America Hasn’t Hit Bottom Yet!
(Dr. Jerome Corsi’s Economic Newsletter RED ALERT) – Obama mortgage refinance program is complete failure
Home foreclosures appear to be accelerating, despite renewed efforts by the Obama administration to revitalize mortgage modification programs.
Foreclosure filings in March totaled 367,056, nearly a 19 percent increase from February and up 8 percent from March 2009, according to RealtyTrac.
March 2010 was the highest month for home foreclosures since January 2005, when RealtyTrac began issuing its reports.
Nearly 260,000 properties were repossessed by lenders in the first quarter, an all-time record and a 35 percent increase from last year.
“We’re at the highest record levels ever,” Rich Sharga at RealtyTrac told USA Today. “We’re now seeing the banks financially address the logjam of homes in the foreclosure process that were delayed. And they’re addressing the first waves of homes that weren’t eligible for the modification process or fell out of the program.”
Home foreclosure crisis to intensify throughout 2010
A record number of 2.8 million households faced foreclosure in 2009, a statistic that is expected to rise in 2010 as the number of long-term unemployed and those dropping out of the labor force are hitting record highs.
In 2009, the statistics were alarming: One in every 45 homes was hit with a foreclosure-related notice. In December alone, 349,000 homes, or one in 366, was hit by a foreclosure-related notice, according to RealtyTrac Inc.
The reality is that as long as the unemployment crisis persists, the home foreclosure crisis will continue.
Moreover, higher home-mortgage rates loom on the horizon as the Federal Reserve exhausts its ability to depress interest rates by buying billions of dollars of mortgage-backed securities.
Fed to stop buying mortgage-backed securities
Most Americans are unaware that a key reason mortgage rates have been held relatively low in 2009 is that the Federal Reserve has been buying mortgage-backed securities.
In 2009, the Fed has purchased 73 percent of the mortgage-backed securities issued by the government-sponsored mortgage giants Fannie Mae, Freddie Mac and Ginnie Mae, according to the Wall Street Journal.
The Fed now owns $909 billion of mortgage-backed securities and is currently scheduled to stop its purchases at $1.25 trillion.
The following chart from the Wall Street Journal illustrates the acceleration of the Fed’s unprecedented effort to buy mortgage-backed securities and the subsequent impact on mortgage interest rates.
Higher interest rates will have two major adverse impacts on the mortgage market: 1) higher mortgage rates will increase monthly mortgage payments for new homebuyers, making purchases of more expensive homes more difficult; and 2) higher mortgage rates will increase monthly mortgage payments for those homeowners that have adjustable rate mortgages, making it more difficult for marginal homebuyers to retain their homes.
Obama mortgage refinance programs fail
In January 2009, the Obama administration announced its Making Home Affordable program to commit $75 billion to help 3 to 4 million homeowners refinance their homes.
But by the beginning of 2010, it was clear the program failed, with only 31,382 permanent loan modifications completed by Nov. 30, 2009.
With the total number of home foreclosures expected to reach 13 million during the next five years, the Obama administration has no solution in sight for turning the corner on the home foreclosure crisis.
The Treasury Department reported only about 230,000 homeowners have gotten permanent modifications with lower mortgage payments, representing only 6 percent of the 3.39 million eligible homeowners who are 60 days or more delinquent on their mortgages.
Red Alert has consistently warned that the Obama plan would fail, as one in every four American homeowners are now under water on their mortgages, owing more than the property is worth.
Housing prices to drop even more
Red Alert continues to predict that housing prices will have to fall to 50 percent their peak 2006 values before the housing crisis reaches bottom. So far, home mortgages nationwide are only approximately 30 percent below top 2006 values.
Yale economist Robert Shiller created an index of U.S. home prices going back to 1890, estimating the price of a standard home over that period of time.
The goal was to track the value of housing as an investment over time, presenting housing values in consistent terms over more than 100 years and factoring out the effects of inflation.
Shiller’s analysis demonstrated home prices peaked in 2006, at prices that began rising dramatically as Federal Reserve Chairman Greenspan and the Federal Reserve held interest rates at or near 1 percent, in 2003 and 2004.
If a standard home sold in 1890 for $100,000, with inflation adjusted to reflect today’s dollars, the house dropped to $66,000 in 1920, a level that more or less persisted until end of World War II and the housing expansion that accompanied the post-war baby boom. In 2006, the standard house was priced at $199,000, up to 199 on the index scale, or 99 percent higher than the standard house in 1890.
What this means is that the housing bubble had approximately doubled the value of the standard home in the United States by 2006.
The hard news here is that homeowners may have to take the estimated price of their home in 2006 at the maximum point of the bubble and divide that value in half to get a true estimate of the home’s value in a normal market valuation.
As housing markets have adjusted downward since 2006, most homeowners have felt the pain with even a 10 percent drop in values.
Underwater mortgages increase when homeowners make small down payments, 10 percent or less, to purchase the home, and the home decreases in value by 10 percent or more.
If the housing market in the U.S. does not stabilize until home values reduce to 50 percent of their 2006 peak market value, more than 10 million homeowners in the U.S. will likely have underwater mortgage loans.
Red Alert continues to predict that interest rates must rise during 2010; should that happen, the mortgage foreclosure crisis will only deepen and accelerate.