Another Amazing Foreclosure Statistic

A couple of weeks ago I posted this little video about how 90% of people facing foreclosure do nothing.  Then I got to thinking: What if they are talking to the bank, there’s no way I would know about that.  So maybe far more people are taking action than I thought and I have no way to know about it.  I’m sure many more people are trying to do something than I am aware of, but maybe not as many as I might have hoped.  Here’s why:

I went on the WordTracker database to check on keywords to make my marketing more effective.  I entered the search term “foreclosure” and searched again using “foreclosure”  + “help” + “assistance” + “stop” + “prevent”.  Below is a screen shot of the results.

The column “Keyword” shows the actual term that was searched.  The column “Count” tells you how many times a day that term has been searched over the last 160 days.  The column “Predict” is an estimate of how often that term will be searched in the near future.  The most popular search terms are searched tens of thousands of times a day, so we can see that stopping foreclosure is not something that a lot of people are interested in if we use the search engine keyword method of determining the measure of public interest.  I believe that in the internet age it is actually a fairly strong measure of public interest because the internet is such a cheap, fast, readily available and easy to use research tool.

Now for the final piece of the puzzle.

Given the actual state of the economy and the housing market we are on track for between 3.5 and 4.0 MILLION foreclosures across the nation in 2009.  That is over 10,000 foreclosures a day.  That means that roughly 1% of people facing foreclosure are using internet search engines to research ways to avoid foreclosure.

It’s not even noon yet but already I could use a good, stiff scotch and water, and never mind the water.

The Main Driver of Foreclosures is . . .

A few days ago there was a great article in the Wall Street Journal that examined the facts in the foreclosure tsunami we’ve had since 2006, and finds that the number one predictor of foreclosure is upside down mortgages.

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began — the third quarter of 2006 — during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault — such as “liar loans,” where lenders never attempted to validate a borrower’s income or assets.

This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

Go read the whole thing.

The Name of the Game

Pretty much whenever Congress gets involved.

Not that I’m cynical, mind you.  Just experienced.

Deja Vu All Over Again – Updated

I guess the collapse of the subprime housing bubble must have been really lucrative for someone in high places.  Else why would Congress be setting up Round 2?  From the Wall Street Journal we learn that Fannie Mae and Freddy Mac under the leadership of the Obama administration  are going to extend help to homeowners to refinance even though they owe up to 125% of what their home is worth.

To be eligible, borrowers must be current on their mortgages and have loans owned or backed by government-controlled mortgage companies Fannie Mae and Freddie Mac.

Secretary of Housing and Urban Development Shaun Donovan said the higher limits “will make a critical difference in our ability to help many more Americans…to stay in their homes.”

Nearly 30% of homeowners with mortgages owe more than their homes are worth, according to Moody’s Economy.com.

Wednesday’s move is the latest indication that the refinance program, announced in March, has fallen short of expectations. In mid-June, the administration said 20,000 borrowers had refinanced under the program. The administration had previously said that the plan could help four million to five million borrowers who owed 80% to 105% of their home’s value.

As recently as late April, Mr. Donovan had rejected the idea of expanding the program to borrowers who were more deeply underwater.

The 105% plan was basically worthless to Southern California because property values have dropped over 50% since the peak in 2005.  The 125% is largely worthless for the same reason.  But in an economic climate such that property values are likely to continue to fall and unemployment likely to rise the government plan is basically a way to siphon money to loan officers and ultimately to other shadowy predators further up the feeding chain.  No one is suggesting, of course, that the chain leads all the way to Congress like it did back in halcyon days before the bubble burst.  No.  Uh-uh.  And don’t nobody go check.

Don’t look here either.

Nor here.

UPDATE: The problem here is the same one that the previous program had.  The success of the program depends on the loan being bought by a private investor.  Investors are in the game to earn a return on their capital.  Usually they are willing to accept fairly high risk investments if the return in likely to be substantially larger than average.

This program proposes to make refinance loans available to property owners whose properties are worth less than the refinance amount.  So in this case the investor is being asked to loan somebody $500,000 on a property worth $400,000 using the property itself as collateral for the loan.  Yes, it is being done through Fannie Mae and Freddy Mac, but they just re-sell the loan to private investors and guarantee the loan they sold.

Now ask yourself: would you be willing to loan some poor shlub who’s underwater on his mortgage $500,000 on a property worth $400,000?  With property values still falling and uneployment rising (oddly, only employed people seem to pay mortgages)?  Even if it is guaranteed by the government (that is, by you and me, my fellow taxpayer)?

Probably that’s why only one of these was done last year in the whole Western United States when the refinance limit was only 105% over value.

Go figure.

Glub Glub

From the Florida Business Journal we learn that Fanne Mae and Freddy Mac are too big to fail and are being kept on life support on the taxpayer’s dime.

Mortgage giant Freddie Mac received $6.1 billion from the Treasury Department Tuesday to cover its first quarter shortfall, the company reported in a securities filing Wednesday.

The Treasury Department funds are part of the $200 billion the agency pledged last year to back McLean, Va-based Freddie Mac (NYSE: FRE). The company told its regulator on May 12 that its first quarter liabilities were more than $6 billion greater than its assets and that it would need to draw on the funds.

Freddie Mac, and its government-sponsored sibling Fannie Mae, were put under federal conservatorship in September.

Freddie has thus far drawn on $50.7 billion from the Treasury. Fannie Mae has drawn $34.2 billion.

Not that it’s unexpected, mind you, but I can only shake my head.