KeNo's Housing and Economic Portal: Wednesday October 7 Housing and Economic stories

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Three Million Unsold Properties In Spain? - (www.emerginvest.com) Yes, three million. That was the conclusion reached in the 2009 annual report on the Spanish property market prepared by Madrid-based real estate analysts R. R. de Acuña & Asociados. The report is described by Sunday Times Spanish Property Doctor columnist Mark Stucklin as one of the most influential annual reports on the sector, so the conclusions are hardly to be sneezed at, indeed the assumptions made in the calculations appear on the surface to be entirely plausible. In fact, having read the summary of the report in this article here, Variant Perception's Jonthan Tepper wrote to me to ask whether I thought we were being "dire enough". Yep. Sufficient unto the day is the direness thereof. According to the estimates of R. R. de Acuña & Asociados - as outlined in the Expansion article - there are currently 1.67 millon flats and houses on the market and looking for a buyer in Spain. To this number need to be added the 327,350 properties under construction but still unfinished, together with the 1.098 millon for which planning permision has been granted and which now have two years - by law - to be completed. No half measures here. Whatsmore, the 1.098 million with planning permission have already been allocated a credit line of 52.947 billion euros by the Spanish banking sector. So adding everything up between them Spanish estate agents, banks, savings banks and private investors are now holding a grand total of something like 3.1 million properties, all of them looking for that ever so elusive buyer. Another interesting conclusion is that 75% of existing builders will simply go out of business in the next five years. Mark Stucklin - on his Spanish property buff blog - gives us what he calls a a "bulleted summary" of the main points in the report. Personally I would only add two further points of my own. Firstly the estimate of 25% unemployment by the end of next year contained in the report may well be on the low side, especially if the Spanish government is running out of funding for the stimulus programmes. Spanish INEM employment department officials have already leaked estimates that if the Plan E type projects are not renewed, then we could see something like 700,000 additional unemployed in October and November of this year alone. If these warnings turn out to be realistic then my feeling is that we will hit 25% unemployment around Easter, and then start heading up towards 30%. We should break through the 30% level around the turn of 2010/11 or by the spring of 2011, depending on a lot of factors which are still hard to see at this point. And where will we stop? No idea at all, since this simply depends on when the Spanish citizenry decide they have had enough and a package of emergency measures are put in place. It is hard, given the way the eurosystem works, to see how a "short sharp shock" may be administered, but something of the kind will be needed, or the patient will simply arrive moribund on the operating table.

Banks Force Houseowners to Keep Paying After Short Sales - (www.businessweek.com) I heard recently from a reader who said the bank she had a mortgage with wanted her to continue to pay off part of the loan even after she sold her house for less than what she owed—a process known as a short sale. Banks have always been able to pursue deficiency judgments against borrowers who didn’t pay everything back, but they didn’t do so aggressively so far in this housing slump. Rick DeBruhl, the consumer affairs reporter at the NBC affiliate in Phoenix, sent us this report he did recently. The homeowner is being asked to pay $75,000 of the $200,000 difference between what he owes the bank and what his house is worth. Rick says he is hearing of more cases like this recently. What’s interesting too about this case is that the bank, One West, is the entity formerly known as IndyMac. The private equity firms that bought IndyMac from the federal government agreed to continue the homeowner-friendly policies initiated by the FDIC after it took over IndyMac. Now that no longer appears to be the case. Thanks to Rick DeBruhl for the tip and the clip!

"Produce The Note" Movement Helps Stall Foreclosures - (www.huffingtonpost.com) Modern-day home mortgages have been so sliced and diced by rapacious financiers that some homeowners are successfully delaying -- or even blocking -- foreclosures through the simple tactic of demanding that banks produce the original mortgage note, which amazingly enough is often not so easy for them to do. As the foreclosure rate continues to set new highs, a little-noticed legal provision that requires bankers, if challenged, to prove they hold the original mortgage documents before getting possession has spawned a minor homeowner rebellion, alternately called "produce the note" or "show me the note". For homeowners trying desperately to keep their homes, the tactic is one way to buy some time -- and maybe even get the upper hand on the lender. "You wouldn't imagine that the lenders would be that slovenly that they would not be able to produce adequate documentation of the debt," said House Financial Services Committee member Rep. Brad Miller (D-N.C.). "But apparently a lot of times they really have been unable to." Since North Carolina has begun to provide legal assistance to homeowners facing foreclosure, Miller said, roughly one of every three mortgages has been found to have some substantial legal discrepancy. The fouled-up paperwork or other lack of legal compliance "has resulted in a much higher rate of negotiated [mortgage] modifications" in North Carolina, said Miller. "It gave the homeowner additional defenses and counterclaims that strengthened their hands substantially." The chaos is a sign of how far the mortgage business has come since people commonly took out a mortgage from their neighborhood banker, who kept the relevant documents locked away until the house was sold or paid off. During the securitization boom, millions of mortgages were sold and packaged into bonds -- often many times over, metastasizing into esoteric financial instruments -- for sale to investors. Each time, the paperwork should have been changing hands and the homeowner should have been notified that someone new held the note. But just as deciphering the true holder of the mortgage has become more and more difficult for homeowners -- Is it the servicer? Investor? Trustee? Original lender? -- the paperwork has also become difficult to track. In Florida, Jacksonville Area Legal Aid attorney April Charney has been using the missing-note argument since she first identified the lenders' weakness in 2004. She began arguing that those initiating foreclosure proceedings on behalf of securitized pools of mortgage loans had no right to do so, because they couldn't prove they actually owned the debt. Five years later, some of those homeowners are still in their homes, she says. Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action "quiets" all other claims).

The Problem Is Government Guarantee Of Loan Repayment From Fannie And Freddie- (www.bestsyndication.com) The U.S. housing market collapsed in 2007-2008 when the financial markets ran out of buyers for mortgage backed securities. The 5 cent explanation is that ordinary banks, savings and loans, and other mortgage lenders threw their lending standards out the window after Wall Street's financial engineers crafted a dizzying array of mortgage related securities to satisfy a global glut of capital looking for high returns. Mortgage lenders either drastically reduced or entirely disregarded their traditional underwriting standards because they could immediately sell as many mortgages as they could write, collect points or origination fees, and transfer the risk of nonpayment off their books at the same time. Progressives like to attribute the housing crash to the excesses of free market capitalism, and to a certain extent that's correct, but they always fail to mention that the excesses were made possible by Government guarantee of loan repayment from Fannie Mae and Freddie Mac, and Congressional pressure placed on these institutions to keep the lending spigots wide open. This may have been the first housing crash in our lifetimes but real estate speculation booms followed by busts are hardly new. In the short history of the US the mid-1800s saw massive real estate speculation financed entirely by private lenders turn into a financial panic when the number of eager land buyers disappeared. The cycle of a speculative boom fueled by lenders looking for high returns followed by a financial panic bust was repeated in the late 1800s, early 1900s, the 1920s, and as recently as the 1980s in many parts of the South and Southwest. The history of housing market busts is not important in itself, but it does provide the small comfort that this kind of thing has happened before and that the economy has not only survived them all, but has emerged from these several financial panics with even greater growth rates. So what's changed for prospective homebuyers from a few years ago when seemingly the only requirement for getting a home mortgage was to be upright and breathing when you signed the loan application? In many ways lenders have returned to the standards that were in place as the World War II generation moved to new fangled tract houses in the burgeoning suburbs: Get a mortgage that you can afford on your current income. Get a 20 or 30-year fixed-rate mortgage. Treat your home as a place to live and raise a family and not as an overflowing piggy bank.

CA's Prop 13 created "severe generational inequity" - (www.media-newswire.com) A steep decline in California housing prices is undermining the effectiveness of the state's property tax system that was created through Proposition 13 three decades ago, according to a study by University of Southern California professor Dowell Myers. The study, which is based on comparative data from opinion surveys and housing trends, finds a system under stress that is creating "severe generational inequity" magnified by recent dramatic losses in housing values. Myers is a professor of urban planning and demography at the University of Southern California's School of Policy, Planning, and Development. The study -- The Demographics of Proposition 13. Large Disparities Between the Generations and the Unsustainable Effects of Housing Prices -- is available online atwww.usc.edu/schools/sppd/research/popdynamics/whatsnew.htm. Proposition 13 was originally designed to prevent older homeowners from being evicted from their homes due to inflation's impact on property taxes. The measure set a cap as to how high the taxes could rise each year. Approved by voters in 1978, the system appeared to work as long as housing values rose over time. Californians who bought property in 1975, for example, have increased their housing value from the initial average home value of $41,600 to $329,800 in 2009, falling from a peak of $555,700 in 2006. This group, however, is paying less than the national average in property taxes: Californians who bought their homes in 1978 pay an average of $1,571 in annual property taxes compared to the national average for the same purchase year of $1,994 – even though their home values are twice as high as the nation's average. "Prop 13 may have worked too well for some: Long time residents now pay lower property taxes than the national average, yet at the same time they have captured much greater wealth from California's high housing values," said Myers. "Now however, it's the young adults who face eviction since they were the most recent purchasers of homes before the housing bubble burst." Myers' study suggests that the system -- which is based on ever-rising house values bringing more revenue -- is so broken that it may require an overhaul. The current system may have survived a 15 percent drop in housing values in the early 1990s, but housing values have plummeted about 40 percent from their most recent peak. The biggest losers in this housing environment have been newer homeowners, who are typically younger. Of California homeowners under age 30, 78.5 percent bought their homes in 2003-2007, compared to 68.5 percent of those between the ages of 30 and 34 and 52.9 percent of those ages 35-39. In contrast, only 19.7 percent of owners ages 55 to 59 are recent home buyers.