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bkkandrew

U.S. Foreclosures Double as House Prices Decline (Update2)


By Bob Ivry




July 25 (Bloomberg) -- U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

``Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. ``That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

Continued here:

Bloomberg.com: Worldwide

I am too busy to be on the forum much at the moment, due to massive impending calamaties in the financial sector that I am trying to deal with. I will try and keep posting some pertinent articles when I have time though...

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The future of TeakDoor:


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A funny thing happened today - Ant trolls, stalks, prevokes and generally upsets approximately 15 members of the board, yet Noodles goes to jail. Perhaps it was a dream...
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bkkandrew

And more doom:

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide

As previously warned, the US financial system is broken, unsustainable and bankrupt. Any Expats with funds they may need that are tied to US banks or currency should make exit plans now.

bkkandrew

WASHINGTON - Mortgage finance company Fannie Mae swung to a second-quarter loss that was more than triple what Wall Street expected as conditions in the housing market continued to deteriorate.

The Washington-based company, the largest U.S. buyer and backer of home loans, said today that it lost $2.3 billion, or $2.54 a share, for the quarter that ended June 30. The loss compares with profit of $1.95 billion, or $1.86 a share, in the period last year.

Analysts surveyed by Thomson Financial had expected a loss of just 68 cents a share. And it appears that more bad news is ahead.

Continued at:

Fannie Mae posts $2.3B loss as defaults rise | Philadelphia Inquirer | 08/08/2008

bkkandrew

House in Detroit Sells for $1


In what might be considered a new low for the housing market, a home in Detroit sold for $1.

The home, located at 8111 Traverse Street, close to the Detroit City Airport, was foreclosed upon last summer, after it was purchased for $65,000 in 2006, according to an article in The Detroit News.

The bank was so eager to sell the foreclosed property, it lowered the price to $1 in a final attempt to find a buyer. According to the newspaper, 14 days after the property was listed for $1, a local woman purchased the house as “an investment property." The property taxes will run the new owner $3,900, in 2009.

At the time of sale, the home had been stripped of its siding, fence, light fixtures, copper plumbing—even the kitchen sink had been taken. Boards that were used to board up the windows were also stolen and used to board up a house down the street, according to The Detroit News.

House in Detroit Sells for $1 - FOXBusiness.com

bkkandrew

Jet Gorgon

Yes, this is dismal. Just reading that the Treasury may allow "well-capitalised" fincos to take over pension funds for trading. Uh oh.

Norton

Perfect. A two for one deal. Lose your savings and your retirement all in one easy step! Treasury idiots.

Butterfly

There was an interesting story in the WSJ about this, apparently some private corp are using their employees Pension funds money to "buy" and "secure" life insurance for their top executives. Not sure if this is illegal as in the US nothing is illegal unless there is a law against it. That's how the subprime mess came to be.

bkkandrew

The Final Fate of Fannie and Freddie

Partial bailout or full-on takeover, here's how the rescue of the troubled government-sponsored enterprises could ripple through the financial system

Securities and Exchange Commission Chairman Christopher Cox (R), Treasury Secretary Henry Paulson (L), and Federal Reserve Board Chairman Ben Bernanke testify before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill July 15, 2008.

The market's pummeling of Freddie Mac (FRE) and Fannie Mae (FNM) eased up a bit on Aug. 21, after four days of selling. But with the stocks both down more than 85% year-to-date, investors appear to believe it's a question of when, not if, the Treasury Dept. will be forced to use its newly acquired powers to bail out the mortgage giants.

Of course, the authority Congress granted to Treasury Secretary Henry Paulson to invest in Fannie and Freddie's shares—or make loans to the troubled companies—was supposed to strengthen them. It's had the opposite effect. The stocks are now both trading under 5, a sign that investors believe the companies' common equity will be wiped out in any bailout package.

But the pain goes deeper. Preferred shares of the government-sponsored enterprises (GSEs) have lost roughly 80% of their value, as Wall Street ponders their fate. Even their subordinated debt, which historically traded at a similar yield to the GSE's senior debt, now trades at historically wide spreads of three to four percentage points above the senior debt. Only senior creditors seem completely assured of getting their money back. But neither Treasury officials nor Fannie and Freddie executives are giving their plans away just yet. "It's kind of [like] radio silence," says one credit trader familiar with the situation.

Holding the Status Quo

Of course, some argue that a bailout can wait. As of early August, both Fannie's and Freddie's capital holdings were above their mandatory levels, with Freddie possessing a capital requirement surplus of $2.7 billion and Fannie holding $9.4 billion in additional cash. Credit research outfit CreditSights estimates that Fannie and Freddie could lose $17.3 billion and $8 billion, respectively, before breaching government-mandated capital levels. Meanwhile, both continue to be able to service their debt at a reasonable, if historically high, interest rate about 30 basis points below the London interbank offered rate.

Paulson is probably just hoping the status quo holds for a while longer. When he argued in favor of Treasury's increased power over Fannie and Freddie in July, Paulson claimed that just having the ability to act would prevent him from needing to. The Bush Administration is hoping to steer clear of another high-profile bailout after the Bear Stearns mess, and if Fannie's and Freddie's capital positions hold up reasonably well, Treasury could wait for the GSEs to burn through their cash before making any moves. The "key players would likely prefer to delay action until after the November elections if possible," Richard Hofmann, an analyst at CreditSights, wrote in a recent research report.

Treasury, however, may not have the luxury of time. While Fannie was able to raise $7.4 billion during the second quarter, Freddie held off on seeking the $5.5 billion it announced it would raise. With its stock at 3.16 and speculation high that a bailout is inevitable, it may be difficult to coax additional capital into Freddie's coffers, either with common stock or preferred shares. Without the cash, Freddie could breach its mandatory surplus threshold in the third quarter of this year.

The Olympics of Finance

And so, the GSE watch has become the financial world's version of the Olympics—no one can take their eyes off it. Part of this is practical, as banks hold enormous amounts of Fannie and Freddie preferred shares and subordinated debt on their balance sheets. If the preferred equity is wiped out, banks will have to take more capital writedowns, adding to their already enormous troubles, says Dory Wiley, CEO of Dallas-based Commerce Street Capital.

Fannie and Freddie make up about half of the U.S. mortgage market, and with them on the ropes, there's little chance for a housing recovery. Without a housing recovery, the credit markets will continue to be jammed up. And things promise to get worse before they get better. Fannie and Freddie have about $250 billion in debt to refinance in September, and everyone will be watching to see if they're successful. As long as their futures are uncertain, much of the credit market will remain in the doldrums. "They're the pivot point of the whole credit market," says Samson Capital Advisors' Benjamin Thompson.

Of course, there's one simple solution to the GSE problem: nationalize them, says analyst Chris Whalen of Institutional Risk Analytics. He says the Treasury should go ahead and wipe out the common equity, which the market has pretty much done on its own anyway, and promise to make holders of preferred stocks and subordinated debt whole. And financing? If the two mortgage financiers are taken over by the government, notes Whalen, "you don't have to worry about financing."

The Final Fate of Fannie and Freddie

raycarey

so what happens to US dollar when 'phoney' and 'fraudy' get bailed out / nationalized?

look out below!

btw, i got the phoney and fraudy from barry ritholtz's site.

bkkandrew

^Tip, it will go down, but not as low as it will when the US defaults on its Sovereign debt.

bkkandrew

These homes for sale suck

Never before have there been so many squalid, dilapidated homes on the market - and they're helping to exaggerate already-plummeting home prices.

#yahooBuzzBadge-form{text-transform:uppercase;}#shareMenu{display:none;}


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This boarded-up, bank-owned home is on the market in Milwaukee.
On the inside, that Milwaukee home has been picked clean.
NEW YORK (CNNMoney.com) -- Mold, maggots and piles of festering trash - no wonder home prices are in freefall.


It's not just the subprime mortgage crisis that's to blame for plummeting home prices. A flood of squalid properties on the market is helping to exaggerate the post-bubble price declines.

"Part of the reason home prices are declining is a fundamental deterioration in the housing stock," said Glenn Kelman, CEO of the online, discount broker Redfin. "During the boom, nine out of 10 houses for sale in many markets were in prime condition. Now, for every 10 houses, at least three are dogs."

Most of these mutts are foreclosed properties that have been permitted to fall into disrepair by lenders overwhelmed with thousands of vacant homes. If these houses sell at all, they're going for bargain basement prices that are hurting home values throughout the neighborhood.

"I've never seen so many houses in this condition before," said Ray Anderson of Buyer's Advantage Real Estate in Auburn Calif., near Sacramento. "And I've been in the business 20 years. I've seen bank-owned properties in the past. They were never like this."

Distressed properties usually sell for discounts of 10% to 40% below comparable, well-maintained homes, according to Tom Inserra, executive vice president for Zaio, an appraisal company that is creating a national database of home values.

Richard Smith, CEO of Realogy, the parent company for Coldwell Banker, Century 21 and Sotheby's International Realty, estimates that homes that are not bank-owned have actually only seen price declines in the low single digits over the past 12 months. That's compared with the 15% price drop recorded by the S&P/Case-Shiller Index for all homes over the same period.

'Crime scene'

Lori Mize has firsthand experience with horrible homes for sale. She waited for years for prices to come down in her Elk Grove, Calif. home area, just east of Sacramento. With the median home there now selling 30% below the market's peak, Mize thought it was time to buy. But nearly all the homes in her price range - $250,000 to $300,000 - are bank-owned properties, which tend to be in the most beat-up condition.

After looking at a few of them, she was almost ready to give up.

"The first one I saw was the worst home I had ever seen in my life," said the married mother of two young girls. "There were magic-marker messages on the front door saying, 'STAY OUT.' They had poured paint and other stuff on the carpets. There was a lot of trash. I felt like I was at the scene of a crime. I wouldn't let my daughters touch anything."

In Florida, another foreclosure hot spot, vacant homes deteriorate rapidly in the high heat and humidity.

Garbage and food that's left behind fester. "The properties smell," said Eve Alexander, an agent in Orlando. "You find maggots. The swimming pools are green. The lawns dry up. They're eyesores. Neighbors yell at us to water the lawn."

Often the homes have been stripped bare. "All the kitchen appliances, cabinets and countertops, bathroom fixtures, lights are [stolen]," she said.

Others trash the place before they leave, according to Adele Hrovat, a real estate agent with the Buyer's Realty of Las Vegas. "They punch holes in the walls, dump oil on the carpets. The banks are so overwhelmed, they haven't gotten to the point when they send in crews to fix them up," she said.

Indeed, soaring foreclosures have returned many houses to their lenders, who put them right back on the market - usually as is.

Nationally 18.6% of all homes sold during the three months ended June 30 were foreclosures, compared with just 7% during the same period a year earlier, and 3.1% in 2006, according to the real estate Web site Zillow.com. And that doesn't include short sales, which is when a home is sold for less than the mortgage balance and the bank forgives the unpaid balance and also account for a lot of sales in many areas.

Just a few years ago in Detroit, only one in a hundred listings were foreclosures or short sales, according to agent David Mills of Homebuyer's Realty. Now half of the listings are. Some have been badly damaged and suffered huge drops in value.

"A three-year old home that recently sold for $660,000 is listed for $350,000. There's no kitchen, no master bath. The toilet was taken, the tub, cabinets gone."

A growing problem

With the number of foreclosed properties projected to keep rising, there seems to be no end in sight to falling prices, according to Texas A&M real estate economist Mark Dotzour. Even though many of these dilapidated homes are actually pretty good bargains, Dotzour isn't surprised that more people aren't jumping in. Everyone is reluctant to buy in a declining market.

"Once buyers start to feel confident that prices in a given community have stabilized, they'll start buying again," he said.

For that to happen, the natural population increase will have to absorb all the excess housing inventory, until supply and demand are in balance again.

In the meantime, Congress has allocated $4 billion for municipalities to rehab derelict foreclosures in an effort to prevent them from dragging down nearby neighborhoods.

But mostly hitting bottom is just waiting for market events to play out and the construction of new homes drops and remains below below the replacement rate for a while.

"Once that inventory is gone, we'll be at the market bottom, and the price trajectory will flatten out," said Dotzour.

Until then, dilapidated homes will continue to aggravate the steep price drops being recorded throughout the nation.