KeNo's Housing and Economic Portal: Tuesday October 19 Housing and Economic stories

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TOP STORIES:

Here's The REAL Scandal In Foreclosure-Gate - (www.businessinsider.com) The story on the foreclosure mess has become a bit overblown in some tellings. It's clear that banks have been taking some shortcuts in preparing their foreclosure documents. The banks are obviously overwhelmed with the volume of foreclosures, and the (apparently) many instances in which sloppy securitization has resulted in lost paper trails, obscuring who, exactly has a right to foreclose. Rather than seeking legislative or judicial clarification, they've resorted to dubious practices that seem (to my non-legally-trained eye) illegal. That is bad. But as Arnold Kling points out, there's little evidence that this has resulted in improper foreclosures: evicting people who've paid, or who never had a mortgage with your company. Anectdotally, these things do seem to have happened, but there's no evidence that they're frequent, or that they are connected to the procedural irregularities that we're now discovering with foreclosure documents. Arnold says that the real scandal is our antiquated title system: The real scandal is that the process of recording property title is so antiquated, and there are so many interest groups that resist modernizing it. The MERS mortgage database shows what a modern system could look like. But all of the counties that charge fees for title recording, the title "insurance" companies that shake down home buyers to buy "protection" from getting sued to prove that they own their property--these interest groups want to keep the title recording system as expensive and unreliable as possible. . . . and that it's taking so long to get people out of homes they can't afford.

Bill Gross: Fed To Buy $100 Billion In Government Debt A Month Until It Hits $1.2 Trillion - (www.businessinsider.com) Bill Gross of PIMCO has some pretty specific numbers about what the Fed's ramp up in government debt purchases is going to look like. He sees $100 billion in monthly spending on government debt purchases by the Fed, to a total of $1.2 trillion, according to Bloomberg. These projections come in response to the negative jobs report, which Gross thinks will force the Fed into action. Interestingly, Gross and PIMCO have dramatically cut their Total Return Fund's investment in government debt, to 36% of assets in August, down from 54% in July.

City Manager Who Earned $1.5 Million May Sue California For Not Paying Him More - (www.businessinsider.com) Robert Rizzo, the drunk driving city manager who earned between $800,000 and $1.5 million last year, is now trying to get even more money from California. Shockingly, it sounds like the ousted administrator of Bell, Calif. may have a strong case, according to the LA Times. Rizzo says the state is violating labor laws by not paying his salary for 2010. He also says the state is reneging on agreements to provide severance pay. People in the town are furious: "This is Rizzo's way of spiting us. The city will now have to get a lawyer and fight him on this. He's literally just abusing us more," a community activist tells the LA Times. So far the state government has failed to intervene, with Schwarzenegger vetoing two bills that targeted local government pay.

Should Treasury Help Investors Become Landlords? - (blogs.wsj.com) The government’s tried a lot of tactics in propping up the housing market: Tax credits for home buyers. Mortgage modifications for distressed homeowners. A program to buy up mortgage-backed securities. Now, some analysts from Bank of America are proposing another plan: Help investors buy up distressed homes and rent them out. In a recent research paper, the BofA analysts frame this as the second phase of the Public Private Investment Plan. Funded by TARP, which expires Oct. 3, PPIP offered investors funds and credit to buy up residential and commercial mortgage backed securities. The paper calls that program an unqualified success for driving up the value of mortgage backed securities. Through their proposed PPIP 2, Treasury would use the same model to help investors to directly buy up foreclosed homes. The analysts propose funding the purchase of up to $400 billion worth of homes by a select group of property management companies given the task of home oversight. Treasury could provide, they suggest, up to $100 billion in equity, matching the property management companies, as well as up to $200 billion in debt capital.

You're going to be paying your neighbor's home-equity loan - (www.dailybail.com) President Stimulus has unleashed the sound and the fury. Two-hundred billion for capital investment that's nothing more than cash for clunkers X 50. Also $50 billion for infrastructure. Listen Jackwagon, maybe you should have thought of that with your first stimulus. And just this afternoon, a brand new loan-mod program that has some distressing details. Ultimately it's a stealth bailout for banks and mortgage-debtors who borrowed to finance a luxury lifestyle, and now can't afford to pay it back. Congratulations! You're going to be paying for your neighbor's home-equity loan. The program must resolve a stubborn problem that has hindered every other modification program: how to deal with second mortgages. The program says second liens must be reduced so that the total mortgage debt is less than 115% of the home's current value. The government will make payments for banks to reduce those loans, but banks have been very reluctant to write down seconds that are current. The big-picture aim of the program is to prevent walkaways, as it targets houseowners who are current on their payments but facing a negative equity situation where their house is worth less than the outstanding mortgage. It's essentially a government sponsored, taxpayer-funded mortgage program for principal write-down. There are 2 problems. Mortgage holders don't deserve a writedown at the expense of everyone else, and 2nd, 3rd (4th and 5th -- see below) mortgages are being included.