By Michael McCune
The housing sector has long been one of the keystones of the U.S. economy. Between 2002 and 2007 there was a bubble between valuation and actual need that popped in late 2007 and became one of the major causes of the current economic lethargy America is fighting to get through.
The U.S. government was quick to bring out TARP in 2008 to relieve the pressure on the banks and put some stability back into the financials. One little problem developed, the banks didn’t know exactly which loans it had given were actually toxic, were hidden so effectively even the bank directors were not aware of them and under-reported the amount of aid they required–either deliberately or by happenstance. Thus the problem of liquidity was not fully exposed during TARP, the stimulus package that followed or QE2 and the U.S. is still trying to dig through the mess.
The government got blindsided again last week when it was reported RealtyTrack, which had been the unquestioned authority in tracking home sales nationally, overstated home sales by almost 6 million from 2001-2010. Government, at all levels, depends on home valuations to stay solvent.
RealtyTrack had some lame excuses including “duplication of sales” where a listed home in multiple locations was sold and reported as a sale in all locations. This claim means a home for sale in Omaha which was listed in several locations and all or several of the listed locations could record a sale when a buyer was found.
Sorry, that doesn’t wash but it does explain how some home owners where vacancy rates far exceed the national average are having their home valuations, on which their property taxes are figured and upon which the local government lifeblood depends, soar once again. A home sale in another area is recorded as a sale in their area and whoosh! the property valuation goes up 7 or 8% when there are vacant homes all around the assessed property.
Because of that lifeblood, the local authorities weren’t real eager to look into this aspect. Makes you wonder how much phony valuation is actually out there. Where I live the local government passed a law making it a crime to discuss your home valuation or tax bill with anyone other than the local Assessor. How big is the problem if this kind of “gag” law is passed?
As bad as the government is, the bankers are even worse. They bundled so many of the mortgages into the derivatives market some homes no longer exist in the system. The spate of faulty paperwork in the foreclosure arena demonstrates the problem. But the Obama Administration’s (HAMP comes to mind) attempts at modifying some of those bad loans so the owners could remain in place have had equally poor performances. Three full years after the foreclosure crisis began the only thing for certain is you need to be a Philadelphia lawyer to understand the blizzard of paperwork required to meet the unrelenting pile of regulations that have been imposed.
The banks are even tripping over themselves because the regulations are so muddled. Bank of America sent one woman in California a notice it was accelerating foreclosure proceedings even while the letter acknowledged the account was current and actually $281 overpaid. BOA blamed the approval/denial contacts with the woman as another “mistake.”
Where are the documents for many of the homes in question? Nobody seems to know mostly because of bank failures and the derivatives trade.
As the banking system has become more centralized, the system is more concerned about not taking on any risk or having a document the regulators may find fault with than servicing their communities. That is not what the banking system was founded on in this country where the community bank allowed the area to prosper.
The four million home mortgages currently underwater, delinquent or not accounted for in the system will continue to be one of the “headwinds” dragging at the economy. What it boils down to is debt, in any form, has to be dealt with swiftly and unequivocally by America to put the economy back on solid footing. It will be hard to swallow for the short-term, but optional debt has to be deleted from every aspect of America’s thought process.
In what has to be the most inane observation of the crisis, Moneynews noted “many borrowers are still not able to email applications in; they have to fax them in, thus creating no real paper trail.” Since when has cyberspace provided any real, tangible paper trail? It doesn’t! But most of the derivatives the financial system relied so heavily on during the boom were handled the same way.
The system is broken. But until there is another financial giant lying in the dust alongside Lehman, most are willing to let the system creak along. The only question then is how many will be left standing.
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Many many quality points there.