Part 2: Housing stats and the very troubled mortgage industry
Last time, in Part 1, we discussed whether the recent spike in housing starts indicates having reached a bottom--with nowhere but up to go--or whether the spike instead simply shows how slow things have been after a weather-wracked spring that slowed construction. We discussed housing's lingering effect on Western states, still trying to gain traction in a spotty recovery, and we saw the massive losses reported by Bank of America over its troubled mortgage business.
Existing home sales disappointing
Soon after we posted, reports came in showing sales of existing homes--that is, previously owned homes, not new homes--slipped again in June. It wasn't a huge dip, but it went again the grain of projected sales. According to a July 20 piece at Bloomberg.com, "Sales of previously owned U.S. homes unexpectedly declined in June to a seven-month low as the industry struggled to overcome rising unemployment and foreclosures.
"Purchases dropped 0.8 percent to a 4.77 million pace, data from the National Association of Realtors showed today in Washington. The median projection in a Bloomberg News survey called for a gain to 4.9 million. Inventories increased, more contracts were canceled and 30 percent of transactions last month were of distressed dwellings, the figures showed."
Cancellation rate spikes
The cancellations probably garnered more attention than the number of sales involving distressed properties. According to comments in a July 20 Reuters report:
"DNR has stated that the cancellation rate of contract signings rose from 4 percent to 16 percent. That is very unusual. Normally when a contract is signed, the house is sold. Something has happened that has led to more cancellations. It may be jitters from the recent economic conditions or because banks may have tightened lending conditions, meaning that the financing a buyer hoped to get was no longer available. We don't know for sure but something seems to have rocked the boat a little bit."
Diana Olick commented on things from her July 20 "Realty Check" perspective:
Sales fell, not by much, down 0.8% month-to-month, surprising even the Realtors, who thought May would be the weakest point. Sales were down 8.8 percent from June of last year, when most closings took place from the end of the home buyer tax credit.
What Realtors and prognosticators did not even consider was a strange phenomenon: June saw a spike in the contract cancellation rate to 16 percent. Existing home cancellation rates usually run under ten percent, and, in fact, in May were at just 4 percent. Cancellation rates for new home construction usually run higher than that, as buyers of newly built homes tend to be more volatile and put less (often nothing) down when signing a contract.
"I think it's the broader, very slow economic activity," said Lawrence Yun, the National Association of Realtors' chief economist, who earlier told a room full of reporters that he was still trying to find the source of the spike. "The economy is expanding at a very slow pace, job creation is very slow, the consumer confidence has certainly taken hit in the second quarter, so there could have been some buyers who had some second thoughts and just decided to pull out of the contract, but at the moment it's still unclear as to why there was a measurable rise in cancellations."
Reports indicate shady mortgage tactics persist
Perhaps even more disturbing than the unusual phenomena linked to the trough in existing home sales are reports that robo-signing tactics are ongoing; such shady tactics--revealed long after authorities learned that foreclosures were proceeding apace without benefit of true ownership as demonstrated with the original "wet note"--are what caused the foreclosure moratorium among big lenders last fall. The moratorium was followed by the all-skate investigation of the lenders, enjoined by the Attorneys General of every state in the Union.
To be sure, fallout has occurred:
- 450,000 Countrywide Victims To Receive $108 Million For Excessive Fees
- Wells Fargo paying record fine of $85 million over alleged loan practices
- Georgians getting Countrywide refunds; Fed fines Wells Fargo
Settlements seem large, but payments spread over many victims
But that first headline should be a clue to problems in these types of settlements.
- 450,000 victims
- $108 million in penalties
Hello, Mr. Regulator? If $108 million is divvied up equally among 450 thousand homeowners who got burned, that's a niggardly $240 apiece. To be fair, some of those reports say select homeowners may receive up to $5,000. So what does that mean for the lower-end settlements? Those cheated homeowners get $50?
FDL decries settlements as weak for victims, yet strong cautionary signal for Attorneys General
A July 21 post at FireDogLake extrapolates from this position, beneath this headline: "Weak Settlements Over Mortgage Abuses Should Give State AGs Pause."
Almost as astonishing is that it took them a year to determine the settlement terms. Now that we see it for what it is, youre talking about hundreds of dollars per borrower, not thousands, on systemic abuses. Remember, Countrywides CEO Angelo Mozilo isnt going to jail for any of this.
Now, at the other end of a settlement, the Federal Reserve issued a consent order against Wells Fargo for similarly systematic overcharging, this time on steering borrowers into higher-risk loans. But once again, Wells does not have to admit wrongdoing, and once again, the cost of the settlement itself is paltry.
AP finds new evidence of 'robo-signing'
And then, to top it off? We find this: An AP exclusive, with the hed, "Mortgage 'robo-signing' goes on."
Kinda makes ya crazy. Unfortunately, if you're at the end of your financial rope and wondering whether to invoke the power of the U.S. bankruptcy court, you can't really afford "crazy." Better to seek a trained, experienced bankruptcy attorney.
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