We begin this morning with a renewed raison d’etre. Why? Well, because our morning stroll through the newswires revealed a columnist from Bloomberg who sees a “sign of growing confidence that sales will stabilize.” Likewise, someone at Reuters feels “hope the housing market recovery remain[s] on course.”
The source of sunny optimism for both stories is the latest report on housing starts from the Commerce Department, the same folks who bring you growing GDP numbers. Builders broke ground and filed for permits at the fastest pace since the fall of 2008, we’re told.
Shall we ignore the fact that we’re only now back to levels seen just after the Lehman implosion, a time when credit markets had seized up? How about the fact the increase from February to March was 1.6% -- which is about the least you’d expect given a meteorological phenomenon especially conducive to homebuilding known as “spring.”
For an anecdotal look at what’s really happening, we reach into the mailbag. Our reader is both a CPA and a realtor in the Dallas area, where “a high percentage of homes for sale are short sales contingent on bank approval (sometimes other realtors use euphemisms such as ‘pre-foreclosure,’ but the status is the same).”
“My guess,” he continues, “is half the homes that are listed in the MLS banks have started the foreclosure process on these homes but appear to be taking no action to make it happen.”
Ah yes, the “shadow inventory” phenomenon. “It is shocking,” our reader continues, “to see very reasonable market offers that are simply refused by the banks after weeks of agonizing waiting. Are the banks stalling the recognition of losses on loans that should be in REO? The net result: There are a great number of homes for sale that are not on the market for all practical purposes.
“What would happen to prices if all these homes were really put up for sale at market values?” Great question. And as it happens, we may not have long to find out.
Foreclosures set a record in the first quarter of this year, according to RealtyTrac. By that, we mean actual foreclosures, where the sheriff shows up to evict the former homeowner, the bank takes possession of the property for auction and the bank has to write down the value of said property.
The total is 35% higher than a year ago, and it puts the nation on track for 1 million repossessions this year.
Micro-level numbers confirm this “real foreclosure” trend. The San Diego-area newspaper North County Times just crunched local foreclosure data and discovered the following: Bank of America sent letters last month to 621 homeowners, notifying them that their homes could be sold at auction in as little as three weeks. That compares with just 31 such notices in March of last year.
This is the same Bank of America that has 250,000 mortgage customers nationwide who haven’t paid a dime in more than a year. Maybe they should notify relatives they might be moving in soon, and on short notice. As one agent told the North County Times, "My Bank of America asset manager told me we'd really start to get hit with [foreclosure] inventory in mid-May to June."
Should make “prime selling season” interesting, eh?
Still, don’t get the idea the government and the banks are finally ready to clear the rot and let housing prices reach a bottom. So far, we’ve been talking about inventory that’s been festering for a year, or two years, or longer.
There’s also the distressed mortgage paper of more recent vintage, the stuff that now sits in housing purgatory under our good friend HAMP, the Home Affordable Modification Program.
Yesterday, we brought you the latest numbers from that exercise in futility. But we had time to hit only the highlights. After digging into Treasury’s report more in depth, we turned green.
Let’s sum up the relevant numbers, highest to lowest:
• Number of homeowners in default or foreclosure: 7 million• Number of homeowners the White House hopes to help with HAMP: 4 million• Number of homeowners who’ve gotten trial modifications under HAMP: 1.4 million• Number of homeowners who’ve gotten permanent modifications: 230,801
So that’s 3.3% of homeowners in trouble that HAMP is actually helping.
Oh, but wait.
Once a homeowner is approved for permanent modification, what kind of debt load is he or she left with? You know, that might lend a clue to whether the borrower can keep up the new lower payments.
Traditional lending standards -- those in place before the mortgage market took leave of its senses -- dictated a mortgage payment should be no more than 28% of gross income, and the overall debt load (once you include credit cards, car payments, etc.) should be no more than 36%.
The typical homeowner who got a permanent modification now has a mortgage payment equal to 31% of gross income. Not too out of line with reason. But once you throw in all the other debt, the “back-end ratio,” as they say, what do we have?
Drumroll, please…
61.3%.
So that’s three dollars out of every five -- before taxes! -- servicing debt. Doesn’t leave a whole lot for groceries, gas or anything else.
Before they were approved for their permanent modification, their total debt load amounted to 75.7%. That’s 1.2 million people who are now emerging from purgatory and headed to Hades. Sooner or later, anyway. They have yet to receive their final notices.
The source of sunny optimism for both stories is the latest report on housing starts from the Commerce Department, the same folks who bring you growing GDP numbers. Builders broke ground and filed for permits at the fastest pace since the fall of 2008, we’re told.
Shall we ignore the fact that we’re only now back to levels seen just after the Lehman implosion, a time when credit markets had seized up? How about the fact the increase from February to March was 1.6% -- which is about the least you’d expect given a meteorological phenomenon especially conducive to homebuilding known as “spring.”
For an anecdotal look at what’s really happening, we reach into the mailbag. Our reader is both a CPA and a realtor in the Dallas area, where “a high percentage of homes for sale are short sales contingent on bank approval (sometimes other realtors use euphemisms such as ‘pre-foreclosure,’ but the status is the same).”
“My guess,” he continues, “is half the homes that are listed in the MLS banks have started the foreclosure process on these homes but appear to be taking no action to make it happen.”
Ah yes, the “shadow inventory” phenomenon. “It is shocking,” our reader continues, “to see very reasonable market offers that are simply refused by the banks after weeks of agonizing waiting. Are the banks stalling the recognition of losses on loans that should be in REO? The net result: There are a great number of homes for sale that are not on the market for all practical purposes.
“What would happen to prices if all these homes were really put up for sale at market values?” Great question. And as it happens, we may not have long to find out.
Foreclosures set a record in the first quarter of this year, according to RealtyTrac. By that, we mean actual foreclosures, where the sheriff shows up to evict the former homeowner, the bank takes possession of the property for auction and the bank has to write down the value of said property.
The total is 35% higher than a year ago, and it puts the nation on track for 1 million repossessions this year.
Micro-level numbers confirm this “real foreclosure” trend. The San Diego-area newspaper North County Times just crunched local foreclosure data and discovered the following: Bank of America sent letters last month to 621 homeowners, notifying them that their homes could be sold at auction in as little as three weeks. That compares with just 31 such notices in March of last year.
This is the same Bank of America that has 250,000 mortgage customers nationwide who haven’t paid a dime in more than a year. Maybe they should notify relatives they might be moving in soon, and on short notice. As one agent told the North County Times, "My Bank of America asset manager told me we'd really start to get hit with [foreclosure] inventory in mid-May to June."
Should make “prime selling season” interesting, eh?
Still, don’t get the idea the government and the banks are finally ready to clear the rot and let housing prices reach a bottom. So far, we’ve been talking about inventory that’s been festering for a year, or two years, or longer.
There’s also the distressed mortgage paper of more recent vintage, the stuff that now sits in housing purgatory under our good friend HAMP, the Home Affordable Modification Program.
Yesterday, we brought you the latest numbers from that exercise in futility. But we had time to hit only the highlights. After digging into Treasury’s report more in depth, we turned green.
Let’s sum up the relevant numbers, highest to lowest:
• Number of homeowners in default or foreclosure: 7 million• Number of homeowners the White House hopes to help with HAMP: 4 million• Number of homeowners who’ve gotten trial modifications under HAMP: 1.4 million• Number of homeowners who’ve gotten permanent modifications: 230,801
So that’s 3.3% of homeowners in trouble that HAMP is actually helping.
Oh, but wait.
Once a homeowner is approved for permanent modification, what kind of debt load is he or she left with? You know, that might lend a clue to whether the borrower can keep up the new lower payments.
Traditional lending standards -- those in place before the mortgage market took leave of its senses -- dictated a mortgage payment should be no more than 28% of gross income, and the overall debt load (once you include credit cards, car payments, etc.) should be no more than 36%.
The typical homeowner who got a permanent modification now has a mortgage payment equal to 31% of gross income. Not too out of line with reason. But once you throw in all the other debt, the “back-end ratio,” as they say, what do we have?
Drumroll, please…
61.3%.
So that’s three dollars out of every five -- before taxes! -- servicing debt. Doesn’t leave a whole lot for groceries, gas or anything else.
Before they were approved for their permanent modification, their total debt load amounted to 75.7%. That’s 1.2 million people who are now emerging from purgatory and headed to Hades. Sooner or later, anyway. They have yet to receive their final notices.
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