Knowns and Unknowns

There are a lot of headlines that indicate that the recession and mortgage crisis is over. We seeing the end and all is becoming well with the world, and why not the DOW is back to 9,000+.

That's all nice. Sounds good. But a lot of the reasons are not true. Worse yet, a lot of the truth isn't being given to the public. I truly believe we're in for another downturn in the market and for the economy. There is just no way that you have inflated all markets for close to a decade and in 6 months we've hit bottom and are ready to recover.

The median price rising that you heard last week is a joke. The truth is that there was a rise in sales in the High End homes. The high end sales took a larger percentage of the overall sales. So you might have an extra 10 - 20, 2 or 3 million dollar homes sold but that offsets hundreds of 200 - 300k home sales. Keep in mind those million dollar homes that sold probably lost about 1/3 - 1/2 of what the value was. This is a case where the median price can actually rise but home values are still going down. We haven't hit bottom yet.

I've got inside sources on the inner workings of big time lenders short sale, rate mod and foreclosure departments. Without going into detail, you wouldn't believe that these companies are still in business from the way their run. In reality there are so many delinquent borrowers that haven't even started to go through the process of short sales or foreclosures that there is a wave that's going to hit and hit hard. Especially with the employment problems only getting worse.

I've been told and seen that at many banks the rate mods are taking so long and putting people in such back situations that I feel there could be a rate mod bubble to burst. Unlike a bubble of prosperity I think it will be a break down of the system. Don't let this stop you from trying. I believe that modifications in anyway would be the only way to slow down the foreclosure mess (as we're structured now), but I'm hearing, going through and reading about horror stories. Between the fraud that's been in the paper lately and the way I've personally seen how these rate mods are run, it's a mess. Some lenders have got their stuff together so I won't unilaterally dis everyone. But I know of total incompetence from simple hangups and dropped calls to repeated requests for paperwork that they've already had, "it's just our screens aren't updated" or "I'm sorry, this screen showed we needed it again" to "No we don't know why someone called, you're fine". These I've all heard and been through.

What's worse is that many of these lenders, who initially said that you don't need to be late on your mortgage for help are now purposefully making you go late. I can go on but will leave you with one final thought for today.

Look at all that's going on. Take a step back and look at the ramifications of what we're going to be left with. There will be millions of people with bad credit. In many places you're going to see home values near 2000 levels. Inflation HAS to be a concern at some point which will only stifle any momentum in the real estate world. Financing will be so tight that it will almost be impossible for home owners, small businesses and even large companies to get loans. Commercial real estate and lending is the next shoe to drop. 30 - 40% vacancy wouldn't surprise me (I know that sounds crazy).

I would love to think that we are in the clear. But the truth is we are so far away and what's worse is no one knows the real answers. Read the actual article from these headlines. Picture the TV show The Office, think about the actual work that gets done. It's funny because it's true!! Starting next month the banks are going to initiate all types of new, incredibly stupid, lending regulations... but that's for my next post.