Trying to get honest data from the banking industry regarding the current state of housing is a monumental task. We are left using multiple data sources to get an accurate picture of the current state of the American housing market. Even then, we are left trying to piece together data that is largely incomplete. For example, we now know that banks are delaying foreclosure filings so these don’t show up in monthly reports. Next, we have another group of home owners that have stopped paying their mortgages as a strategy. These points are important but are buried deep in reports. Yet we can still try to garner information from other sources that will provide a better perspective on the U.S. housing market.

It is safe to say to say that a foreclosure filing is the worse sign of problems for housing. After all, the first action is taken with a notice of default and this requires at a minimum three missed payments. If we look at the current rate of foreclosure filings we see very little in the way of improvement:

The above rate will put us at 4 million foreclosure filings for 2010. Interestingly enough, we can see that the amount of foreclosures started tracking up in early 2006. Even though the actual recession did not start until December of 2007 we have nearly a 22 to 24 month gap between rising foreclosure filings and the actual official start of the recession. Keep in mind that during 2006 the housing bubble masked some of these problems. Part of this comes from the inflated prices and a market that still had buyers willing to pay higher prices with easy financing. Even if a homeowner was behind by 3 payments they were then able to sell it into the momentum of the market. As prices collapsed, the underlying problems were fully exposed.

Now much of the blame has been put on toxic and trashy mortgage. No doubt this is the nucleus of the problem and much of this was spurred on by Wall Street and their insatiable appetite for mortgages to put into their exotic mortgage backed securities. However if we look at HAMP data carefully we will realize that beyond toxic loans, the housing market was running on pure fumes and speculation. In fact, those going into HAMP modifications have a unique ability to tell the truth as to why they are going into housing distress. This is a look in between performing loans and non-performing loans:

This is a very telling chart. The largest reason for hardship is loss of income. Let us be clear here:

“The biggest reason people are entering into HAMP loan modifications is loss of income.”

This is something that the banking industry doesn’t want to reveal because it would strike at the core of their argument that loans simply need to be reworked to make things better. In reality, we need something much more substantial and this will only come from having a healthier economy. Anyone that lives as a working class or middle class American realizes that the economy is anything but healthy. The reason foreclosures are near record levels is because the real economy is still struggling with pervasive problems. If we look at the HAMP data we realize that many loans don’t qualify because income levels do not work even with this generous program:

Over 3 million delinquent loans are eligible for HAMP. Of the actual borrowers, there were 1.5 million trial offers extended. From that, we see that only 340,000 permanent modifications have taken place (this doesn’t reflect the current new foreclosures coming down the pipeline). And many of these will re-default because as we have seen the number one reason for distress is loss of income. How can someone pay a mortgage if they have no job? It isn’t like HAMP strikes at lowering principal:

You’ll notice that all the help is guided at protecting the banks. Term extensions and principal forbearance are merely extending the misery for many that can’t afford their homes. Many would be better off renting. Yet banks want to extract every single penny for their years of horrific mismanagement and their primary cause for the housing bubble. A principal reduction would force banks to eat the loss and actually have to recognize real losses on their balance sheet. At the moment, they are happy pretending things are good so they can extract additional money from taxpayers and make billions gambling on Wall Street.

Contrary to things getting better, the call center volume for HAMP is still as active as ever signifying that problems are still at peak levels:

This data is probably the closest we are going to get to having a reason for current housing distress. Clearly toxic loans are involved here too yet the major theme of this all is that the real economy in a reflection through wages is the absolute major reason for current housing problems. After all, since the collapse of the mortgage market 95+ percent of all loans are now “safe” government backed loans. Yet problems are still here. So doesn’t it seem unwise and downright illogical to try to get more people to buy if clearly wages and jobs don’t support this? This is why it is absolute nonsense that tax credits and trillions of dollars to the banks were given under the pretense of helping people to buy homes and keep lending activity going. I’m sure most average Americans now realize the shell game that is occurring. The fact that new home sales collapsed last month to a low not even on record keeping data going back to 1963 is not a shock. It merely suggests that without government tax credits and artificial subsidies the housing market is running on fumes. This isn’t different from 2005 and 2006 when lenders got more aggressive with going no-doc, no-income, no-nothing, and gave loans to anyone and everyone just to keep the party going. The market was telling us something else.

Yet here we are in 2010 repeating similar mistakes. Yet my sense is the overall population isn’t behind all this. They would like to put their overall feelings about the housing market into words but cannot. In some markets, home prices remain inflated because of these programs subsidizing the rich while those in poorer to middle class communities subsidize the current wealth transfer. It is pretty clear that without a strong economy housing is an afterthought. Spending more and more money with banks is a futile effort and it is no shock that after $12 trillion in bailouts and backstops that there is very little to show for everyone else.

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