By ANDREW JEFFERY

This post first appeared on Minyanville.

“If at first you don’t succeed, try, try again” – and you certainly can’t fault lawmakers for a lack of persistence in trying to stem the epidemic foreclosures plaguing America’s housing market.

Sadly, they insist on trying the same failed strategies over and over again.

For more than 18 months now, Congress has resolutely believed loan modifications are the path out of the housing jungle. But despite a blitzkrieg of public-relations campaigns and benevolent-sounding foreclosure-prevention programs like “Hope for Homeowners,” “HOPE NOW” and the latest, the Federal Reserve’s “Homeownership Preservation Policy,” modification efforts continue to sputter.

Even private-sector programs announced by big banks like Citigroup (C) and Bank of America (BAC) have had only marginal success.

After months of relentless pressure from the House and Senate alike, the Fed’s new policy allows it to review loans supporting the assets it purchased after it rescued Bear Stearns and AIG (AIG) for potential modifications. Barney Frank, the House Financial Services Committee Chairman, told reporters yesterday, “This is a very big deal.”

Actually, Mr. Frank, it’s not.

The assets acquired when the Fed and Treasury Department backed the JPMorgan (JPM) buyout of Bear Stearns and nationalized AIG were derivatives, not actual loans. These mortgage-backed securities are supported by thousands of individual mortgages, while the interest in those underlying loans was sliced up and allocated to countless securities, derivatives, and derivatives of derivatives.

Securities owners can’t modify mortgages: The rules about altering loan terms are pre-determined in securitization documents. It’s left up to loan servicers to implement the rules, whether the security owners like it or not.

Nevertheless, according to Bloomberg, the Fed — after identifying which loans it holds a fractional interest in — will encourage the servicers of those residential mortgage-backed securities “to implement a loan modification program that is consistent with this policy.”

Congress, Treasury and now the Fed have been trying to months now to get servicers on board with modification efforts, to no avail. Even the FDIC, whose highly touted modification program is being tried out at defunct California thrift IndyMac, has been unable to successfully – and sustainably — modify loans en masse.

The reason modification efforts aren’t working — amid evidence that Washington continues to ignore the root of the housing problem — is that the vast majority of loan defaults are being caused by job losses and negative equity. Borrowers can’t get a new loan without a job, nor can they qualify for a modification if they owe more on their house than it’s worth.

According to data released by JPMorgan yesterday, average equity for subprime loans stands at less than 5%.


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It’s negative for all Alt-A adjustable rate mortgages.



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Average equity in jumbo prime loans, which are experiencing defaults at faster rates than either subprime or Alt-A, has tumbled from 45% in January 2006 to less than 20% at the end of last year.


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And, even as regulators force mortgage rates down to record lows to encourage buyers to step in — catching the falling knife of tumbling home prices and risking financial ruin for the benefit of the rest of us — property values continue to fall.

Meanwhile, regulators and lawmakers continue to parade bold foreclosure-prevention efforts before the public. And they’ll keep trying – even if it bankrupts the country.

By AUSTIN NELSON

Existing home sales fell again in October, reversing gains seen in September. The National Association of Realtors, or NAR, released October existing home sales data today, which show decreases in units sold as well as median sale price across the country. The annual price decline was the worst on record, continuing the worst housing slump since  the Great Depression.

Nationally, existing home sales fell a seasonally adjusted 3.1% month-over-month, representing a 1.6% drop from a year ago. In September, sales improved from last fall’s atrocious levels – data the NAR pointed to as a sign of stabilization in the housing market. This assessment appears to have been premature. October’s decline in sales is more in line with the current economic climate of rising unemployment and severe home equity losses.

Sales were down throughout the country:

• Northeast: -1.2% m/m, -9.8% y/y
• Midwest: -6.0% m/m, -9.1% y/y
• South: -3.2% m/m, -10.2% y/y
• West: -1.6% m/m, 37.5% y/y

A few of these numbers are worth singling out.

First, the Midwest was hardest hit, evidencing the fallout from the troubles with the automakers. Second, sales in the West fell, following improvment in September. Again, the NAR had pointed to last month’s gain as an indicator of market health, claiming the West’s markets were showing renewed strength after being the hardest hit to date. The decrease last month shows that this “renewed strength” is typical NAR spin: Even drastic reductions in home prices could not stimulate sales growth in the region.

The figures released on median home sale prices are perhaps even more revealing as to the current state of the housing market.

Nationwide, home prices tumbled 4.2% month-over-month. The largest drop was seen in the West, which saw a dramatic 9.3% decrease. This decline came in the context of a market that had already seen 25% lower home prices than the peak in 2006. Markets in regions that have thus far held up better should expect continued deterioration if they follow a similar trend.

From a “rosier” perspective, this large drop in median price was due at least in part to the paralysis in credit markets over the last two months. The restriction of credit to the private mortgage market dramatically reduced the availability of jumbo loans – which are not backed by the government – preventing buyer’s from bidding on expensive homes.

As a result, the mix of homes sold in October was likely skewed towards the cheaper properties that are available for purchase using loans offered by Fannie Mae, Freddie Mac and the FHA. This concentration of lower priced homes helped push down the broader, median home price data reported by the NAR. As credit markets improve, albeit slowly, this effect should ease pressure on the broad indicators.

Rosier perspective aside, further nationwide declines in home prices and sales should be expected, as  economic conditions continue to erode. However, as the earth-shattering financial events of the past few months play themselves out, it will be important to watch the West as a bellwether of national markets.

The West has led the way in declines thus far, so it is reasonable to look to this area as a proxy for how economic hardships will affect other regional housing markets. Furthermore, as the West has seen the lion’s share of the market pain thus far, signs of true stabilization should appear there first.

Finally, it is important to note that regional economic numbers can conceal even the largest of local trends. Within local Western real estate markets, conditions are widely varied, with some markets only beginning to decline and others beginning to show truly renewed strength.

Only time, and feverishly detailed scrutiny will allow effective market analysis in these unpredictable and volatile times.