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business newsHousing Market Poised for Another Leg Down
By
Richard Suttmeier
May 14, 2010 9:00 am
Foreclosure filings may have fallen year over year in April, but that's because bankers can't keep up with the number of distressed homeowners.
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Data Showing Foreclosure Crisis Easing Is Misleading
Foreclosure filings may have fallen 2% year over year in April for the first such decline in five years, but that’s because bankers cannot keep up with the number of distressed homeowners. Many Americans are in “modification limbo,” waiting for decisions with regard to getting a temporary loan modification; others are in temporary modifications hoping that they become permanent. While this backlog grows, bankers are allowing other homeowners to stay in their homes even as mortgage payments are in arrears, as the process of foreclosures has a building backlog of its own.
As the government programs wind down, there will likely be a deluge of foreclosures in the months ahead leading to anther leg down for home prices in many locations throughout the United States. The number of new delinquencies may have stabilized, but banks seized a record 92,000 homes in April, and there are millions of potential foreclosures still to come. According to Lender Processing Services, nearly 7.4 million homeowners with a mortgage have missed at least one mortgage payment through March. RealtyTrac reports that 334,000 households received a foreclosure notice in April, which is a big number, but down 9% from March.
Unemployment or reduced incomes have become the catalysts for foreclosure, and folks with good credit scores with conventional fixed-income loans are now the fastest group heading for foreclosure.
The Housing Market and Banking System are thus headed for a second leg to “The Great Credit Crunch." Foreclosed homes become OREO at banks -- who sell at lower prices -- which reduces appraised values in the community. This causes cities, counties, and states to lose tax revenue resulting in budget cuts, and the trend is that municipal workers are having workweeks cut to four days from five, which brings additional households into mortgage distress. And the beat goes on!
The Housing Sector Index (HGX) seems to have topped out as shown on the daily chart. On last Thursday’s “Flash Crash,” HGX came close to a test of its 200-day simple moving average at 106.19 and this week’s high didn't take out the high of the range of that day, May 6. HGX failed below its 21-day simple moving average at 121.40 and closed yesterday just above its 50-day at 116.07.
Fannie (FNM) and Freddie (FRE) Losses Rise Under Market Radar
I've been covering Fannie Mae and Freddie Mac in great detail since May 2008, so today I decided to summarize some of my more recent commentary.
Fannie Mae and Freddie Mac continue to drain taxpayer money as the Treasury provides unlimited lines of credit through 2012. Last week, Freddie asked for $10.6 billion and on Monday Fannie asked for $8.4 billion. This brings the total bailout of the GSEs to $144.9 billion.I have been predicting that conservatorship of Fannie and Freddie will be the largest cost to tax payers of all of the financial bailout programs, and that will prove to be the case as the GSEs will have unlimited access to the Senior Preferred Program though 2012.
No positions in stocks mentioned.
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