Banks Getting Forclosed On Foreclosures. A Double Dip For Banks?
New York, May 31, 2011 – Data through March 2011, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.
an 8-year low. 19 of the 20 MSA declined during the 1st quarter, Washington DC being the one exception
Mortgage Trap meets Liquidity Trap.
The drop in new contracts comes as mortgage rates continue to fall, just last week to the lowest level of the year so far. Freddie Mac reported 4.60 percent on the 30-year fixed, but analysts say even that’s not enough to move this tough housing market.
“Because mortgage rates have been so historically low for so long, the law of diminishing of returns has set in with respect to the low rates being the main influence and catalyst in purchasing a home,” says Peter Boockvar of Miller Tabak.
“Pricing, job outlook and access to credit will remain the key factors influencing the decision to buy a home, and I don’t think those reasons will superseded by another move down in mortgage rates in getting a buyer off the fence,” Tabak went on to say.
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The Realtors also blame tight mortgage underwriting for the drop in sales and today called on the banks to start moving more money.
“A robust economic and housing market recovery cannot occur as long as banks continue to hold onto huge cash reserves,” writes Yun in the report.
“We simply have to get back to sound, common-sense lending standards to provide mortgages to creditworthy borrowers who are buying homes well within their means. Bank balance sheets show rising cash reserves and declining loan balances – it’s time to loosen the purse strings,” Yun added.
http://www.cnbc.com/id/43193955
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It’s likely that the 1st time home buyers tax credit propped up home prices, and delayed the day when banks like BofA will have to admit their loan portfolios are (yes, still) impaired.
C-S = 80% of the housing market,
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$600 billion and inserting this directly into banks, to spur banks to finance more domestic loans and refinance mortgages. However, Stiglitz pointed out that banks were instead spending the money in more profitable areas by investing internationally in emerging markets. Banks were also investing in foreign currencies which, Stiglitz and others point out, may lead to currency wars while China redirects its currency holdings away from the United States
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Another question is what might happen in the housing market if banks caught up in robo-signing controversy can’t put as many foreclosed homes up for sale. By taking some supply off the market, it could help support prices at a time when demand has been exceedingly weak.
Given the number of foreclosed homes that have already piled up in their inventory, though, banks already have more ready-for-sale houses than the market can bear. As of September, banks owned nearly a million homes, up 21% from a year earlier. That alone would take 17 months to unload at the most recent pace of sales, and doesn’t include the 5.2 million homes still in the foreclosure process or those whose owners have already missed at least two payments.
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Mortgage abuse settlements may force hiring of thousands at major bannks
“improper foreclosures” ‘robo signers,'” he wrote, “that they don’t even read the documents placed in front of them and the notaries and witnesses that are supposed watch them as they sign are not present
Foreclosure inventory is at 4.75%, and banks’ ability to complete foreclosures is hamstrung due to the well-publicized foreclosure tricks used earlier. Many banks suspended or slowed foreclosures as a result while they tried to resolve regulators’ questions and concerns.
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“If we do not see a meaningful recovery in home prices by the end of the year, we may need to contemplate impairment charges on first liens owned by banks and wholesale write-downs of second lien exposures. This implies solvency issues for BAC [BAC 11.675 
-0.015 (-0.13%) 
] , WFC [WFC 28.19 
0.05 (+0.18%) ] , JPM [JPM 42.91 0.12 (+0.28%) ] and C [C 41.11 0.14 (+0.34%) ] , and big losses for the U.S. government and private investors,” says Chris Whalen of Institutional Risk Analytics.
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It’s impossible to say what the bank losses are right now, especially when you have to add in more potential put backs, where Fannie and Freddie force the banks to buy back bad loans. All we know is that the more home prices fall, the more the banks stand to suffer, and we all know what happened the last time they suffered.
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The term writedown describes a reduction in recognized value. In accounting terminology, it refers to recognition of the reduced or zero value of an asset. . . a writedown leaves the asset with a lower value. As an example, one of the consequences of the 2007 subprime crisis at financial institutions was a revaluation under mark to market rules:
“Washington Mutual will write down by $150 million the value of $17 billion in loans . . .
“Due to accounting rules, a company must monitor and test the value of its goodwill, to determine if it is overvalued. If it is, the company must issue an impairment charge on its balance sheet, to take into account the reduced value of the goodwill.”
Read more: http://www.investorwords.com/6840/impairment_charge.html#ixzz1NyYN7c7I
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Result from the months long slowdown in foreclosure completions and originations has been a glut of foreclosed homes on the market, and this contributes to the lowering of prices noted in the Case-Schiller report today.
