patrick.net

What do you think the banks are going to do? Start to foreclose on non-paying mortgage or letting squatters live free?

They will increase staff signifcantly and accelerate the process to reduce squat time. Once you missed a couple of payments and they know the home is underwater, they'll never see another payment again.

They won't reduce principal because the number of owners who can pay, who are paying and who are only moderately under water and paying far out numbers the number who are doing this. As soon as they give in to a few people, they will open up the flood gates to *everyone*. Save a few dollars on these homes and lose on EVERY mortgage, or lose more on these, and not lose on the rest of their portfolio.

I agree with SF ace. They will start picking off the homes that stand the best chance to make them money. They will increase their efforts, but also don't want to flood the market either.

Hard to say.

Depends on the state and whether or not legislation is pending to delay foreclosure activity by lenders.

Lenders drank the kool-aid like so many others in the FIRE industries, and imo, they may be wishfully waiting for the RE market to recover, which they think will be sooner than later. They will foreclose then at that time (or so they think).

imo, the RE market isn't going to go back to bubble levels.

~Misstrial

They will do what they done in the recent past - Lobby for legislation to "dissuade" borrowers from gaining the upper hand. Just read yesterday of efforts in this direction and there will be more. Better default while the defaulting's good.

They took the loans, they funded them. The borrowers should pay for their mistake by losing their downpayment (if any) and the banks should eat the property for funding it in the first place. There is no free lunch. These damn borrowers were all high and mighty thinking they were rich just a few years ago now they are crying like little girls. Get them the hell out of the property and let the funders worry about what to do with it. The borrowers in this mess have to learn the bitter lessons they had coming to them for their arrogance and greed. I don't want to look at another man crying like a little girl over his foreclosure, man up pay the piper and move aside. Don't look for a free ride on my back or out of my pocket.

I suspect that many banks will just let an increasing number of squatters stay put, and continue to delay foreclosure indefinitely. It's not an issue of incompetence or lack of staffing. The simple fact is that a great many lenders simply can't afford to foreclose.

If all banks recognized the true value of the mortgages they hold on delinquent mortgages on their financial statements a great many of them may find themselves insolvent. Thus, it is preferable to let the squatters stay indefinitely rather than have to admit reality on the balance sheet.

I am sick to death of all these losers who are squatting for years in homes that they should have long ago been kicked out of. They are not "homeowners", they are home "debtors". They never owned the home. You do not own a house until it is paid off - and even then, you do not own the house because you have to pay taxes on it every year.

I have 2 friends who have been living for free in their former homes for 2 years now. It really makes me see red, because I have always been responsible and had to take a $100,00 haircut to sale on of my homes. These 2 "friends" also took out HELOCs for $100,000 and spent it all during the boom years.

As usual, the crooks and immoral people are doing well cheating and not going to prison, and those of us who have always played by the rules (how stupid) are being screwed.

I've seen this before. Businesses that are essentially bankrupt but not in court yet (the banks in this case) string things out as long as possible while the people at the top loot what's left and hope for just a few more of those wildly out of touch with reality paychecks. Everyone else around them gets screwed. Then they close the doors.

After foreclosure, banks are stuck with the taxes, insurance, HOA fees, maintenance and utilities. Apparently, tax wise for the lenders, it must be less costly to write off by allowing people to remain in homes. In many instances foreclosed homes are ransacked after foreclosure by the home debtors. I found a previous post interesting. I watch people swell with pride over owning one or more homes. It doesn't matter that they are hundreds of thousands upside down. What a mentality!!

I've been waiting for years to buy my first home and finally the market starts to fall a bit from 2007, in Los Angeles area. But the price is still way to high to purchase. For about $500,000 I can only get an older house built in 1950 or earlier, around 1500 sf. These houses sold for around $2000 in 2001. This cannot be right. If one can put down payment of $40,000, wait 10 years or less and make $300,000 in profit then, what the hell, everyone can be a millionaire in about 15 years if they invest $40,000 every 2 years. House price cannot keep going up like this or stay at this price when the median income in the area is just around $50,000.
I am so sick and tired of banks not foreclosing and kicking these squatters. They're living free with my tax money and propping up the house price so I still can't buy the house that I want! This is not an American dream. This is the American nightmare!
I recently attended a Realtor's free seminar on buying shortsale or foreclose properties. The agent said not to expect to buy these type of property for less than 5% or 10% below FMV. WTF, something is very wrong here. How can banks afford to let squatters live free for years but would not budge on the sales price of the foreclose properties?
I am not going to buy until the price comes down to in line with the historical value!

Case Shiller is a seriously lagging indicator. The March 2010 report probably reflects an amount that was negotiated 3-6 months prior. If you are negotiating to buy a house right now, it'll take 60-120 days to close and recorded and then lag a few more months to be shown on the index. Anyone with some brains doesn't need an index to tell me whether the prices are going up or down all they have to do is put in a few non-contigent offers and see what kind of response you get. (FWIW, in six months for the Sep2010 CS index, the C-S will show that it is slightly down based on market conditions right now, but the index will not help you six months later as conditions by then may change and it is relfecting what is happening now). All the Case shiller index does is summarized what happened six months ago in the negotiating trenches not what is happening now!

Case Shiller is just an index. An index is a component of its highs and lows. In an area as diverse as San Francisco bay area where prices range anywhere from 100K to 5M, an index is a heck of a lot less useful than a place that 80% of homes are 100K to 200K. In the stats world, deviation creates unrealibility.

The idea of comparing home A with home A is a great idea, but I have no idea how the data's are adjusted. when a graph shows essentially no appreciation relative to inflation when that obviously does not agree with real life, I suspect the model has some decay that is not accounted for correctly. (It's like creating a financial model, looks great in theory but plug in data points and the answer is way off - something is wrong)

Case Shiller does not account for any social factors such as population growth, income growth, tax policies, interest rates, values, etc. making any historical correlation without accounting for these things practically meaningless.

"squatters even demand that the bank reduce principal or take the house. They refuse to pay the mortgage if the bank does not reduce the principal to the current market value of the house"

It is immoral to demand and expect the bankers to reduce the principle or refuse to pay. It is theft - "Thou shalt not steal." Didn't they agreed to the loan contract in the first place? Buyer beware. Tough luck they went broke. This is not to say they can't gently ask for some debt forgiveness. A Proverb in the Bible comes to mind - "The borrower is a slave to the lender. " Long term debt should be illegal. Mortgage interest deductions should be scrapped.

SF ace says

Case Shiller is a seriously lagging indicator.

better to use a 15 -20 year trend chart compared to just a 10 year trend.
we started this bubble by 1997-98. Last 20 years shows a different picture.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

As I said earlier, I don't think that the arguments about the banks being overwhelmed with the volume of defaults explains the reluctance to proceed with foreclosures in many cases.

Many lenders just can't afford the hit to their books that the clearing of seriously under-water properties would require. I suspect that the properties where the foreclosure actions are speediest are those where the losses to the bank are minimal, and which the lender figures they could re-sell for only a small loss.

This would explain the problems people talk about with short sales too. Perhaps the lenders only approve short sales where they would only have to take a small haircut. The more seriously under-water homes might just be ignored, allowing indefinite squatter residence.

Isn't not foreclosing on an obviously failed which would yield a loss equivalent to cooking the books, and hiding debt/losses to keep stock prices high?

Enron?

prop.ms says

As I said earlier, I don’t think that the arguments about the banks being overwhelmed with the volume of defaults explains the reluctance to proceed with foreclosures in many cases.

Its not the banks but rather the Gov interferance that has stalled the foreclosure process. For what its worth, if a borrower has defualted on their loan past 90 days, the loan is said to be impaired and thus the banks have written down/off the books. As with any industry, past 90 days gets automaticly hit to earnings. This is as far the banks need to worry about. What they can or cannot afford is not a factor. Their numbers to the shareholders need to unbiased and free from errors. And if some reason they are 'relunctant" I can assure you their auditors will not be so relunctant.

Vain says

Isn’t not foreclosing on an obviously failed which would yield a loss equivalent to cooking the books, and hiding debt/losses to keep stock prices high?
Enron?

Yes, keeping loans at higher than actual market price valuations is a form of "cooking the books". However, this is the current policy of most banks and government regulators. The government doesn't want to have to bail out more banks (especially the big ones), and is turning a blind eye to fraudulent book-keeping practices.

In truth, accounting rules have a lot of grey areas, so banks may not always be breaking the law when they play these games. The reality is that until a given asset is SOLD it is hard to know exactly what the price is, so you can have legitimate disagreements as to what the proper valuation to use on the books should be.

Thus, a bank could discount the value of a delinquent loan on their books by 10% (i.e. assuming the home could be sold for at least 90% of what is owed) even though it is unlikely that the home could be sold for even 50% of the loan balance. Until that home is actually sold on the market who's to say the bank's optimistic valuation isn't true? Still, when a bank has a portfolio of thousands of delinquent mortgages for which they haven't taken undertaken foreclosure actions in over a year, you can assume that something is fishy with those valuations. If they really thought they could recover 90% of the mortgage value they would have foreclosed long ago.

prop.ms says

Yes, keeping loans at higher than actual market price valuations is a form of “cooking the books”. However, this is the current policy of most banks and government regulators. The government doesn’t want to have to bail out more banks (especially the big ones), and is turning a blind eye to fraudulent book-keeping practices.
In truth, accounting rules have a lot of grey areas, so banks may not always be breaking the law when they play these games. The reality is that until a given asset is SOLD it is hard to know exactly what the price is, so you can have legitimate disagreements as to what the proper valuation to use on the books should be.

In truth accounting rules are pretty cut and dry! Any historical asset value on your books above market WILL BE IMPAIRED... if the companies/banks do not record this, i can assure you the auditors will force this issue and heads will fall. Doesnt matter if investments, loans, hedging contracts, capital equipment etc etc etc. Once you impair these assets, you cannot mark them up.

thomas.wong1986 says

In truth accounting rules are pretty cut and dry! Any historical asset value on your books above market WILL BE IMPAIRED…

I don't think it is nearly as clear cut as you think. How do you prove what the market value really is? The bank could claim that a write-down of 10% is a sufficient impairment for a non-performing loan and it would be difficult to prove them wrong. You could try and do a market analyses of the neighbourhood where a given home was, but that would be time consuming and likely be argumentative. The bank could argue that this home was "special", or point to other homes that are listed at prices similar to what they are valuing the house at.

If there aren't many sales taking place at all in the neighbourhood, then it could prove difficult indeed to discover the market price. Heck, just look at how passionately people who live on the same street can disagree on the value of the homes there!

I used to work with auditors (supporting their IT systems), and from my experience they were rarely willing to get into long drawn out arguments with their customers over what proper valuations their customers put on things. They might raise some objections, but would usually cave in after some small concession on the part of the client.

The auditors with bank regulators are obviously very influenced by politics. If they weren't we would have seen Citigroup, and many other major banks, shut down for insolvency.

wcalleallegre says

“squatters even demand that the bank reduce principal or take the house. They refuse to pay the mortgage if the bank does not reduce the principal to the current market value of the house”
It is immoral to demand and expect the bankers to reduce the principle or refuse to pay. It is theft - “Thou shalt not steal.” Didn’t they agreed to the loan contract in the first place? Buyer beware. Tough luck they went broke. This is not to say they can’t gently ask for some debt forgiveness. A Proverb in the Bible comes to mind - “The borrower is a slave to the lender. ” Long term debt should be illegal. Mortgage interest deductions should be scrapped.

They are acting in accordance with the loan contract. The contracts that what the monthly payment is and spells out what happens if the payment is made and what happens if it isn't made, whether it's late fees for late payments or a default/foreclosure procedure if payments are not made at all. Where does the morality of the situation come into play? It's business.

btw, the bible isn't best place to go for financial advice. Just sayin'.

Thats right. But why the stupid government is coming to the rescue of these borrowers.

Landru3000 says

wcalleallegre says

“squatters even demand that the bank reduce principal or take the house. They refuse to pay the mortgage if the bank does not reduce the principal to the current market value of the house”

It is immoral to demand and expect the bankers to reduce the principle or refuse to pay. It is theft - “Thou shalt not steal.” Didn’t they agreed to the loan contract in the first place? Buyer beware. Tough luck they went broke. This is not to say they can’t gently ask for some debt forgiveness. A Proverb in the Bible comes to mind - “The borrower is a slave to the lender. ” Long term debt should be illegal. Mortgage interest deductions should be scrapped.

They are acting in accordance with the loan contract. The contracts that what the monthly payment is and spells out what happens if the payment is made and what happens if it isn’t made, whether it’s late fees for late payments or a default/foreclosure procedure if payments are not made at all. Where does the morality of the situation come into play? It’s business.
btw, the bible isn’t best place to go for financial advice. Just sayin’.

prop.ms, if a loan or receivable becomes uncollectable after 90 days, the whole loan is written off. This could be a mortgage loan on the books of the bank or an A/R for goods sold on trade credit. Its no different. The whole amount is written off. There are very strict quidelines to what number to use in the markets for various valuations. As with any other impairment/write down it must be independently verifiable. Which often it is by the independent auditors! Banks get a double-triple whammy since they are also audited by the FED and SEC, today more than ever.

We are not talking about what a homes value is or what not but the actual loans which are clearly stated amounts on the contract.

Did they pay ? no ,
Past 90 days ? yes
Loans gets flushed to earnings.

No matter what industry we are talking about the treatment is the same.

Do you not read through the links patrick posts? Housing is still overpriced, and the situation is continuing to deteriorate. knuckleheads.....

thomas.wong1986 says

if a loan or receivable becomes uncollectable after 90 days, the whole loan is written off

Interesting... I have heard differing comments on this, so it is very confusing as to what the actual accounting rules for banks really are. For example, one of the reasons I've heard that investment banks wanted to become officially chartered banks was precisely so they would be able to use looser accounting rules that didn't require mark to market.

It seems odd to write off an entire loan when there is underlying collateral. There is some value there at the very least.

They should let them squat. The loss sense of direction will make these home "owners" not live in peace. After all, they don't want to get off work one day to find out they've been kicked out. They're demanding action from the bank. Either take the home and put them out of their misery, or hook them up with a discount.. haha.

thomas.wong1986 says

prop.ms, if a loan or receivable becomes uncollectable after 90 days, the whole loan is written off. This could be a mortgage loan on the books of the bank or an A/R for goods sold on trade credit. Its no different. The whole amount is written off. There are very strict quidelines to what number to use in the markets for various valuations. As with any other impairment/write down it must be independently verifiable. Which often it is by the independent auditors! Banks get a double-triple whammy since they are also audited by the FED and SEC, today more than ever.
We are not talking about what a homes value is or what not but the actual loans which are clearly stated amounts on the contract.
Did they pay ? no ,
Past 90 days ? yes
Loans gets flushed to earnings.
No matter what industry we are talking about the treatment is the same.

No offense--but that is complete BS

I think the arguments here are interesting.

However, there are fewer people than can qualify for loans for homes so prices must go down.

I think the last half of 2010 will be very interesting. I would expect to see a return of the first home buyers credit and another stimulus.

I also don't think that will help the housing market unless there is more permanent census hiring.

There's some kind of outfit called a Council of Economic Research or something like that who "officially" says when the "official" recession began.

But I think it began a lot longer ago. We've been in a steady decline in our standard of living for a long time. It has been disguised by a bunch of jigs that are all up around the same time:

- gradual secular increase in mult-income households going on for decades;
- apparent rise in asset values (stocks) in 1990's
- reduced nominal cost of borrowing from lower rates
- more capacity to borrow from liberal terms
- lower prices for junk made in places like China

all these things papered over and masked the reality that our standard of living is going down. Some realities have permeated through though like tuition and healthcare costs. Otherwise we're still in the Great Recession that began in the early 1970's.

Syrib,

Those are good points. For me the country started in decline when it became passe to work with your hands for a living. Now we have traded financial fantasy for making real products.

I'm sorry but lots of assets have gained less than 1% over a ten year period. Many have lost more over greater time periods than that. Take gold for example. Around 1980 or so it was over $850 an ounce. It lost value and didn't reach that value until a couple of years ago. If you had invested in the NASDAQ composit in march 2000, the best you would have done since is to recoup a little over 50% of your money. If you bought the Dow in august 1929 it would have taken 26 years before you would have broken even. Why is it some people believe that their chosen investment\asset is any different? That is exactly what people thought in march 2000, that is exactly people thought about gold in 1980, that is exactly what people thought in august 1929. Blue skies, nothing but blue skies from now on.

To all the graphers out there... you may be right about being at the bottom. However, I think you can only say that as we are climbing up the other side. Which it seems we're not. So if you continue to try and find 'glimmers of hope', it starts to smell like desperation.

Sure you can say things like "on par with coastal cities", "more affordable than western europe"... but I think as we move forward our graphs should start to add more esoteric quantifiers... How about perception? Something akin to wind-chill. Sure you guys are dragging out the thermometers, and saying "Look it's 5º above freezing..." I think the rest of us are saying, the wind is blowing like crazy, we're hungry and it's dark. So it feels a lot colder.

In the past I think the 'numbers' crew could say perception, expectations and belief have no place in schematics. Now, I'm not so sure. If enough buyers BELIEVE that house prices should/could come lower... isn't that a huge downward pressure on home prices?

Is that what you're worried about? Not being right or wrong... but if enough buyers hold off, it becomes a self-fulfilling prophecy? It seems like a Mexican stand-off between new buyers and the banks as it is anyway.

I think the numbers that came out today are leaning towards those of us who tend towards a W or a long drawn out bottom. One thing is for sure, we're NOT bouncing back any time soon. If you can't sense that... you don't buy your own milk.

junkmail

You are absolutely right

I think it would be great if people just did not bother to buy houses. At least not until it makes financial sense. I think that is was Patrick is trying to accomplish with his site.

It would certainly accelerate the inevitable. Wouldnt it be a economical boom if houses were affordable again. People could afford to buy a home and fuel the economy.