Just this morning I find myself wanting to rail on the Obama administration’s latest efforts to support housing when past efforts have been such enormous disasters.

How enormous? I cannot help myself……. Well, as the FT highlighted the other day in writing, Foreclosure Prevention Plan Has Limited Impact:

The White House has rolled out programmes to forgive borrowers’ second liens and give unemployed homeowners a months-long forbearance from payments while they look for a new job.

It has even tried to entice lenders to reduce loan principal in exchange for being protected from losses due to default by allowing borrowers to refinance into a cheaper mortgage backed by the US Federal Housing Administration (FHA). Two years later, the FHA programme has helped only 646 borrowers….

646 borrowers….heh? Is that a misprint? Nope!!

None other than the Special Inspector General of the Troubled Asset Relief Program was the source for that figure highlighted by the FT. That is Uncle Sam at work. How great!!

Why and how does something like that happen and why are we supposed to believe that Obama’s “new and improved” housing plan might work? Don’t hold your breath.

What does Josh Rosner, co-author of Reckless Endangerment and managing director at Graham Fisher have to say about Obama’s new housing initiative?

“The structure suggests [administration officials] don’t really want it to work. They just want it to look like they’re doing something.”

Fairly easy to be cynical, don’t you think?

Per Bloomberg, Bank of America's retail channel has been unable to keep up with demand for borrowers wanting to refinance, thanks in part to HARP Phase II, which is beginning to roll out. Per the article, borrowers are being placed on a 90 day waiting list. "Bank of America is telling some customers who call during high volume periods of the day to make a reservation. And once they do that, it could take anywhere from 60 to 90 days just to hear back. Even then, it's unclear how much longer it will take to apply for a refinance, get the loan underwritten, and finally get it funded." And don't forget that it stopped offering cash out refinances last month so if borrowers want to tap their home equity, they'll either have to try a HELOC or go elsewhere. 

I'm told by some clients I advised personally to go direct - for certain unique situations - that they are still waiting and this is well over six months already. If you have a BOA mortgage (formerly Countrywide) and need a quick closing 30 days in most cases contact me direct and I'll advise you if we can do it sooner. Those going direct to retail branches don't always realize that the wait is minimum 3 months and by that time mortgage rates can rise and they are NOT protected from that fact at all - contrary to what the local sales folks will try to pitch. This is besides all the red tape common in the big name banks when going direct i.e. retail.

Steve Emory wrote, "I would hope that members of the industry quit going along with the mass media lies about the mortgage industry. No servicer tells a borrower to quit making their payments. This is almost an urban legend it gets so much press. Most servicers record calls with borrowers that call customer service lines. But assume somehow they avoided the subpoenas to get the recording, certainly with the volume of borrowers claiming this has happened to them there would be validated borrower recordings with proof of this practice. I've heard none and you have to know NBC, ABC, CBS, Huffington Post, etc. would plaster the airwaves with one if they had it. Sure there may be a few off the reservation ones but I haven't even heard a recording of one of these. Not one document in writing either. The press should know telling a borrower you can only process a modification for someone behind on payments, is not the same as telling the borrower to get behind on payments. A depressed homeowner may spin/twist that statement in that manner, but that is personal responsibility associated with a human tragedy, not servicer liability nor big banks/Wall Street's fault. The press should quit writing these allegations unless they have back-up proof. This lie, along with the lies of "banks want to foreclose" and "just lower the principal on all underwater homes to fix the housing crisis" are leading the uninformed distressed borrowers to conclusions that are harming those very borrowers. It helps progressive legislators pass laws that harm the financial services industry, which tighten lending standards beyond reason. It is harming people that otherwise would make their payments. It is demonizing lenders unfairly and tightens lending, which lowers the number of borrowers that qualify, which lowers home values further. It is a downward spiral that must stop before housing will recover."

Hmm overall I agree with the entire statement other than the fact that many many loan officers and salespeople did indeed convey the fact that in order to get a lower rate or bail-out one does need to stop/have stopped making payments. You can play with the words until one is blue in the face but they did screw up here.  

Rates are at record lows, and prices are at or below rental parity in most markets, yet demand is low and sales volumes are weak. Most real estate shills blame intransigent buyers. Many realtors believe legions of buyers are fence-sitting due to falling prices. In their world, if buyers could just be cajoled into buying, everything would be okay.

The main reason buyers aren’t buying is because they can’t. The buyer pool has been depleted by the recession. Fewer buyers qualify for loans because they have bad credit from excessive debt loads or a recent foreclosure or short sale. Plus, few people have the requisite down payments to buy a house at California prices. Prices are now affordable on a monthly payment basis, but until people go back to work, repair their credit, and form new households, demand will remain weak. Further, since the collapse of prices has wiped out so much equity, there is no viable move-up market. This will be a drag on high-end pricing for many more years. Expect to see high-end prices languish even after the bottom tier of the market finds stability.

We are in the early stages of the foreclosure liquidations. The month-to-month changes in foreclosure processing don’t mean much. Lenders have been managing foreclosures to match the rate of MLS liquidations for the last two and a half years. This is evidenced by the disconnect between mortgage delinquency rates and foreclosure rates. We won’t see a sustained drop in foreclosure activity until we get rid of the backlog of shadow inventory. That could potentially take years. Lenders and the GSEs are approaching private equity firms to buy and rent their REOs because they have so many of them.

Buyers cannot buy because they lack the credit scores, the income, and the down payment to buy at these prices. The problem in housing is a deep structural problem, not a psychological one. There are some buyers waiting out the price drop to see if they can get a better deal, but not so many as to impact the market. The real weakness in the market is caused by a depleted buyer pool and an excess of inventory. Those two problems will persist for several more years.

What, exactly, qualifies a person as "rich"?  It depends who you are - here in the States the wealth of the top 1% is about 225 times greater than that of the typical family, compared to 125 times in 1962, and the cumulative wealth of the Forbes 400 was $1.54 trillion, equal to worth of the bottom half of American families.  Household net worth has been falling, and a recent Gallup poll states that the median income to be considered "rich" is $150,000 a year, up from the $120,000 that qualified a person as rich in 2003.  Amongst different demographics, however, what makes one "rich" is relative.  About 15% of respondents said it would take $1 million a year or more to fall into that category, but three in 10 say that they'd qualify as prosperous even pulling in less than six figures.  About half of Americans believe that affluence equates to at least $1 million in net worth.  Men, as well as people younger than 50, said they need more than $150,000/year before calling themselves rich; for women and older people, $100,000.  For college graduates, households with children under age 18 and residents in cities and suburbs, it's $200,000 a year to categorize themselves as well off-double the amount stated by non-graduates, those without young children and people living in small towns or rural areas.

In a week where a "landmark" forclosure-abuse lawsuit finally came to a close, mortgage rates held close to record low levels. One happenstance is good for potential homebuyers, the other not so much. Inasmuch as $25 billion in penalties for perceived wrongdoing must be paid, and the money ultimately must come from somewhere, we can only be left to conclude that the cost of mortgages will eventually be higher than it would be absent the settlement.

Mortgage rates do remain a positive force for the housing market, though.

And what of the foreclosure and loan servicing "abuse" settlement, which ran longer than for longer than a year, with tens or possibly even hundreds of millions in legal costs? Well, homeowners who weren't directly subject to any kind of foreclosure abuse might be able to get as much as $20,000 chopped off their loan balance, if they are in trouble or in danger of becoming so and if their loan is not a GSE or FHA-backed model. That's expected to eat up maybe $17-$20 billion of the settlement, while another three to $5B is expected to be distributed in the form of checks to up to perhaps 750,000 folks who lost their homes to foreclosure between 2008 and 2011. Other funds will provide some refinance opportunities for certain borrowers, and most of the rest will go to states for foreclosure prevention programs and such.

While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little. When the suit was first raised last year, we believed then as we do now that parties who were actually "abused" by servicers or during the foreclosure process -- and especially any who wrongfully lost their homes -- should have full redress under the terms of the law. That said, where are the borrowers who were making payments per the terms of their contracts whose homes were taken from them? If they exist, what is $2,000 to them? Conversely, why should a borrower who lost their home to foreclosure for failing to make payments (sometimes for years) be eligible for compensation at all? Does the fact that a human did or did not fully review the paperwork during the foreclosure process change that simple fact? It does not.

Principal reductions are all well and good, but they are being offered to folks who haven't been "abused" by the system per se, but are as much victims of the downturn as anyone else who owns a home. That said, if the house is underwater by perhaps $50,000 (a working figure, according to CoreLogic), the homeowner will remain underwater for many years yet to come. Although it does move the needle closer to zero for some, it fails to solve the problem. Also, if the loan isn't re-amortized after the principal reduction (that is, if the $20,000 is simply treated as a one-time prepayment), there will be zero effect on the borrower's monthly payment, which is stipulated in the loan contract. Rather, the value will come in total interest savings from shortening the loan term. That's great, but is not immediate relief of any sort. It would, however, change the mix of principal and interest due in a borrower's payment, moving them toward solvency at a slightly accelerated pace.

Reforming poor practices is a must; penalties for violating either the spirit or even the letter of the law aren't. These costs are borne by all of us at some point, in costs built in to future banking and borrowing services. Considering the $150B already pushed through Fannie and Freddie, tens or hundreds of billions in various other housing programs and TARP programs, we can't help but ask: If this is the best possible outcome, why didn't we (the taxpayers) simply write a check a year ago, and then bill the banks for the tab over time in the form of a levy? To gather and redistribute funds for perceived wrongdoings -- and to do so to parties who might not have even been injured -- seems to us wrongheaded, somehow. Worse, it does nothing to cure the market's ills of sliding home prices and weak demand.

For reasons hard to discern, we seem more intent upon trying to penalize the issues of the past than trying to solve the issues of today. We'd argue that the $25 billion (or more) would better have been used to help promote homebuying. Given how many properties are now going to be dumped into the market as the foreclosure disposition process comes back up to speed, fueling homebuying by whatever means possible should be a priority.

As we move slowly away from the crash of the housing market, it's of course natural to want vengeance for wrongdoing and to lash out at whatever the closest party might be. "Victims" of virtually every sort can be found if one looks hard enough, but untangling the thorny mess which produced the market collapse to find a responsible party who can be forced to pay damages is harder. It took decades of good intentions (and perhaps some bad ones) to build the mess we have today, and the parties involved range from regulators and politicians at the top to people flipping homes for profit at the bottom and everything in between. Good or bad, the settlement is done. More lawsuits are likely to follow, with mortgage-backed securities up next. More costs to be passed along, more effort expended addressing yesterday's problems, and less on today's troubles.

Mortgage rates are holding pretty steady at very favorable levels. A larger batch of economic data is due next week, including the latest from the National Association of Homebuilders and data on housing starts. The new home market has been showing some signs of enthusiasm over the last couple of months, and it seems likely that this gradual improvement will continue. Minutes from the last Federal Reserve meeting are also due and should prove interesting, given the new communications and policy direction they started last month. There will be inflation news, retail sales for January and more.

We thought rates would tick a little higher this week and they did. That might again be the case next week, just enough to again keep us a whisker or two above record lows.  

Ever since I was a child, I've always had a fear of someone under my bed at night.  So, I went to a shrink and told him, "I've got problems. Every time I go to bed I think there's somebody under it. I'm scared. I think I'm going crazy."
"Just put yourself in my hands for one year," said the shrink. "Come talk to me three times a week and we should be able to get rid of those fears."
"How much do you charge?"

"Eighty dollars per visit," replied the doctor.

"I'll think about it," I said.
Six months later, I met the doctor on the street. "Why didn't you come to see me about those fears you were having?" he asked.

"Well, eighty bucks a visit three times a week for a year is an awful lot of money! A bartender cured me for $10. I was so happy to have saved all that money that I bought me a new pickup!"
"Is that so!" he said with a bit of an attitude.  "And how, may I ask, did a bartender cure you?"
"He told me to cut the legs off the bed! There's nobody under there now!"