframe. Late transfers are not allowed. In spite of the supposed “ease” of transfer through MERS, it now appears that perhaps 60% of US loans were never properly transferred. Absent remedial legislation, it is impossible to do so now. And the former owners may be out of business or bankrupt. So how do we get these loans to the trust beneficiaries who were supposed to own them? This is no simple paperwork correction. The train has left the station, with no more to follow.
C) Unprecedented Chaos Is Going To Erupt As Faith In The Mortgage System Completely Dies
So what is going to happen as a result of all of this fraud and confusion in the mortgage industry? Well, basically everybody is going to sue everybody. It is going to be absolute mayhem.
Charles Hugh Smith recently put it this way….
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.
Meanwhile, virtually nobody will want to buy any house that has been foreclosed on in the past ten years or so until this mess is sorted out (which could take years and years).
Meanwhile, title insurance companies are going to avoid foreclosures like the plague.
Meanwhile, all of the investors that have been propping up the housing market by buying foreclosures are going to be fleeing the market in droves.
Meanwhile, the financial world is going to be trying to figure out which U.S. lending institutions are still solvent. The value of most mortgage-based assets is now totally up in the air.
Meanwhile, millions more homeowners across the United States will be emboldened to quit making payments on their mortgages as they realize that those holding their mortgages may not have the legal right to foreclose on them.
And that is where the true horror of this entire situation may lie. What is going to happen if millions upon millions of Americans holding underwater mortgages look at this situation and decide that they really don’t have to be afraid of the threat of foreclosure any longer?
If a massive wave of homeowners suddenly decides to simply quit paying their mortgages, it would basically wipe out nearly the entire mortgage industry.
That would likely mean more government bailouts, more government control, much higher mortgage rates and eventually a serious crash in housing prices.
This crisis is incredibly complicated and it has a ton of moving parts, so it is extremely difficult to describe accurately. But the reality is that this mess has the potential to hurt the U.S. real estate market much more than “subprime mortgages” ever did.
Hopefully this crisis will not be “the straw that broke the camel’s back” for the U.S. economy, but with each passing day this thing looks even more horrifying.
One way or another, real estate law in the United State is going to be changed forever as a result of this crisis. It is going to be extremely interesting to see how all of this plays out.
Posted in Banks, Corruption, Debt, Deficits, Economic Crisis, Economy, Financial System, Foreclosuregate, Foreclosures, Fraud, Government, Money, real estate, Trade Deficit |
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The trillion dollar bailout you didn’t hear about – Commercial real estate values plummet again yet banks hide losses. A $3.5 trillion financial disaster in the making. We are now proud owners of an AMC theater and Chick-fil-A.
The latest data on existing home sales should tell you exactly where we are in this so called recovery. Average Americans are unable to purchase big ticket items without massive government subsidies. It is also the case that all the too big to fail banks are standing only because of the generous support of taxpayer money. Without large tax credits and the Federal Reserve buying down mortgage rates the housing market is extremely weak. Yet very few of the housing “analysts” actually bother to ask why they are weak in the first place. The employment market is in disarray and wages have fallen for everyone outside of the top 1 percent of income earners. The bailout fatigue is running out of steam but banks are using clandestine methods to offload trillions of dollars of commercial real estate to taxpayers. The next giant bailout is already happening but you probably haven’t heard about it.
Commercial real estate values continue to slide:
Source: MIT
For the latest month of data prices fell an additional 4 percent. Now this is coming at a seasonal time when real estate values usually see price increases. But people are pulling back and spending less money on discretionary items. This is happening for a couple of reasons including the fact that wages have been stagnant for over a decade and the underemployment rate is still near peak levels. Commercial real estate in places like Las Vegas has crashed because who is out buying million dollar condos in this market? Very few and that is why you are seeing many places having vacancy rates of 50, 60, or even 70 percent.
“TALLAHASSEE — Condo bills have flooded the Capitol.
More than five dozen have been filed during the legislative session, as Florida grapples with its real estate crisis. But boil down the language of the proposals to help cash-strapped condo dwellers, and there are only a handful of ideas:
Make it easier for investors to buy multiple units in empty buildings. Delay state-mandated upgrades. Discover ways to punish owners who don’t pay skyrocketing association dues.”
So instead of letting prices correct and allowing markets to set the actual price based on lower incomes, the government and specifically the banking and housing industry are trying to do everything to keep home prices inflated. Ironically they are using agencies that were intended to help low to moderate income buyers purchase, in essence, affordable housing. And if the prices don’t stay inflated, they offer big discounts only to their crony friends. So how exactly is this benefitting the typical American family?
Over a year ago, the U.S. Treasury was secretly discussing “Plan B” about gearing up for a giant commercial real estate bailout. Not much was said about this in the mainstream media. Yet now we know that banks specifically the Fed are taking on incredible amounts of CRE loans onto their books. In other words, the bailout is already happening. Think this isn’t the case? We now own a mall out in Oklahoma:
Source: NPR
“(NPR) As part of the bailouts of AIG and Bear Stearns, the Federal Reserve Bank of New York spent more than $70 billion to buy toxic assets the companies owned. Last week, prompted by a lawsuit filed by Bloomberg News, the Fed finally told the world exactly what it bought.
The Fed now owns loans to Hilton hotels in Hawaii, Puerto Rico, Malaysia and Trinidad. It owns loans to the Miami airport, and the Civic Opera House in Chicago.
It also owned a loan to Crossroads Mall in Oklahoma City. Then, when the owners of the mall couldn’t make the payments, the Fed foreclosed. So now it owns the mall, which includes a Chick-fil-A and an AMC theater.”
How much demand exists for this out in the current market? There isn’t much if you look at current CRE values. But prices are continually distorted as more and more money is filtered to the banking sector of the economy. Keep in mind that many banks have incredible amounts of CRE debt. As we just saw with existing home sales, without massive tax subsidies the market is still overpriced. CRE values are coming down to reflect their true values yet the suspension of mark to market and the ability of banks to roll over bad loans keeps price discovery hidden long enough to devise additional ways to push this toxic waste to taxpayers.
The fact that the entire banking system is now held up by taxpayer money, we have in effect nationalized the banking system with no actual benefits of nationalization. That is, all the profits go to banks while all the losses hit the taxpayer. This goes for Bank of America, JP Morgan, Wells Fargo, AIG, Goldman Sachs, Fannie Mae, Freddie Mac, FHA, and every other entity that is a ward of the state in one way or another.
Commercial real estate has gotten zero play in the mainstream media even though this is a $3 trillion market. Does the public drive by an empty condo building or strip mall and think about the larger implications? Maybe they don’t and that is why the government and banks are working together to slowly work their shadow bailout.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money, real estate |
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Gear up for another lost decade in real estate. Housing will remain stagnate from 2010 to 2020. Demographic shifts, higher mortgage rates, and shifting consumer taste in real estate.
The dynamics for housing moving forward point to a very bleak future and a potential lost decade yet again from 2010 to 2020. Housing has a treacherous path moving forward and deep down demographic shifts will keep a lid on any significant housing appreciation moving forward. The economy is in the process of deleveraging from a market highly dependent on real estate. Wall Street and the government are doing everything they can to bring back the economy of yesterday but have had little success. This recession has shrunk the middle class so those looking to buy homes have declined simply because many can no longer afford to purchase a home even at today’s lower prices. Focusing on housing first was a big expensive policy mistake where we should have focused on creating sustainable jobs. The market is slowly shifting to a new housing paradigm. Family growth rates, employment trends, baby boomers, and wages will all keep a lid on housing prices moving forward.
First we should break down the entire housing market:
Source: Census
The U.S. has a large number of homeowners. A total of 75 million Americans can lay the claim to owning their home. 23 million of this group (31 percent) actually owns their homes outright with no mortgage. Of course not having a mortgage does not mean that these homeowners have no housing associated cost. They still need to pay yearly property taxes, insurance, and all the cost in maintaining a home. Another 37 million American households rent. These are the basic dynamics of the housing market.
Of those homeowners with a mortgage, 7.2 million (14%) are in foreclosure or 30+ days late on their mortgage. This practically guarantees a few years of cheaper housing hitting the market in a steady trickle. This puts a herculean hold on any significant home building going forward.
From the recent Federal Reserve Flow of Funds Report, we find that current outstanding mortgage debt is $10.334 trillion. We have to break out the renters and the homeowners with no mortgage and find that the average mortgage debt for homeowners is:
$10.334 trillion / 51.575 million mortgaged households = $200,374
The current median home price comes in at approximately $170,000. Now some would argue that housing will regain traction and go on to rising to new levels. Yet this assumption assumes that middle class wages will be growing moving forward. If we look closely at the data the only real winner so far in this economic crisis is Wall Street but average Americans have seen very little benefit from the current bailout measures. Now those with big investment bank salaries can afford their piece of prime real estate in Manhattan or the Hamptons but this does not make up the bulk of the housing market. The bulk of the housing market is highly dependent on how middle class Americans are doing.
If we look at the current unemployment levels by age group, we see that those in the household forming age ranges or those entering into these categories, are taking on the brunt of this recession:
You can see that up to age 34, the unemployment rate is trending much higher than the total national average. These are prime age groups for forming households and if a family is not feeling safe financially, they will delay on purchasing a home. The middle class young family is also delaying on having children so the necessity for a bigger home is also being pushed out. This demographic shift is happening at the same time that baby boomers start entering retirement age and many will want to downsize.
And many of these people have a buffer for equity to sell since they bought prior to the housing bubble. Take for example data on current owner households:
Moved in before 1989: 20.5% of all homeowners
Moved in before 1990: 40.9% of all homeowners
It is highly likely that in this group, you have many baby boomers that will sell to downsize in the years coming forward and the current decline in prices will only cut into their equity but not put them underwater given the decade long bubble. They purchased before that. Those that moved in before 1989 will have a much larger cushion. So there is a large group of people that will sell regardless of market trends because they will have to simply because of life changing events.
And then on the other hand we have the fact that one-third of homeowners in certain states are underwater on their mortgages. Take for example California:
California has a large renting population and most that own a home carry a mortgage (77 percent). Of those that carry a mortgage a stunning one-third are underwater. In other words 1.76 million mortgages in California are attached to homes that are worth less than the actual balance of the mortgage creating a large incentive to walk-away. Many of these loans come from Alt-A paper and option ARMs. These loans will impact the market at least until 2012 and hurt the state. California isn’t immune and other states like Nevada, Florida, and Arizona have similar dynamics. In fact, here is the amount of mortgage debt in a negative equity position according to a recent Deutsche Bank analysis:
California: $969 billion
Florida: $432 billion
Arizona: $140 billion
The only way that things would improve for banks is if prices moved higher. But how can prices move higher if middle class Americans are dealing with high unemployment and stagnant wages? The Federal Reserve and U.S. Treasury have really reached the end of options in terms of what they can do. Even the 30 year fixed mortgage is at all time lows in the midst of all this turmoil:
The 40 year average for 30 year rates is closer to 9 percent. Today it is under 5 percent. That is unsustainable and as we move forward with insurmountable levels of national debt, the rate will have to rise. I know this seems impossible for many but as we have seen with other debt ridden countries, the market can turn on like a tornado and quickly change the dynamics of the situation. For the housing market, this will mean even more pressure to keep prices muted.
The only way home prices can rise in a healthy manner is if we start seeing wage inflation. We saw some of this in the 1970s where wages went up in tandem with home prices. In the last decade, wages moved sideways while home prices went into a bubble. As far as the economy going forward, the big job sectors seem to be in low paying service sector jobs. Certainly someone can purchase a house with these jobs but not at current prices even though they appear to be solid.
The Federal Reserve and the U.S. Treasury have done everything to slam the dollar and create some level of inflation. Yet other central banks are doing the same. So what happens is easy money flows to Wall Street for gambling while the real economy stagnates. It is hard for many to believe that we will have another lost decade in housing but there is little reason to believe that prices will soon start to outpace inflation. In fact, in the last year or two we have been dealing more with aspects of deflation. We need to keep an eye on the real value of home prices adjusting for inflation/deflation.
Posted in Banks, Debt, Economic Crisis, Economy, homebuilders, Housing, Loan modifications, loans, Loss Mitigation, Money, real estate |
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