Tsunami of Foeclosures Coming

So much for all the “good” news coming out of  D.C. Goldman Sachs, JP Morgan Chase, B of A are all happy campers with their billions in profits, while the rest of us lose our jobs and watch our state sink into bankruptcy. No one ever mentions that, besides the TARP money since repaid,  Goldman Sachs got $12 Billion from AIG to cover hedge fund losses. And, of course, where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from tax payers…So, it’s kind of an endless circle of taxpayer funds creating “wealth” for these jokers while the rest of us starve. That’s capitalism, right?

But, back to real estate…What does all this have to do with real estate. Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgage loans and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. Could that have anything to do with the also rising unemployment rate now over 10% in 30 states and 12.6% in California last time I checked. Here, even the “good” state jobs are now at risk and going down the tubes faster than your 5-year-old at Raging Waters.

With no job or prospect of a job, when underemployed or working only part-time or sporadically, home owners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated that by now, after more than a year of record foreclosures and drops in home values, 27% of all California home owners are under water, that is, they owe more than their homes are worth. Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it, but once the underwater mark hits 30% loss of equity, it really makes more sense to let it go. It will be years before that equity returns given the numbers involved.

home floating on waves

What about the refi program discussed in a previous post? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify.  If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do pobably have a better rate and more managable payments, but, the debt is still there.

What about the loan mod program also discussed in a previous post? Well, there we’re back to these big banks, Chase, B of A, Wells Fargo and all the rest. These banks do most of the loans in the country, so borrowers  have to apply to these banks to get  loan mods.  Obama’s Homeowners’ Stabilization program, announced amidst much hopeful optimism in March, has proved less than effective, shall we say. Chase trumpets that it has modified 138,000 loans since April. That sounds reasonably good, but the program was supposed to modify more than 4 million in 3 years…Not much of a start, so far…

Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY.  Think about this: California ALONE had 135,431 notices of default [NODs] send out from January through March of this year. B of A and its newest acquisition, failed California-based Countrywide, probably account for at least 30% of those loans or 40,000 loans. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. And, remember 27% of California homeowners are under water and so need to have their loans modified. How many actual borrowers would that be? I don’t know, but we have 35 million people, so that’s got to be in excess of 1 million loans….Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.

What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners?  Not bloody likely. Digging deeper into the trough of public money is more apt  to be that bank’s continuing attitude.  Just try to do loan mods with Countrywide and B of A or short sales. They take forever–4 months is the minimum; there is no maximum time.  The paperwork demanded is just stunning. B of A NEVER, to my knowledge, forgives even one penny of any under water loan balance as some banks actually are doing.   Its idea of what it owes to the common good is EXACTLY ZILCH, NOTHING, NADA.

So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refis and loan mods, will come onto the market, especially here in California.  Last summer, foreclosure sales statewide hit a high of 26,500 a month.  Before this year is out, we may well beat that record. I am one of many real estate brokers who supply lenders with estimates of value or broker price opinions [bpo] and I can say, anecdotally, that I am very busy, often doing 3, 4 or even 5 every day.  If  I am that busy, so are the others who do this work. That means so many foreclosures looming…

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How Do These Fat Cats Get Away With It?

The other day I watched a snippet of an interview between Maria Bartiromo of CNBC and John Thaine , CEO of  Merril Lynch, which I have not been able to get out of my head.  Thain is newsworthy because he  had just been given his walking papers.   John Thain, you will remember,  had been brought in about a year ago to take over at Merrill which continued to leak money under his leadership.  Then, about mid-year  he accepted  a buyout from Bank of America. The alternative, I guess, was to follow in the footsteps of Lehman Brothers.

So, good going John Thain–you get brought into Merrill Lynch at God-knows-what astronomical salary and proceed to lose $40 billion in one year.  Even after the buyout from B of A in this last quarter, he presided over a loss of $15 billion. That’s B for billion.  Maria was sort of incredulous about this and kept pushing for some kind of reason for this complete hemorrhage. Well, he opined, he had inherited a tough situation.

Again, Maria is back at him: how much of this loss is legacy loss and how much because of new endeavors you undertook…Well, mumble, mumble…

And, how about those, $4 billion in bonuses??? Again, Maria kept after him. The unflappable and almost expressionless Thain went on about paying “the best people” to “protect the franchise”. Apparently, all these people could go elsewhere. Really? In December of 2008? Where are they going to go?  Who wants a bunch of the “best people” who just lost $40 billion in one year and tanked their company into quasi- oblivion?  Eventually, he admitted that “compensation levels are being reset”.  What does that mean? In January 2009 as opposed to December 2008? You,  Stone Face John and these people just lost $40 billion…


Thain perhaps deserves some credit, Maria brought out, because neither he nor the B of A CEO, Ken Lewis, had taken a bonus this year. Wow! But what were their salaries to begin with? And, it turns out, Mr Thain had spent $1 million to “redecorate his office.” How do you spend $1 million redecorating an office? Sheepishly, he admitted it was a “mistake” and promised to reimburse the company.

Folks, this is what we are up against. These people running our financial institutions are living in an alternate universe. People I run into every day are losing their homes, their jobs, their pitiful pension money, and these people have to be dragged onto TV to be made to see that $4 billion is a lot of bonus, $15 billion is one quarter is complete failure and $1 million to redecorate an office even in the good times is an extravagant waste of stockholders’  money.

What is it with these people? Citigroup cries they’re going down the drain, so they get  a giant bailout from you-know-who, and the next thing you know they’re purchasing a $400 million private jet made in a foreign country.  It took an outcry and a big storm in the House  for that little purchase to be scotched. Remember AIG? Too big to fail, the whole world would swoon if they went under, governments would topple, economies crumble—so, gigantic bailout paid by you-guessed-it. Then, almost immediately, came the news of a $250,000 company trip/conference to I think it was a 5-star Newport Beach hotel. After the screaming on that one died down, they were grouse-hunting in Scotland…

What does it take to make these financial geniuses to take some responsibility? They are the “best people” so I am sure they felt entitled to their big bonuses when things were going well. After all, they are the Masters of Wall Street. Why is it when now things are so bad, they don’t seem to feel any sense of involvement at all? “Legacy” losses?  Puhlez…