by Jim the Realtor | Apr 3, 2010 | Bailout, Thinking of Buying?, Thinking of Selling? |
Hat tip to JimG for sending this along:
Timothy Geithner is a Sniveling Scamster
Whew. That was fast. It didn’t take long for Wall Street to figure out how to game Obama’s new mortgage modification program, did it? The plan was hyped as help for “struggling homeowners”, but it turns out, it’s just another stealth bailout for pudgy bank-execs. It’s funny, the program hasn’t even kicked in yet and, already, bigtime speculators are riffling through their filing cabinets looking any garbage paper they can find to dump on Uncle Sam. Take a look at this on today’s Bloomberg report:
“Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump….Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. (Bloomberg)
What does it mean? It means that Obama’s mortgage modification extravaganza has touched-off a gold rush in toxic paper. Subprime securitizations, which had been worth next to nothing, are now the hottest trade on Wall Street. It’s a subprime bonanza! The investment sharpies are scarfing up all the crummy MBS they can get their hands on, because they know they can trade it in for Triple A FHA-backed loans when the program get’s going. It’s another swindle cooked up by Treasury Secretary Timothy Geithner to keep the brokerage clan in the clover. Here’s how a Wall Street veteran explained it to me:
“It looks like the investors in securitizations will be swapping underwater real estate for govt-insured paper… I think the scam here is just to provide some cover so the hedge funds and other high net worth individuals can trade their low grade paper for Triple AAA mortgages insured by the FHA at the taxpayer expense.”
That’s it, in a nutshell. The faux-foreclosure prevention program has nothing to do with helping homeowners. That’s just diversionary gibberish to confuse the public. The real objective is to create a government landfill (aka–FHA) where the banks and other financial institutions can dump their toxic MBS-sludge and walk away with gov-backed loans. Get a load of this:
(Bloomberg) — The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed…
What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds,” said Christopher Sebald, chief investment officer for Advantus Capital Management in St. Paul, Minnesota…
Advantus is purchasing mortgage bonds after the Fed’s program drained supply in the $5.4 trillion market.” (Bloomberg)
Of course, they’re “purchasing mortgage bonds”, because the government is going to insure them. It’s a “no brainer”. And don’t you love that expression, “a handoff”, because that’s exactly what it is. The government hasn’t stopped pumping liquidity into the system; they’ve just found another entry-point where they can push it in. Here’s how it works: The new program offers incentives to banks and other deep-pocketed investors (in mortgage-backed securities) to slash the principal on underwater mortgages which keeps people from strategic default or foreclosure. Sounds good, right? But here’s the catch: When the mortgage is refinanced, it’s converted into a FHA-backed loan which provides an explicit gov-guarantee. So, for a slight loss on the face-value of the MBS, the investors (ie–investment banks, hedgies, etc) are able to resuscitate their moribund securitizations (MBS) and reap hefty gains. It’s like taking Fido’s steaming pile on the front lawn and turning it into the Hope Diamond. Abracadabra!
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by Jim the Realtor | Apr 1, 2010 | Auctions, Bailout, Buying at Trustee Sale, Foreclosures/REOs, Frenzy, Graphs of Market Indicators |
We could use some good old-fashioned market clearing – maybe this is a start?
JimG brought it up, and our friend Effective Demand has charted the increase in Bank of America foreclosure activity for Southern California – recently their number of auctions has spiked:
More auctions, more short sales, more REOs, let’s GO!
Freddie Mac also announced today:
McLean, VA – Freddie Mac (NYSE:FRE) and New Vista today announced plans to auction hundreds of HomeSteps® REO homes to individual homebuyers in Las Vegas on April 24, 2010 and in California’s Inland Empire on April 25, 2010 in support of the federal Neighborhood Stabilization Program (NSP) and to help more first time homebuyers and owner occupants purchase these homes. HomeSteps is the real estate sales unit of Freddie Mac and markets a nationwide selection of Freddie Mac-owned homes.
Under the 2009 Neighborhood Stabilization Program, homebuyers are eligible for closing costs and down payment assistance when they buy foreclosed or abandoned homes in designated communities that were hit hard by the housing downturn. This federal assistance combined with the federal tax credit will provide the buyer with significant financial advantage in purchasing HomeSteps homes.
“Freddie Mac’s first-time homebuyer auctions in Las Vegas and in California’s Inland Empire builds on our long-standing effort to use our REO inventory to foster new opportunities for new homeowners and shows another way Freddie Mac is working to achieve the Obama Administration’s goals of stabilizing and reviving impacted communities,” said Ingrid Beckles, Senior Vice President, Default Asset Management at Freddie Mac.
“Together with today’s low mortgage rates, these April auctions will enable Las Vegas and Inland Empire families to take advantage of the unique convergence of opportunities that make HomeSteps homes exceptionally attractive values,” said Chris Bowden, vice president of HomeSteps. “Working with New Vista underscores Freddie Mac’s commitment to manage its REO inventory in a way that helps stabilize communities, fosters homeownership opportunities, and responsibly safeguards tax dollars.”
“Owner-occupants are the key to revitalizing and strengthening neighborhoods that have been hard hit by the economy,” said Jim Park, CEO of New Vista. “Working with Freddie Mac, New Vista has created a one day homebuyer event that gives first time and owner occupant buyers an exclusive opportunity to purchase HomeSteps homes. These unique events will help turn hundreds of foreclosed properties into homes for many deserving families.”
New Vista will hold open houses on April 10 and April 17 – 18 in Las Vegas and the Inland Empire so interested buyers can tour the HomeSteps homes before the April 24 and 25 auctions. Potential buyers can also find property descriptions at auction.com/.
by Jim the Realtor | Mar 25, 2010 | Bailout, Housing Tax Credit, Thinking of Buying?, Thinking of Selling? |
Thanks to Mark for sending along this confirmation of first-time home buyers being able to claim both the federal and state tax credits, from the WSJ:
But, it might not get off to a peaceful start on May 1: Get ready for a stampede early on as some buyers rush to overlap with the federal tax credit that’s dangling as much as $8,000 to buyers. (Yes, that’s up to $18,000 for buying a house.)
For the federal incentive, contracts must be inked by April 30, while closings have to happen by June 30. The California credit covers closings on existing or new homes on or after May 1, leaving a short window for double dipping. “We already anticipated increased contract activity in March and April due to the federal tax credit with scheduled closings in May and June,” writes Credit Suisse builder analyst Dan Oppenheim. “These buyers will now be eligible for both the federal and state credit and will likely consume a significant piece of the state credit given the first-come, first-serve allocation.”
He estimates the tax credit will benefit about 14,000 new-home buyers, lasting as long as five months. KB Home and Lennar could benefit the most given “their outsized exposure to California at 44% and 25% of ’09 revenues, respectively, vs. the 20% group average.”
Given that the state’s existing sales dwarf new sales – 2009 saw an average of 42,500 closings per month – that allotment should be snapped up in about a month. Stampede, indeed.
by Jim the Realtor | Mar 24, 2010 | Bailout |
(editor’s note – I inputted this before noon and forgot to press send!)
Bank of America’s announcement (link here):
Bank of America will on Wednesday announce plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home’s value or are battling ever-expanding “negative amortization” loans.
They’re going to knock off the neg-am portions that they have no hope of ever getting anyway? Not much of a concession or benefit there for anyone.
by Jim the Realtor | Mar 23, 2010 | Bailout |
First Arnie signs in $200 million more free cheese, now this. Although when I receive unsolicited emails I never know for sure how to verify them, so I’ll call this a rumor – but very believeable:
Jim,
I was just at a conference in NY and they said that the Treasury knows the HAMP program was not working because they were requiring homeowners to sign statements to document their income and no one wanted to do that. The Govt is going to stop requiring that additional documentation of income, and the expectation is that the numbers of mortgages being modified under HAMP will go up significantly.
by Jim the Realtor | Mar 23, 2010 | Bailout, Thinking of Buying? |
From the latimes.com
Sacramento — After weeks of bickering over how to cut the deficit-ridden budget, Gov. Arnold Schwarzenegger and lawmakers agreed Monday to trim $1.1 billion from mass transit but give new tax breaks to home buyers and green-technology companies.
The linchpin of the legislation is the tax credit of up to $10,000 for first-time home buyers and those purchasing newly built homes. It would take effect May 1. Lawmakers are setting aside $200 million to pay for it. Buyers can receive 5% of a home purchase price back as a state tax credit, up to $10,000, as long they reside there for two years.
A similar program that passed last year was wildly popular. Buyers snatched up all $100 million in available credits within months.
From Business Week:
In January, the governor proposed a $200 million tax credit that would allow first-time California homebuyers to claim up to $10,000 for new and existing homes. An earlier tax break capped the credit at $100 million only for those who bought new homes between March 1, 2009, and March 1, 2010.
The extension would apply to homes purchased between May 1, 2010, and Dec. 31, 2010.
Sen. Roy Ashburn, R-Bakersfield, who carried the homebuyer’s tax credit bill in the Senate, said there is no question last year’s program created jobs. “At a time when California’s economy needs a real jolt to get moving … this bill will make a difference,” Ashburn said.
Here is the link to the FTB to apply – they haven’t enacted the new form yet though:
http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml
by Jim the Realtor | Mar 18, 2010 | Bailout, Short Sales, Thinking of Selling? |
From NMN, a summary of HAFA, with doubts (more videos coming!):
As an alternative to foreclosure, the government’s forthcoming program to spur short sales may prove just as ineffectual as the push to modify loans.
In a short sale, the borrower sells the home for less than the amount owed on the mortgage and the lender accepts a discounted payoff. They can be far less costly to the lender than foreclosures.
But experts in such transactions say second-lien holders have scuttled many deals by reserving the right to chase after the borrower for the amount of debt not covered by the home sale in states where doing so is allowed.
“Subordinate lien holders are the biggest obstacle to successful short sales,” said Travis Hamel Olsen, the chief operating officer at Loan Resolution Corp.
The Home Affordable Foreclosure Alternatives program, which starts next month, will attempt to change that. To give junior mortgage holders an incentive to release their liens and waive any future claims against the borrower, the government will offer up to 3% of what they are owed, subject to a cap of $3,000 per home.
But that carrot may not be enticing enough. According to Olsen-whose Scottsdale, Ariz., company specializes in arranging short sales-second mortgage holders have been asking defaulted homeowners to come up with additional funds to bring the payoff on home equity loans to 6% of the unpaid principal.
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by Jim the Realtor | Mar 15, 2010 | Bailout, Loan Mods, Thinking of Buying? |
From NMN:
The SwapRent concept has been slow to find traction and faces some challenges, but its potential benefits make the case that there may be hope for it yet.
Among a host of benefits that could be realized from its large-scale implementation is its ability to address today’s loan resolution problems, according to creator Ralph Liu, founder/chairman of consultancy Advanced e-Financial Technologies Inc. and a veteran of the derivatives and global financial markets.
SwapRent could allow borrowers to reversibly and flexibly sell some, but not all, of the equity in their property back to the lender in exchange for a reduction in payment.
Although Mr. Liu’s ideas come from the derivative and swaps markets, which have come under fire during the recent financial crisis due to their complexity, in the case of SwapRent the concept is made simple for consumers.
“Everybody understands ‘renting vs. owning,'” he said.
Say a consumer is struggling to meet payments in a market where it costs $3,000 to own and $1,000 to rent. Using SwapRent, consumers could have a third option of making a $2,000 payment in which half the payment would be to rent the property and the other $1,000 would be for the right to 50% of future appreciation. The “temporary rent-own switching” could buy the time needed for a depreciating property to appreciate again, make the property more affordable for the borrower as well as avoid the foreclosure process costs and potential damage to the property.
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by Jim the Realtor | Mar 15, 2010 | Bailout, Loan Mods, Short Sales |
From the U-T:
WASHINGTON — With the Obama administration and private lenders now actively considering mortgage principal-reduction programs to help financially distressed homeowners, the Internal Revenue Service has issued a new advisory to taxpayers who receive — or seek to receive — such assistance if it’s offered.
The IRS gets involved in mortgage principal write-downs because the federal tax code generally treats any forgiveness of debt by a creditor in excess of $600 as ordinary taxable income to the recipient.
However, under legislation that took effect in 2007, certain home mortgage debt cancellations — such as through loan modifications, short sales or foreclosures — may be exempted from tax treatment as income.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corp., recently confirmed that her agency is working on a new program to expand the use of principal mortgage reductions to keep underwater borrowers out of foreclosure. Major banks and mortgage companies have preferred monthly payment reductions and other loan modification techniques over cuts of principal balances, but a handful have made limited use of the concept.
One of the largest servicers of subprime home loans, Ocwen Financial Services of West Palm Beach, Fla., has strongly advocated principal reductions to keep people out of foreclosure, and claimed broad success with them. Ron Faris, president of Ocwen, testified to a congressional subcommittee earlier this month that borrowers with negative equity are as much as twice as likely to re-default after a standard, payment-reduction loan modification than those who receive partial forgiveness on their principal debt.
But what are the tax implications when your lender essentially says: OK, we recognize you’re underwater, maybe you’re thinking about walking away, and we’re going to write off some of what you owe to keep you in the house? IRS guidance issued March 4 spelled out step by step how financially troubled and underwater borrowers can qualify for tax relief when a lender agrees to lower their debt.
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by Jim the Realtor | Mar 5, 2010 | Bailout |
A fraud follow-up by Kelly at the Voice of San Diego:
All of the 81 condos from the Sommerset Villas, Sommerset Woods and Westlake Ranch complexes involved in the scam have been repossessed. Twenty-four have yet to find new buyers. But the other 57 have resold for prices drastically lower than the mortgages were worth, let alone the initial purchase prices.
The U.S. taxpayer is paying for the mounting losses. Across the complexes, the cost to taxpayers is at least $7.8 million.
When the units were just in the beginning stages of foreclosure, it was too soon to tell whether the government-sponsored mortgage companies, Freddie Mac and Fannie Mae, had definitely purchased the shaky loans. Now that the units have gone back to the bank and resold, public records clearly show the majority of these units had mortgages that were sold to Fannie and Freddie — now largely owned by taxpayers.
Take Sommerset Villas. The 26 units previously owned by McConville’s straw buyers that have resold as foreclosures have sold, on average, for 71 percent less than the purchase prices in 2008. And some have been worse: A 480-square-foot studio apartment that sold for $265,000 in 2008 sold in October for $47,000 — an 82 percent drop.
That’s added up to at least $3.8 million in losses for Fannie and Freddie so far in just that complex. Add to that estimate a $2.7 million loss in Sommerset Woods, and a $1.3 million loss in Westlake Ranch, according to an analysis of property records.
