US treasury Sees Millions More Foreclosures

According to this Reuters article, U.S. Treasury sees millions more foreclosures, even with the ever increasing efforts of the Federal Government via the Home Affordable Modification Program, or HAMP, foreclosures will increase.  In fact according to Michael Barr, assistant Treasury secretary for financial institutions, "even if HAMP is a total success, we should still expect millions of foreclosures".

So we have an insiders view that foreclosures will continue to increase.  We also have the readily available news that unemployment keeps increasing.  Can somebody please explain to me how the real estate market is improving in spite of this these things?  To me, an improving real estate market defies logic and reason.  I see no evidence that the real estate market will improve anytime soon.

My Real Estate Market Thoughts of the Day

This post may be a bit of a ramble so I apologize for this in advance. I just had to get some things off my chest.


The last time the real estate market melted down (think late 80's/early 90's) it took 7 years for homes to regain their losses. This meltdown is far worse because it is not just due to real estate over development/over building. It was caused by debt. Plain and simple. That is why the folks in Washington cannot fix this problem - you cannot fix a problem caused by debt with more debt. It defies logic and reason. The facts are that even at their current reduced levels, home prices are still out of line with incomes when compared to historical trends. Therefore, contrary to NAR homes are not actually affordable (Side note: I really cannot stand the NAR Home Affordability Index. Since when did Realtors become used car salespeople hawking homes by pushing the monthly payment instead of the price of the home?).

The reason loan modifications will not work is that they do not address the core problem: mortgage balances are too high relative to the market value of the homes. Many homeowners are actually now underwater (i.e. mortgage balances exceed the value of their home). According to a recent Deutsche Bank report, by 2011 about 48% of all US mortgages will be underwater. Since being underwater is now the #1 statistical driver of defaults (not credit scores) you can bet on high foreclosure rates for years to come.

Since the entire economy was built on consumer spending, and that consumer spending was fueled by debt, and that debt is no longer available you can be sure that when things do actually turn around unemployment will still remain relatively high with a likely range of 6-8% as opposed to the 4-5% range we enjoyed a few years ago. Based on the persistent debt problem and the long term unemployment problem I just do not see how the real estate market will recover anytime soon.

This whole thing is sadly comical. You have nonsense from NAR and the mainstream media about how the real estate market is turning a corner and recovering yet foreclosures and unemployment keep increasing. The US real estate market has never recovered under such circumstances and this time will not be the exception. Almost every day I fell like screaming "STOP THE NONSENSE." If our policy makers would just let housing prices decline to their normal (historical) sustainable levels and get rid of the FHA loans, other low/no down loans, ARM loans and other artificial financing not only would this type of problem never happen again, but the social engineers in Washington would not have to worry about "affordable housing" since housing would in fact ALREADY BE AFFORDABLE. Sometimes the answer is just plain old common sense. I predict that values will continue to fall rapidly through 2011 (when the large wave of Option ARM foreclosures ends) and then continue to decline gradually until the foreclosure rate reduces to normal levels and the unemployment rate reduces back down to a more realistic 6-8% mentioned above. At that point real estate values will recover at the normal 4-7% per year.

Great Blog Post: The Ridiculous Loan Modification Solution

According to this BrokerAgentSocial article, The Ridiculous Loan Modification Solution, Banks and Mortgage Lenders have no real incentive to offer struggling home owners a loan modification since a Barclay's study showed that "current loans receiving rate modifications will experience a 62% redefault rate and delinquent loans receiving rate modifications will experience an 83% redefault rate." The reasons that these loans will still go bad are simple:

1. The home owners were shaky from the beginning and so they are not the most financially responsible people to start with.
2. Their homes are worth far less than the their mortgage balances. Eventually these people realize that they will never "get even" and just give up by letting the go into foreclosure.

The result of all of this is that short sales are rely best solution for the lenders and the homeowners since it is statistically proven that loan modifications will not work. Regardless of what the all knowing Obama says, keeping people in their homes is not the answer to our real estate crisis. Letting the market hit bottom as soon as possible is.

Mortgage Servicers Have Incentives Not to Modify Loans, Not to Approve Short Sales and Not to Foreclose (At Least for Quite a While)

According to this New York Times article, Lucrative Fees May Deter Efforts to Alter Loans, mortgage servicers make more money by charging late fees, legal fees, insurance fees, etc. than they would by offering the home owner a loan modification (i.e such as Making Home Affordable), approving a short sale or even foreclosing. Therefore, many homes will sit in limbo for many months even when the current owner is several months behind in their mortgage payments, but could pay a lower payment, or even if there is a buyer willing to buy the home. Apparently, the longer the loan is delinquent the more the mortgage servicer stands to profit. Of course, during this time the home is likely being neglected, which will ultimately result in the home being worth less when it ultimately sells. Since the mortgage servicer does not own the loan they are not losing any money and do not really care. According to the article, in June 2009 nearly 3,000,000 homeowners were 90+ days delinquent on their home loans (up from 1,800,000 in June 2008), but the number of homes taken back by the banks decreased to 245,000 (from 333,000 in June 2008). This goes hand in hand with what I wrote in earlier blog posts, More Evidence Banks Are Holding Back Foreclosures and Government Meddling and Banks' Incompetence Will Cause More Home Price Declines, where I stated that banks are not openly selling anywhere near number of true foreclosures. The number of seriously delinquent loans continues to grow. These loans should be modified or the properties should be sold via short sale or foreclosure. Instead, the mortgage servicers are just letting them fester. Of course, they will eventually have to be dealt with on way or the other. Most likely this will be via foreclosure after the owners just give up and move on.

Delinquencies on home-equity loans hit record

According to this Los Angeles Times article, Delinquencies on home-equity loans hit record, the number of delinquent home equity loans reached 3.52% in the 1st quarter of 2009. The article cites mounting job losses as the primary culprit. The article also mentions that credit card delinquencies reached a record of 6.06% during the same period.

Per my previous posts, it is "only going to get worse". If you cannot afford your home loan payments (mortgage(s) and/or home equity loan(s)), your best option is to request a loan modification in order get your monthly payments reduced. If that does not work and/or your home is worth less than the debt than a short sale is your next best solution. Simply defaulting is not a good answer. If you need assistance in stopping foreclosure proceedings feel free to contact HaltingForeclosures.com.

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.