REO – Stay tuned, there’s more to come…

Freddie Mac sells record number of REO in 1Q

by JON PRIOR
Friday, May 6th, 2011, 5:36 pm
Freddie Mac sold roughly 31,000 previously foreclosed and repossessed homes in the first quarter, a new record for the company as both government-sponsored enterprises shed inventory from the end of last year.

Combined, both Fannie Mae and Freddie hold 218,000 REO properties as of the end of the first quarter, down from roughly 234,000 at the end of 2010, according to their filings.

In the first quarter of 2011, Freddie holds roughly 65,000, compared to its larger sibling Fannie, which holds 153,000 REO in its inventory.

While both GSEs made progress in cutting down this portion of the nation’s inventory of foreclosed homes, which continues to drag down home prices, inventory has elevated since one year ago.

Both Fannie and Freddie held 163,000 properties in the first quarter of 2010, almost what Fannie holds currently by itself.

Repossessions at Freddie increased by nearly 1,000 in the first quarter, and the holding period for these homes averaged 191 days before being resold. This varies significantly from state to state, especially as servicers restart foreclosure processes in different areas of the country. Servicers paused the process late last year to correct procedural problems.

“We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO,” Freddie said in its financial supplement.

‘Squatter Rent’ does boost consumer spending

I’ll go out on a limb and challenge this headline stating so called ‘squatter rent’ does boost spending.  Oh, I guess I did above in my title, silly me.  I don’t know that there is a net gain in consumer spending but more likely less of the necessary expenses like food, medical bills, gasoline, car payments, etc. are going on credit cards and coming out of the otherwise allotted mortgage payments.

Once again I have to just shake my head and remind myself it’s a sign of the times.  I can’t say it’s a positive mark for personal accountability yet I don’t find myself pointing fingers and finding fault on those caught up in these economic hard times.  When businesses do it, which they do with more frequency and less fanfare than one might expect, they are praised for their fiscal responsibility and service to their shareholders.  I certainly don’t feel bad for the banks, they’re still coming out net winners and paying the top floor suite occupants outrageous benefits and bonuses.  Not to mention despite the government insurance and bailouts this “found” income benefits the banks as consumers pay down their debt.  One may argue that no it doesn’t because then they can’t continue to rape and pillage the consumer with outrageous credit fees and charges…I’ll listen to your arguments but getting their money back vs. selling bad unsecured debt for pennies on the dollar is always a good thing for a lender.  I think my deeper concern is when this is all over and worked through the system that personal responsibility and accountability are restored.  By restored I mean moved to the forefront of ones consciousness and routine practices.  The term I’m looking for may be integrity and this is on both sides consumers and the financial institutions.  (Note I didn’t include government – that may be a lost cause).  Indeed we live in interesting times.

‘Squatter Rent’ May Boost Spending as U.S. Mortgage Holders Bail

‘Squatter’s Rent’ May Be Adding Billions to Spending

So-called distressed sales – short sales and foreclosures – accounted for 40 percent of existing home transactions in March, up from about one third last year, according to the Chicago-based National Association of Realtors. Photographer: Jeff Kowalsky/Bloomberg

Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.

“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”

Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.

So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.

“We’ve had a lot of government transfers to the household sector; this is a transfer from the business sector to households,” Feroli said. “It’s a shock absorber that has helped the consumer ride out the storm.”

Now Renting

White, 28, now has two children, daughter Makenzie, 2, and son Christian, 1. She and her husband, Shannon, a sheet-metal worker, rent a house for $1,425 a month.

“My credit’s back,” she said. “I’d buy a house again, but I’d get a fixed-rate loan.”

Consumer spending is projected to rise 2.8 percent this year, according to economists in an April Bloomberg News survey, after a 1.7 percent increase in 2010.

Delinquencies and defaults have helped homeowners save more, pay down other debts and move on to more affordable homes, according to Stan Humphries, chief economist at Zillow Inc., a Seattle-based provider of housing data. Owners in default need the savings because degraded credit scores from the default make it more difficult to borrow, he said.

“It’s bad that they’ve lost the home, but household finances have been rearranged in such a way that it’s arguably more sustainable,” Humphries said.

Delinquent Debt

Van Perrault, a home appraiser who defaulted on his Saint Mary’s, Maryland, investment property in 2007 after his tenants stopped paying the rent, used the extra money to take care of late payments on his delinquent credit-card debt.

The additional $1,500 a month “made a difference in my life,” said Perrault, 60, adding that paying down his card balances helped him and his wife limit the damage to their credit scores.

Consumer debt fell to $11.4 trillion in the fourth quarter of 2010, down about $1.1 trillion from the peak in the third quarter of 2008, the Federal Reserve Bank of New York said in February. Mortgage debt dropped 9.1 percent in the period.

A total of 6.3 million homeowners weren’t current on their loans at the end of March, with 2.2 million in the process of foreclosure, according to data from Lender Processing Services Inc., a Jacksonville, Florida-based provider of mortgage- processing services and data. Loans in foreclosure were an average 549 days late.

Conscious Decision

While many Americans couldn’t make payments because they lost their jobs or earned less during the recession, others made the conscious decision to stop paying — or carry out a so- called strategic default — on homes worth less than the outstanding obligation.

About 27 percent of single-family homeowners with mortgages, or about 15.7 million, were “underwater” at the end of last year, according to Zillow, the highest share since the first quarter of 2009, during the recession. Las Vegas led the nation, at 82 percent, followed by 70 percent for Phoenix.

Failing to pay a mortgage bill is “a big moral issue,” said Karl Case, co-founder of a housing-price index that bears his name. “On the other hand, it’s exactly what you would expect given the way we treat and reward behavior in an economic system built for private gain.”

Strategic Default

More than a third of mortgage defaults were strategic, according to a June 2010 survey by finance professors Paola Sapienza of the Kellogg School of Management at Northwestern University and Luigi Zingales of the University of Chicago’s Booth School of Business. That was up from 29 percent in a March 2009 survey.

Almost half of Americans surveyed in January “said they would be more likely to default if their bank was accused of predatory lending, even if they’re morally opposed to strategic default,” Zingales said in a telephone interview from Chicago. “One likely reason for this may be related to a psychological notion of retribution.”

Adam Turner, 43, went eight months without making payments on his Las Vegas townhouse after he quit his job as a casino- restaurant wine steward in November 2009. He stopped paying as “a way of sticking it back to the banks” for pushing mortgages on people who shouldn’t have been qualified, he said. He sold the property in a July 2010 short-sale — when a bank agrees to accept less than the outstanding value of the loan.

Distressed Deals

Distressed deals — short sales and foreclosures — accounted for 40 percent of existing-home transactions in March, up from about one third last year, according to the Chicago- based National Association of Realtors.

With unemployment at 9 percent in April and forecast to average 8.7 percent for the full year — well above the 4.6 percent average in 2007 before the recession began — more Americans probably will enter the default pipeline this year. The number of homes receiving a foreclosure notice will climb about 20 percent, reaching a peak for the housing crisis, predicts RealtyTrac Inc., an Irvine, California-based data seller.

Turner, now a waiter and renting an apartment, used the money he saved by not making mortgage payments to take care of electric and phone bills and buy necessities while he was unemployed.

“It definitely boosted my cash flow, which was helpful to move on with my life,” said Turner, who made almost $100,000 a year before the recession. “It was not like I was celebrating and partying. It was a rough time. It represented the American dream that collapsed around me.”

To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Kara Wetzel at kwetzel@bloomberg.net

Off topic – Go Navy – Go USA

In light of recent events ie: World Terrorism and the neutralization of Osama bin Laden I feel moved to post a short shout out to all the men and women who serve this country and continue to make it the greatest place on God’s green earth.  Thank you for your sacrifices and lets not forget your families that many leave behind who provide the support and motivation to keep you going.

As a former Naval officer in the Amphibious arm of the Atlantic Fleet stationed in Norfolk, VA having embarked Marines, beans & bullets as well as SEAL teams I have some insight into the functions and capabilities of our armed services.  I will say the SEALs undergo some intense (understatement) physical & mental training and vetting to earn their titles.  They have a demanding, grueling and thankless job with very little room for error.  As a result they always had the coolest toys – all the latest and greatest gadgets to do their trade.  Yes, as many current articles point out the secretive arms of the JSOC seldom get any public praise but are scathingly criticized, ridiculed and threatened when something goes wrong.  That’s a shame but I believe secrecy, lore and mythology are necessary not only to protect their operations (ie: own safety & effectiveness) but also to enhance their image and threat (fear) in the eyes of their foes.

I’ll admit I am a very curious individual.  A gadget geek, tinkerer, patriot, military vet, confessed romantic (imbued with or dominated by idealism, a desire for adventure, chivalry, etc) and one who likes to know at least something about everything and how and why things work.  Resultingly I am conflicted when it comes to secrecy, especially when it involves the government.  However there is a valid need for it in national security, diplomacy and related endeavors.   This includes the military, State Dept., CIA, NSA, even the TSA.  You don’t have to like it but you must know the rationale and need for it then accept it.  That doesn’t mean don’t question anything but know what to pursue and what to accept for what it is.  We are a very unique nation composed of many nationalities, ideologies and motivations.  I consider myself an enlightened conservative with libertarian leanings and I am concerned about the future of our great nation.  We all take our freedom & liberties for granted.  Our political system has spiraled out of control, become chronically infected with corrupt personal self interests & enrichment and for the most part thrown service and the greater societal good out the window.  Political correctness and Victim mentality has displaced common sense, rational thought and effectively discriminated against anyone who dares to hold a different view.  The catch term equality has come to mean anything but.  It has been perverted to mean unquestionable entitlement for one and freedom robbing discrimination and public chastisement for another with a different opinion.   Brings to mind the great Roman Empire which rose to incredible world reach and influence then self destructed, imploding in its great enlightenment.   Abraham Lincoln exhibited exceptional insight and an ever more ominous warning when he said:

At what point shall we expect the approach of danger?  By what means shall we fortify against it?  Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?  Never!  All the armies of Europe, Asia and Africa combined, with all the treasure of the earth (our own excepted) in their military chest; with a Buonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.  At what point, then, is the approach of danger to be expected?  I answer, if it ever reach us it must spring up amongst us.  It cannot come from abroad.  If destruction be our lot, we must ourselves be its author and finisher.  As a nation of freemen, we must live through all time, or die by suicide. 

I hope we collectively wake up before it’s too late.  I’d hate to have to experience the consequences of “You don’t realize what you’ve got until it’s gone”  That would be tragic.

Our great former President Abe Lincoln also had this more blog appropriate on topic quote:

“Property is the fruit of labor…property is desirable…is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built.”

Obviously a pretty wise man.

The men and women serving in our military today are facing a totally different paradigm than I did a few short years ago.  So many are put into extreme peril and life threatening situations as a matter of routine, it has become the norm and not the exception.  Way too many are coming back physically and emotionally maimed and scarred, or worse.  Deployment cycles have become a huge burden with longer deployments and shorter “off” cycles and are unsustainable as they exist right now.  Our country owes them much more than we’ve given them.  It’s a travesty of justice and an exercise in insanity if we expect our politicians to make any significant changes to provide the services and support they deserve.  After all these are the same politicians that are going to fix social security and healthcare yet have given themselves a totally separate retirement and health care benefit plan from the rest of the nation.  This needs to be fixed.  Politicians should not be an elite class of people separated from those they “represent.”   With possibly the exception of the President and maybe the Supreme Court the majority of public servants should only have the publicly available benefits and services the government provides to the public citizens it serves.  How else can congress be expected to remain honest, do the right thing and actually fix a broken system.  Anything else is pure folly.  I understand there is a need to be able to attract qualified talent to public service, especially appointed and sworn roles but Congress should be at least the minimum exception when it comes to compensation and benefits.  They’ve already proven how easily they can, will, and have perverted and corrupted the system and should not hold the purse strings to their own compensation.  Educate yourself, question authority what you hear from the press and exercise your right to vote.

Support, encourage, hire, train, teach, and anything else you can do to show your appreciation to the military veterans who have given so much to secure and continue the freedoms we enjoy today.  That includes your freedom to disagree – try doing that in some Asian or some Middle Eastern nations…

Here’s a link to one of the stories that inspired my post today, read it if you like.

The secret team that killed bin Laden

Good Lord willing we’ll be able to soon pull out of Afghanistan and bring our military home.  They are way over worked and over stressed.  Likewise I am encourage by all you who read this and start doing some critical thinking and becoming forces for good.

~ Larry InDeed

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