Wednesday, April 3, 2013

Thursday April 4 Housing and Economic stories


TOP STORIES:

Loan modification entitlement will be rescinded as prices near the peak - (www.ochousingnews.com)  Last year I pointed out that loan modifications are not an entitlement, banks don’t want to make them one. That’s not how borrowers see it. One of the moral hazard consequences of the housing bubble is a belief among borrowers that if they get in trouble, they will be given an opportunity to reduce their mortgage payments and stay in their homes because that’s what happened over the last six years. However, the only reason borrowers were given special dispensation is because the banks were desperate and had no other viable alternatives. From Must-sell shadow inventory has morphed into can’t-sell cloud inventory: The necessity of loan modifications: Ostensibly, loanowners and lenders agreed to the price of money (interest rate and payment) when the promissory note was signed. Unfortunately, during the housing bubble, the terms of these notes were onerous, and many borrowers faced excessive monthly housing costs while simultaneously facing declining house prices and the elimination of their equity. This prompted many borrowers to strategically default, and lenders are very worried that more would follow. 

Irish Foreclosure Wave Risks Housing Recovery: Mortgages - (www.bloomberg.com) Irish bankers preparing for the biggest wave of foreclosures in the nation’s history are struggling with how to dispose of the homes as the central bank pressures them to go after owners of investment properties. Ireland, which had the biggest real estate crash in Europe with a 50 percent plunge in residential prices since 2007, is only now contemplating significant repossessions. The focus is on the so-called buy-to-let market, or properties bought to rent, which jumped during Ireland’s decade-long real estate boom, and now account for more than a fifth of the 142 billion- euro ($184 billion) mortgage market. More than a quarter of the 31.1 billion euros of loans on those properties was more than three months in arrears at the end of December, the Irish Central Bank said this month. As the banks repossess and then dispose of properties, they risk killing the nascent real estate recovery, so far limited mainly to Dublin, as international buyers hunt for distressed assets and the country seeks to emerge from the international bailout program at the end of this year.

Denmark Races to Prevent Foreclosure Shock as Home Prices Sink - (www.bloomberg.com) Representatives from Denmark’s mortgage industry are meeting with the government today in the hope of easing repayment terms on interest-only loans that threaten to unleash a wave of foreclosures this year. The Association of Danish Mortgage Banks and the Mortgage Bankers’ Federation are due to start talks with Business Minister Annette Vilhelmsen to decide how to treat borrowers who won’t be able to afford the interest-only loans they took out a decade ago once amortization requirements kick in this year. Borrowers are also struggling as a deepening property slump drives house prices down to 2005 levels. “Eighty percent of homeowners under 35 years of age are under water. That’s a lot,” Curt Liliegreen, head of the Center for Housing Economics in Copenhagen, said yesterday in a telephone interview. “This is a problem that threatens the Danish economy.”

Cyprus Banks Like Iceland’s Dwarf Economy as Clients Pay - (www.bloomberg.com) The European Union’s decision to force Cypriot savers into a bailout came after banks grew so large that they dwarfed the nation’s economy, resembling Iceland’s finance industry before its collapse. Cyprus’s bank assets swelled to 126.4 billion euros ($164 billion) at the end of January, seven times the size of the 18 billion-euro economy, from 78 billion euros in 2007, data from the European Central Bank and the EU’s statistics office show. The Cypriot government announced an unprecedented tax on deposits three days ago, seeking European aid after its banks lost 4.5 billion euros on Greek sovereign debt and failed to meet euro area capital requirements. Troubles on the Mediterranean island have resembled those of Iceland, which seized control of its banks in 2008 when they were unable to finance debt 12 times the size of the economy. “The banks grew as they amassed funds from wealthy foreigners and now that size is too much for the country to handle on its own,” Philipp Haessler, a European banks analyst at Equinet AG in Frankfurt, said by telephone. “Cyprus is being made an example of.”

Cyprus shows German line is hardening - (www.ft.com) When news of the Cyprus bailout trickled through to Berlin on Saturday morning, bearing with it the potentially alarming news that bank depositors would be “bailed-in” to share the cost, the German reaction was very positive. Politicians from both left and right agreed that without such a deal, the rescue would not have a hope of winning approval in the Bundestag. Wolfgang Schäuble, finance minister, had done a good job, they admitted. At €10bn, it is a far smaller programme than previous ones for Greece, Ireland and Portugal. But the German body politic is pretty well united in insisting that a bail-in of creditors must be part of any bailout by taxpayers. Some misgivings have now emerged about the burden falling on savers in Cyprus, and not just on the big depositors with more than €100,000 in the bank. But the underlying principle of burden-sharing is not in question.







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