Thursday, May 14, 2009

Obama Administration Expands Housing "Rescue Plan"

According to this BusinessWeek article, Obama administration expands housing plan, the Obama Administration is expanding the coverage of its previous $50 billion housing rescue plan in order to cover more distressed homeowners. The previous plan has helped 55,000 homeowners avoid foreclosure via loan refinances and payment modifications. This new expansion will only aid homeowners by making it easier to give their homes back to the banks, or complete a short sale. While these add ons are certainly needed it still does not address the problem of the banks having too many REO's, or losing money and becoming insolvent. Of course, in my previous blog posts I beat up the initial plan since it omitted investors and homeowners whose homes were worth far less than the mortgage amount. These remain a source of a lot of foreclosures. In short, this new plan will do little to nothing to stop the decline of the housing market.

Fannie Mae and Freddie Mac Becoming Large Landlords

According to this Forbes article, Meet Your Landlords: Fannie And Freddie, collectively Fannie and Freddie own 1 out of every 9 foreclosed properties with Fannie owing 64,000 single family homes and Freddie 29,000. The article mentions that foreclosures are going to accelerate due to the moratorium on foreclosures being lifted. Both GSE's are working on greatly increasing loan modifications and programs that allow foreclosed former homeowners to remain in the properties as tenants. The article mentions that this landlord role may be difficult for Fannie and Freddie. Also, the article quotes Rick Sharga, Vice President of RealtyTrac, as saying that Fannie and Freddie will need to seize more properties as prime conforming loans start to default more. He goes on to say that the rental programs may help the housing market by preventing a flood of foreclosures from entering the market at the same time. While I agree that there will be more foreclosure, I disagree that holding back foreclosures is a good idea. Americans need this problem to end now. Fannie, Freddie and private banks need to just dump the properties now and push down prices to get the market to hit bottom ASAP so that people can feel confident that the worst is over. This continuous market meddling is dragging this nightmare out far too long.

Foreclosures Reach New High in April 2009

According to this Inman News article, Foreclosures plateau at new high, RealtyTrac data indicated that foreclosures in April 2009 increased by less than 1% from March 2009, which was the previous high. However, this represents a 32% increase over April 2008. According to the folks at RealtyTrac the recent March-April surge in foreclosures is due to the previous moratoria on foreclosures expiring. I believe that due to the declining economy foreclosures will continue to increase for the foreseeable future.

Birmingham Auction Ended Abruptly After Too Many "Low Bids"

According this article in The Birmingham News, City Federal auction ends abruptly due to low bids, the auction was originally scheduled to sell off 20 condo units, but was stopped after only 11 sold due to what the condo project owners, Synergy Realty Services LLC, called "low bids". Condos that once were listed for $239,000 to $935,000 ended up selling for only $80,000 to $320,000. The project owners said they were disappointed by the low prices, but would try to re-market the remaining condos at pre-auction prices.

My opinion is that these people are fools. There is no other market for these condos. $935,000 for a condo in Birmingham? Sorry, it makes no sense. That market is long gone and never coming back. It was a sham built upon a mountain of debt that is no longer available. The condo project owners should liquidate for whatever they can get as it is only going to get worse.

"Stress Tests a Sham"; Banks Have $2 Trillion Dollar Hole While Credit Card and Commercial Real Estate Loan Defaults Soar

According to this interview with William Black, a former bank regulator, author and current law and economics professor at the University of Missouri, the "Stress Tests" are a "sham"and US banks need $2 trillion dollars to remain solvent. Since he directly attributes this figure to Treasury Secretary Tim Geithner I am guessing that the real number is much higher since according to Mr. Black the "stress tests" do not factor in bank reserves or asset quality (i.e. the increasing defaults on all types of loans including credit cards and commercial real estate loans). Additionally, Mr. Black states that commercial real estate is in for a "world of hurt". As I stated previously, there is going to be a surge in the number of foreclosures hitting the market as banks fail and are forced to finally liquidate the foreclosures they have artifically been holding back and most of the large banks in the US are already insolvent and will need to be nationalized soon.