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My Sunday Washington Post Business Section column is out. This morning, we look at how the Foreclosure machinery is creaking back to life.

The basic concept is that after a year plus of voluntary foreclosure abatements, the banks are now returning to normal foreclosure processing.

Here’s an excerpt from the column:

“With all that legal unpleasantness behind them, the voluntary foreclosure abatements quietly ended. This year, the banks began to once again review unpaid home loans. It takes a while for the creaky, wheezy, inadequate machinery of processing defaulted mortgages to rumble back to life. So it has — and we should expect to see signs of increasing foreclosures and distressed sales any day now . . .

Current foreclosure filings — default notices, scheduled auctions and bank repossessions — increased in May by 9 percent, according to the RealtyTrac monthly foreclosure report.

This was right on cue. With the abatements over, foreclosure starts are creeping up again. As the foreclosure machinery ramps up, the negative ramifications they bring will expand. More distressed sales, lower prices and increasingly tough comparable appraisals are likely over the next 12 months..”

The Post’s graphics department did a nice job with the RealtyTrac data:

 

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Source:
Foreclosure machinery creaks back to life
Barry Ritholtz
Washington Post, June 24 2012  
http://www.washingtonpost.com/2012/06/23/gJQASAQOyV_story.html

june2412 Gx6-5 (PDF)

Category: Apprenticed Investor, Foreclosures

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “WaPo: Foreclosure Machinery Creaks Back to Life”

  1. Mike in Nola says:

    While I agree that foreclosures SHOULD increase greatly, the question is whether lender who have been extending and pretending for five years have any incentive to increase foreclosure filings and the consequent recognition of losses while the regulators give them a wink and a nod on asset valuation.

  2. Chief Tomahawk says:

    BR, between your Post piece and Mish’s http://www.washingtonpost.com/2012/06/23/gJQASAQOyV_story.html, housing seems poised for 20% more downside. That’ll leave a stain.

  3. ConscienceofaConservative says:

    Unfortunately the current state of the market is such that we’re seeing a greater concentration of home ownership. More families are renting, and the homes that do sell are going to investors. While not a microcosim for the nation, in Manhattan the average Condominium is seeing an increased percentage of new sales going to investors or to quote the Brits “buy to let”

  4. Lee Adler says:

    This month’s data stacks up like this. The actual median sale price of $182,600 in May was up 7.2% on an annual basis and 5.1% month to month. That compares with a similar 5.1% gain in May of 2011. The pace of recent gains was maintained in May. Both years were better than the 2009 May gain of 1.3% which was right around the time that the market apparently began to bottom out.

    The annual housing price cycle normally peaks in July, although last year the high was in June. This year’s level already exceeds the June 2011 peak of $175,500 and the July 2010 peak of $182,100. Stock market technicians would recognize the resulting price pattern on the chart as a breakout from a 4 year base pattern. Such breakouts usually correlate with major trend reversals. Concepts like that are likely foreign to the pompous ass academic and Wall Street shill conomists who populate the mainstream media, which may be one of the reasons most of them never understand what is going on until after the fact when it’s too late to do any good.

    Meanwhile, good marketable inventory has declined sharply, with current inventory of 2,490,000 listings down by 640,000 or 20.4% from last year. I have for the past 2 years repeated explained why “shadow inventory” is no threat. If you are not familiar with that, see some of my past housing pieces.

    The rest at http://wallstreetexaminer.com/2012/06/21/mainstream-media-gets-it-wrong-in-coincidental-truth-telling-nar-pr-shows-house-market-strengthening/

  5. Lee Adler says:

    Robert Shiller has finally gone off the deep end. He wants to condemn millions of US guaranteed mortgages from the bankster mafia.

    This is nuts. Mass condemning mortgages would be an unworkable mess, would take years, and would fail. The lawyers and appraisers would make out like bandits though. And for sure, the taxpayers would get screwed, just like they always do.

    Shiller- “Governments could seize underwater mortgages, paying investors fair market value for them.”

    Simple. Just like that, huh?

    As a former commercial real estate appraiser who sometimes worked on condemnation cases (although I tried to avoid them as much as possible) it’s plain to me that Shiller and the guy who proposed this hare brained idea know absolutely nothing about the nuts and bolts of the condemnation process. I’m far from an expert, but I know that you don’t just say “Poof, I take these properties,” and just like that it’s done in a flash.

    Let’s say that the City of Cleveland wants to seize all the underwater mortgages there. That would be probably a couple hundred thousand mortgages. Has anyone thought about how many different investors might be involved? Dozens? Hundreds? Did anyone stop to think that these investors are often institutions plenty big enough to afford lawyers to challenge the process? And in some states, the condemning authority must pay the legal fees and reasonable costs of the property owner challenging the condemnation in court.

    Mass condemnations take years, they have enormous costs, and are fraught with risk and legal challenges from property owners. I have seen condemnations for large takings last as long as 10-12 years from the initial proposal to completion of the taking. Markets can go through an entire cycle by the time they are complete, and municipalities invariably grossly overpay when they finally are able to acquire all the properties. It is often far, far more than when they first made a public announcement of the idea.

    The rest at http://wallstreetexaminer.com/2012/06/23/shiller-wants-to-condemn-millions-of-us-guaranteed-mortgages-from-the-bankster-mafia/

  6. StudsTerkel says:

    Amen, Lee Adleer

  7. Mike in Nola says:

    Lee: agree with you that condemnations sound good on the surface would be unworkable. I think some state official somewhere came up with the idea. At least someone is thinking creatively.

    I do believe the figures you are quoting on supply are the result of artificial choking off of supply because of lack of foreclosures. As Barry points out, there should be millions in the pipeline. How long the present state can go on is the question.

  8. bdw says:

    In this latest crank up of the foreclosure machine, what evidence is there from the facts on the ground that the process is not continued to be full of illegal actions as pass one have?

    Eaton V. Fannie Mae decision’s only can’t do it moving forward was a liability release for creditors and title insurers: http://in.reuters.com/article/2012/06/22/massachusetts-foreclosures-idINL2E8HM7BI20120622

  9. theexpertisin says:

    Lee Adler is absolutely correct with his comment.

    BR is correct with his housing analysis.

    Shiller is living in a fool’s paradise if he thinks this scheme of his is going to resolve the housing crisis. What a crock of shit.

  10. Mike in Nola says:

    bdw: It probably will be as bad as past actions, since lenders have gotten a practically free pass from the settlement.

  11. rktbrkr says:

    Barry, Excellent column. I have a couple questions.
    The Realty trac numbers for 2011 show about 700K REO,1M public auction and another 1M in default. Does this mean that there are “only” 700K homes total, shadow and listed in inventory? And the banks have sold about 1M at auction during the year – do banks sell most of their seized properties at auction not thru brokers? I thought banks ended up owning most of the auctioned properties because they bid what is owed to them which is more than the current market value – which would put those auction sales into REO inventory.

    The tax break for short sales is due to end this year, what impact do you think this will have on sales if it isn’t extended. I couldn’t imagine getting hammered with an IRS assessment for ordinary income for a major loss on a primary residence sale but it could happen starting next year.

    Thanks

  12. Lee,

    then, you’ll be pleased to see..

    “(Reuters) – Here’s a controversial but intriguing approach to the U.S. housing crisis: keep cash-strapped residents in their homes by condemning their mortgages.

    A mortgage firm backed by a number of prominent West Coast financiers is pushing local politicians in California and a handful of other states hardest hit by the housing crisis to use eminent domain to restructure mortgages that borrowers owe more money on than their homes are actually worth.

    San Francisco-based Mortgage Resolution Partners, in a presentation reviewed by Reuters, says condemning so-called underwater mortgages and taking them out of the hands of private lenders and bondholders is “the only practical way to modify mortgages on a large enough scale to solve the housing crisis.”

    Eminent domain is a well-tested power by local government to get a court order to take over a property it deems either blighted or needed for the public good.

    Over the years, governments have used eminent domain authority to clear urban slums or seize land to build highways and bridges.

    The power to do this is often controversial because landowners don’t have much negotiating power. And in this case, potentially even more controversial since it has never been used to sieze mortgages held by private investors or financial institutions.

    Under the ambitious proposal, Mortgage Resolution Partners would work with local governments to find institutional investors willing to provide tens of billions of dollars to finance the condemnation process to avoid using taxpayer dollars to acquire millions of distressed mortgages.

    A local government entity takes title to the loans and pays the original mortgage owner the fair value with the money provided by institutional investors.

    Mortgage Resolution Partners works to restructure the loans, enabling stressed homeowners to reduce their monthly mortgage payments. The restructured loans could then be sold to hedge funds, pension funds and other institutional investors with the proceeds paying back the outside financiers….”
    http://www.reuters.com/article/2012/06/08/us-mortgages-condemnation-housing-idUSBRE85719Z20120608

  13. Nala says:

    As usual, I’d like this analysis and forecast broken down by metro market. Have Vegas, Phoenix and various Florida markets pretty much blown through their defaults already, or is a lot more to come in those areas? Have the “solid” markets — NYC, SF, DC, maybe Boston — pulled through, or are they poised to plummet, finally?

  14. rct01 says:

    I’m so glad they are foreclosing again and getting those freeloaders out of their houses that haven’t made their payments in 1-3 years. The media coverage of the whole real estate down turn has been so one sided portraying homeowners as “victims” it has made me sick to my stomach. A very small % the people losing their homes were “deceived” and taken advantage of by lenders. The vast majority bought property out of greed because they saw their neighbors house going up $100k a year, or they did a cash out refinance and bought the hummer and the RV and have nothing to show for it, or they lied about their income on their loan app. But now they want to whine for their modification or principle reduction to that bad mean lender who gave them a loan. What a disgrace how one-sided the media portrayal has been of this the last few years. What a joke how democrat attorney generals and legislatures are now trying to create all these new hurdles in front of banks that want to foreclose and enforce their contract. The unintended consequences are you are never going to get private lenders wanting to come and and lend again and it will drive up the fees and rates to get a loan because it is going to be so hard for lenders to enforce their contract and foreclose on deadbeats who don’t make their payments.

  15. “…The unintended consequences are you are never going to get private lenders wanting to come and and lend again and it will drive up the fees and rates to get a loan because it is going to be so hard for lenders to enforce their contract and foreclose on deadbeats who don’t make their payments…”

    rct01,

    you purport that those are “unintended” consequences..

    are you Sure? How do You Know? Can you Prove that?

    to be Clear, those Three, above, are Real Questions..

  16. EdDunkle says:

    “The vast majority bought property out of greed because they saw their neighbors house going up $100k a year, or they did a cash out refinance and bought the hummer and the RV and have nothing to show for it, or they lied about their income on their loan app.”

    Yes, but if the banks weren’t so completely corrupt, they wouldn’t have made these loans in the first place. The banks did zero due diligence and were encouraging people to lie on their applications.

  17. rktbrkr says:

    Nala Says:
    As usual, I’d like this analysis and forecast broken down by metro market. Have Vegas, Phoenix and various Florida markets pretty much blown through their defaults already, or is a lot more to come in those areas? Have the “solid” markets — NYC, SF, DC, maybe Boston — pulled through, or are they poised to plummet, finally?

    Nala – generally I think the non-judicial foreclosure states,AZ notably, have plowed ahead and the banks have seized and sold lots of properties while judicial foreclosure states,FL notably, have been hung up for 12+ months (semi) clearing up the robo fraud and the banks and courts are playing catch up.

    NY and NJ have imposed lots of protections for homeowers and banks and lawyers are being cautious with their foreclosure efforts.

  18. Jim67545 says:

    Mark Hoffer: At least in commercial loans, which are priced individually, the cost of assembly and disposal of collateral definitely figures into the pricing. On a portfolio level, such as single family mortgages, it would also influence pricing if not sold to the GSEs (which are US Govt debt proxies.) Further, the cost of handling any defaults would be considered. Jamie Dimon Friday told Tom Brown that JPM has 28,000 employees working on modifications and foreclosures, up from 2,000 several years ago. Individual private investors, seeing this mess and being unwilling to make an unproductive investment in manpower like this, would simply invest elsewhere. That is why there is virtually no private label mortgage market any more. For an article on the inability to refinance a jumbo private label mortgage see Calculated Risk today.

    On the point of condemnation of mortgages, I agree with Lee Adler. Under the Uniform Relocation Act the one using eminent domain must pay the property owner a “fair market value.” It would take years to adjudicate what a fair market value is on a foreclosed mortgage. Is it the fair market value of the real estate under normal market conditions (exposed to the market under normal retail conditions) or a distressed market value or a foreclosed (courthouse step auction) value?? Most places now have several different tiers of real estate sales – normal, short sale, foreclosure, OREO.

    On the point of the article, one needs to consider the impact on the economy when ???,??? households go from not paying on their mortgage (and using those funds for other family needs and/or consumer expenditures) to having to pay rent somewhere or else get evicted. Another wave of misery flowing into the economy and burden on the so-called safety net.

  19. rct01 says:

    ***********June 24th, 2012 at 10:01 pm
    “…The unintended consequences are you are never going to get private lenders wanting to come and and lend again and it will drive up the fees and rates to get a loan because it is going to be so hard for lenders to enforce their contract and foreclose on deadbeats who don’t make their payments…”

    rct01,

    you purport that those are “unintended” consequences..

    are you Sure? How do You Know? Can you Prove that?

    to be Clear, those Three, above, are Real Questions..****************

    —–>Hi Mark…I can’t prove these will be the unintended consequences but what do you think? The mortgage market right now is 98% Gov’t backed (fannie, freddie, FHA,VA). There is virtually no private label mortgages being made. Would you want to lend your money if it is now going to take all these additional costs and hurdles to enforce your contract and foreclose if the borrower doesn’t pay? Would you want to make a loan if the Gov’t can enact “eminent domain” and force you to reduce the principle your note at any time? Would you want to raise your rates, down payments and fees to compensate for these additional risks?

    In the state of CA the foreclosure process has been the same for 100 years. You miss 2 payments you get a notice of default, 3 more a notice of sale, and 3 weeks later your house is auctioned at the court house step & former owner is evicted. I do not know why we ever had to change this! Now the looney democratic controlled legislature in CA is adding all these additional hurdles, costs, penalties and altering that foreclosure process that worked for 100 years. I would certainly NOT want to make a mortgage loan in CA unless I was getting really well compensated for all this additional risk and red tape.