[THS] Mike Whitney: Mortgage Madness: Let The Fleecing Begin

[The Harder Stuff in news and commentary]

http://www.informationclearinghouse.info/article25305.htm

Mortgage Madness: Let The Fleecing Begin

By Mike Whitney

April 23, 2010 "Information Clearing House" -- Housing has been going sideways for
seven months now, mainly due to lax lending standards (at FHA), the Firsttime
Homebuyers Credit, and the Fed's mortgage-backed securities (MBS) buyback
program. But once the props are removed, the market will fall sharply.

So where's the real, organic demand for housing?

Here's a hint: There isn't any.

The market's in a shambles, decimated by years of fraud and perfidy. What was once
a booming industry is now a shriveled, abscess-ridden corpse that buyers are
avoiding like the plague. And who can blame them? A new home is no longer a
symbol of status and upward mobility, but a millstone to be shed at the earliest
possible opportunity. The industry is facing an insurmountable PR challenge; how to
take a "sou's ear" and stitch it into a Gucci purse. Good luck with that. Low interest
rates and federal subsidies alone won't do the trick.

Despite the media-hype and cheery forecasts, the downhill slide has already begun.
Here's the lowdown from Realty Check which sums it up pretty well:

"The average number of days from when a borrower stops paying on his/her
mortgage to when the bank sends out the first foreclosure notice is 417....And the
final foreclosure can take up to a year more. The government's Home Affordable
Modification Program, which today the Inspector General for the TARP wrote, "has
made little progress in stemming the onslaught".... is simply delaying the inevitable
and in some cases kicking the can and the cost down the road for borrowers who will
inevitably redefault and for taxpayers who will foot the bill." (Diana Olick Realty
Check, CNBC)

Full-stop. So the banks are taking more than two years to roll-over a house...even
when they KNOW the homeowner has no intention of paying? Think about that for a
minute. The only reason the banks would hold-off that long is if they can't afford to
writedown the losses. So, it's all a big accounting charade to keep the public from
knowing that they're broke. That's the only logical explanation. Back to the article:

"Ivy Zelman did a simple exercise of adding shadow inventory to the seemingly
improving inventory numbers. In DC for example, she cites a 5.1 month supply of
homes for sale, well below the nation's 8 month supply. But add the shadow
inventory of foreclosures, and you get a 13.2 month supply. She claims builders
"underwriting ground are unaware of these headwinds." Just after she said that, a
guy sitting behind me whispered an expletive under his breath." (Diana Olick Realty
Check, CNBC)

It's all about supply and demand, and right now there's way too much supply
(shadow inventory) and not-nearly enough demand. So, the banks are dragging
their feet--keeping 5 or 6 months supply off-market--to keep prices artificiality high
while they pray for a miracle. It's pathetic, and it's having a ripple-effect on the
economy too, because the added pressure on bank capital makes it impossible for
them to increase lending. That's why most bank's loan books have shrunk by 20
percent or more year-over-year. Back to Realty Check:

"On the low end of the market, that is homes priced below $150,000, investors
comprise 2/3 of the purchasers, according to Zelman. Another study out today from
Campbell Surveys also found that 50% of sales in March were of distressed properties
(foreclosures or short sales) (Diana Olick Realty Check, CNBC)

Sure, the low end of the market is Jim-dandy. It's already hit rock bottom, so things
are starting to look rosy. But what about the mid-range and high-end where folks are
hanging on by their fingernails hoping the market will bounce back? Is anything
moving in that market? Not really.

"The trouble of course is the higher end, over $400,000 where investors can't buy
with all cash and the mortgage market is closed. Zelman cites a 45 month supply of
homes between $400-600,000.

Unfortunately, the government is ignoring the higher end of the market, and
ignoring higher end borrowers who may be in trouble due to unemployment. Jumbo
loans are excluded from the federal mortgage bailout." (Diana Olick Realty Check,
CNBC)

45 months? 4 years to sell a mid-priced home? That's a lifetime!

And how about this nugget about Bank of America via Housingwire:

"Bank of America is considering a special program for unemployed borrowers that
would offer as many as nine months of no mortgage payments while they hunt for a
new job."

Great. So, the same bank that borrows money from the Fed at zero-rates and dings
you double-digits on your credit card if you're even a day late, wants to extend a
helping hand in your hour of need? Right. There are no good Samaritan banksters,
just tight-fisted scalawags who'd squeeze the blood from a turnip if they could figure
out how. If B of A is giving folks a break, it's because their backs are against the wall
and they have no other choice. It means they're underwater themselves.

And one final note. The Treasury Dept recently reported that the number of
"permanent" mortgage mods under the Obama whizzbang program, have more than
doubled since its kickoff just a few months ago.

According to economist Dean Baker, "This indicates that a very high percentage of
the permanent modifications are likely to end in default."

But here's the shocker:

"The money that the government spends on a failed modification goes to banks, not
homeowners. Typically, the government will have substituted an FHA insured
mortgage for the original mortgage issued by a bank. This means that when a
redefault takes place, the bank will have received most of the principle back on the
loan, with the government incurring the loss on the redefault." (Dean Baker, CEPR,
"Money for Failed Modifications Goes to Banks, Not Homeowners")

What does it mean? It means that the Obama mortgage flim-flam is another stealth
bailout to shoehorn bankers into government-guaranteed loans so John Q. Public
gets saddled with the bill again. Sound familiar?