Apr 06

HARP Continues to Flounder

new report by Cora Currier over at ProPublica chronicles the massive practical shortcomings of the Democratic administration’s Home Affordable Refinance Program, or HARP, and why it continues to fail to offer underwater homeowners  any real relief. The program has also fizzled in offering meaningful rate reductions to those stuck with high percentage rates or adjustable ARM mortgages.

Large banks, although permitted to do so, are not offering those holding loans with competing banks refinancing under HARP because the banks view these outside loans as carrying more risk, which of course is only marginally accurate. This leaves the homeowner in the precarious position of being captive to whatever rate the bank currently servicing the mortgage offers. However, even with this fractional increase in risk, the administration is doing nothing to cajole the banks into offering customers more competitive rates and accepting outside business in return for saving them from the brink of disaster in 2009-2012.  Because the banks are refusing to compete with one another, customers are often left with higher long term mortgage rates than they would have otherwise qualified for under HARP or in the marketplace.

The reason for all of this, as it has always been, is that these programs fail to address the basic problems in the housing market. Unfortunately, the profound apprehension and outright fear on the part of the administration to forcefully attack the large banks continues to result in these half-assed band-aids and workarounds to address the housing market dilemma. The proof is in the pudding. The administration can not on its best day ever administer a program under which homeowners are stuck refinancing more than the home is worth. Leaving aside how awful the notion is of forcing homeowners to ultimately pay an inflated amount based squarely on the fraud of the banks and mortgage originators for a moment, the banks will not even cooperate in this scheme of forcing homeowners to lock in lower rates to pay them back money that they would not otherwise owe.

The bottom line is that this problem will persist for much longer and continue to create a drag on the overall economy until either the Republican or Democratic party, or both, stand up and force the banks to write-down millions of fraudulently inflated mortgages to fair value. To this point neither party seems willing to offer even an iota of evidence that Wall Street and the banks have not simply been given a blank check with nothing significant expected in return for their very lives.

I should also mention that I do in fact believe that President Obama understands this problem, and is well aware of the shortcomings of each of the programs offered as a remedy. I would even confess that it is extraordinarily likely that he honestly would love to force the banking sector to refinance and write-down the mortgage mess that it created. However, while the United Auto Workers and General Motors and Chrysler have had to accept onerous loan terms and drastic reductions in wages and benefits in return for the government’s assistance, the banks have suffered no similar consequences notwithstanding their far greater responsibility in the overall disaster. Why this has been the case has been fodder for much speculation. I sincerely hope that the American people do not have to wait for President’s Obama’s inevitable memoirs for an answer.

Apr 05

Robert Shiller Weighs in on Home Prices

The most recent S&P/Case-Shiller Home Price Index was released on March 27, 2012 showing that home prices have continued to dip and are currently sitting at 2003 levels. While this comes as no surprise to me, as I suspect that home prices have to fall back to 2002 levels, pricing in the fraudulent boom, as well as an amount to compensate for the recession, unemployment, and continued wage stagnation.

However, I did find it interesting that Mr. Shiller noted that he is being asked routinely if the market has hit bottom. He remarked that the questions seem to be coming from a perspective holding fast to a notion that as soon as a bottom is reached, home prices will begin to rise quickly again. This is extraordinarily indicative of predictable foolish American “market” thinking that another housing boom must be forthcoming to retrace some of the gains of the past decade, rather than acknowledging that home prices need to return to historical levels of appreciation in order to have a sound and stable market. At that point, home prices can begin to rise just above the inflation rate as has always been the case absent some regional or national artificial boom.

Shiller went on at some length during an interview with Motley Fool:

Well, our numbers are still going down, but our numbers we just released January, in the first few months of this year, there are positive signs, notably the National Association of Homebuilders Housing Market Index — which is based on a survey of builders — shows that builders are seeing signs of optimism. Although, the very latest number in February was just flat, so it’s not formally good. Things seem to be weakening a little bit in the latest month or so. But I find it very difficult to predict home prices right now.

Home building is rather different, by the way. Homebuilders are not bothered by the fact that in certain regions, homes are below construction costs. They just don’t build there. All they need are some places where homes are selling for above construction costs. That’s really not the same market.

Will this market pick up? I tend to take a different perspective. I keep getting asked by reporters, “Is this the bottom? Is this the turning point?” And I’m wondering what they’re asking about. It sounds implicit in their question that they think that there’s going to be a day soon and then it’s going to zoom up again.

We as a people have to move away from a mentality that there will always be one get-rich-quick scheme afoot at any moment. Further, we must reform our fundamental outlook on single-family homes as an investment, to a more realistic and practical understanding that homes should and are a stable means of saving for retirement and beyond, expecting meager returns in return for that stability.

Neither the Democratic or Republican party has put forth a real plan to assist homeowners climb out of the chasm left by the housing bubble. The Republican plan is ultimately to do nothing, while the Democratic administration has fumbled from one ineffectual policy to the next avoiding forcing the large banks to provide any significant help to homeowners and those improperly foreclosed upon. The most recent foreclosure fraud settlement forced down our throats by the Obama administration does nothing more than free the banks to restart the foreclose process guns blazing, now free from the possibility of prosecution from the DOJ or the state attorney generals. There will not be any large-scale write downs of mortgage principal for homeowners who find themselves underwater as a result of the banks’ fraudulent conduct. However, because the recent settlement will assist in clearing forecloses from the banks’ books, the “bottom” desired by Republicans has been ironically hastened by this Democratic administration. Lastly, in one more ill-conceived medieval half-measure by the president, Fannie and Freddie have been prodded into selling off huge swaths of homes to bankers and investors so that the bundled homes may be rented back to the homeowners or others in an effort to unclog the market. The very same homes that were dumped upon Fannie and Freddie and the American people by the banks. I don’t see a way for that program perform well for the public.

So, we’ve still got a ways to go to get to a place where the home market is normalized, but it will happen in due time, with those who caused the mess emerging the big winners, again.