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SeekingAZ -> RE: Guessing wrong about Unemployment (10/3/2009 5:27:10 PM)
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ORIGINAL: UncleNasty
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ORIGINAL: OrionTheWolf
I am still seing foreclosures here, and many small businesses closing. I agree that the Obama team should have said that, but then the numbers for the projections for the stimulus plan would not fly so well. Unemployment up, means tax revenues are down, and less money the government is taking in to pay off the huge debt.
Foreclosure numbers are still high and showing no signs of slowing down. This years numbers will be in the 4 million range. We are still due for more "waves" of foreclosures in a few other types of "loan products." The issue in general, however, has fallen below the news media radar.
This is in spite of programs put in place by both Bush and Obama, which is really a statement more about their ignorance of the issue in the overall. The biggest part of both their plans involves loan modifications. There has also been talk of "cram down" authorities given to Fed BK judges.
1) Loan mods are not, and will not, happen in significant enough numbers to effect much change or difference. The reason for this is rather simple, but seemingly overlooked, denied or unknown. Only a party to a contract has the authority to modify the terms of said contract. The loan mod programs enacted by both Presidents negotiate with loan servicers and they are without this authority. Finding the true owners and holders of the underlying instruments is next to impossible. Among the reasons "securitizing" became so popular and common is to shield parties from any liabilities in re the creation of those underlying instruments (fraud in origination, TILA, RESPA, etc.) It is/was very effective. So effective that finding the parties with the legal authority to modify the terms of the contracts is nigh impossible.
The parties I've communicated with that have been involved in loan mod attempts tell basically the same story. Months and months of difficult and fruitless conversation with loan servicers only to be told in the end that they don't "qualify." Information regarding what servicers are modifying mortgages, and what percentage of qualified mortgages are actually being modified is available with simple online searches. None of the numbers are good.
Contracts can be nullified, or voided, where fraud and/or deception has been involved in the creation. So very many of the mortgages that have been nonperforming fit into the category of "voidable" and "void" that this is likely the best route to go.
There's another reason. There is a better than even probability (ie 50%) that people that have received loan modifications will move on to foreclosure or short sales anyway. The banks are already deluged with short sale work, loan modifications don't look attractive to them as they'll end up losing more money going the loan mod -> short sale or loan mod -> foreclosure route than if they did a short sale or foreclosure in the first place.
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2) Cram down authority being given to BK judges would be a total perversion of contract law. This is such a bad idea I can't fathom why it has even been discussed. Would you enter into ANY contract if you knew that some third party who is not a party to that contract could unilaterally alter the terms - particularly when such alteration may be in your disfavor?
This would be the end of capitalism and freedom in this country and that is exactly why it is being considered.
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As Popeye pointed out there are "leading indicators" and "trailing indicators." Unemployment, foreclosure, bankruptcy... All trailing indicators. I am not aware that any of these indicators are improving.
There is a fairly good and brief video of a Bloomberg interview of a Senior Vice President of RealtyTrac on the current foreclosure issue. RealtyTrac is a "pro" real estate sales group so I expect if there is any bias on his part it would be in favor of real estate sales. That perspective makes his words even scarier - to consider he is attempting to put a positive spin on the issue and still is unable to do so.
http://vodpod.com/watch/2175495-housing-foreclosures-still-rising-realtytrac-confirms-earlier-ubs-forecast-wont-peak-until-2010
In terms of tax revenues from property taxes being down across the country - yes this is happening. Foreclosures have driven property values down significantly. While true there was a "bubble" that didn't happen evenly across the country. It was more regionally based in areas like Calfornia, Arizona, Nevada, Florida - the majority of it happened in sun belt and snow bird states. Declining property values as a result of high foreclosure rates, on the other hand, have been spread out more evenly.
I maintain that the best short and long term solution is to approach the problem from the beginning, loan origination, and move forward from there. Any fraud, regulatory or statutory violations should be addressed before foreclosing on properties.
Yes origination is the issue. But the banks have little leeway in that regard. They have tightened requirements and as a result 90% of current home sales (in AZ) with a mortgage are FHA (or USDA) loans that only require 3.5 percent down (or zero down with the USDA product). The government created the origination mess by requiring lenders to make loans to those who could not realistically pay them over a long period of time. The securitization mess came about as a free market attempt to spread (and in therefore minimize) the risk. Turns out that even the free market can't polish a turd. There's no end in sight for this issue as the government will not want to give up the power this arrangement provides them. And way too Americans think it's *just not fair* that they need to save 20% down to buy a home. The government's insistence that more loans be made to poorer risks also created the no-doc loan fiasco. There's was just no way to make the loans mandated by the federal government to lower income, higher credit risks with an objective (ie semi-immune to fair housing suits) underwriting standard, other than to just take the buyer's word about their total income. It doesn't take to much research on the Internet to determine your total monthly payment for a particular house and less work still to realize that your monthly housing cost needs to be no more than 42 percent (or so) of your total monthly income and then you know what to right down in that little box to get the lender to say "yes".
And now millions of the uninformed are demanding *more* regulation of lenders. I mean it has to be great to be a (morally fluid) Representative or Senator the more you screw the pooch the more puppies the taxpayer will provide for you to molest. If the former Mesa Fire Chief happens to be reading this replace "pooch" with "your neighbor's livestock".
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Well, I thought I was going to stop there bu another topic has popped into my head. I think I'll start another thread. Look for one titled E-notes if you're curious or interested.
Uncle Nasty
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