Garden State Foreclosure Rate

Said a realtor, scanning the rows
Of colonials, shacks and chateaux:
"Though it's not plain to see,
Ev'ry eighth mortgagee
May discover the bank will foreclose."

Bloomberg reports that New Jersey has overtaken Nevada to win second place in the nation's delinquency derby. With a mortgage delinquency rate of 12.7% (up 1.3 points over last year), the Garden State still has much ground to gain before reaching Florida's winning 17.5%. Aside from the generally tough economy, and regional factors such as the financial industry's job losses, the surge in our delinquent mortgages here in New Jersey is driven by a slowdown in the state's foreclosure process. Foreclosures were effectively halted in December 2010 by a state court demand that such procedures be based on a personal review of each case, as opposed to "robo-signing", in which assembly lines of workers issue stacks of documents. The result is that "New Jersey’s judicial review of all foreclosures, which delays seizures to help borrowers, threatens to hold down prices for years as properties remain subject to repossession and then may be sold at a discount," according to Bloomberg.

Rip the Band-Aid?

For the market in homes to get going,
One should think of arresting the slowing
Of foreclosure delays
On homes that appraise
For less than the owners are owing.

Dr. Goose, who is no expert on America's housing malaise or real estate generally, recently checked into this topic to see what progress we are making at the halfway point in what appears to be a "lost decade". First the good news: according to MarketWatch, the level of foreclosure activity declined 3% in July (10% year-over-year), making the 22nd straight month that the numbers declined on an annual basis. However, the number of properties entering foreclosure rose 6% in July, the third such monthly increase in a row. 27 states registered y-o-y increases.

To a degree, it appears that the fall in overall foreclosure activity and the more recent rise in foreclosure starts relate to the same phenomenon: in states such as Florida, Illinois and my adopted state of New Jersey, foreclosure processing and procedural issues (or "levels of dysfunction," in the words of a RealtyTrac analyst) had slowed the pace of filings last year. The resulting bottleneck is evidently only now beginning to clear, resulting in the latest uptick in starts. By the same token, well-intentioned laws to aid distressed homeowners, such as that recently enacted in Oregon, may only delay the inevitable in many cases, thereby delaying as well the hoped-for clearing of the market.

Q&A at the Mortgage Fraud Settlement Negotiations

"Pray tell us: what must we do,
That the Feds and the states will not sue?"
"In dollar terms: 25,200,000,202."

The Obama administration and 49 US state attorneys general have announced a $25 billion settlement of mortgage foreclosure fraud charges with the five biggest mortgage loan origination banks. The five firms - Ally Financial Inc./GMAC Mortgage, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. - will underwrite benefits to certain mortgage borrowers that are modest in their individual impact but may provide a marginal impetus to the housing and mortgage markets. The benefits include principal reduction for those at imminent risk of default; refinancing eligibility for some "underwater" borrowers; and $2,000 cash payments to some whose homes were foreclosed during the last three years. However, the largest impact of the settlement is not on homeowners but on the banks, from which a significant legal risk has been removed. Banks are not completely out of the woods yet, though; bondholders can still sue to have the mortgage originators buy their bad loans back.

Adrift on the Red Sea

A maritime man from Schenectady,
Surveying the seascape dejectedly,
Said: "A fifth of home loans
Are, like Davy Jones,
Underwater, with negative equity."

"Are homeowners fixing their balance sheets?" asks the Wall Street Journal's real estate blog, and cites lower-trending US mortgage default figures as a hopeful sign. However, it goes on to say that the "shadow inventory" of homes in foreclosure -- as well as those with defaulted or delinquent loans likely to be foreclosed on -- has remained consistent. CoreLogic recently estimated that 22.7% of all homes have negative equity, a figure essentially unchanged over the last two years. Bewarrrre Davy Jones locker, all ye mortgage lenders!

A Deadbeat's Confession

"When my debt service proved but a fiction,
The bank didn't press for eviction,
As experience showed
That an empty abode
Would only invite dereliction."   

A visitor from Florida gave anecdotal evidence that many mortgage lenders there would prefer to allow a defaulted borrower to remain, and maintain a house, rather than foreclose and invite the unwanted attention of squatters and vandals in neighborhoods with many vacant homes.

Neighborly Advice

"From one's mortgage," said Mr. DeLay,
"One cannot in good faith walk away;
When I got in a jam,
I stayed where I am,
And simply neglected to pay."

A visitor from Florida mentioned this increasingly common practice there, which renders quaint the old dilemma of whether to "walk away" from one's underwater mortgage.  Anecdotal evidence is that some "home owners" continue to occupy their dwellings for up to three years without making the home loan payments. If only the Smiths at 212 Willow Lane had known about this...

MBS Q&A

Tell me how can we state with finality
When the mortgage bond crisis finale be?
When loans finish tanking
In ledgers of banking
To prices reflecting reality.  

Freddie Mac has inspired the foregoing Q and A with the news of its first quarterly profit in over 3 years. The $676 million profit stems from FHLMC's having arrested the slide in the collective value of the mortgages and foreclosed homes on its balance sheet, begging the question of whether the valuation is realistic, and whether it may yet fall further. As Freddie Mac CFO Ross Kari cautioned: "We're encouraged by the trends, [but] we're not putting up a 'mission accomplished' sign on the front of the building either."

Warren Week: I

Dr. Warren has laid out a map  
In her book called The Two-Income Trap,  
To explain how la vie works,  
When he works and she works,  
To widen the middle class gap.

This week Limericks Économiques looks at the strains on middle class America through the groundbreaking work of Elizabeth Warren.

Overheard at Bank "X"

"The legal procedures we went against
In the throes of our animal sentiments
Were finally exposed
When we tried to foreclose
On homes that we never had lent against."

Overheard at a Mortgage Servicer

"Today, to the evident sorrow
Of the lot who can't pay what they borrow,
We'll discreetly foreclose
On a hundred châteaux,
And we'll do it again come tomorrow."

Mortgage Defaults, Then & Now

The first wave of mortgage foreclosures
Was related to ARM-loan exposures,
But more so of late
The relevant rate
Is the instance of factory closures.

Thanks to Nick Timiraos for his analysis of mortgage delinquencies and foreclosures in The Wall Street Journal.