Here’s an Ad We Don’t See These Days

I was reading about Ray Lewis last night and one of the articles I read about him was in a PDF version of a magazine. Paging through the magazine, I came across an add for a mortgage broker who offered the following:

Advocate Mortgage Capital


This was from a magazine published in 2007.

I know it was bad but looking back at things through this ad made me realize just how silly things had become.

Irronically, this bussiness’ website URL came up dead.

Are Housing Prices FINALLY Starting to Rebound?

The cover story in this week’s Barron’s is about the housing market.

Nothing’s wreaked quite the havoc on the U.S. economy, and indeed the national psyche, as the six-year slide in home prices. It wiped out some $7 trillion in household wealth, savaged bank balance sheets, and induced the Great Recession and the tepid recovery.

Yet there are unimpeachable signs that this national nightmare is now over. Home prices are starting to rise, if somewhat haltingly, in most areas of the country. And a number of forecasters predict home-price increases around 10% or so nationally over the next three years, with some metropolitan statistical areas, such as Midland, Texas, and Bismarck, N.D., likely riding the energy-exploration boom to better than 20% jumps in residential-real-estate prices. The turnaround, in fact, appears to be arriving exactly on the schedule that Barron’s laid out this year in a March 19 cover story entitled “Ready to Rebound.”

Of course, it’s not all optimistic…

TO BE SURE, any sustained recovery in prices faces some formidable obstacles. The “shadow inventory” of residences that are in some stage of foreclosure or whose owners are at least 90 days delinquent on their mortgages stands at 3.1 million–6% of the 50 million home loans in the U.S. In a normally functioning market, the total of distressed properties would be more like 2%.

Likewise, some 13 million homeowners are under water — meaning that their mortgages are larger than the value of their houses or condos. Although the vast majority of these people are current on their mortgage payments, many may be tempted to resort to a “strategic default.” This is particularly true in the event of a job loss or some other economic vicissitude.

And finally, the collapse in housing prices was so severe — nationally, residential real estate fell by over one third in value, peak-to-trough — that it would take at least a 50% jump just to restore prices to the nutty levels they achieved in 2006. Unfortunately, those were the prices at which many homes were purchased. So, for many, hope will be difficult to maintain in the years ahead.

This one quote from the article bugs me because it was this mentality that helped cause the housing bubble in the first place:

“We’ve clearly reached a key psychological shift in home buyers’ psychology, where folks are now starting to worry about missing the boat, rather than fearing whatever house they buy, no matter how attractive the price, can only go down in value,” [Mark] Zandi explains.

Interesting piece if you have the time to read it.

Robert Shiller: “Reviving Real Estate Requires Collective Action”

Read this over the weekend:

Reviving Real Estate Requires Collective Action

What does he mean by “collective action”? Well, here’s one idea, which I find scary:

ROBERT C. HOCKETT, a Cornell University law professor, has outlined another approach, which uses the principle of eminent domain, to solve this collective action problem. Eminent domain has been part of Western legal tradition for centuries. The principle allows governments to seize property, with fair compensation to owners, when a case can be made that such seizure serves the public interest.

Traditionally, we think of eminent domain law as applying to land and buildings. For example, a government can use eminent domain to seize real estate along a proposed new highway route so the highway can be built in a nice straight line. It would be absurd to expect the government to bargain with each property owner to buy a strip of land along the proposed highway route and to have to redirect the highway around a farm whose owner refused to sell. That is common sense.

But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.

Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners. Taxpayers are not involved, and no government deficit is incurred. Since homeowners are no longer underwater and have good credit, they are unlikely to default, so the new investors can expect to be repaid.

The original mortgage holders, the investors in the new mortgages, the homeowners and the nation as a whole will generally be better off. There will surely be some who may not agree, like the holdout farmer opposing the highway, but eminent domain ought to be able to push ahead anyway.

So if eminent domain can move from land and buildings to mortgages, where else could it move to? I don’t know about you guys but this scares me.

But, beyond that, how would such a strategy work? Seems like a confusing mess once you consider the fact that we don’t know who owns the mortgages in the first place. And, who are these new investors going to be?

I have said it many times but we should have just let the people’s homes go into foreclosure and let the market it work it out instead of all these “fixes” to try to get people to stay in homes they can’t afford. Let’s get these people out of their homes, let the prices fall to a point where people will buy them again and start over that way. Of course, my way won’t get any votes for politicians.

A Trip to Magic Fairy Land for Some Homeowners

This makes me ill:

Bank of America Offers Principal Reductions to 200,000 Homeowners

A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.

…eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”).

Responsible people get nothing.

Regardless, I’m ready to get this stuff behind us.

More on the Housing Settlement

According to this morning’s WSJ, banks have reached an agreement over alleged foreclosure abuses (the WSJ’s wording). The settlement is for $25 billion. Details aren’t hammered out but in general, it will…

• Provide $17 billion to borrowers at risk of foreclosure.

• Offer reductions in loan principal and other assistance to qualifying homeowners.

• Includes a provision that will let some homeowners who are current on payments refinance mortgages even though they owe more than their homes are worth.

Oh, and there’s this…

In addition, the deal will provide cash payments to other borrowers who went through foreclosure during the past four years. These people will be eligible to receive around $1,500 to $2,000.

Those of us who were RESPONSIBLE get nothing.

Haven’t We Been Down This Road Before?

I read this last Friday in the WSJ: The Loan Quota Rule

For the latest example of regulatory overreach, look no further than the Department of Housing and Urban Development, which is pushing through a rule to support racial loan quotas a few months before the Supreme Court will rule on whether that’s legal. The Obama Administration’s “fair housing” agenda, apparently, just can’t wait.

At issue is the 1968 Fair Housing Act, which prohibits discrimination “because of race, color, religion, sex, handicap, familial status, or national origin” (our italics). The language clearly implies an intent to discriminate. But courts have brushed the pesky text aside over the years, citing language in other 1960s-era statutes that allows the use of “disparate impact” analysis, which doesn’t require intent and relies instead on statistical data about lending outcomes over larger populations of borrowers.

That prohibition against discrimination is not the same thing as quotas. I’m all for fair lending standards. If a person qualifies for a mortgage based on finances, then they should be able to get the loan. However, I am 100% against giving them a loan in order to meet some sort of racial quota regardless of whether or not they can afford the loan. It seems as though we have been down this road before.


This Stuff STILL Angers Me…

Begin rant.

Just saw this on MSN:

Deal could cut principal on 1 million loans

Apparantly, there’s ANOTHER deal being hammered out to help homeowers (misspelled on purpose). Here’s how this deal might work out:

• $17 billion would go toward principal reductions. If 1 million homeowners were to be helped, that would equal an average reduction of $20,000 each. About 11 million U.S. homeowners are underwater on their mortgages.

• $5 billion would go toward homeowners affected by the deceptive practices and to state and federal housing programs. The settlement envisions a payment of $1,800 each to 750,000 affected homeowners. About 8 million Americans have faced foreclosure in the past four years.

• $3 billion would help homeowners refinance their mortgage loans at a rate of 5.25%. That’s more than 1 percentage point above current market rates, but most underwater homeowners are not eligible for refinancing. Some, however, have received rates as low as 2% as part of mortgage modification deals.

The media is doing a tremendous job at painting these homeowners as victims.

Question: Where’s my mortgage principal writedown?

Basically, this “deal” screws all the people who were RESPONSIBLE and bought homes they could afford.

Yes, some banks foreclosed improperly. It’s not known if the homeowners being foreclosed upon deserved it or not. I guess if a bank tries to foreclose without the proper paperwork, the deliquent borrower can just stay there forever. Not sure how that works.

It’s a big mess.

End rant.