Shadow housing inventory climbs 55% to 1.7 million

Bloomberg is reporting that housing Shadow inventory because of foreclosure and delinquency climbed about 55 percent to 1.7 million at the end of September. This is no surprise as the HAMP modification efforts begin to fail and go into foreclosure as well as foreclosure moratoriums beginning to expire. 2010 should see an overall increase of foreclosures than in 2009.

75 Billion dollars to modify 31,000 mortgages

Another foolish plan and another miserable failure. Barack Obama’s 75 Billion HAMP (Home affordability Modification program numbers have come out and they are dismal.

1,032,837 were offered modifications. But only 759,058 modifications were started. That means more than 400,000 homeowners did not even bother to take part in the modification program because they are so far underwater on their mortgage and have negative equity that it is far better to just walk away.

Of the 759,058 trial modifications started 697,026 are still in the 3 month trial period but less than half of those have even submitted the paperwork. Why, because most of these were liar loans with no documentation or statements of income. To date only 31,382 trial modifications are now permanent out of 1,032,837 mortgages. You can expect to see an increase in foreclosures n 2010 and housing prices to start heading back down.

Barney Frank wants to pay mortgages for the unemployed

 

Just when you think Barney Frank couldn’t possibly come up with another ridiculous plan to waste taxpayers money he does. Now Barney Frank wants to use TARP money to loan to unemployed homeowners who cannot pay their bills.

Barney Frank insists that these are credit worthy borrowers who have fallen on hard times and are not those who over extended themselves. The loans would be for a year and could be renewed for an additional year if necessary. Now I feel for those who are down on their luck and who are struggling to find a job the this absurd.

When do the handouts stop? If I lose my job and can’t pay my credit card bills will Mr Frank give me a low-interest loan to help me pay them off? What about my car loan? The government cannot be responsible for all failed business transactions. Even if these people were credit worthy do they not have enough money saved for a rainy day? Many people (including sub prime) borrowers were able to make their payments until they lost their job and they lost their homes because they had no savings and paid way too much of their salary towards their mortgage. Someone needs to put a stop to this madness.

Shadow inventory dwarfs HAMP modifications.

Let me first start off by saying I despise most of the cnbc pumpers and think they are idiots. There are however two people on the entire network that I think speak the truth as much as cnbc will allow them to and those two people are Rick Santelli and Diana Olick.

Diana Olick has been on top of the foreclosure crisis and is not reporting that foreclosures are beginning their upward climb again. The nation’s September 2009 foreclosure rate stood at 3.12 percent - a month-over-month increase of 2.6 percent and a year-over-year increase of 88.9 percent.

The government also released part of the results of their HAMP (Home Affordability modification Program). They said trial modifications were up to 650,000 mortgages but did not release how many of those modifications were permanent. That data is expected to be released in December and I can tell you it probably won’t be good. MOst of the delays have come from people not submitting all of the proper paperwork and this is because most of these mortgages are liar loans and the proper documentation was never there in the first place.

As Banks continue to hold properties in shadow inventory hoping to keep home prices from crashing they like the government are just delaying the inevitable home price decline that must take place. When the government finally  does release these numbers expect them to be terrible and expect home prices to start declining again in the first quarter of 2010.

FHA boss says it is not the new subprime..yeah right!

A few weeks ago I wrote a post about hoe the FDA was the new subprime lender as they were backing loans that were made with less than 3.5 % as a down payment. Loans backed by the FHA a year ago accounted for les than 2% of homes in Southern California area, one of the hardest hit by the economic downturn. They now account for more than 40%. In addition The FHA has insured nearly a quarter of all new loans made this year, and about 80 percent of that business is from first-time homebuyers. So in fact the FHA is the new subprime lender.

On November 4th the FHA said they would delay their year-end reports as they made some last-minute adjustments. Well you know that is never a good thing and of course it was not because on November 12th the FHA reported that it’s cash reserves fell to .53 percent of its loans when it is required by federal law to have at least a 2% cash reserve. An independent audit shows FHA’s reserves have fallen to $3.6 billion, compared with $685 billion in outstanding insured loans for the fiscal year ended Sept. 30. That is a leverage ration of almost 100:1! as if that wasn’t bad enough it is being reported that 12% of the loans outstanding are seriously delinquent. One suggestion is to raise the initial down payment on originating loaned from 3.5% to 5% but democratic idiots and congress are against that. Barney Frank is actually trying to get the loan limit that the FHA insures raised to 1 illion dollar. More on that clown tomorrow. Suffice to say we know which organization will be the next one looking for the next Government bailout.

 

Homebuilders get free tax money

President Barak Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law on November 6th. This is the bill designed to extend unemployment benefits by as much as 20 weeks and extend the First time home buyers tax credit, a wasteful program which I wrote about a few weeks ago.

But hidden in this new bill is a massive tax credit for big business. A tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004.  Barak Obama says this will help struggling business but one of the biggest beneficiaries of this bill will be the home builders. Hovenanian Home builders on of the largest in the country anticipates a refund of $250 million to $275 million next year , Pulte Home builders will receive 450 million in refunds and Beazer homes expects a refund of more than 50 million. These are the very same companies that helped put us in this depression in the first place by building too much capacity and now we are rewarding them with tax credits.

The reason for these handouts of course goes to show the lobbying power of big business as many of the housing lobbyists spend hundreds of thousands of dollars focused on arguing for the tax loss carry-forward. Lennar spent $240,000  Hovnanian Enterprises spent $222,000 and Pulte Homes spent $210,000.  Lobbying pays really pays off when you can spend 210,000 and end up with a 450 million dollar payday. I wonder if U.S. Citizens can start lobbying congress to get special treatment. That may be the only way their voice can be heard.

These tax breaks are supposed to be designed to allow business to hire workers and start business growing again. But the last thing we need is more supply of homes so it is unlikely this money will help spur job creation. And these companies definitely do not need the money, Pulte is estimated to have 1.5 billion dollars of cash and Hovnanian has more than 550 million dollars.

The death of the City of Detroit

Detroit is dying and there is nothing anyone can do about it. Detroit recently held an auction for more than 9,00 vacant homes and lots in various states of decay. Even with bids starting at less than $500 dollars less than 1\5th of the properties were sold.

A few weeks ago CBS news reported that there were more than 44,000 vacant properties and more than 7,000 foreclosed homes in detroit. What is even more shocking is that the average home price for a home in Detroit is $7,000.00.

These are horrible numbers and will probably get a lot worse as Detroit is dying. The reason why detroit is in such decay is simple. Detroit for the last 50 years or so has relied primarily on the auto industry as their main source of jobs and revenue. As the american auto industry continues to decline and the big three (now the little three) continue to lose market share to up and coming auto companies such as Hyundai more and more jobs will leave detroit.

One must ask what becomes not only of detroit but the people of Detroit? Where do they move to? WHat will be the future of the City of Detroit? Will we let nature reclaim it? As industry in America get smaller and Americans get used to a lower standard of living what will be the catalyst for new industry. And if this can happen to Detroit how many other US cities are heading for the same fate?

The FHA (Federal Housing Administration) is the new Subprime Lender

The FHA (The Federal Housing Administration) is at risk of needing a federal bailout within the next 24 to 36 months if the housing market does not rebound so says Edward Pinto who was the Chief Credit officer at Fannie Mae from 1987-89. That is because the FHA has a cash shortfall of 54 billion dollars. The FHA insures home loans which require only a 3.5% down payment. Representative Scott Garrett, a New Jersey Republican, introduced legislation to try and boost the minimum down payment from 3.5 to 5% but even this is too little. Anyone who cannot afford to put 20% down on a home cannot afford to buy a home!

FHA Commissioner David H. Stevens said that the FHA will not need to be bailed out because the FHA has a 30 billion dollar cushion and he believes that house prices have bottomed. But house prices have not bottomed as many experts expect them to fall another 10-15% in 2010.

The FHA has increased its risky lending practices even further as the housing downturn forced many lenders to cut back their home loans. The FHA is now making larger loans in dollar amounts up to $729,500 compared to its old cap of$362,000 in 2008. It also allows first time home buyers to use the Government $8,000 dollar tax credit as a down payment.

This type of lending practice can only lead to one thing and that is more defaults. And that is exactly what is happening as the default rate for FHA loans is a whopping 14.4% of FHA loans were delinquent as of June 30th. The government just loves giving away free money to non creditworthy individuals. You can expect this to get worse before it gets better.

Massive fraud in $8,000 first-time home buyers tax credt.

You really can’t say you did not see this coming but the Treasury tax-oversight office is reporting that there are at least 19,000 people who have filed claims for the first time home-buyers tax credit even though they did not purchase a home! These 19K people claimed more than 139 million dollars worth of tax credits  and were reimbursed by the Government.

As if that was not bad enough the oversight panel is also saying that as many as 74 thousand more claims totaling more than 500 million dollars were given out to people who may have already owned a home. That is a total of more than 600 million dollars in tax fraud! More than 500 of the fraudsters were under the age of 18 and one of the people reimbursed was a 4-year-old child.

You would think that this lack of oversight and fraud would mean that the idea of extending the tax credits would be DOA but of course this is not the case. For as I write this post the news is coming out that in fact the tax credit will be extended. But who cares about 600 million dollars in fraud when it is not their tax dollars that are being wasted. Besides, if they need more money they can just ask Uncle Ben to print some more.

The part of the story that really should get you angry is the mention that they are continuing the tax credits because they are receiving tremendous pressure form the Home Builders, Real Estate Associations Mortgage Brokers and Lending institutions. The question that should be ask here is do these organization vote for who gets elected or do the citizens of the United States? Who cares what these organizations want? They are the same groups that got us into this mess in the first place. Who is running the show here the people or big business? Wake up America!

1.25 Trillion dollars of worth(less) real estate

Above is a photograph of a  mall in Oklahoma equipped with its own oil well that the Federal reserve spent 29 million dollars for when they lent money to JP Morgan Chase to take over Bear Stearns when it collapsed. Reuters UK broke the story this week.

The Federal Reserve is currently in the process of purchasing 1.25 Trillion dollars worth of Mortgage Backed Securities (MBS) in a desperate attempt to revive the housing market and get banks lending again. They had originally planned to purchase 500 million worth but when they finally saw the magnitude of the problem they decided to waste an additional 750 million more. The Federal Reserve’s  balance sheet has now swelled to nearly 2 trillion dollars.

This mall is half empty and is currently in foreclosure which begs the question, if the Fed is buying 1.25 Trillion dollars worth of home mortgages what is the real value of the assets they are buying? House prices have fallen 20 -30% and are expected to continue to fall well into 2010. It is estimated that all homes in the U.S. may lose 50% of their value. Which means that it is conceivable that the Federal reserve could lose nearly 750 billion dollars on these MBS purchases. It is important to note that these are your tax dollars at work. Once lost this money will never be recovered. And you know it is far worse than they are saying because the federal Reserve and other politician’s don’t want you to see what is on the Fed’s balance sheet. They say it is for your own protection and to protect the banks they lend to but that is nonsense. The truth is they are buying tons of garbage and the Fed’s balance sheet now looks something like Bear Stearns’ did before it blew up. If you want to stop being lied to sign the petition to audit the fed so the American people can see exactly what their tax dollars are buying. Unless of course you like being kept in the dark.

Please read my follow up to this post here.