The affadavit problems that banks, state regulators, and even the OCC are uncovering could change how the US housing market corrects itself.

If so, then what?

Servicers are going to take it on the chin. That is as it should be. Their incompetence is what led to this mess. Although they may experience some loss to their public image, the real cost is going to be felt in the hundreds of thousands of mortgage payments that they have to make to investors. Servicers have to make payments to investors even if they can’t collect payments from borrowers.  Foreclosure eliminates that obligation. That had been one of the hurdles to loan modifications – investors were (more…)

The affidavit armageddon continues to spread. Today the Office of the Comptroller of the Currency notified seven servicers that it would be visiting their offices in order to verify that their foreclosure procedures were legitimate. This follows voluntary annoucements by GMAC, JP Morgan Chase, and Bank of America that they were going to suspend current foreclosures in process while they review documents.

The banks are getting plenty of heat. Imagine how bad this probelm is going to be, and imagine how long (more…)

Builders have stopped building, but not everywhere.

Fewer homes are being built across the United States. New starts fell of 71 percent between 2004 and 2009. 2004 and 2005 were peak years for new home construction in the United States. In both years, more than 2 million new homes were built. Last year, only 583,000 new homes were started.

Still, homes are still being built and in some states, the numbers are actually going up. Home construction is up more than 12 percent in North Dakota and almost two percent in Alaska.

This chart shows the percentage of new homes started in 2004 compared to those started in 2009 on a state-by-state basis. It is a randomly chosen set of states.

This chart supports the inference that the ebbs and tides of real estate – housing starts, foreclosures, mortgage financing – are driven by employment. Jobs are scarce in Nevada (14.4 percent), Michigan (13.1 percent), and Florida (11.1 percent).  They aren’t much easier to come by in Georgia or Arizona, either. Indeed, Montana (7.7 percent) is the exception to the rule.

The Dakotas are just the opposite. The Bureau of Labor Statistics published data this month that shows how well both states are flourishing. North Dakota is slightly more fortunate, with less than 1 in 22 workers unable to find a job. It is the same in Nebraska (4.6 percent) and Oklahoma (7 percent). Washington, DC has fewer jobs, but it has many high-paid jobs.

South Dakota and North Dakota were exceptions to the subprime mortgage lending mania that gripped the country from 2001 to 2008.

Louisiana may be operating under an entirely different set of pressures. Housing starts haven’t been very popular in New Orleans since Katrina. The rest of the state suffers from another common problem: the cost of new construction is far higher than the price for a existing home. Housing in rural areas, no matter what state they are located in, seem to be given to this conundrum. That is certainly the case in parts of North Carolina.

Still, the real message of this chart should be to say that there is not really a national home building crisis. The problem is more of one that afflicts some regions. In many ways, it is an expression of the free market finding its equilibrium.

News today suggests that the problems with foreclosures at GMAC all come back to one employee.  GMAC says that Jeffrey Stephan is still working for the company.

Wait a week. He is so fired.

The news could be bigger than first imagined, because it may extend to foreclosed properties serviced by GMAC on behalf of the GSEs.

According to the Washington Post, one man (“the affadavit slave“) was charged with signing off on every foreclosure. He had a staff of thirteen, but this individual was responsible for verifying the legitimacy of the documents. He was expected to have the documents notarized, as well.

It seems like a mountain of work. Stephan was charged with signing 10,000 foreclosure documents per month. That is about five hundred foreclosures for every business day in the month! Put GMAC loan document reviewer next to Calcutta sewer cleaner and Saddam Hussein food tester as one of the World’s Worst Jobs.

The upshot is that the foreclosure crisis is about to enter into the News of the Weird, and it could become one more problem for the nation’s housing markets.  Imagine if thousands and thousands of REO properties are suddenly frozen in space. They can’t be sold, and in some instances, GMAC is going to have to unwind homes that have been sold.  There are already 15 months of homes on the market, and millions more in the shadow inventory.

GMAC Mortgage, a division of Ally Financial, announced that it is suspending foreclosure actions on properties in 23 states. Today’s story, published here by the Washington Post, offers no insight into what could motivate GMAC to pursue this plan.

Could GMAC have woken up on the cool side of the pillow and decided to show some love for its delinquent borrowers?

(more…)