patrick.net

I would think it would certainly slow the decline of of home prices as shown by sales statistics.

I'm not sure it would have much of an effect in the long run though. The bubble psychology is popped for for good, and as lending standards tighten that will bring down the prices people can bid, and inevitably the prices of homes with it.

Many homeowners will essentially be handed equity on a platter too, which makes them more likely to sell at a reasonable price when they do sell. Underwater borrowers are very reluctant to cave in and bring money to the closing table, even if then can.

Just how many mortgages are actually available for purchase? Haven't most been sliced/diced and squared of squared to be sold to investors already? Wouldn't those be unavailable to be renegotiated or sold again?
If this is true, then even if 100% of the available loans were renegotiated so that people stay in them, it may only be a small fraction of the total mortgage market whose new "price" is "hidden" from the comps, right?

As an aside:

How does PennyMac figure out how to renegotiate the loans with the homeowners?
How do the banks value the loans?
How does PennyMac value the loans?
Which homeowners deserve a change in loan terms?
How can they know which homeowners will stay in the house and not walk away if they change the loan terms?

Is PennyMac a private enterprise? If yes, is that better than the government attempting this?

Does any of this even matter?

I swear to God - I thought PennyMac is a pun on FreddieMac, given their current sticky situation :)

not investment advice above

My guess at the PennyMac business model is this:

1. Have deep pcoekts. Agree to buy large groups of homes for, say, 20 cents on the dollar. This can literllay represent the tranch that currently has 0 face value with 100% non-performance. Bank realizes that 80 cent loss, but this is 20 cents more than the current mark-to-market world.

2. Have deep pcokets. Wait for the INEVITABLE Frank/Dodd/Bernanke push to have FHA step in and buy mortgage. This may take a while, so make sure you habe deep pockets.

3. FHA buys the loans, not from the bankswho sold at 20 cents on the dollar (since the bank was insolvent it dd not have deep pockets), but from Countrywide execs - woops I mean Hedge funds (Blackstone) woops I men PennyMac. FHA pays 60 cents on the dollar.

4. By having cash at the right time and just a little more patience, PennyMac triples their money.

5. Market fundamentlas still drive prices down and the defaults pile on to FHA which means - taxpayers foot the bill for massive profits at PennyMac.

Okay - this is just a guess but. . .

Duke,

I think, PennyMac could also profit from selling the house on 30/35 cents on the dollar. That was also in one of the articles on news links on this site. This guy going around and buying houses and selling it quickly for a good profit. banks want to dispose properties in bulk and PennyMac would be a goof fit for banks.

Okay - this is just a guess but. . .

It's not a guess, its already happening...

http://www.bloomberg.com/apps/news?pid=20601109&sid=acNLJ7FGT15U

Anyone can get in on the action if they have cash, btw. Buy non-performing assets, send a guy to the house to either work something out with the FB or kick them to the curb.

Re: the OP, this only hides the price declines if you can renegotiate. Otherwise you have to sell it for whatever you can get. Since this is flipping part deux the speculators are gonna unload them for whatever they can get and blow the comps out of the water. This will force a race to the bottom faster than anything else, I think.

There is also the problem that once this becomes common knowledge everybody with a toxic loan will just stop paying and wait until someone picks up the paper and is willing to work out a payment schedule with them. This might even prop up the bottom, as banks could get multiple offers for the "worthless" paper.

I have been thibking about gas lately. And how much media attention it is getting.

My math goes like this: Gas rises from $3 to $4.
Average tabke size is 15 gallons.
Average increase per tank is $15
Using 4 tanks of gas a month we get $60 a month and thus $720 a year.

Now, housing doubled in the Bay Area. $400,000 homes went to $800,000. Even removing the financing we see that the $400k increase in price equals 555 years of gas price increases.

Can we stop talking about gas already?

On one hand, through a certain lens, I've no issues with inticing our *largely* overpaid unionized public servants to catch knives. Not all deserve such treatment, of course. But how truly different is this behavior from pocket listings Relitter non-sense and the Oregon employee 401K housing substitute ponzi. So now our local governments are going to be buying foreclosures in bulk from insolvent banks? And peddling them off to public "servants"?

Fairfax County is developing a program to allow as many as 100 first-time home buyers to purchase foreclosed houses at cut rates to bolster the county's affordable-housing efforts and help prevent the region's mortgage crisis from causing neighborhood decline.

Connolly, who introduced the idea of converting foreclosed properties into workforce housing earlier this year, said the county's program could become a national model.

http://www.dqnews.com/News/California/Bay-Area/RRBay080520.aspx

Bay Area home sales edge up in April

Fairfax County is developing a program to allow as many as 100 first-time home buyers to purchase foreclosed houses at cut rates to bolster the county’s affordable-housing efforts and help prevent the region’s mortgage crisis from causing neighborhood decline.

Dubbed the Silver Lining program, county housing officials have proposed spending as much as $6.4 million over two years to help such middle-income professionals as teachers, police officers and firefighters afford the region’s housing.

$6.4 million for 100 houses is $64k per house. So, is the scheme for the county to supply a down payment and the bank to supply a "low" interest rate? Sounds like a damn good deal for the bank.

I presume a bank with a $320k house on the books just needs to find a "Joe HowMuchAMonth" who will take a $256k loan and have the county supply the 20% down payment. Joe gets the house for about $1550/mo P&I, and the bank gets $320k for an asset that may take months to sell even if discounted to $250k. Plus, the county maintains higher tax assessments. and realtors benefit from the higher comp sale price.

Gee, Fairfax, let's keep housing prices unaffordable for those not part of the lucky 100, or anyone else who is waiting for prices to return to sane levels.

nvr,

I think what you said is pretty accurate description of what's being done. I hope there are enough people in the county who can oppose this stupid move.

Interesting read about CDS.

Hedge Funds in Swaps Face Peril With Rising Junk Bond Defaults

The Fed bailout of Bear Stearns on March 17 was motivated, in part, by a desire to keep that sword from falling, says Joseph Mason, a former U.S. Treasury Department economist who's now chair of the banking department at Louisiana State University's E.J. Ourso College of Business.

The Fed was worried about the biggest players in the CDS market, Mason says. "It was a JPMorgan bailout, not a bailout of Bear,'' he says.

sa
excellent link. thanks!

Fannie announced it will now accept mortgages with a loan-to-value (LTV) ratio of up to 97 percent on a primary, single-family residence, even in areas where prices are declining.

"I'm not even sure this makes sense as public policy," says Michael Carliner, an independent housing economist in Potomac, Maryland. "Fannie should be making loans, but the underwriting standards shouldn't be lowered to that extent."

Just think about it: With home prices in a handful of hard- hit areas of California and Florida down 10-15 percent last year, according to data from the Office of Federal Housing Enterprise Oversight, or Ofheo, Fannie's regulator; and with widespread expectations that prices will continue to fall to attract buyers, Fannie Mae is loosening down-payment requirements when a house in these areas could be worth less than its loan value in a matter of months?
...
"We are able to adopt this new, national down-payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely," the company said in a statement.

I wouldn't know model DU Version 7.0 from model DU Version 6.0. It's still a model that uses information about the borrower and the property to determine the viability of a loan. Falling home prices, which can eliminate that 3 percent equity stake in a jiffy, aren't one of the inputs. (Fannie has other models that forecast house prices.)

"One of the biggest issues facing the Gen Xers," observes Pam Hess, director of retirement research at Hewitt Associates and a Gen Xer herself, "is lots of competing priorities, juggling lots of different costs and financial priorities. It will continue to be a struggle."

Consumer debt is one of the main reasons. Nine out of 10 consumers in their 30s are in debt, compared with 76% of those in their 20s, according to the Federal Reserve's Survey of Consumer Finances. In a recent Charles Schwab study of more than 2,000 Gen Xers nationwide, 45% of respondents said they had too much debt to think about saving.

Gen Xers also are the first generation to graduate from college with significant student loan debt. About 20% of adults in their 30s are still paying college loans, according to the Federal Reserve study; the median balance exceeds $13,000. Yet, even as Gen Xers continue to grapple with college debt, experts tell them they need to be putting aside money for retirement, as well as for college savings for their children.

The hard truth is that the housing correction is turning out to be deeper and longer than nearly anyone anticipated. And that's bad news, not just for homeowners and would-be home buyers but for pretty much everyone.
With every month of lower home prices, homeowners see their net worth decline. Potential purchasers are paralyzed by a lack of financing and by the fear that if they buy before the market hits bottom, they will lose money too.
...
Thomas Lawler, a housing economist who runs a consulting firm in Leesburg, Va., noted that in the last housing price correction, which occurred in the early 1990s, it wound up taking prices seven years to drop 20%. Compared with that protracted slump and recovery, he thinks the current free fall in home prices is a good thing.

"Do you want a slow bleed?" Lawler asked. "Wouldn't it be nice to just get it over with? It might be that that's what we're seeing."

While Robert Shiller is normally dead-on when it comes to most aspects of the nation's housing market mess, he makes one critical error in his Sunday op-ed piece in the New York Times.

Dr. Shiller noted, "No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family’s furniture on the sidewalk when it happens. Nonetheless, there is deep trauma."

As noted in the comments section of the last post where a reader left this link to a CNN video report, that does not appear to be the case in Santa Barbara. Unless, of course, there is a meaningful distinction between "sleeping in your car" and "sleeping on the street".
Poor Barbara lost her job in the mortgage business and then lost her place to live. The 67-year old now sleeps in the back of her car in a "women's only" parking lot set up by the city of Santa Barbara and her kids worry.

While it was not clear whether Barbara or the other ladies were former homeowners, there must be at least a few foreclosure stories further south in Ontario where the homeless numbers are growing.

This LA Times report notes the efforts of the City of Ontario to reduce their "tent city" from over 400 to about 170 by allowing Ontario residents only. Surely, some former subprime borrowers populate these ranks.

Bay Area home sales edge up in April

That may be so, but median prices for the overall Bay Area fell $18,000 from March.

Here's the ozajh Bay Area Decline-o-Meter for the current month, using DataQuick numbers.

County Max. Median When Apr08 Median drop from Max.
Alameda 619,000 Aug07 473,750 23.47%
Contra Costa 600,000 Apr07 395,000 34.17%
Marin 961,250 Jun07 800,000 16.78%
Napa 680,500 Jun06 499,000 26.67%
Santa Clara 835,000 May07 750,000 10.18%
San Fransisco 810,000 Apr07 672,500 16.98%
San Mateo 713,500 May07 615,000 13.81%
Solano 490,000 Nov05 319,000 34.80%
Sonoma 582,000 Sep05 414,250 28.82%
Bay Area Total 665,000 Aug07 518,000 22.11%

Hoovervilles in Ontario?

Maybe we are seeing a Great Depression? Its just happening really s l o w l y.

Somce scary links today from Patrick. Some are not very credible, but I think Soros ca be trusted to be pretty accurate (and self serving).

I keep wondering what will be the bellwether event. The market is over-valued given the fundamentals. Will it take some large company collapse? A partial topling of the CDS market? A wave of corporate bond defaults? A wave of municipality bankruptcies (Vallejo being the first).

Hrm.

While it was not clear whether Barbara or the other ladies were former homeowners, there must be at least a few foreclosure stories further south in Ontario where the homeless numbers are growing.

Barbara was a renter. I still maintain that no one in the US has been made homeless by foreclosure. They just go rent the same thing for half as much.

But if you can't even afford rent, well, probably time to move out of Santa Barbara, nearly the most expensive rental market in the US.

In SoCal the big news is a huge jump in sales last month. IMHO there are lots of fence sitters and surprisingly "investors" who still have money/credit. They are jumping in now that banks are bleeding off a few of their REOs. In the areas I watch, every week the banks put a few more REOs on the market at prices that will attract buyers. These, knife catchers aren't thinking about the massive backlog the banks are keeping off the market.

The banks will keep this up through the summer. Then when the selling season ends they will drop the prices even more and bleed off some more of the REO inventory. This strategy allows the banks to step the prices down. Drop the price 30% and unload REOs to those who believe 30% is the bottom, when the 30% crowd is exhausted drop 40%, etc.

Moral = Too eager fence sitters get a knife hole in their hand.

There are sooooo many neighborhoods in Riverside Co. that are full of 2-5 year old houses where every single performing loan is at least $100k under water, most are closer to $200k under. How long are these people going to keep paying? In the areas I watch, every day more people capitulate. Would you keep paying?

The 67-year old now sleeps in the back of her car in a “women’s only” parking lot set up by the city of Santa Barbara and her kids worry.

So why doesn't one of her kids take her in?

This is entertaining, our boy Mozilo committed an oops. Below from Olick at CNBC.

The very idea of blogging this story makes my stomach churn, but there are some things I am simply morally required to do. So here goes.

Now I get all kinds of news releases from Countrywide spammed at me ad nauseum. I didn’t get that one.

So what does everyone think of the sudden increase in sales? Dead cat bounce? It's been mighty quiet here since yesterday...

It is very quiet here, crickets are chirping. Chirp chirp chirp.

And with such juicy goings on, with the DOW tumble and oil spike I think we may be approaching some interesting margin calls. I wonder when plunge protection team jumps in or if they already are. A major card may well drop soon, things are cascading.

Good time Charles hit it on the head with the non news of sales increase in CA. Some pent up demand and frustrated folks finally getting their "deals", a great many factors at play but the a small dent in inventory existing and coming online. There will be knifecatchers all the way down. Hopefully the banks financing these newer suckers are getting their fundamentals and ratios correct and bleeding them dry. Not that I don't wish ill on the ill informed and optimistic, but rather not see any more insolvency pain and tax burden than necessary.

I'd say anything we can do to advocate folks buying homes now is maybe a good thing? Protect the banks and limit taxpayer bailout losses? Murky ethical ground.

Oil/Gold vs FED

I think the undisputed FED now has a actual rival in Oil/Gold. Oil for most part. All the bears can scream of their lungs, can’t get the FED to budge. Now Oil starts to take off and FED is pushed into a corner. don't we love to see how this plays out. Game on..

Patrick,

that woman who lived out of her automobile was a homeowner. In the video, the reporter said, "after losing her condo..."

So instead of Hooverville, we will have Hondaville.

I don't quite understand one thing. She is 67, so that should mean that she can claim SS and enjoy Medicare benefits, and apply for heavily subsidized senior apartments (something like $500-800 one bedder in BA). Is she not aware of the benefits available to her?

There is a http://www.newyorkfed.org/markets/tslf/termseclending_Historical.cfm">$75 billion TSLF auction today. Its a Schedule 2 auction, where they take almost anything. The past couple of auctions have been vastly undersubscribed (bid-to-cover less than 1). Will be interesting to see if this trend continues.
The last TAF action had a bid-to-cover of just over one. Interesting to note that a larger number of banks participated. Stay tuned for the H.4.1 report from the Fed tomorrow.
From Bloomberg:
The difference between three-month Treasury bill yields and the three-month London interbank offered rate, the so-called TED spread, narrowed to 77 basis points, the narrowest since August.

"So what does everyone think of the sudden increase in sales? Dead cat bounce?"

I went to an open house in the Rose Garden area (San Jose) on Saturday. The price was pretty good for the location. The house had just been listed on 5/10 and it sold on Monday.

On the flipside, I visited the Axis project in downtown San Jose. Tons of traffic, but the agent told me they are only 25% sold out and they have been open since November(?). We also visited a condo in San Carlos - the agent said it has been very dead.

Once again, I think it comes down to price and location. And the condo market seems pretty weak. Perhaps people are holding out for a better deal in the hopes of buying a house. Frankly the downtown SJ condos seem incredibly overpriced. Who wants to pay $700k for a 2 bedroom on the 10th floor? We're not talking about SF, this is freaking San Jose.

We are trying to find a "decent" house in the Rose Garden for $750k or less. We were hoping to buy at the end of the year. So far we haven't found anything to our liking in that price range. So we continue to wait. We may have to settle for Garden/Alameda instead. I will give it 18 months max and then probably get off the fence.

Sales are NOT up. They are down YOY. What's the big deal if sales go up MOM at the start of a selling season ? That's as expected.

In any case, we might reach a bottom in sales soon. Sales won't go to zero for the whole BA. So bottom might be near for the volume. This was expected.

The price on the other hand continues to drop. This is what will keep sales from falling all the time. This was expected and is good.

I must admit, that some nice areas are doing fine. Buyers who have cash and have been waiting are definitely tempted and jumping in. It also seems to me that this pool of buyer keeps shrinking every year. So the floor in price may still be further down.

We are looking to buy as well. We have been for some time. It's a battle between the pain of waiting versus the gain of getting an even lower price. If we find something that we terribly like, we will make an offer. Since waiting is still so much more lucrative and prices keep falling (at different rates for different areas) we have no real urgency.

It also seems to me that this pool of buyer keeps shrinking every year.

The sidelines can only hold so many. Home-debtorship is at record highs (for now).

I read a stat somewhere that once all the new construction starts are done and all the REO's up for sale that there will be 400 properties for every qualified buyer. Would very much like to see that backed up.

HARRISBURG, Pa. - An airline pilot was found hiding behind a shed wearing only flip-flops and a wristwatch as a nighttime romp in the woods with a flight attendant ended with both under arrest, police said.

Jeffrey Paul Bradford, 24, and Adrianna Grace Connor, 24, both employees of Pinnacle Airlines Inc., were at a diner on the outskirts of Harrisburg on Sunday night before they apparently decided to walk into the woods, police said.

"They told the officer they wanted to go do it in the woods, essentially," said Lower Swatara Township police Sgt. Richard Brandt. "That's the best answer they had."

The two somehow became separated, and people who live in the neighborhood summoned police around 9:30 p.m., saying they had seen a naked man and an intoxicated woman.

A helicopter with heat-seeking equipment was called in, and Bradford was discovered hiding behind a shed shortly before midnight.

Bradford, of Pittsburgh, was charged with indecent exposure, public drunkenness and other offenses. Connor, of Belleville, Mich., was charged with theft from a motor vehicle, public drunkenness and other offenses; police said she took a flashlight from a neighbor's vehicle.

A spokesman for the Memphis, Tenn., airline said the two were suspended while the company investigates.

The office of District Justice Michael John Smith, where Bradford and Connor were arraigned, said they were not represented by lawyers. Telephone listings for them could not be located by The Associated Press.

I predict a lot of the regular bloggers from the past few years on this site will soon jump off the fence and will be replaced by a new set of fence-sitters. They'll feel that they got a good deal, unless they buy in peninsula. Unfortunately, the economy is going to go in the shitter later this year and there will be better prices to be had a year or two from now. For those who are thinkin of buying in the fortress, I suggest they study the commercial real estate market to see where the trend is. You'd be surprised just how many peninsula companies have signed leases to move some or all of their offices to the East Bay this year.

California Rep. Laura Richardson today denied a published report that her $535,000 Sacramento home had slipped into foreclosure, saying she had renegotiated her loan to keep the home.

The house "... is not in foreclosure and has NOT been seized by the bank," Richardson, a Democrat from Long Beach, said in a statement. "I have worked with my lender to complete a loan modification and have renegotiated the terms of the agreement -- with no special provisions."

Earlier, Capitol Weekly reported that Richardson walked away from the mortgage on her $535,000 Sacramento home, letting the house slip into foreclosure and disrepair less than two years after she bought it with no money down.

"While being elevated to Congress in a 2007 special election, Richardson apparently stopped making payments on her new Sacramento home, and eventually walked away from it, leaving nearly $600,000 in unpaid loans and fees," the publication reported.

Richardson declined to comment for the Capitol Weekly story. Her office issued a written statement Wednesday afternoon.

Capitol Weekly, citing tax records at the Sacramento County assessor's office, reports "... in January 2007, Richardson took out a mortgage for the entire sale price of the house -- $535,000. The mortgage amount was equal to the sale price of the home, meaning she was able to buy the house without a down payment, even though the housing market was beginning to turn. A March 19, 2008 notice of trustee's sale indicates that the unpaid balance of Richardson's loan, which is held by Washington Mutual, is more than $578,000 –- $40,000 more than the original mortgage."

In addition to 100% financing on the home itself, the report quotes the woman who sold the house to Richardson as saying she also gave Richardson $15,000 toward closing costs.

The weekly reports that Richardson's residence quickly became an eyesore, angering neighbors. The report says she recused herself on two key House votes on government efforts to address the foreclosure crisis.

Richardson's statement, however, said she did not recuse herself from those votes, and was instead absent from the House.

===================================

Richardson statement.

CONGRESSWOMAN LAURA RICHARDSON

For Immediate Release
May 21, 2008

The story published in the Capitol Weekly regarding residential property that I own in Sacramento requires clarification.

Within a 12-month period last year (2007-2008), I was a member of Long Beach City Council, the District Director for California Lt. Gov. Cruz Bustamante, a member of the California State Legislature, and, now a member of Congress. While the transitioning has impacted me personally, the residential property in Sacramento California is not in foreclosure and has NOT been seized by the bank.

I have worked with my lender to complete a loan modification and have renegotiated the terms of the agreement -- with no special provisions. I fully intend to fulfill all financial obligations of this property.

On two housing bills that were cited by the Capitol Weekly, the allegation is that I recused myself from these votes. I did not. I was absent from Washington, D.C., and my duties in the House of Representatives due to the untimely death of my father and his subsequent funeral in California.

I understand that these homeownership issues are a reflection of what many Americans are going through as they fight to keep their homes and to remain financially stable.

Fuck me sideways, how's do's I's get's me some of dis guberment cheese?

Peter P. is taking a long pee.

A little off topic:
http://www.ft.com/cms/s/0/0c82561a-2697-11dd-9c95-000077b07658.html?nclick_check=1

Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.

Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.

Sorry, I am in Europe right now...

I don't think I like Paris anymore.

``The American market is a bottomless pit right now,'' said Peter Schiff, president of Darien, Connecticut-based brokerage Euro Pacific Capital, which has more than $1 billion in customer accounts. ``The Fed can't cut rates any more. Oil is $132 a barrel and rising. Any company that collects revenues from American consumers is going to have terrible earnings, and share prices are going to fall.''

By the way, S&P closed yesterday just above an important support level of 1386. Today's session will go a long way towards whether we return to the March lows. If we break below 1386, expect a big unwind.