The banks continue to uncover new ways to get Americans to subsidize problems that the banks themselves were responsible for creating.
The problem is housing and the credit derivatives associated with it. Regardless of when you consider the peak in housing the problem still remains with us today and its about to get worse. Of course if you listen to the talking heads on Tout TV the economy is in recovery, we are expected to have any number of rosy outcomes this year.
Except none of them can explain how this is to happen. None can pinpoint where the job growth will come from or how the housing debt is to be washed away. That is unless you can count phantom profits from mark to make believe asset prices.
Let us rewind for one second over the fold.
On April 2 2009, FASB suspended Mark-To-Market Accounting practices.
Changes to fair-value, or mark-to-market accounting, approved by FASB today allow companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities. Analysts say the measure may reduce banks’ writedowns and boost net income. Firms could apply the changes to first-quarter results.
Overnight the banks became solvent again. Not only have these non-performing assets become fully valued they have now become profitable to the tune of $1.4 Trillion.
They are allowed to accrue interest on non-performing mortgages ” until the actual foreclosure takes place, which on average takes about 16 months.
All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a resullt, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off the books of the banks.
Too much of a good thing for the banks has caused them to become complacent. Afterall, accounting rule changes, cash injections from the FEDs ZIRP, various moratoria, forestalling foreclosures or just plain walking away .... life is good if you are a WS banker.
A new type of property is adding to neighborhood blight: the bank walkaway.
Research to be released Thursday, the first of its kind locally, identifies 1,896 "red flag" homes in Chicago — most of them are in distressed African-American neighborhoods — that appear to have been abandoned by mortgage servicers during the foreclosure process, the Woodstock Institute found.
Abandoned foreclosures are increasing as mortgage investors determine that, at sale, they can't recoup the costs of foreclosing, securing, maintaining and marketing a home, and they sometimes aren't completing foreclosure actions. The property, by then usually vacant, becomes another eyesore in limbo along blocks where faded signs still announce block clubs.
So what can we expect this year? More of the same? Worse.
All we have witnessed this far is the subprime crises. Up next the prime borrowers and the Alt-A loan recast and resets. And it gets worse.
The number of U.S. homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said.
[..]
A record 2.87 million properties got notices of default, auction or repossession in 2010, a 2 percent gain from a year earlier, the Irvine, California-based data seller said today in a report. The number climbed even after a plunge in filings in the last part of the year - including a 26 percent drop in December - as lenders came under scrutiny for their practices.
Foreclosures have weighed down U.S. housing prices as the nation’s unemployment rate is stuck at more than 9 percent. Home values may rise 0.6 percent for the year, the first annual jump since 2006, according to Fannie Mae, the largest U.S. mortgage buyer. They have fallen as much as 33 percent since peaking in 2006, based on the S&P/Case-Shiller Index of 20 cities.
Fannie Mae is expecting home prices to rise?
Banks just foreclosed on a record 1 million properties this year and there are people actually predicting a price rise? Apparently they are not reading their own policy papers ... Starting this year FNM & FRM are instituting risk based fees.
Thats right. The GSE's are the market and Fannie & Freddie are now going to ask you to cough up more money, in some cases thousands of dollars based on your credit score. For example:
Say you want to buy a house with a $300,000 first mortgage, and that you have excellent FICO scores - above 800 - and a down payment of just under 25 percent.
Based on your credit score and loan-to-value (LTV) ratio, Fannie plans to charge you an extra 0.25 percentage point of the loan amount - $750 - just to do the deal. The same loan would have cost you zero in risk-based fees in 2010.
If that’s not bad enough, consider someone trying to borrow $300,000 with a 679 FICO score and a down payment of just under 20 percent.
Fannie will hit that consumer up for a 2.75 percent risk-based fee - an extra $8,250 solely attributable to the person’s FICO score and LTV. That’s $1,500 more than what you would have paid in 2010.
LOL! Wait theres more.... Stay with me cuz it gets better. Not only does the government want you to cough up more but apparently somebody else didn't get the memo. Wells Fargo wants you to really come up with some dough.
Wells Fargo wants borrowers to put down 30 percent on mortgages to avoid a new requirement that will require mortgage lenders to retain five percent of the loan if it’s securitized, according to the WSJ.
This so-called “risk retention” is related to new regulations required by the Dodd‐Frank Wall Street Reform and Consumer Protection Act of 2010.
The goal is to ensure that banks and lenders that write risky mortgages retain some of that risk to promote responsible lending.
There is nothing on the horizon that should cause anyone to think housing is going to do anything but continue its decline. In fact we may will most likely witness the next leg down.