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  • Wed, Mar 17 2010
  • 2:42 PM » Squatter Stimulus: No Mortgage Payment for Three Years and Counting
    Published Wed, Mar 17 2010 2:42 PM by Calculated Risk Blog
    The Irvine Housing Blog has an example of the squatter stimulus (homeowners living in their homes and not paying the mortgage): (ht ghostfaceinvestah) Freeloaders enjoying the entitled life are not confined to subprime areas. Today's featured property may be the worst case of housing entitlement in the country, and it is right here in Irvine. ... The owner of today's featured property paid $465,000 on 10/23/2003. She used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 down payment. On 12/30/2004 she refinanced into an Option ARM for $486,500. Two months later on 2/3/2005 she opened a HELOC for $67,000. Total property debt is $553,500 plus 3 years of missed payments, negative amortization, and fees. Total mortgage equity withdrawal is $88,500. Consider what this woman accomplished: She put no money into the transaction. None. She extracted $88,500 in just over one year. That is nearly the median income in Irvine, and that money came to her without tax withholding. She has lived in the property since 2003, and in the full term of ownership, she has not made payments totaling what she pulled from the property. ... The owner of this property stopped making payments sometime in late 2006. It has been over [three years] since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property. I've heard a number of stories of people living in their homes for a year or more without paying their mortgage - and without the bank foreclosing. It is difficult to get a handle on the actual number of long term delinquencies (say longer than 6 months without the bank foreclosing). Is this widespread or are these isolated incidents?
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:27 PM » Secondary Sources: Home Construction, Regulation, Liquidity Traps
    Published Wed, Mar 17 2010 2:27 PM by WSJ
    A roundup of economic news from around the Web. On his blog, Donald Marron looks at whether home construction is bottoming. “Not surprisingly, the chart shows that the number of single-family homes under construction fell off a cliff in early 2006. Almost 1 million new single family homes were under construction in February 2006. Today there are just 300,000. The precipitous decline ended last summer, and housing construction has been essentially flat for several months. Perhaps housing construction has finally found bottom?” Ed Andrews says that financial regulation isn’t as ugly as it looks. “The bill is full of murky exclusions, exceptions and hair-splitting — usually a red flag that our elected representatives have capitulated to big-money interests and disguised the bombshells behind eye-glazing boilerplate. But there are a lot of genuinely tough changes, and the bill is a lot less ugly than it first appears. The big banks and Wall Street firms are already howling in protest. Front groups like the U.S. Chamber of Commerce, which claim to be looking out for mom-and-pop businesses, are throwing everything they have at it.” Paul Krugman looks at how much of the world is facing a liquidity trap. ” what’s the definition of a liquidity trap? How much of the world is in one? There’s a lot of confusion on that point; here’s how I see it. In my analysis, you’re in a liquidity trap when conventional open-market operations — purchases of short-term government debt by the central bank — have lost traction, because short-term rates are close to zero. Now, you may object that there are other things central banks can do, and that they actually do these things to some extent: they can purchase longer-term government securities or other assets, they can try to raise their inflation targets in a credible way. And I very much want the Fed to do more of these things. But the reality is that unconventional monetary policy is difficult, perceived as risky, and never pursued with the...
  • 2:27 PM » The Home-Buyer Tax Credit Countdowns Begin
    Published Wed, Mar 17 2010 2:27 PM by Google News
    Time is almost up on the federal , the government’s gift of up to $8,000, crafted to jump-start a stalled housing market. Just about six weeks remain for buyers to get those contracts inked. Home builder Lennar has a bright on its Web site. “TIME IS RUNNING OUT,” warns (yes, it is in all caps), which is tracking the expiration to the millisecond. For those just now getting into the market who want the cash, “you’re going to have to move quickly,” says Walter Molony, a spokesman with the National Association of Realtors, one of the trade associations that pushed hard for this credit and its two extensions in February and December 2009. “You’ve got to be prepared to make quick decisions.” In honor of the countdown, here are six things to keep in mind: This round is actually an extension, but it doesn’t just cover first-time buyers. Move-up buyers are also eligible, though they only qualify for up to $6,500. Only the contract has to be signed on or before April 30. The home purchase must be completed by June 30. Real-estate experts advise signing the contract as soon as possible and leaving plenty of time for closing, given lenders remain extra careful these days. Don’t try to squeeze in a July 1 deal. It won’t work. The definition of a first-time buyer isn’t as limiting as the words indicate. In this case, the “buyer” hasn’t owned a principal residence in three years. For married taxpayers, both parties can’t have owned. It might seem genius to “buy” a home from your parents, but skip any such notion. You can’t purchase a home from most family members: Parents, children, grandparents and grandchildren are excluded. Consider that after the credit expires: Buyer traffic will undoubtedly decline once this enticement goes away. As sellers adjust to this slower new reality-they’ll be more than likely to shave prices. Of course, there’s talk of , given housing’s recovery remains choppy. (Mr. Molony says the NAR isn’t advocating for a third round.) Some think the time has come...
  • 2:27 PM » So You Want to Walk Away from the Mortgage…
    Published Wed, Mar 17 2010 2:27 PM by Google News
    Getty Images columnist has advice for an Illinois man who is underwater on a mortgage and unsure about whether or not to abandon ship. He and his wife are current on payments, but will likely fall behind when their adjustable-rate mortgage resets in about a year. They considered a “short sale,” selling the house for less than is owed on the mortgage, but the lender said it would come after them for the shortfall. So, I am considering just letting the home go to foreclosure, saving my money, paying off other smaller debts (such as credit cards, and car loan), but am hesitant. I want/need to do the right thing fiscally for my family, but am wavering on the fence as to just take the plunge or not in a strategic foreclosure. Mr. Arends offers up a few things to consider before simply fleeing the home, including the federal government’s modification program (even if, as we’ve , it has had underwhelming results.) The column also offers considerable detail about filing for bankruptcy, an option the man says that he and his wife have considered. “Chapter 7 is probably the simplest way to clear your debts, walk away and start again,” Mr. Arends writes. The drawback: Since Congress revised the rules in 2005, it’s harder to qualify. And a bankruptcy may wreck your credit rating for far longer than a foreclosure. There’s also bankruptcy-lite, or Chapter 13, where the court puts you on a debt repayment schedule. An interesting technical point we hadn’t heard before: In this type of bankruptcy, it’s possible to get your second mortgage wiped out. This happens if the amount owed on the primary mortgage is far more than the home is worth. The courts may then that the second mortgage is unsecured and can therefore modify it. The judge does not have the ability to modify first mortgages, however. Though they can modify (or cramdown) mortgages on vacation homes. There had been some talk last year about letting judges do cramdowns on first mortgages for primary residences, but it...
  • 2:27 PM » What Will Happen to GMAC?
    Published Wed, Mar 17 2010 2:27 PM by Google News
    General Motors looks to be taking the GM out of GMAC. The auto maker says control of its former finance arm, GMAC Financial Services. GM had contemplated the idea because it would give the auto company control over its financing operations. But GM is taking a pass because of GMAC’s complex and uncertain restructuring. So where does that leave GMAC? Here are three issues GMAC needs to resolve if it is going to be a profitable stand-alone and publicly traded company, as the Treasury Department hopes it can be. Why does this matter? Because taxpayers still have $17 billion invested in GMAC. One big drag on GMAC comes from ResCap, its mortgage subsidiary. The Congressional Oversight Panel, overseeing the Troubled Asset Relief Program, allow ResCap to go into a separate bankruptcy proceeding. GMAC CEO Michael Carpenter said recently that the company would rather sell ResCap then seek bankruptcy protection. But as the oversight panel points out: “GMAC does not…. appear to have any willing buyers at present…right now, ResCap has no clear future and no clear strategy for turnaround.” As a result, ResCap will continue to be a drag on GMAC’s balance sheet, making investors wary of a potential GMAC IPO. Ally Bank was created to create a deposit base to create a source of liquidity for GMAC’s auto financing operations. The problem is that Ally is primarily an Internet bank, which historically “have not had a history of success,” according to the oversight panel. That is because Internet banks, which don’t have branches, have high overhead related to costly marketing campaigns. The congressional panel also pointed out that Ally has very few limits on deposit withdrawals and it relies heavily on high CD rates to attract customers. The high rates have drawn protests from competitors who claim Ally is able to offer customers above market rates because the company is backstopped by taxpayers. This criticism could prompt GMAC to lower its rates and loses its competitive advantage. The...
  • 2:27 PM » Moody's changes the way municipalities are rated
    Published Wed, Mar 17 2010 2:27 PM by
    Moody's Investors Service has been criticized for rating municipalities in a way that holds them to a higher standard than co --
    Click Here to Read the Full Article

  • 12:53 PM » Is The Mortgage Program Ending or Pausing On April 1?
    Published Wed, Mar 17 2010 12:53 PM by The Big Picture
    Comment The interview above was done as part of the pre-game show for the FOMC meeting. To view the interview click on picture above. To see any of our interviews click In the interview we were asked what the Federal Reserve could do to satisfy the hawks. We said they could toughen up the language on the end of the mortgage purchase program. Steve Liesman misunderstood us, believing we were trying to say the program might not end on April 1. This is not in doubt. What is in doubt is whether the Federal Reserve will be forced to restart the repurchase program after April 1. In our discussions with mortgage traders many of them believe the Federal Reserve is only “pausing” and not “ending” the program on April 1. They believe that when (not if) the mortgage market runs into trouble, the Federal Reserve will be forced to restart their money printing to support mortgages. And when they do, the size of the purchases will be infinite for as long as is needed, despite what they Federal Reserve may say. You cannot keep increasing the size and scope of these programs without everyone realizing they are never going away. A main reason many mortgage traders thought the mortgage program was only pausing and not ending was this phrase from the last several FOMC statements, including the : The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets. Yesterday, in the , the Federal Reserve did alter this language: The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. [our emphasis] Mortgage traders believe this to be more “dovish” language and further underscores their belief that the Federal Reserve is worried about ending the mortgage purchase program. The Federal Reserve will not have printed its last dollars to buy mortgages in two weeks. Many economists believe the...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 10:33 AM » LA Times: More 'strategic defaults'
    Published Wed, Mar 17 2010 10:33 AM by Calculated Risk Blog
    From Alana Semuels at the LA Times: Joseph Shull, a 68-year-old marketing professor, said he's planning to walk away from the town house he bought in Moorpark in June 2006. "I'm angry, and there are a lot of people like me who are angry," he said. He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000. Shull admits he overpaid for his property. But he said it fell in value in part because of "regulatory mismanagement." "The bank stabbed me, but at least I got in a pinprick back," he said. "This is the new economy. The old rules don't apply any more." This article is similar to David Streitfeld's article in the NY Times last month: I'm not sure if walking away is becoming more common or if there is a bubble in walking away articles. However there are consequences to walking away - possible tax consequences and some loans are recourse (people walk away from the house, but not the debt!). Perhaps the HAFA short sale program would be a better alternative for many homeowners ...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:00 AM » DataQuick: SoCal Home Sales up slightly in February
    Published Wed, Mar 17 2010 9:00 AM by Calculated Risk Blog
    From DataQuick: Note: Ignore the median price. The repeat sales indexes from Case-Shiller and LoanPerformance are better measures. The median is impacted by the mix. Southern California home sales in February were above year-ago levels for the 20th month in a row as buyers continued to snap up bargain properties with government-backed mortgages and tax incentives. .... A total of 15,359 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was virtually unchanged from 15,361 in January, and up 0.8 percent from 15,231 in February 2009 , according to MDA DataQuick of San Diego. [CR Note: this is the second month in a row the YoY increase was razor thin.] The February sales average is 17,983 going back to 1988, when DataQuick’s statistics begin. The sales distribution remains tilted toward lower-cost distressed homes, although not as steeply as most of last year. ... Foreclosure resales accounted for 42.3 percent of the resale market last month, up from 42.1 percent in January, and down from 56.7 percent a year ago, which was the all-time high. Government-insured FHA loans , a popular choice among first-time buyers, accounted for 38.5 percent of all home purchase loans in February. Absentee buyers – mostly investors and some second-home purchasers – bought 18.9 percent of the homes sold in February. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 29.3 percent of February sales. In January it was a revised 29.7 percent – an all-time high. The 22-year monthly average for Southland homes purchased with cash is 13.8 percent. DataQuick doesn't list the percentage of short sales, but the total distressed sales is probably over 50%. Also the 38.5% of buyers using FHA insured loans is way above normal levels. When the first time homebuyer tax credit ends, I expect the percent of FHA insured loans to decline sharply...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:00 AM » Banks Squeezed by Cities, States
    Published Wed, Mar 17 2010 9:00 AM by WSJ
    Several states are trying to funnel more of their money into small financial institutions, which have gotten less criticism over the industry's reluctance to lend.
  • 9:00 AM » Stiglitz Says Fed Stimulus Withdrawal May Hurt U.S. (Update1)
    Published Wed, Mar 17 2010 9:00 AM by Business Week
    The Federal Reserve’s decision to let its mortgage-debt purchase programs end this month risks driving up home-loan rates and worsening the housing crisis, Nobel laureate Joseph Stiglitz said.
    Click Here to Read the Full Article

    Source: Business Week
  • 9:00 AM » Understanding HAMP on a Macro Level
    Published Wed, Mar 17 2010 9:00 AM by Seeking Alpha
    submits: Let's put a bit more color on my morning - this time at a more-macro level of the economy. To recap, here's the table in question:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:00 AM » Home Loan Delinquencies: Attempted Solutions Not Working
    Published Wed, Mar 17 2010 9:00 AM by Seeking Alpha
    submits: I see Diana Olick’s recent comments about government mortgage modification programs as proof that these props will not work. She says:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:00 AM » End of Mortgage Buys Form of Tightening: Pimco
    Published Wed, Mar 17 2010 9:00 AM by CNBC
    End of Mortgage Buys Form of Tightening: Pimco
  • 9:00 AM » Will Mortgage Rates Rise When Fed Ends Support?
    Published Wed, Mar 17 2010 9:00 AM by CNBC
    Will Mortgage Rates Rise When Fed Ends Support?
  • 9:00 AM » 3/16/10--Selling, Financial Regs & Prop Trading
    Published Wed, Mar 17 2010 9:00 AM by
    *Tremendous amount of selling yesterday in the market with money managers, hedge funds, and CDO liquidators all getting into the mix. The stabilization of spreads we have seen over the past couple of weeks seems to be coming under a touch of pressure with the street posturing to be better sellers of most sectors that are not ‘03/’04 vintage collateral. We are seeing particular pressure on the subprime sector and pay-option seniors. Today we are opening up with a laundry list of sellers once again and more ‘focus offerings’ ‘cheaper offerings’ type of messages from the street. All in all it feels like we may struggle into quarter end to hold current levels.
    Click Here to Read the Full Article

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