Foreclosures Jump 57% in January
American homeowners continue to struggle in their efforts to get out of debt, as January saw an overall increase of foreclosure…a 57% increase to be exact.
This morning, CNN reported:
Foreclosure filings nationwide soared 57% in January over the same month last year - another indication that the nation’s housing woes are deepening.
A study released Tuesday by RealtyTrac, an online marketer of foreclosure properties, showed that 233,001 homes were affected, 8% more than in December. Of that total, 45,327 homes were lost to bank repossessions.
While relative to a year ago this number seems large, compared to current rates there has been only a meager 8% growth in Foreclosures. Still an eye opener, but perhaps more manageable.
Get Out Of Debt
Getting out of debt can be overwhelming, even with the holidays behind us. Various creative methods exist for getting out of debt. One of the first and easiest ways is to simply pay more than the minimum payment due. Minimum payments on credit cards can easily amount to a 5 year payoff on even the smallest of debts. Paying only 2% is more than 50 months of payments!!!
One should also consider cashing out all investments, savings, and any other sources of cash. It generally makes sense to utilize the equity in your home to leverage high interest rates. Paying a 6% home loan is much more manageable than paying 27% credit card payments.
With care and determination, one can manage and consolidate their debt away.
Economy is Still in Trouble
In case anyone has forgotten, the economy is still in deep trouble. And in deep debt.
‘ First, this is the worst housing recession in US history and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use “jingle mail” (i.e. default, put the home keys in an envelope and send it to their mortgage bank). Moreover, soon enough a few very large home builders will go bankrupt and join the dozens of other small ones that have already gone bankrupt thus leading to another free fall in home builders’ stock prices that have irrationally rallied in the last few weeks in spite of a worsening housing recession. ‘
We as a nation need to get out of debt, and do so immediately. There is no other method of fixing the economy.
House Passes $146 Billion Aide Package
Good news for the economy? Well if nothing else, most in the middle class will enjoy $300 to help them get out of debt assuming the senate passes the latest aide package.
The NY times reports:
The House vote was 385 to 35, with 169 Republicans joining 216 Democrats voting “yes.” Voting against the package were 10 Democrats and 25 Republicans.
The Senate plan, put forward by Senator Max Baucus, Democrat of Montana, the Finance Committee chairman, would cost $160.5 billion in 2008. After 10 years, the total cost would be somewhat lower at $151 billion, compared with $117 billion a year for the House plan. Both proposals include individual tax rebates and business tax incentives, and one-time payments for those who do not pay income taxes. The Senate plan also includes an extension of unemployment benefits.
House leaders complained that while their plan would deny tax rebates to the wealthiest earners, the Senate package would not have any caps, meaning that lawmakers themselves would qualify for payments.
The Senate has been arguing for the ability to add pork to the bill. Should they succeed, it will be safe to say that the President has utterly failed in his efforts to rescue the economy.
Countrywide Takes A Final Beating
Speculation has increased that Countrywide may indeed seek bankruptcy protection as it announced its number of foreclosures had doubled. The more borrowers that refuse to pay off mortgage loans, the more likely it is that Countrywide will fail. Reuters is reporting:
Its shares fell as much as 20.2 percent as concern persisted that Countrywide might seek bankruptcy protection. The shares fell 27.4 percent on Tuesday though Countrywide rejected an identical rumor.
“Rumors of bankruptcy are still surrounding Countrywide,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments. “Investors still believe that they need an infusion of capital.”
In its monthly operating report, Countrywide said the foreclosure rate among the 9.03 million mortgages for which it collects and processes payments doubled to 1.44 percent from 0.70 percent a year earlier, and rose from November’s 1.28 percent. The delinquency rate rose to 7.20 percent of unpaid balances from 4.60 percent a year earlier.
With shares taking such a beating, bankruptcy threats loom. Many investors are jumping from holding Countrywide, before the shares get any lower. Whether the lender succeeds in getting out of debt will be interesting to see.
Rescue Coming For Failed Banks?
Sadly, at least for banks that have already failed, there is little that can be done to save them. Those that still retain some liquidity are the only ones that gain from Fed intervention.
Mish blogs:
The question at hand is: Can the Fed provide capital to GSEs or failed banks? Anyone who thinks so is wrong.
The Fed can only provide liquidity, not capital, to failing institutions. That is not only my opinion, that is the opinion of the Fed as well. Let’s start by taking a look at Fannie Mae (FNM) and Freddie Mac (FRE) and continuing further with a close look at liquidity itself.
Whether or not banks will manage to get out of debt with the latest Fed intervention depends on bank management.
New Construction Unexpectedly Picks Up In US
A sign that the housing market may be making positive steps towards getting out of debt, Bloomberg is reporting that construction spending has actually picked up in the United States.
The latest word is:
Spending on U.S. construction projects unexpectedly rose in November as work on schools, power plants and factories helped overcome cutbacks in homebuilding.
The 0.1 percent increase followed a 0.4 percent drop the prior month that was smaller than previously reported, the Commerce Department said today in Washington.
The report showed private homebuilding fell by the most in more than five years, a sign the glut of unsold properties will delay a housing recovery until at least mid-2008. Commercial and government projects showed gains that help ease concern that economic growth stalled last quarter, economists said.
If the market continues to gain in this area, chances are high that home values may actually stabilize. Usually new home construction signifies a pickup in the housing market.
HELOC Loans Can Get You Out Of Debt
Trying to get out of debt can be a difficult task. Holiday debt can quickly accumulate as shoppers get out of control with Christmas shopping. Unfortunately, unlike most other splurges, after Christmas it’s often too late and far too embarrassing to try to return gifts purchased for others.
Credit card debt has a nasty habit of accumulating quickly as one makes minimum payments, due largely to the very high interest rates carried by credit cards.
HELOCs, otherwise known as home equity lines of credit often carry fixed interest rates which are less than half the usury charged by credit card issuers.
In addition, home equity lines can be for variable amounts. A borrower can borrow from and pay these lines back over and over in order to get out of holiday debt.
Too Late To Save The Housing Market
As I wrote in the last post, not much can be done for the housing market, short of a massive government bailout. The US Treasury Secretary is reported as announcing today that such a bailout would not be possible. Bloomberg writes:
U.S. Treasury Secretary Henry Paulson’s plan to prevent as many as 1.2 million people from losing their homes by freezing interest rates on subprime adjustable-rate mortgages will bring no benefit to the depreciating housing market.
“At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies in Cambridge, Massachusetts. “The fundamental problem with housing is oversupply.”
Those upside down in their homes should take note of this announcement. It’s hard enough to get out of debt in an upturning market, losing money on a house can be the last nail in a debtor’s coffin. Now might be the best time to sell, before things get any worse.
Is Anyone In Favor Of A Government Bailout?
Just like the Airlines in early 2000, it seems that most big lenders are counting on a big government bailout to get out of debt. Unfortunately, it appears that the US government is quite eager to press forward with wasting tax dollars to help lenders that made bad loans.
Reggie Middleton blogs:
If the government really wishes to get involved, they should go after those who were victimized through being fraudulently induced into applying for mortgages and home sales that weren’t in their best interest. Make the perpetrators of that fraud make the victim whole, which takes no government funding (many of the perpetrators themselves may need funding, though). Fraud was prevalent in the boom, but unilateral fraud on the part of the vendor is where the government should focus its resources. The market should be allowed to sort out the rest.
For more on the ill thought out consequences of this plan: “I hate to say it, but this thing is going to be ugly, and we are a good 2-3 years from even thinking about the bottom. We finally started reaching critical mass with ’subprime’ foreclosures, but we haven’t even begun to hit the alt-a and a-paper sham loans. They are starting to pop up, but they will take longer. Most alt-a and a-paper borrowers were doing 5, 7, and even 10 year ARM loans.”
One of the keys to a working capitalist society is a laissez faire approach. Choosing to bail out lenders will not end well.