Today, as a little precursor, the servicers were called over to Treasury for some browbeating and sandwiches, sorry, "to discuss the urgent need to convert eligible homeowners in trial modifications to permanent modifications," according to a Treasury spokesperson.
After the meeting, I sat down with Jack Schakett, of Bank of America [BAC 15.89 --- UNCH (0) ] . He used to be chief of operations at Countrywide, which B of A inhaled after the crash of the banking system as we know it. Now Mr. Schakett is "credit loss mitigation strategies executive" at B of A.
Mr. Schakett told me that of the 65 thousand trial modifications set to expire Dec. 31st with B of A, a full two thirds of the borrowers, while current on their payments, have not submitted the full documentation required to turn a trial mod permanent under the HAMP guidelines.
"We don't really know the major reason why the customers are not returning the documentation," Schakett claims. Well I can tell you why (and I'm sure he knows this too). The trial modification process only requires oral verification of income to begin, but to go permanent, you need to prove your income, submit your tax returns, and basically come clean with all your finances. I'm guessing a lot of folks who took out their initial loans with false or non-existent documentation, aren't eager to let the government know that.
I put that question to Mr. Schakett, who didn't dismiss it, but said it was simply too early to make that conclusion. Last week B of A sent out 50 thousand "notices of incompletes," specifying exactly which documents the borrowers needed to submit to fulfill the modification requirements.
"We did it in express mail envelopes with return express mails with a time frame to stress our sense of urgency of what it requires to get this done because we don't want these customers to loose an MHA modification if we can help it," Schakett told me. He says the response will be very telling.
He also told me that Treasury is now considering upping the ante on the trial modifications, requiring much more documentation up front, so that banks won't have all these trial mods going with borrowers who inevitably won't reach permanent modification status.
Let me just say that I get a lot of email from borrowers, telling me that the banks are holding up their paperwork, losing faxes, messing up modifications and leaving those borrowers in the lurch. I don't dispute that, but I can't fully dismiss the banks when they tell me that 2/3 of the borrowers won't submit the paperwork. I also happen to know that a huge percentage of borrowers being offered modifications are rejecting them. They don't want to pay. Many are already gone.
- Questions? Comments? RealtyCheck@cnbc.com
Check out the article I spoke about on the show today. It's a good read. Let me know your thoughts!
http://housingdoom.com/2009/11/05/the-cost-of-not-walking-away-from-an-underwater-mortgage/
They are sitting on over a trillion of dollars of this paper (about $1.1 trillion to be exact) and several hundred billion is severely impaired or even worthless. Wells Fargo, just as one example, has (as of its last 10Q) $106 billion of second lines outstanding on balance sheet, and God only knows how much in SPVs (Wells is known to have significant off-sheet exposure "inherited" from Wachovia.) Let me put this in perspective for everyone.
This is the truth behind the housing mess and our government and banking regulators are engaged in an active cover-up to prevent recognition of the truth. Banks were given the ability to do other than "mark to market" earlier this year, and they have roundly abused this privilege to hold both first and second lines at ridiculously above market value. But Treasury is also interfering with contract law in an attempt to "protect" bank balance sheets. How? By violating lien priority - again - exactly as they did with Chrysler and GM.
The Truth is that there has been no material completion of these "modifications" promised under HAMP:
Only “a couple thousand” conversions have been completed, Maggiano said. To aid the process, the government last week streamlined documentation requirements, and granted borrowers and loan servicers on initial trials an extra two months to complete the work, which typically must be finished after three months of timely payments, she said.
"Streamlined documentation requirements" = You can lie about income and assets. Again. Once again, fully-documented underwriting is not being required, all in the name of preventing the truth from being recognized - the banks are insolvent as they are holding hundreds of billions of dollars of worthless trash, almost assuredly $100 billion or more of it in second lines alone, at or near 100 cents on the dollar.
An unresolved piece of the administration’s program, she said, remains a plan to have second-mortgage owners rework that debt whenever first mortgages are changed, an initiative that U.S. officials said would likely be in effect by June when outlining it in April.
Again, we're back to the basic problem:
If you recognize these losses the second lien holders all blow up. If you roll the second into the first mortgage then the property is so far underwater that not only is the mortgage unaffordable but there is no reason for anyone to take the deal. If you force first lienholders to take damage that the second should take then you destroy the securitization market for mortgages as you force losses on people that should be protected from them under black-letter law.
In any event there are plenty of detonated (and actively hidden) first mortgages that have blown up too, and we've not even talked about commercial real estate exposure yet.
On the document changes:
To help move more borrowers out of trials, the Treasury last week dropped a need for them to provide tax returns, Maggiano said. Servicers instead will be able collect documents allowing information to be pulled directly from the Internal Revenue Service, a process it’s trying to enhance with new forms and processes, she said.
Uh huh. That was done during the housing boom too. It was known as a 4506-T and was a routine part of even "Stated Income" loans. However the verification wasn't done, which is why we had tens if not hundreds of thousands of WalMart employees buying $500,000 houses while making $30,000 a year - on an OptionARM mortgage that was guaranteed to detonate in their face a few years down the road.
Other document changes mainly involve creating more “customer-friendly” layouts, Schwartz said. The changes aren’t similar to the “stated-income” lending popular during the housing boom that later created high defaults, she said; pay and employment information still is verified.
Riiight. If pay and employment information is verified what's difficult about it? Is it too much to ask for a current pay stub? Who (that is actually employed) doesn't have a new one every couple of weeks? Nobody I know!
All these new "proposals" are doing is attempting to once again screw the American public, turning them (once again!) into debtors and renters while lying to them about being a "homeowner." In addition if the original mortgage was a purchase money first an effective refinance into an interest-only product will destroy the non-recourse nature of the note in those states where it applies, leading those who are trapped in these loans a couple of years from now to lose not only their house but everything else they possess.
Yes, I know, JP Morgan reported "good" earnings this morning. If their earnings are so strong, and the franchise so healthy, why are they arguing for "interest only" exploding mortgages as a modification tool?
There is one and only one way to solve the housing crisis that will actually work, as I have said now for more than two and a half years:
Withdraw the fraud and lies, allowing home prices to contract to sustainable levels so that ordinary Americans can actually afford to buy a home with 20% down and a maximum 36% "back end" or DTI ratio.
At the same time force the banks to recognize the bad paper they are carrying - both on firsts and seconds. If this detonates them then so be it. There are banks who are not insolvent and those who were not and are not fraudsters deserve to prosper in a capitalist system for doing the right thing, not be punished for failing to engage in fraud as is now the case.
Those who are displaced by their homes will indeed be foreclosed upon, but in a year or two after rebuilding their credit they will be able to buy the same house back (or one similar to it) at a price that represents no more than three times their income with a sustainable, 20% down fixed-rate mortgage.
THAT is how we solve this crisis; those banks and the Mortgage Bankers Association who continue to demand that bogus and unsustainable lending be shoved down the American people's throat must be run out of Washington DC on a rail, AFTER being waterboarded as a consequence of demonstrating to the world their own particular brand of financial terrorism.
The American people have HAD IT with the lies and theft.
IT IS TIME TO TAKE THIS NATION BACK FROM THESE SCAMMERS.
To paraphrase an old Pete Seeger song, "Where have all the owner-occupiers gone- long time passing?" Wherever they’ve gone, in Phoenix they’re not out there selling houses. That market remains dominated by the banks:
Two-thirds of the Phoenix-area homes that changed owners last month were either new foreclosures or resales of properties that had recently been foreclosures. The latest Realty Studies report from the W. P. Carey School of Business at Arizona State University explains a recovery can’t really be established until foreclosure-related activity is not the dominant force in the Valley housing market. "Although the level of activity appears strong, the market is being driven by either homes being foreclosed or being sold back into the market by the lender," says Associate Professor of Real Estate Jay Butler, author of the new report. Butler says the current market is similar to the mindset that created a "hyper-market" from 2003 to 2006, when investors were buying up properties, looking for a great deal followed by a big appreciation in values. He maintains a real recovery can’t happen until owner-occupants take control again.
Two-thirds of the Phoenix-area homes that changed owners last month were either new foreclosures or resales of properties that had recently been foreclosures. The latest Realty Studies report from the W. P. Carey School of Business at Arizona State University explains a recovery can’t really be established until foreclosure-related activity is not the dominant force in the Valley housing market.
"Although the level of activity appears strong, the market is being driven by either homes being foreclosed or being sold back into the market by the lender," says Associate Professor of Real Estate Jay Butler, author of the new report.
Butler says the current market is similar to the mindset that created a "hyper-market" from 2003 to 2006, when investors were buying up properties, looking for a great deal followed by a big appreciation in values. He maintains a real recovery can’t happen until owner-occupants take control again.
Who’d have ever thought I’d be agreeing with Butler, but he’s right. In a world where most of the sellers are lenders and most of the buyers are investors, there can’t be any "recovery".
Thirty-three TARP recipients missed a scheduled dividend payment to taxpayers last month, according to the Treasury Department, including 18 banks that missed a payment for the first time. It’s a powerful indication that the U.S. banking system remains troubled. And it throws cold water on talk that taxpayers are “making money” on the bailout.
(Click to enlarge in new window)
“It’s too early to tell if we’re making money on TARP,” according to Eric Fitzwater, an associate director at SNL Financial in Virginia. “Certainly the vast majority of the bailout money is still outstanding. While a lot of larger recipients say they plan to pay it back, we’re still waiting.”
The 33 banks that missed dividend payments in August have received $4.5 billion of TARP money. The biggest is CIT. Previously it paid $44 million of dividends, but with a bankruptcy filing looking likely, Treasury’s $2.3 billion investment seems headed toward zero.
A few of the banks may ultimately be able to pay what they owe, according to Fitzwater. These newer banks — “de novo” in regulator parlance — actually are not allowed to pay dividends.
Still, the bigger issue is the ultimate cost of the bank bailout, which we may not know for years.
When stronger banks including Goldman Sachs, Morgan Stanley and American Express repurchased warrants at modest premiums after paying back TARP, most news reports suggested that taxpayers were profiting from the bailout. But those reports didn’t tell the whole story.
For one, they ignored adverse selection, the propensity for the best borrowers to exit the program first, leaving Treasury holding the poorest performing investments. According to the latest data from Treasury, 42 banks have paid back some or all of the cash they got from TARP’s Capital Purchase Program, $70.7 billion in total. But more than 600 banks remain in the CPP program. Together, they still owe $134 billion.
And this excludes other TARP bailout programs that are likely to cost billions. The automotive industry owes TARP $80 billion. And AIG owes TARP $69.8 billion. Much of that isn’t coming back.
It’s also myopic to view TARP in isolation. Take Citigroup. After converting its preferred equity investment to 7.7 billion common shares at $3.25, Treasury is showing a paper profit of $11 billion. Sounds great, right?
But Citigroup’s common equity would long ago have fallen to zero if other bailouts, in particular FDIC’s debt guarantee program, weren’t insulating shareholders from losses.
Citigroup is the only large bank still using the FDIC’s program. Two weeks ago, the bank sold another $5 billion worth of guaranteed debt, bringing its total issued under the program to $49.6 billion.
The bottom line is that the government still stands behind the banking sector. While the cost of this “no more Lehmans” policy may not be known for years, our experience with Fannie Mae and Freddie Mac tells us that such implicit guarantees ultimately prove very expensive. The fact that more banks are falling behind on dividend payments reminds us the tab is growing.
Isn't it odd that foreclosures are at an all time high, delinquencies are on the rise, and yet prices are reportedly stabilizing, or even rising?
See these two articles below, both from Bloomberg.com on the same day (6/30/09):
Delinquencies Double on Least-Risky Loans, U.S. Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDkTqrdlECCo
Shiller Sees ‘Improvement’ in Rate of Home-Price Drop
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTz.RbR1robw
Makes you wonder... what do you think?
Real estate syndication offers the opportunity to channel private money into real estate investments for which other financing is not available. It has been a popular method of financing the purchase and sale of properties in multi-family or commercial properties in the higher price ranges. With today’s market it is becomes a particularly useful tool.
The term “syndication” has no precise legal significance. It is a descriptive term for anorganization or combination of investors pooling capital for investment in real estate.
The responsibility, obligation and relationship of the syndicator to the investment group and the investors to each other are determined principally by the form of organization.
Real estate licensees have been active in real estate syndication for years. This follows naturally from licensees’ involvement as agents in purchase and sale transactions. When confronted with a listing or other opportunity to sell property requiring financing that could not be handled by a single purchaser, a real estate broker might turn to others for pooling of capital necessary to consummate the purchase.
In General:
A typical real estate syndication combines the money of individual investors with the management of a sponsor (Capital One Group, LLC), and has a three-phase cycle: origination (planning, acquiring
property, satisfying registration and disclosure rules, and marketing); operation (sponsor usually manages both the syndicate and the real property); and liquidation or completion (resale of the property).
Benefits:
Virtually every real estate broker or developer has been at some time in a controlling position with respect to an expensive piece of property that appears to offer extremely favorable opportunities for profit to the purchaser. All too often the investment outlay on such a purchase is more than any single client can manage. The real estate licensee who understands the methods of syndication can turn what would otherwise have been a frustrating and unrewarding situation into a profitable transaction for both the licensee and the investors.
By pooling limited financial resources with others who are similarly situated, a small-scale investor is afforded an opportunity to participate in ownership and operation of a piece of property that is too much to handle singly or in a joint venture with one or two others.
Syndication also offers professional management which might not otherwise be economically feasible for the small investor. Professional management, the basic commodity that the syndicator has to offer, is crucial to successful syndication.
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