Cancer?

Las Vegas 1972 - 2010 by NASA/LandSat

Real estate is still bottoming

Well, thank god the real estate market mayhem has been contained and is now behind us.

Right?

US Home Prices Fall In 75% Of Metro Areas

The median price for previously occupied homes sold in the July-September quarter fell compared with last year in 111 out of 150 areas tracked by the National Association of Realtors, the trade group said Wednesday. Prices rose in 39 metro areas.

The results were roughly even with the second quarter, in which median prices fell in 109 out of 151 cities tracked by the real estate trade association. The national median price for single-family homes sold in the third quarter was $ 169,500, down 4.7% from the same quarter a year earlier.

"Home sales need to recover first, only then can prices stabilize," said Lawrence Yun, the Realtors' chief economist, in a statement.

Seems about right to Guambat. Now there's an economist worth his salt.

On a related note ....:

How a Financial Pro Lost His House

More on the ball and chain of title

In Guambat's prior post, he probably overly laid out the current confusion in the mortgage world. It's a complex web of financial, political, housing and legal issues. At its base are the legal issues, at least in the current climate: it could grow into a rather nasty financial and political one.

David Reilly, in the WSJ Heard on the Street column, sums up the legal issues simply enough:

U.S. Banks Get Boxed In on Foreclosures

What is the foreclosure problem?

"Is there a question about who owns things?" said Christopher Peterson, a law professor at the University of Utah who has studied securitization and mortgage-title issues. "If you don't think so, you're kidding yourself."

In some cases, as part of foreclosure proceedings, banks submitted affidavits that were flawed. That could be an administrative issue. However, consider that the affidavits often were submitted in place of promissory notes that cover the actual debt. It is possible the promissory notes, in some cases, actually were mislaid or destroyed as lenders tried to keep pace with the frenzied housing boom.

While that wouldn't in itself negate a mortgage claim, it could mean the bank needs more documentation to proceed with a foreclosure. Given sometimes haphazard record keeping, even that may not be possible in some cases. At the least, such problems give attorneys representing homeowners more chances to contest and lengthen foreclosure proceedings. At worst, they can freeze them altogether.

Meanwhile, legal issues are swirling around the role of a company known as Mortgage Electronic Registration Systems, or MERS. It played a key role in the mortgage boom, helping firms package and sell mortgages without having to record each transaction with county offices.

This was done by showing MERS as the holder of the mortgage, something that confers the right to foreclose and seize the underlying property, even as the promissory note was transferred to third-party investors.

The trouble is that MERS's legal standing has been questioned because it doesn't also own the actual debt; traditionally, the mortgage and note weren't split between different parties. Top courts in four states have said MERS can't foreclose.

Again, that raises the prospect of higher legal fees for banks, or worse. It isn't clear who is on the hook for these extra costs: banks or the investors in mortgage-backed securities they represent through their servicing arms.

Also, is it possible that securitization trusts may find they have provisions to put back more bad loans to the banks because of such problems with the documentation.

Guambat notes another issue: professional legal liability and ethical violations.

California, and perhaps elsewhere, has seen an number of lawyers booted out of the profession in so-called mortgage relief mills. The usual interface between the legal liabilities and legal rights of banks and mortgagors is the legal profession.

Many of the lost documents, fraudulent affidavits and other issues arose inside legal offices. See, for instance, this article, with a surprising (to Guambat) Guam connection:

Ex-employee says foreclosure firm forged signatures

If the law firms and lawyers who are doing some of the flawed things that seem to be happening get drawn into professional negligence claims and professional responsibility actions taken by Bar Associations, there will be a further grinding to a halt as these people are the only ones who should be in a position to know where the bodies lie, and the documentation which may be needed in one action gets tied up in another.

As they defend their own arses, they will have little desire to help out the rest of the players in this drama.

Sorta like Watergate.


FURTHER READING:

Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

Barry Ritholtz writz:

The Rule of Law is Sacrosanct: Our system of private property has developed due to the rule of law. The ability to demonstrate ownership, pass clear title, resolve disputes has worked for 100s of years. The recent frauds we have seen from law firms, process servers, bank legal departments, even drive through RE courts has put the nation at risk of becoming a lawless banana republic.

There is only one solution to this threat: For the rule of law to be in force, those people who violate it — previously known as “criminals” — must suffer the painful consequence of their illegal actions.

If you falsified documents that where used in foreclosures, you must be prosecuted for criminal fraud. If your firm’s primary purpose was this illegal activity, it must be put down. This means loss of professional licenses, corporate death penalties and jail time for offender . There is no deterrent to criminality of there are no significant penalties.

Realty reality

Guambat wonders, as he waddles about, whether the housing glass is half empty or empty.

Home Sales in U.S. Probably Rose in Sign Real Estate Market Is Stabilizing

Purchases of new and previously owned homes rose 7 percent to a combined 4.395 million annual pace, according to the median forecast in a Bloomberg News survey.

The 7.1 percent gain would follow the record 27 percent plunge in July.

“Housing is in a fragile bottoming process,” said Aaron Smith, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. The projected gains in home sales and durable goods are “consistent with stabilizing growth, albeit at a slower” pace than earlier this year, he said.

U.S. Home Seizures Reach Record for Third Time in Five Months

Bank repossessions climbed 25 percent from a year earlier to 95,364, the most since the Irvine, California-based data provider began keeping records in 2005.

“We’re on track for a record year for homes in foreclosure and repossessions,” Rick Sharga, RealtyTrac’s senior vice president, said in a telephone interview. “There is no improvement in the underlying economic conditions.”

Foreclosures are contributing to a growing housing supply that may add as many as 12 million homes to the U.S. market.

U.S. Home Prices Face 3-Year Drop as Inventory Surge Looms

The slide in U.S. home prices may have another three years to go as sellers add as many as 12 million more properties to the market.

Shadow inventory -- the supply of homes in default or foreclosure that may be offered for sale -- is preventing prices from bottoming after a 28 percent plunge from 2006, according to analysts from Moody’s Analytics Inc., Fannie Mae, Morgan Stanley and Barclays Plc. Those properties are in addition to houses that are vacant or that may soon be put on the market by owners.

“Whether it’s the sidelined, shadow or current inventory, the issue is there’s more supply than demand,” said Oliver Chang, a U.S. housing strategist with Morgan Stanley in San Francisco. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2 percent a year.”

Early recovery foreclosed in some parts

Ohio foreclosures spike in 1Q

A surge in lender filings last month helped send first-quarter foreclosures up 5 percent in Ohio as bank repossessions nationwide hit their highest point in at least a half-decade, according to a Thursday report from RealtyTrac Inc.

Irvine, Calif.-based RealtyTrac, which compiles and sells foreclosure data, said Ohio logged 15,041 default notices, 7,543 auction notices and 10,637 bank repossessions in the first three months of the year. While up 5 percent from the same period in 2009, it was a 12 percent jump from the fourth quarter of last year.

Foreclosure rate drops but crisis not over yet

The number of New Jersey homeowners in various stages of the foreclosure process dropped in the first quarter of the new year — yet was still higher than in the same period in 2009.

Foreclosure Flood Waters Are Still Rising Fast

The dam is bursting on foreclosures. New data out today shows that the number of homes repossessed by banks has hit a record high.

REOs, as they’re called in the trade, rose nine percent in the first quarter compared to the previous one, according to housing industry research firm RealtyTrac. Home seizures are up 35 percent from the year-ago quarter.

RELATED: Unemployment rises in 24 states

Jobless rates in California, Florida, Nevada and Georgia all set record highs during March.

North Dakota continued to have the lowest jobless rate in March. The state's 4% rate was followed by South Dakota's 4.8% and Nebraska's 5% unemployment rates.

Today's foreclosure news, via Google News aggregator

These three items appeared, one after the other, in Guambat's Google News page, spanning the full spread of the 50 States (but not Territories) of the US.

972 Foreclosure Filings in Hawaii in February

Dayton-area foreclosure filings down 30%

Hard for local housing prices to defy the downward pull of foreclosures (Florida)

It's interesting to compare the Hawaii and Dayton stories. The Hawaii story says,

The figure reported Thursday by foreclosure listing firm RealtyTrac represents an 81 percent increase over 537 filings in February 2009.

That story goes on to mention the other statistic mentioned in the report, but highlighted in this Pacific Business News story:

Hawaii foreclosures down 25%

The number of foreclosures in Hawaii fell 25 percent in February from the month before, though filings were up significantly year-over-year, evidence that residents are still struggling to make ends meet.

The Dayton story takes the Pacific News approach: accent the positive --

The number of foreclosure filings in the Dayton area dropped in February, but remained higher than a year ago.

There were 995 foreclosure filings in the Dayton Metropolitan Statistical Area in February, down 30 percent from 1,420 in January, but up more than 41 percent from the 702 in February 2009, according to RealtyTrac.

With spin like that, Guambat wonders how many of those Dayton properties have "ocean views".

By the bye, if you're wondering about the Florida story but too lazy to click the link, the gist of it is,

Speed up the foreclosure process? Be careful what you wish for.

As everyone who buys winter parkas in May knows, when a trickle of buyers meets a gusher of sellers prices take a pounding.

But the story is actually much more interesting than that, so go click and read. Looks like another round of "consolidation" in the real estate market.

Napa Valley Terroirists Caught in Crush

Vineyard Defaults Surge as Bargain Wines Hurt Napa

Napa land values, the highest among U.S. wine regions, are based on wine appellation, or a property’s geographical boundary, and soil quality, according to Correia, the appraiser.

As many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to Silicon Valley Bank.

[Guambat presumes this refers to the Silicon Valley in the SF Bay Peninsula, and not the plastic surgeon district in LA.]

“We have 250 vintner clients saying this downturn is the worst in 20 years,” Bill Stevens, manager of the bank’s wine division in St. Helena, California, said in an interview. “Anybody who was late to the party won’t have staying power.”

[This may have a ring of familiarity about it to those who were there 20 years ago. The wine flowed like blood.]

Land values in Napa, home to about 400 producers, have fallen 15 percent from the 2007 peak

Napa winery and vineyard loan defaults rose fourfold to 18 in the year through January, according to San Diego-based research firm MDA DataQuick.

The dollar value of U.S. retail wine sales dropped 3.3 percent to $29 billion in 2009 after rising every year and almost tripling from 1991 through 2008, according to Gomberg, Fredrikson & Associates in Woodside, California. Though consumption increased 1.9 percent to 323 million cases last year, people are buying less expensive labels, the industry consultant said in a March 5 report.

Sales of super-premium bottles priced more than $15 declined 10 percent last year, and those over $30, defined as ultra-premium, fell at least 15 percent, according to Rabobank Nederland NV

“No more is it about stocking wine cellars with 5,000 bottles of Screaming Eagle,” said Bacchus Capital’s Kaufman, referring to a Napa “cult cabernet” that can sell for $750 or more a bottle. “High-rollers are discovering that there are lots of drinkable $20 to $40 bottles of wine.”

[Guambat got a good case of the screaming eagles last time he saw a 20$ bottle of wine. Shoulda got a couple of cases while he was at it.]

Mortgage defaults will also hit Napa residential parcels owned by hobbyists, or those who intend to produce 100 to 300 cases a year, said Deborah Steinthal, principal of Scion Advisors. In October, the Napa-based consultants forecast that “hundreds of properties will go into foreclosure.”

That’s the scenario facing Sandra Sutherland, who bought a four-bedroom house and more than seven acres of chardonnay, merlot and pinot noir grapes for $2 million in 2005. She and her business partner haven’t made loan payments to Charlotte, North Carolina-based Bank of America Corp. since January 2009.

Still walking away

In a story that began at least two years ago, from the retail crowd anyway, the debate continues about those willing to walk away from their submerged mortgages.

In the latest WSJ article on the subject, the action was characterized as the Debtor's Dilemma: Pay the Mortgage or Walk Away . It summarizes the story with:

In Down Real-Estate Market, Homeowners Are Deciding to Abandon Their Loan Obligations Even if They Can Afford the Payments

A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a "strategic default," walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay -- and weren't deceived by the lender about the nature of the loan -- have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to walk away from such commitments, he says.

Steve Waldman's most recent two posts visit the debate in his worthy Interfluidity blog, here and here.

His take in Strategic default and the duty to shareholders:

Businesses walk away from contracts all the time, whenever the benefits of doing so exceed the costs under the terms by which they are bound. McArdle is certainly right to point out that companies frequently honor costly bargains they could get away with breaking, because their reputations would be harmed by walking away. But, reputational costs are economic costs. They are a part of the cost/benefit analysis that firms use in making decisions. It is not virtue that binds them to keep their word, but medium-term self-interest. Similarly, homeowners consider the hit to their credit rating and potential loss of social standing prior to walking away.

The question is whether debtors should keep paying off loans simply because it is the “right thing to do”, even when, taking all financial and non-financial costs into account, they would be better off reneging. A human being can choose to be “upright” in this way, if she wants. But under the prevailing norms of business, managers of all but the smallest firms can not so choose.

In practical terms, exhortations to individuals that cannot apply to firms leave us with what Felix Salmon aptly describes as “the world’s largest guilt trip“:

The result is a system tilted enormously in favor of institutional lenders who exist in a world of morality-free contracts, and who conspire to lay the world’s largest-ever guilt trip on any borrower who might think about joining them in that world. It’s asymmetrical, it’s unfair… no one would expect a capitalist company to behave in the way that individuals are being told to behave…

And that debate must be made in the context of real life examples, like this one, Morgan Stanley to Give Up 5 San Francisco Towers Bought at Peak (h/t Barry):

Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.”

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet big on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities.

Freshly squozen

"Perhaps banks should go back to giving away toasters.
Rising short-term interest rates, and the failure of long-term rates to rise with them, have caused margins at federally-insured banks and thrifts to shrink to their lowest level in 15 years, the Federal Deposit Insurance Corp. said on Thursday.
Margins are now the lowest since the third quarter of 1990, when the U.S. economy was in recession.
Large institutions are feeling more pain because they rely more on short-term borrowings for funding, the FDIC said." http://today.reuters.com/investing/financeArticle.aspx?type=fundsNews2&storyID=URI:urn:newsml:reuters.com:20050825:MTFH08690_2005-08-25_20-11-15_N25339356:1

So the banks turn to the real estate market for a fix:

"Lenders 'will do almost anything possible to keep the mortgage factories humming,' wrote CreditSights Inc. analyst David Hendler in June. 'The catch here is that the deep-discount mortgages entice more customers today who may not be able to handle the much higher mortgage payments later.'"
http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nN25602097