There was never a housing recovery to begin withby Peter Miller
“There never was a housing recovery,” said Scott Simon, head of the mortgage- and asset-backed securities teams with PIMCO, a massive investment management firm with nearly $1.3 trillion in assets.
The market is in a fragile state that is far easier to break than to fix. If policymakers 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.
It’s hard to disagree with Mr. Simon; after all, as we said in April, “For much of America there is no double dip. There is no dip at all. There is merely a slide, a downside, a financial slalom.”
There never was a recovery to begin with
If we have not yet recovered from the housing slide, then is the end even in sight? Is there any indication that the market is recovering?
While recent reports from the FHFA and Case-Shiller seem to indicate a strengthening in home prices, Mr. Simon, however, offers his own explanation as to why these reports are both incomplete and are only a facade:
The appearance of a recovery…resulted from foreclosures being stalled amid political and media scrutiny as well as lawsuits. That meant that the composition of sales reflected fewer distressed sales and thus prices seemed to be rising. Basically, it was likely a statistical bounce, not a real bounce, and now the housing bulls are back to being bears.
I think Mr. Simon is wrong in two of his three reasons.
1. There has been very little real political pressure to stop foreclosures. The market peaked in April 2007, and the result has been government flub after government flub.
Here’s a perfect example: The FHA’s Hope for Homeowners is dead after September 30, 2011. This program started in 2008 and was supposed to help homeowners trade in toxic loans for fixed-rate FHA financing. The FHA was prepared to insure up to $300 billion in new loans under this program.
So, how many loans were actually made under H4H? There were none in 2008, 23 in fiscal 2009, 107 in fiscal 2010, and 227 so far in 2011.
2. Mr. Simon says the media has influenced foreclosure policies. Sure, there have been a few highlighted cases and excellent reporting work done by the New York Times, Reuters and the McClatchy newspaper chain; otherwise it’s hard to see much media glory. After all, how many newspapers told borrowers to avoid toxic loans in the first place? (Okay, for the record, I got it right in a 2006 speech to the Association of License Law Officials and in any number of columns.)
3. Mr. Simon also mentions lawsuits. What has happened is that loan ownership is so unclear that foreclosure actions across the country have slowed–but only long after foreclosure defense attorneys repeatedly raised the issue and lender officials and attorneys denied any problems.
In other words, there has been no foreclosure slowdown in the sense of better economics, more jobs or higher incomes. The slowdown is largely because lenders can’t get their paperwork right and that’s not a sign of good news.