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, Iâ€™ve written in great detail about how ridiculous it is to say the foreclosure crisis is over, or even endingâ€¦ Iâ€™ve explained the reasons whyâ€¦ and okay, Iâ€™ve made fun of Daren Blomquist, RealtyTracâ€™s VP, for his baseless cheerleading and shameless forecasting that, by the way, has never been right, to my knowledge.
Now, in RealtyTracâ€™s Housing News Report, Octavio Nuiry, Managing Editor of the Report says that there are a “tetrad” of â€śland minesâ€ť that not only could threaten our (anemic-at-best) housing recovery, but also could â€śtrigger a surge in defaults, repossessions, and short sales,â€ť as reported by Mortgage News Daily.
Iâ€™m sorryâ€¦ did Octavio just say a â€śtetrad of land mines?â€ť Aâ€¦ TETRAD? Want to know what I think about that? I think that you should not play Scrabble for money with Octavio.
Besides, Iâ€™m not sure weâ€™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 weâ€™re talking about a triad, a dyad or a monad. (Sheesh, why canâ€™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 asâ€¦
- Home Affordable Modification Program (HAMP) re-defaults.
- Home Equity Line (HELOC) resets to fully amortized payments from interest only.
- 1 million still underwater borrowers.
- Non-performing loans.
According to RealtyTracâ€™s latest report, Housing Land mines:Â Are Mortgage Flares Up Coming Soon?Â “The foreclosure crisis hasn’t receded, it wasÂ intentionally delayedÂ by government manipulation.Â The can was kicked down the road.Â And next year, foreclosure activity could spike again.”
(Soâ€¦ OMG. If youâ€™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 â€śHello Dolly.â€ť)
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 2021â€¦ 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 lionâ€™s share will be concentrated in four states, California, Florida, Illinois, and New Yorkâ€¦ 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 doesnâ€™t mean that there wonâ€™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. (Thatâ€™s over $200 billion in HELOCs in case you werenâ€™t already doing the math.)
Itâ€™s worth mentioning that HELOCs, for the most part, were NOT securitized, so theyâ€™re portfolio loans found on the bankâ€™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 Iâ€™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 Homeownerâ€™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. Itâ€™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 whoâ€™s been paying any attention at all to the foreclosure crisis. Hopefully this time around theyâ€™ll be smarter and actually try to fix the problem, but since no one ever wants to leave a nickel on the table, Iâ€™m not betting on it.
Role reversalâ€¦ Â Â
Basically, Realty Tracâ€™s report talks aboutâ€¦ 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 Iâ€™ve inadvertently taken a tumble without realizing it? Do you suppose theyâ€™re doing this specifically to screw with me?
Mortgage News Daily, actually says RealtyTracâ€™s â€śindictment of HAMP is somewhatÂ stunning.â€ť (Emphasis in the original.) And â€śstunningâ€ť is certainly the right word. In fact, I could swear that he goes on to include every factor Iâ€™ve enumerated and expanded upon countless times in my articles over the last five years.
Octavio goes on a rant about HAMPâ€™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 Geithnerâ€™s unfortunate phrasing about foaming runways, years later.
He even rehashes the â€ś7-9 million familiesâ€ť that HAMP was said to be able to help, pointing out that only $1.4 million loans have been modified under HAMP. And as Iâ€™ve been doing for years, he brings up the money, which began at $75 billion, then went to $50 billion, then to $37.5 billionâ€¦ and still, to-date only $4 billion has been spent.
RealtyTracâ€™s article places much of the blame for HAMPâ€™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 heâ€™d left the Treasury.
He even shows that heâ€™s reading the same books I am by bringing up several quotes from former FDIC chair Sheila Bair, one saying: â€śâ€¦ the program wasÂ designed to look good in a press release, not fix the housing market. Â (Emphasis in the original.) Â
According to Mortgage News Dailyâ€™s articleâ€¦
She (Sheila Bair) believed the program was too rigid in its qualification requirements and that the banks would scuttle it.Â In her bookÂ Bull by the HornsÂ Bair saidâ€¦ “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. Â 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 whereâ€™s Daren Blomquist?
After better than five years telling the country that weâ€™re constantly recovering and that thereâ€™s no such thing as a bad time to buyâ€¦ now theyâ€™re writing reports that sound a lot like something youâ€™d expect to read on Mandelman Mattersâ€¦ 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 yearsâ€¦ the clear admission being that it was not consumer demand that was driving prices higherâ€¦ and who would have ever thunk that?
Naked Capitalism hadÂ the story last week…
“… institutional investors have massively thrown in theÂ 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,Â 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 againâ€¦ and that means prices will again start falling.
And incredibly, RealtyTrac even agrees with me on that all of a sudden. From Mortgage News Dailyâ€™s November 3rd articleâ€¦
The RealtyTrac article concludes with the statement “Indeed, the collapse of the U.S. residential real estate market isÂ happening again right before our eyes in slow motion.” (Emphasis in the original.)
â€śThe collapse of the U.S. residential real estate market is happening again right before our eyes?â€ť RealtyTrac said that? Whose eyes are they referring to when they say â€śour eyes?â€ť 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?)
CAUTION FALLING PRICES…
According to WolfStreet.com… Last year in September, the median home price increased byÂ $14,500 to $269,800. Â This year they went the other direction. Â
InÂ September, historically, home prices rise. Â But, this past September the median price of a home dropped like a stone byÂ 9.4% as compared withÂ August. That’s a drop fromÂ $286,000 to $259,000 in a single month… and the month of September, to boot.Â 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? Â I’ll say it again…Â LOOK OUT BELOW!Â Â