How the Foreclosure Fiasco Threatens the Economy

^^ Another doom and gloom article, this time from US News and World Report. The first paragraph starts like so:

http://finance.yahoo.com/news/How-the-Foreclosure-Fiasco-usnews-610419413.html?x=0&sec=topStories&pos=8&asset=&ccode=
It might seem like a respite for struggling homeowners, but the sudden snags and slowdowns in thousands of foreclosure proceedings could prolong the housing bust well beyond its fifth year--and spell deep trouble for the broader economy.

   The broader economy's already in recovery mode and it'll soon be galloping along like a stallion despite the stumbling banks, the struggling homeowners, and the snarky foreclosure proceedings. America's like an engine that might sputter every now and then because of overheating but once it's been sufficiently cooled and lubricated, it's going to purr like a kitty kat. Yeah, I believe in America and the resourcefulness of our citizens and workers. Watch with me and see how the economy rebounds in the next few years. When the country is basking once again in the spotlight, we'll reminesce about how awful 2008-2010 was. When it's 2015 and the economy's hotter than the Alabama sun at noon, I'll probably be preparing for the next bust because by then, the engine that is America will be reaching for another critical temperature event.

My Favorite Housing Stock

   Nah, it's not Toll Brothers or D.R. Horton nor Pulte Group. My favorite home builder stock is Ryland (RYL) which I've followed and traded since the 90s. Their profile is as follows:

The Ryland Group, Inc., together with its subsidiaries, operates as a home building and mortgage-finance company in the United States. The company’s operations cover various aspects of the home buying process, including design, construction, and sale. It offers single-family detached homes; and attached homes, such as town homes, condominiums, and mid-rise buildings, as well as sells land and lots. The Ryland Group also provides mortgage-related products and services, as well as title, escrow, and insurance services to its homeowners and subcontractors. It markets its homes to entry-level, and first and second-time move-up buyers. The company was founded in 1967 and is headquartered in Calabasas, California.

   Ryland's near 52-week lows so I'm not buying now. I do think ~$16 is a good price for each RYL share but as mentioned before, I normally don't buy on weakness. I prefer to buy as a stock goes up and then pyramid the position as higher prices lead me upwards. The market's pulling back today but housing stocks are nursing middling losses. This doesn't mean anything based on a 1-day snapshot but I am of the opinion that housing stocks will recover way before the real estate market recovers and they're my indicators for the impending real estate recovery.

Housing Slump Offers Opportunity In Apartment-Building Market

   CNBC has a reasonable article on apartment-building investing during the current downturn in real estate. The first paragraph draws the reader in with a small tale of success:

http://finance.yahoo.com/news/Housing-Slump-Offers-cnbc-1220757498.html?x=0&sec=topStories&pos=8&asset=&ccode=
   "The property in Fort Lauderdale, Fla. was originally valued at $285,000. Clint Gordon, a private investor in multifamily properties, offered the bank $50,000 cash-and within 10 days had closed the deal. A few days after that, he began renting it for $15,000 a year.

"Anybody that's getting into this business now, you get a whole lot of return if you're paying cash for properties," he says. "You're just buying them so cheap."

   The company I work for has been investing in various businesses in the past year and I think buying a few apartment buildings might be a workable plan in depressed areas like Fort Lauderdale. Then again, do we really want to be landlords? I mean, landlords have to deal with non-paying tenants, evictions, dirty ass people, property damage, bed bugs, and sabotage. What's going to stop an evil tenant from putting bed bugs in his apartment and then withholding rent until the bed bugs are evicted? I have an active imagination and I can think of a thousand ways a tenant might torment a landlord but I won't post them here. Posting the bed bug evilness was bad enough. 

   So, anyway, we probably won't become landlords anytime soon but it's awful tempting with the knockdown and blowout prices that we've seen in Florida. The economy's going to be roaring back in another few years and buying sometime in the next 2-3 years might be a wise investment.

The Love Dress (Just a joke to make you smirk)

   The mother-in-law stopped by unexpectedly at the recently married couple's house. She rang the doorbell and stepped into the house to see her daughter-in-law standing naked by the door. "What are you doing?" the mother-in-law asked. "I am waiting for my husband to come home from work," the daughter-in-law replied. "Why are you naked?" asked the mother-in-law. "This is my love dress," the daughter-in-law replied. "LOVE DRESS!. You are naked," said the mother-in-law. "But my husband loves it when I wear this dress. It makes him happy and he makes me happy," said the daughter-in-law. "I would appreciate your leaving now because my husband will be home any minute."

   Soured by all this romantic stuff, the mother-in-law left. On the way home she thought about the LOVE DRESS and got an idea. She undressed, showered, applied her best perfume and waited by the door for her husband to come home. Finally the pickup truck drove up the drive way and she took her place by the door. The father-in-law opened the door and immediately saw his wife naked by the door. "What are you doing?" he exclaimed. "This is my love dress," the mother-in-law replied. "Maybe you should iron it," retorted the father-in-law.

Bank of America starts thaw in foreclosure freeze

   Remember the foreclosure moratorium that was mentioned last week? Remember how some people thought it was seriously going to be considered by the banks? Well, there won't be a moratorium and BAC is already restarting their foreclosure machine after halting it in 23 states. From an AP article published today:

"Bank of America said Monday that it plans to resume seizing more than 100,000 homes in 23 states next week. It said it has a legal right to foreclose despite accusations that documents used in the process were flawed.

Other major lenders have yet to say whether they will follow suit and resume foreclosures in the 23 states that require a judge's approval. But analysts said they expect the move by the nation's biggest bank will mean other lenders will proceed with a wave of foreclosures that have depressed the housing market.

Banking analyst Nancy Bush of NAB Research said other lenders are likely to follow because foreclosure practices were similar from bank to bank."

   On the back of that news,  bank shares rebounded today. Am I buying the banks now? Nah, not yet. If I'm late to the banking party, so be it but as mentioned last week, I buy on strength. If the banks are going up, they're going up by a lot more than what they've shown in the past year and there's always time to take a bite out of the impending move once it's in motion.

A House in Maine kicks off Foreclosure Freeze

   A woman named Nicolle Bradbury lives in the house in Maine that set off the current furor over the foreclosure mess that the banks find themselves mired in. The NY Times captures her case like so:

http://www.nytimes.com/2010/10/15/business/15maine.html
"Nicolle Bradbury bought this house seven years ago for $75,000, a major step up from the trailer she had been living in with her family. But she lost her job and the $474 monthly mortgage payment became difficult, then impossible.

It should have been a routine foreclosure, with Mrs. Bradbury joining the anonymous millions quietly dispossessed since the recession began. But she was savvy enough to contact a nonprofit group, Pine Tree Legal Assistance, where for once in her 38 years, she caught a break." 

   That break came in the form of a retired lawyer named Thomas A. Cox who was volunteering at Tree Legal. Cox exposed the shoddy paperwork that GMAC was using to evict Ms Bradbury and eventually showed that all of the banks were using the same shoddy paperwork and questionable tactics to foreclose on borrowers.

   This type of laxity on the part of the banks shows me that there's no leadership at the top. The troops look to the leadership for guidance and structure but what happens when there's no leadership to begin with? Well, just look at the sorry state of banks like Citi, BAC, and GMAC for the first clue. Are we really in 2010? Is this still America? Feels more like the old times I've seen in movies where banks did whatever they wanted and kicked widows and orphans to the curb with all the might of a grizzly old sea captain. Shit's depressing.

Wall St blames homeowners in foreclosure fiasco

   I'm ambivalent on the opinions of Wall Streeters who scalp their earnings and profits from the backs of the general population whom they despise. Okay, maybe that was harsh but it's true. People in positions of power don't find the unwashed masses agreeable. That's why the ultra-rich and nouveau-riche build fences and gates around their estates and seclude themselves in protected enclaves to huddle with their own kind. In a Reuters article titled "Wall St blames homeowners in foreclosure fiasco,"  I have to grudgingly agree with the following statement:

"Wall Street's reaction to the allegations that some banks cut corners while foreclosing on 3 million homes since 2007: Pay your mortgage in the first place.

Those on Wall Street, however, are largely unsympathetic, insisting that possible errors in the foreclosure process are beside the point, that the process begins only when a borrower starts missing mortgage payments."

   It's true that the foreclosure process only kicks off when a borrower misses payments but should it really just be business as usual without regard as to why the borrower has missed payments? I understand that altruism isn't part of the Wall Street vernacular and it's a shark-eat-shark world out there but a part of me feels there should be a little more compassion and a willingness to work with borrowers. That won't ever happen though because banks are huge corporations and once they get that big, they lose their humanity and become more machine-like even though it's still humans that operate within the corporation. What's the primary driver of corporations? Profit. Greed. Avarice. It's as simple as that and the reason why robo-signers, foreclosures, and the whole dang real estate mess ignited into a conflagration in the first place.

Mortgage rates hit decades-low of 4.19 percent- AP

From the AP today:

"As a result, the average rate for 30-year fixed loans dropped to the lowest level on records dating back to 1971, mortgage buyer Freddie Mac said Thursday. It's down from 4.27 percent the previous week. The last time rates were this low was in the early 1950s.
The average rate on 15-year fixed loans fell to 3.62 percent, the lowest on records dating back to 1991, Freddie Mac said.

Rates have fallen since spring as investors shifted money into the safety of Treasury bonds. That demand lowers their yields, which mortgage rates tend to track. The 30-year rate was 5.08 percent at the beginning of April. The 15-year rate was 4.39 percent."

   Rates are lower than they've been in decades but hardly anyone who needs those low rates are going to get them. Could mortgage rates break down below 4%? Yeah, they can drop all the way to 3% after QE2. If and when rates drop to 3%, I'm going to take out a $250,000 loan. My FICO is in the high 700s and I can service a 3% vig on a quarter-of-a-million which I'll use to invest with a time horizon of 5 years. If rates never hit the 3% level, I won't act because the risk/reward wouldn't be worth it for my investment scenario.

Bank shares drop on foreclosure woes

   Banks can't get out of their own way but I like it. Earlier this morning, shares of JPM were down 3.2%, BAC down 5.5%, C down 5.4%, and Wells Fargo was dropping 5%. Will they go lower? Yes, I think so. Although it is unlikely that a moratorium on foreclosures will be instituted, the fear of such a stoppage is going to weigh on shares in the short term. I've mentioned before that a moratorium won't happen but not everyone knows that. These weak hands flee on any sign of trouble and their selling presents opportunity.

    This doesn't mean that traders should blindly buy when trouble rears its head however. I've mentioned before that I prefer to buy shares on strength instead of weakness. With the bank shares sliding, I'd take a wait and see approach before starting any positions but I like the banks for trading. I'd never hold them long term however because they blow up every now and then and destroy capital like nothing else.

This might work again