Sunday, March 17, 2013

The Reality Behind the Housing Recovery Hype

By Carlos Marroquin 

Los Angeles, March 17, 2013 - In recent months, real estate pundits have been saying that the housing markets are recovering. They point to increases in sales and home prices, as well as a decline in foreclosure filings, and predict that the worst of the foreclosure crisis is over.

The crisis may be almost over for the banks, but it is far from over for average people. Banks have completed foreclosure on approximately 3.9 million homes since September 2008, according to a Dec. 2012 report by CoreLogic. And 1.3 million homes, or 3.2% of all homes with a mortgage, were in some stage of the foreclosure process as of October, 2012. 1. Looking forward, there are another three million homes that are seriously delinquent and have yet to enter foreclosure. 2.

With so many homeowners losing or having lost their homes, what is causing the increase in sales and prices? A look at the business press reveals that the so-called recovery of the market is based more on the purchase of homes by investors than home ownership by American families, which is on the decline.

In a typical story about the housing “recovery” (California housing recovery may gain momentum, experts say), the Los Angeles Times reports that there are “record numbers of investors prowling for bargains.” According to the article, “Although prices may be gaining, the healthiest contributors to housing strength — employment gains and consumer confidence — appear to be playing less of a factor than investor activity and low mortgage interest rates.” 3.
What is meant by “investor activity” is that at least since 2012, wealthy investors have poured into the real estate market, buying up combined lots of foreclosed homes and either selling them for big profits or turning them into rentals. About 30% of foreclosed homes are being bought cash down. These include many foreign investors, according to one executive, who credits investor activity and an influx of offshore money for the “recovery.”
It may surprise some to learn that it was the Obama administration that came up with the foreclosure-to-rental scheme. In July 2011, it announced that it was soliciting ideas on how to turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private companies or sold in bulk. That plan came on line at the beginning of 2012, and it has attracted an influx of big investors to the housing market.
A March 20, 2012, Reuters article (The Wall Street gold rush in foreclosed homes) reported that the U.S. government was selling big pools of single-family homes that Fannie Mae owned in some of the hardest-hit housing markets. The article adds, “Investors seeking higher yields are drawn to foreclosures because the rental market is red hot.” 4.
The government’s and banks’ sales of foreclosed homes to big investors means that struggling homeowners can expect no help to stay in their homes, and this is documented by the steady decline in home ownership in this country—from its peak of 69% in 2004 to close to 65.4%. 5. If you count the three million who are seriously delinquent, that number would be lower, or around 63%. The “gains” we are seeing in the real estate market from these sales represents the loss of a home—and all of the time and money they put into it—for hundreds of thousands of families.
Another sign of the so-called housing recovery is the rise in the value of housing-related securities. Investors are buying up unrated junk bonds backed by non-performing loans (NPLs). A recent Reuters article (Bad US mortgage loans now big business on Wall Street) reports, “Delinquent and defaulting mortgage loans to struggling US borrowers have become big business on Wall Street, as investors scoop up bonds backed by non-performing loans.”

“With millions of borrowers still under water or facing foreclosure, real estate investment trusts (REITs) and others are snapping up NPLs at a discount, hoping to earn returns from their eventual resolution or liquidation.”

Reuters reports that not only banks, but government entities are unloading NPLs by bundling them into bonds. This includes Fannie Mae and Freddy Mac, the HUD, the FDIC and the FHA. 6.

The booming foreclosure-to-rental market is also driving up prices of these bonds, which, besides attracting short-term investors, are also attracting rental investors who see non-performing loans s as a new source of inexpensive homes to rent out.

"The REO-rental players have driven NPL prices up, because they view it as a good way to source product," said one source. "They are converting them to REOs." In other words, rental investors who are having trouble finding enough empty houses to rent out are buying the loans of struggling homeowners and pushing for their eviction. Carrington Mortgage and Wells Fargo are two companies that have been heavily involved in the NPL securitization market. 7.

Not surprisingly, the Federal Reserve has been taking measures behind the scenes to pump up the housing market. TIME reported on Dec. 7, 2012, that besides keeping interest rates at near-zero since 2008, the Fed has engaged in quantitative easing (QE), or the purchase of U.S. treasury bonds and mortgage debt.

“The most recent round of QE was specifically aimed at mortgage-backed securities (MBS), and was effective at lowering mortgage rates to all-time lows,” the article states. In fact, one expert cited by TIME believes that “most — if not all — of the recent rise in home prices is a direct result of efforts by the Federal Reserve to stimulate the economy” (Is the Housing Recovery Just an Illusion Created by the Federal Reserve). 8.

There is still more evidence that the so-called housing recovery is just speculation and profit making by the rich at the expense of working people. First, sales of high-priced homes are soaring while sales of lower-priced homes have fallen. This is not because of a lack of demand, but because these homes are being snapped up by investors looking for rental units. Rick Sharga, of Carrington Mortgage, admits that, “the biggest headwind for the housing market is the inability of the average consumer to get a loan.”

At the same time, vacancy rates for both homes and apartments are going down as former homeowners, a group we never heard about in the past, become renters. 9. As groups fighting foreclosure fraud have been saying for some time, the banks want to turn us into a nation of renters. 10.

The analysis that has been sorely missing from this story should be obvious. If unemployment and underemployment continue to be high, and the government and the courts continue to look the other way while banks steal people’s homes and sell them to investors, then home ownership will cease to be accessible to ever greater numbers of working people. There is no such thing as a recovery that leaves the majority of the population poorer and less secure, yet that is the story the financial pundits want us to believe.

Sunday, March 10, 2013

Why Don't Banks Live up to Their Mortgage Promises?

By Ted Kaufman

Thought the news about the big banks’ mismanagement of the housing/mortgage crisis couldn’t get worse? Two new reports are out. You were wrong.
Federal regulators required the first report as part of the execution of the January settlement with the nation’s largest lenders. This $8.5 billion settlement was agreed to when it was shown that the banks had failed to live up to the terms of their earlier 2011 agreement with the regulators, and had spent more than $1 billion on consultants while providing relatively little relief to wronged borrowers.
Perhaps the worst part of this report was the fact that some of our largest banks improperly foreclosed on many more people than previously reported. Included were more than 700 members of the military and a number of families who were evicted even though they were current on their payments. Under the Serviceman’s Civil Relief Act, mortgage lenders cannot foreclose, or seize property while a service member is on active duty without court approval.
As Retired Air Force Col. John S Odom Jr., who represents military personnel on foreclosure issues, said: “It’s absolutely devastating to be 7,000 miles from your home fighting for this country and get a message that your family is being evicted. We have been sounding the alarms that the banks are illegally evicting the very men and women who are out there fighting for this country. This is a devastating confirmation of that.”
The second report came from the monitor of the March 2012 National Mortgage Settlement between large banks and the state Attorneys General. That $25 billion settlement was the largest mortgage settlement in U.S. history. It was the result of the Attorneys General uncovering widespread problems with the banks’ servicing of mortgages. Mortgage documents had been lost, forged or misrepresented in what came to be known as the “robo signing” scandal.
The monitor’s recent report covered what had happened during the nine months immediately following the settlement. In that time, only 50,000 people had the principle on their first mortgage modified to lower their obligation. That accounted for only 14 percent of the settlement money, much less than the 30 percent that was specifically set aside for reduction of the principle on first mortgages. This delay in reaching the agreed-to rate of first mortgage principle reduction means that as time passes more and more homeowners will be forced into foreclosure.
The monitor also reported that many more borrowers, 169,000 in all, ended up with short sales. These sales result in the borrower leaving the home, and losing the difference between the short sale price and their remaining equity. Short sales can be advantageous to the banks. They allow properties to be moved off the market without a foreclosure, thus not hurting housing values in areas where the bank might hold mortgages on many other properties.
Even more disturbing, most of the banks’ principle reductions came on second mortgages. Many of the second mortgages would never be paid off, because once a bank reaches a short sale or first mortgage modification the second mortgage is usually worthless. Even so, the bank received credit under the settlement – without helping any borrower avoid foreclosure and without spending a dime.
Also, as the Maryland Consumer Rights Coalition pointed out, “the monitor’s progress report noted continued problems and concerns around dual-tracking of foreclosures (a practice that is supposed to be banned under the settlement, in which a foreclosure moves ahead even as a homeowner applies for a loan modification) as well as problems consumers have experienced in getting responses from the single points of contact the banks are required to set up to communicate clearly with each homeowner seeking a mortgage modification ...
“In Maryland, consumer and housing advocates also continue to lament the difficulty many homeowners are having in reaching their single points of contact and ongoing problems with dual-tracking, and note that many homeowners continue to have difficulty successfully negotiating the loan modification process.”
It was hoped that the total of more than $30 billion in the two settlements would really help people who had been mistreated by the banks get back on their feet. But these two reports show the banks might be back to the same kind of deceptions that led to the 2011 and 2012 settlements.
Fool me once shame on you, fool me twice shame on me. Sooner or later, we have to admit that’s what’s happening. It is time for the banks to stop fooling and deliver on what they agreed to.