Here Come the Put-Backs !

Our comments this week (here and here), along with occasional TBP contributor Mark Hanson, were picked up in Barron’s this morning.

Note that Hanson observes that home-owers are seizing on “loan warranties” and putting their mortgages back to the lenders:

“Ugly weather probably was a drag in January, but even in the months when the sun was shining, home sales haven’t been setting the world on fire. And the dismal demand for both new and existing dwellings came in the face of hefty tax incentives for first-time buyers and other ameliorative efforts by Washington. The latest brilliant idea of Tim Geithner and his henchmen at the Treasury, of imposing a temporary freeze on foreclosures, seems ideally designed to wreak more havoc in housing.As Barry Ritholtz of Fusion IQ reminds us, the profound problems that beset the industry spring from the fact that over the past decade, something like five million to 10 million people bought dwellings they couldn’t afford and still can’t, and a heap of those homes today are worth less, often a whole lot less, than they paid for them.

The Treasury’s proposal, he scoffs, will achieve nothing more than keeping those unfortunate folks in homes they can’t afford, many underwater and burdened by payments they can’t make.

Such mortgages were riddled, not infrequently, with the connivance or encouragement of the lenders — says Mark Hanson, the insightful real-estate analyst who runs the eponymous Hanson Advisors — with fraud, white lies and like nasty stuff that violate the loan warranties. Investors, he relates, are only beginning to seize on such breaches to demand so-called put-backs — repurchases of principal, accrued interest and expenses for loans that have been compromised.

Mark warns that as more investors turn to put-backs to recoup losses, this process will begin to take a toll on financial institutions that were active in the mortgage and housing arena. He points out that because the put-back push is in its infancy, there is no way for financial institutions to estimate future losses or need to recognize the potential costs under current accounting requirements. All of which is apt to make losses that much more painful for those institutions.

Obviously, for investors, home builders and distressed homeowners, the pain inflicted by limp housing, to paraphrase that eminent philosopher, Yogi Berra, won’t be over until it’s over. And until it is, we have trouble envisioning anything resembling a robust rebound by the economy.

Good stuff !


Here Come the Put-Backs
Barron’s MARCH 1, 2010

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