How to rescue the housing market: Foreclosures!

[Curt James]

How to rescue the housing market: Foreclosures!

By Tami Luhby
August 31, 2011: 05:27 AM EDT

If the Obama administration really wants to save the housing market, it should speed up the foreclosure process -- not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

Delaying foreclosure increases the percentage of homeowners who'll likely never catch up, Lawler said. In 2009, only 6% of delinquent borrowers were more than two years behind. And it means vacant properties still in limbo could fall even further into disrepair, hurting the value of the surrounding housing market.

Lawler is not the first to warn about the consequences of slowing the foreclosure process. Since the housing crisis began, several experts cautioned that foreclosure prevention efforts may only prolong the pain.

Accelerating foreclosures is tricky, however, especially since it is largely the purview of the states. But the administration could work with state officials to speed the process, especially on vacant homes, he said.

The push would come at a time when many mortgage servicers have slowed foreclosure efforts as they resolve shoddy paperwork practices.

Foreclosure filings in July dropped to their lowest level since November 2007, due to processing delays and foreclosure prevention measures, according to RealtyTrac.

Getting rid of the glut

Another key to helping the housing market is facilitating the resale of homes that have already been foreclosed upon, experts said. This glut of vacant properties will continue to weigh on home values until they are sold.

"They can't be a glacier hanging over the market with everyone waiting for it to fall," said Jim Gaines, research economist at The Real Estate Center at Texas A&M University.

"Those properties have to clear the market." A first step could be to sell off the foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Collectively, they own 248,000 homes, about 31% of the foreclosure inventory. The administration and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, are already looking for ways to unload these foreclosed homes.

Earlier this month, they put out a request for ideas, including possible bulk sales of inventory. Also, they are interested in turning many of these properties into affordable rentals, which are sorely lacking in many communities.

Experts interviewed agree this would be a good move for the market. To entice investors to purchase these homes, as well as other foreclosed properties owned by banks, the administration could advocate for changes to the tax code, Gaines said.

For instance, more favorable capital gains or depreciation rules could attract buyers.

The case against foreclosure

Of course, not everyone agrees that pushing people through the foreclosure process is the best solution to the housing crisis.

David Min, associate director for financial markets policy at the Center for American Progress, argues that there are many homeowners who can be saved if their payments can be adjusted to affordable levels or if some of their principal is forgiven.

This particularly applies to those who are only a few months behind. Foreclosure is very costly for servicers, homeowners and neighborhoods, he said.

"There are a lot of other options that make more sense" than foreclosure, Min said. "It's just so destructive to value. We should be pulling every lever we can."

Mediation, for instance, could help some homeowners avoid foreclosure, he said. Some 23 states and the District of Columbia currently have programs that require mortgage servicers to sit down with borrowers and discuss the homeowners' options, though many began only in the last year.

More than 70% of mediations end in a settlement, often restructuring the mortgage to a sustainable level, according to the center.

Helping those still current with their payments can also give the housing market -- and the economy -- a lift, albeit a somewhat marginal one, experts said.

For instance, the administration could revamp its refinancing program aimed at allowing underwater homeowners to take advantage of today's lower interest rates.

Improvements could include reducing some of the upfront costs and underwriting requirements. Lowering borrowers' monthly payments would give people more money to spend.

And, for those on the edge, it could make it more likely that they will stay in their homes. "It would be helpful to some borrowers with high rates," Lawler said.

From CNN.com

 

[Big Pimpin]

I've been saying this for 2 years. Putting a bandaid on the housing market such as these Obama mortgage manipulations has been an epic fail. When the average schmuck sits in a house without paying his mortgage for 12-24 months, there's a real break down in the foreclosure system that will only prolong this meltdown exponentially.

The first thing we need to do is get everyone 90 days or more behind out on the curb yesterday.

The second thing is all inventory from Fannie/Freddie and any bank that took TARP, including the millions in hidden shadow inventory, must be available for sale now. Yes, this will temporarily kill the value of our homes, but it will force all foreclosed inventory onto the market for pennies on the dollar.

Until the deadbeats are out of their homes and until countless millions of foreclosed homes are sold, there will be no housing recovery and no recovery for the middle class.

 

[Zaphod]

I've been saying this for 2 years. Putting a bandaid on the housing market such as these Obama mortgage manipulations has been an epic fail. When the average schmuck sits in a house without paying his mortgage for 12-24 months, there's a real break down in the foreclosure system that will only prolong this meltdown exponentially.

The first thing we need to do is get everyone 90 days or more behind out on the curb yesterday.

The second thing is all inventory from Fannie/Freddie and any bank that took TARP, including the millions in hidden shadow inventory, must be available for sale now. Yes, this will temporarily kill the value of our homes, but it will force all foreclosed inventory onto the market for pennies on the dollar.

Until the deadbeats are out of their homes and until countless millions of foreclosed homes are sold, there will be no housing recovery and no recovery for the middle class.

You are foolishly assuming everyone who is behind is a deadbeat. Banks aren't willing to work with homeowners. Let's apply an employment theory here. If any job/income is better than no job/income then any payment being made on the mortgage is better than no payment being made. Most people just need either a rate adjustment or modification to put the delinquent portion at the end of the mortgage. But banks aren't willing to work with the customer.

 

[Big Pimpin]

You are foolishly assuming everyone who is behind is a deadbeat. Banks aren't willing to work with homeowners. Let's apply an employment theory here. If any job/income is better than no job/income then any payment being made on the mortgage is better than no payment being made. Most people just need either a rate adjustment or modification to put the delinquent portion at the end of the mortgage. But banks aren't willing to work with the customer.

I hate the big banks as much as anyone else, but it all boils down to can you meet the legal obligation you signed at the closing table of your mortgage? Nowhere in your mortgage or the 100 pages of other bullshit you signed at closing does it say we will readjust this mortgage if your are unemployed or underemployed. The banks have zero legal obligation to work with you if you can't make the payments.

So in the end, have you been making your full mortgage payment on time, yes or no?

If you answered no, and you have no means of quickly catching the mortgage back up, you are a squatter in need of being foreclosed.

 

[Dale Mabry]

Banks don't want the foreclosure process speeding up, in fact a good portion of them are slowing it down now. There is already too much inventory out there and no desire to lower prices. More homes on the market means lower prices, the banks don't want this.

At this point, what would probably be best for all involved is similar to what Zaphod recommended. I would actually take that a step further and instead of foreclosing and kicking people out, the banks should foreclose and then rent the house back to the former owner, getting what is affordable while owning the rights to the property. At this point the housing market isn't coming back any time soon. Properties are extremely overvalued in that most people in the middle class can't afford a middle class home. No amount of tax cuts for the rich are going to change the housing market. After looking back at all of this mess, I doubt I will ever buy. I certainly won't buy in the next 5-10 years unless the prices come way down, and banks haven't really shown any interest in dropping prices. I look at what people are renting houses for out here and I would never pay that as monthly rent. People got fucked and are trying to recuperate their monthly mortgage, and most rentals have been on the market for more than 6 months. A place I looked at a couple of months ago told me they were already charging $200 less than their mortgage and they couldn't come down. It's still for rent/on the market and he should have taken what I offered, losing 2 months rent cost him way more than lowering his rental price by $150. Also, a glut of properties that were previously only for sale are now popping up for rent. This is not good for property prices, but it is very good for me. It is going to be a renter's/buyer's market for years to come.

 

[Big Pimpin]

Banks don't want the foreclosure process speeding up, in fact a good portion of them are slowing it down now. There is already too much inventory out there and no desire to lower prices. More homes on the market means lower prices, the banks don't want this.

At this point, what would probably be best for all involved is similar to what Zaphod recommended. I would actually take that a step further and instead of foreclosing and kicking people out, the banks should foreclose and then rent the house back to the former owner, getting what is affordable while owning the rights to the property. At this point the housing market isn't coming back any time soon. Properties are extremely overvalued in that most people in the middle class can't afford a middle class home. No amount of tax cuts for the rich are going to change the housing market. After looking back at all of this mess, I doubt I will ever buy. I certainly won't buy in the next 5-10 years unless the prices come way down, and banks haven't really shown any interest in dropping prices. I look at what people are renting houses for out here and I would never pay that as monthly rent. People got fucked and are trying to recuperate their monthly mortgage, and most rentals have been on the market for more than 6 months. A place I looked at a couple of months ago told me they were already charging $200 less than their mortgage and they couldn't come down. It's still for rent/on the market and he should have taken what I offered, losing 2 months rent cost him way more than lowering his rental price by $150. Also, a glut of properties that were previously only for sale are now popping up for rent. This is not good for property prices, but it is very good for me. It is going to be a renter's/buyer's market for years to come.

Renting the house back to the defaulter is yet another bandaid on a wound that will never heal at this rate.

As far as the banks not dropping the prices, this is because they are holding millions of homes in shadow inventory to prop the market up. If they took TARP, force their asses to put everything on the market instead of a few % at a time.

The hosuing market needs be allowed to crash if its ever going to recover organically.

 

[Dale Mabry]

Renting the house back to the defaulter is yet another bandaid on a wound that will never heal at this rate.

As far as the banks not dropping the prices, this is because they are holding millions of homes in shadow inventory to prop the market up. If they took TARP, force their asses to put everything on the market instead of a few % at a time.

The hosuing market needs be allowed to crash if its ever going to recover organically.

It will never heal anyway, do you realize how much money the banks would lose if they sold those houses at rates the market could support? Ain't happening, outside of some new technology being developed that leads to millions of high-paying jobs, it will continue to be a pissing match between banks refusing to lower prices and people who can't afford the current prices.

 

[Big Pimpin]

It will never heal anyway, do you realize how much money the banks would lose if they sold those houses at rates the market could support? Ain't happening, outside of some new technology being developed that leads to millions of high-paying jobs, it will continue to be a pissing match between banks refusing to lower prices and people who can't afford the current prices.

You know what I think would be funny in sick sort of way....imagine if the ~85% of people current on their mortgage skipped just a month's payment in protest of the banks fucking up the market by issuing these shitty loans in the first place only to be bailed out by the taxpayer.

 

[LAM]

The second thing is all inventory from Fannie/Freddie and any bank that took TARP, including the millions in hidden shadow inventory, must be available for sale now. Yes, this will temporarily kill the value of our homes, but it will force all foreclosed inventory onto the market for pennies on the dollar.

drastically increasing housing supply causes a loss of equity as it drives the prices of houses down, right now almost 30-35% of homeowners still carrying a note are upside down this would make things worst not better.

 

[Big Pimpin]

drastically increasing housing supply causes a loss of equity as it drives the prices of houses down, right now almost 30-35% of homeowners still carrying a note are upside down this would make things worst not better.

Yes it would....in the short term. Housing in theory is a long term investment, so why not take the false floor out, let it hit the bottom so it can bounce back up to some extent anyway?

Whether you falsely prop up the housing market by holding back millions of foreclosures or you falsely prop up the stock market by QE 1 and QE 2, it's not healthy long term and the consumer is smart enough to notice and avoids said market.

 

[LAM]

as more and more people are thrown into the low wage labor market housing becomes unaffordable. with wages in the service sector paying $8-$14/hr you can't save for a house on that it's barely enough to pay rent.

tighter lending requirements are also going to cause home ownership to be out of reach for many. 6-7 years ago a person could qualify for for a subprime loan with a mid FICO score of 630-650 now that score is 700. on average the FICO score only increases 10-15 points a year once there are no more negatives being posted to it. so for those that have seen a decrease in the FICO due to late payments, too much credit, etc. it can take quite some time before they are able to re-qualify.

 

[newkid]

I spoke to a real estate attorney during a class I had and he stated that he advises clients off the record if they are struggling to make payments on their homes and if their homes are inevitable to foreclose to just let it foreclose since it will take two years to save up cash and then they can move elsewhere lol

 

[LAM]

I spoke to a real estate attorney during a class I had and he stated that he advises clients off the record if they are struggling to make payments on their homes and if their homes are inevitable to foreclose to just let it foreclose since it will take two years to save up cash and then they can move elsewhere lol

it's actually good advice. those struggling to make that payment every month are EVENTUALLY going to lose that home, the US economy isn't going to get better anytime soon in terms of real GDP growth if ever.

the only households that would make it in that situation would be when one member is going to be finishing school and entering the job market were employment is almost guaranteed (nursing, etc.). to bring up the household income sufficiently.

 

[Zaphod]

I hate the big banks as much as anyone else, but it all boils down to can you meet the legal obligation you signed at the closing table of your mortgage? Nowhere in your mortgage or the 100 pages of other bullshit you signed at closing does it say we will readjust this mortgage if your are unemployed or underemployed. The banks have zero legal obligation to work with you if you can't make the payments.

So in the end, have you been making your full mortgage payment on time, yes or no?

If you answered no, and you have no means of quickly catching the mortgage back up, you are a squatter in need of being foreclosed.

Nothing in the contract says banks have to work with anybody. Here's the option for the banks: Either make a little less money on a home or lose a lot of money on the same home. Not working with homeowners is plain stupid. With all their foreclosed inventory just imagine the cost of maintaining those properties alone. That isn't including all the code violations they accumulate by having an empty, unmaintained home. Plus the banks still have to pay taxes on those properties, or the local government will snatch those up. Then how much is the bank out of?

It's piss-poor business practice.

 

[Gissurjon]

People are forgetting one thing. During the last eco. boom, too much housing was built. Increase in population will eventually help allot to correct the prices, there are are way more houses available than needed. Way too many. When I say increase in population, I'm talking about people being born and growing up and shit, just so you nuts don't turn this into a "he likes illegal immigration" rant/

 

[Big Pimpin]

Nothing in the contract says banks have to work with anybody. Here's the option for the banks: Either make a little less money on a home or lose a lot of money on the same home. Not working with homeowners is plain stupid. With all their foreclosed inventory just imagine the cost of maintaining those properties alone. That isn't including all the code violations they accumulate by having an empty, unmaintained home. Plus the banks still have to pay taxes on those properties, or the local government will snatch those up. Then how much is the bank out of?

It's piss-poor business practice.

I agree with what you say except there's an entire segment of the population who just said fuck it, the bank won't kick me out for 2 years so fuck the bank I'll just live here for free. This segment has no desire to get a serious mortgage modification.

This reminds me of this talking head on cnbc who recently said that the consumer should have some debt forgiven to spur the economy. That sounds great in theory except he forgot that only big business gets free debt passes.

 

[LAM]

I agree with what you say except there's an entire segment of the population who just said fuck it, the bank won't kick me out for 2 years so fuck the bank I'll just live here for free. This segment has no desire to get a serious mortgage modification.

This reminds me of this talking head on cnbc who recently said that the consumer should have some debt forgiven to spur the economy. That sounds great in theory except he forgot that only big business gets free debt passes.

that segment of the population was the babyboomers who account for about 28% of the US population and a good 75% of them are homeowners.

They were the speculators and major buyers in the late 90s and 2000's. they pulled equity of homes in the 10s of Billions to buy 2nd homes, vacation properties, boats and got home equity lines of credit. When home values started to decline they were the majority of homeowners that walked away or ended up in foreclosure. 40% of the annual bankruptcy fillings in the US are from babyboomers.

Fannie Mae and Freddie Mac (GSEs) nor LMI borrowers were responsible for the banking collapse. this is all spin from the right used to fuel social darwinism and eugenics in the US.


CRS: Causes of the Financial Crisis
http://assets.opencrs.com/rpts/R40173_20100409.pdf


The Community Reinvestment Act:
A Welcome Anomaly in the Foreclosure Crisis
Indications that the CRA Deterred Irresponsible Lending
in the 15 Most Populous U.S. Metropolitan Areas
http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

The Federal Reserve Board:

"We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes. "

FRB: FEDS Abstract 2011-36

 

[hoyle21]

I work with a guy who was renting a house from a couple who owned 5 houses. They ended up losing all the of their houses. After the foreclosure the guy I work with was trying to work with the bank to get a mortgage and buy the house for what was owed. He went in got all his information. I think they wanted 80,000 for the house and he got his approval, and was just waiting to set up a closing date. Two days later, he got a phone call from the bank that owned the house telling him he had three days to get out, and it was NOT for sale.

The above scenario shows that banks are all messed up right now. They got the tax payers money, what do they care?

 

[LAM]

Goldman's Didn't Tell the SEC|

How Moody's sold its ratings - and sold out investors
How Moody's sold its ratings - and sold out investors | McClatchy

 

[Zaphod]

I work with a guy who was renting a house from a couple who owned 5 houses. They ended up losing all the of their houses. After the foreclosure the guy I work with was trying to work with the bank to get a mortgage and buy the house for what was owed. He went in got all his information. I think they wanted 80,000 for the house and he got his approval, and was just waiting to set up a closing date. Two days later, he got a phone call from the bank that owned the house telling him he had three days to get out, and it was NOT for sale.

The above scenario shows that banks are all messed up right now. They got the tax payers money, what do they care?

That's just fucked up.

 

[Dale Mabry]

That's just fucked up.

Anti-capitalistic Socialist.

 

[danzik17]

as more and more people are thrown into the low wage labor market housing becomes unaffordable. with wages in the service sector paying $8-$14/hr you can't save for a house on that it's barely enough to pay rent.

tighter lending requirements are also going to cause home ownership to be out of reach for many. 6-7 years ago a person could qualify for for a subprime loan with a mid FICO score of 630-650 now that score is 700. on average the FICO score only increases 10-15 points a year once there are no more negatives being posted to it. so for those that have seen a decrease in the FICO due to late payments, too much credit, etc. it can take quite some time before they are able to re-qualify.

There should be tighter lending requirements. Amongst other things, having a high down payments demonstrates that not only are you responsible enough to save and in theory manage money, but you have a significant investment in the property itself.

When I was doing my mortgage stuff, I was horrified at what some banks were qualifying me for. Way, way too much money where I knew I would not be able to carry it. Stuff like that needs to not happen.

 

[LAM]

There should be tighter lending requirements. Amongst other things, having a high down payments demonstrates that not only are you responsible enough to save and in theory manage money, but you have a significant investment in the property itself.

When I was doing my mortgage stuff, I was horrified at what some banks were qualifying me for. Way, way too much money where I knew I would not be able to carry it. Stuff like that needs to not happen.

no doubt I'm all for it...that's the way it was after WWII and up until the mid 80's. my grandmother bought a house right after the war and back then they had to put down like 40% and nobody defaulted on their loans back then. they need to make sure that the loan originators have to maintain a certain amount of these loans on their books. this is the only way to prevent toxic loans.

myself and about a good 20-30 of my friends in various states over the country were all big into the industry from the mid 90's to the banking collapse. I never wrote any sub-prime loans but a lot of my buddies did. we used to call each other up and talk about HOW in the fuck some of these people were getting approvals. like people with 500 FICO scores just getting out a bankruptcy discharge, etc.

ultimately the whole problem with decreasing lending requirements comes down to stagnant wages for 3 out of the 5 income quintiles which has grown since the 70's. debt was used to fuel consumption vs increases in the real income.

BLS: The compensation-productivity gap
The compensation-productivity gap

 

[Dale Mabry]

There should be tighter lending requirements. Amongst other things, having a high down payments demonstrates that not only are you responsible enough to save and in theory manage money, but you have a significant investment in the property itself.

When I was doing my mortgage stuff, I was horrified at what some banks were qualifying me for. Way, way too much money where I knew I would not be able to carry it. Stuff like that needs to not happen.

What risk are they assuming by approving you for more than you can pay? From what I can see, they get you to pay to essentially rent the property for 5 years and once you can't pay or the payment increases, they kick you out and own the property again.

 

[Zaphod]

Anti-capitalistic Socialist.

Yup!

 

[LAM]

Quote:
Originally Posted by Dale Mabry View Post
Anti-capitalistic Socialist.

Yup!

if the original method of earning profits is enabled via fascism/authoritarianism labeled as "capitalism" then the distribution of those profits surely isn't socialism...

 

[Big Smoothy]

that segment of the population was the babyboomers who account for about 28% of the US population and a good 75% of them are homeowners.

They were the speculators and major buyers in the late 90s and 2000's. they pulled equity of homes in the 10s of Billions to buy 2nd homes, vacation properties, boats and got home equity lines of credit. When home values started to decline they were the majority of homeowners that walked away or ended up in foreclosure. 40% of the annual bankruptcy fillings in the US are from babyboomers.

Thanks for these Boomer numbers, LAM.

As the boomers were a large part of the "buying" they also were a large part of the suffering when things went tits up.

At their age (boomers) it is a very bad time to get hit, financially.

Many of these baby boomers don't have time to recover and they will be working - or more accurately - scrambling for work - a lot later into their life than they thought before the downturn of 2008.

Stupid behavior on their part (and anyone's part) IMO.

 

[LAM]

the boomers are a significant portion of the middle class that earns the highest wages, they average about 65-70K a year. this is how they were able to get such high rates of credit and equity.

the problem is like many in the US most do not have a true thorough understanding of economics combined w/ short term memories. I will get back to this.

The US economy had slowed down after several decades of positive growth fueled by WWII. This was seen under the Carter admin and why Reagan and the capitalists decided to take the country in an investment based economy. When the US changing from a manufacturing based economy to monetarism in the 80's industry that provided banks with capital relocated offshore. those that run the show in DC and the "capitalists" knew that those jobs had to be replaced. this is why the FRB was given new powers in the banking act of 1980 and why consumer lending and credit was opened up after that. the housing market was the replacement to provide jobs for Americans with good intentions in mind by "most". the US has always had a low percentage of GDP that goes to social protections and unemployment, the lowest in the OECD. Programs like the CRA were designed so that those on the lower end of the income ladder could have more wealth at the end of the work life, essentially relying less on social security, etc. Wages for labor have not kept up with the increases in productivity. Basically labor was not getting a fare share of the rewards for their work.

BLS:The compensation-productivity gap: a visual essay

Returning to my statement about the lack of economic knowledge leading to the boomers over-extended themselves. for now just forget about the greedy bankers and their MAJOR part in causing the banking collapse in the US and a global recession. the boomers mistook home equity for savings when they are not remotely the same. savings is delayed consumption and home equity is the market value minus outstanding balances on the property.

* So getting back to how we fix things, as I have stated time and time again for months the US needs to reduce it's trade deficit with China. the constant rhetoric that is heard on US media outlets regarding US corp taxes, etc. is all total bullshit from the supply-siders that we have been hearing for 30-40 years now. it was neither the cause of business leaving the US nor is it the solution to job creation. the heavy trading partners with the US are Canada, Mexico and China this is all that matters. comparing the corp tax rate of the US to other countries that we don't even trade with is well, simply ludicrous.

The pattern that has developed now is just like during the great depression. The lack of income by workers has caused a decrease in demand which in turn causes work force reductions and/or a lack of jobs (no hiring). Only this time instead of Japan the problem is with China, once again history has repeated itself.

The Growth- and Job-Killing Trade Deficit Jumps Again

Trade Deficit Reduction -- America's Only Way Out

* How the new Dodd-Frank legislation is viewed from the financial community

Dodd-Frank_One_Year_On

Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Enacted into Law on July 21, 2010

* The news released the other day in regards to the Feds suing various US banks has been criticized by those that know nothing about the topic at hand. They are still blaming the CRA and GSEs for the banking collapse of 2007 when they were also defrauded by the unregulated wall-street banks.

The filling is a great detailed example of how those banks committed various frauds and how once again those at the top have screwed over those at the bottom and the neo-cons continue to blame the poor for the financial problems in the US.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

 

[Big Pimpin]

There should be tighter lending requirements. Amongst other things, having a high down payments demonstrates that not only are you responsible enough to save and in theory manage money, but you have a significant investment in the property itself.

When I was doing my mortgage stuff, I was horrified at what some banks were qualifying me for. Way, way too much money where I knew I would not be able to carry it. Stuff like that needs to not happen.

I bought my home in 2004 and had a new paid off truck, 0 credit card debt and healthy retirement funds to "fall back on". After I was pre-approved for this particular house, I asked the mortgage chick how much more I could go and she said with your credit history and debt to income ratio I can go 42% gross pay. Holy fucking shit, you can keep that I thought.

Just a thought....back when all these stupid interest only mortgages were being handed out like candy, I thought the real disaster would be when the interest rates inevitably adjusted up over the short term and many of those peeps would lose their homes because they couldn't make the new payment. Of course little did I know the magnitude of the coming housing implosion and all the other contributing factors.

 

[Gregzs]

http://www.nytimes.com/2012/01/15/u...-its-rawest.html?nl=todaysheadlines&emc=tha23

Foreclosure Auctions Show Raw Form of Capitalism
By KEN BELSON

PHOENIX — To the unknowing, the few dozen people milling around the picnic tables in front of the Maricopa County courthouse here every day could be jurors on break or scofflaws finally coming to pay a ticket. They tug on cigarettes, sip from big cups of coffee and fidget with their cellphones, often speaking in whispers.
But instead of waiting to meet a judge, they are preparing to bid on the hundreds of foreclosed properties auctioned each week in one of the country’s more colorful public clearinghouses. During the housing boom, when mortgages were being given out with no money down and prices soared, the auctions were a sleepy sideshow. But in the years since, the auctions have grown into a scruffy economic circus where bargain hunters from around the world have scooped up houses often sold for less than half of the value of the mortgage.
The auctions look more like a low-end poker game than the floor of the New York Stock Exchange. The bidders and auctioneers, most of them men in their 20s and 30s, are on a clubby first-name basis, and their banter can border on sophomoric. But their trading serves a critical if somewhat heartless function: to find new buyers for houses so they can be fixed up and sold to more stable owners.
“This is capitalism at its rawest,” said Brad Grannis, a bidder from AZ Property Advisors. “There’s an asset, and people assign a value to it.”
In recent months, the auctions have become more competitive because of an influx of outsiders who are eager for cut-rate houses that they can resell or rent out and because of a decrease in the number of houses available. There were 2,296 trustee sales in Maricopa County last month, 44 percent fewer than in December two years ago during the depths of the market crash, according to The Cromford Report, a real estate newsletter.
Many economists say that the housing market has a long way to go before it returns to health and that the decline in foreclosures is partly because lenders, often under political pressure, are trying to work with distressed borrowers.
But optimists in Phoenix point to the decline as a harbinger of an upturn, albeit a tentative one.
“We went lower than anywhere except Las Vegas, and we got through the foreclosure crisis faster,” said Mike Orr, a researcher at the W. P. Carey School of Business at Arizona State University and the editor of The Cromford Report. “I don’t know if this will be a significant recovery, but even going up a few points is still a recovery.”
The courthouse auctions have a bloodlessness that belies their impact on people’s lives. Every day, in the rain, morning chill or scorching heat, a half-dozen auctioneers set up shop on the picnic tables in front of the courthouse. They flip open their laptops and read off the addresses of the properties for sale, the value of each mortgage, the taxes due and the opening bid, which the seller determines. Homeowners’ names are never mentioned.
The bidders, many wearing jeans, hoodies and the occasional nose ring, work for investors who rarely attend the actual bidding. Increasingly, those investors come from Canada, China and other countries where Arizona property looks like a bargain. Local investors say these newcomers, as well as hedge funds, have driven up prices and made it harder to turn a profit.
The bidders register with each auctioneer and must produce a $10,000 certified check. They consult their spreadsheets on clipboards or iPads, which list the homes for sale. Many wear earpieces connected to cellphones so they can instantly relay the prices during the auction to their bosses, who know the limit of their clients.
“There’s no emotion in the bidding,” said Mary Nicholes, who runs the Home Ownership Center of Arizona, which bids on behalf of investors who want to rent out their homes. “They all have their number.”
The bidding moves quickly, but there are no secret signals and bidders rarely make eye contact. The regulars help one another, and they will also cheer or encourage colleagues as if they were investing their own money. “You got a hole in one!” one bidder yelled to another who had just bought a house with virtually no bidding. Bidding companies are typically paid a flat fee of about $2,500 or 3 percent of the purchase price, with a share of that money going to the bidder.
No rules are posted, but the bidders obey a strict code, the cardinal rule of which is that those who fail to pay their bills can no longer bid. One former bidder earned the nickname Runaway Bride after she won an auction for the wrong house, panicked and fled the scene without paying her $10,000 deposit.
Individual bidders show up, too. Christopher St. John, a longtime broker in Phoenix, recently went to bid on a house that was near another one that he bought and resold last year, making a $16,000 profit. Bidding at the auction started at $119,700 and zoomed past Mr. St. John’s limit of $125,000. The auctioneer, in chinos, a golf shirt and a Diamondbacks baseball cap, eventually sold the house for $158,000.
Mr. St. John thought the house was worth no more than $175,000, and because he would have to pay about $15,000 to fix it and cover any fees and taxes, bidding that high did not make sense to him. But to well-heeled investors, a smaller profit was acceptable, he said.
“It’s amazing how different it is now and how many more people there are,” he said. “It’s a battle to get properties.”
At times, the auctioneers and bidders are confronted with the reality of what they are trading. Some homeowners come to see their houses sold and vent their anger. A few bring video cameras to film the auction, trying to intimidate the bidders. Every so often a homeowner, having walked away from the mortgage, will bid on his own house. In recent weeks, protesters from the Occupy Phoenix movement camped in the park across the street have stopped by to appeal for an end to the auctions.
For some bidders, the intrusion is another reminder of the hardship that they themselves are enduring. This month, Kelly Galles started working as a bidder after a bout with cancer forced her to give up her job teaching preschool. Her husband, who worked in construction until the downturn, is one of the auctioneers. Lured to Arizona from California during good times, they bought a house that is now worth less than what they owe on it.
“It’s a pretty exciting job,” she said. “The downside is these are people’s homes. We’re lucky not to be here ourselves.”