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Greg & Lisa
The things that have happened involving the U.S. housing market during the past decade represent both the best and the worst of human psychology. At the beginning of the process, when the market was in good shape in terms of construction, supply, demand and prices – people looked at homeownership as a good thing. It was seen as an important part of financial stability. Owning a home – investing in its maintenance and using it as a vessel of increasing wealth – has long been seen as part of the American Dream. I have known people over the decades that refused to own a home, condo or apartment. They did not want to be hindered by the costs associated with such ownership (property taxes, insurance, repairs etc…). However, a number of those people were quite suddenly informed by the owner of the rental property that they had to move out at the end of the lease. Sometimes, such “rental evictions” were because the owner had decided to sell the property. However, a myriad of other reasons also came into play. There is something satisfying about owning a home and believing that as long as you keep making mortgage payments on time – no one can tell you to leave and eventually you will own the property outright – thus decreasing costs later on in life.
After the speculative run up in real estate – which reached a peak during 2006 – and the subsequent crunch to the downside that has taken place during the past four years – it seems like the old adages about homeownership and the American Dream have been pushed aside. Analysts, reporters and commentators have led the charge – using the media as a conduit to try and convince millions of Americans that it is actually a bad idea to buy a residence. I read one article the other day that came right out and declared that owning a home is more like having an anchor tied around your neck as you are struggling to swim amongst raging ocean waves. Boy have we come a long way in terms of perceptions. For my part, I believe owning a home is still one of the best ways to provide social and financial stability – not only for individuals and families – but for society in general. It is popular these days to say that owning a home is a terrible idea. The new mantra along those lines runs something like this, “Why not rent and leave the troubles of the world to others?” I recall hearing similar skeptical talk about buying and owning stocks back when the stock market hit its lows in 2008-09.
As the housing market slowly but surely recovers during the years ahead, the human psychological tendency to forget about the past and extrapolate recent trends into the future will switch perceptions in America back to a pro-homeownership mode. Some people that have run into trouble with their homes (foreclosures etc) during the past four years should never have been allowed to get a mortgage in the first place. Everyone from politicians to bankers got caught up in a rush to boost the total number of homeowners in the country. As I said earlier, owning a home can be a very satisfying and stabilizing experience. However, allowing people to get a mortgage and move into a home – without properly investigating income and other factors – helped to set up the mess that is still playing itself out in the housing market and the economy in general. In recent weeks, there has been news that certain banks and mortgage lenders have been just as sloppy with facts and figures during the foreclosure process.
Recently, the GMAC Mortgage unit, Ally Financial, stopped all eviction proceedings in more than 20 states. As lawyers and Attorney Generals around the nation begin to latch on to this story – the list of states involved will only grow. What is this all about? It has been discovered that Ally Financial and many other major players in the mortgage market have been bending and breaking rules in order to get their backlog of foreclosures moving. I know that the housing bears have been claiming that banks and other institutions have been delaying foreclosures, but this story reveals that many of the companies involved have actually been rushing through the process. Jeffrey Stephan, a manager at GMAC, recently admitted that he has been signing about 10,000 foreclosure packages a month. That was a daunting task – especially in a world where financial companies have refused to hire and train enough workers to help deal with the load. Mr. Stephan has admitted that in order to deal with the thousands of foreclosures that passed his way each month, he failed to investigate whether or not the owner named in the paperwork had in fact legally defaulted on the mortgage and whether or not the mortgage lender listed was still holding the mortgage.
In a world where mortgages were often bundled up and sold as investments, it has become increasingly difficult for companies such as GMAC to properly investigate those important facts before moving ahead with a foreclosure. The problem has not been specific to GMAC. Many of the other top mortgage lenders and servicers have also admitted to rushing through the process – leaving proper procedures in the dust. A supervisor at a unit of JPMorgan Chase testified earlier this year during a deposition that she and seven other managers had been signing about 18,000 documents per month without properly investigating the contents and claims in the documents. Another problem has been that a notary was not always present when the foreclosure related documents were signed. All of that has opened up a can of worms. Homeowners have begun to cancel or at least delay foreclosure proceedings as their lawyers convince judges that the banks and mortgage providers failed to follow the law.
Several of the big firms have recently announced that they are halting all foreclosures for the time being until they get this situation rectified. The housing bears are always hungry for a new angle to justify their predictions of doom for housing and the economy. Therefore, they have decided that foreclosure delays are horrible news for housing. They say that any delay in the processing of foreclosures now will only push off the inevitable crash in home prices and thus the final lows and subsequent recovery. Nice try! If anything, the delay in foreclosures is a near-term positive, as it will limit the amount of supply hitting the market from that source. As for the problems at banks and mortgage lenders delaying the final bottom in the housing market … I will let the facts speak for themselves. In terms of the pace of existing home sales and the median price of those sales, the bottom took place at least 18 months ago! People have to stop confusing the foreclosure situation (which is apt to add about one million homes to the market this year) with the broad housing market. As the economy continues to recover, layoffs are drying up and job growth is returning. Those forces are going to be enough to counter the foreclosure mess. In fact, foreclosures failed to sink the housing market in 2009 and 2010 – despite the fact that the economy was weaker during most of that time than is currently the case. More next week.