“Today, seven years after the real estate bubble burst, triggering the worst economic crisis since the Great Depression and costing millions of responsible Americans their jobs and their homes, our housing market is healing. Sales are up. Foreclosures are down. Construction is expanding. And thanks to rising home prices over the past year, 1.7 million more families have been able to come up for air because they’re no longer underwater on their mortgages.”
— President Barack Obama, May 11, 2013
What a load of malarkey. The truth is housing is in a shambles. Starts are down, inventory is tight, demand is weak, mortgage originations are flat, household formation has fallen off a cliff, (The homeownership rate is now at levels last seen in the mid-1990s), and the entire industry is precariously propped atop artificially-low interest rates and the Fed’s bogus $40 billion per month QE giveaway.
Does that sound like a thriving market to you?
Author Jann Swanson gives a great rundown of the rot behind the cheery headlines in a recent piece on Mortgage News Daily. Here’s a bit of what she had to say:
“Rising home prices usually coincide with rising demand as more households form or people’s preferences swing toward homeownership. The Bank says neither trend appears to be present today. Household formation rose 980,000 in 2012, compared to the long term annual average of 1.28 million between 1965 and 2001. Moreover, the overwhelming majority of new households are choosing to rent rather than own their home. The homeownership rate fell 0.4 percentage points during the first quarter to 65.0 percent and is now at levels last seen in the mid-1990s…
“It is hard to imagine a sustainable housing recovery taking place with fewer homeowners.” (“Housing Headlines Mask Unsettling Trends”, Mortgage News Daily–Be sure to check out the charts)
Indeed, but try to get that message across over the hoopla about “rising home prices”. Rising prices are a big nothingburger. They don’t mean growing demand or a strong recovery. They just mean that more yield-crazed speculators are scavenging the market looking for their next big killing. That’s what’s driving prices, right? Absent the flood of Wall Street moolah, housing would still be in the doldrums.
Last week, Reuters reported that the mortgage delinquency rate had risen.
Huh? So, why are more people falling behind on their payments when prices are rising, the economy is getting stronger, and the banks are only lending to creditworthy customers?
The reason the delinquency rate is going up is because the banks are starting to whittle away at their mammoth stockpile of bad loans. You see, the banks have been playing hide-n-seek for the last 4 years, cooking the books so no one could see the stinking dungheap of non-performing loans and other toxic dreck they have tucked away from public view. It’s one big shell game. That’s what the phony mortgage modification programs were all about; helping the big lenders extend and pretend while they recapitalized; keeping struggling homeowners in their homes until the vampire banks got healthy enough to toss them out on their ear.
Think I’m kidding? Get a load of this from DS News::
“As of February 2013, mortgages originated before 2009 accounted for 86 percent of all delinquent mortgages. This suggests the issue with the high mortgage delinquency rate is not new loans that are falling behind on payments.” (“Report: Long Cure, Foreclosure Timelines Cause High Delinquency Rate”, DS News)
“86%” of all delinquent mortgages were issued before 2009! Can you see what a scam this is? These are the old stinker loans from yesteryear; the subprimes, Alt As and ARMs vintage 2006-2008. The banks are just getting to them now because, they knew—that if they foreclosed too quickly—prices would plunge and they’d be submerged in red ink. Now that prices are rising–they’re going to step up the process and throw more people out of their homes. Only they’re going to take their sweet time doing it so they can preserve the illusion of a housing rebound and lure more victims into the snake pit.
And here’s something else that might interest you from the same article:
“The credit bureau also reported newer mortgages are performing well and avoiding delinquency, with only 2.5 percent of mortgages originated in 2010 rolling into delinquency status within their first three years.”
Well, what do you know; so the banks actually know how to issue loans that don’t blow up after all. Who would have guessed? 2.5% is right-smack in the normal range of expected delinquencies, which proves–without a doubt–that the banks were scamming the system and knew that their subprime mortgage laundering, credit swindle was going to explode and cost trillions. Ha!
So why have the banks returned to responsible lending standards?
It’s plain as the nose on your face; because they’re on the hook for the losses, that’s why. If they could figure out a way to dump the losses on Uncle Sugar (gov guarantees, for example), then they’d be back to their old tricks right now. In fact, they’re working out the details for their next big credit heist as we speak. Take a look at this:
“Housing industry leaders and congressional lawmakers are ramping up their push for regulators to resolve a residential mortgage rule without placing strict down payment requirements on borrowers.
Bankers, real estate agents, home builders and lawmakers got a renewed jolt after President Obama’s State of the Union address to press their point that new rules determining a borrower’s ability to repay a loan will be the central consideration for obtaining a mortgage.” (“Housing stakeholders warn against strict mortgage down-payment requirements”, The Hill)
No down payment on government insured loans? You gotta be kidding me. And Obama is on board with this farce?
You bet. Here’s more:
“They argue that mortgage lenders will need flexibility in making loans under the new qualified mortgage (QM) rules, and that specific down payment requirements in a still-developing qualified residential mortgage (QRM) rule will hamper home purchases and lock out many qualified buyers.
Jerry Howard, president and CEO of the National Association of Home Builders (NAHB), said a borrower’s ability to repay should be looked at “holistically” and that a down payment requirement would be the “antithesis” of that. (“Housing stakeholders warn against strict mortgage down-payment requirements”, The Hill)
Holistic, my ass. Down payments are a proven source of stability. When borrowers have skin in the game, they are much less apt to pack-it-in at the first sign of trouble. Isn’t that what we want?
And, here’s the funny part: The banks are fighting tooth and nail to avoid the same rules for lending that they use when issuing their own loans that are not government insured. So, when a bank requires 20% down, a decent income and high credit scores; it’s a sign of prudent lending. But, when the government does the same thing, then they are limiting “flexibility”, being “overly rigid”, and (my favorite) “putting a chill on the market”.
Presently, the banks attorneys and lobbyists are wrangling ferociously to affect the definition of a Qualified Mortgage, the ruling by the new Consumer Financial Protection Bureau (CFPB) that will determine which loans the government will insure. As of today, the CFPB has excluded a down payment requirement opting instead for the vague-and-ridiculous-sounding “ability to repay”. This, of course, greatly increases the chances of another massive credit boondoggle that will end in disaster.
One last thing: The uptick in delinquencies suggests that Obama’s blundering mortgage modification fiasco, dubbed HAMP (The Home Affordable Modification Program), was actually a sop to Wall Street, that is, the program was designed as a holding tank for underwater borrowers so the banks could evict them at a time that was convenient for them and their bottom lines. Obama’s HAMP was not “can kicking” as much as it was kowtowing to the big money guys who needed to drag out the process as long as possible to avoid bankruptcy. Here’s a brief update on the program:
“The U.S. Treasury’s mortgage bailout is failing at an “alarming rate,” according to a government watchdog…The Home Affordable Modification Program (HAMP) was launched in early 2009 with the goal of helping 3 to 4 million borrowers avoid foreclosure. So far fewer than one million borrowers are in permanent modifications, and default rates on these modifications are high….
Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent…(“The Government’s Mortgage Fix Is Failing“, Realty Check)
“46 percent” default rate. That’s worse than subprime. Hell, that’s worse than any batch of loans in history. Obama’s got them all beat, even Countrywide. But, that’s okay, because it’s good for the banks, and that’s what matters to Obama.
And, guess what? Now Obama is planning to surpass his own record of failure by launching another bank welfare program more idiotic than the last. Here’s the story from DS News:
“Fannie Mae and Freddie Mac are offering the new Streamlined Modification Program to distressed borrowers before the effective date of July 1. Rather than delay assistance to borrowers, Freddie Mac stated it is making the program immediately available to all eligible borrowers across the country…
As part of the program, Fannie Mae and Freddie Mac borrowers who are at least 90 days delinquent but no more than 720 days past due may be eligible for a modification that does not require the borrower to submit financial or hardship documentation… (“GSEs Make New Simplified Mod Program Available Immediately”, DS News)
So while Obama is hacking away at Medicare, Head Start, Food Stamps, and other vital social programs, he’s given the green light to “no documentation” loans for borrowers who haven’t made a payment on their mortgage in two years. Unbelievable.
Like I said, there’s nothing our pandering president won’t do for the banks.
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. Whitney’s story on how the banks targeted blacks for toxic subprime mortgages appears in the May issue of CounterPunch magazine. He can be reached at email@example.com.