[quote=CA renter][quote=SK in CV][quote=CA renter]While I admire your superior knowledge about accounting and finance, I’m not sure about your claim that the Fed is buying at “real” market values.
Besides, when foreclosures are banned and/or artificially held from the market (keeping supply low), and when interest rates are “artificially” pegged to the floor (propping up the price of assets purchased with credit), can we really be sure of the market values of these securities?[/quote]
Sure we can. Market value is a price at which an asset is exchanged between willing buyer and willing seller, with neither side under any compulsion to act. There was a time when the MBS market was frozen, there were literally no buyers. That is not true today. They are actively traded, so they do have a market value. The Fed may be keeping interest rates artificially low. But within that paradigm, assets have a very real value.
And foreclosures are not banned, nor are they artificially being held from the market.[/quote]
Regarding the mortgage securities held by the Fed. According to this (see footnote #4), they are being held at current face value — the remaining principal balance. They are not being “marked to market” if one assumes that not all of these are current or will be paid off.
“State lawmakers approved new mortgage protections for California homeowners Monday. The package of bills prevents banks from foreclosing on a mortgage holder who’s applied for a modification.”
Here’s how they are liquidating the REOs that they manage foreclosed on. If they never go on the open market (and rumor has it they are selling for well below market value in many cases), then we are not getting accurate pricing data. This is just one program. Banks and other lenders (the Fed?) have been selling to bulk buyers for pennies on the dollar for quite awhile.
How foreclosures are not happening as they would have in any other RE market:
“In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’’ — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011.
In February 2012, government authorities and five of the nation’s biggest banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.”
I’ve mentioned before that we’ve been dealing with the BK of a business who owes us money, and have heard multiple cases in BK hearings where people have not been paying *anything* on their mortgages for 4-5 years, and have still not been foreclosed on. We also personally know a couple of people who have not paid in years, and they are not being foreclosed on. Call it whatever you want, but IMHO, there is so much manipulation in the market that we have no idea what the “real” (non-manipulated) inventory levels are, nor what the “real” values of these assets are.
You’re right about the definition of market value, but this “market value” has nothing at all to do with the “real value” of these assets when the markets are being manipulated like they are. IMHO, we are nowhere near a recovery — not in housing, and not in the general economy — and the more we try to mask over the weaknesses with cheap money and artificially suppressed supply, the worse off we’ll be in the long run.[/quote]
I’m not sure how any of this is relevant to what I said.
Agency guaranteed securities are held at face value. Since the risk is on the part of the agency, not the Fed, carrying them at face is appropriate. Non-agency mortgages are held at current value.
Foreclosures are not being banned, scant evidence of regulatory limitations notwithstanding. There are agreements in place to insure that lenders act in good faith.
The robo-signing fiasco wasn’t artificial. It was very real. The only serious limitations on lenders foreclosing efficiently is the incompetency of the lenders themselves. You can validly argue that they’ve done a crappy job. But they have every legal right to do what they want with their property.
The market exists. The prices being paid are real prices. You can compare current prices to historical, to rents, to interest rates, and come up with all kinds variances from the norms, but there is no alternate reality that provides us with guidelines for “true values”. There will always be economic and other factors which effect pricing. Interest rates. Tax policy. Employment. Weather. All of these things “manipulate” the market. But the market tells us what properties are worth.
With all due respect, your opinion on whether we are near or not near a recovery in housing is not the least bit influential. We have very objective measurements available to determine those kinds of things. We don’t need opinions. You can speculate as to whether the recovery will continue. On a blog like this, it’s probably irresponsible not to speculate. But the recovery is happening.
