About the Umbrella Extended to Home Foreclosures
I have a theory. It may be a fallacy. I may have conjured it up. But it's what I believe.
You may have heard that last week the biggest U.S. lender, Bank of America, stopped foreclosing on homes where the mortgage was in default. JP Morgan Chase and Ally Financial had already stopped foreclosing in some states.
The foreclosures are being stopped as attorney generals in some states are investigating whether the foreclosures (principally the paperwork that goes with the foreclosures) are being done correctly.
My belief is that the banks are looking for any excuse to stop the foreclosures — they don't want to own anymore houses anyway! They have too many homes on their books already! What the heck are the banks going to do with all these homes anyway?
The concept is quite simple. If the borrower cannot make his/her payments on the mortgage, the bank takes back the home they lent the money on. You can say the paperwork is not 100% accurate, but the fact that the borrower is not paying his/her mortgage is 100% accurate. Banks had already slowed down the foreclosure process considerably. Now they've found an excuse to just stop taking the houses back.
Over four million homes in the U.S. are either in the foreclosure process or are three months late on their payments for their mortgages. Lenders already foreclosed on more than one million homes in 2009. In August of this year, they foreclosed on 95,364 homes, and the estimate for total 2010 foreclosure was another one million homes.
The bottom line is that the banks cannot foreclose on homes fast enough; they cannot turn around and put them on the market fast enough at lower prices for those credit-worthy Americans left who can buy them, and they simply can't sell them fast enough to bring cash in.
A welcome breather...a temporary stop to the foreclosures.
Could this actually turn out to be a good thing for the real estate market? Fewer homes for the bargain hunters to pick from might be just want the market needed. The new homebuilder stocks love the concept. Since the news story of the Bank of America extending its freeze on foreclosures in all 50 states broke last Friday, the stocks of the largest U.S. homebuilders have been rallying.
"The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home-builder stocks is telling the true story — these stocks are falling in price daily (and the media is not picking it up). Those that will hurt most when the air is finally let out of the housing market balloon will be those buyers that bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999." Michael Lombardi in PROFIT CONFIDENTIAL, March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.
About the Author
Profit Confidential is Lombardi Publishing Corporation's free daily investment e-letter. Written by financial gurus with over 100 years of combined investing experience, Profit Confidential analyzes and comments on the actions of the stock market, precious metals, interest rates, real estate, and the economy. For more on Lombardi, and to get the popular Profit Confidential e-letter sent to you daily, visit http://www.profitconfidential.com
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