RealtyTrac: Land mines threaten housing recovery, could trigger surge in defaults.

For at least several years, RealtyTrac has been publishing reports on the housing market and how the foreclosure crisis is either ending or has already ended, and how the housing market is just going gangbusters all over the place.

On numerous occasions, as the reports have come out, I’ve written in great detail about how ridiculous it is to say the foreclosure crisis is over, or even ending… I’ve explained the reasons why… and okay, I’ve made fun of Daren Blomquist, RealtyTrac’s VP, for his baseless cheerleading and shameless forecasting that, by the way, has never been right, to my knowledge.

Now, in RealtyTrac’s Housing News Report, Octavio Nuiry, Managing Editor of the Report says that there are a “tetrad” of “land mines” that not only could threaten our (anemic-at-best) housing recovery, but also could “trigger a surge in defaults, repossessions, and short sales,” as reported by Mortgage News Daily.

I’m sorry… did Octavio just say a “tetrad of land mines?” A… TETRAD? Want to know what I think about that? I think that you should not play Scrabble for money with Octavio.

Besides, I’m not sure we’re dealing with a tetrad, I think the answer might just be hexadic, and we could even be facing a heptad, or perhaps the situation is octonary. But I doubt very much we’re talking about a triad, a dyad or a monad. (Sheesh, why can’t managing editors use The English the rest of use.)

Okay, so a tetrad is just an incredibly pompous way to refer to a group of four, and Octavio identifies the four land mines as…

1. Home Affordable Modification Program (HAMP) re-defaults.
2. Home Equity Line (HELOC) resets to fully amortized payments from interest only.
3. 1 million still underwater borrowers.
4. Non-performing loans.

According to RealtyTrac’s latest report, Housing Land mines:  Are Mortgage Flares Up Coming Soon?  “The foreclosure crisis hasn’t receded, it was intentionally delayed by government manipulation.  The can was kicked down the road.  And next year, foreclosure activity could spike again.”

(So… OMG. If you’re a long time reader of Mandelman Matters, then you should have no trouble imagining that I am about a minute or two away from running out my front door in a yellow dress, straight into oncoming traffic, while singing the title song from “Hello Dolly.”)

What in this Mad, Mad, Mad, Mad World is going on here?

The report says that ninety percent of HAMP modifications will see payments increase between now and 2021… 30,000 are set to increase in the next year alone, with reset rates going to 4 – 5.4 percent.

It also points out that the lion’s share will be concentrated in four states, California, Florida, Illinois, and New York… but I think it just stands to reason that the most populated states that saw the biggest bubbles would have the most exposure to foreclosures going forward. It doesn’t mean that there won’t be plenty of foreclosures in plenty of other states too.

The report also makes clear that looming HELOC resets are going to mean more foreclosures, pointing out that monthly payments on these loans will shoot up as they go from interest only to fully amortizing, and that every year from 2014 to 2017, roughly $53 billion HELOCs are due to reset. (That’s over $200 billion in HELOCs in case you weren’t already doing the math.)

It’s worth mentioning that HELOCs, for the most part, were NOT securitized, so they’re portfolio loans found on the bank’s balance sheet, and although Mortgage News Daily failed to connect the dots on the significance of this distinction, it means that there will need to be a different process for modifying these loans than is used when modifying securitized mortgages.

My guess is that it will mean borrowers trying to get their HELOCs modified will be forced to endure another painful training curve as banks put those processes in place and train their employees. I already have one report of an attempted HELOC modification being noticeably more problematic than others, and I’m expecting to hear a lot more of the same in the year ahead.

(Also, by the way, HELOCs are NOT covered by the California Homeowner’s Bill of Rights, as would be first mortgages, so make sure you check with an attorney in your home state before assuming that specific laws that apply to mortgages also apply to HELOCs.)

In a similar vein, the RealtyTrac report also talks all about the propensity of HAMP loan modifications to re-default as time passes and rates increase. It’s especially true in the case of HAMP modifications that were completed in the first three years of the program when interest rates were overly optimistically only reduced for the first five years.

This is one of those issues that simply could not possibly come as a surprise to anyone with a fully developed adult brain who’s been paying any attention at all to the foreclosure crisis. Hopefully this time around they’ll be smarter and actually try to fix the problem, but since no one ever wants to leave a nickel on the table, I’m not betting on it.

Role reversal…    

Basically, Realty Trac’s report talks about… hmmm, well, it talks about the very SAME things I talk about every time I write an article to criticize RealtyTrac over their ridiculous claims about the foreclosure crisis being over, or something close.

Is there a rabbit hole around here somewhere into which I’ve inadvertently taken a tumble without realizing it? Do you suppose they’re doing this specifically to screw with me?

Mortgage News Daily, actually says RealtyTrac’s “indictment of HAMP is somewhat stunning.” (Emphasis in the original.) And “stunning” is certainly the right word. In fact, I could swear that he goes on to include every factor I’ve enumerated and expanded upon countless times in my articles over the last five years.

Octavio goes on a rant about HAMP’s ineffectiveness right from the jump. He rails on about everyone and everything, from President Obama’s speech introducing Making Home Affordable in February of 2009, through Treasury Secretary Tim Geithner’s unfortunate phrasing about foaming runways, years later.

He even rehashes the “7-9 million families” that HAMP was said to be able to help, pointing out that only $1.4 million loans have been modified under HAMP. And as I’ve been doing for years, he brings up the money, which began at $75 billion, then went to $50 billion, then to $37.5 billion… and still, to-date only $4 billion has been spent.

RealtyTrac’s article places much of the blame for HAMP’s relative ineffectiveness on government, which is really where it deserves to be the most, but Octavio does spread the blame around too, going so far as to rehash the exchanges between former SIGTARP, Neil Barofsky and Tim Geithner, before and after he’d left the Treasury.

He even shows that he’s reading the same books I am by bringing up several quotes from former FDIC chair Sheila Bair, one saying: “… the program was designed to look good in a press release, not fix the housing market.  (Emphasis in the original.)  

According to Mortgage News Daily’s article…

She (Sheila Bair) believed the program was too rigid in its qualification requirements and that the banks would scuttle it.  In her book Bull by the Horns Bair said… “To require every borrower to essentially prove that he or she could qualify for a new loan was stupid – the loan had already been made.”

(I love her, and her book was great.  Click the link just above to find it on Amazon.com.)

I HAVE BUT THREE QUESTIONS:

What is going on at RealtyTrac? Who is Octavio? And where’s Daren Blomquist?

After better than five years telling the country that we’re constantly recovering and that there’s no such thing as a bad time to buy… now they’re writing reports that sound a lot like something you’d expect to read on Mandelman Matters… but without the jokes and biting sarcasm, right?

The report even acknowledges that the majority of homes sold last year resulted in buying by institutional investors, and that it was the billions from private equity funds that was responsible for the rising home prices seen over the last two years… the clear admission being that it was not consumer demand that was driving prices higher… and who would have ever thunk that?

Naked Capitalism had the story last week…

“… institutional investors have massively thrown in the towel: Sales to institutional investors in the third quarter plunged to 4.3% of all sales, RealtyTrac reported. It was the lowest level since Q4 2010. The big unwind.”

Historically, investors made up approximately 10 percent of home sales, but last year they were involved in 60 percent. Today, those investors are long gone, which should explain why sales have fallen off a cliff once again… and that means prices will again start falling.

And incredibly, RealtyTrac even agrees with me on that all of a sudden. From Mortgage News Daily’s November 3rd article…

The RealtyTrac article concludes with the statement “Indeed, the collapse of the U.S. residential real estate market is happening again right before our eyes in slow motion.” (Emphasis in the original.)

“The collapse of the U.S. residential real estate market is happening again right before our eyes?” RealtyTrac said that? Whose eyes are they referring to when they say “our eyes?” Did they just get new glasses, or perhaps have laser eye surgery?

The U.S. residential real estate market is collapsing, according to RealtyTrac?

Where is young Master Blomquist? Bring him to me now.

(Derwood, where the hell are you?)

Mandelman out.

~~~

CAUTION FALLING PRICES…

According to WolfStreet.com… Last year in September, the median home price increased by $14,500 to $269,800.  This year they went the other direction.  

In September, historically, home prices rise.  But, this past September the median price of a home dropped like a stone by 9.4% as compared with August. That’s a drop from $286,000 to $259,000 in a single month… and the month of September, to boot. That means the housing market crashed by $27,000 in a single month… and a month when it should have gone up.

Now, what have I been saying?  I’ll say it again… LOOK OUT BELOW!  

   RealtyTrac Foreclosure Report – Oct. 2014 by Martin Andelman