The Depression of 2008

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Posted By: Anonymous

For the pollyannas here who are doing their best Alfred E. Neumann ("What, me worry?") impersonations, I urge you to plunge into the stock market with both feet. I could use the schadenfreude moment in a few months when you lose your shirts.

We haven't seen close to the bottom yet on the real estate market. The rate of delinquencies is at the highest it has been in 23 years:

WASHINGTON (AP) -March 6, 2008- Home foreclosures soared to an all-time high in the final three months of 2007 and probably will keep rising, evidence of homeowners' suffering and the economic danger from the meltdown.

The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December. The previous high, 0.78 percent, came in the July-through-September period.

"Clearly it's the worst it's been," the association's chief economist, Doug Duncan, said in an interview with The Associated Press.

At the same time, more homeowners fell behind on their monthly payments.

The delinquency rate -- when payments are at least 30 days past due -- for all mortgages climbed to 5.82 percent, the higher since 1985. The rate was 5.59 percent in the third quarter last year.

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Owing to the convoluted process needed to foreclose on property the number of homes in delinquency is the key measure of where the market is going. Lenders are facing an onslaught of foreclosures in the next six months like they've not seen in a generation. Consequently, we are not yet seeing the worst fallout of the foreclosures, which are swollen REO portfolios AND lender willingness to (a) blow out inventory and (b) lowball bid into new foreclosures. When that happens the market will be driven even lower as lenders desperately try to get rid of homes at any price and depress the markets further.

Finally, I am starting to see and hear of judicial (lawsuit-based) foreclosures on non-single-family-residential projects. Normally, the banks foreclose using a deed of trust and an auction at the courthouse steps. For a variety of reasons, that is the cheapest and most efficient way to proceed, but it makes the bank accept the property and walk away from any personal collection against the debtor. I got my first judicial foreclosure in years the other day. Lenders only resort to court when they feel there is no chance of the property regaining any value in the near future (2-3 years) and they want to pursue the debtor personally, because a debtor has a one-year post judgment right to redeem (regain) the property when sold via a judicial foreclosure. For that reason, a judicially foreclosed property is rarely going anywhere except to the bank. I spoke with a lender's lead counsel the other day and asked him what he was thinking and his response was that his clients do not figure on real estate going up for years so they are starting to figure on personal liability as the only way to recoup their loans, hence filing judicial foreclosures. Of course, by doing that they skyrocket the rate of bankruptcy, which leads in turn to more property on the market as debtors assets are sold off.

But go ahead and buy more stock; I hear WAMU, Citibank and Lehman are hot investments.

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