Maricopa County Notices of Trustee's Sales for October 2009

I haven't posted one of these things in a while, so I figured it was about time.

The big peak was in March, with a total of 10,725 that month. October's total was 6,618.

$40 million in federal housing stabilization money not working in Phoenix

In April 2009, the city of Phoenix received $40 million in federal stimulus money under the Neighborhood Stabilization Program. This program is designed to put a floor on house prices by providing zero-interest loans of up to $15,000 to home buyers to cover downpayments and closing costs on purchases of foreclosed homes.

The number of home buyers who have used this program to date: zero.

Several hundred people have applied for the program, but none has purchased a home yet.

The program requires that buyers have incomes between $55,350 and $104,400, depending on size of family, must complete eight hours of financial counseling in budgeting and home ownership, and must invest $1,000 of their own money. The NSP loan must be repaid in the event that the home is sold or refinanced.

(Via ABC15.com.)

Who's behind the financial meltdown?

The Center for Public Integrity, an organization I support, has just published the results of an investigation into the roots of the recent economic crisis and the major players involved:

The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money — including several that have paid huge fines to settle predatory lending charges. The banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves, but enablers that bankrolled the type of lending threatening the financial system.
...

According to the analysis:

• At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization.

• Nine of the top 10 lenders were based in California, including all of the top five — Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., First Franklin Corp., and Long Beach Mortgage Co.

• Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.

• Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses.

Check out the full report.

Nassim Taleb's ten principles for a black-swan-proof world

At the Financial Times (with more detail for each item):

1. What is fragile should break early while it is still small.

2. No socialisation of losses and privatisation of gains.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.

5. Counter-balance complexity with simplicity.

6. Do not give children sticks of dynamite, even if they come with a warning .

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

8. Do not give an addict more drugs if he has withdrawal pains.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

10. Make an omelette with the broken eggs.

(Via Will Wilkinson.)

The banker who said no

A banker who resisted the urge to invest in toxic assets during the boom is cleaning up during the bust. Andy Beal of Beal Bank in Plano, Texas "virtually stopped making or buying loans" from 2004 to 2007, leading people around him to think he was crazy. Now he's buying up loans at fire sale prices and has tripled his bank's assets to $7 billion in the last 15 months, and without government bailout money.

Beal is also known for high-stakes poker games against the top poker players in the world, in which he has lost more than he's won, but occasionally taken for a lot of money (including an $11 million win in one day).

Using the stimulus to accelerate the downturn

$10.1 billion in federal stimulus money has been released to the states by the Department of Housing and Urban Development, and Arizona is receiving more than $150 million of that. And what is that money to be used for, in a state where there are tens of thousands of homes for sale with few buyers (50,000+ in Maricopa county alone)?

Building more housing.

The Arizona Republic reports that

Millions of dollars more will go to state and local programs. That includes $32 million to begin construction of affordable rental housing, $22 million to prevent homelessness and $12 million to build or repair public housing across the state.

To the extent this money is used to build new homes, as opposed to repairing deteriorating ones, it's just going to accelerate the decline of home prices, putting more homeowners underwater and providing them with more incentive to walk away from their mortgages. Now, I think that a further decline in home prices is inevitable, no matter what the stimulus money tries to do, but it's ridiculous to throw additional money at accelerating that process. It makes about as much sense as using federal stimulus money to give grants to investment bankers to develop more complex collateralized debt obligations.

Now, this isn't actually quite that bad, since it does apparently focus on some particular communities--a third of the money is for Native American communities that didn't get a housing bubble of speculative buying. Some of it is also for families that need short-term help with utility bills, rent, or other expenses (something that the Modest Needs Foundation has been doing for years with private donations). And Tucson is apparently using it to improve energy efficiency of existing public housing units. Those are all much more reasonable uses of the money than building more houses.

Phoenix-area foreclosures

Yesterday the Arizona Republic had an interactive foreclosure map and document of data (PDF) which includes the monthly foreclosure statistics for the last eighteen months:

April 2007: 553
May 2007: 475
June 2007: 579
July 2007: 676
August 2007: 806
September 2007: 1,093
October 2007: 936
November 2007: 1,344
December 2007: 1,617
January 2008: 2,052
February 2008: 2,249
March 2008: 2,365
April 2008: 2,969
May 2008: 3,402
June 2008: 3,717
July 2008: 4,104
August 2008: 4,013
September 2008: 4,378
October 2008: 4,587

Total foreclosures per year:
2004: 4,444
2005: 1,370
2006: 1,070
2007: 9,920
2008: 33,836 through October

This is not good news for a state where construction and real estate provide a large share of the employment opportunities. It is good news for those who do not own homes and have been waiting to buy at lower prices--it looks like next year will offer significantly better prices than this year, but there are still a lot of delusional sellers out there asking way too much. (There's a two-bedroom, two-bathroom house on a half acre in a quiet neighborhood near us that looks very nice, but is probably worth about half of the $429,000 asking price, based on comparable sales and the current downward trend. Zillow says it's worth $277,000.)

See their summary article, which has links to the map and other documents.

Peter Schiff vs. Art Laffer, Tom Adkins, Mike Norman, Ben Stein, Charles Payne

Gee, who was completely full of crap?



I love the captions--Dow over 13,000 and Ben Stein is saying now's the time to buy... Merrill Lynch a buy at $76, Charles Payne says buy Bear Stearns... they were delusional idiots.

Schiff was right about everything except inflation and gold (at least so far--deflation looks like a bigger immediate risk than inflation). He was saying to buy gold at $830 in late 2007; it's at about the same point today, but if you had taken his advice you could have sold higher earlier this year, and at least you wouldn't have taken any real losses.

(Hat tip to Brett Vickers for the video.)

Phoenix-area foreclosures and preforeclosures

October set a new record of 8,503 notices of trustee's sales in Maricopa County, of which 900 were duplicates of previous notices. The number of pending foreclosures has dropped, as Bank of America cancelled numerous foreclosures after acquiring Countrywide. 3,516 foreclosures were cancelled in October, about double September's rate.

At the end of October, there were 27,874 pending foreclosures in Maricopa County. (Back in the summer of 2005, the total inventory of homes for sale was around 5,000. Today it's around 50,000 34,000, which obviously has the potential to go much higher.)

Trustee's sales hit 4,587 in October, up from 4,378 in September.

(Via azcentral.com.)

UPDATE (November 26, 2008): Updated the inventory number to October 21, 2008, which is down from a peak of over 50,000, but which has been climbing back up from a recent low of just under 26,000 at the beginning of August 2008.

The financial crisis via charts and graphs

Colorado College political science professor David Hendrickson has put together a nice resource at his new "Cause for Depression" blog:

Think of it as a cartoon guide to the ongoing earthquake in the world of high finance. Through pictures, we will try to understand the dimensions of the current financial crisis--its origins and causes, its likely consequences, its potential remedies.

The "Labels" in Blogspot allow us to construct a chapter organization that the reader should approach as she would a book. By hitting on the topics under "Labels," the presentation will appear in an orderly fashion.

Blogspot is not made for blogbooks, though it is easily adaptable to that purpose. Ordering within each of the chapters depends on time of posting, so my time stamps are not necessarily indicative of the actual time the material was posted. I have altered them to allow for an orderly presentation. If it seems to matter, I will post the date of composition and updates in the entry. The initial foray of posts was made in mid-October 2008.

In seeking to understand the crisis, we need to begin with the credit mechanism. We are living through the bust of one of the greatest credit cycles of all financial history. In order get a handle on the seriousness of the bust, we must register the mania that fed the boom.

We’ll first look at some measures indicative of the financial turmoil. Then we examine general conditioning circumstances: the role of the housing boom and bust, the general growth of credit market debt, the explosion in derivatives, all of which are relevant in considering how much insolvency exists within the financial system. That question--are our financial institutions insolvent?--in turn is vital in assessing the wisdom of various bailouts and rescues, the opportunity costs associated with the government-mandated maintenance of the "FIRE" sector (Financials, Insurance, Real Estate), and how the global imbalances that have marked the last fifteen years are likely to change. I conclude with some lessons. The final entry is a collection of paper topics for interested students to consider.

Where possible, I’ve tried to indicate where readers can find updated sources of information for the material presented here. Given my harsh view of "derivatives," I'm obliged to say that this compendium is almost entirely derivative. I’m deeply indebted to my blogroll for ideas, inspiration, and many of the charts contained herein.

So, if you've read thus far, go now to "Financial Stress" in the "Labels" section.

(Via Financial Armageddon.)

The amount of public and non-public U.S. debt will inevitably come back down, one way or another. I just hope we don't end up as a third-world nation (or worse yet, multiple third world nations) in the process.

S&P's Enron moment

IM conversation between two Standard & Poore's employees, April 2007, as revealed in testimony before Congress today:

Shannon Mooney: i didn't really notice...but now that i think about it i kindof tune her out when she talks

Rahul Dilip Shah: well she just is too political...and she doesn't have anything of substance to say...but keeps thinking that she does.

Rahul Dilip Shah: (I'm done venting now) :)

Shannon Mooney: k go take a nap

Shannon Mooney: see you later

Rahul Dilip Shah: ok

Rahul Dilip Shah: btw - that deal is ridiculous

Shannon Mooney: i know right...model def does not capture half of the rish

Shannon Mooney: risk

Rahul Dilip Shah: we should not be rating it

Shannon Mooney: we rate every deal

Shannon Mooney: it could be structured by cows and we would rate it

Rahul Dilip Shah: but there's a lot of risk associated with it - I don't personally feel comfy signing off as a committee member.

(Via the Big Picture blog and The Epicurean Dealmaker. The latter has a pictorial illustration that I like, Mark Tansey's "The Innocent Eye Test"; the former has links to the transcript.)

Prosperity theology created foreclosure victims?

An article at Time magazine suggests that those following the "prosperity theology" of some Pentecostal ministers are more likely than average to have obtained mortgages they cannot afford, leading to foreclosure:

Has the so-called Prosperity gospel turned its followers into some of the most willing participants -- and hence, victims -- of the current financial crisis? That's what a scholar of the fast-growing brand of Pentecostal Christianity believes. While researching a book on black televangelism, says Jonathan Walton, a religion professor at the University of California at Riverside, he realized that Prosperity's central promise -- that God will "make a way" for poor people to enjoy the better things in life -- had developed an additional, dangerous expression during the subprime-lending boom. Walton says that this encouraged congregants who got dicey mortgages to believe "God caused the bank to ignore my credit score and blessed me with my first house." The results, he says, "were disastrous, because they pretty much turned parishioners into prey for greedy brokers."

Yet another case of religious trust being exploited to victimize those who have it.

(Via Dispatches from the Culture Wars.)

Bailout bill bonuses

The bailout bill has a few extra features:

* Sec. 105. Energy credit for geothermal heat pump systems.
* Sec. 111. Expansion and modification of advanced coal project investment credit.
* Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
* Sec. 115. Tax credit for carbon dioxide sequestration.
* Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
* Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.
* Sec. 309. Extension of economic development credit for American Samoa.
* Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
* Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
* Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

It also includes tax credits for solar and wind power, a requirement that health insurance companies cover mental health the same way they cover physical health (so look for some huge premium increases on your health insurance).

And during all the bailout bill discussion, Congress quietly authorized another $612 billion defense authorization bill.

(Via The Agitator.)

Barney Frank and the financial crisis

The New York Times, September 11, 2003:

"These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'" said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

The Washington Post, November 7, 2003:

Rep. Barney Frank (D-Mass.), the ranking Democrat on the House Financial Services Committee, said the administration's position is driven by concerns about the financial safety and soundness of the companies "to the exclusion of concern about housing." Committee members were ready to support legislation that would give the Treasury Department oversight of Fannie and Freddie, as the administration has sought, Frank said, not power over the companies' housing activities, which are regulated by the Department of Housing and Urban Development.

Now he seems to have forgotten what he said back then, and the fact that he was encouraging the moral hazard created by the GSEs encouraging and buying up bad loans.

UPDATE: A friend points out this post at the Big Picture blog by Barry Ritholtz arguing that the Community Reinvestment Act and GSEs had nothing to do with the housing bubble. While I think Ritholtz makes some excellent points that demonstrate there were other factors, he doesn't really address the GSE moral hazard issue and he makes this statement that seems to me to offer a striking disconnect from reality:

"The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvestment Act ?" All of those cities have very large non-affluent minority populations. I'm most familiar with Phoenix, where the housing bubble was marked by expansion of housing into South Phoenix (where I live), Gilbert, Mesa, Queen Creek, Surprise, and other outlying areas around Phoenix which have very large Hispanic populations. Also see my comment below about mortgage broker telemarketing targeting low-income areas of town with minority majorities.

He wants to place the blame on deregulation, but if you need to find a single cause, I think the Fed keeping interest rates too low is a better root cause. My own experience regarding telemarketing showed that there existed regulations that could have been applied to the sleazy telemarketers that simply weren't being enforced. When you have an enforcement problem, all the regulations in the world won't help, in fact adding more regulations is likely to increase the severity of your enforcement problem.


UPDATE (November 21, 2011): Barry Ritholtz argues persuasively that the Community Reinvestment Act had nothing to do with the housing bubble.  He also downplays the role for the GSEs, though I think they had a contributory role (which is also what the Financial Crisis Inquiry Commission concluded) to play in increasing the size of the bubble--they purchased half of the U.S. mortgage market by 2008, $5.1T in loans, including $90B-$175B/year in subprime and Alt-A between 2002 and 2006.  But the above analysis overlooks other important factors including the repeal of Glass-Steagall, the 2004 SEC decision to reduce capitalization requirements on investment banks, the Commodity Futures Modernization Act of 2000 which allowed credit default swaps with little regulatory oversight, and inaccurate credit ratings from the Nationally Recognized Statistical Rating Organizations.  Wikipedia's entry on "Subprime mortgage crisis" has a good referenced list.

HUD zero down payment mortgages

Craig Cantoni has pointed out the following January 19, 2004 press release from the U.S. Department of Housing and Urban Development:

BUSH ADMINISTRATION ANNOUNCES NEW HUD "ZERO DOWN PAYMENT" MORTGAGE
Initiative Aimed at Removing Major Barrier to Homeownership

LAS VEGAS - As part of President Bush's ongoing effort to help American families achieve the dream of homeownership, Federal Housing Commissioner John C. Weicher today announced that HUD is proposing to offer a "zero down payment" mortgage, the most significant initiative by the Federal Housing Administration in over a decade. This action would help remove the greatest barrier facing first-time homebuyers - the lack of funds for a down payment on a mortgage.

Speaking at the National Association of Home Builders' annual convention, Commissioner Weicher indicated that the proposal, part of HUD's Fiscal Year 2005 budget request, would eliminate the statutory requirement of a minimum three percent down payment for FHA-insured single-family mortgages for first-time homebuyers.

"Offering FHA mortgages with no down payment will unlock the door to homeownership for hundreds of thousands of American families, particularly minorities," said HUD's Acting Secretary Alphonso Jackson. "President Bush has pledged to create 5.5 million new minority homeowners this decade, and this historic initiative will help meet this goal."

Preliminary projections indicate that the new FHA mortgage product would generate about 150,000 homebuyers in the first year alone.

"This initiative would not only address a major hurdle to homeownership and allow many renters to afford their own home, it would help these families build wealth and become true stakeholders in their communities," said Commissioner Weicher. "In addition, it would help spur the production of new housing in this country."

For those that choose to participate in the Zero Down Payment program, HUD would charge a modestly higher insurance premium, which would be phased down over several years, and would also require families to undergo pre-purchase housing counseling.

So, how's that program working out?

If you're not in a position to be able to save funds for a downpayment, you're also not in a position to be able to have an emergency savings account for all of the unexpected expenses that arise with home ownership.

August's Notices of Trustee's Sales

As Jim pointed out here, Maricopa County saw another record month for pre-foreclosures - though AZ Central's count is different than mine. I can only tell you what I get from the recorder's office (which was 7286).

Foreclosures hit a record high

CNN reports:

Foreclosures hit another record high in August: 304,000 homes were in default and 91,000 families lost their houses.

More than 770,000 homes have been repossessed by lenders since August 2007, when the credit crunch took hold.

The report from RealtyTrac, an online marketer of foreclosures properties, is the latest in string of bad news for housing.

Foreclosure filings of all kinds, including notices of defaults, notices of auctions and bank repossessions, grew 12% in August over July, and 27% compared with August 2007.

Arizona preforeclosures also set another record in August, according to the Arizona Republic:

...notice of trustee sales, in metropolitan Phoenix hit a new high of 7,271 in August, according to the real-estate-data firm Information Market. Foreclosures in the Valley have been hovering around 4,000 for each of the past few months but are bound to climb if more struggling homeowners don't get help.

So much for seeing July's drop as the start of a trend.

Bobcats taking over foreclosed homes

See the story at BLDGBLOG. (Thanks for the link, Reed!)

A deceptive mortgage refinance offer

I received a letter in the mail from Chase Bank offering me a fee waiver on a mortgage refinance to "lower [my] monthly payments," "to save interest," and to "Save up to $1,000 in waived fees."

The letter gives me two options for "a fixed-rate first mortgage tailored to fit [my] needs - and with a new low rate." Option one is a 20-year fixed-rate mortgage at 6.13% (6.26% APR) with a payment of principal and interest that is described as giving me "monthly payment savings" of $178 and "total annual savings" of $2,132. Option two is a 10-year fixed-rate mortgage at 5.63% (5.80% APR) that is described as giving me "total interest savings" of $12,817.

There's just one problem with this. My current mortgage is a 30-year fixed-rate mortgage at 5.25%. I currently make extra principal payments every month so I am paying more than what my new monthly payment would be for option two of their refinance offer, the 10-year fixed-rate mortgage.

This means that both option one and option two are losers--neither will save me a cent. If I keep doing what I'm doing now, I'll have my mortgage paid off in nine years, paying less in interest and in total than in either option one or option two. By choosing option one I could choose to pay less per month without being penalized (except due to the higher interest rate), but I'd pay significantly more over the term of the loan--more than $50,000 more. By choosing option two, the "total interest savings" would only occur by comparison to my current loan if I were not making extra principal payments. But compared to what I'm actually doing, it again would cost a bit more (by a few thousand dollars), and I wouldn't have the flexibility of paying less in a given month if necessary that I have now with my current loan.

In short, Chase Bank has knowingly sent me an offer with two options that will cost me more money than my current loan, given how I am currently paying it off (and have been for as long as I've had the loan). But they've tried to describe them to me as though they will save me money, when they won't.

Don't accept one of these offers unless you either need to (e.g., it will give you lower monthly payments and you're struggling to make your current payments) or it will genuinely save you money in the long term (e.g., it has a lower interest rate that saves you more than any fees that may be rolled into the new loan).

July's Pre-foreclosure Numbers

I bought my first house 10 years ago, in July, 1998. Prior to the purchase I was living in a nearby apartment complex, paying $435/month for a 2-bedroom, 1 bath. I (over)paid $86,500 for the house, putting 3% down, so my monthly payments, at roughly $600, were ~35% higher than my rent--a reasonable premium to me, considering I'd suddenly be living and building equity in "my own place."

Today, zillow.com says the house is worth about $192,000, and monthly payments at 3% down would come to just under $1300/month. By comparison, you can still rent that 2 bedroom apartment for around $600. Doing the same math again, I don't think I'd come to the conclusion that the "ownership premium" is really worth it. Would you?

You might be wondering what my little story has to do with July's notices of trustee's sales--which, at 6412, as you can see from the graph, were lower than June's. Bush's housing bailout bill recently became law, which may mean that we have just passed the peak for home foreclosures--and soon we may even see a stop to falling home prices. Great news for current home owners, but, as my personal anecdote suggests, not-so-great news for housing affordability in general. The bailout essentially is a subsidy to current home owners at the expense of future home owners.

Because it will prop up current prices beyond where they would have naturally fallen, housing affordability will remain low, encouraging the spawning of all sorts of new government programs to help address "the affordability gap" (or some such wealth-transfer justificationist nonsense)--making money cheaper than it actually is, which will in turn encourage sellers to raise their prices still further while at the same time creating homeowners out of people who probably aren't fiscally responsible enough to be ones. Is this sounding familiar, yet?

As a non-homeowner who is making twice what he made in 1998 but would have an extremely hard time justifying paying $1300/month to own a crappy house, I would have preferred if Congress could've just left well enough alone.