Oppenheim Law on The Tale of Two Cities: The Best and The Worst of Times

Stocks Up + Economy Recovering, But a New Real Estate Storm On The Radar

Book the First: Recalled to Lifestocks-going-up

On the national front, news stories indicate that the stock market is steadily resurrecting itself, the first real positive sign that the economy may finally be on the mend. A recent article in The Wall Street Journal noted that banks especially were showing vast improvements, with J.P. Morgan Chase calculating a 55% surge in quarterly profits. While the news is encouraging, there is still hesitation rather than outright relief in the undertone of the stories. The reason: if the banks have not learned from their mistakes, the economy might be six feet under again and sooner than we think.

Book the Second: The Golden Thread

While numbers in South Florida still appear disheartening, a little golden thread appears to be tying up the drowning homeowners into a pretty little package called loan modifications. Although a recent article in The Sun-Sentinel quoted RealtyTrac stating that foreclosure filings in Broward had risen 38% in Broward from March 2009, the numbers seem to be decreasing slightly from previously months. The federal government attributes this to the success of new government workout programs.

Recent statements from the Treasury Department tout the success of the new government loan modification programs. Although the programs did not technically go into effect until April, some banks began using them “successfully” earlier. A recent press release by the Assistant Secretary of Financial Stability for the Treasury Department stated the new programs were on track to help 3 to 4 million homeowners by the end of 2012, with over 1.4 million homeowners already beginning the application process. While this appears to be a positive turn, everything will fall apart if that single golden thread snaps.

Book the Third: The Track of a Storm

Hurricane-Katrina-Miami-Rdar-25-Aug-2005-20.30-UTCInterestingly, there are many unanticipated problems stemming from these workouts that might put the housing market right back into the tempest. Loan modifications, while being touted by the government as the evacuation that might save homeowners, are creating a path of destruction in their wake. In fact, while loan modifications are helping some owners, it appears to be hurting others in the process by driving down the value of homes and pushing others further underwater on their loans, leading to more foreclosure filings overall.

Another problem was reported in The New York Times: homeowners who receive modifications are defaulting again, eventually losing their homes to foreclosure anyway. Although the U.S. Treasury stated the 1% of loan modification recipients who had already defaulted this year under modified loans were expected, numbers from previous programs are not encouraging. Reports from 2008 and 2009 showed that eventually 60% of modification recipients re-defaulted. The problem is not the program itself, but rather the fact that by the time relief comes, homeowners are already buried in insurmountable debt.

Right now, it appears that South Florida is in the direct path of the storm, and it could either die off or score a direct hit with thousands of casualties. While optimistic reports indicate that the worst is over, it really appears we are actually in the eye of the storm, and the worst might be still to come. Overall, the current market seems like a precarious teeter-totter, with the stock market up and the housing market down. Once the two find a delicate balance, the economy should finally stabilize. For now, it is the best of times… and the worst of times.

Tags: broward foreclosures, J.P. Morgam Chase, loan modifications, Oppenheim Law, RealtyTrac, Roy Oppenheim, stock market