Treasury Officials Concerned over Option ARM Recasts and Jumbo Loans Issues – Recalibrating the Housing Numbers while 5.6 Million Mortgages are Delinquent. California One Two Housing Punch. 60 Percent of Option ARMs and 45 Percent of Jumbo Loans in California.

Over the last few months the narrative on the housing situation has morphed into many different shapes.  First, it revolved around the need to keep mortgage rates low through the Federal Reserve’s buying of agency debt.  The intent was to keep mortgage rates artificially low to stimulate demand.  This has propped the market up but the Fed has now taken on nearly $1.25 trillion in mortgage backed securities onto its balance sheet.  Next, in the early days of HAMP the program was seen as saving 3 to 4 million homeowners from losing their home.  The latest data shows 116,000 permanent modifications which many will re-default in a year or two as new research is showing modified loans have tough times staying current in the long-term.

Another narrative that I have seen take hold is over shadow inventory.  Last year as you may recall, a large contingent of those in the real estate industry flatly denied that shadow inventory even existed.  Suddenly, shadow inventory exists but won’t be a problem because banks will trickle out inventory in some kind of strategic slow drip plan.  This is expected.  Back in 2006 and 2007 these people denied any existence of a housing bubble only to be the first in line for taxpayer bailouts when the crisis hit and they had to admit that yes, there was a massive housing bubble.  Remember our warnings about those loveable toxic mortgages, options ARMs?  Seems like the Treasury is now sounding the horn:

“(Realty Check) Treasury officials today said they are still concerned about a coming wave of foreclosures, many from pay option ARMs and many from the prime jumbo basket, particularly hard hit by unemployment. Only 2/3 of borrowers in the HAMP program are current on their payments. That’s why officials now say they are looking at unemployment options and more incentives to borrowers to keep paying on trial modifications and on loans that are significantly “underwater” with respect to the property value.”

Now anytime the Treasury issues a warning I pause because it is very likely that another bailout is in the works.  Option ARMs are the most toxic of mortgages and California by itself has roughly 60 percent of all outstanding option ARMs in the market:

Now looking at the above data, you can understand why the Treasury is worried about this second wave of foreclosures hitting the market.  Yet option ARMs were like a bad habit that only went into hiding once the mark to market rules were suspended.  These loans are still sitting on the balance sheets of many banks including Bank of America, Wells Fargo, and JP Morgan Chase.  And the problem with these loans always revolved around the minimum payment option and their inherent payment insanity:

But what is probably even less reported on is the size of jumbo loans that are concentrated in California.  California by itself accounts for roughly 45 percent of the entire jumbo loan market and already 11.3 percent of all jumbo loans in California are delinquent:

Source:  Fitch Ratings

So when the Treasury states that they are concerned about option ARMs and jumbo loans they pretty much mean they are focusing their eye on California.  The bulk of the loans are here.  60 percent of option ARMs are in the state and nearly 45 percent of all outstanding jumbo loans.  Yet as we all know option ARMs are already facing major challenges.  Nearly half of option ARMs are already 30+ days late.  Yet banks are still holding onto these loans usually leaving the market in a state of purgatory where borrowers don’t pay and banks don’t realize actual values since they would have to claim a $600,000 home is now valued at $300,000.  Instead, they choose to do nothing.  Somehow for those that now acknowledge the shadow inventory this is somehow a good solution.

California stands to take another major punch as these loans go bad but more of the correction will be concentrated in mid to upper tier markets.  In fact, the million dollar home market is already reflecting this change:

Source:  DataQuick

Those that claim the upper tier market isn’t correcting clearly are not following the above sales patterns.  And this trend holds even truer for the mid tier market where the capital buffer isn’t deep enough to support highly leveraged toxic loans.  Even if you remedy the current loans, what then for future buyers?  They don’t have access to option ARMs and clearly their income doesn’t support the purchase of high priced homes without access to maximum leverage.  It isn’t like incomes dried up overnight.  Income has been stagnant for the decade but access to debt, including option ARMs and jumbo loans allowed California home prices to reach astronomical levels because income suddenly wasn’t a factor.  All that was needed was the desire to sign on the dotted line.  Option ARMs are now gone and jumbo loans are a tiny part of the market since the bulk of loans are being fed through FHA insured loans and other conforming products.  In other words, mortgages for high leverage are now all but gone and as the above chart highlights, so are sales in those markets.

People might be frustrated to hear that a bailout may occur with option ARMs and jumbo loans.  Unfortunately many of these loans have already been bailed out with the suspension of mark to market.  When we run the shadow inventory figures we see the numbers building up like a massive traffic jam.  The defaults are occurring they just aren’t reaching the public and ultimately it is the public that loses because prices remain artificially high.  I think most of us would be fine if banks used their own money to play around with their toxic mortgages.  But right now, banks are wards of the state and they are bleeding the taxpayer dry through keeping mortgage rates artificially low via the Fed and rewriting accounting rules to suspend mark to market.  How is this good for the economy?  This massive obsession with real estate has led us to this current point.  Paul Volcker recently had this to say about the mortgage market:

“(HuffPo) It’s totally dependent, heavily dependent on government participation,” Volcker said Friday in an interview with Bloomberg Television. “It shouldn’t be that way. That’s going to have to be reconstructed.”

And that is the painful process.  California is dealing with tons of toxic mortgage waste, much of it still here.  If you don’t believe in my argument, maybe you’ll trust the Treasury that is now echoing the same exact warning regarding option ARMs.  As I was finishing this article, I saw this in my e-mail box:

“(Realty Check) The money, we assume, goes to help those ineligible for MHA. This one gives $1.5 billion to the hardest hit states (do I even need to list them? — CA, AZ, NV, FL, MI) to “help address the problems facing the hardest hit housing markets.” White House officials describe this as states that have “suffered an average home price drop of over 20 percent from the peak.”

Initiatives may include:

*Measures for unemployed homeowners;

*Programs to assist borrowers owing more than their home is now worth;

*Programs that help address challenges arising from second mortgages; or

*Other programs encouraging sustainable and affordable homeownership.

    The press release from the White House says these programs must have total “transparency” and “accountability” for results. The money will come from the TARP and go to Housing Finance Agencies which will then “determine the priorities facing their local markets.

    The release goes on to give “illustrations” of some potential programs, including using the funds to help unemployed borrowers bridge the financial gap between jobs, to help “underwater borrowers” by negotiating with lenders to write down principal and to offer incentives to second lien holders to extinguish loans.”

    And there you have it.  Another bailout.  Small in comparison but a bailout nonetheless.  There is going to be a point where the market is going to wake up and say, “can you keep bailing things out when you don’t have the money?”  Is this even good policy?  I have little problem with helping say a homeowner on a 30 year fixed mortgage in California, Ohio, or even Kansas so long as they didn’t participate in the bubble shenanigans and their mortgage debt is under the median nationwide mortgage debt.  But to help an option ARM borrower that took on a $500,000 mortgage without adequate income?  That should really be a no brainer.  The fact that banks will use money for principal write downs is icing on the cake.  Suspend mark to market, receive trillions in taxpayer bailouts, and finally to top it off get more taxpayer money to write down the principal.  In the end, home prices will still come down because the economy isn’t producing good paying jobs.  Then what use are these bailouts?  I think you already know.

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    41 Responses to “Treasury Officials Concerned over Option ARM Recasts and Jumbo Loans Issues – Recalibrating the Housing Numbers while 5.6 Million Mortgages are Delinquent. California One Two Housing Punch. 60 Percent of Option ARMs and 45 Percent of Jumbo Loans in California.”

    • Another bailout – and most of the money will go to banks as fees. At least the bailouts are becoming smaller.

    • I have little problem with helping say a homeowner on a 30 year fixed mortgage in California, Ohio, or even Kansas so long as they didn’t participate in the bubble shenanigans and their mortgage debt is under the median nationwide mortgage debt. But to help an option ARM borrower that took on a $500,000 mortgage without adequate income?,,,, Thanks Doc for the kind words but as a 30 year fixed holder in california who did not play bubble games according to your standards we have our housing diploma ,,,,,,i got to tell you there is no help in sight for me dont think there is a bailout headed my way,,, i am looking elswhere for retirement i thank you for opening my eys still wondering what the powers that be are up to but i do know it cant be good and i see getting out as a viable optionthanks for some of the best info i have ever read — beeman

    • RE: “The money, we assume, goes to help those ineligible for MHA. This one gives $1.5 billion to the hardest hit states (do I even need to list them? — CA, AZ, NV, FL, MI) to “help address the problems facing the hardest hit housing markets.” White House officials describe this as states that have “suffered an average home price drop of over 20 percent from the peak.”

      Initiatives may include:

      Measures for unemployed homeowners;
      Programs to assist borrowers owing more than their home is now worth;
      Programs that help address challenges arising from second mortgages; or
      Other programs encouraging sustainable and affordable homeownership.
      The press release from the White House says these programs must have total “transparency” and “accountability” for results. The money will come from the TARP and go to Housing Finance Agencies which will then “determine the priorities facing their local markets……..And there you have it. Another bailout.
      >
      ___________
      >

      Doc darling, methinks you are (1) misinterpeting this and (b) calling it something it isn’t and (c) exaggerating what it is.
      >>
      The actual press release and articles covering it were far far more extensive.
      >
      (1) The $1,500,000,000 goes to the Housing Agencies of the states. That is roughly $30,000,000 per state. And that isn’t going to do much or go far
      >
      (2) The money is going the the Housing Agency of each state so they can try to develop programs to deal with these (a) unemployed borrowers and (b) mortgages that are so far underwater that can’t be reworked through HAMP (joke that it is)
      >
      When this press release came out, I discussed the implications with a very well-known econ blogger who is routinely cited by the WSJ, NYT, WaPo etc. (I won’t say who because it was a private email conversation.) We both concluded that it was much ado about nothing as all this is merely seed money to the State Housing agencies to see if they can come up with a way to deal with these problems…..and that the odds of any State housing agency coming up with a solution are between slim and none and slim jsut saddled up and rode out of town.
      >>
      This is just a sop to be able to say that something is being done by letting the states try some little experiments and think-tanking. Most definitely NOT A BAILOUT of borrowers.
      >>

      ________
      >
      Here is something amusing for the readers. Borrowers bought the house in late ’05-early 06. They put down a 6 figure downpayment that was 20% down. Started trying to off-load the place in late summer-early fall ’07. After starting out trying to turn a 28% profit (per the realtor-idiot’s advice) and then multiple price reductions including the final price reduction with the approval of the lender, they are walking away from it.
      >
      Here is the history:
      >
      House was bought in 2006 – price $2,500,000 .
      >
      Mortgage $2,000,000
      >
      Listed for sale in fall 07 for $3,200,000 (gossip is that hubby got a new trophy wife and didn’t want to keep paying for the old wife’s summer vacation so they were selling as part of a divorce with lots of money floating about.)
      >
      Dropped price to $2,100,000 in spring of 08
      >
      Went into foreclosure in the late spring of ’08. Notice of auction published.
      >
      Borrowers pulled it out of foreclosure sale and decided to keep paying.
      >
      Still listed for sale at $2,100,000 through 08 and into early 09.
      >
      Listing dropped to $999,999 in early-mid-09 with the listing noting that the bank will consider any offer.
      >
      Back in foreclosure with the sale scheduled in the next week or so.
      >
      Amount owed on the mortgage now – $2,300,000 from the additional costs and fees….
      >
      Property taxes on this place are $18,300 a year and there will be substantial (around $8000-10000 a year) HOA fees for the shared beach on the inner lake.
      >
      From $2,600,000 to $999,999, a 61 ½% drop and still no takers…..actually there aren’t even any lookers! Guess there aren’t enough people with $1,000,000 incomes who want a 2nd home 6 hours from Chicago and 1 ½ hours from the nearest tiny airport that would fit in one wing of LAX. (You can get more bang for your buck on Cape Cod and be hour or so from civilization
      >
      Here is the description and Realtor.com listing.
      >
      http://www.realtor.com/realestateandhomes-detail/5415-E-Sugarbush-Ln_Leland_MI_49654_1082931693?source=suggest
      >
      California style home with direct 172 feet of accessible direct frontage on Lake Michigan, and 800 feet of shared frontage on Lake Leelanau. Home was built and designed by Fred Ball Design. This is a one of a kind exclusive home. Beautiful views of the Manitou islands as well from the home. Measurements are estimated from tax records Short Sale, home is going into foreclosure and bank is willing to look and consider all offers. All offers and commission to be approved by bank.
      >
      Price: $999,999

      Address:
      5415 E SUGARBUSH LN
      Leland, MI 49654 (view map)

      Township: Leland

      County: Leelanau

      Beds: 3

      Baths: 3.00

      Condo: N

      Approx. Finished Sq. Ft.: 6000

      Acres: 1.30

      Waterfront: Private

      Body of Water: Lake Michigan and (shared) Lake Leelanau

      Frontage: 172 Lake Michigan

      School Dist: Leland

      Garage: Three or More Car Garage, Attached, Drive Under/Built-In, Auto Garage Door Opener, Paved Driveway

      Basement: Partial, Poured Concrete

      Exterior: Water View (not Bay), Deck, Multi-Level Decking, Sidewalk

      Interior: Natural Fireplace, Skylights, Cable TV Available, Bay Window, Foyer Entrance, Walk-In Closets, Pantry, Solarium/Sun Room, Breakfast Nook, Library/Office
      >
      BTW, the treetop view means “climb down a 200-300 ft dune or lots and lots of steps to get to the water and Lake Michigan beach”.
      TThe one with the dock is an inner lake – not Lake Michigan. It has acess to 2 bodies of water – 1 private beach (Lake Michigan) and 1 shared (Inner lake.)
      >

      So much for all the hooey from posters about how people will not walk away if they (a) put down 10% or more , or (b) have enough “skin in the game.”
      >
      20% down and $500,000 on the line is a LOT of “skin” — and they have still thrown in the towel on their summer beach home and told the bank to sell it themselves and foreclose. Why keep paying? It is just throwing good money after bad. These borrowers wouldn’t have to worry about where they will live – this is a 2nd home for the summer to go to the beach. The borrower with the modest FHA loan will have to worry about finding somewhere to live if they walk away.

    • After the last wave of resets, January 2009 was a price low for most cities. Since the next wave in 2010 mirrors 2007 and the wave in 2011 mirrors 2008, the next price low will be January 2012, then on & on to next lows of the housing…….. (June-Sept 2012) (Jan 2013 June 2013-Sept 2013). I say to myself, holy crap…Option Arms and Alt-A is coming at us so hard with inflation,higher taxes & dollar devaluation.

    • We live in the San Francisco area, so lots of $1,000,000. plus homes here.
      They are definitely staying on the market longer. One that I followed went on the market in Aug.2009, at $1.8MM. Delisted in Nov. Put back on at $1.6MM.
      Sold in Feb.2010 at $1.5MM
      Still lot of affluent buyers out there, but they are being choosy, and getting price concessions.

    • You are quite right. A bail-out here is not the answer. The asset is worth what the market will bear. Giving insolvent banks more money is just that.

      I will not subisdize these bad decisions any longer. Period.

    • I am interested if anyone else is seeing how the wave of buying since 2008 is creating another large group of underwater homeowners. My neighbor who purchased in 2008, got a deal at $385K, they were going for 550K but now the best he might get is $325K(per a local RE agent) and asked me what I thought the market might look like in a few years I won’t even mention the 07 crowd they are way out of the money.
      Just a note regarding the homes above one million here in Calif which is a huge percentage of the market. In the San Francisco bay area most of these neighborhoods that have newer million dollar homes were driven up not by the latest RE bubble but the dot.com blow off top. I know several folks that purchased homes in the two million range back in 2000 and still cannot unload at those prices, they even listed during the bubble years 03-06, no takers. Huge number of shadow inventory in the upper range and plenty of it with folks that either paid cash or large down payments but will not sell at lower prices and take the loss until they are forced.

    • jdfrench16@sbcglobal.net

      It’s all relative. Those “affluent” buyers out there that are purchasing homes for $1.0m / $1.5m, etc, doesn’t necessarily mean that they are sooo affluent and have these amazing incomes. As long as you purchased at least 12-13 years ago and avoided bubbledom and didn’t refinance, you’re sitting pretty since you jumped in when things were sane. Say there are 100,000 people in S.F. that are making $90,000 and each purchase a house for $375,000 in 1997. All the sudden, prices are now $1.5m for everyone. As long as they all trade with eachother, has anyone really made any money? The problem will be 10-20 years from now, when these people want to sell to a younger generation and that younger generation does not have the income to support such a huge price. Given that wages have not increased all that much, as long as the 30-year fixed + 20% down is still the standard, those prices will not make sense or work in the long-run unless wages increase substantially. And by increase substantially, I mean for a reason other than inflation (competitive edge, etc), for in that case it would be likely that food and other costs will increase. The middle class is surely getting pinched.

      Give it 5+ years, San Francisco isn’t THAT desirable. Also, as much as I love Southern California (where I live), is it really worth being a slave to a mortgage and upkeeping a house (a little land, walls, a roof, and piping) for the price that people are asking? Just think about it, your friends and family’s opinion doesn’t really matter that much, and your kids won’t think less of you. So don’t sweat it if you don’t “own” a house.

      Ok, I’m done. :)

    • Yes, the Obama administration announced another bailout, like you say it’s small in comparison; the key concept here is that it is the very last of the TARP funds.

      I do not believe there will be any more bailouts coming as interest rates are headed higher, even though this week mortgage rates are down, because:
      1) the bond market is calling interest rates higher, especially on the long end.
      2) the US Treasury Bond Market broke down on Wednesday 2-10-2010.
      3) the rise of the discount rate from 0.50% to 0.75% is actually a move to consolidate interest rate setting power in the hands of Washington DC, and out of the nation’s twelve districts, making Ben Bernanke a money czar.

    • Comment by AnnS

      So much for all the hooey from posters about how people will not walk away if they (a) put down 10% or more , or (b) have enough “skin in the game.”

      Sure AnnS, let’s go back to 0% down and giving a loan to anybody with a pulse so you can get your fat commission for all your hard work of promoting the real-estate pipe dream, gossiping about people who are selling their homes and coming up with half-baked theories with unnamed prominent economists that work for blog for prominent newpapers that are based on your obviously biased opinions and insulting people on a housing blog that use hard data in their theories. Because obviously a millionaire who can afford to divorce his wife and can afford to take a loss is the same as everyone else in the housing market. And everyone else who has equity is walking away from their home instead of selling it right?

    • The 1.5 billion was just a silly little show by Obama for his ethnically challenged senate guy, Harry Reid, who may very well lose his election this year with his entire state underwater. A desert state. How ironic.

    • One thing that will keep prices high in San Francisco and L.A. are the large number of public employees. Virtually every city employee in San Francisco makes around $100,000. a year(with overtime)-police and firemen routinely make $150,000-$175,000. Since they do not have to save for retirement (can retire at age 55, at 90% salary, and free lifetime medical), they can pay higher prices for housing than many people in other parts of the country. This provides a pretty substantial “floor” under all house prices.

    • At bottom isn’t this admitting what we all know: that money (fiat currency) means nothing? And didn’t The Onion get this right last week?
      ~
      http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as
      ~
      I talk to a lot of people who aren’t working numbers when they walk away–from jobs, spouses, families, commitments, mortgages, communities. They just want out. The renewal of something different. Ditching it all. Starting over. When you live in a really complex society, where everything you do implicates so many others, you still have the freedom to say “to hell with all of you, I’m outta here. YOU pick up the pieces.” This is related to the tragedy of the commons. If one-half of one percent of all people decide to be selfish a-holes, that has one level of impact. If half or 2/3s play Me First, it has another.
      ~
      And doesn’t “I’m outta here,” the attitude, comprise at least 1/3, and perhaps 2/3, of the “go forth, multiply, have dominion” calculus of Western civilization? Isn’t that the narrative that gave us California and Las Vegas…and Dubai? “Anywhere but here!” (With all due respect to Doc, whose roots I admire.)
      ~
      So while I would like to believe that more rational lending standards would improve things at both macro and micro levels, I also have to reflect on those I know who are not rational people, and are simply out to get whatever they can get in whatever way they think they can get it. Working, saving, and running the fundamentals a) isn’t something they understand and b) might not get them anywhere anyhow or c) at least not what they want d) which is very often something for nothing or e) anything besides what they committed to.
      ~
      I have to agree with beeman, though. Loans do have histories, and it’s easy to figure out whether a person was trying to be a responsible borrower or was a bubble rider. But it’s hard for me to say “punish the bubble riders” when our system is providing so few ways for the responsible to get ahead, and is even penalizing the prudent. When the forced choice is lose, or lose.
      ~
      DHB is, in my experience, unusually rational. But as we know–and as he has argued quite precisely, and since 2006, housing has become the nation’s Emo Casino.
      ~
      rose

    • Bob Crane, what is left is to tell us what is the percentage of those public employees in LA and SF, which will buy all those fair priced housing at least for them? 1% or may be 2% of the janes and jacks out there? Or probably you think those public employee are somehow exclude from the income statistic (where median stays at around 65K per family for LA county) , which the good doc has been publishing many times here? ha-ha-ha The refuge which a mind in denial is finding is amazing.

    • Comment by WP
      February 22nd, 2010 at 12:18 pm

      Comment by AnnS

      So much for all the hooey from posters about how people will not walk away if they (a) put down 10% or more , or (b) have enough “skin in the game.”

      Sure AnnS, let’s go back to 0% down and

      __

      DOn’t be ridiculous. The point is that 20% and a 6 figure down will not keep people from walking away from a house seriously falling in value. And a lot of the posters here keep going on that if borrowers had put up 20% or big downpayments, they wouldn’t walk away. LOL!! Hell’s bells, these borrowers are running away from that beach house.
      >
      There is a lot of wailing about the FHA 3 1/2% down. It has worked for many decades. ALL FHA buyers for the past 40 or 50 years have been upside down the minute they closed with less than 8-9% down simply because if they went to sell in the next 2- 5 years, because even a 3 1/2% year appreciation (historical rate of appreciation)
      >
      (a) they won’t have paid enough in principal to cover
      (b) the realtors 6% and
      (c) closing costs
      >
      They weren’t walking away 20 years ago because they were upside down after closing that 3 1/2% down loan nor are new FHA buyers are unlikely to walk away now. Quite simply they didn’t (and quite probably won’t) walk away – absent another 15-20% drop in prices and rents or a job loss – because they can afford their payments since they had to meet front end and back end DTIs and prove their income to get the loan.
      >
      It is not so much how much they put down but whether they can AFFORD the payments that is determinative. Anyone who ends up so far underwater that it will be 10-30 years before they break even might walk away when rents go to far less than their payment.
      >
      BTW, VA loans have ALWAYS been ’0′ down. They aren’t defaulting because the borrowers put nothing down. Of course VA borrowers have to meet DTI standards too and document income.
      >
      The real keys are (1) DTI standards and (2) proving a stable income. How much the borrower puts down has little impact on their behavior based upon the historical performance of VA and FHA loans.
      >
      NOTE: Given that unemployment is impacting the bottom 60% at many times the rate of that of the upper 20%, it is not surprising that FHA has an increased default rate. The bottom 75% in the US were always their primary market for borrowers.
      >
      Here is an interesting study on the rates of unemployments for the each 1/10th of all households. I had forwarded it to CR and he did a post on it last week.
      >
      http://www.clms.neu.edu/publication/documents/Labor_Underutilization_Problems_of_U.pdf

    • Bob,

      Have you noticed the state of California is Bankrupt lately? If my employer in the private sector was losing money and said to me… “You can keep your job, but you’ll have to take a big paycut, or we’ll let you go and hire someone for much less”… I’d probably take the paycut in this economy. Why should state employees with inflated salaries not have to take a paycut if the state of california is losing money?! Wait and see… those inflated salaries are a thing of the past come budget time…

    • Mike M. That is pretty funny. A desert state being underwater. But, wait a minute. Don’t they have artificial lakes in Las Vegas? I think they will be even more underwater if they drain the lakes.
      I think they are still trying to sell homes at Lake Las Vegas. Check out http://www.lakelasvegas.com/ It looks great.

    • I have a social contract problem with all of these bailouts. There are large silent constituencies who are being economically harmed by these bailouts;
      1. senior citizens who saved their entire lives and are now being harmed by a zero interest rate polciy
      2. young families who hope to buy a house as propping up house prices keeps the prices from falling to market rates where a young couple have a shot at buying a residence.
      3. All those responsible homeowners who paid their taxes and mortgages religiously and never asked for a handout or bailout.
      4. All these groups, known as taxpayers also get to pay for these bailouts again through an increased taxes and possible destruction of their assets if the US government triggers financial armageddon through a default.

      All this so bankers can continue getting large bonuses and folks who lied about their income and could never really afford their homes in the first place get to stay in their homes. This borders on the unethical if not financially insane from a public policy viewpoint.

      I would not be shocked to a successful third party movement challenge in the 2012 elections.

    • Comment by AnnS
      DOn’t be ridiculous. The point is that 20% and a 6 figure down will not keep people from walking away from a house seriously falling in value. And a lot of the posters here keep going on that if borrowers had put up 20% or big downpayments, they wouldn’t walk away. LOL!! Hell’s bells, these borrowers are running away from that beach house.
      >
      >
      yeah, they’re running away because they bought it at a ridiculous price because they got suckered into the housing ponzi. And for that matter they probably wouldn’t be walking away if it weren’t for the divorce. Take away the ponzi scheme and 20% will give some kind of a cushion if the market isn’t plummeting and will allow people to sell instead of foreclose. 0% and 3% only work when the market is going up, up, up. But as we all know, it doesn’t go up forever. To try to say larger down-payments don’t keep people from foreclosing is ludicrous as it has been well documented on this blog and others by reams of data. Doing 0% down deals so brokers can get a commission whether the buyer forecloses or not, and then palming off all the losses on taxpayers is vile.

    • Guys, I found the answer. Since our generation has evolved with dimishing testicles and cannot say no when our irrational wives tell us we need a real big house with granite countertops and cofferred ceilings and don’t care how we do it, http://www.realdolls.com has the answer: Robotic trophy wife. For $6000:

      She does not want an RHG;
      She does not speak;
      She does not get fat;
      She never has periods;
      She does not pass gas;
      She never goes shopping;
      She does not get pregnant;
      She does not have a mother;
      She never ever gets headaches;
      She does not go to the hairdresser;
      She does not watch soaps, Oprah or the Shopping Channel;
      She does not care what we watch on TV;
      She does not frequent Internet chat rooms;
      She will never get elderly human physical attributes;
      She will not get jealous if you bring home another woman;
      She will not nag if you go out and she won’t care when you
      return
      >>>>>>

      The world has changed and in another 10 years we will not reckognize a thing. I went back on business to a town I lived in 20 years ago and saw this. The commmercial and housing bubbles just scraped the landscape and replaced it with vacant commercial buildings, apartment complexes, strip malls and subdivisions. This is so much worse that anyone wants to admit. Havoc commeth…

    • Help unemployed borrowers bridge a gap between jobs?

      Sweet. Will the gov pay my rent if I lose my job?

    • Any opinions on this video about short sales?
      http://www.thinkbigworksmall.com/mypage/player/tbws/23088/

      I am assuming most banks do not have this arrangement otherwise there would not be a shadow inventory, right?

    • Hunkerndown in San Jose

      From what I see going on here in San Jose, my guess is the banks strategy of trickling inventory on the market to keep prices high is not going to work. It seems there are many investors who are buying cheap, putting crews to work fixing up some dumps and putting them on the market at top dollar. Plus alot of first timers taking the plunge won’t be buying again. Fannie and Freddy will be tightening and eventually the govt will turn off their spigot contrary to what lord frank has planned. So who is going to fund all these home purchases? Jaime Dimon? How about princess Meg Whitman? She has a shitload of money and she cares sooo much about California. Once the shit really starts hitting the fan because the TBTF banks can’t offload their crap, the govt is choking on their losses through fanny and Freddy, the fed and treasury run out of wiggle room, state govs start going belly up because of unemployment insurance outlays where is all big money going to come from to finance 5 or 10 million houses. Many of them currently valued at 500,000 bucks or more. And how many can legitimatey qualify for them? Here in santa Clara county average household income is 74000. Tell me under which circumstances housing will magically recover in the future here? I know. All the employers will patriotically begin paying their workers greatly increased rates of pay. That should do it. HA HA.

    • AnnS, this is just too comical. For starters, a “California” style beach home in Michigan, a cold-weather state. Houses like this are laughable in the far north.
      More comical, a $2.5M beach house in one of the most economically depressed states in the country, in an unfashionable backwater, nowhere near Chicago, IL or Lake Geneva, WI. If you are a filthy-rich Midwesterner, the place to buy a second home is Lake Geneva, which is truly beautiful and has incredible mansions.
      The 61% drop from the peak price is absolutely in line with what has happened to Michigan, which is an economic disaster area. At least California still has the sun, the ocean, the entertainment industry, and the high-tech industry. CA has Google; MI has General Motors. In Detroit, the most battered place, veritable mansions are selling for $200K, houses that would cost $1M anywhere else even now. You can get a fine, large upper-middle class home in the Detroit burbs for $100,000. Whatever made these people think that there would be a sufficient market for a house like this in an un-trendy rural backwater in this economically battered state?
      And just as comical, lending someone the money for this second home priced well into 7 digits with only 20% down. Back in the days of sane lending, down payments of 50% or more were required for upper-bracket homes, at least in the Midwest, because it is very hard to replace the income that supports such a mortgage if you lose your job. And second homes were very difficult to finance-you just about had to pay cash.

    • Welcome to the United Soviet Social Republic of America!

    • I’ve been fighting with some idiots over the fact that every time I begin to complain about how the government is screwing us over, I’m accused of being a “right wing extremist!”
      Partisans are such morons! As if Wall St. didn’t screw the left just as much as the right.
      The guy who crashed the plane might well have been right wing, I don’t know, but his thinking can’t be totally rare, even amongst those who still believe in Obama.
      Our government, and the FED especially, is dealing in criminality by stealing our money to give to the scum bankers.
      I’m confused as to how this is a “right wing issue?”
      Foreclosures and job losses are not partisan.

    • “I will not subsidize these bad decisions any longer”……LOL, what are you going to do? Fly your plane into a building? Because YOU don’t have the choice, they will take your money by FORCE at the end of a gun, if you don’t believe me, try and not file your taxes for a few years. You will be in jail or shot to death by the wonderful Police State of America.
      The whole thing sucks. People get all up in arms about principal reductions so…PEOPLE don’t get them…but when that foreclosure hits, the BANKSTERS get to buy the properties for what? Oh yea, with PRINCIPAL REDUCTION, and then the TAXPAYER makes up for the loss. Penalize the victim, reward the perpetrators. It’s so easy to see, yet the ostrich posters bury their heads in the sand. Keep victimizing the people and rewarding the banks at the same time. Principal reductions are HERE, whether you like it or not (I hate it) but do you wantthe money to go to the people who controlled and manipulated this, or go to the people who got stuck? I vote for neither, but that’s not reality, for now, it’s F the taxpayers on both ends by taking properties, then subsidizing the artificial value.
      Prices will not come down, and in fact, should go up if they can spin in inflation, it’s the only way out of this mess, but the chinese just won’t let the dollar slide into inflation.

    • @ Laura, I’ve lived outside Chicago just over the border in Wisconsin…which is where? That’s right, about 10 miles from Lake Geneva. I’ve ALSO lived near Leland Michigan, and my parents STILL live in Cedar, MI which is….about 15 miles from Leland.
      That whole are surrounding Traverse City, MI has been a haven for what they call “fudgies” there, or tourists with summer homes. The wealth from downstate/out of state investment homes is substantial. That area of Michigan is FAR MORE beautiful than Lake Geneva I assure you. It’s just there are no jobs outside of the service sector, and there are NO unions there, so people work for dirt cheap.
      When I rode the school bus in the morning, I got to see how some people live there. The difference between the have’s and the have-nots is huge.
      Lving up in that area year round is great…if you like snow, ice fishing, hunting, and outdoor activities. If you like being near a modern city, this area will not work.

    • AnneS…do you even read any of the articles on this well-researched blog? Or do you just write insulting comments and spew realtor propaganda through the comments section, trying to pass a divorce/distress/ridiculously over-priced house to begin with as an example of why larger down-payments don’t prevent people from foreclosing. Here a couple of links from the last few weeks of DHB with plenty of charts and data. Please read these before trying to say that larger down-payments don’t help prevent foreclosure.

      http://www.doctorhousingbubble.com/fha-bailout-360-billion-in-loans-insured-in-2009-30-percent-of-home-purchases-20-percent-of-refinances-and-50-percent-of-new-buyers-go-through-fha-loans/

      >
      >
      http://www.doctorhousingbubble.com/foreclosures-and-negative-equity-%e2%80%93-why-financial-bailout-programs-fail-in-california-income-budget-problems-and-underwater-mortgages/
      >
      >
      small down-payments lead to immediate negative equity in a falling market. Negative equity is one of the leading factors leading to foreclosure. Larger down-payments enable someone to sell (at their own loss) rather than foreclose. Low downpayments lead to negative equity, which lead to foreclosure which the banks take the loss on in California. And since the banks are now propped-up by the American tax-payer, the whole country takes the hit all so we can keep the grease on the real-estate ponzi machine and bankers, brokers and realtors can get their commission regardless of whether the home forecloses.

    • I dunno, Kid C. Not sure that even that robot babe would want the kind of guy who’d want her.

    • What a joke. Rising interest rates will put the final nail in the coffin. Without “creative financing” the mid and upper tiers will be dead in the water. Large double digit drops in price per square footage are already happening on the Westside.

      http://www.westsideremeltdown.blogspot.com

    • by AnnS—-20% down and $500,000 on the line is a LOT of “skin” — and they have still thrown in the towel on their summer beach home and told the bank to sell it themselves and foreclose. Why keep paying? It is just throwing good money after bad. These borrowers wouldn’t have to worry about where they will live – this is a 2nd home for the summer to go to the beach. The borrower with the modest FHA loan will have to worry about finding somewhere to live if they walk away.

      absolutely if it is only a second home WHO CARES if you walk away at this point being a second home it sure looks like a consolidation of assets and and liquidation of a liability in todays economy sensible choice walk away and be able to save your primary dwelling ——
      if the banks applied the bailout properly we would all have paid for homes ,,,,,, i agree with Mark —You are quite right. A bail-out here is not the answer. The asset is worth what the market will bear. Giving insolvent banks more money is just that. I will not subisdize these bad decisions any longer. Period.
      not sure how to deprive them but i do keep the minimum in financial institutions and only card is debit card ,((ok i am guilty of internet shopping )),,deal in as much cash as i can no credit cards,,,its not easy and you get strange looks sometimes when you spend cash ??? WTF? i met a young man who sold me a house i watched him buy a soda with plastic card ummm maybe its good for merchant services and their fee schedules but not for him i advised him on killing his plastic card seemed humane thing to do ,,,,point is interest is eating all of us out of house and home Dr housing bubble is good info info = power empower yourselves with information folks i started in on reading —the simple dollar —link found on DHB 30 days wow managed with lots of sacrifice and beans and rice to buy a nice home for retirement in another state thanks to values exposed by simple dollar it is paid for and rented out not a large return but solid and done waiting for us when we want to go there ,,,deprive the banks of your cash keep it under your pillow or in credit union or can in yard not sure but stocks were good recently hey every lil bit hurts them ya know?
      if the banks released all shadow inventory they would go under almost overnight ,,, if we let them go down then we can start again with corrected prices and incomes might be some chaos but that will settle as time passes ,,,,,me? ready to walk because bank screwed up deposits and messed up hardwon fico score so i got my own issues too but having realized interest is killing us i am trying to remove it from my life as much as possible i advise work hard and save your cash invest wisely if possible but dont be eager to hand it to bankers —–Compass Rose you seem to have good grasp and clear vision to see human nature it is an ugly thing,,,,,—Beesymph very astute observation —EdyWelcome to the United Soviet Social Republic of America!
      think it is coming fast amigo you might be right—– we are all in trouble folks

    • @Rose
      Touche,
      I don’t know if we’re just so bad at math we can’t figure out what is impossible. Average male could live in a cave with a lazy boy, flat screen, fridge and microwave. Girls drive the housing market. I’ve never heard of a group of guys getting together to watch HGTV. Just as women are the gatekeepers of sex, men are the gatekeepers of irrational spending, only we can’t say no so or are irrational ourselves. How can there be such mass insanity? Where did we learn this? Oh yeah, TV, Magazines, the media…Why think when someone can do our thinking for us. Much easier.

    • The reason why the banks are holding onto the shadow inventory is quite simple – the Fed has already took the toxic paperwork off the balance sheet by “buying” it off the books through TARP and other subsidies, so now that the balance sheet is clean, the “shadow inventory” is no longer a liability that needs to be purged, but an asset that they can hold on for as long as they like until either the market turns around or they need the cash and sell. In other words, imagine maxing out your credit card to buy a big screen TV but you no longer have the funds to pay your credit card, so you are supposed to sell the TV to repay that debt, but instead, the Fed comes in and “takes care” of that credit card bill for you, so what then is your incentive to sell the TV? That’s pretty much what the Fed has done with all these programs to buy toxic assets and letting banks borrow TARP at 0% interest.

      Normally, when a bank forecloses on a home, that home represents a debt, a liability, a negative item on their balance sheet and they need to get rid of it by selling it as an REO so they can clean up said balance sheet. The Fed changed all that when they went in and bought up those toxic notes but leaving the properties for the banks to keep (just like keeping that TV) and do as they wish.

      Who paid for all this? Taxpayers of course. Obama is just another bank apologist, no better than Bush or Paulson. Notice that every single stimulus program results in the bank achieving record profits. What a coincidence.

    • The banks have been on the dole for decades. The tax write-off for mortgage interest makes homes more affordable. Simple law of supply and demand — home prices go up to compensate. With the exception of deflationary pressures from enhanced new home construction as a result of higher prices, it’s a zero-sum game amounting to a large transfer of wealth from the government to banks. Now, I don’t know about you, but for me, between banks and the government, I believe the latter is a better charity.

    • Can some of you people outside of Calif. tell me what your annual property taxes are?
      Curious how this state compares.

    • How can men be the “gatekeepers” on irrational spending when they’re just as irrational themselves. Don’t try to palm off your bad housebuying decisions on your wives, guys

      For, while women love nice things and crave attractive surroundings, males CRAVE public admiration and place among their male peer groups. The male must show he is successful, and even cars don’t do that-anybody can lease an expensive car. Only an expensive house will do that, and the guy gets extra prestige points for having a high-maintenance “trophy” wife.

    • Chicago property taxes have gone from being reasonable to downright confiscatory.
      A house worth $500K will pay about $15K in property taxes, and the cheaper the property is, the worse the tax hit will be. I am looking at condos priced from $65K to $150K on the far north side of the city, and the taxes range from $3000 to $5000 a year.
      Worse, homeowners in the poorest south side neighborhoods like Englewood, Cottage Grove, and Gage Park are being bludgeoned to death on property taxes, to the point where I honestly feel they have grounds for claiming discrimination. Little shanties that would barely fetch $35K in today’s market are getting tax bills for $4000-$5000…. almost as much as $800K condos in downtown Chicago. Well, they can let their little houses go and see if they can get one of the subsidized “affordable” apartments that cost the taxpayers $447,000 per unit to build, if you can believe.
      Crook County politicians have turned this area into Tax Hell. Chicago also has the highest sales tax in the nation, 10.5%, which is driving consumers away from city businesses.
      We have become so crazy and corrupt here.

    • bank holiday..perhaps……july -august…2010…arch crawford…..hard to argue with the # 1 economic newsletter writer….return wise that is…

    • “The tax write-off for mortgage interest makes homes more affordable. Simple law of supply and demand — home prices go up to compensate.”

      And supply goes up, attracted to the higher prices, and prices come back down. That adjustment has long been made, and it has nothing to do with the housing bubble. It is also no transfer of money to banks–since its money the government doesn’t tax in the first place. It is a subsidy of the mortgage taker, and who pays for it is everyone who pays any other tax, fee, or tarriff to the feds–including even people with mortgages, whose other tax rates go up marginally to partially compensate for the income tax they aren’t paying on the income that goes to their mortgage interest.

      And for that it is a subsidy, it is not one that should be ended abruptly, instead, it should be wound down gradually, such that 97% of mortgage interest is deductible on mortgages taken out next year, 94% after that, and 91% after that, and so on.

      As the uncertainty caused by Obama shows, changing the rules of the game out from under people is usually more damaging than it’s worth.

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