When the President came to California yesterday and announced that the state will receive $145 million to help communities hard-hit by the foreclosure crisis, I thought to myself, “$145 million? That’s pocket change.” I realized then, that with all the stimulus packages, and budgets plans, and financial talk that have been spattered about the news like a massive Pollock painting in the last few months, my perception of the actual worth of $145 million dollars had been greatly skewed. $145 million can go a long way, can’t it?

The funds, as the President said on Thursday, “will be used to purchase and rehabilitate vacant, foreclosed homes and resell them with affordable mortgages.” He goes on to add that the funds “will also provide mortgage assistance and rehabilitation loans for low-income and middle income families.” The program that generated these funds, “was created as part of the Housing and Economic Recovery Act of 2008, which permits state and local governments to purchase foreclosed homes at a discount and rehabilitate or redevelop them”, reports the Associated Press. “Additionally, funds will come from the massive stimulus package.” Who knows how much additional funding from the stimulus package will actually go towards California’s foreclosure problem, and who knows how far this money can go to do all the things that the program is intended to do.

After-all, according to the RealtyTrac research firm, there were filings for 80,775 foreclosures on California properties in February. Oooooowweeeee, that’s a fair bit of foreclosures. How much money are we getting again? Of course, that number is slightly skewed due to the foreclosure moratorium that took place starting at the end of November and ended towards the end of January. For those unaware, the moratorium basically just halted the foreclosure process for that time period in an effort to keep people in their homes during the holiday season. So during that time, the amount of foreclosure filings piled up. But now that it’s over, we’ve got a lot to deal with. It would be interesting to get a number on the average dollar amount that will be spent per foreclosure with this money and see how big of dent the $145 million can actually make.

But I don’t mean to sound like Debbie Downer. $145 million is a fair bit of money. And hopefully a nice chunk of the money that California gets from the stimulus package will help as well. And moreover, this money will certainly help rejuvenate some neighborhoods in the state, and any bit of progress that can be made to lessen the enormity of this foreclosure crisis is a damn good thing.

By Andrew Brentan

I don’t get it. I’m not going to complain by any means, but I don’t quite understand how the new home construction projections surged up 22% from January. Steven Bernard of the Associated Press reported this morning that, “The Commerce Department said new home construction rose to an annual rate of 583,000 in February from a revised 477,000 in January. Economists forecast construction would drop to a pace of around 450,000 units, according to Thomson Reuters. Building permits, a key measure of future activity, also rose unexpectedly.” Economists were predicting a 6% decrease, and suddenly there’s a 22% increase in projections? What gives?

I read articles this morning in damn near every major newspaper I could find and not one of them offered any possible explanation on this. Like I said, I’m not complaining. The markets of course, responded favorably to this report and even offset the concerning news that Nokia is laying off 1,700 workers. But my question is how, when there are record-breaking amounts of residential inventory on the market across the country, there is a sudden burst in desire to build more homes that are not being bought up any time soon?

Jeff Bater and Brian Blackstone of the Wall Street Journal may not have offered any explanation on the projection, but they did address my question/concern: “…some are wary a rebound in home construction will only add to the glut of inventories, particularly, new homes at higher prices-an especially tough sell in this market.” Yes gentlemen, I’m wary. Chew on these stats that they went on to rattle off: “Sales of new homes have fallen for six consecutive months through January and are down nearly 50% from January 2008, while inventories have ballooned to a supply of 13.3 months, which is driving prices lower and holding off would-be buyers.” And so I’ll pose the question again…what on earth made the projections of home construction rise 22% from last month? I feel like the Commerce Department is just playing with our emotions to build some confidence. Well, confidence with a healthy dose of skepticism…but as of today, it seems to be working.

By

Andrew Brentan

Who knows what to think about anything these days? It is hard to wrap one’s head around anything when so much is happening and none of it seems to be good. And so, when I learned that Stanford Kurland, the former president of Countrywide, had started a new mortgage company, my first reaction was, ohhhhhhhh boy, here we go again. I mean, there are a boat load of lawsuits underway against Countrywide, and some of them are accusing Kurland of being one of the main guys responsible for the irresponsible lending practices that dished out billions of dollars in risky home loans, which inevitably led to Countrywide’s demise, and left thousands of people risking foreclosure.  But then I learned what his new company was doing, and my initial thoughts towards the man and his company changed.

The Private National Mortgage Acceptance Company, or simply PennyMac, buys up delinquent home mortgages that the government took over from failed banks for a fraction of what they are worth, and get a piece of what they can collect. As an example, PennyMac would buy a delinquent $500,000 mortgage for say, $180,000 (of course, in reality they are buying many mortgages at once). When they buy these mortgages for pennies on the dollar, they can afford to restructure the loan with the homeowners, slashing the interest rates, keeping the owners in their homes and making payments. And PennyMac gets to keep a share of the money coming in from these mortgage payments, which otherwise might not have been made. So this is not only helping homeowners, but it is helping the government get back some (as opposed to none) of the money from the bad mortgages they bought up.

According to Eric Lipton in an article for the New York Times, PennyMac struck a deal with the FDIC (Federal Deposit Insurance Corporation), where “it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada.” Lipton goes on to say that, “Under the initial terms of the FDIC deal, Penny Mac is entitled to keep 20 cents on every dollar it can collect, with the government receiving the rest. Eventually that will rise to 40 cents”. They’re doing to be doing real well. And some whom they have helped are doing well as a result also.

Lipton describes the Laverdes family had fallen three months behind on their mortgage after their furniture store began feeling the pressure of the economic crisis. They were “fearful that they might need to move their four children, three dogs and giant saltwater aquarium into a cramped apartment, leaving behind their dream home. But a PennyMac representative instead offered to cut the interest rate on their $590,000 loan to 3 percent from 7.25 percent, cutting their monthly payments nearly in half.” Wow, go delinquent for a couple months and get rewarded with a 3% interest rate! Must be nice.

So perhaps our country needs more companies like PennyMac right now. Take some of the burden off government and banks and struggling homeowners, and turn a pretty profit while they do it. Is it too much to hope that companies like this can help stabilize the housing market? Probably, but like I said, I don’t know what to think at this point, so any beacon of light in this dismal economy and I’m going to cheer it on.

By Andrew Brentan

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