Guest Commentary: A Festive Thanksgiving Message from Ramsey

Submitted by Rich Toscano on November 26, 2008 - 6:58pm

The following is a typically cheery email sent by FOP (Friend Of Piggington), occasional guest poster, dim sum comrade at arms, and foreclosure guru Ramsey Su. Ramsey's previous guest commentary can be found by poking around here.

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If you only have time to look at one set of data to figure out the status of the real estate market, there is no doubt that I would choose the monthly Hope Now reports.

Unfortunately, this is the official press release which grossly distorts the valuable data and timely data Hope Now collects: http://www.hopenow.com/upload/press_rele...

The meat is here: http://www.hopenow.com/upload/data/files...

Here is an example of how valuable this data is. I call this the PUF indicator – PENT UP FORECLOSURES.

The data conclusively illustrates that borrowers are not paying and the default rate is increasing at a steady rate.  Foreclosures starts and completions are held flat, in spite of the massive foreclosure prevention programs in place. 

It is also clear foreclosure prevention is addressing the wrong problem.  Greenspan admitted that did not see the real estate bubble coming.  Bernanke said the subprime problem was contained.  Sheila Bair is promoting her FDIC/IndyMac mass workout plan.  Could it be any clearer that the real estate market needs a new engine and they are busy rotating the tires? 

How about "do no harm?"  If you don’t know how to help, at least try to do no harm.  Unfortunately, jillions of taxpayers’ dollars are thrown at the wrong problem.  If the foreclosures were allowed to happen, more properties would have gone from weak hands to strong hands by now.  Homes would have gone to deserving homeowners who had been saving for years to buy a home, instead of those who lied about their income and are now rewarded with living in a home they could never have been able to afford without government subsidy.  Properties would have gone to investors who are willing to purchase based on fundamentals rather than speculators who would pay anything hoping that they can sell to a greater fool. 

Yes, it would have been painful and property value would have declined, but probably no more than what it has declined anyway.  However, had foreclosures occurred under the free market system, the real estate market would have formed a base by now, supported by the new pool of owners and investors who are qualified and have skin in the game.  They are unlikely to default. 

Instead, we have a form of subsidized housing for the most undeserving.  This is how it works:

  • Act irresponsibly and buy a house you can’t afford.
  • The lender will reduce your payment, your loan amount or let you live free for a year or two before you have to move.
  • The lenders lost a bunch of money but will be made whole by the government via TARP, Bernanke and Paulson.
  • The government loads this burden on its responsible tax paying citizens who have no idea how much debt they have taken on. 
  • This subsidy is a form of welfare that contributes little to the economy.  It does not create jobs nor does it stimulate anything. 

In summary, properties remain in weak hands.  Loans that had been modified are waiting to default again as soon as the subsidy is deemed insufficient.  We have this pent up volcano of foreclosures waiting to blow up. 

How big is this volcano?  You can see for yourself with this chart from Corelogic (available here: https://www.corelogic.com/documents/Core... ).

Have a happy Thanksgiving, especially to those on the receiving end of TARP.

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Submitted by peterb on November 26, 2008 - 7:47pm.

WOW! 30% of all CA homes that have a mortgage are in a negative equity position already!! Gawd, what's the end of 2009 gonna look like?
Nice analysis and link. Thank you.

Submitted by kewp on November 26, 2008 - 8:42pm.

Here's an easy solution to put a bottom under US real estate in under a year.

Give an instant green card + work permit to any foreign citizen that purchases a property in the United States with a 20% down fixed mortgage from a domestic S&L. Mortgage insurance will be provided by the Fed.

Providing the resident alien maintains a positive legal and credit record, offer them full citizenship after four years.

We'll simultaneously pull all the best human resources (and their associated assets) from the rest of the world and bail out the domestic housing and banking industry.

As a symbol of the program we could gild the Statue of Liberty with gold leaf. That would look rad.

Submitted by HereWeGo on November 26, 2008 - 9:52pm.

kewp wrote:
Here's an easy solution to put a bottom under US real estate in under a year.

Give an instant green card + work permit to any foreign citizen that purchases a property in the United States with a 20% down fixed mortgage from a domestic S&L. Mortgage insurance will be provided by the Fed.

Providing the resident alien maintains a positive legal and credit record, offer them full citizenship after four years.

We'll simultaneously pull all the best human resources (and their associated assets) from the rest of the world and bail out the domestic housing and banking industry.

As a symbol of the program we could gild the Statue of Liberty with gold leaf. That would look rad.

Ha. Independently, I've had much the same thought. That sort of immigration would be great for our current woes.

Submitted by SD Realtor on November 27, 2008 - 12:36am.

Rich if you can, try to ping Ramsey to see if there will be anyway to get official statistics for the number of loans adjusted, the amount of dollars reworked, the rates of recidivism of reworked loans, etc...

To me it doesn't matter if 30% or 90% of the homes are underwater. It is more important to see how much money will be blown on this and also how many foreclosures do get postponed because of this.

Submitted by Mayer on November 27, 2008 - 12:50pm.

SD Realtor wrote:
Rich if you can, try to ping Ramsey to see if there will be anyway to get official statistics for the number of loans adjusted, the amount of dollars reworked, the rates of recidivism of reworked loans, etc...

To me it doesn't matter if 30% or 90% of the homes are underwater. It is more important to see how much money will be blown on this and also how many foreclosures do get postponed because of this.

SDR, I think you'll find this interesting from CR. According to NAR, 50% of loan mods aren't working. The borrower re-defaults.

http://calculatedrisk.blogspot.com/2008/...

Submitted by urbanrealtor on November 27, 2008 - 2:26pm.

I would be really interested in hearing loan mod numbers that are not anecdotal.

Does anybody have some on the current generation of mods?

Perhaps the numbers would be more useful in a year or so.

Submitted by patientrenter on November 27, 2008 - 7:26pm.

"Instead, we have a form of subsidized housing for the most undeserving. This is how it works:...."

Ramsey Su for head of HUD!

Submitted by sdrealtor on November 28, 2008 - 12:26am.

More anecdotal information but I have several clietns that applied for loan modifications. Some were offered rates above current market rates and most decided to try a short sale or walk away after seeing what was actually offered solved nothing for them.

Submitted by jks on November 28, 2008 - 11:15pm.

"If the foreclosures were allowed to happen, more properties would have gone from weak hands to strong hands by now. Homes would have gone to deserving homeowners who had been saving for years to buy a home, instead of those who lied about their income and are now rewarded with living in a home they could never have been able to afford without government subsidy. Properties would have gone to investors who are willing to purchase based on fundamentals rather than speculators who would pay anything hoping that they can sell to a greater fool."

Thanks so much this. "...keeping homeowners in their homes" is the single most infuriating phrase I hear. And I hear it all too often. Prudent savers, such as myself, that didn't buy into the bubble; that didn't take out toxic loans; that saved and waited patiently for the housing bubble to burst; must wait even longer while the govt. desperately tries to blow air back into the bubble.

Submitted by poorsaver on December 1, 2008 - 12:28am.

I liken these foreclosure modifications that are ultimately doomed to failure again, to convicts that are "rehabilitated" then sent out on the streets, only to see a high percentage of them right back in prison a year later. I think we should put all the perps in jail and keep them there, then qualified buyers can realistically occupy those homes.

Submitted by rockclimber on December 1, 2008 - 10:17am.

"while the govt. desperately tries to blow air back into the bubble"

You know the sound that is made when you desperately try to reinflate a balloon with a hole in it?

I can invision a good satrical cartoon... you'll have to use your imagination.

1st pane: Uncle Sam holding the tattered remains of a balloon. On the side of the balloon are the words, "Housing Bubble"

2nd pane: Uncle Sam blows with all his might into the balloon producing only flapping and the sound one would expect.

3rd pane: A red faced Uncle Sam says, "Pardon me" to a couple passing by holding their noses and shooting him a glare.

Submitted by sdrealtor on December 2, 2008 - 12:22am.

Folks on this site tend to be very myopic. The country doesnt live and die with SD or even SoCal. In many parts of the country where housing is much cheaper, didnt inflate as much as here if at all and local economies are far weaker this is a real problem that needs to be addressed. Much of this country is in serious pain while we continue whistling along enjoying our beautiful weather and strong job markets.

Don't worry as nothing they can do will cure the excesses that exist here. The sad truth is many upside down homeowners here dont want to stay in their homes. They want out asap now that they realize they arent going to FlipThisHouse (TM) for a $200K profit in 2 years.

In other more established areas of the country where people are far more tied into their communities, there is value to keeping people in their homes because people actually car about staying in their homes and preserving their communities. Sadly, that is very rare in SoCal.

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