by Calculated Risk on 7/12/2009 06:02:00 PM

From the Milwaukee Journal Sentinel: Lenders abandoning foreclosed properties (ht Michael)

Rodney Lass figured his days as a homeowner were over when he was hit with a foreclosure judgment more than a year ago.

He stopped rehabbing his two-story Bay View home and moved on.

But what Lass didn't realize until recently is that the house remains in his name today.

He's still responsible for the taxes, upkeep of the property and the mortgage, leaving Lass perplexed.

"Why would I pay for something that I don't own anymore?" Lass said.

The foreclosure, however, failed to go through after the California-based lender decided it didn't want the gutted house. Lass said he found out for certain that he still owned it from the Journal Sentinel.

Today, the house at 703 E. Lincoln Ave. sits condemned ...

The home represents a growing phenomenon known as walkaways - properties for which lenders sue for foreclosure but never take the title.

We've heard this story before - the lender starts foreclosure, and then discovers the house is worthless (or in this case has a negative value because the house is condemned). In this case, the foreclosure went through, but the lender never recorded the deed with the court leaving the property in the previous owner's name.

No one wants the property now, and the city will probably bear the costs of demolition. Meanwhile the abandoned house is a nuisance for the neighbors - even the bandos won't live there.

by Calculated Risk on 7/12/2009 01:59:00 PM

Professor Roubini thinks the economy will be in recession through the end of 2009, and that the recovery will be "shallow". More from Christian Menegatti at RGE Monitor:

The general consensus is that this recession will end sometime in the second half of 2009. While RGE Monitor expects more quarters of negative real GDP growth in 2009, we also expect the pace of contraction of economic activity to slow significantly. We forecast negative real GDP growth in Q2 2009 and Q3 2009, and for real GDP to remain flat in Q4. After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010, and then at a very sluggish rate, well below potential.

Paul Kasriel at Northern Trust is a little more optimistic: When We Get “There”, Will We Know It?

Back in April, our forecast update commentary was entitled, “Are We There Yet?” The “there” referred to a resumption of real growth in the overall economy. Our answer in April was “no,” which also happens to be our answer in July. When will we get there? Our answer in April was the fourth quarter of this year, which also happens to be our answer now. Assuming we get there in the fourth quarter, would most households and businesses in America know it if they were not so informed by the media? Probably not. We anticipate another “jobless recovery,” which implies a relatively feeble one. We would not be surprised to hear terms early in 2010 such as “double dip.”

I think Kasriel might be a little too optimistic about 2010.

Jan Hatzius at Goldman Sachs sees a little positive GDP growth starting in Q3, and a sluggish recovery (no link).

Here are the quarter by quarter real GDP (annualized) forecasts from Northern Trust and Goldman:

Quarter	Northern Trust	Goldman Sachs
Q2 2009	-2.2%	-1.0%
Q3 2009	-2.1%	1.0%
Q4 2009	2.3%	1.0%
Q1 2010	1.2%	1.5%
Q2 2010	2.4%	1.5%
Q3 2010	2.4%	2.0%
Q4 2010	3.3%	2.0%

I think the real GDP growth will turn slightly positive sometime in the 2nd half of this year, but my guess is 2010 will be barely positive, with the unemployment rate rising for most of 2010.

by Calculated Risk on 7/12/2009 09:42:00 AM

The confessional is still open ...

From The Times: Lloyds braced for £13bn writeoff (about $21 billon)

LLOYDS BANKING GROUP is poised to write off as much as £13 billion on its loans to commercial property, businesses and mortgage holders ...

First-half results due to be posted in three weeks will show that its losses are accelerating ...

UBS analysts expect Lloyds to announce a bottom line half-year loss of £6.3 billion as a result of the soaring provisions.

Remember when a multi-billion dollar writeoff was shocking?

by Calculated Risk on 7/11/2009 10:52:00 PM

For a little Saturday night amusement ...

From FoxBusiness: Wells Fargo Bank Sues Itself (ht Rama)

... I could not resist asking Wells Fargo Bank NA why it filed a civil complaint against itself in a mortgage foreclosure case in Hillsborough County, Fla.
...
In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner.

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

... court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm -- Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. -- to defend itself against its own lawsuit, according to court documents.

Wells Fargo's defense lawyers even filed an answer to their client's own complaint.

"Defendant admits that it is the owner and holder of a mortgage encumbering the subject real property," the answer reads. "All other allegations of the complaint are denied."

Your TARP money hard at work ...

by Calculated Risk on 7/11/2009 07:24:00 PM

From Manuel Adelino, Kristopher Gerardi, and Paul S. Willen writing at the Boston Fed: Why Don’t Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures, and Securitization

(ht Holden Lewis, Mortgage Matters at Bankrate.com)

One of the key questions these researchers ask is: Why don't lenders renegotiate¹ with delinquent borrowers more often?

If a lender makes a concession to a borrower by, for example, reducing the principal balance on the loan, it can prevent a foreclosure. This is clearly a good outcome for the borrower, and possibly good for society as well. But the key to the appeal of renegotiation is the belief that it can also benefit the lender, as the lender loses money only if the reduction in the value of the loan exceeds the loss the lender would sustain in a foreclosure.
all emphasis added

Just last week, Gretchen Morgenson at the NY Times made this argument: So Many Foreclosures, So Little Logic

[T]he most fascinating, and frightening, figures in the [subprime loan] data detail how much money is lost when foreclosed homes are sold. In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.

Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. ...

Given losses like these, [Alan M. White, an assistant professor at the Valparaiso University law school in Indiana] said he was perplexed that lenders and their representatives were resisting reducing principal when they modify loans. His data shows how rare it is for lenders to reduce principal. In June, for example, 3,135 loans — just 17.2 percent of the total modified — involved write-downs of principal, interest or fees. The total loss from these write-downs was just $45 million in June.

And yet, the losses incurred in foreclosure sales involving loans in the securitization trusts were a staggering $4.59 billion in June. “There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”

If banks have written down the value of these loans to the 40 cents on the dollar that they are fetching on foreclosures — the only true value for these homes right now — then why don’t they bite the bullet and reduce the loan amount outstanding for the troubled borrowers?

And the Fed economists respond:

We argue for a very mundane explanation: lenders expect to recover more from foreclosure than from a modified loan. This may seem surprising, given the large losses lenders typically incur in foreclosure, which include both the difference between the value of the loan and the collateral, and the substantial legal expenses associated with the conveyance. The problem is that renegotiation exposes lenders to two types of risks that can dramatically increase its cost. The first is what we will call “self-cure” risk. As we mentioned above, more than 30 percent of seriously delinquent borrowers “cure” without receiving a modification; if taken at face value, this means that, in expectation, 30 percent of the money spent on a given modification is wasted. The second cost comes from borrowers who redefault [30 and 45 percent]; our results show that a large fraction of borrowers who receive modifications end up back in serious delinquency within six months. For them, the lender has simply postponed foreclosure; in a world with rapidly falling house prices, the lender will now recover even less in foreclosure. In addition, a borrower who faces a high likelihood of eventually losing the home will do little or nothing to maintain the house or may even contribute to its deterioration, again reducing the expected recovery by the lender.

I'd argue for a third reason: If it became widely known that lenders routinely reduce the principal balance for delinquent borrowers with negative equity, this would be an incentive for a large number of additional homeowners to stop paying their mortgages.

These economists would argue that the lenders are behaving rationally and that foreclosure - when all costs are considered - is frequently the least costly alternative.

¹ The economists define “renegotiation” as "concessionary modifications that serve to reduce a borrower’s monthly payment. These may be reductions in the principal balance or interest rate, extensions of the term, or combinations of all three." Under this definition, they do not include the most common modification: capitalization of late payments and fees.