Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1231 | -5 | -0.40% |
| Eurostoxx Index | 2253.2 | -9.210 | -0.41% |
| Oil (WTI) | 98.17 | 0.930 | 0.96% |
| LIBOR | 0.5713 | 0.002 | 0.26% |
| US Dollar Index (DXY) | 79.997 | 0.165 | 0.21% |
| 10 Year Govt Bond Yield | 1.94% | 0.01% |
S&P futures are slightly weaker on a miss by Oracle and European weakness. Oracle blamed the miss on customers delaying purchases and economic weakness in Europe. Analysts are forecasting a drop in corporate IT spending in Q112. Separately, RIMM is up over 9% on reports that they are an acquisition target by AMZN, and that MSFT and NOK considered a joint bid.
Speaking of takeovers, a lot of merger arbs expected the Obama FTC and DOJ to be aggressive antitrust enforcers, similar to the Clinton Administration, when Robert Pitofsky headed the FTC. (Anyone remember Staples / Office Depot?). Well, the Obama Administration finally blocked one – the Verizon / T-Mobile Deal. The Bush Administration had a particularly benign view of antitrust – allowing the merger of Whirlpool and Maytag / Quaker Oats and Pepsi among others. Obama more or less continued the benign view that the Bush Administration followed. It will be interesting to see if this is part of a trend.
The National Association of Realtors just released existing home sales data for November, including revisions going back to 2007. Due to errors in methodology, existing home sales have been overstated by about 14% – 15% for the last few years. Other data in the report: there are about 2.58 million homes for sale, or a 7-month supply. The median existing home price dropped 3.5% YOY to $164,200. 29% of all home sales were foreclosures or short sales. While the naturally bullish NAR is trying to put a happy face on the data, it shows the housing market still has a long way to go in order to reach normalcy. It also demonstrates how much the government efforts to limit foreclosures have depressed sales and delayed the necessary process of moving the distressed inventory. House prices won’t recover (and the economy won’t experience a robust recovery) until the shadow inventory has traded.
Chart: US Existing Home Sales (Seasonally Adjusted Annual Rate)
Filed under: Uncategorized |
All Things in Moderation 
Have GOP candidates gone after Obama's handling of foreclosures and the housing crisis in general. There seems to be bipartisan agreement on this blog that the administration's actions in this regard have prolonged the pain, but (and it's possible I'm just not paying close enough attention) I don't feel as if the Romney et al have really done much to criticize Obama in this particular area. Is it that they are afraid of the political danger in coming out against programs that keep people in their homes?
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Two additional statistics of relevance:–Winter starts tonight, 9:30pm Pacific/12:30am eastern.–It's my birthday!
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Happy Birthday, MsJS. Hope you have a good one and get lots of cool stuff!
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Romney stated in an interview with a Las Vegas newspaper that the housing market needs to hit a bottom and that foreclosure rules need to be loosened. Predictably, Democrats jumped all over this:http://www.bostonherald.com/news/us_politics/view.bg?articleid=1377992I hope that Romney really hammers the logic that drives Obama's policy – that "if we just halt foreclosures, prices will stabilize," which implies the government can and should be trying to set real estate prices.
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I have no problem with trying to find alternatives to foreclosure, but that effort should not be based on a fantasy that limiting foreclosures will stabilize housing prices. I agree with Romney that the market needs to hit a bottom, but we don't know where that is.
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obama's foreclosure mitigation program was a disaster on so many levels. first, they targeted the servicers, not the lenders who have actual financial skin in the game. they told (instructed) servicers that it really was consistent with their fiduciary duty to lenders to mod these loans and gave the servicers a reward for the mods. These loans re-defaulted within a year, and during that time, real estate prices collapsed 20% or more, which was a more or less a direct transfer of wealth from lenders to delinquent borrowers. Oh well, ol Robin Hood got to stick it to the banksters, which is what this whole exercise is about, anyway.
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"Oh well, ol Robin Hood got to stick it to the banksters, which is what this whole exercise is about, anyway."It should not be and I do not understand it to be.Banks are better off not eating all that potential REO and neighborhoods are better off without "ghost" homes in their midst.During the S&L crisis some workout agreements actually benefitted everyone. Maybe this Admin is doing it "wrong", but it can be done as something that is a win-win, unless the fact that there are no table loans any more just makes this too difficult.During the Great Depression, Farm and Home Savings of Nevada MO put a moratorium on all distressed mortgage loans until the economy turned around in '42 and then added all the unpaid debt to the end of the loans and survived, and even thrived. I see how that might not work now…
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E-Mail Clues in Tracking MF Global Client Funds Federal authorities investigating the collapse of MF Global have uncovered e-mails that detail the transfers of money in the firm's last days, including transfers that contained customer money, according to people close to the investigation.One e-mail chain refers to the transfer of roughly $200 million that MF Global owed JPMorgan Chase on Oct. 28 – the firm's last business day before it filed for bankruptcy. In that chain, a senior official in the firm's Chicago office was told to make the transfer, said the people close to the investigation who requested anonymity because the inquiry was still open. That official, Edith O'Brien, a treasurer at MF Global, is considered a "person of interest" in the investigation, said two of the people, who added that authorities expected to interview her in the coming days. It was not clear who had directed Ms. O'Brien, whose job was to oversee the customer money, to make the Oct. 28 transfer. The roughly $200 million that JPMorgan Chase received is said to be entirely customer money. – NYT
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MsJS: Happy Birthday to you!
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Mark:re MF Global…yeah, I read that too this morning. I noted especially the part about MF trying to sell some assets to JPM, but JPM wouldn't close the deal while the London account was still overdrawn. My guess is that someone told Chicago to just make sure the London account was made whole with whatever money they could find, and that the asset sale would cover it. But when JPM questioned the source of the funds and wouldn't close the asset sale, MF was screwed, having sent the client money out the door with no receipt from the sale to cover it.If this is what happened, I wonder if JPM might have problems, especially if it can be shown that they accepted money which they knew or suspected to be client funds and have remained silent on the matter.
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During the Great Depression, Farm and Home Savings of Nevada MO put a moratorium on all distressed mortgage loans until the economy turned around in '42 and then added all the unpaid debt to the end of the loans and survived, and even thrived. I see how that might not work now… ______________Hey if the bank voluntarily does that, more power to them. I object to the government nullifying property rights."Banks are better off not eating all that potential REO and neighborhoods are better off without "ghost" homes in their midst."____________That would be true if the (a) the borrowers continued to pay their new modified rate, and (b) if housing prices stabilized. Most of these borrowers went right back into default within a few months. So the lender has to carry the property for another year, with little or no payments made, all while the underlying collateral is dropping in value. The lender was better off foreclosing and selling immediately. I think the people selling the "mods are better" meme were people like Shelia Bair and liberal politicians. I always chuckled when I heard that – as if banks need Shelia Bair or Chuck Schumer to tell them what is in their financial interest. What the government did was buffalo the servicer, who has no financial stake in the matter, to mod for a fee. Suppose you lent me money for a house and employed LMS as a servicer. You and I can talk to LMS but we can't talk to each other. LMS is supposed to look out for your financial interests. Now suppose I stop paying the mortgage. LMS should initiate foreclosure proceedings and sell the home. Now suppose Obama tells LMS that "it really is better for Mark (even if he doesn't realize it) if you cut Brent's payment and principal a little. Here is $1,000 to help make it worth your while. For a servicer on a typical mortgage, that is over a year's pay. What do you think LMS is going to do? Meanwhile I make a couple more payments, default again and by the time LMS sells the property, it is a year later and the house is worth 20% less. (Sorry, LMS) Mods are in the financial interest of the lender if and only if the borrower continues to pay, or the value of the underlying collateral increases.
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Brent:Forgive my ignorance, and maybe this is a stupid question, but how can the servicer unilaterally modify the loan without the permission of the lender?
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That is how a servicing agreement works. The servicer is typically paid between 30 and 40 basis points to service the loan. That means they send out the bills, collect the payments, forward the property tax payments to the government and send the principal and interest payments to the lender (or bondholder). If the borrower becomes delinquent, they hound the borrower to pay, mod the loan if it makes sense, and handle the foreclosure proceedings. The lender doesn't have to approve of everything the servicer does, but the servicer has a fiduciary duty to act in the best interest of the lender. No lender approval is required since it would be completely unworkable. Imagine 10 tranches of MBS each having claims on the cash flows from a single property.
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Brent, I wondered the same – but then I recalled vaguely that some lenders designated their servicers as agents with authority – isn't that right?I get your drift, and I see that this was implemented terribly.Scott, someone, maybe John, posted a link suggesting that JPM might be off the hook.
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MsJS – Happy Birthday and Many Happy Returns of the Day!
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Stagnant wages & high unemployment are as much to blame for the stalled real restate market as admin foreclosure policies. Boost employment & compensation & the real estate market fixes ittself.
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Brent:Thanks. I guess I hadn't considered the implications of MBS, and that a single entity would necessarily have to have authority to make economic decisions.
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Brent or Scott correct me if I am wrong, but do the foreclosure policies which prevent us from reaching bottom create uncertainty that makes things worse. Because bsimon is right in that if people don't have money to pay more for houses prices aren't going to increase regardless of the administration's foreclosure policies.
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The foreclosure policies are designed to keep supply off the market. But buyers aren't going to step up in any meaningful manner when they know there is a mountain of supply that hasn't hit the market yet. According to the NAR data, 18% of the purchases were from professional investors. The professional investor is probably the one who will take up the excess supply and they are smart enough to hold off until the "big print" goes up. And the bit print will happen when prices move low enough and there is enough demand to absorb it. Right now, the banks are loath to hit bids because they have to mark their whole book at a lower level. They know they have to hit bids and move the merchandise, but they will hit bids when they can do size. And that won't happen until the foreclosure pipeline loosens up and hedge funds feel comfortable knowing they are buying assets in the clear. Don't know if that makes any sense or not.
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You lost be a bit with "big print" and "hit bids" which are foreign terms to me, but I think I understand the later term. Your explanation of how the foreclosure policy is screwing things up was very helpful. As long as potential buyers know there is a mountain of supply out there they aren't going to buy which, of course, makes perfect sense.
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There is an aging of inventory problem, if the homes are vacant. If they stay vacant for years on end, their value will inevitably be greatly reduced. Again, I saw this during the S&L crisis. A mechanism that can unload this inventory at a loss within, say, 18 mos may well prove to limit losses in the long run.What absolutely amazes me is that there is still spec building in Lost Wages, NV. This can only be because new homes are selling cheaper than empty foreclosures, which banks think will someday support the bubble pricing of 2006.
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" According to the NAR data, 18% of the purchases were from professional investors. The professional investor is probably the one who will take up the excess supply and they are smart enough to hold off until the "big print" goes up."If I lived in a neighborhood with excess supply I'm not sure whether I'd prefer empty houses or houses owned by absentee landlords. Neither make for good neighbors.
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I don't think hedge funds are buying them to rent – they are buying them to sell once the dust settles.
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Often overlooked is the fact that most underwater mortgages are located in five states, and not even all areas within thos five state.
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LV, Phoenix, CA, FL, and ?
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Brent et al (finance types): I'll be hitting you up with this question in the spring, but if you had to guess, would you wager that the housing market will bottom out next year, or should I plan on signing another year-long lease when this one's up in July? I'll have my $50K for a down payment by then, but if the market hasn't hit bottom (and/or I haven't found a house that I love) I figure I might as well wait it out and continue saving.
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@Mark… rust belt. Detroit.
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@ Michigoose. Timing the tops and bottoms of markets is damn near impossible. JMHO, if you find a place you really like, go ahead and buy it. If you haven't found one that grabs you, don't feel any pressure to buy, the price probably isn't going anywhere.
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Thanx, Brent.
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Thanks, Brent!Continue to love your Morning Posts. I'm trying to follow john's advice and reading at least some financial stuff every day–yours is my first stop.I figure if I can do science, sooner or later finance will start making sense! 🙂
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Mich:I agree with Brent…it will be sheer luck if you are able to pick the precise bottom of the market. We are close enough to it, and presumably your time horizon is long enough, that you should be focused on getting the right piece of property for you, not getting the timing right.(Alternatively, you could simply wait until I sell, which will be a clear indication that the market has hit rock bottom and has no place to go but up.)
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'Goose – the real estate pros I deal with are all in and around Austin. They say we are now at or near an eighteen month bottom and that is predicated on huge demand we have for housing for people fleeing here for jobs.They have no down payments now and are forcing the rental market sky high relative to the purchase market. It is thought they will have established themselves well enough to be buyers in 18 mos. Then demand will begin its upward push on price. I do not know if this local analysis has any bearing on Salt Lake City, but if you still have incoming folks like we do [and I think you do] it may be relevant.
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