Looming Foreclosure halt market panic.

K

KINGOFSHORTS

I suspect the market is not properly pricing this in, too focused on QE2 only to forget the smoldering fire. Once a total halt occurs and the panic sets in your gonna start seeing a big widening of CDS spreads on financial institutes and counter-party risk will re-enter the equation. This will bring another panic crash when people start pulling liquidity out again. And of course this will give a big incentive for even more people to stop servicing mortgage payments. It is like the whitehouse is giving the all clear not to pay your mortgage and live free for 5-10 years.

I suggest you read this article if you want to see how ugly this thing could become. Just imagine folks who bought a foreclosed home getting kicked out as trespassers,etc. This will bring a big round of panic. This could cascade rapidly leading to another TARP II and at this point total loss in market confidence.

http://www.nytimes.com/2010/10/09/your-money/mortgages/09money.html?_r=1&ref=business
 
Quote from KINGOFSHORTS:

I suspect the market is not properly pricing this in, too focused on QE2 only to forget the smoldering fire. Once a total halt occurs and the panic sets in your gonna start seeing a big widening of CDS spreads on financial institutes and counter-party risk will re-enter the equation. This will bring another panic crash when people start pulling liquidity out again. And of course this will give a big incentive for even more people to stop servicing mortgage payments. It is like the whitehouse is giving the all clear not to pay your mortgage and live free for 5-10 years.

I suggest you read this article if you want to see how ugly this thing could become. Just imagine folks who bought a foreclosed home getting kicked out as trespassers,etc. This will bring a big round of panic. This could cascade rapidly leading to another TARP II and at this point total loss in market confidence.

http://www.nytimes.com/2010/10/09/your-money/mortgages/09money.html?_r=1&ref=business
More...

Most real estate sales these days are short-sales or foreclosures. If the foreclosure market gets shutdown, even temporarily, by title insurance companies refusing to insure foreclosed houses, this will definitely cause a lot of problems for entities like Fannie and Freddie, which own a huge amount of foreclosed homes.

I guess we'll see in the rest of this year's existing home sales data, and whether or not Fannie and Freddie ask for more money from the government. It sounds like it might backlog the system to have to go through and ensure that all their documents are in order. If not, and if there really is a logjam in terms of foreclosures, there really could be a big problem.

Even worse, if that causes people to stop buying foreclosed properties, including investors, then it will force the banks to lower prices even further to spur buyers.

Basically, this is not a good situation at all. Bernanke has dropped interest rates so that banks make money from the spreads as well as encourage people to buy homes, but it's not working.

I think after the election, the government is going to have to force Freddie and Fannie to cut principal on underwater homes. They need to stop people from leaving their homes and the only way to do that is principal reduction.
 
Hmnnn. I'd like to see any data on claims paid out for title insurance prior to this fiasco. I always thought title insurance was a scam, (which looks to be right behind PMI).

Anyways, I bought my home without title insurance primarily because I couldn't get a policy written because the house had a defective title. My lawyer asked me to sign a waiver not to sue him because he advised me against buying the house. But me being me I bought the house anyways, took about ten years to obtain clear title, I bet everything on red took a few calculated risks and won. That was 27 years ago and all is well to this day.
 
Quote from KINGOFSHORTS:

I suspect the market is not properly pricing this in, too focused on QE2 only to forget the smoldering fire. Once a total halt occurs and the panic sets in your gonna start seeing a big widening of CDS spreads on financial institutes and counter-party risk will re-enter the equation. This will bring another panic crash when people start pulling liquidity out again. And of course this will give a big incentive for even more people to stop servicing mortgage payments. It is like the whitehouse is giving the all clear not to pay your mortgage and live free for 5-10 years.

I suggest you read this article if you want to see how ugly this thing could become. Just imagine folks who bought a foreclosed home getting kicked out as trespassers,etc. This will bring a big round of panic. This could cascade rapidly leading to another TARP II and at this point total loss in market confidence.

http://www.nytimes.com/2010/10/09/your-money/mortgages/09money.html?_r=1&ref=business
More...

Thanks for posting that. I never thought about this scenario. I don't think buyers of foreclosed homes are going to be forcefully thrown out by the previous owners. If nothing else firearms will stop that. :)

Now do you actually think if this happened wide scale the title companies would make good on the policies they sold?

I don't they would run to the government like AIG.
 
This could possibly make new homes and exsisting homes with unencumbered mortgages more valuable. All the homes with problems, foreclosures, short sales etc are off the market = artificial housing shortage.
 
To be at "fair value" home prices need to drop 50%.
And remember historically after panics prices drop even BELOW fair value.
 
I feel very badly that I am not participating in this massive deadbeat class.

Bad upbringing I suppose.

Anyone else feel like a sucker for not being on the dole?
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Quote from nutmeg:

Hmnnn. I'd like to see any data on claims paid out for title insurance prior to this fiasco. I always thought title insurance was a scam, (which looks to be right behind PMI).

Anyways, I bought my home without title insurance primarily because I couldn't get a policy written because the house had a defective title. My lawyer asked me to sign a waiver not to sue him because he advised me against buying the house. But me being me I bought the house anyways, took about ten years to obtain clear title, I bet everything on red took a few calculated risks and won. That was 27 years ago and all is well to this day.
More...

That's my house, and you have 30 days to gtfo.

You are posting too soon after your last post. Try again in a few minutes.
You are posting too soon after your last post. Try again in a few minutes.

Am I the only one that's sick of this ET nonsense? What are they protecting against? Muslim spammers?
 
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