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Funny, But…

I have to wonder how many inquiries this homeowner has gotten from prospective buyers…

Zillow: 1 Out Of 5 Homeowners Underwater

Online real estate marketplace Zillow.com released a grim report earlier today concerning the state of the U.S. housing market. From Reuters staff this morning:

Home values in the United States extended their fall in the first quarter, with more than one in five homeowners now owing more on their mortgages than their homes are worth, real estate website Zillow.com said on Wednesday.

U.S. home values posted a year-over-year decline of 14.2 percent to a Zillow Home Value Index of $182,378, resulting in a total 21.8 percent drop since the market peaked in 2006, according to Zillow’s first-quarter Real Estate Market Reports, which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold.

U.S. homes lost $704 billion in value during the first quarter and have depreciated $3.8 trillion in the past 12 months, according to analysis of the reports.

Declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter, Zillow said.

By comparison, 17.6 percent of all homeowners owed more on their mortgage than their property was worth in the fourth quarter of 2008, and 14.3 percent were underwater in the third quarter of last year, the reports showed.

Nine consecutive quarters of declines have left eight regions — including the Modesto, California, Stockton, California, and Fort Myers, Florida regions — with median value declines of more than 50 percent since those markets peaked.

Source:

“More than one in five homeowners underwater: Zillow”
Reuters, May 6, 2009

U.S. Housing Market On The Way To Recovery?

Is it possible that the gravely-ill housing market in the United States is actually starting to recover? Bloomberg’s Kathleen M. Howley wrote this afternoon:

U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, a sign that low interest rates may be moderating declines in real estate values…

Mortgage rates have tumbled 1.6 percentage points in six months, making houses and condominiums more affordable. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 5.3 percent last week as Americans took advantage of interest rates near record lows. Home sales rose 5.1 percent in February from a month earlier, the National Association of Realtors said March 23…

The inventory of properties on the market fell to a 9.7 month supply in February at the current sales pace, down from April’s high of 11.3 months, and sales rose 5.1 percent from a month earlier, the Realtors group said.

The number of Americans signing contracts to buy previously owned homes rose 2.1 percent in February, led by a 14.5 percent jump in the Midwest and a 10.6 percent increase in the Northeast, the National Association of Realtors said in an April 1 report.

Despite all this recent good news, the patient might not be out of danger just yet. Howley added:

U.S. banks owned $11.5 billion of foreclosed homes in the fourth quarter, up from $6.7 billion a year earlier, according to the Federal Deposit Insurance Corp. in Washington. California and Florida metropolitan areas led the U.S. in foreclosures in the first quarter as unemployment and falling property values deepened the housing recession, according to RealtyTrac Inc., based in Irvine, California.

“Whatever damage has been done in California is only going to get worse because there is a glut of homes owned by lenders that aren’t yet on the market,” said Bruce Norris, a principal with the Norris Group, a Riverside, California-based real estate investment firm. “These homes are like a shadow inventory that is likely to drag down prices further when they come onto the market.”

Freddie Mac, along with larger rival, Washington-based Fannie Mae and banks including New York-based Citigroup Inc., have slowed or delayed foreclosures using various moratorium plans in the hopes that homeowners in default will be able to modify their loans.

And now, foreclosures are starting to accelerate. The New York Times’ David Leonhardt wrote Tuesday:

Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.

Which could mean more falling prices ahead. Leonhardt added:

The glut of foreclosed homes creates a self-reinforcing cycle. Falling prices lead to more foreclosures. Foreclosures lead to an excess supply of homes for sale. The excess supply then leads to further price declines. Jan Hatzius, the chief economist at Goldman Sachs, says that the “massive amount of excess supply” means that home prices nationwide will probably fall an additional 15 percent.

This estimate hides a lot of variation, too. In Miami, Goldman forecasts, prices could drop an additional 33 percent, which is pretty amazing since they’ve already fallen 50 percent from their 2006 peak.

Nor is excess supply the only reason prices still have a way to fall. Nationwide, homes may not be overvalued by much. But in some cities, including New York, San Francisco, Los Angeles, Boston, Chicago and Miami, they remain very expensive. So while Mr. Hatzius and his Goldman colleagues are somewhat more pessimistic than most forecasters, the difference isn’t enormous.

Not only are foreclosures ramping up, but it appears they’re spilling out beyond the primary metropolitan areas into the secondary markets now as well. From the American Banker website today:

Foreclosure rates continued to climb in the first quarter in many parts of the country, casting doubt on the effectiveness of the Obama administration’s foreclosure prevention plan, a private foreclosure listing company said Wednesday.

“Industry efforts to date really haven’t put a dent yet in the wave of foreclosures,” said Rick Sharga, a senior vice president at RealtyTrac, an online foreclosure listing service that releases quarterly reports on foreclosure activity. “Despite the press reports we’ve had about the many hundreds of thousands of loans that have been modified or worked out or rearranged, the numbers have just kept going up.”

Sharga said that new municipalities had appeared on the map during the most recent period as areas with rising foreclosure rates, including Boise, Id., Fayetteville, Ark. and Charlotte.

“It appears we’re starting to see the problem spread beyond the primary metropolitan areas into the secondary markets,” he said, adding that while foreclosures in Detroit, Mich., were down, rates in Ann Arbor, Lansing and Grand Rapids had risen.

RealtyTrac is your destination for housing foreclosures.

Going back to the Times piece, David Leonhardt ended his article on a personal note and brushed aside any notions that the housing bust may be near a bottom. He concluded:

I’ll confess that this bearish picture isn’t exactly what I had hoped to find. A year ago, as part of a move from New York to Washington, my wife and I bought our first house. We did so fully expecting prices to continue falling (though perhaps not as much as they ultimately will, given the severity of the financial crisis). But we decided they had fallen enough for us to take the plunge. We preferred buying before the bottom of the market instead of renting and having to move again in a year or two.

Still, when I wrote about that decision last spring, I argued that anyone who didn’t have to move probably should not buy yet. Prices still had a way to fall.

They don’t have as far to fall today, but the great real estate crash is not over, either. So if you are part of the 30 percent of American households who rent and you’re trying to decide when to buy, relax.

The market is still coming your way.

Sources:

“Home Prices Gain 0.7% in February From January (Update1)”
Kathleen M. Howley
Bloomberg, April 22, 2009

“For Housing Crisis, the End Probably Isn’t Near”
David Leonhardt
New York Times, April 21, 2009

“RealtyTrac Sees Problems with Obama Mod Plan”
American Banker, April 22, 2009

Weird Housing Tales, Part 18

The following has got to be the “weirdest housing tale” I’ve ever heard— to date.

Back on March 5, FOX 31 News (Denver) reported:

He bought his first home, poured $30,000.00 into it to fix up, now 6 months later Jonathon Kyte has learned his home doesn’t belong to him.

“I froze, I just pointed at it, my wife was there, we were just speechless.”

According to the city and county of Denver, Jonathon owns the dump, next door. He found out about the mistake almost by accident when he received a map which showed the unit he’s living is actually unit number 4.

But he owns the deed and title to unit number 5. Jonathon blames the Coldwell Banker listing agent for the mistake. She marketed the property and provided the key to the unit Jonathon and wife have been living in. He called the listing agent again and again but she wouldn’t return his calls. He also called the title company, “Colorado American Title,” and an employee promised to get back to him, but never did.

So Jonathon called Fox 31 News. We confronted the listing agent’s supervisor, but he would not comment on camera. He said their lawyers were looking into it.

Jonathon is now considered a squatter in the condo –he thought he bought.

And all the people who were so willing to sell it to him, are unwilling to help.

After I heard about the story a couple of weeks ago, I wondered what ever became of Mr. Kyte. I figured the next time I’d hear something new was when the other parties made the headlines for getting their butts sued off.

Not so. From Atlanta’s FOX 5 on April 7:

A Colorado man who had been living in the wrong condo for six months spent thousands of dollars fixing it up only to find out he didn’t own it. Instead the man actually held the title to the run-down unit next door. When Jonathan Kyte found out the condo he poured so much money into wasn’t his, he went to court. Kyte fought hard to keep the condo, but in the end he was forced to move.

“Every part of me is sad right now,” said Kyte.

Kyte lived in unit #4, but according the city he actually owned the deed to unit # 5, the run-down apartment next door.

“It looks terrible,” said Kyte.

Kyte blamed the listing agent for mixing up the numbers. The actual owner of unit #4, and seven other condos in the building, evicted Jonathon.

“We’ve spent all of our savings on this place. Now we’re moving out and that’s that,” Kyte said.

Kyte spent $30,000 remodeling the property he thought was his. The hard work Kyte put into renovating the condo, paid off. Kyte paid just over $45,000 for the condo he thought was his. After the renovations, the condo appraised for more than triple that amount.

The person who will benefit from the work is the doctor who owns the unit and is kicking Kyte out.

Neither the doctor nor his business partner would comment on Kyte’s plight.

Kyte went back to work trying to transform the condo he actually owns into a habitable home.

“I feel like I lost everything. Imagine if somebody stole your house. It’s not a good feeling,” said Kyte.

Kyte’s lawyer is still trying to re-coup some of the losses from the real estate company where the listing agent worked, but that could take months or even years. Kyte said he planned to sell the unit he actually owns because he just doesn’t want to live there.

Note how it says “where the listing agent worked.”

Source: OptHome.com

Sources:

“Condo owner finds out he’s been living and renovating in the wrong unit”
FOX 31 Denver, March 5, 2009

“Colo. Man in Condo Mix-up Evicted”
Amanda Davis
FOX 5 Atlanta, April 7, 2009

Fed Economists Question Mortgage Modifications

Last week, I pointed out a Washington Post piece discussing a recently-released U.S. government report which showed that even after having their mortgages modified, distressed borrowers were still defaulting in high numbers.

Friday afternoon, Bloomberg’s Scott Lanman talked about a paper by Federal Reserve economists and researchers that also increased doubts about the effectiveness of these modifications. Lanman wrote:

Policies aimed at easing home-loan terms for troubled borrowers may not be as effective in preventing foreclosures as more-direct aid to homeowners, Federal Reserve economists found.

Job losses and falling home prices have a bigger impact on delinquencies than mortgage terms, and modifications aren’t necessarily a better deal for investors than foreclosures, according to a paper by two current and one former economist at the Boston Fed Bank and one Atlanta Fed researcher.

The conclusion poses a challenge to housing advocates and to some extent the prevailing views of President Barack Obama’s administration, Fed officials and other U.S. regulators. Obama announced a $75 billion plan in February that concentrates on refinancing or modifying loans for as many as 9 million homeowners.

“One of the most influential strands of thought contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages,” the economists said in the paper posted on the Boston Fed’s Web site today. Yet policies aimed at reducing a borrower’s debt-to-income ratio “face important hurdles in addressing the housing crisis,” the authors said.

Instead, the government should consider alternatives such as loans to homeowners to bridge the loss of income for one or two years caused by unemployment, or helping borrowers become renters, the economists said.

You can read the paper on the Boston Fed’s web site here.

Source:

“Fed Economists Say Mortgage Changes May Not Stem Foreclosures”
Scott Lanman
Bloomberg, April 13, 2009

Despite Modified Mortgages, High Default Rates Continue

Back on February 18, 2009, U.S. President Barack Obama said the following in a speech given at a Mesa, Arizona, high school:

Sub-prime loans — loans with high rates and complex terms that often conceal their costs — make up only 12 percent of all mortgages, but account for roughly half of all foreclosures.

Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but rarely finding answers. Some sub-prime lenders are willing to renegotiate; many aren’t. Your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day you call.

My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines — which will be in place two weeks from today.

For some time now I’d heard a good deal of rumbling about how such loan modifications probably won’t help a number of troubled “homeowners.” However, last week the Washington Post provided evidence in the form of a newly-released U.S. government report showing that even after having their mortgages modified, distressed borrowers were still defaulting in high numbers. Renae Merle wrote on April 3:

Troubled borrowers continue to default at high rates even on home loans that have been modified by lenders, according to a government report issued today. The report also found that an increasing number of borrowers default on their loans before making a single payment.

The report by the Office of Thrift Supervision and the Office of the Comptroller of the Currency, which regulate mortgage lenders, focuses on the effectiveness of industry efforts to help troubled borrowers. It finds that a growing number of homeowners are falling behind on their payments and that borrowers with prime mortgages, which traditionally are considered less risky, are a growing part of the problem.

“It’s higher than we have ever seen it, historically, and the fact that it is still climbing is something we are keeping an eye on,” said John C. Dugan, comptroller of the currency. The report covers two-thirds of the mortgage market.

Merle talked about the success of the loan modifications. From the piece:

It also finds that despite increasing government and industry efforts, many borrowers are quickly falling behind on their payments after receiving a modified loan, which can include lowering their interest rate or extending the length of their loans. Of the borrowers who had loans modified early last year, for example, about 35 percent had missed at least three payments nine months after their loan was modified.

About 57 percent had missed at least one payment. Most borrowers, about 58 percent, received loan modifications that did not lower their monthly payments. The more a borrower’s payment is lowered, the more likely he or she is to stay current on a loan, the report found.

The report also found that an increasing number of homeowners, about 1.44 percent during the fourth quarter of 2008, are falling behind before making a single payment on their mortgages. That is up from 1.23 percent in the first quarter.

“…about 1.44 percent during the fourth quarter of 2008, are falling behind before making a single payment on their mortgages.”

Wow. Did you ever think that some people just aren’t meant to be homeowners?

Source:

“Home Loan Defaults High Despite Modifications”
Renae Mearle
Washington Post, April 3, 2009

Guns Are Booming In More Ways Than One

Some time ago, I was watching the CNBC show “Fast Money” when one of the show’s hosts started making fun of people who bought and kept physical gold within their homes. He told viewers that if things ever got really bad, he was going to pay these people a visit and take their gold away from them by force.

Knowing that there are 85 million Americans who own firearms, with a number of owners the very same people he was referring to, it would be interesting to watch Mr. “Expert Trader” try and take away their gold.

I just hope this guy has good health insurance. And possibly something with a substantial death benefit too. He’ll likely need it when a gun-toting, gold-owning, homeowner “pops a cap” in his butt.

eHealthInsurance – FREE Instant Quotes!

As regular readers of Boom2Bust.com already know, the number of gun owners in the United States is on the rise. And the boom in the sales of firearms isn’t being ignored by the mainstream media either. Sean Gregory wrote on TIME’s website yesterday:

Americans are afraid of this economy. As a result, they’re getting locked and loaded. To wit: Jacquita Baker is soft-spoken single mother from Kentwood, Michigan, near Grand Rapids. She works as an administrative assistant at the Grand Rapids Urban League, and is studying criminal justice at a local university. As of Monday, she’s also the proud owner of a shotgun. Why bear arms right now? “The economy played a large part in my decision,” says Baker, 27. “When people don’t have jobs, they might go breaking into people’s homes. I want to be safe in my home.”

According to the SportsOneSource, a research firm that tracks the sports goods industry, firearms sales in large retail outlets are up 39% this year. Shops across the country are reporting ammunition shortages since stores can’t meet demand for bullets. Data from the FBI’s National Instant Criminal Background Check System, which the industry uses as a proxy for overall firearms sales, is also revealing. From November 2008 through March 2009, FBI background checks, which are required every time a federally licensed gun dealer makes a sale, rose 29.3% over the same period a year ago. In November alone checks jumped 42%, to 1,529,635, the largest monthly total in the decade the system has been in place. “Consumer demand is unprecedented,” says Larry Keane, general counsel for the National Shooting Sports Foundation, a trade association for the firearms and ammunition industry.

Two factors are fueling the rise. The first is political — it’s no coincidence that a record number of background checks occurred in November, the same month Barack Obama was elected president and the Democrats took control of Congress. People grew anxious that the Obama Administration might ban semiautomatic weapons, so they rushed to buy guns before legislation could be passed. In a December survey by research firm Southwick Associates, nearly 80% of active hunters and target shooters said they believed firearm purchases would “become more difficult” under the new Administration and a Democratic Congress. “Everybody is waiting for when the next foot is going to fall in taking away the right to bear arms,” says Doug VanderWoude, owner of Silver Bullet Firearms in Wyoming, Michigan, near Grand Rapids. He estimates that business is up 50% in 2009.

The last Democratic President, Bill Clinton, put into law an assault weapons ban in 1994. President Bush allowed that ban to expire, but last month Obama’s Attorney General, Eric Holder, said the Administration wanted to reinstitute Clinton’s ban. “The gun culture is hypersensitive,” says Miles Hall, an Oklahoma City gun shop owner. “If someone sneezes in Washington, we hear it and get nervous. There’s a lot of anxiety out there.”

A new market of gun buyers is emerging — Hall estimates that some 80% of his sales since the election have been to first- and second-time gun purchasers, many nervous that this may be their last chance. “Thus far, the Obama Administration has done what they set out to do,” says Joe Keffer, who owns a shop in New Holland, Pa. “And therein lies the concern.”

The recession has also played a role in the sales jump. Guns are expensive: Baker, for example, paid $200 for her shotgun. Yet, fear trumps the cost of a weapon for people worried that the economic crisis will lead to more crime. “Protection of the family, protection of the home, is utmost on people’s minds,” says Keffer…

Perhaps a little too much on some minds

Source:

“Boom in Gun Sales Fueled by Politics and the Economy”
Sean Gregory
TIME, April 8, 2009

Friday Freebie: The “A-Letter”

I love free stuff. And I bet a lot of you do as well. Which is why I’m starting a new series called “Friday Freebie,” where every so often I’ll introduce you to some free, yet possibly useful, finds of mine related to topics covered in this blog, starting with this post.

One of my favorite free newsletters that I like to read on a regular basis is the “A-Letter” that’s published by The Sovereign Society. The “A-Letter” is their “free offshore financial e-newsletter containing late breaking news, commentary and ground breaking advice about everything effecting the ‘offshore world’ delivered straight to your email inbox, six times per week.” Anyway, I thought the April 1 edition of the “A-Letter” was a real keeper— and thought-provoking. Here’s an excerpt from that issue:

2009 seems to be working out to be the “year of the fool” judging from headlines like…

 The Social Security Surplus is already gone…fini…no more. “Expected” to last through 2017, thanks to rosy estimates from the bean-counters in Washington, the surplus was annihilated in last year’s stock market crash…meaning the U.S. government will likely need to raise hundreds of billions more in Treasury sales in the coming years…aside from the trillions already scheduled, of course.

 Apparently dissatisfied with only causing the biggest bankruptcy in recorded history, a former Lehman Exec decided to gamble with 44 million American pensions. Former Lehman Managing Director Charles Millard – acting as head of the Pension Benefit Guarantee Corp. (PBGC, the federal government’s safety net for pensions) – boldly moved a substantial portion of the PBGC’s funds out of “boring” bonds and into promising stocks…all in hopes of avoiding a future government bailout. Unfortunately, he started this plan mid last-year, and his picks were already down by 23% at the end of September ‘08. Oh yeah, and he was almost a trillion in deficit when he started.

 Obama says Detroit Bankruptcy Restructuring is “inevitable,” after the latest round of media back-and-forth that pushed Waggoner out the door with a US$20 Million+ retirement package. I can’t tell you how glad I am that we gave these yahoos US$17 Billion last year just to stall the bankruptcy process for a few months. What a great investment that was.

 And on a similar note (wink wink) “The administration of President Obama is suffering very, very strong pressure from sectors affected by the U.S. economic recession,” (ed.: *cough* UAW *cough*) “and that is preventing it from acting correctly,” said Mexican President Felipe Calderon in a recent interview. A look at the list of Obama’s biggest campaign contributors suggests that Felipe was right on. Change? Well, I suppose changing from a neo-conservative puppet of an oil-man to a “bought and & paid for” cog in the Chicago machine does count as “change.”

 And just when you thought hypocrisy couldn’t possibly raise itself to new heights in Washington, President Obama nominated yet another tax dodger to his cabinet in Kathleen Sebelius, his nominee to Health and & Human Services. She owes US$7,000 in total due to some “unintentional mistakes.” Funny thing is, when I make an “unintentional mistake” on my returns, I tend to get whacked with fees, calls and threats from the IRS. Good thing she’s a member of the “Washington Club.”

 Housing Prices are Falling Faster than any other time on record, at least according to Case Shiller’s highly reliable statistics. The 20-city average decline hit 19% in January, muffling any speculation of a bottom forming in the housing market.

 Banks are Refusing to Take Ownership of Properties at the End of the Foreclosure Process in cities all across America, because the cost of the process is higher than the rapidly-declining value of the underlying real estate. But homeowners aren’t off the hook…they’re still obligated to take care of their mortgage and handle any maintenance and repairs that occur in the months after they vacate due to foreclosure.

 Commercial Real Estate Lenders are hesitating to push borrowers into bankruptcy for reasons ranging from misguided optimism to the harsh reality of having to write those debts off. As evidenced by companies like General Growth Properties and Centro, CRE borrowers are staving off bankruptcy for much longer than they would in any other situation. Apparently wishful thinking still qualifies as a business plan in some circles.

 And now the OECD is pleading the EU to begin Quantitative Easing, aka “printing money and throwing it at the problem.” Germany’s so far been vehemently against the idea, for reasons including the problems Eric highlighted with QE in the EU.

So…Which One was the Joke?

Could you figure it out? Which one of the above was a joke?

Well…you’re right. None of them were; they’re all real. I suppose that’s the joke…albeit a very morbid and existentialist joke. But hey, I work with what I’ve got.

And what’s worse; following this crisis as it unfolds on a daily basis, watching every blip of news and trying to decipher what it means for you and I – I’m starting to feel like the joke’s on us.

Us the taxpayers…us the voters. Even us the dollar holders, because the “inflation tax” that will surely follow Washington’s blundering bailouts will bushwhack the value of everyone’s dollars…no matter whether you’re American, Mexican, pink, purple, green or some lily-livered presidentially-appointed tax-cheat.

Hey, who said there was no such thing as a free lunch?

Source:

“In 2009, Every Day is April Fool’s Day!”
“A-Letter” Newsletter
Matt Collins
Sovereign Society, April 1, 2009

Over 5 Million U.S. Homeowners Have Troubled Mortgages

Like a cancer, the foreclosure crisis is spreading.

From the Associated Press’ real estate writer J.W. Elphinstone earlier today:

A stunning 48 percent of the nation’s homeowners who have a subprime, adjustable-rate mortgage are behind on their payments or in foreclosure, and that’s not the worst of it, new data Thursday showed.

The reckless lending practices in states like Florida, California and Nevada that were the epicenter of the housing crisis are no longer driving up the nation’s delinquency rate. Instead, the foreclosure crisis now is being fueled by a spike in defaults in states like Louisiana, New York, Georgia and Texas, where the economies are rapidly deteriorating and thousands are losing their jobs.

A record 5.4 million American homeowners with a mortgage of any kind, or nearly 12 percent, were at least one month late or in foreclosure at the end of last year, the Mortgage Bankers Association reported. That’s up from 10 percent at the end of the third quarter, and up from 8 percent at the end of 2007.

Prime and subprime fixed-rate loans saw sharp increases in the fourth quarter, a sign that the problem is now the economy.

“We’re seeing increases in fixed-rate categories and that’s where the problems are coming from,” said Jay Brinkmann, the group’s chief economist. “The foreclosure picture is more clearly driven by the jobs market.”

Won’t be too surprised to hear the pile of homes for sale has grown worse in the days ahead…

Phish, “Down With Disease” (1994)
YouTube Video Link
(Like the funky colors?)

Source:

“Mortgage woes break records again in 4Q”
J.W. Elphinstone
Associated Press, March 5, 2009

Low Rates Don’t Matter If You Can’t Get A Mortgage

Today I spotted the following on the Florida Association of Realtors website:

Why It’s a Great Time To Buy Real Estate in Florida!

Favorable interest rates: Do the math. Lower rates multiply a buyer’s financial power, especially now when rates are near a 40-year low. Even one/half of one percentage point difference means a buyer could save more than $1,000 per year on a median-priced home. Buyers get more home for the money – a perfect scenario for families looking to upsize.

Yep. Those pushing homes will tell prospective homebuyers now is the time to buy, partly because of low mortgage rates. Problem is, the aspiring homeowner might not qualify for a home loan. According to Bloomberg’s James Sterngold last week:

Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.

The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.

“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”

Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.

The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported…

“Underwriting standards have changed from lax to too tight,” said Lawrence Yun, chief economist at the Chicago-based National Association of Realtors. “The pendulum is swinging too far the other way. We can’t stabilize the housing market if buyers can’t get reasonable mortgages.”

Sterngold pointed out a number of obstacles for those looking to get mortgages these days. From the piece:

Those not covered by the Obama plan will have to contend with lenders requiring higher FICO scores than in the past or charging upfront fees to borrowers with scores once considered excellent. San Francisco-based Wells Fargo & Co., the second- largest U.S. home lender, boosted the minimum score for Federal Housing Administration and Veteran Affairs loans it makes through brokers to 620 on Jan. 27 from 600…

Another strain on consumers is a planned increase by Fannie Mae of add-on fees called loan-level price adjustments, which lenders often pass on to borrowers. Someone with a 699 FICO score borrowing 80 percent of the value of a home used to pay 1 percent in price adjustments. As of April 1, Fannie Mae will raise that to 1.5 percent. For a borrower with a 659 score, the adjustment will climb to 3 percent from 2.25 percent…

Another issue is that mortgage lenders have eliminated jobs, slowing down the approval process.

So much for low mortgage rates…

Source:

“Low Mortgage Rates a Mirage as Fees Climb, Eligibility Tightens”
James Sterngold
Bloomberg, February 27, 2009

Over 8 Million Mortgage Holders Underwater At End Of 2008

Does anyone know the background behind the word “mortgage”?

From what I understand, it’s derived from the French language, where “mort,” means death and “gage” is Old French for pledge or agreement.

Put them together and you have “death pledge” or “death agreement.”

Which is probably how a number of American homeowners feel right now about these loans.

Bloomberg’s Dan Levy reported today on the deteriorating housing market in the United States. He wrote:

More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.

An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today.

Households with negative equity or near it account for a quarter of all mortgage holders…

The total value of residential properties in the U.S. fell to $19.1 trillion by the end of 2008, down from $21.5 trillion a year earlier, First American said. California lost more than $1.2 trillion in value last year, accounting for roughly half of the national decline in housing values.

Levy pointed out that the federal government is attempting to ride to the rescue of beleaguered homeowners. From the piece:

President Barack Obama has proposed a $275 billion plan intended to help as many as 9 million troubled borrowers refinance or restructure their loans. About $75 billion would be used to rescue homeowners by agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates as low as 2 percent.

2 percent! I have a feeling I’ll see more of these bumper stickers around pretty soon.

Source:

“More Than 8.3 Million U.S. Mortgages Are Under Water (Update3)”
Dan Levy
Bloomberg, March 4, 2009

The Boomer Bust

Bad news for the Baby Boomer generation. CNN Money’s Les Christie reviewed a new report from the Center for Economic and Policy Research on the financial well-being of Americans born between 1946 and 1964, and wrote this afternoon:

What a turnaround for the American Dream!

According to a report released Wednesday, the real estate market bust and stock market declines have carved a huge chunk out of the assets of baby boomers, the largest age cohort in U.S. history.

So much home equity has been lost that should boomers need to sell their homes, 30% of those aged 45 to 54 would owe money at closing, according to “The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble,” a report released by the Center for Economic and Policy Research, a Washington, D.C.-based, non-partisan think tank. About 18% of boomers aged 55 to 64 are underwater and would have to bring money to the table.

The CEPR also found that people who were renting homes in 2004 will have more wealth in 2009 than those who were owners. That’s true for all five wealth groups the study analyzed, from the poorest to the wealthiest.

“The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowners,” said report co-author Dean Baker. “This reality is compounded by the recent collapse of the stock market. Many baby boomers will only have Social Security and Medicare to rely on in their retirement.”

“Crap!”

The CNN staff writer noted the following about the change in net worth for this demographic. Christie wrote:

Boomers between 45 and 54 have lost 45% of their median net worth, leaving them with just $80,000 in net worth, including home equity, according to the report.

Older boomers have fared marginally better. Those between 55 and 64 have lost 38% of their net worth, leaving them with $140,000. But this group is rapidly nearing retirement age and they have few working years left to make up the losses.

You can read the CEPR report here.

Source:

“Boomers: 30% underwater”
Les Christie
CNN Money, February 25, 2009

Weird Housing Tales, Part 16

Here’s a weird housing story that a reader forwarded to me this morning. By the way, I verified with Snopes.com that the story is indeed true:

Dispute Between Neighbors – this is evidently a true story…

A city councilman in Utah, Mark Easton, had a beautiful view of the mountains, until a new neighbor purchased the lot below his house and built a new home.

The new home was 18 inches higher than the ordinances would allow, so Mark Easton, mad about his lost view, went to the city to make sure they enforced the lower roof line ordinance.

The new neighbor had to drop the roof line, at great expense.

Recently, Mark Easton called the city, and informed them that his new neighbor had installed some vents on the side of his home.

Mark didn’t like the look of these vents and asked the city to investigate. When they went to Mark’s home to see what the vents looked like, this is what they found…

Source:

“Love Thy Neighbor”
Snopes.com

CNBC Reporter Blasts White House On Mortgage Bailout

Yesterday, CNBC’s Rick Santelli, who reports from the floor of the Chicago Board of Trade for the financial news channel, tore into President Obama and his administration for their proposed $75 billion mortgage bailout. Santelli said:

The government is promoting bad behavior. Because we certainly don’t want to put stimulus for it and give people a whopping 8 or 10 dollars in their check, and think that they ought to save it, and in terms of modifications. I’ll tell you what. I have an idea. The new administration is big on computers and technology. How about this, President and new administration? Why don’t you put up a website, to have people vote on the Internet as a referendum to see if we really want to subsidize the losers’ mortgages, or would we like to, at least, buy cars, and buy houses in foreclosure, and give them to people who might actually have a chance to actually prosper down the road, and reward people that could carry the water, instead of drink the water…

If you read our Founding Fathers, people like Benjamin Franklin and Jefferson, what we’re doing in this country now is making them roll over in their graves.

2/19/09 CNBC Rick Santelli Segment
YouTube Video Link

And what was the White House’s response to Mr. Santelli? They mocked him and claimed he doesn’t know what he’s talking about. The Wall Street Journal’s Henry Pulizzi reported tonight:

The White House hit back at a CNBC reporter whose rant against its housing plan is making waves on the Internet, saying Rick Santelli “doesn’t know what he’s talking about.”

“I think we left a few months ago the adage that if it was good for a derivatives trader that it was good for Main Street. I think the verdict is in on that,” White House spokesman Robert Gibbs said Friday.

Gibbs, however, said the reporter has it all wrong because the plan is designed to help responsible homeowners.

“I would encourage him to read the president’s plan and understand that it will help millions of people, many of whom he knows,” Gibbs said. “I’d be more than happy to have him come here and read it. I’d be happy to buy him a cup of coffee – decaf.”

Later, Gibbs went further: “I also think it’s tremendously important…for people who rant on cable television to be responsible and understand what it is they’re talking about. I’m… feel assured that Mr. Santelli doesn’t know what he’s talking about.”

Now, I don’t know how well-versed Santelli is on the particulars of the mortgage bailout plan, but unlike a number of his colleagues in the financial media, he’s been around the block a few times. From the CNBC website:

Rick Santelli joined CNBC Business News as on-air editor in June 1999, reporting live from the floor of the Chicago Board of Trade. His focus is primarily on interest rates, foreign exchange, and the Federal Reserve.

A veteran trader and financial executive, Santelli has provided live reports on the markets in print and on local and national radio and television. He joined CNBC from the Institutional Financial Futures and Options at Sanwa Futures, L.L.C. There, he was a vice president handling institutional trading and hedge accounts for a variety of futures related products.

Prior to that, Santelli worked as vice president of Institutional Futures and Options at Rand Financial Services, Inc., served as managing director at the Derivative Products Group of Geldermann, Inc., and was Vice President in charge of Interest Rate Futures and Options at the Chicago Board of Trade for Drexel, Burnham, Lambert. Santelli began his career in 1979 as a trader and order filler at the Chicago Mercantile Exchange in a variety of markets including gold, lumber, CD’s, T-bills, foreign currencies and livestock.

Source:

“CNBC’s Rick Santelli vs. White House’s Robert Gibbs”
Henry J. Pulizzi
Wall Street Journal (Washington Wire blog), February 20, 2009