Making Good News Bad

Most news about business and finance, like most news in general, usually has a negative slant.  For example, last Friday’s IPO for Facebook may have been the most perfect transaction of its type in US financial history.  The deal valued the company at over $100 billion, and $18 billion of stock was sold in the offering.  Founder Mark Zuckerberg ended the day as the 29^th richest person in the country (I suspect he is going to move up the list in the next few years). And, amazingly, the stock closed just slightly above the offering price, meaning that the underwriters accurately gauged investor interest for a deal that was unprecedented in size and demand.  It was a display of professional excellence comparable to the tossing a grapefruit out of an airplane and having it land on a pocket handkerchief.

And, given all of this, what were the headlines: Facebook IPO “Sputters.”  Somehow, the fact that investing in Facebook didn’t produce an immediate profit by the end of the first day of trading – maybe a new stockholder might have to actually hold on  for, like, a year or two – means the deal was a disappointment.  As usual, the negative bias of new reporting made the business equivalent of winning the Super Bowl into a discussion of questioning the coach at the post-game press conference as to why the commercials weren’t better.

Which leads me to the amazingly good news about mortgage defaults and foreclosures that came out last week.   On Wednesday, The Mortgage Bankers Association reported that  borrowers either more than 30 days past due or in foreclosure had declined for the second consecutive year, from 14.7% of all mortgages outstanding  two years ago, to 12.8% one year ago, and now 11.8% currently.  And the headline in the Wall Street Journal reporting this?:   “Foreclosures Show No Sign of Decline.”  It’s the same as running a “Dewy Defeats Truman” headline and then never printing a retraction.

And then on Friday, RealtyTrac reported that foreclosures in April fell 5% from March and 14% year-over-year.  The four states that have accounted for the worst of the foreclosure mess registered the following year-over-year declines: Nevada, a stunning 67%; Arizona, 44%, California, 30%; and Arizona, 26%. 

My prediction is that this steady reduction in foreclosures and mortgage defaults is only just getting going.  This is a trend I saw coming last December, when I first starting writing my new book. When the housing crisis started in mid-2007, an immediate response by lenders was the tightening of underwriting standards.  Fast forward to 2012, and that means that the new mortgage loans and refinancings closed over the past five years have been more carefully scrutinized and borrowers are much less likely to default.  The US mortgage industry got out of the “liar’s loan” racket years ago.  And banks have discovered that rushing to foreclose is probably a bad business decision.  The average time to foreclosure on a defaulted loan has doubled nationally to 370 days.  In Florida, it’s now 891 days, or more than two years.  Banks have learned that taking over the responsibility for taxes, maintenance and home owner association dues, and then trying to unload a home in a weak market, may actually be a worse business decision than sitting tight on a non-performing loan for a year or two, letting the market improve, and then taking action.  In short, the wave of foreclosures the “experts” have been predicting just isn’t going to happen. You could say I wrote the book on it.