Category: Articles

No, that is not a misprint. The $300 billion “Hope for Homeowners” program has saved 1 home to date. This is a case of the real reason for the defaults of homes being vastly different than the reasons we are being told. According to Government officials, folks are being foreclosed because:

1- The value of their homes has dropped (this one has never made sense to me)
2- Loans are resetting and they are a few hundred bucks a month short
3- Some other, less than permanent condition
4- Evil banks are kicking them out

CNN Reports:

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

“As it stands now, we’ve only gotten 752 applications,” said Federal Housing Authority spokesman Brian Sullivan. “And only insured one loan. Needless to say, the program isn’t working terribly well.”

Rep. Michael Castle (R – Del.), who sits on the House Financial Services Committee, agreed, calling HOPE “one of the most failed programs we’ve had in a long time.”

Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama’s Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.

Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D – Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.

This goes to the core of government intervention. The reason people are not applying for the program OR getting approved is not because they are not aware of it but because the conditions the government thinks are causing people to lose their homes aren’t vaid. Thus, the requirements to be eligible for the program are not being met because they have no relation to what is actually happening in the real world.

The overwhelming majority of foreclosures are people:

1- Unemployed
2- Took out a mortgage they could barely afford with little or no money down now can not afford
3- Took out a “pick a pay” loan that has reset at a level they have no hope of affording
4- Simply refuse to pay a $550k mortgage on a house now worth $375k
5- Speculators who were the “last fool in”

None of the above folks will qualify under any government program for “help”. Yet, we are constantly lead to believe these folks are the fringe of the problem and not the problem itself. Unfortunately, the converse is true.

The stunning lack of success of ANY government program to date is proof of that. The first FDIC intervention to halt foreclosures resulted in an over 50% rate of folks who where then delinquent again less than 6 months later. Translation? These folks should have not been helped in the first place.

There are unfortunately million of homeowners out there who are beyond help. The sooner the government realizes this, and admits it to us all the sooner they can focus efforts in the proper areas. Unfortunately, this will also run counter to the current populist rhetoric coming from Washington. Telling the 2 million homeowners about to be foreclosed on this year, “you did this to yourself and you need to deal with it yourself” will not win any votes among that sect.

But, alas it is far easier to blame the banks for them and initiate ineffective programs with catchy titles that play well on the nightly news.

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Was at a loss for words when I saw this…

Watch this video:

The fact they even state they “thought housing was turning” is stunning. The fact that they view the housing starts retraction as bad news is equally as stunning.

Supply/Demand 101. Too much supply lowers prices and low demand does the same thing. We have an over 1 yr. supply of new homes. Prices CANNOT recover until this is worked off. There are only two ways to do this. Buy more homes or build less.

Since millions of folks are losing their jobs or seeing work hours reduced and credit is being tightened, the buyer variable as salvation is out of the question. So building less new homes now is actually a good thing for the market on a long term scale. It will help reduce the inventory.

This is a point I tied to make yesterday on Wall St. Media:

All this blind rush to call a housing bottom just defies history and reality and it is dangerous for people putting money to work based on it. This was a bubble unlike any other in history, to assume it will resolve itself in less time than lesser events is just plain naive. Please ignore those who suggest it may…

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He make salient point about the operating businesses, they are fine.

* Rent are stable
* NOI up
* Not negotiating leases
* Occupancy strong

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So, longtime readers know ValuePlays is a big fan of Jim Grant.

Take a look at Grant’s view of the government response to the current recession.

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Summary:
Reports from the Federal Reserve Banks indicate that overall economic activity contracted further or remained weak. However, five of the twelve Districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level.

Manufacturing activity weakened across a broad range of industries in most Districts, with only a few exceptions. Nonfinancial service activity continued to contract across Districts. Retail spending remained sluggish, although some Districts noted a slight improvement in sales compared with the previous reporting period. Residential real estate markets continued to be weak. Home prices and construction were still falling in most areas, but better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts. Nonresidential real estate conditions continued to deteriorate. Difficulty obtaining commercial real estate financing was constraining construction and investment activity. Spending on business travel declined as corporations cut back. Reports on tourism were mixed. Bankers reported tight credit conditions, rising delinquencies, and some deterioration of loan quality.

Fed Beige Book t 2009-4-15

Folks, a “slowing rate of decline” is another way of saying “things don’t suck as bad”. It by no means should be taken to mean “things are getting better”.

Just be careful if you are putting money to work. Make sure the prices you pay reflects economic reality, not what you hope is going to happen

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For anyone who thought housing might have been stabilizing, here is a cold dose of reality. The bottom line? If you bought a house in California after 2005 and want to sell it for what you paid, you’ve got a decade to get it ready.

From the WSJ:

Some of the nation’s largest mortgage companies are stepping up foreclosures on delinquent homeowners. That will likely lead to more Americans losing their homes just as the Obama administration’s housing-rescue plan gets into gear.

J.P. Morgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), Fannie Mae (FNM) and Freddie Mac (FRE) all say they have increased foreclosure activity in recent weeks. Those companies say they have lifted internal moratoriums which temporarily halted foreclosures.

It continues:

Foreclosure sales had dropped in the second half of 2008 as mortgage companies delayed taking action against delinquent borrowers. But sales have been edging up this year, according to LPS Applied Analytics, which tracks loan performance. Foreclosure-related filings increased by nearly 6% in February from the month earlier, and were up almost 30% from February 2008, according to RealtyTrac. The backlog of seriously delinquent loans has been growing.

Completed Foreclosures Jumped 44% in March

In California, notices of trustee sales, which are preludes to foreclosure sales, climbed by more than 80% to 33,178 in March, from February, according to data from ForeclosureRadar.com and the Field Check Group. The increase reflects both the expiration of foreclosure moratoriums and a California law enacted late last year that temporarily delayed default and foreclosure notices, says Mark Hanson, president of the Field Check Group, a research firm.

Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can’t meet their loan payments, up from about 1.7 million in 2008, according to Moody’s Economy.com.

Mortgage-servicing companies, such as J.P. Morgan Chase and Wells Fargo, collect mortgage payments and work with troubled borrowers, both for loans they own and those held by investors.

J.P. Morgan Chase has increased foreclosure actions since the expiration of a moratorium on new foreclosures that began on Oct. 31, and a later moratorium put in place at President Obama’s request. The Oct. 31 moratorium delayed foreclosures on more than $22 billion of Chase-owned mortgages involving more than 80,000 homeowners.

Remember this chart from last October?

It hasn’t significantly changed people.  These loans, when they reset will mean payments double or triple their current level for homes not worth near the amount of the loan. Result? People will continue to walk away from homes. 

This is brilliant stuff. Hayek is the author of “Road to Serfdom”.

John Chamberlain characterised the period immediately following World War II in his foreword to the first edition of The Road to Serfdom as ‘a time of hesitation’. Britain and the European continent were faced with the daunting task of reconstruction and reconstitution. The United States, spared from the physical destruction that marked Western Europe, was nevertheless recovering from the economic whiplash of a war-driven economic recovery from the Great Depression. Everywhere there was a desire for security and a return to stability.

The intellectual environment was no more steady. The rise and subsequent defeat of fascism had provided an extremely wide flank for intellectuals who were free to battle for any idea short of ethnic cleansing and dictatorial political control. At the same time, the mistaken but widely accepted notion that the unpredictability of the free market had caused the depression, coupled with four years of war-driven, centrally directed production, and the fact that Russia had been a wartime ally of the United States and England, increased the mainstream acceptance of peace-time government planning of the economy.

Hayek employed economics to investigate the mind of man, using the knowledge he had gained to unveil the totalitarian nature of socialism and to explain how it inevitably leads to ‘serfdom’. His greatest contribution lay in the discovery of a simple yet profound truth: man does not and cannot know everything, and when he acts as if he does, disaster follows.

He recognized that socialism, the collectivist state, and planned economies represent
the ultimate form of hubris, for those who plan them attempt – with insufficient knowledge – to redesign the nature of man. In so doing, would-be planners arrogantly ignore traditions that embody the wisdom of generations; impetuously disregard customs whose purpose they do not understand; and blithely confuse the law written on the hearts of men – which they cannot change – with administrative rules that they can alter at whim. For Hayek, such presumption was not only a ‘fatal conceit’, but also ‘the road to serfdom’.

F.A. Hayek Interviewed By John O’Sullivan from FEE on Vimeo.

Buy the book here:

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