Foreclosures: They're Not Just for Breakfast Anymore

They're also for lunch, dinner, and your midnight snack!

IRVINE, Calif., Sept. 10 /PRNewswire/ -- RealtyTrac(R) (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its August 2009 U.S. Foreclosure Market Report(TM), which shows foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 358,471 U.S. properties during the month, a decrease of less than 1 percent from the previous month but still an increase of nearly 18 percent from August 2008. The report also shows one in every 357 U.S. housing units received a foreclosure filing in August.

"But there's more!" as the crooners on late-night TV say while trying to sell you a set of Ginsu knives.

The most important part of this is the intentional sandbagging by banks, as I have covered repeatedly in these pages.

While 1 in 62 houses in Nevada received a foreclosure filing in August (ouch!) and 1 in 140 in Florida (not good!) the fact remains that the banks are intentionally holding back on processing defaulted loans and taking possession of REO property (say much less selling it.)

The issue remains that banks are failing to clear the pipeline of all these homes where the putative owner can't afford the payments. "Hope for Homeowners" is a certified joke; yes, there are instances where it has helped people, but in essentially every case all that's happening is that we're kicking the can down the road with modifications that temporarily reduce interest rates and back-load principal forbearance (not forgiveness!)

For the odds of success in this endeavor I refer you to this graph that I have published before:

The key is the "income" line. Notice how it is not rising much over the last decade. It is up by 20% from 2000-2008, which sounds good, but in fact that's only about a 2.2% increase annually. When the 2008 numbers are released by Census (we have only through 2007 thus far) I suspect they will show an actual decline (torpedoing this annualized rate) and 09 may be even worse.

The fallacy of "extend and pretend" when it comes to any sort of credit is that you can earn your way out of the hole "if you just have a bit more time." But the record in this regard is clear - there is no capacity to do this. Incomes on a per-capita basis have risen at a rate substantially less than the price of the necessities of life have risen during the same period of time, especially when one considers items such as health care, food and fuel. When you remember that The Fed's stated target is to have inflation of 1-2% annually (and then look at their record - they essentially always miss, with inflation coming in over target), you quickly come to the conclusion that as designed the concept of "extend and pretend" is bankrupt.

While the government claims that disposable personal income has gone up since 2000 this is an obvious bucket of bilge. The per-capita personal income numbers are not wrong, and neither is the price increase in necessities. 2 + 2 = 4 no matter how many times the government tries to claim it's 6.

The result is that "extending" debt maturity in fact does harm instead of good, because the longer you wait the worse the final loss will be.

Yet every strategy employed since this crisis broke onto the scene in 2007 has been focused on extending maturity, pretending it is all ok, and believing that Santa Claus will appear and wave a magic wand to whisk away all the bad debt.

It hasn't happened and won't, because the consumer has reached his capacity to absorb and service more debt. Unemployment continues to grow; recall that we need to add roughly 150,000 jobs every month just to handle the increasing population of the nation, yet we are still losing nearly a million monthly (government "headline numbers" to the contrary notwithstanding.)

Comments

[einstein p ...:]

We live in Miami and the situation is escalating, not improving. Foreclosures are stacked up in the courts and the banks have been either unwilling or unrealistic in regard to short sales, holding them up for months while prices continue to head south.

In the meantime, the job market here ---- which was based on the real estate boom and tourism --- has deteriorated. Over 50,000 people left the state last month and unemployment continues to get worse. It's not a pretty picture, unless you have cash and are looking to retire.

Sep 10 11:24 AM

[Joseph L. S...:]

There are two body blows coming for the banking industry. One is described in this article. People with no equity in their homes, thanks to banks giving no down payment loans, have no incentive to remain in those homes unless the bank is willing to work with them. Thus far just 12% of all qualified applicants in danger of foreclosure have been granted any renegotiated terms from the banks.

If you can find worse leadership in any other industry, let me know.

Second, FASB is likely to require all off-balance sheet assets/liabilities to be reported on balance sheet beginning in January 2010. Wells Fargo, as just one example, and possibly not the most egregious, has over $1.7 TRILLION in off balance sheet assets/liabilities. If those were included in their reporting they would need to raise over $70 BILLION in additional capital to meet reserve requirements.

If you can find worse leadership in any other industry, let me know.

Sep 10 12:00 PM

[conceptwizard:]

Our leadership is utterly disallusioned to what is going on. When our Congress and President are putting all their effort and time behind a Health Care Reform agenda while the citizens of America are being tossed out in the streets and living on food stamps is absolutely criminal.

One of the Congressmen stood up and shouted "Liar" to the President as he stated that "illegals" would have no acess to the plan. This was touted as wrongheaded and he later apologized.

I wish someone would stand up and yell "LIAR" and mean it!

THIS IS NOT CHANGE. THIS IS NOT "YES WE CAN"

People are starving, broke, futures ruined, no jobs and severely debt laiden.

And hes focused on Heath Care. Holy jumpers man this is serious, we have no leadership just a salesman/Showman trying to get votes.

Sep 10 12:44 PM

[User 463833:]

How can we be sure that the FASB will begin requiring banks to report off-balance sheet assets/liabilities? This administration has been controlled and therefore has pandered to banks and investment firms in proportions never seen before. They have spoken out of both sides of their mouth and will, in all probability, continue to manipulate the situation.


On Sep 10 12:00 PM Joseph L. Shaefer wrote:

> There are two body blows coming for the banking industry. One is
> described in this article. People with no equity in their homes,
> thanks to banks giving no down payment loans, have no incentive to
> remain in those homes unless the bank is willing to work with them.
> Thus far just 12% of all qualified applicants in danger of foreclosure
> have been granted any renegotiated terms from the banks.
>
> If you can find worse leadership in any other industry, let me know.
>
>
> Second, FASB is likely to require all off-balance sheet assets/liabilities
> to be reported on balance sheet beginning in January 2010. Wells
> Fargo, as just one example, and possibly not the most egregious,
> has over $1.7 TRILLION in off balance sheet assets/liabilities. If
> those were included in their reporting they would need to raise over
> $70 BILLION in additional capital to meet reserve requirements.
>
>
> If you can find worse leadership in any other industry, let me know.

Sep 10 01:46 PM

[Dave Wrixon:]

If a meaningful rate of inflation had been used to adjust income, it would almost certainly have been negative for much of that time.

Sep 10 02:05 PM

[Boxed Merlot:]

This is getting serious when “Debtors Revolt” U-Tube goes viral advocating a refusal to pay BoA 30% credit card usury. I only hope this poor lady in the video isn’t in reality a government plant that will give the officials their needed opportunity to wield the sword.

And by the way, he probably had to correct himself about the liar remark because the “illegals” will be granted amnesty in time to vote for their favorite politician making them not only “legal”, but official greenshoots.



On Sep 10 12:44 PM conceptwizard wrote:

> Our leadership is utterly disallusioned to what is going on. When
> our Congress and President are putting all their effort and time
> behind a Health Care Reform agenda while the citizens of America
> are being tossed out in the streets and living on food stamps is
> absolutely criminal.
>
> One of the Congressmen stood up and shouted "Liar" to the President
> as he stated that "illegals" would have no acess to the plan. This
> was touted as wrongheaded and he later apologized.
>
> I wish someone would stand up and yell "LIAR" and mean it!
>
> THIS IS NOT CHANGE. THIS IS NOT "YES WE CAN"
>
> People are starving, broke, futures ruined, no jobs and severely
> debt laiden.
>
> And hes focused on Heath Care. Holy jumpers man this is serious,
> we have no leadership just a salesman/Showman trying to get votes.

Sep 10 02:10 PM

[Will.i.am:]

People are pissed at the banks and they want their money back. Americans are currently defaulting on debt of all kinds to protest. We need true relief and now.

How about this:

Take a home's purchase price and subtract a new real assessed value. Let ALL homeowners deduct dollar for dollar the difference on their taxes. Now cut a check back to the homeowner or have the government match funds to pay down the inflated mortgage.

Example:

Bought my house in 2005 for $400,000
Now it's worth $250,000
I work and earn $175k

The difference of $150k ($400k-$250k) is deducted from my taxes.
$175k-$150k = $25k taxable income (down from $175k)

My choices are:

Pocket the refund in April and spend into the economy

Pay down other debt or

Plow the refund back into my mortgage and let the gov't match it.

I realized we need to address the people without a mortgage or not underwater (maybe a onetime credit).

Homeowners get relief, banks get money through pay down assistance, the economy gets a spending boost and the government is acting like they care.

I know it's simple but it's a start. What do you think?

Sep 10 02:14 PM

[Roger Knights:]

Why can't the gov't. take over where Rex & Co. left off, by offering homeowners a premium (say 15% of the house's current valuation) in exchange for a share of future profits (say 50% beyond its current market value) on the sale of the house? This would buffer the effects of the current crunch on the homeowner, allowing him to make his mortgage payments and/or renegotiate his mortgage, while being a good long-term buy for the gov't. It’s win/win.

Here's another suggestion. Since the gov't. is already throwing money at make-work projects and infrastructure improvements, here's a project that could get under way much faster, with less likelihood of fraud or ineffectiveness than the current stimulus. Namely, the gov't should offer to pay for home-improvement projects for home-owners in exchange for a share of future profits on the sale of the house.

There are certain desirable home improvements that wouldn’t require skilled labor, such as adding fencing, and improving home security, insulation, and earthquake protection. Millions could be hired to do these tasks after a bit of videotaped training.

This would stimulate lots of economic activity, would upgrade the country's housing stock, would make life pleasanter for home-owners and their neighbors (who'd live in an upgraded neighborhood), would reduce crime, and would be a good investment for the gov't. in the long run. It would also be politically popular (assuming it would work).

This technique could also be used to fund purchase and installation of attic fans, south-side awnings, white-painted roofs, and heat pump installation. The US needs to cut its energy consumption, and a little governmental nudging--or even frog-marching--is OK to get us there.

Sep 10 04:16 PM

[RatWatcher:]

"There are certain desirable home improvements that wouldn’t require skilled labor, such as adding fencing, and improving home security, insulation, and earthquake protection. Millions could be hired to do these tasks after a bit of videotaped training."

What happens to the owner's property taxes after all these improvements? Any way to include a ban on local government using them as an increase excuse?

Sep 11 01:05 AM

[Zak J:]

Many state and local governments do exempt certain home improvements from property tax.



On Sep 11 01:05 AM RatWatcher wrote:

> "There are certain desirable home improvements that wouldn’t require
> skilled labor, such as adding fencing, and improving home security,
> insulation, and earthquake protection. Millions could be hired to
> do these tasks after a bit of videotaped training."
>
> What happens to the owner's property taxes after all these improvements?
> Any way to include a ban on local government using them as an increase
> excuse?

Sep 11 05:15 AM

[TeresaE:]

YOU see it! You really see it!

That is exactly what I told my husband last night as we watched a clip of the speech on the news.

"Of course they won't pay for illegals, the illegals will all be food stamp using, kids free in college, social security drawing legal citizens by then."

I thought I was the only one that saw that coming.


On Sep 10 02:10 PM Boxed Merlot wrote:

> This is getting serious when “Debtors Revolt” U-Tube goes viral advocating
> a refusal to pay BoA 30% credit card usury. I only hope this poor
> lady in the video isn’t in reality a government plant that will give
> the officials their needed opportunity to wield the sword.
>
> And by the way, he probably had to correct himself about the liar
> remark because the “illegals” will be granted amnesty in time to
> vote for their favorite politician making them not only “legal”,
> but official greenshoots.
>

Sep 11 08:43 AM

[TeresaE:]

And lollipops will rain from the sky, and our credit cards will magically reopen and the rates will magically return to 2005 levels and we will finally "win" in our competition with the third world, and pharmaceuticals would actually cure something instead of just creating lifelong users.

Fat chance. Though your plan is a pretty good temporary stop gap measure, it is too simple and cost effective for our government to consider it.

They never take the easy road, they take the road paved with the most lobbying/PAC money. Always.


On Sep 10 04:16 PM Roger Knights wrote:

> Why can't the gov't. take over where Rex & Co. left off, by offering
> homeowners a premium (say 15% of the house's current valuation) in
> exchange for a share of future profits (say 50% beyond its current
> market value) on the sale of the house? This would buffer the effects
> of the current crunch on the homeowner, allowing him to make his
> mortgage payments and/or renegotiate his mortgage, while being a
> good long-term buy for the gov't. It’s win/win.
>
> Here's another suggestion. Since the gov't. is already throwing money
> at make-work projects and infrastructure improvements, here's a project
> that could get under way much faster, with less likelihood of fraud
> or ineffectiveness than the current stimulus. Namely, the gov't should
> offer to pay for home-improvement projects for home-owners in exchange
> for a share of future profits on the sale of the house.
>
> There are certain desirable home improvements that wouldn’t require
> skilled labor, such as adding fencing, and improving home security,
> insulation, and earthquake protection. Millions could be hired to
> do these tasks after a bit of videotaped training.
>
> This would stimulate lots of economic activity, would upgrade the
> country's housing stock, would make life pleasanter for home-owners
> and their neighbors (who'd live in an upgraded neighborhood), would
> reduce crime, and would be a good investment for the gov't. in the
> long run. It would also be politically popular (assuming it would
> work).
>
> This technique could also be used to fund purchase and installation
> of attic fans, south-side awnings, white-painted roofs, and heat
> pump installation. The US needs to cut its energy consumption, and
> a little governmental nudging--or even frog-marching--is OK to get
> us there.

Sep 11 08:47 AM

[Socialism c...:]

How about we just abolish property taxes, along with all other confiscatory taxation...which ALL ought to be deemed unconstitutional!?! Does anyone really think the Founding Fathers envisioned this??

fairtax.org


On Sep 11 01:05 AM RatWatcher wrote:

> "There are certain desirable home improvements that wouldn’t require
> skilled labor, such as adding fencing, and improving home security,
> insulation, and earthquake protection. Millions could be hired to
> do these tasks after a bit of videotaped training."
>
> What happens to the owner's property taxes after all these improvements?
> Any way to include a ban on local government using them as an increase
> excuse?

Sep 11 11:21 AM

[DFJ:]

In your example the U.S. taxpayer pays both your reduced income taxes and the government match. The house purchased by you was one you could (and still) afford. The only issue is you bought an asset that went down in price. Since when should the U.S. taxpayer compensate investors for bad decisions. Aren' t U.S. taxpayers already fed up with the massive amounts of their tax dollars going to bailouts? As has been suggested numerous times in SA the best long term solution is to let prices fall to where new investors purchase the excess inventory of houses with new equity and conventional financing. Only then can a base with true staying power be established.


On Sep 10 02:14 PM Will.i.am wrote:

> People are pissed at the banks and they want their money back. Americans
> are currently defaulting on debt of all kinds to protest. We need
> true relief and now.
>
> How about this:
>
> Take a home's purchase price and subtract a new real assessed value.
> Let ALL homeowners deduct dollar for dollar the difference on their
> taxes. Now cut a check back to the homeowner or have the government
> match funds to pay down the inflated mortgage.
>
> Example:
>
> Bought my house in 2005 for $400,000
> Now it's worth $250,000
> I work and earn $175k
>
> The difference of $150k ($400k-$250k) is deducted from my taxes.
>
> $175k-$150k = $25k taxable income (down from $175k)
>
> My choices are:
>
> Pocket the refund in April and spend into the economy
>
> Pay down other debt or
>
> Plow the refund back into my mortgage and let the gov't match it.
>
>
> I realized we need to address the people without a mortgage or not
> underwater (maybe a onetime credit).
>
> Homeowners get relief, banks get money through pay down assistance,
> the economy gets a spending boost and the government is acting like
> they care.
>
> I know it's simple but it's a start. What do you think?

Sep 11 12:22 PM

[Donald Ingram:]

Yet there are those still out there that actually believe this "recession" is over and that the housing crises has been solved! Amazing!!

The 'Good Ship Lolly Pop' is sinking. Abandon ship!

Sep 11 01:33 PM

[Troyhector:]

Foreclosures will continue to come as long as the job market does not get better. Also, borrowers who have Alt-A loan products will have those coming due in the next couple of years and many of the loans will not qualify for the current values resulting in their homes being foreclosed on. The result is that the market will be flooded with new supply, and without artificially increased demand, prices will continue to drop.

This puts forth a question whether the lawmakers are intelligently tackling the problem.

Read More: www.housingnewslive.com

Sep 11 02:29 PM

[Chickenpookie:]

Hey Denninger, will you please apologize or pay or do something with Matt Trivisonno so we can all look at his US Withholding Tax Charts that you "appropriated" as your own?

Thank yooooouuuu!!!

Sep 12 01:51 AM

[willynill:]

If this administration is successful in controlling/manipulating FASB, then we really are in big trouble because FASB is not a government agency. But then Goldman Sachs is not a government agency either--is it being controlled? May be.


On Sep 10 01:46 PM User 463833 wrote:

> How can we be sure that the FASB will begin requiring banks to report
> off-balance sheet assets/liabilities? This administration has been
> controlled and therefore has pandered to banks and investment firms
> in proportions never seen before. They have spoken out of both sides
> of their mouth and will, in all probability, continue to manipulate
> the situation.

Sep 12 04:43 PM

[Karl Liesman:]

"It hasn't happened and won't, because the consumer has reached his capacity to absorb and service more debt."

Just because you say it means it must be true!

Beware, this author has ZERO formal financial experience and he'll be glad to tell you that after he expounds on overblown claims of "extend and pretend" bankruptcy. What rubbish.

Sep 13 02:39 PM

[Mark Anthony:]

I am wondering what kind of people in their sane mind would be paying 30% credit card interest rate, as demanded by the credit card companies. Must be the most foolish kind.

There will be only two groups of people left:
1.The group which is financially capable, they pay off their credit card balance as fast as possible so they don't have to pay the 30% interest rate.
2.The group which is financially incapable. They figure there is no way they can continue to pay 30% interest rate and hope to pay off the credit card debts. So they decide they will just walk away and not paying a damn cent any more.

The third group, who are struggling and who is still paying the 30% interest rate. Their number is dwindling. The banks look at this group and see they are still capable and willing of paying 30% interest rate without complaint. So the banks figure out as they could not make money out of the first two groups, and this third group is still happily paying 30% interest rate. So the banks figure they are going to raise the rate further higher to recope the loss.

As the result, this third group will be squeezed to either join the first group of people, or join the second group.

At the end of day I see a total collapse of the credit card industry inevitable. It was a big mistake of the administration that they leave credit card interests unregulated and unlimited by any way shape or form. This is a bubble that must burst now. The only way to salvage the credit card industry, is a crack down on interest rate.

On Sep 10 02:10 PM Boxed Merlot wrote:

> This is getting serious when “Debtors Revolt” U-Tube goes viral advocating
> a refusal to pay BoA 30% credit card usury. I only hope this poor
> lady in the video isn’t in reality a government plant that will give
> the officials their needed opportunity to wield the sword.

Sep 14 01:23 PM