Underwater homeowners wonder: Why not just walk away?For those who owe more than home is worth, question grows more pressing as values drop New York Times, 2/3/2010, http://www.statesman.com/business/rising-tide-of-underwater-homeowners-wonders-why-not-210087.html
In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 or maybe 2040 before he can sell his modest home for what he paid. "People like me are beginning to feel like suckers," Koellmann said. "Why not let it go in default and rent a better place for less?" After three years of plunging real estate values, and after the Obama administration's loan-modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing. New research suggests that when a home's value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to continue paying. The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home's value dropping below 75 percent of the mortgage balance. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery. "We haven't yet found a way of dealing with this that would, we think, be practical on a large scale," the assistant Treasury secretary for financial stability, Herbert Allison Jr., said recently. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages. "We're now at the point of maximum vulnerability," said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. "People's emotional attachment to their property is melting into the air." Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are growing louder. "Since the beginning of December, I've advised 60 people to walk away," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "Everyone has lost hope. They don't qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old." Walsh is taking his own advice, having recently defaulted on a rental property he owns. "The sun will come up tomorrow," he said. The difference between unwillingly allowing a house to go to foreclosure and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some call "house arrest." Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation. Some experts say that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighborhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust. The U.S. Treasury falls into the skeptical camp. "The overwhelming bulk of people who have negative equity stay in their homes and keep paying," said Michael Barr, assistant Treasury secretary for financial institutions. With prices now down by about 30 percent, underwater borrowers fall into two groups. (1) Some have owned their homes for many years and got in trouble because they used the house as a cash machine. (2) Others, like Koellmann, made the mistake of buying as the boom was cresting. Financially cautious by nature, Koellmann, then a 23-year-old management consultant new to Miami, bought a small, plain one-bedroom apartment for $215,000 in April 2006, much less than his agent told him he could afford. Not quite four years later, apartments in the building are selling in foreclosure for $90,000. "There is no financial sense in staying," Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a place on the beach, one with a gym, security and valet parking. Walking away, he knows, is not without peril. At minimum, it would ruin his credit score. Koellmann would like to attend graduate school. If an admission dean sees a dismal credit record, would that count against him? How about a new employer? Most of all, though, he struggles with the ethical question. "I took a loan on an asset that I didn't see was overvalued," he said. "As much as I would like my bank to pay for that mistake, why should it?" That is an attitude Wall Street would like to encourage. David Rosenberg, the chief economist of the investment firm Gluskin Sheff, wrote recently that borrowers were not victims. They "signed contracts, and as adults should also be held accountable," he wrote. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same. "That may have been the last straw," Koellmann said.
Can the economy grow without federal crutches?Measures may have foiled collapse -- but what about healing? By Neil Irwin, THE WASHINGTON POST, 11/01/2009 Over the past year, the U.S. government has thrown almost every tool at its disposal toward making the economy grow again. And it has worked, at least for now. The trillion-dollar question for the economy now: What will happen when those government supports are gone? While the government has successfully jump-started the U.S. economy, there are emerging signs that its engine still isn't running very well, and may even sputter out. The government has deployed about half of $787 billion in spending and tax cuts that were part of its stimulus package. It has executed the Cash for Clunkers program that boosted auto sales over the summer, and it has taken a wide range of steps to support the housing market. The Federal Reserve, besides cutting its target interest rate to nearly zero percent, has committed $1.75 trillion to unconventional programs meant to reduce interest rates. The combined results of all those efforts were on display Thursday, when the Commerce Department reported that the economy grew by a 3.5 percent annual rate in the third quarter, the strongest showing in two years. "The patient is out of intensive care but is still highly medicated," said David Shulman, senior economist at the UCLA Anderson Forecast. "So you don't know how much of this growth is driven by short-term stimulus and how much of it is self-sustaining. My guess is this is going to be the best quarter of growth for a long time." Besides the government programs, a major factor in the rebound is that companies have ramped up operations to restore inventories depleted during the recession — although that boost to growth is also expected to wane in the quarters ahead. The risk in the current crisis is that the structural changes occurring in the economy are so great that they will take far longer to play out than the government can maintain policies to support growth. Some remedies, such as the housing tax credit, might even serve to delay those structural adjustments. The idea behind the government interventions was to boost economic activity when it otherwise would be far below its potential, supporting demand for goods and services of all types and helping instill confidence that the nation is not entering a downward economic spiral. Having bridged that down period, the economy should begin to improve on its own momentum as businesses ramp up production and begin hiring and making investments again. That's the idea, anyway. But fundamental changes are occurring in the economy that could slow growth for some time. The United States needs to shift away from consumption and homebuilding and toward business investment and exports. Meanwhile, whole industries from financial services to auto manufacturing to news media are being fundamentally remade.
Evanescent impactsVarious elements of the government's efforts to prop up the economy will probably expire before those transitions are done. Cash for Clunkers is done, having boosted auto sales during the summer — followed by a 35 percent drop in the rate of sales from August to September. "It may have pulled forward some sales that would have happened later, and led some people to buy new cars who would have bought used," said Chris Hopson, an auto industry analyst at IHS Global Insight. "But in terms of lasting impact on the way the industry does business, we don't see there being much."
An $8,000 tax credit for first-time homebuyers, which was part of the February stimulus package, is scheduled to expire Nov. 30, although Congress is moving to extend it into the spring. Other programs to support housing include help for people facing foreclosure and an expansion of Federal Housing Administration insured loans.
Dwindling programsEconomists at Goldman Sachs estimate that government supports for housing increased prices 5 percent over where they would be otherwise and that as the programs expire, "the risk of renewed home-price declines remains significant." The Fed has said that its program to buy $300 billion in Treasury bonds will expire this month, and that its program to buy $1.45 trillion in mortgage-related securities will be wound down by the end of March 2010. (It has also indicated it will leave the bank lending rate it controls near zero for "an extended period," though there is plenty of disagreement among Fed watchers over just how long that period will be). And spending through the $787 billion stimulus package known as the American Recovery and Reinvestment Act will taper off next year and into 2011. ProPublica, a nonprofit journalism group, estimates that there is about $291 billion left to spend, and $150 billion in tax cuts yet to play out. In search of normalcy"Programs like Cash for Clunkers and the homebuyer tax credit are like caffeine to the economy," in that the buzz dissipates quickly, said Ethan Harris, chief U.S. economist for Bank of America-Merrill Lynch. "The bigger programs — the Fed monetary easing and the Obama stimulus plan — have a longer-lasting impact. But as we move out into the middle of next year, you need to see signs that economic growth has become self-generating. That's where we'll have a second test of the recovery." Historically, some nations that experienced financial crises have rebounded relatively quickly, said Carmen Reinhart, an economist at the University of Maryland. But they tend to be nations that have moved more aggressively than the United States to remove bad loans from bank balance sheets, she said. "We have stopped the free-fall, with household spending and residential activity stabilizing and the fiscal stimulus kicking in," she said, "so the numbers for the second half are going to look like a recovery." But Reinhart, the author with Kenneth Rogoff of "This Time Is Different," a history of financial crises, worries about what lies ahead. As she put it: "The question is how robust and how durable it would be. You eventually need some sort of normalcy in the availability of credit, but we haven't established that, or anything close to that." Mortgage deliquency rate hits record in first half of year Traditional, fixed-rate home loans leading increase in foreclosures, late payment
The record numbers released Thursday by the Mortgage Bankers Association are being driven by borrowers with traditional fixed-rate mortgages, rather than the risky subprime loans with adjustable rates that kicked off the mortgage crisis. As of June, 4.3 percent of all borrowers were in foreclosure. About 9 percent had missed at least one payment. The worst of the trouble remains concentrated in California, Nevada, Arizona and Florida, which together accounted for 44 percent of new foreclosures in the country. Nearly 12 percent of all loans in Florida were in foreclosure, the highest in the country, followed by Nevada at 9 percent. Texas was in better shape than many other states, with 1.8 percent of loans in foreclosure and 8.8 percent past due, according to the Texas Mortgage Bankers Association. Loan delinquencies among borrowers with prime, fixed-rate mortgages grew from the first quarter to the second in all 50 states, with the biggest jumps in Wisconsin, Illinois, Utah and West Virginia. Although the recession, as measured by the nation's total economic output, is likely over, most economists expect layoffs and foreclosures to keep rising for many months as companies remain in cost-cutting mode. In Central Texas this week, Samsung Austin Semiconductor started layoffs that will put 552 employees out of work by the end of October. Lockheed Martin Corp. said it's handing out about 800 pink slips in its space systems division, and audio conferencing company Polycom Inc. said it will cut about 80 positions. Employers' "confidence has been shattered," said Brian Bethune, chief U.S. financial economist at IHS Global Insight. "They are going to be very conservative. They don't want to be blindsided by a false-dawn economy." New jobless claims rose last week to a seasonally adjusted 576,000, the Labor Department said Thursday. Nee Salam, 56, lost his engineering job at an automotive electronics supplier near Atlanta more than a year ago. At the time, he said, "I was thinking the job market was going to change right away." Since then, he's been working as a consultant, earning less than half his previous salary of $115,000. His wife has been cleaning houses to keep the family afloat. But after draining their savings and retirement accounts, the couple have missed four payments on their $636,000 mortgage. They said their request for a loan modification from OneWest Bank (formerly failed IndyMac Bank) was denied on the grounds that the couple's income was too low. OneWest did not respond to a request for comment. As banks unload foreclosed properties at deep discounts, they are attracting homebuyers back into the market. Today, the National Association of Realtors will release July home sales data today. Economists are expecting to see a fourth consecutive monthly sales increase. Although there have been signs that prices are stabilizing, some economists say that's a temporary respite. "We don't think we've seen a bottom yet in home prices because of the foreclosure problem," said Michelle Meyer, an economist with Barclays Capital. President Barack Obama has pledged to fight the foreclosure problem, but its foreclosure prevention program is off to a disappointing start. As of July, only about one in 10 of eligible borrowers had signed up. When homeowners don't have much income left, there's little that can be done to help. Cindy Kennedy, 44, ran a cleaning business in Allentown, Pa., for seven years. But she lost most of her customers once the recession hit. Kennedy paid more than $1,700 to a California company that promised to help modify the loan. But the company stopped returning her calls in June, and she suspects she has been scammed. She and her longtime companion stopped paying on their $840-a-month mortgage in February, and their house has gone into foreclosure. They attended a mediation conference in county court Wednesday with their lender but are not optimistic about saving their home. Now making $120 a week as a part-time supermarket cashier, Kennedy says she commiserates with her co-workers, some of whom are also facing foreclosure. "We talk about it and laugh," she said. "It's not really a funny situation, but sometimes you have to laugh to keep your sanity, so you don't make yourself nuts."
Home Prices: There's No Quick Recovery Ahead
There has been some muted -- albeit exhausted -- cheering from homeowners in recent weeks. But before we break out the champagne, look out for further potential problems just down the road. The good news? According to the closely watched Case-Shiller Home Price Index, which tracks home prices across 20 major cities nationwide, the three-year housing slump slowed sharply in April and May. May's decline was just 0.2%, the slowest in two years. And several cities actually saw prices rise -- among them Denver, Washington, D.C., Chicago, Boston, Cleveland and Dallas. Even Miami only fell about 1% in May. That's a great month down there. Previously, prices had been falling 3% a month. We'll get an even better picture of the situation when the Case-Shiller figures for June are released on Aug. 25. But these data aren't the only hopeful signs. Inventories of unsold homes have come down. According to the National Association of Realtors, there were about 3.8 million unsold homes on the market at the end of June. That's down a long way from 4.5 million a year ago. And yes, housing affordability is dramatically better. People, obviously, need to live somewhere. At some point, housing gets cheap enough that the fundamentals start to look good. The average home is about a third cheaper than it was at the peak three years ago, a plunge unprecedented since the Great Depression. In the hardest-hit places, such as Phoenix, Las Vegas and Miami, average prices have been halved or better from their bubble peaks. Cheap Mortgages, TooFactor in falling mortgage rates as well, and housing starts to look cheap by many measures. Thirty-year mortgage rates, at around 5.5%, are still low by historic standards. A few months ago, when they fell below 5%, they were very cheap. There's some other good news for homeowners from the rest of the economy. July's job losses were better than feared: The unemployment rate, which was heading vertical a few months ago, eased to 9.4% last month from 9.5%. Some are saying the worst is behind us, for the economy and the housing market. No wonder the iShares Dow Jones U.S. Home Construction exchange-traded fund (ITB), which tracks shares of home-building stocks, has bounced sharply since early July. So, is that it? Not so fast. Prices may -- may -- be nearing the bottom in many markets. But beyond the headlines, there are plenty of reasons to stay cautious. There may even be fresh dangers just ahead. And even if prices have stopped falling, it may be years before they start rising sharply again.
And it's hardly a surprise the market saw some green shoots this time around. It's enjoying not one, but two, gigantic taxpayer subsidies -- an $8,000 refundable tax credit, or gift, for first-time buyers, as well as those cheap mortgage rates. The Federal Reserve has been spending billions of dollars to keep interest rates down. Both are only short-term fixes. Any sustained economic upturn would be expected to send long-term mortgage rates rising again, dousing the real-estate market with fresh cold water. Glut of Empty HousesThe picture on inventories isn't as good as it sounds, either. A lot of unsold homes have simply been put up for rent instead, especially in the most difficult markets like Miami. The result? A glut of empty rentals as well. New waves of foreclosures and distressed sales may be coming, too. In states such as California, it can take many months for delinquencies to turn to foreclosures, which means last winter's bad news may still be coming down the pike. Meanwhile, vast tranches of teaser-rate mortgages are due to reset later this year and in 2010. As for the economy: Both unemployment and household debt levels remain at extremely high levels by the standards of postwar history. Either is bad news for housing. The combination is very bad. Dean Baker, co-director of the Center for Economic and Policy Research, argued in a recent paper that the fundamentals still aren't great. It still remains cheaper to rent than to own in many markets, he says. The biggest bubbles usually produce the deepest busts. And the 2002-2006 bubble was a doozy. The bad news may have ended after three terrible years, but maybe not. Japanese housing prices still haven't recovered from the late 1980s bubble. Western U.S. markets took six or seven years to recover after the last big bubble burst there in the early 1990s. Yes, there are some hopeful signs, but don't let them fool you into thinking it's all clear. It might not be. As ever, anyone making a major financial decision needs to think more about his or her own situation than what "the market" is doing. A real-estate purchase needs to make sense on its own terms. And measure it on cash flow today, not the hope for capital gains tomorrow. When you factor in all the costs, is the purchase cheaper than renting?
If you get a cheap mortgage and you are aggressive on price, you may get a bargain. That's especially true if the owner has to sell. Foreclosures and other distressed sales are selling for about 20% below the rest of the market. There are opportunities out there. But you can afford to take your time to shop around. A Housing Upturn Suggests Recovery Is NearPrice declines, low mortgage rates, and first-time buyer perks are sparking real estate gains-and the beginning of the end of the recession.
That sweet music luring investors into the stock market these days is the sound of an economic recovery. Skeptics still think it's a siren song, inviting a shipwreck, but with each passing week evidence is mounting that the recession is finally ending. No one expects anything but a modest upturn, at least early on, but any growth at all will be a welcome turn after the past year's nosedive. Perhaps the best sign yet that a recovery is near is the sharply improved housing data. After all, it was housing that toppled both Wall Street and Main Street, and stronger housing will play an integral role in rebuilding both. Home sales have clearly turned up in recent months, which is reducing inventories at a good clip and even slowing the rate of price declines. Plus, surveys show builders see market conditions improving enough to encourage new construction. The housing recovery begins with demand, which both encourages new building and, with a lag, strengthens prices. Sales of existing homes hit bottom last November, and since then, they are up 7.7% through June. The low for new homes was in January, with June purchases up 16.7% since. Existing and new sales are still off 32% and a staggering 72%, respectively, from their 2005 peaks, but it's a start. Even amid new restrictions on credit, demand is responding favorably to historically high affordability, including steep price declines, low mortgage rates, and a tax credit for first-time buyers. First-timers accounted for 29% of June resales, says the National Association of Realtors. The rise in mortgage rates in early June does not appear to have held back demand. Fixed mortgage rates, at 5.36% for a 30-year loan on July 24, are still historically low. Distressed sales, including foreclosures and short sales, have been a major factor boosting demand for existing homes and helping to clear out inventories. However, in recent months the NAR [National Association of Realtors] says the share of these sales has been waning, even as overall buying has picked up significantly. This pattern suggests diminishing stocks of distressed properties and growing strength in traditional home buying.
The reduction in unsold new homes has been even sharper. Since 2006 builders have cut their supply in half, to 281,000 in June, which would take 8.8 months to sell. That's down from 12.4 months in January. Even modest sales gains in the second half would cut the supply close to the normal five months by yearend. Builders have slashed construction of single-family homes so much that the level of starts is far below comparable sales figures. That means inventories can fall, even as construction rises. Starts of single-family homes have jumped 32% since hitting bottom in February, the largest four-month gain in 18 years. There are also signs that thinner inventories are exerting less downward pressure on prices. The Standard & Poor's Case-Shiller index, which is not adjusted for stronger spring pricing patterns, rose in May for the first time in almost three years. This gauge includes many homes with subprime and other nonconventional mortgages that are more likely to be sold at foreclosure prices. A price measure from the Federal Housing Finance Agency, which is seasonally adjusted and covers only homes with conventional mortgages, also rose in May and began to show signs of stabilizing earlier this year. Amid high unemployment, a further expected rise in foreclosures, and little success from various loan modification programs, the road to a housing recovery will be a long one. But for the first time since 2005, the trends in sales, starts, inventories, and prices are all moving in the right direction. Underwater Mortgages to hit 48%
The percentage of “underwater” loans may rise to 48 percent, or 25 million homes, as prices drop through the first quarter of 2011, Karen Weaver and Ying Shen, analysts in New York at Deutsche Bank, wrote in a report today.
As of March 31, the share of homes mortgaged for more than their value was 26 percent, or about 14 million properties, according to Deutsche Bank. Further deterioration will depress consumer spending and boost defaults by borrowers who face unemployment, divorce, disability or other financial challenges, the securitization analysts said.
“Borrowers may also ‘ruthlessly’ or strategically default even without such life events,” they wrote.
Seven markets in states with the fastest appreciation during the five-year housing boom -- including Fort Lauderdale and Miami, Florida; Merced and Modesto, California; and Las Vegas -- may find 90 percent of borrowers underwater, according to the report.
The share of borrowers owing more than 125 percent of their property’s value will increase to 28 percent from 13 percent, according to Weaver and Shen.
Home prices will decline another 14 percent on average, the analysts wrote. About half of U.S. mortgages seen underwater by 2011
The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.
Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.
Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.
"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.
Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.
Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.
The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.
Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,
Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said.
Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.
"For many, the home has morphed from piggy bank to albatross," the analysts said.
Economists tempering hopes for rapid recoverySteep rise that usually follows recession could be slowed this time by weak financial
Huge swaths of the financial system have been damaged, which could lock consumers and businesses out of loans for years to come. American families are saving more and relying less on borrowed money. In this global recession, no part of the world appears poised to lead a buoyant recovery. The government's aggressive stimulus efforts may need to wind down before the economy returns to solid footing. Typically, a deep downturn is followed by a robust recovery. The 1981-82 recession was followed by explosive growth through the rest of the decade. Many top economists doubt that a boom will follow this time. "Traditional economic models are built like a rubber band: You pull it hard, and it will snap back," said Martin Neil Baily, an economist at the Brookings Institution. "I find it hard to see where that will come from in this case." Investors seemed to agree Monday, with major stock indexes falling at least 2 percent on concerns that consumer spending won't rebound anytime soon and that the recent rise in stocks was overly optimistic. Unlike past recessions, this downturn has its roots in the breakdown of the financial system, triggered by the implosion of massive bubbles in the housing and credit sectors. It appears increasingly likely that the U.S. economy will grow at a solid pace in the second half of the year, as companies restock depleted inventories. But it is unclear what would come after that, given the ongoing restrictions on credit. Banks have sustained deep losses, and a wave of soured commercial real estate loans threatens to further limit their ability to lend in the year ahead. A bigger problem looms in credit markets, which account for vast chunks of mortgage lending, consumer loans and commercial real estate loans. That makes it more expensive for people or businesses to borrow money — if they can get a loan — which could serve as a powerful brake on any recovery. "Credit fuels housing. It fuels consumer durable goods. It fuels business investment," said Carmen Reinhart, an economist at the University of Maryland. "Credit makes recessions after a financial crisis longer, and all the signs are that is happening this time as well." A related head wind comes from consumers. Americans are saving more and paying down debt; the savings rate was 1.2 percent of disposable income in early 2008. By the second quarter of this year, that rose to 5.2 percent. "The household sector has never been so stressed," said RGE Monitor Chairman Nouriel Roubini. "Savings has to go much higher, and that is going to slow growth of consumption even once incomes start growing." Every dollar that Americans save is one fewer dollar for consumption, which means less economic output. When the savings rate goes up by a percentage point, spending decreases by more than $100 billion, according to the McKinsey Global Institute. When nations in financial crisis have defied the trend and experienced a rapid recovery, it was often because of strength elsewhere in the world. But what market today is clamoring for U.S. products? "Everybody in the world is experiencing the same constraints on credit and on consumption," said Mark Gertler, an economist at New York University. In the adjustment that appears to be taking place, the U.S. is reshuffling the relative importance of different parts of the economy: reducing consumer spending and investment in housing while increasing exports and business investment. Exports are down 16 percent in the past year as global trade has plummeted, and business investment is down 20 percent as corporations have become more cautious and as access to credit has diminished. Although widely held among top economists, the idea that all these head winds will weaken the recovery is not universal. The economy has proved resilient in the past, emerging out of deep downturns with force. "There is only one reliable regularity in business-cycle history in the United States," said Michael Mussa, a senior fellow at the Peter G. Peterson Institute for International Economics, in a presentation this year. "Deep recessions are followed by steep recoveries, and economic forecasts almost never take account of this regularity." Mussa predicts the U.S. economy will grow by 6 to 7 percent during the coming year as businesses rebuild inventories and as the housing and auto sectors edge nearer to their long-term potential (though still far below their boom-year levels). Even skeptics hope Mussa is right. "There's incredible uncertainty in the forecast right now," said Gertler, of New York University. "Recessions are periods where the negative surprises outweigh the positive surprises. We're overdue for some more positive surprises now." Foreclosure postings 58% higher so far this yearAustin Business Journal
The third quarter of this year has ushered in another record round of foreclosures, with foreclosure postings filed for the first nine foreclosure auctions of this year topping 10,000, according to Addison-based Foreclosure Listing Service Inc. “Foreclosure postings in the Austin Metro have been on the high side for some
time now,” said George Roddy Sr., president and CEO of FLS. “This is the 7th consecutive
quarter that postings have topped 2,000 per quarter; and, the two most recent quarters have surged reaching 3,500
postings or more per quarter.” Year to date, Travis County saw 5,234 postings, a 58 percent increase compared with the same nine months last year. Williamson County’s postings jumped 56 percent to 3,149 compared with the same time period last year. In Hays County foreclosure postings increased 51 percent to 1,074 year to date, compared with the same three quarters last year. And in Bastrop County the first nine auctions of the year saw 641 postings, a 43 percent increase compared to the same time period last year. Area foreclosures continue climb, top 10,000 on year
For the first nine months of this year, there were 10,098 notices in Travis, Williamson, Hays and Bastrop counties, up 56 percent compared with the same period last year. That level tops the 9,008 notices filed for 2008, according to Foreclosure Listing Service Inc., the Addison firm that tracks the numbers. Experts say the numbers, while elevated, aren't affecting home values in the region. The 56 percent jump was the largest percentage gain in year-to-date postings among the state's major metro areas. Bexar County postings rose 40 percent, and in the Dallas-Fort Worth area, postings climbed 20 percent over the past year. During the past five years, however, the Austin area has seen the smallest gain in year-to-date postings among the three metro areas, the company said. Postings in the Austin area have topped 1,000 per month for eight months in a row. "Foreclosures will continue at a higher than normal pace until the economy turns around," said Peter Sajovich, a local real estate broker who buys foreclosed properties for investors. "This is natural and to be expected in a normal downturn of a business cycle. Additionally, the era of 'Investors Gone Wild' is over, and we are now seeing a tremendous number of investor-owned properties coming to foreclosure, which will probably continue for another two or three years," Sajovich said. Mark Sprague, a housing industry consultant with Residential Strategies Inc., said that "nationally, we have not hit bottom for home values, unfortunately, which in turn affects those moving from other markets to Austin." "Although there is not a better time to buy a house in Austin, we still have some national housing values that have to hit bottom first, to see a turnaround." David Reed, senior loan officer with Integrity Home Mortgage, said he anticipates some slowing of filings, as Central Texas is "not in the middle of massive layoffs and our economy is still one of the best in the country. "Yes, over the year the percentage increases look staggering, but at the same time we should also point out how many homes are not in foreclosure," Reed said. Experts say the high number of foreclosures isn't affecting home values in the region, mainly because they represent just a fraction of the overall housing market. "I think people who think they're going to get a 50 percent discount on a house because it was foreclosed on soon [will] find out that the banks are able to sell their properties at or near market," Reed said. "There are simply not enough foreclosures right now to impact an appraisal. "If we ever get to the point where a neighborhood is flooded with bank-owned homes, then, yes, values will start to decline, but we're simply not there." Homebuilder sentiment index rises in August
NEW YORK — The National Association of Home Builders said Monday its housing market index rose in August to the highest point in more than a year, as homebuyers hurried to take advantage of a federal tax credit before it expires. The Washington-based trade association said Monday the index rose one point to 18, a level not seen since June 2008.
The federal tax credit that covers 10 percent of a home price up to $8,000 for first-time buyers is set to expire at the end of November. To qualify, single buyers must earn less than $75,000, for couples the cap is $150,000. The trade group is lobbying Congress to extend the tax credit for another year and to offer it to all buyers, regardless of income. [HOT: Sales will likely fall off a cliff when the stimulous stops, but that's hardly enough justification to demand that taxpayers subsidize the purchase of someone else's house.] The reading for current sales conditions was unchanged at 16, while traffic by prospective buyers rose three points to 16. The index for expected sales over the next six months jumped four points to 30, signaling that builders think the worst of the housing slump is over. Sales of new homes have risen for the past three months in a row, and financial results for homebuilders were also better than expected in the latest quarter. The report reflects a survey of 474 residential developers nationwide, tracking builders' perceptions of market conditions. Index readings lower than 50 indicate negative sentiment about the market. The last time it was above 50 was in April 2006. U.S. partners in home loan modifications accused of broad abusesAt least 30 loan servicers face litigation alleging illegal practices as they made more money foreclosing than reworking debt.
WASHINGTON - Billions of dollars that the government is spending to help financially pressed homeowners avert foreclosure are passing through - and enriching - companies accused of preying on the people they are supposed to help, an Associated Press investigation has found. The companies, known as mortgage servicers, collect monthly payments from homeowners and funnel the money to the banks or investors who hold the loans. As the link between borrowers and lenders, they're in the best position to rework the terms of loans under the government's $50 billion mortgage-modification program. The servicers are paid by the government if the changes keep home-owners from falling behind on payments for at least three months. But the industry has a checkered history. At least 30 servicers have been accused in lawsuits of harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies. More recently, the companies also have been criticized for not helping homeowners quickly enough. The biggest players in the servicing industry - Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. - all face litigation. But the industry's smaller players, which specialize in riskier subprime loans and loans already in default, face harsher accusations that they systematically abused borrowers. "The iron is, in essence, government is paying servicers to do their job, which is to do loan modifications where appropriate," said Kurt Eggert, a law professor at Chapman University in Orange, Calif. "And that's not a part of their job they were ever especially good at." The government says it has no choice but to partner with the servicers because they are the only link between borrowers and the investors who indirectly own their mortgages through securities. The companies acknowledge that there have been abuses but say that many cases hinge on technicalities. They say borrowers facing foreclosure often sue in an effort to slow down the process with frivolous allegations. When President Barack Obama announced the plan in March, he said it would help as many as 4 million homeowners avoid foreclosure. But only about 200,000 loan modifications are under way. Last week, the Treasury Department met with 25 mortgage-servicing executives for meetings at which they promised to deliver 300,000 more loan modifications by Nov. 1. The companies could get more than $5,500 for each loan they modify. U.S. aid drives program Without government aid, servicers don't have financial incentive to modify mortgages. Each year, they earn about one-quarter to one-half of 1 percent of the value of the loans they service. They earn less if the loan is modified. Servicers also make money through late fees or foreclosures, which can generate hundreds of dollars in fees. The largest lawsuit was against Select Portfolio Servicing, which was accused of imposing illegal fees and charging borrowers for insurance they did not need. The company paid $55 million in 2003 to settle charges by the Department of Housing and Urban Development and the Federal Trade Commission. It is eligible for up to $660 million under the Obama plan - some to keep and some to pass on to investors and home-owners. The Treasury Department says it has no choice but to work with all servicers. Refusing to work with a bad player would "deprive homeowners who have mortgages with that servicer from getting modifications," Treasury spokeswoman Jenni Engebretsen said in a statement. An AP analysis of the 38 servicers the government is paying to help vulnerable homeowners found that:
"There is no question that there have been significant abuses by servicers, and a big part of that is there's no one who is carefully monitoring their work to make sure that they're not taking advantage of borrowers," Eggert said. Surprise auctions, fees In February 2005, Janet Simmons was more than $30,000 behind on her mortgage. Bayview Loan Servicing began foreclosure proceedings on her home, in rural Rockingham County, Va. But Bayview - which stands to receive up to $44.3 million from Treasury's loan-modification program - foreclosed without providing the required letter via certified mail, the Virginia State Supreme Court found. Unbeknownst to Simmons, the home was sold at auction in July 2005. She didn't find out until the new buyer asked why she was doing yard work on a home she no longer owned, said her lawyer, Kevin Rose. The courts awarded Simmons $156,809. A spokesman for Bayview did not return calls requesting comment. Rose said he gets "a lot of calls where it's clear something was done wrong (by the servicer) and it's clear you could reverse the foreclosure." But housing lawyers said many cases go unreported and unpunished. "Servicers have flown under the regulatory radar," said Julia Gordon, senior policy counsel with the Center for Responsible Lending. Servicers sometimes face frivolous lawsuits. But many servicers in line for government money are accused of ongoing, systematic abuses. As part of its 2003 settlement with regulators, Select Portfolio promised to end practices including collecting illegal fees. But the company, now owned by Credit Suisse Group, has since been named in dozens of lawsuits alleging similar violations. Spokesman Craig Bullock said the company doesn't comment on inquiries "about our practices and so forth." In 2004, regulators said that Ocwen Financial Corp. engaged in illegal, unsafe and unsound collection practices. Ocwen settled by promising to comply with laws on foreclosure and debt collection and to try to find out if homeowners had insurance before charging them for its own, costlier insurance. Ocwen, which is in line to receive up to $553.4 million from the Treasury, faces a federal class-action complaint for harassing homeowners with excessive phone calls, charging illegal fees and adding unnecessary insurance premiums to borrowers' bills. Ocwen engaged in "a nationwide scheme of illegal, unfair, unlawful, and deceptive business practices," the complaint contends. Paul Koches, Ocwen's general counsel, disputed the allegations and noted that the court has rejected part of the lawsuit concerning illegal fees. "We have a deep and continuing commitment to foreclosure prevention," he wrote in an e-mail.
|
First, late spring is traditionally the strongest season in the real-estate
market.
Stronger demand has cut inventories notably. It would take 9.4 months to sell
June's 3.8 million supply of existing homes, down from a high of 11.3 months about a year ago. Excluding
condos and co-ops, the single-family supply is even lower. Recent
trends in inventories and sales suggest [a guess] the
supply of existing homes will be about 7.5 months by yearend. That would still be above, but closer to,
the normal supply of about 5 months.
The wounded U.S. economy has shown signs of improvement in recent weeks. But
many economists, who were caught off guard by the brutality of the downturn, are accentuating the negative,
bracing for head winds that could cause the recovery to be weak.
Central Texas foreclosure postings continue to rise, with 1,071
properties posted for the Sept. 1
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