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
29th 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.