January 31, 2012
By Chris Arnold
“Freddie Mac is hoping you end up homeless.” –KTRN
Freddie Mac, a taxpayer-owned mortgage company, is supposed to make home-ownership easier. One thing that makes owning a home more affordable is getting a cheaper mortgage.
But Freddie Mac has invested billions of dollars betting that U.S. homeowners won’t be able to refinance their mortgages at today’s lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom.
These investments, while legal, raise concerns about a conflict of interest within Freddie Mac.
“We were actually shocked they did this,” says Scott Simon, who heads the mortgage-backed securities team at the giant bond trading and investment firm called PIMCO. “It seemed so out of line with their mission, out of line with what Congress wanted them to do.”
Freddie Mac, formally called the Federal Home Loan Mortgage Corp., was chartered by Congress in 1970. On its website, it says it has “a public mission to stabilize the nation’s residential mortgage markets and expand opportunities for homeownership.” The company is owned by U.S. taxpayers and overseen by a regulator, the Federal Housing Finance Agency (FHFA).
In December, Freddie’s chief executive, Charles Haldeman, assured Congress his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”
But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.
Those trades “put them squarely against the homeowner,” PIMCO’s Simon says.
Freddie Mac’s trades came at a time when mortgage rates were falling to record lows. Millions of homeowners wish they could refinance, but their lenders tell them they can’t qualify for today’s low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners.
January 26, 2012
A government watchdog says U.S. taxpayers are still owed $132.9 billion that companies haven’t repaid from the financial bailout, and some of that will never be recovered.
The bailout launched at the height of the financial crisis in September 2008 will continue to exist for years, says a report issued Thursday by Christy Romero, the acting special inspector general for the $700 billion bailout. Some bailout programs, such as the effort to help homeowners avoid foreclosure by reducing mortgage payments, will last as late as 2017, costing the government an additional $51 billion or so.
The gyrating stock market has slowed the Treasury Department’s efforts to sell off its stakes in 458 bailed-out companies, the report says. They include insurer American International Group Inc. (AIG), General Motors Co. (GM) and Ally Financial Inc.
If Treasury plans to sell its stock in the three companies at or above the price where taxpayers would break even on their investment – $28.73 a share for AIG, $53.98 for GM – it may take a long time for the market to rebound to that level, the report says. AIG’s shares closed Wednesday at $25.31, while GM ended at $24.92. Ally isn’t publicly traded.
It will also be challenging for the government to get out of the 458 companies as the market remains volatile and banks struggle keep afloat in the tough economy, it says.
Congress authorized $700 billion for the bailout of financial companies and automakers, and $413.4 billion was paid out. So far the government has recovered about $318 billion. The bailout is called the Troubled Asset Relief Program, or TARP.
“TARP is not over,” Romero said in a statement. She said her office will maintain its commitment to protect taxpayers for the duration of the program.
Treasury spokesman Matt Anderson said the department “has made substantial progress winding down TARP and has already recovered more than 77 percent of the funds disbursed for the program, through repayments and other income.”
“We’ll continue to balance the important goals of exiting our investments as soon as practicable and maximizing value for taxpayers,” Anderson said.
November 30, 2011
By: Diana Olick
Home prices across the nation are now right back where they were at the beginning of 2003. All that was gained is largely now lost, and the effect on home ownership could continue for decades.
“Consumer attitudes have gotten a lot more negative about long-term commitment,” said Standard and Poors’ David Blitzer, after reporting home prices through September had fallen a deeper-than-expected 3.9 percent compared to the third quarter of 2010. “They dropped to new lows. This takes them below the point we saw in 2009, where briefly we all thought this thing was about to turn around.”
And that’s the problem.
Every time we think things are turning around in the housing market, we get hit with some new problem, like last year’s so-called “robo-signing” foreclosure paperwork scandal, which managed to stall the cleansing of distress in the market for over a year. Now that foreclosures are ramping up again, prices are coming down again.
All this could push home ownership down to levels not seen at least since before the Census began tracking this data in 1963. Home ownership soared to 70 percent in 2005, but it could fall to 62 percent by 2015, according to the number crunchers at John Burns Real Estate Consulting. They suggest that the effect of foreclosures drops home ownership 5.6 percent, and cyclical trends, like poor consumer confidence, tightening mortgage credit and the weak economy drop it 3 percent. Positive demographic trends would only offset that by 0.7 percent.
“People’s memories take a while to fade,” says John Burns. “It [also] takes a while to rebuild your balance sheet after a recession, and that’s what many people need to do before they buy homes again. Homeowners need to build back up to have a down payment for their next house, and renters will need to save more than before to become homeowners.”
November 9, 2011
Dr Housing Bubble
One of the unintended consequences of growing a large shadow inventory is the unfortunate creation of a giant pool of negative equity homeowners. Zillow recently reported that over 28.6 percent of homeowners with a mortgage now sit in a negative equity position. This is up from the 26.8 percent reported only last quarter. It should seem obvious that the process of simply ignoring non-payments by banks to keep balance sheets inflated will reflect in other aspects of housing data. If we look at MLS data the picture is one of declining inventory yet the negative equity position reflects a quite struggle for many homeowners. The shadow inventory looms large. We even have a report out today showing that delinquencies are on the rise again. Let us take a look at some of the housing reports and try to make sense as to what is occurring.
Over 14,000,000 Americans own a home and have negative equity
Current information now shows the ranks of those with negative equity have grown once again. The latest Census data shows 50,339,500 homes with a mortgage. If 28.6 percent of these are underwater you have 14.3 million homeowners in a negative equity position:
This coincides with the large shadow inventory but also the lag in the foreclosure process with banks. It should be apparent that if someone had equity in their home and was falling behind economically that a plausible option would be to sell and scale down. But here you have over 14 million homeowners who would need to come to the table with money if they wanted to sell. Most that encounter problems of course are facing the tough challenges of our economy. The recognition of this is becoming more widespread:
November 9, 2011
by The Associated Press
“Poor Fannie Mae needs our help again. They lose $7.8 billion, but the CEO says they are making solid progress. How is that possible?” –KTRN
Mortgage giant Fannie Mae is asking the federal government for $7.8 billion in aid to cover its losses in the July-September quarter.
The government-controlled company said Tuesday that it lost $7.6 billion in the third quarter. Low mortgage rates reduced profits and declining home prices caused more defaults on loans it had guaranteed.
The government rescued Fannie Mae and sibling company Freddie Mac in September 2008 to cover their losses on soured mortgage loans. Since then, a federal regulator has controlled their financial decisions.
Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates that figure could reach up $220 billion to support the companies through 2014 after subtracting dividend payments.
Fannie has received $112.6 billion so far from the Treasury Department, the most expensive bailout of a single company.
Michael Williams, Fannie’s president and CEO, said Fannie’s losses are increasing for two reasons: Some homeowners are paying less interest after refinancing at historically low mortgage rates; others are defaulting on their mortgages.
“Despite these challenges, we are making solid progress,” he said. For example, Fannie’s rate of homeowners who are late on their monthly mortgage payments by 90 days or more has decreased each quarter since the beginning of 2010, he said.
When property values drop, homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.
Fannie said lower mortgage rates contributed to $4.5 billion in quarterly losses. While those losses are large, they are temporary and should ease in future earnings reports, said Mahesh Swaminathan, mortgage strategist at Credit Suisse.
October 7, 2011
It’s sticker shock in the mail. Tax bills went out to Cook County homeowners this week and the big jump in the amount due to many homeowners has some wondering if they can keep their house.
CBS 2′s Dana Kozlov takes a look at how the dramatic jump in property tax bills is affecting people and what you can do about it.
According to the Cook County Clerk’s office, tax rates are up for schools, park districts, municipalities and other government bodies. Some of those tax levies have made double-digit increases in tax rates.
The property tax reality was setting in with Markham homeowner Patricia Taylor on Wednesday.
Asked if she can keep her house after receiving an $8,100 property tax bill, Taylor said, “I don’t know right now. It’s bad right now, it’s really bad.”
That’s because her property tax bill for her three bedroom, one bathroom house shot up from $6,400 last year to $8,100 this year — a whopping 27 percent jump.
Taylor took time on her day off to head to the Cook County Assessor’s office to see if anything could be done for herself and her mother.
“What do they expect? I don’t live in Beverly Hills, I stay in Markham and this is ridiculous,” Taylor said.
Kelley Quinn, spokeswoman for Cook County Assessor Joseph Berrios, said the office has had thousands of taxpayers like Taylor walk through their halls this week, wondering what was going on with their bills.
Countywide, property tax bills will jump an average of almost 2.7 percent, according to Quinn.
“What we’re seeing are a lot of anxious people,” Quinn said. “But what we’re also seeing is once they leave here, they’re satisfied and many of them are happy because they are seeing a tax bill that does go down a bit.”
Quinn said many of the people voicing complaints about their tax bills are senior citizens who didn’t apply for their senior exemption, which they must do every year, because of a new law.
Those seniors can still get their exemption with help from the county.
But everyone else? They could be out of luck, because taxing districts — from schools to parks — needed the extra revenue and the taxpayers were forced to foot the bill.
“So your local tax rates are going up, even though your assessments are going down, which results ultimately in a tax bill that could be a little bit higher,” Quinn said.
People who believe their tax bills are incorrectly assessed can appeal through the Cook County Board of Review, but dates for that are very specific and depend on your township.
September 21st, 2011
By: Sheryl Nance-Nash
If you lost your job, how long could you continue to pay your mortgage? For two out of three homeowners, the answer is: Not as long as it would likely take to find a new position.
According to a new survey from insurance and financial services firm Country Financial, 68% of homeowners say if they lost their jobs, they wouldn’t be able to make mortgage payments for more than nine months, and many would fall by the wayside before that. While nine months is enough time to get a baby ready to make its world debut, it’s often not enough time to find a new employer: Unemployment durations are averaging almost 10 months — and that, of course, is just the average. Many Americans have been unemployed for considerably longer.
(For those looking for a small bright spot in the statistics, the median unemployment length is closer to 21 weeks — meaning half of those who lose their jobs find new ones in less than five months. But then there’s the other half ….)
The “mortgage gap” is more pronounced for some, according to Country Financial’s survey. Nearly one-third (31%) say they would be able to maintain payments for just three to six months. More than a quarter (27%) would be able to cover their payments for less than three months. This divide might be why 59% of homeowners now question whether buying a house is the best investment a family can make.
Strategies to Stay Ahead of the Economy
“The housing market decline and high unemployment has put a strain on everyone,” said Keith Brannan, vice president of financial security planning in a prepared statement. “Although there’s no quick fix, having a financial safety net can help. If possible, start an emergency fund to offset those unexpected life changes like unemployment. If you’re concerned about your mortgage, seeking professional advice to reprioritize your income can help you protect your current possessions and budget for future expenses.”
Track your monthly spending against your monthly net income. Transfer any surplus at month’s-end into that dedicated savings account. Look closely at your expenses to identify opportunities to reduce or eliminate expenses to further pad your savings cushion. Be disciplined enough to devote any pay raises, bonuses, or windfalls to this savings reserve, he adds.
Don’t be discouraged when every time you squirrel away a little bit of money, an unplanned expense comes along and wipes it out. “This is proof that it is working. With direct deposit, you’re only one paycheck away from starting to replenish your savings cushion,” says McBride.
Also, tap the equity in your home now, while you still have a job — and remove it from the house, says Jay Tyner, president of Semmax Financial Group. “When you lose your job, you can’t tap equity because what banker is going to give you a loan while [you're] unemployed? It is better to have and not need, than need and not have,” “The key here is not to get a line of equity and then buy a new boat.”
Refinance now while the rates are at historic lows to decrease your monthly payments.
What to Do If You’re Falling Into the Mortgage Gap
Contact your mortgage company. Ask about the various options available, among them: forbearance, reinstatement, advance (loan to repay past due amount), repayment plan, (pay past due amount over a specified period of time) or loan modification in you are struggling to pay your mortgage, suggests Harrine Freeman, author of How to Get Out of Debt: Get an “A” Credit Rating for Free.
Many lenders are willing to work with homeowners in ways they wouldn’t have in the past. “Avoidance just allows the problem to become more severe, and the lender can’t help you if they do not know what the problem is,” says Frank Braddock, a certified financial planner with JHS Capital Advisors.
Sell. Sell as much stuff as you can on Craigslist or eBay that you no longer need or no longer use: furs, jewelry or anything else you can to get cash. Consider selling your car and carpooling or use public transportation, or trade down to a cheaper car if you are still making payments, says Freeman.
Rent. Rent out a room in your home to generate extra income to help pay your mortgage. Or, there are more creative ways to turn your home into an income property.
Seek Help. Contact government, social programs or nonprofit agencies — the National Council of State Housing Agencies, Home Affordable Modification Program, Hope Now, among others — to find out what options are available to help you stay in your home.
Slash Spending. Try to cut your monthly expenses by 50%, says Freeman. Start by canceling your cable and landline service, getting the cheapest plan you can for your cell phone and Internet service, and increasing insurance deductibles to reduce monthly premiums. If your don’t already having one, get a programmable thermostat and keep the heat at 68 degrees when you’re home, lower when you aren’t. And don’t spend money on anything except food to cook at home and maintenance for your car unless it is absolutely necessary.
September 13, 2011
By: Brett Arends
You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy?
There’s a way to do it. Fast. And relatively simple.
But you’re not going to like it. You’re not going to like it at all.
Default. A national Chapter 11 bankruptcy.
The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages and other debts, and millions more file for bankruptcy.
Fears of recession, tough trading conditions, an ocean of unresolved litigation and the worsening euro-zone mess have delivered a real pounding to bank stocks this summer. Former Goldman Sachs partner Roy Smith joins Mean Street to offer a solution: Break up the banks.
I told you that you wouldn’t like it.
I don’t like it much either. It sticks in the craw that people got to borrow all that money and won’t have to pay it back.
But you know what? The time to stop that was five or 10 years ago, when the money was being lent.
And mass Chapter 11 is, by far, the least obnoxious solution to our problems.
That’s because the real cause of our economic slump isn’t too much government or too little government. It isn’t red tape, high taxes, low taxes, the growing divide between the rich and the poor, too much government debt, too little government debt, corporations, poor people, “greed,” “socialism,” China, Greece, or the legalization of gay marriage. It isn’t, in short, any of the things all the various nitwits say it is.
It’s the debt, stupid.
We’re hocked up to the eyeballs, and then some. We’re at the bottom of a lake of debt, lashed to an anchor. American households today owe $13.3 trillion. That has quadrupled in a generation. It has doubled just in the last 11 years. We owe more than any other nation, ever. And for all the yakking about how people are “repairing their balance sheets,” they’re not. From the peak, four years ago, they’ve cut their debts by a grand total of 4%.
And a lot of that was in write-offs.
More than a quarter of American mortgages are underwater. Many are deeply underwater. In states like Nevada and Florida the figures are astronomical.
The key thing to understand is that most of that money has gone to what a fund manager friend of mine calls “money heaven.” Most of these debts will never, ever be repaid in real money. Not gonna happen.
Think how corporations handle this kind of situation.
It happens all the time. Banks and bondholders find they have lent, say, $1 billion to a company whose assets and earning capacity will only repay, say, $300 million. What happens? Does the company soldier on with $1 billion in debt it can never repay? Do the stockholders send back their dividend checks? Do they sell their homes to pay off the bonds?
Not a chance. The company goes through Chapter 11. The creditors ‘fess up to their blunder, they face up to their losses, and they fix it. They write down the loans and take the equity instead. The balance sheet is cleaned up, and the company starts again.
Why not homeowners?
Most of the objections to this idea are well-meant, but misinformed.
A fund manager I asked raised the issue of “moral hazard.” Why should anyone pay their mortgage if some people were getting a pass, he asked?
March 14th, 2011
By: Alex Veiga
The number of U.S. homes receiving a foreclosure-related notice fell to a 36-month low last month, as lenders delayed taking action against homeowners amid heightened scrutiny over banks’ handling of home repossessions.
Some 255,101 properties received at least one of the notices in February, down 14 percent from January and 27 percent versus the same month last year, foreclosure listing firm RealtyTrac Inc. said Thursday.
The firm tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.
While severe winter weather was likely a contributing factor, the sharp drop-off was primarily due to lenders taking a more measured approach to their foreclosure processes since the industry came under fire last year.
State and federal officials launched investigations last fall into foreclosure procedures used by mortgage servicers and lenders after evidence surfaced that some major banks pushed through hundreds of foreclosures a day without giving many borrowers a fair shot at keeping their homes.
Several large banks, including Bank of America, Citigroup and JPMorgan Chase, have been in talks to settle a probe launched by 50 state attorneys general over their handling of foreclosures.
Many lenders temporarily froze foreclosures last October while they reviewed and, in some cases, re-filed foreclosure documents. That process has continued this year, but in less-than-speedy fashion due to backed-up court dockets and other procedural road bumps.
Initial default notices fell 16 percent from January and 41 percent from a year ago, while scheduled foreclosure auctions declined 10 percent versus last month and 21 percent from February last year, RealtyTrac said.
Meanwhile, lenders repossessed 64,643 homes last month, down 17 percent from January and 18 percent from the same month last year. Repossessions declined 35 percent in states where courts play a role in the foreclosures process.
The decline in foreclosure notices has slowed not only the pace of homes lost to foreclosure, but also stemmed the tide of additional properties potentially at risk for repossession.
That’s good news for homeowners in trouble, but it’s unlikely to portend fewer foreclosures in the long-run.
“The issue isn’t whether we’ll see the repossessions — it’s when,” says Rick Sharga, a senior vice president at RealtyTrac.
Should the foreclosure process slowdown continue for several months, it’s likely foreclosure notices and bank repossessions will remain artificially low, Sharga says.
That could help stem home price declines and the number of homes taken back by banks, which hit a high of more than 1 million last year.
Such a reprieve would only be temporary, however.
“Even though foreclosure activity would look better, it would take the housing market and the economy longer to recover,” Sharga said. “We might not see the market come back until 2014 or 2015.”
However, if banks’ foreclosure paperwork issues get resolved sooner, rather than later, foreclosure activity is likely to spike again, Sharga added.
Around 5 million borrowers are at least two months behind on their mortgages, and experts say more people will miss payments because of job losses and loans that exceed the value of the homes they are living in.
RealtyTrac’s data captures new foreclosure-related filings on a given property, not repeat filings. As a result, some 70,000 notices that mortgage servicers re-filed on properties in some stage of foreclosure were excluded from February’s data.
Factor in those re-filed notices, and the month’s foreclosure activity comes closer to the monthly rate seen last year before the banks’ foreclosure documentation problems came to light.
At a state level, Nevada posted the nation’s highest foreclosure rate for the 50th consecutive month in February, with one in every 119 households receiving a foreclosure notice.
Arizona had the No. 2 spot, while California held the third-highest rate of foreclosure.
Rounding out the top 10 states with the highest foreclosure rate in February were: Utah, Idaho, Georgia, Michigan, Florida, Colorado and Hawaii.
May 20, 2010
By Alan Zibel
The mortgage crisis is dragging on the economic recovery as more homeowners fall behind on their payments.
Analysts expect improvement soon, but the number of homeowners in default or at risk of foreclosure will have a lingering effect on the broader economy.
More than 10 percent of homeowners with a mortgage had missed at least one payment in the January-March period, the Mortgage Bankers Association said Wednesday. That’s a record high and up from 9.1 percent a year ago.
A big jump in the number of borrowers who have missed three months of mortgage payments drove the increase.
One encouraging sign is the number of homeowners just starting to show trouble is trending downward. As of March, nearly 3.5 percent of borrowers had missed one month of mortgage payments, down from about 3.8 percent a year earlier.
Around 4.3 million homeowners, or about 8 percent of all Americans with a mortgage, are at risk of losing their homes, the trade group’s top economist estimates. They have either missed at least three months of payments or are in foreclosure.
Should loan modification programs fail to help, their homes will go up for sale either as a foreclosure or short sale — when the bank agrees to sell the property for less than the original mortgage amount.
Many analysts have been forecasting home prices will dip again as more of these homes go up for sale at deeply discounted prices.