Pimco’s Simon: There Was Never a Housing Recovery

Are You Ready For 6 to 7 Million More Foreclosures. Politicians criticize Fannie Mar & Freddie Mac out of one side of their mouths. (by Joe Vera)

Pimco’s Simon: There Was Never a Housing Recovery
By Dawn Wotapka

Bearish outlooks on housing aren’t hard to find these days, but one stands out even for this market.
Scott Simon, a managing director and head of global asset-giant Pimco’s mortgage- and asset-backed securities teams, is credited with foreseeing the housing crash and helping his firm dodge losses that plagued Wall Street.
In a lengthy Q&A posted on Pimco’s website today, Mr. Simon discusses everything from foreclosures to Fannie Mae and Freddie Mac. Calling his outlook “dour” would be generous—home prices could fall more and the pain could drag on for a decade or more.
Excerpts are below. (Both the questions and answers are from Pimco.)
Q: Could you begin by framing the current state of the housing market? Do you see a double dip market?
A: We are seeing signs of what we have long suspected: There never was a housing recovery. In fact, I argue the market is in a fragile state that is far easier to break than to fix. If policy makers alter the government’s current approach to housing and unwittingly break the market, they may not be able to repair the damage within the foreseeable future. … We anticipate an average decline from here of about 6% to 8% in prices across the country.
Q: Are more foreclosures expected to hit the market?
A: We see potential for a substantial number of foreclosures over the next three years – as many as 6 million to 7 million additional foreclosures, on top of the roughly 2 million we estimate have already occurred. Foreclosures may peak in about two years, but the numbers could still be high for a few years after that and then likely taper off.
Q: Let’s switch gears to discuss housing finance. Is the home-loan market still reliant on government support?
A: Yes, government is essentially considered the mortgage market today, but this needs to be put in context. Government has been involved in housing for some 70 years with pro-housing subsidies of all sorts, from homebuyer tax credits to guaranteeing loans to mortgage interest tax deductions. … If we ended government support in all forms, mortgage rates could rise significantly, because home loan investors would need to be compensated for greater credit risk, and loan availability could decline. Higher rates and less mortgage availability would put downward pressure on home values, with potentially negative consequences for the market and also for the economy as a result of wealth destruction and consumer confidence declining.
Q: What are politicians and policy makers proposing to do about Fannie Mae and Freddie Mac? Are there serious alternatives being discussed to provide liquidity to the market?
A: From what I have observed in visits to D.C., when the conversation comes around to Fannie and Freddie it is very easy for people to get irrational. Fannie and Freddie seem to draw negativity like giant lightning rods because they lost so much money. But what is often overlooked is that the majority of losses have not come from their core business: 20% down-payment, prime mortgages. They got in trouble because they expanded beyond their core business to maintain market share. …But politicians from both parties look at the losses of Fannie and Freddie and think, “I’d better say Fannie and Freddie stink and we should shut them down and that they are evil.” But the market still relies heavily on Fannie and Freddie. If policymakers err in tinkering with that support while the market is so fragile, the unintended consequences could be extreme.
Q: And when do you expect action on this issue?
A: Despite the heated rhetoric, there appears to be no rush to kill Fannie and Freddie, from what I have observed. Initially, we heard talk of getting the government out of housing in two years, and lately the talk is five to seven years. I think in Washington-speak, five-to-seven years more likely means 10-to-15 years, which is actually a more realistic timeframe in my opinion – by then the housing market should hopefully be on firmer ground.

Oregon Foreclosure Filings up 236 percent in April

BoA file 236 new foreclosures. Attorney Phil Querin , “They’re doing the same thing they were before. “They’ve not recorded successive assignments.”

Oregon foreclosure filings up 236 percent in April
The Associated Press, Published Monday, June 6, 2011
PORTLAND, Ore. — PORTLAND, Ore. (AP) – Oregon is bucking a declining national trend in new foreclosure filings with a big increase in April, all of it from one loan servicer, The Oregonian reported.
The surge in “notices of default” by Bank of America Corp.’s foreclosure arm, ReconTrust Co., boosted the number of notices in Oregon by 236 percent, to 3,700 from 1,100, according to figures from ForeclosureRadar.com.
Another foreclosure data tracker, Realty Trac Inc., showed 3,200 notices in Oregon. Nationally, Realty Trac said the number declined by 14 percent in April.
The increase in April filings follows a jump in cancelled foreclosures filed by ReconTrust in late February and March. Those came after rulings by federal judges halting out-of-court foreclosures in Oregon, saying lenders failed to follow state recording law.
The judges said documents showing the successive chain of mortgage ownership had not been publicly filed in county recorders’ offices.
Bank of America spokesperson Jumana Bauwens said the withdrawals and new filings resulted from a review late last year of its foreclosure process when it halted sales in all 50 states.
“We wanted to provide our customers with every opportunity for home retention as well as ensure all foreclosure filing were completed with our improved process,” Bauwens said in an email to The Oregonian last week.
“As we entered April, we began initiating filings with that improved process. The filings in April may or may not be those held back in February and/or March,” Bauwens said.
But real-estate experts say little changed with the new filings.
Phil Querin, a real-estate attorney and critic of the finance industry’s handling of foreclosures, say ReconTrust’s new foreclosure starts are no different.
“They’re doing the same thing they were before,” Querin said. “They’ve not recorded successive assignments.”
The bank also might have been running up against a legal deadline that limits postponed foreclosures to six months, he said.
“We don’t really know too much because the banks aren’t talking,” Querin said.
Last month, the rate of new foreclosure starts slowed but remained higher than in February, according to recorders’ offices in two Portland metro area counties.
In Clackamas County, new foreclosure filings totaled 151 in March, with only 17 from ReconTrust. In April, filings spiked to 560, with 432 filed by ReconTrust. The trend was similar in Washington County, where new foreclosure starts jumped from 208 in March to 656 in April.
Attorneys say it’s not clear when Oregon judges will rule definitively on the legality of mortgage recordings, many of which involve the Mortgage Electronic Registration System, or MERS.
Title insurance attorneys have suggested that lenders might start foreclosing in court, but other real estate attorneys say lenders don’t want to spend that much money and will face a formidable fight from borrowers.

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