By Mike Whitney
Foreclosure starts surged 28 percent in January, according to Lender Processing Services (LPS).
Now that the banks are confident that a settlement will be reached in the $25 billion robo-signing scandal, they’ve started aggressively processing the mountainous backlog of delinquent mortgages on their books. As the process gains pace, a deluge of REOs will be dumped onto the market pushing down home prices and adding to the 10.7 million properties that are already underwater. Fitch Ratings Agency estimates that home prices could fall another 9.1 percent before the market touches bottom.
Here’s more from CNBC’s Diana Olick:
“… repeat foreclosures hit an all-time high in January, representing 47 percent of all foreclosure starts… This is going to cause some short-term pain in the housing market because as foreclosure starts increase, so do foreclosure sales…. (And) that pushes home prices down…..
We’ve also got … 60 months of inventory to get through in judicial states. Judicial states are the ones where you do need a judge to get through.” (“Unclogging the foreclosure market”, Diana Olick, CNBC)
Despite the media’s repeated claim that inventory is lower-than-ever, the shadow inventory of distressed homes (that’s set to come onto the market) will take a sizable chunk out of prices and increase the number of future defaults. There’s probably never been a worse time to buy a house. A “60 month” backlog of foreclosures means that there’s 5 years of distressed homes in the pipeline.
Who knows how low prices will go? Here’s an excerpt from a post at Calculated Risk:
“January Home Price Index Shows Sixth Consecutive Monthly Decline: [CoreLogic January Home Price Index report] shows national home prices, including distressed sales, declined on a year-over-year basis by 3.1 percent in January 2012 and by 1.0 percent compared to December 2011, the sixth consecutive monthly decline.”
According to last week’s Case-Shiller report, housing prices fell to their lowest point since the bubble burst.(down 34 percent) But the data in that report only goes to December 2011. This new report covers January, 2012, and it shows that prices have slipped even more. And this is BEFORE the wave of foreclosures hits the market.
Fortunately, President Obama has devised a plan that will reduce the number of foreclosures, shore up dwindling home equity, and keep as many victims of this banking scam in their homes as possible.
How? By providing lavish subsidies to the same group of bottomfeeding card-sharks who triggered the crisis to begin with. Don’t believe me? Just look at this.
From Bloomberg News:
“The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble….
By widening the program, the plan will inevitably offer aid to buy-and-flip investors who pushed prices higher during the boom by taking out mortgages with little or no down payment. Speculators accelerated the crash because they were quick to default when prices fell… While survivors of the property bust are now long-term investors, some of them may have started out as flippers, Haughwout said.” (“Boom-Era Property Speculators to Get Foreclosure Aid: Mortgages”, Bloomberg)
So, according to Bloomberg, these “flippers” have had a change-of-heart and transformed themselves into “long-term investors”. Right. Maybe the authors would like to explain how that happens?
As for Obama, instead of sending a small army of well-armed Pinkerton’s into the front offices of the big banks and forcing them to reduce the principle on the millions of mortgages that they concocted with the clear intention of ripping people off, President Creampuff has decided that the best way forward is to shower these bubble-generating house-flippers with additional handouts, perks and freebies? Does that make sense to you?
Here’s some more background from the Real Deal blogsite:
“At the peak of the bubble, almost half of all new mortgages were linked to investors trying to make money in the states with the biggest housing bubbles….. . .these marginal borrowers appear to have contributed substantially to both the increasing amount of real estate related debt during the boom, and to the rapid deleveraging and delinquency that accompanied the bust.” (“Taxpayer bailout extends to housing speculators”, The Real Deal)
So now Obama intends to give these flim-flamming snake charmers a second bite of the apple? Apparently so.
And who is going to take on the added risk of underwriting these so called “long-term investors”?
John Q. Taxpayer, that’s who, via the teetering, undercapitalised Federal Housing Authority (FHA). Keep in mind, that FHA became the landfill of choice after the banks dumped nearly $1 trillion in toxic mortgages on Fannie and Freddie in 2009 forcing the Bush administration to nationalize the two lumbering GSEs before they collapsed under the wieght of all that bad paper. Now it’s FHA’s turn. Take a look at this clip from CNBC:
“The FHA, which now has an inordinately, historically large share of the mortgage market, is in no position to take on any more risk. The FHA could be considered “underwater” itself, guaranteeing about $1 trillion in mortgages but sitting on just a $1.2 billion dollar cushion to cover losses.
To that end, officials say they could create a separate fund for these loans, not the regular mutual mortgage insurance fund (MMI). This would be a special risk fund, designed to handle high losses.” (“Obama’s Mortgage Refi Plan to Go Through FHA”, Diana Olick, CNBC)
How do you like that? The FHA is already leveraged 1000-to-1 and Obama wants to add more debt still. And, how does he propose to do that? By creating an off-balance sheet investment vehicle (SIV) so the red ink can swell to the size of a small ocean without attracting attention. Does the name Enron ring a bell?
Also, according to another CoreLogic report released this week, 31 percent of FHA-insured mortgages are already “in a negative equity position”, which greatly increases the likelihood of default and even bigger losses for taxpayers.
It’s so frustrating to watch Obama go through all these contortions when the solution is right there at his fingertips. Just reduce the principle on underwater mortgages and hit the reset button. That’s all there is to it. Make the people who caused the crisis, pay for it. That’s how you fix housing and get (some) justice for the victims at the very same time.