Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17
Plungers Big Trade - The Oil Short - 18th Apr 17
The Smart Money Is Piling Into Regenerative Medicine - 18th Apr 17
If You Invest In Stocks Now, Expect No More Than 3% Returns In The Next 20 Years - 18th Apr 17
Maps That Explain Wars In The Middle East And North Africa - 18th Apr 17
Theresa May Calls Snap BrExit UK General Election Capitalising on Crippled Labour Party - 18th Apr 17
Is US Economy at the Cusp of the Next Recession? or Maybe Worse? - 18th Apr 17
US Housing Market Mortgage Delinquency Rates Increase & 3X ETFs - 17th Apr 17
Trump US North Korea First Strike Smoke and Mirrors, China is the Real War Target! - 17th Apr 17
Now Is The Time To Invest In Canada’s Marijuana Boom - 17th Apr 17
History of the Post WWII Crude Oil Price From a Technical Perspective - 17th Apr 17
Stock Market Bounce Coming? - 17th Apr 17

Market Oracle FREE Newsletter

50+ Global Markets. Today's Top Opportunities. (April 12-20)

The Forgotten U.S. Housing Market Foreclosure Crisis

Housing-Market / US Housing Aug 10, 2010 - 03:24 AM GMT

By: Submissions

Housing-Market

Faiz Shakir writes: The economic meltdown of 2008 grew out of a foreclosure crisis, as Wall Street banks drove lenders to make loans that were then securitized and sold around the world, in an unregulated slew of credit products. This inflated a housing bubble that, when it burst, severely damaged an already weak economy, sent millions of homeowners into foreclosure, and put millions more out of work, leading to even more foreclosures as unemployed workers began to miss mortgage payments.


Many homeowners who were able to stay in their homes now find themselves underwater -- owing more on their mortgage than their home is currently worth. But so far, the foreclosure prevention efforts undertaken by Congress and the Obama administration, while well-intentioned, have failed to produce widespread results. This not only hurts homeowners but undermines economic recovery. Proposals for a variety of more aggressive, and potentially more effective, measures have so far not been taken up, as the programs unveiled have often lagged behind the heart of the problem. According to analysts at Morgan Stanley, "Without more intervention, the housing market will continue its 'slow motion' adjustment that will continue to inhibit economic growth and drag down consumer spending." "It's certainly a weight on the economy," said Mark Zandi, chief economist at Moody's Economy.com. "Nothing works all that well in the economy when house prices are falling."

FORECLOSURES RISE WITH UNEMPLOYMENT: Nearly three million homeowners received at least one foreclosure filing in 2009. As of July 2010, one in seven mortgages is delinquent or in foreclosure. According to the Mortgage Bankers Association, one in 10 homeowners missed at least one mortgage payment between January and March, which is an all-time record and a 9.1 percent increase from last year. The number of homes foreclosed upon set a record for a second consecutive month in May, while banks had an inventory of approximately 1.1 million foreclosed homes as of March.

According to the latest report from Realty Trac, foreclosures rose in 75 percent of the country's metro areas during the first half of this year, and about 3.5 million homeowners have stopped paying their mortgages, but have yet to be foreclosed upon. "We're not going to see real price appreciation probably until 2013," said Realty Trac Senior Vice President Rick Sharga. "We don't see a double dip in housing but we think it's going to be a long painful recovery for the next three years." And while subprime loans drove foreclosures early in the crisis, now high unemployment is the culprit behind missed payments. "Look at a place like Salt Lake City," said Sharga. "The foreclosure rise there appears to be entirely related to the economy." At the same time, almost 25 percent of homeowners are underwater.

HAMP DISAPPOINTS: The Obama administration's signature foreclosure prevention program -- the Home Affordable Modification Program (HAMP) -- was meant to keep 3 to 4 million troubled borrowers in their homes by lowering their mortgage payments to a sustainable level. However, according to the latest data, fewer than 400,000 borrowers have received a permanent mortgage modification, while more than 500,000, 40 percent of the total, have dropped out of the program. As the Huffington Post's Shahien Nasiripour and Arthur Delaney laid out, HAMP "has fallen short of its goals -- rather than significantly and permanently reducing home foreclosures, it is only delaying them," as borrowers make lower payments for a few months but ultimately get dropped from the program. "HAMP has not put an appreciable dent in foreclosure filings," noted a report from the Special Inspector General for TARP, the program that funds HAMP. "Foreclosure filings have increased dramatically while HAMP has been in place, with permanent modifications constituting just a few drops in an ocean of foreclosure filings." HAMP's problems stem from banks' inability to process enrollments in a timely manner and a lack of incentive for banks to ensure that borrowers successfully complete the program. So far, only $250 million of the $50 billion available for HAMP has been spent.

TAKING SMALL STEPS: The Treasury Department has acknowledged that HAMP has shortcomings and has launched new measures in an attempt to deal with the realities of today's housing crisis. Last week, it announced, "As many as 50,000 struggling homeowners in five U.S. states with high unemployment may receive help from a special $600 million federal fund," called the "Hardest Hit fund," which will "help unemployed or under-employed people keep up with their mortgage payments...[and] try to assist homeowners who are facing negative equity by reducing the principal of loans that they owe." The Department of Housing and Urban Development has also announced $79 million in grants for foreclosure mitigation.

These initiatives, while aimed at the right outcomes (as only 0.1 percent of HAMP modifications actually lower loan principle), are, as Firedoglake's David Dayen noted, "not nearly enough to deal with the scale of the problem." "Maybe with several of these droplets, you can actually start to fill the ocean," he wrote. "But $79 million, while helpful to a targeted set of families, isn't going to solve this mess." Last week, the Cleveland Federal Reserve Bank released research showing that the implementation of judicial loan modification -- known as "cram down" -- is a good way to incentivize private loan modifications. Legislation giving judges the ability to modify mortgages in bankruptcy has come up for a vote in Congress multiple times, but has yet to become law.

© 2010 Copyright Faiz Shakir- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Barbara Ann Jackson
14 Aug 10, 23:28
foreclosure mills, etc

CASE IN POINT: FORECLOSURE MILLS, JUDICIAL FRAUD, CONSUMER EXPLOITATION, GOVERNMENT SHAMS

“Media headlines are abuzz with what is going down with foreclosure mills in Florida, particularly foreclosure bill baron, Attorney David J. Stern. Unscrupulous foreclosures are more criminally exploitive than what becomes reported; it is not easy to detect nor prove. Even so, appalling collection abuses have resulted in . . .” @ http://www.lawgrace.org/2010/08/14/foreclosure-mills-judicial-fraud-consumer-exploitation-government-shams/


iSteve
20 Aug 10, 05:01
Here's the solution- “Equity Warrants”.

Most of today's underwater homeowners are not sub-prime borrowers. But because of negative equity about 15 million potential homebuyers are locked-out of a housing market that desperately needs more buyers. Some are choosing default as an option, some attempt "short-sells" which is a more honorable form of default. Some just dig-in and hope for better days when their home values return to fair value.

Unfortunately as the number of bank owned properties increase, more downward pressure is forced on home values. So it may take a long time to work the red ink through the system.

So what are “Equity Warrants”.

The underwater homeowner could--without bank approval--put their home on the market and accept any qualified and reasonable offer. Of course since the homewater has negative equity there will be a loan payoff shortage that will have to be covered. Basically an Equity Warrant is an IOU where the issuer is granting the holder of the Equity Warrant, rights to the future equity in any home they own within the next 10 (or 20) years. When, the borrower's future equity equals the amount of the warrant, or the term of the Warrant expires and is called, the holder of the warrant would convert the warrant to a note secured by the home owner's real equity. If at the expiration of the Warrant, the Warrant issuer still doesn't have enough equity to settle the debt, an unsecured note could fill the gap.

This system would create millions of potential homebuyers, thereby improving our housing market and home values.

1. For the bank it's a mater of trading under collateralized mortgages for un-collateralized Equity Warrants. A major "plus" would be the elimination of a potential default which would likely cost substantially more than excepting the warrant, even if it expires worthless.

2. For the homeowner it's an escape, trading a bad situation for a potentially better situation.

3. For the housing market it's a new buyer calling a real estate agent.

4. No taxpayer dollars needed!

What could go wrong?

Obviously this is only a concept. Some refinement is needed followed by an act of congress.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife