Is AB284 hurting more than helping?

The Reno Gazette-Journal ran an interesting piece on the effects of AB284 on Washoe County’s shadow inventory. A few local real estate agents and others were interviewed for the piece, including this blog’s Mike McGonagle. See the RGJ’s Shadow Inventory will slow Washoe County housing market in coming years

Not surprisingly the consensus is that AB 284 is simply delaying the inevitable and that at some point the market will have to deal with high numbers of foreclosures and borrowers who are delinquent on their loans. Precisely when this will occur and how big a problem it will be is less certain. Kevin Sigstad, president of the Reno-Sparks Association of Realtors, who was interviewed for the piece, remarked that he wouldn’t be surprised if the issue was resolved in 50 to 90 days.

But most agree that the longer the foreclosure process is delayed the larger the problem will be.

What do you think? Is AB 284 hurting more than helping?

related post: Nevada NODs grind to a halt

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12 Responses to Is AB284 hurting more than helping?

  1. Avatar Superhik says:

    Delaying the inevitable. Makes good only to someone who is currently selling a house in Nevada. On long run it hurts everyone else because “invisible hand” will punish harder in the future and homes are going to be well below replacement cost. Northern Nevada has room of at least 30% more to go down. Remember 2010 incentive in form of homebuyer credit up to $8,000. All folks who did take advantage of it are now deeply underwater. If market was let free to rule (government intervention, banks incentive to keep loan on the book and not letting “shadow” houses for sale or closing foreclosure in 90 days) in 2008 we would be already over by now. Median would be ~$50,000 and would only be stagnant but not constantly going down and extend uncertainty. How many bubbles we have live through to learn the lesson.
    I would also like to point to one unconventional approach. If average Joe can qualify with 10% down and sub 4% 30y-fix for example ~$150,000 (current median price in NNevada)- how much will same Joe be able to qualify (after 2014 when “ingenuous” Bernanke starts raising interest rates) for with 6% or 7% rates that are more aligned with historic trend line ($130K, 120K, …$100K, …) ? This completely ignores excess supply which will happen once shadow inventory is exposed to the daylight and further employment weakness of consonant / monolith NNevada ecomony (entertainment / warehousing).

  2. Avatar Sully says:

    I think Ronald Reagan had AB 284 in mind when he said:

    “Governments tend not to solve problems, only to rearrange them.”

    “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

  3. Avatar MikeZ says:

    Northern Nevada has room of at least 30% more to go down.

    Absurd! Explain your reasoning or show your math, please.

  4. Avatar Catherine Cochrane says:

    I think it is probably hurting. We all know of people out there who lived in a house with a loan in default for years before the bank kicked them out. If there was already that much of a delay with some lenders, just think about how bad it will be now…

  5. Avatar Superhik says:

    Mr Mike Z. My statement can be called absurd but doesn’t mean that it won’t happen just for Christmas 2013.
    If you read my second paragraph carefully you will se that approximately average Joe’s payment will be $650 under given circumstances (150k price, 10% down, 4%). If only rates go up to 7% in order to maintain same payment price will have to go down to $100k. I guess you can suggest a non-absurd solution that if rate goes to 7% – Joe can simply go to his boss and asks for 30% promotion in order for prices to not go down.

  6. Avatar dirtbagger says:

    Average Joe’s are not homebuyers, if that were the case then there would be close to 100% home ownership as opposed to about 65%. Incomes of home buyers (the top 65%) are much higher than the bottom 35% (renters). The use of average income for contructing an optimum house pricing model is suspect. Incomes in the US do not fall within a normal statistical distribution (e.g. fat tail).

    If Joe can only pony up $650 a month, then he should never be granted a mortgage and should continue renting until his income increases. The premise that housing prices and financing methods should be structured so that everyone (aka Joe) can be a home owner is absurd.

  7. Avatar Matthew says:

    I was copy/paste paraphrasing this from my RGJ comment thread… accidentally posted it in the old link… hoping for some good details here 😀

    We see a 98% decrease in the issuance of NODs. Are we to believe that the explosion in foreclosures was illegal or unwarranted?
    I think not, I think it was legitimate and speckled with the occasional servicing problem. Our lawmakers would now have use believe that they have done something to “solve” the problem but all they have done is insured a longer recovery period and more downside price-discovery because we have deliberately muddied the waters on the foreclosure stats on the rate of NOD and inventory backlogs….

    As highlighted by the RGJ and other professionals in the industry, two significant ramifications of AB284 are that, under significant penalty:

    1) [Sec. 6: 2,5] Nobody may act as trustee to another party to which they have a fiduciary duty nor can they, themselves be the grantor. The result of this is that banks cannot use their own subsidiaries as trustees nor anybody else with a duty. So no we have only third party trustees… This would be a fine (although still cumbersome) approach to prevent conflicts of interests except that….

    2) [Sec. 9: 4,6] The grantor must demonstrate they are the holder of the note, and/or provide all documentation of the distribution of beneficiaries and instrumentation of the secured asset.

    You are asking a services, which is a *custodian* of a note, to document and obtain consent from all beneficiaries and to outline all the instrumentation.
    So that could mean that BofA, who is only the servicer of your note, needs to obtain information from Fannie Mae for how the note was securitized… then they might both have to get in touch with Vanguard who included some of the note in its real estate portfolio… Vanguard might have written a swap with another fund, who may have have it in tranches with some endowment… then all the trustees of the endowment are beneficiaries…
    Do you see how this web becomes nearly impossible to unravel? It is not the fault of the web, the securitization and tranching is effective so long as the custodian is capable of servicing the asset.

    So, now you’re asking BofA to get all that documentation (if it’s even possible) and then compensate an unconnected third party to certify as a trustee to the documentation under legal penalty.

    The result is that nearly all the custodians of traditional mortgages stop issuing NODs. You will see *a few* NODs issued if they had unique notes or had not yet been securitized but this is clearly not the majority of delinquent borrowers.
    The data speaks for itself.

    Now, the near-term reality will be that a judge will qualify that the law is not to be interpreted in this way… Or the legislature will change the law. As it currently stands, and with tremendous legal ambiguity, it completely breaks the flow of the foreclosure process…. not because people are suddenly timely on their debt, but because we have made it incredibly painful for the authorized custodians to service these mortgages.

  8. Avatar MikeZ says:

    Mr Mike Z. My statement can be called absurd but doesn’t mean that it won’t happen just for Christmas 2013.

    I guarantee you that median home prices will not drop another 30%. No way, no how.

  9. Avatar superhick says:

    Mr Mike,

    Are you calling a bottom? Please declare yourself ?

    Today’s housing market is falling by few percentage points every quarter, despite historically low interest rates. Asking prices are slashed by over $5,000 for many homes that are not sold within first month, despite historically low inventory. Imagine housing market with rising interest rates and increasing inventory (AB384 will backfire banks find way to perish it – see excellent Mr Matthews comment above) and add on top of that jobless economic recovery. All this would in my opinion put a massive downward pressure on home prices for extended period of time.

    Of course, not all metro areas in US will follow same destiny, North Dakota or for example Raleigh-Durham in NC (where bubble was never experienced) but Nevada with “monolith” warehousing-hospitality economy will suffer for a long time.

    Let’s look for example at this house in very good neighborhood (MLS #110014661) where asking price dropped 2.9% or $5,000 last month. Maybe you can tell something different to this seller – to wait until Joe gets a promotion. BTW if trend continues this house will match its own price from 1995 !

    Date Description Price % Chg
    1/5/2012 Price change $164,900 -2.90%
    12/6/2011 Price change $169,900 -2.90%
    11/18/2011 Price change $174,900 -2.30%
    10/29/2011 Listed for sale $179,000 -49.40%
    11/23/2005 Sold $354,000 38.80%
    7/14/1995 Sold $154,500

    http://www.businessinsider.com/robert-shiller-housing-2012-1?

    http://www.huffingtonpost.com/2012/01/31/working-poor-liquid-asset-poverty_n_1243152.html?

  10. Avatar Matthew says:

    Superhick, I agree with MikeZ.
    We’re going to see a decline in prices, but not a 30% to the median.

  11. Pingback: Latest video from The Lebo Group regarding AB284 and inventory | RRB Home

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