Results 1 to 3 of 3

Thread: 20 Million Homeowners Can’t Trade-Up Because They Are Still Underwater

  1. #1

    20 Million Homeowners Can’t Trade-Up Because They Are Still Underwater

    One of the most deplorable aspects of Greenspan’s monetary central planning was the lame proposition that financial bubbles can’t be detected, and that the job of central banks is to wait until they crash and then flood the market with liquidity to contain the damage. In fact, after the giant housing bubble crashed and left millions of Main Street victims holding the bag, Greenspan evacuated the Eccles Building, and then spent nearly a whole chapter in his memoirs explaining how this devastation wasn’t his fault.
    Instead, he blamed Chinese peasant girls who came by the millions to the east China export factories where they lived a dozen at a time cramped in tiny dormitory rooms working 14 hour days. According to the Maestro, they “saved” too much, thereby enabling American’s to overdo it on the mortgage borrowing front. Yes, in so many words he said exactly that!
    Lets see. The Maestro was allegedly a data hound. Did he not notice that housing prices in the US rose for 111 straight months from late 1994 to 2006, and during that period increased by nearly 200% on average across US neighborhoods. How in the world could this giant aberration have escaped the notice of the money printers around Greenspan in the Eccles Building?
    How in the world could any adult thinker blame this on factory girls in China—that is, a policy regime that caused excessive savings. In fact, it is plainly evident that the People’s Printing Press of China attempted to protect is exchange rate from appreciating against the flood of dollars emitted from the Eccles Building. It did this in mercantilist fashion by pegging the RMB exchange rate and thereby accumulating a massive hoard of US treasury notes and Fannie/Freddie paper.
    In short, China didn’t “save ” America into a housing crisis; the Greenspan Fed printed America into a cheap debt binge that ended up impairing the residential housing market for years to come.
    So the problem with central bank inflation of financial bubbles is that when they burst the damage is extensive, capricious and long-lasting. On the latter front, new data from Zillow Inc. provide a dramatic case in point.
    Here we are 96 months after the housing peak, yet there are still 20 million households which are either underwater on their mortgages or do not have enough embedded equity to cover the transaction costs and down payment needed to move. Since there are only 50 million households with mortgages, that means that as a practical matter 40% of mortgage borrowers are precluded from trading-up.
    It is no great mystery that historically trade-up borrowers have been the motor force that drove the US housing market. Selling their existing home for a better castle, trade-up buyers vacated the bottom-end of the market so that first time buyers could find a foothold.
    Now thanks to Washington’s eternal conviction that debt it the magic elixir of economic growth, first time buyers are few and far between because they are buried in student debt—-about $1.1 trillion to be exact. Each graduating class has more students with loans to carry forward, and in higher and more onerous amounts. Fully 70% of the class of 2014 has student loans, and they average of about $30,000 each. Both figures are triple what they were just a decade ago.
    In any event, for those Millennials who do manage to accumulate a down payment by the time they are in their early 30s there is precious little starter home inventory available. The Greenspan mortgage debt serfs from the previous generation are blocking the way.
    Monetary central banking is an economy wrecker. Here is just one more smoking gun of proof.

    By Conor Dougherty at The Wall Street Journa
    Nearly 10 million U.S. households remain stuck in homes worth less than their mortgage and a similar number have so little equity they can’t meet the expenses of selling a home, trends that help explain recent sluggishness in the housing recovery.
    At the end of the first quarter, some 18.8% of U.S. homeowners with a mortgage—9.7 million households—were “underwater” on their mortgage, according to a report scheduled for release Tuesday by real-estate information site Zillow Inc.
    While that is an improvement from 19.4% at the end of last year and a peak of 31.4% 2012, those figures understate the problem.
    In addition to the homeowners who are underwater, roughly 10 million households have 20% or less equity in their homes, which makes it difficult for them to sell their homes without dipping into their savings. Most move-up homeowners typically use their home equity to cover broker fees, closing costs and a down payment for their next home. Without those funds, many homeowners can’t sell.
    “It’s a sobering appreciation that negative equity is going to be with us for a while to come,” said Stan Humphries, Zillow’s chief economist. “Negative equity is central to understanding a lot of the distortions in the marketplace right now.”
    Those distortions include the inventory of homes for sale, which, while rising, is low by historical standards. It also helps explain why first-time home buyers are having such a hard time cracking the market. Real estate is in some ways like a ladder, Mr. Humphries notes, so when underwater homeowners don’t trade up it makes it harder for newcomers to get in.
    C here for rest of article:
    The Greenspan Housing Bubble Lives On: 20 Million Homeowners Can’t Trade-Up Because They Are Still Underwater | Zero Hedge
    Those who can make you believe absurdities can make you commit atrocities.


  2. #2
    This article deserve to be read with a lot of attention.

    U.S. mortgage collectors gag homeowners in loan deals

    Joseph and Neidin Henard thought they had finally fixed the mortgage that was crushing them. In January, the couple reached a settlement with every company that had a stake in the mortgage on their house in Santa Cruz, California, a deal that would have slashed their monthly payment by almost 40 percent to $3,337. It was the end of a process that started with their defaulting in 2009.
    But when they saw the final paperwork for their settlement, they found that Ocwen Financial Corp, the company that collected and processed their mortgage payments, had added an extra clause: they could not say or print or post anything negative about Ocwen, ever.
    The Henards' experience was not unusual. Mortgage payment collectors at companies including Ocwen, Bank of America Corp and PNC Financial Services Group are agreeing to ease the terms of borrowers' underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say. In many cases, they are demanding that homeowners' lawyers agree to the same terms. Sometimes, they even require borrowers to agree not to sue them again.
    These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly about their difficulties or suing, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry.
    A 2013 report by the National Consumer Law Center found that servicers routinely lost borrowers' paperwork, inaccurately input information, failed to send important letters to the correct address—or sometimes just didn't send them at all.
    "If your servicer screws up, you can't say anything about it," said homeowner attorney Danielle Kelley in Tallahassee, Florida. "The homeowner has no defense."
    Regulators are taking note. After Reuters' story was published on Wednesday, New York's Superintendent of Financial Services, Benjamin Lawsky, said he is investigating Ocwen's use of these clauses. A source familiar with Lawsky's thinking said that he could expand the probe to other servicers.
    Gag orders and bans on suing are appearing when borrowers use litigation to settle foreclosure and loan modification cases. But they are also popping up when servicers modify loan terms outside of the courts, known as "ordinary loan modifications," according to consumer lawyers.
    Bank of America doesn't include non-disparagement clauses and releases of claims in the course of ordinary loan modifications - just in ones involving negotiated legal settlements, spokesman Rick Simon said. Waivers don't preclude customers from filing suits on post-settlement issues, he said.
    PNC's vice president of external communications, Marcey Zwiebel, said "these clauses are part of the consideration we receive for agreeing to settle the case. This helps to ensure that the discussion is not re-opened in public after the case has been settled."
    Ocwen declined to comment, citing pending litigation.
    Ocwen, Bank of America and PNC did not respond to requests for comment about Lawsky's investigation.
    Attorneys for lenders and servicers say consumer lawyers are overstating the importance of these clauses. Banks are looking to avoid being sued again for the issues resolved in the settlement, but understand they may be sued if they are responsible for a future wrong, said Martin Bryce, a partner with Ballard Spahr in Philadelphia who specializes in consumer finance and banking.
    Bryce acknowledges that the language is ambiguous - under the waivers, homeowners often give up the right to sue on claims "whether existing now or to come into existence in the future."
    The non-disparagement clauses are meant to protect banks from public insults from borrowers, which the lender can often not respond to without violating privacy laws, Bryce said.
    Banks and servicers have been facing bad publicity along these lines for years, and while quantifying the impact of this bad-mouthing is difficult, few banks would choose to face it.
    On a Facebook page devoted to denigrating Bank of America, one homeowner said, "They are without a doubt the worst organization I have ever dealt with. Keep suing them America! They deserve it!!"
    Clauses preventing future disparagement and lawsuits first started appearing after the housing crash, but they have grown more widespread in the last six months, said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington.
    In January, the Consumer Financial Protection Bureau, a U.S. government agency, said it examined two servicers who were requiring homeowners to give up their right to sue as part of ordinary loan modifications. The CFPB said the practice was "unfair," and required the two servicers to cease the practice.
    The agency also directed the servicers to stop enforcing existing waiver clauses and "to provide notice to the borrowers that it would not enforce these waivers in the future," according to a CFPB Supervisory Highlights bulletin. The agency didn't name the two servicers.
    On Wednesday, New York's Lawsky said he too was alarmed by servicers' using the clauses.
    "Reports that Ocwen is imposing a gag rule for certain struggling homeowners - preventing them from criticizing the company - are troubling and deeply offensive," said Lawsky in an emailed statement to Reuters. "We will investigate this issue immediately."
    Lawsky's office has had a monitor at Ocwen since 2011, as a condition of his approving the company's purchase of Litton Loan Servicing from Goldman Sachs Group Inc.
    These clauses are likely more popular because mortgage companies are trying to stem their expenses from the housing crisis, which triggered some 5.1 million foreclosures, consumer lawyers said. Having helped create the foreclosure epidemic, banks are now paying the price, spending billions of dollars on fines, penalties, mortgage settlements with borrowers, and other charges associated with working through the glut of bad loans.
    Since 2009, Bank of America alone has logged some $50 billion of expenses for settlements of lawsuits and related legal costs, many of them linked to mortgages. Without those charges, its income before taxes would have been about three times higher.
    Homeowner attorneys say they advise their clients not to sign non-disparagement agreements. But some of them do so just end the ordeal.
    "I try to talk my clients out of agreeing to it, but a lot of times they will agree," said Pamela Simmons, an attorney with the law office of Simmons & Purdy in Soquel, California.
    During the past few years, loan servicers have been renegotiating mortgage terms with borrowers who have fallen behind on their payments. Since the housing crash, there have been about 1.3 million loan modifications done under the government's Home Affordable Modification Program, according to the U.S. Department of Treasury. Servicers have done an additional 5.6 million modifications in-house.
    Companies like Ocwen say that modifying mortgages is cheaper than foreclosing. Servicers modify mortgages through some combination of changing monthly payments or interest rates, lengthening the terms of loans, and changing the principal owed, either by forgiving some of the loan or by adding on penalties and fees to make it bigger.
    The 2012 National Mortgage settlement, which covered Ally Financial Group, Bank of America, Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co prohibited the use of waivers during the course of offering normal loan modifications—though it did allow for waivers in the event of litigation. Waivers were also forbidden under HAMP modifications.
    That still leaves plenty of room for servicers to try to block borrowers from suing, or to use gag clauses.
    Attorneys say the experience of the Henards was typical: the gag orders often pop up after borrowers think deal negotiations have been completed.
    The Henards balked when they saw the Ocwen clause stating that they were to "not make any derogatory and/or disparaging comments about Ocwen or publish or discuss this Agreement or the settlement and compromise evidenced hereby on the internet or with the media."
    "We are worried about them coming back against people in the future," said Dan Mulligan, the Henards' attorney. "It's just a risk you don't want to take." The Henards have about $680,000 outstanding on their mortgage.
    Ocwen responded in court documents that the language was "standard boilerplate." The Henards haven't signed the non-disparagement clause. The issue is still being dealt with by the two sides' lawyers.
    Consumer lawyers also object to being gagged themselves. Some lawyers challenge the banks to strike the language — or water it down. Attorneys also sometimes instruct their clients to fire them. That way, the homeowner can agree to the terms while the attorney doesn't have to.
    "The banks are attempting to hold our clients hostage with a provision they know we cannot agree to," said University of Notre Dame law professor Judith Fox, who runs a clinic for troubled homeowners and who has also petitioned the Indiana Bar Association over attempts to muzzle attorneys. "It is coercive and unethical."
    U.S. mortgage collectors gag homeowners in loan deals | Reuters
    Those who can make you believe absurdities can make you commit atrocities.


  3. #3
    "Our Industry Is Absolutely Crazy": The Subprime Wolf Of Wall Street In 125% Interest Clothing

    The last time we wrote about the number 125% it was in the context of the return of that old Subprime 1.0 staple home loans that cover more than the purchase price of the home (because one must always have some leftover cash for improvements), i.e. 125% loan-to-value mortgages. Today 125% comes back and again it is in the context of subprime, only this time it is about the second coming of the credit bubble when, as Bloomberg writes, a certain group of distinguished individuals is now offering loans to troubled Americans at the whopping annual interest rate of 125%.
    Which group of distinguished individuals? The same group that helped make The Wolf of Wall Street into a cult classic: the people who were trained by that born again scammer par excellence Jordan Belfort.
    From an office near New York’s Times Square, people trained by a veteran of Jordan Belfort’s boiler room call truckers, contractors and florists across the country pitching loans with annual interest rates as high as 125 percent, according to more than two dozen former employees and clients. When borrowers can’t pay, Naidus’s World Business Lenders LLC seizes their vehicles and assets, sometimes sending them into bankruptcy.
    If the phrase predatory lending comes to mind it is because this is precisely what it is:
    "This is the new predatory lending,” said Mark Pinsky, president of Opportunity Finance Network, a group of lenders that help the poor. “And the predators, just as they did in the mortgage market, have gotten increasingly aggressive.”

    Subprime business lending -- the industry prefers to be called “alternative” -- has swelled to more than $3 billion a year, estimates Marc Glazer, who has researched his competitors as head of Business Financial Services Inc., a lender in Coral Springs, Florida. That’s twice the volume of small loans guaranteed by the Small Business Administration.
    Naturally, since these are the kinds of loans that ordinary Americans who don't have defaults and a horrible credit rating would never touch, the probability of repayment is virtually nil. Which means that the probability of default on the new subprime loans is assured, and as such all that is happening is yet another case of credit money assisted wealth transfer: from the very poor to the very aggressive, and increasingly wealthy. In other words, what the Fed has done for Wall Street, subprime 2.0 is doing for its far shadier, and criminal some would say, subsector.
    The name of the company that makes the loans is almost too cheese to fit into its own ironic meme:
    Naidus, 48, chief executive officer of World Business Lenders, declined to be interviewed. Marcia Horowitz, a spokeswoman at public relations firm Rubenstein Associates Inc., said the company explains loan terms in plain English and takes steps to ensure that borrowers understand.

    “World Business Lenders’ sales and marketing techniques, as well as the interest rates it charges and the default rates it experiences, are generally consistent with those throughout the industry,” Andy Occhino, general counsel for the company, wrote in a May 21 letter. “In serving the underserved small-business community along Main Street USA, World Business Lenders complies with all applicable laws and endeavors to ensure a positive experience for its customers.”
    To be sure World Business Leaders (or WBL in short) are just that, and much more - you see they are pure humanitarians by nature:
    Horowitz, the spokeswoman for World Business Lenders, said the company works with borrowers to avoid defaults.

    “If the default cannot be cured, World Business Lenders enforces its rights under the loan documents, including the recovery of the pledged collateral,” she said.
    The good news is that at least someone has collateral, unlike all those countries in Europe where the loan itself is the collateral repledged back with the central bank (several times).
    Sadly, the only reason why WBL exists is simple: they supply a product that is in great demand...
    “While I am not real thrilled about some of the prices being charged, in some cases businesses need to get something done in a hurry and it makes sense,” said William Dennis, who directs the research foundation at the National Federation of Independent Business. “It may not be the world’s best choice, but at least it’s your choice.”

    Brokers are popping up around the country to originate loans on behalf of lenders including OnDeck and World Business Lenders. The companies pay fees to the brokers of about $6,000 for finding people willing to take a $50,000 loan, according to current and former brokers, most of whom asked not to be identified to preserve their job prospects.
    ... a demand that would not exist if the economy was truly, as some of the more humorous economists out there allege, recovering.
    As for what the insiders think of their business model, it is the same as what the outsides would have to say:
    “Our industry is absolutely crazy,” said Steven Delgado, who left World Business Lenders last year to become an independent loan broker. “There’s lots of people who’ve been banned from brokerage. There’s no license you need to file for. It’s pretty much unregulated.”

    David Glass, 39, was still on probation for insider trading when he co-founded Yellowstone Capital LLC, a New York-based brokerage and lender that originated $200 million in loans last year, including for OnDeck.

    He said he learned to sell in the 1990s at Sterling Foster & Co., a Long Island firm where he got his friend a job interview that inspired “Boiler Room,” a movie that portrayed a college dropout’s foray into high-pressure stock sales. Glass said he coached actor Vin Diesel on cold-calling for the film. “A natural,” Glass said.
    How will all of this end?
    World Business Lenders put up job listings seeking former brokers, and they came. A February orientation schedule provided by a former employee shows that training is run by Bryan Herman, who got his start under Stratton Oakmont Inc.’s Belfort, the con man portrayed in “The Wolf of Wall Street.” Herman later ran his own boiler room in the 1990s and avoided jail by informing on other brokers when he was charged with fraud in 1998, court records show. Another salesman was released from prison in 2010 after serving about a year for penny-stock fraud

    Herman has paid for his crimes, according to his lawyer, Marty Kaplan.

    “It’s really like saying Bill Clinton smoked dope in college,” Kaplan said. “Who cares?”
    Indeed: who cares. Certainly not the Fed, for whose erudite members this too will be a perfectly normal occurrence and hardly a signal that something is horribly wrong with its centrally-planned, Frankenstein economy.
    "Our Industry Is Absolutely Crazy": The Subprime Wolf Of Wall Street In 125% Interest Clothing | Zero Hedge
    Those who can make you believe absurdities can make you commit atrocities.


Tags for this Thread


Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts