Here is a bunch of happy talk by three ivory-tower guys, but they never considered the consequences. Preventing foreclosures and pushing down mortgage rates helped to create a safety net that caused buyers to rush back into the market. Prices went up too quickly, trapping homeowners into their existing homes, rather than being able to move up, down, and around. Now only the affluent can afford a house, rents are skyrocketing, and homelessness is running rampant.
Hat tip to daytrip for sending this in:
The subprime mortgage crisis that broke out a decade ago is widely recalled as an uncontrolled and destructive plunge in housing prices. New research suggests, however, that at least one effort to halt the plunge was in fact quite effective. UCLA Anderson’s Stuart Gabriel, the Federal Reserve Board’s Matteo Iacoviello and Copenhagen Business School’s Chandler Lutz found that California’s 2008 anti-foreclosure law prevented the loss of some $470 billion in home value wealth.
The California law, examined against other anti-foreclosure efforts, stands as a potential model for future housing crisis interventions. The researchers found that the passage and implementation of the California Foreclosure Prevention Laws (CFPLs) simply and effectively made foreclosures more difficult and more expensive for lenders to initiate, slowing what could have been a more calamitous spiral in housing prices.
Limiting foreclosures is key to containing a housing panic. If foreclosures go unchecked in a crisis, they can spread. Because foreclosed-on houses are “priced to sell,” the first wave of foreclosures depresses the prices of all homes in the area. Additional borrowers who can’t make their payments then cannot sell without taking a loss, causing a second wave of foreclosures, further depressing prices. And a downward spiral has begun.
A wave of foreclosures seems to also produce a “disamenity effect”: someone who defaults on her mortgage slacks on maintaining the house, and its appearance of disrepair drags down the desirability of the neighborhood.
In some states, the law requires that lenders process foreclosures in state courts. Judicial foreclosure laws result in foreclosures costing much more time and money than they do in states like California, which does not have judicial foreclosure laws. The upside to not having judicial foreclosure laws is efficiency — for both the lenders and the government.
The downside is that, following market shocks, foreclosures are in danger of spiraling out of control, as they seemed to be in California in 2008. In the midst of the crisis, hundreds of thousands of people lost their homes to foreclosure, and it emerged that banks were “robo signing” on the procedural documents: They were pushing foreclosures through at an unreasonable rate, often without justification or authority to do so.
In 2008, California state senator Don Perata of Oakland authored SB-1137, the first of the California Foreclosure Prevention Laws. SB-1137, and the 2009 California Foreclosure Prevention Act after it, both increased the time and the monetary cost of foreclosing on property in California.
“The mortgage crisis is taking a terrible toll on Oakland and the rest of California,” said Perata, as quoted in the SB-1137 analysis. “It is crucial that we give homeowners the tools they need to avoid foreclosure when possible because that’s the best outcome for everybody.” Gabriel, Lutz and Iacoviello’s research suggests these laws saved the state hundreds of billions of dollars.
These stats show how the game has changed forever – there is no down side if banks are so reluctant to foreclose:
10. Distressed property: Too much debt and too many layoffs pushed many homeowners to the financial brink. Owners rushed to sell as bankers hit the market with their repossessed properties. In June 2007, 13 percent of homes sales were either short sales — banks agreeing to take less than owed — or sales of foreclosed properties. That distressed share of selling would become roughly half of the market during the next five years. But by June 2017, that share settled back to just 7 percent. Fortunately, it’s only a history lesson today. The supply of foreclosures to buy has shrunk from 463 in late June a decade ago to only 27 as this year’s summer began.
11: Warning signs: Nothing screams “danger” more than owners skipping house payments. Ponder what lenders were doing in June 2007 vs. this past June. Default notices, a first step in foreclosure: 1,144 then, 310 today. Auction notices, the official threat to sell: 598 then, 213 today. Actual foreclosures: 281 then (and 1,084 in June 2008) vs. 21 today.
For the bubble to ‘pop’, and prices decline, we would need more than a trickle of distressed sellers who need to sell at whatever price the market would bear. A rash of boomer liquidations might happen, but with reverse mortgages being available, they have other options too.
An employee of the Bank of America recently told me that they are not extending any of the loan modifications that have been issued over the years, to which I chuckled.
“What are they going to do, foreclose?”
“Yes” was the response, which got a chortle out of me. After all the taxpayer support and bending of the foreclosure rules, now you’re going to tell people to start making their payments…or else?
Lo and behold, it looks like it, at least for this one example:
This was the house mentioned HERE that had been in foreclosure since 2011. Yesterday, the lender finally foreclosed on the ‘homeowner’ who probably wasn’t making many, if any, payments over the last six years.
Up until now the properties being foreclosed were those that had sufficient equity where the lenders weren’t taking much of a loss. It was good to see the opening bid here come out well below what was owned – though it was all interest accrued from non-payment.
No takers at the trustee sale though, in spite of Property Radar’s guesstimate of value was over $1,600,000, which was way off.
I can’t imagine there being a flood of these after all we’ve been through, and you can bet the eventual list prices of these will be full retail.
But it’s good to see the deadbeats getting challenged.
It’s been well-documented that Ben Bernanke and others told mortgage lenders in 2011 to not do anything to disrupt the economy, which was gov-speak for lay off the foreclosures.
Kamala Harris virtually outlawed foreclosures in California with the Homeowners’ Bill of Rights. Lenders now have to offer a loan modification first to anyone in default, and it seems that you have to really not want your house to get foreclosed these days.
Here’s a borrower who has been in foreclosure since 2011, and by the looks of how the loan balance has risen, the neg-am has been accuring AND they haven’t made a payment. The balance on the first mortgage has gone up $489,860!
I just received notice that the foreclosure process just got CANCELLED too. Either the lender gave him a loan-mod, or they gave up altogether?
The lenders might foreclose if there is enough equity that they won’t lose money. If it’s close, they let it ride, and hope some payments trickle in.
Another entity that had to radically change their business when banks stopped foreclosing was Foreclosure Radar. Their product line has expanded to appeal to the masses, and they’ve kept their market reports coming:
“News of soaring prices amidst weak sales is fueling speculation that the San Francisco Bay Area housing market is a housing bubble about to pop,” said Schnapp. “It’s not a housing bubble. It’s a market dislocation caused largely by government policy.”
“A housing bubble requires both an unwarranted surge in prices followed by a massive selloff,” said Schnapp. “Today’s high prices are due to a combination of factors. Demand is being fueled by market stimulus in the form plentiful jobs and government-backed low-interest, below market rate loans that require little down. Supply constraints are coming from burdensome regulations on new building.
A massive selloff — a housing bubble bursting — is unlikely because a regulatory change in 2009 means that even if consumers default on their loans, banks will now sit on inventory rather than foreclose and sell like they did in 2008.”
“California’s housing problem boils down to bad government policy. Local, state and federal housing regulations have made it all but impossible for builders to meet housing demand in California’s growing economy,” said Schnapp. “Conceptually the solutions to California’s affordability crisis are simple, but politicallywe should expect the current situation to continue for the foreseeable future.”
The latest foreclosure numbers are out, and we’re down to less than 1% of all mortgages being in foreclosure:
The national foreclosure inventory – the number of loans in the foreclosure process – fell 29.6 percent year over year in August 2016, according to the latest CoreLogic Foreclosure Report. The foreclosure inventory has fallen on a year-over-year basis every month since November 2011 (Figure 1), and in August 2016 it was 77.5 percent below the January 2011 peak.
The foreclosure rate – the share of all loans in the foreclosure process – fell to 0.9 percent in August 2016, down from 1.3 percent in August 2015. While the foreclosure rate is back to 2007 levels, it is still above the pre-housing-crisis average foreclosure rate of 0.6 percent between 2000 and 2006.
But it still bugs me that NONE of the national real estate players or national media ever questions how or why foreclosures stopped. After 2+ years of 60% or more growth of foreclosures AND serious delinquencies, all of a sudden BOTH dropped off a cliff at the end of 2009.
Our federal government and the banking industry obviously conspired to stem the losses, and then funded community activist groups who buy mortgages at a discount. Here is an example:
Nevada’s distressed home loans are still caught in economic quicksand, but not for lack of trying to combat banker haste with consumer-oriented ideas. The National Council of La Raza (NCLR), for example, has invested significant donor funds in efforts to bail out underwater borrowers when banks won’t negotiate fairly.
“You want to keep families in place if possible, so foreclosure is the absolute last choice that we want, if we’re involved in the transaction,” NCLR Vice President for Housing and Community Development Lot Diaz told ThinkProgress.
Diaz’s colleagues at an affiliated non-profit called Hogar Hispano purchase distressed mortgages and then return the homes to the owners at a fair market price that restores their chances of building up equity in the property. Hogar Hispano did 463 of these distressed debt acquisitions in 2013 alone, and saw a favorable outcome for the original homeowner in 316 of those cases.
Hogar Hispano also buys up houses that have already been taken over by the bank, known as REO properties, and then finds a buyer for them or converts them into rental units targeted at low- and moderate-income families. The group says its REO work has created close to 900 new homeowners and turned bank-owned homes into occupied housing more than 1,100 times, in Nevada and elsewhere. (LINK)
The whole mess just got swept under the carpet, which gave the insiders a fantastic opportunity to profit! What a country!
LAS VEGAS — On a drive through this desert city, the blight from the housing collapse of eight years ago can be seen on almost every block: Overgrown yards and boarded-up windows identify the foreclosed and abandoned homes that still pockmark southern Nevada.
But not all of the dwellings are empty.
Squatters have descended on every corner of the Las Vegas Valley, taking over empty houses in struggling working-class neighborhoods, in upscale planned communities like Summerlin, and everywhere in between. And they often bring a trail of crime with them.
While some unauthorized tenants are families seeking shelter, police officers here say they are more frequently finding chop shops, drug dealers and counterfeiters operating out of foreclosed homes. One man who the police say was squatting has been charged with murdering a neighbor during a burglary.
But with a transient population of down-and-out gamblers and a glut of homes that have already been foreclosed, opportunists can still take their pick of thousands of empty houses. Inside one, squatters had scrawled a warning to stay away on a wall: “Violent tweekers on guard.”
In North Las Vegas, Deborah Lewis has seen just about every kind of squatter at the house next door since the owners walked away four years ago.
First, two women said they had just bought the middle-class home, but they stole water from the neighbors’ outdoor spigots at night, because like most abandoned homes this one had no running water. Then came a group of counterfeiters, who left their printing materials visible from the window, Ms. Lewis said. Later groups tore out the stove, refrigerator and copper wire; broke windows; and burned the kitchen floor. Since water at the house had been shut off, they left feces all over one room, a common problem that creates health hazards. (For electricity, those who can afford it can set up accounts with the power company; those who cannot often run wires to nearby utility boxes.)
“It’s been a total circus — you name it, we’ve had it next door,” Ms. Lewis, 58, said. “It’s scary, because you don’t know if these people are packing. One guy came over here, and he was looking in our window. Scary.”
But squatters are getting creative as well. Some repair broken windows and other damage from past squatters, pretending they own the place, neighbors say. At least one group of alleged squatters filed a federal lawsuit in an attempt to keep possession of the $800,000 home in the hills they were occupying, with its pool and views overlooking the Strip. (Repeated calls and knocks on the door at that house went unanswered, even though four people were visible in the living room. The police raided the house and arrested four people on Wednesday.)
In North Las Vegas, Officer Scott Vaughn has investigated 80 squatting cases so far this year, and said he had seen everything: prostitution rings; teenagers using vacant homes for parties; and even a squatter who tried to pull a Jedi mind trick.
“He was staring at me and telling me, ‘You don’t want to arrest me. You want to let me go,’” Officer Vaughn said. “I said, ‘The Force is not on your side today. You’re going to jail.’”
He claimed that I said Yes, because of my post about it being a great time to buy if you’re selling a cheaper home and buying a more-expensive home. It’s because the higher you go price-wise, the colder the market gets. Fred said it is a good time to buy as long as you don’t plan to move in the next five years.
It’s a question that deserves a full answer, not just yes or no.
The most common blog chatter is that history always repeats itself, and it will just be a matter of time before this cycle runs out.
The economic cycle will sputter again, but the housing market is different now.
Because distressed sales are well-managed.
The California Homeowner Bill of Rights mandates that loan modifications be dangled in front of anyone in trouble. The foreclosure process gets drawn out for months and years so we’ll never see a flood of trustee sales again.
As a result, making your mortgage payments has become optional.
If we have another economic downturn where homeowners can’t pay, then the government will insist that lenders give them a break. The cast was set in the last crisis – the government will create bailout programs that allow everyone to kick the can down the road.
With distressed sales few and far between, the vast majority of home sales will be elective. Sellers with the mantra – “I don’t have to sell, I’m in no hurry, and I’m not going to give it away!”
Prices will maintain a tight range of +/-5%, because the minute a seller thinks he is being forced to ‘give it away’, he will object. Different neighborhoods will have periods of stall-out, where few or no buyers will pay what sellers want, and real estate loitering will be common.
But days of drastic price dips are gone.
The other buffers to a housing downturn include reverse mortgages, rampant flipper business, and baby-boomer estate distributions.
If today’s buyers have assurances of pricing protection, is it a good time to buy? Well, yes, if that’s all that matters.
But for most, it is a terrible time to be a buyer, which is different.
If you are on the low-end of your market, you can forget about buying your “dream house”. The competition is fierce, and compromise required – if you can even get your hands on something.
My listing at 2022 Cherokee in Escondido – the one priced at $549,000? We had six offers, and four of them were all-cash. All were at list price or higher.
It was viewed 3,198 times on Zillow since Friday, and I received 100+ phone calls and texts from agents. I had over 200 people visit the open house on Sunday, and it was probably shown at least 50 times between Monday and Wednesday.
Almost all of the lookers didn’t offer, so they will be competing against each other on the next one – literally hundreds of buyers floating from new listing to new listing, hoping for a miracle.
Was it a giveaway? Agent comments included, “Price was fair and reasonable’, and ‘The defects were properly discounted’ (defects included no direct access from house to backyard, master suite downstairs and kids’ bedrooms up, and it backs to the I-15 freeway – the rear fence was the CalTrans chainlink).
Buyers have to endure bidding wars on anything decent, no rules about how to win, and shady realtor tricks that seem to favor insiders. Buyers are quick to jump to that conclusion, but it is more due to a realtor’s incompetence that bidding wars are vague and hard to win.
If you can get a house into escrow, it almost always happens that it’s condition is worse than imagined. But sellers are in the driver’s seat, and do little or nothing to assist. Buyers usually end up feeling like they are buying an over-priced turd.
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