Housing Bargains Galore--Glass Half Full or Half Empty?

You know the saying, glass half full, glass half empty. In today's housing world it depends whether you are a buyer or seller. Buyer good, seller bad. Take a look at this,

In Henderson, Nev., a homeowner is trying to sell the house above for $149,999 -- less than the mortgage – two years after Pulte Homes built it. Ben Prasad of Realty Professionals of LV is the listing broker on the house. Meanwhile, Pulte is offering a similar house nearby, below, for $214,990.

The house in the picture looks like a bargain to me at $149,999. $125,000 bid?

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Foreclosed Houses Haunt Home Builders

By MICHAEL CORKERY and DAWN WOTAPKA

(See Correction & Amplification below.)

As the normally hot spring selling season begins, two houses in the Inland Empire region of Southern California sum up the big problem facing many of the nation's largest home builders.

One of the houses, a four bedroom built in 2006 that was seized by a lender in a foreclosure action, is listed for sale at $229,900. Meanwhile, in the same housing development, D.R. Horton Inc. is trying to sell a new house that looks nearly identical for $299,000, or 23% more.

Or consider Pulte Homes Inc.'s predicament in Henderson, Nev., near Las Vegas. The builder is trying to sell a new, four-bedroom house for $214,990, while a home owner is trying to dump a similar house, which Pulte built two years ago, for $149,999. That price is less than the owner's mortgage under a "short sale" approved by the lender.

In many markets, "we are no longer competing with other builders. We are competing with foreclosures," said Steve Ruffner, president of the Southern California division of KB Home.

Sales of used homes are actually rising in some regions because of foreclosures, but new-home sales fell to a four-decade low in January, down 77% from their peak in summer 2005. Altogether, home builders sold houses at a seasonally adjusted annual rate of 309,000 units in January, down from a peak of 1.4 million in July 2005.

Home builders are confronting the competition from foreclosures at a difficult time in their history. Small builders are dying by the dozens, while some large companies are staying afloat by cutting expenses and scrambling to restructure debt.

President Barack Obama's foreclosure-prevention plan is likely to help stem the supply of bank-owned houses somewhat, and the administration's proposed budget would extend builders a lifeline through a lucrative tax break. But the foreclosure problem won't disappear.

In Henderson, Nev., a homeowner is trying to sell the house above for $149,999 -- less than the mortgage – two years after Pulte Homes built it. Ben Prasad of Realty Professionals of LV is the listing broker on the house. Meanwhile, Pulte is offering a similar house nearby, below, for $214,990.

"I don't know how the builders are going to compete," said Credit Suisse analyst Daniel Oppenheim, who downgraded his ratings for Centex Corp. and D.R. Horton stock last week, partly out of concern about foreclosure competition.

The problem is particularly vexing because many buyers are bypassing new houses for foreclosed ones that are virtually new and are often located in the companies' own developments. "Buyers think they are going to get the best bargain with a foreclosed house, and they aren't even looking at new homes," said Graham Holmes, owner of Reviron Realty, which sells bank-owned properties in the Inland Empire.

Home builders' responses to the foreclosure threat vary. Los Angeles-based KB Home is focusing on building smaller, lower-priced houses that can compete with foreclosures head on. The builder has shrunk its house size from an average of 3,200 square feet during the housing boom to an average of 1,600 square feet in many markets today. "We're finding that if we can get a product to market that is priced competitively with foreclosures, [we] can sell pretty well, even in these times," said Jeffrey Mezger, KB's chief executive.

Dallas-based Centex, on the other hand, says it's not trying to beat lenders on price. Instead, the nation's third largest builder by volume is trying to entice buyers with perks like mortgage interest rates as low as 4.25%, energy-efficient designs and warranties.

D.R. Horton also offers incentives, including covering the buyer's closing costs, and touts a $10,000 California tax credit for buying a new house. And it notes that buyers often need to spend money to fix up foreclosed properties before they can move in.

Builders also argue that while they may look alike, new and foreclosed houses aren't comparable. "Our brand-new homes appeal to the buyer who wants up-to-date features, a chance to make their own selections like carpeting and paint colors," a Pulte spokesman said.

Some buyers clearly agree. "A foreclosure is like a used car," said Danny Hernandez, who bought a new, $237,000, five-bedroom KB house in Beaumont, Calif., in the hard-hit Inland Empire. Mr. Hernandez, a 41-year-old warehouse worker, said the fact KB paid his closing costs and a nonprofit group subsidized his down payment helped make the sale.

Another strategy: build in new neighborhoods that aren't filled with vacant, bank-owned houses. "In general, we try not to compete with foreclosures," said Centex Chief Executive Tim Eller. "It's not all about price, it's about value. Buyers determine value by the look and feel of the neighborhood."

KB said its smaller houses are selling well, but the prices keep sinking. In November, KB was selling its line of smaller houses at a development in Beaumont for as little as $207,990. Now, it has dropped its starting price to $169,990 to match recent foreclosure values in Beaumont. Since it opened the Highland Vista development last summer, KB has sold 28 homes out of about 110 house lots.

Analysts question how low builders can go before building a house costs more than they can charge for it. In some markets in California and Florida, builders have reached that point and have stopped building.

Write to Michael Corkery at michael.corkery@wsj.com and Dawn Wotapka at dawn.wotapka@dowjones.com

Corrections & Amplifications

D.R. Horton is trying to sell a new, four-bedroom house in the Inland Empire region of California for $299,000, or about 30% more than an identical-looking, nearby foreclosed house, which is listed for $229,900. This article incorrectly said it was 23% more.

Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

CNBCs Steve Liesman versus Larry Kudlow and Rick Santelli

Steve Liesman is CNBCs Senior Economics Reporter. When it comes to the economy there is no one better than Steve on television. Steve has a way of cutting through the crap and looking beyond the obvious in his reports. Most of us can look at the headline when a new government statistic is issued and conclude what we want. Steve, on the other hand, gets into the guts of new government reports and pulls out the information that is likely to effect the markets--this information is not always easy to discover and it is not always obvious. You can make a lot of dojo listening to Steve and interpreting what he is saying. Put it this way, he is worth listening to because he might keep you out of trouble.

A few minutes ago on CNBC, Steve was arguing with Larry Kudlow and Rick Santelli about the Obama Housing plan. Larry as usual has his own preconceived explanation--this is just another attempt on the part of Democrats to transfer wealth from the rich to the poor. Larry obviously slept through most of the 90s. Rick Santelli is all bent out of shape because he thinks the good people of the country are paying off the mortgages of the bad people. He does look pretty funny screaming on the floor of the exchange--well at least his face doesn't look like it is going to explode alla Howard Dean.

Steve, on the other hand, is trying to make a simple point about the housing bailout--the current state of affairs in housing is an artificial situation caused by a mortgage system gone wild and man gone amuck. As a result, the market cannot correct itself in its normal fashion. In other words, the housing market needs some help to wash out all the excess.

I am probably not doing a good job explaining Steve Liesman's point of view. So if you are out there Steve, feel free to come in and comment; or, send us something to put up on this blog for our audience of investors.

In my opinion Steve is the guy that should have his own show on cable television. The guy is outright smart and talks in a way that can be understood. I mean Suzy Orman--give me a break. How many times can you say the same thing. Suz has no problem letting you know you are a dope. Steve gives you the dope--the real skinny.

Just so you know. I am not a friend, nor do I know Steve Liesman. I worked at Bear Stears at the same time as Larry Kudlow. And, I wouldn't mind having a drink with Rick Santelli at the Banana Boat.

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As CNBC’s Senior Economics Reporter, Steve Liesman reports on all aspects of the economy including the Federal Reserve Bank and major economic indicators. He appears on "Squawk Box" (M-F, 6-9 a.m. ET), as well as other CNBC programs throughout the Business Day.

Steve Liesman joined CNBC from The Wall Street Journal where he served as a senior economics reporter covering monetary policy, international economics, academic research and productivity. At the Journal, Liesman previously worked as an energy reporter and, from 1996-98, as the Journal’s Moscow bureau chief. He was a member of the reporting team recognized with a Pulitzer Prize for stories chronicling the crash of the Russian financial markets.

Prior to joining the Journal in 1994, Liesman was the business editor for The Moscow Times, where, as the founding business editor for the country’s first English language daily newspaper, he helped create the publication’s stock index, which was the country’s first. Liesman has also worked as a business reporter for both the St. Petersburg Times in St. Petersburg, Fl., and The Sarasota Herald-Tribune in Sarasota, Fl.

Liesman holds a Masters of Science from Columbia University Graduate School of Journalism and a B.A. in English from the State University of New York, Buffalo.


More from All American Investor

Ray Dalio on the current state of affairs in the market

Homebuyer Credit Won’t Stabilize Market, Analysts Say

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

Six Errors on the Path to the Financial Crisis

Who Caused the Financial Crisis?

Option ARM--The Toxic Mortgage

Debt Binge--The Perfect Financial Storm

Obama Foreclosure Speech a Winner

President Barack Obama's foreclosure speech is sure to instill confidence across America that he has his eye on the ball and is taking control of the housing situation. This single paragraph gives me great hope.

But I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsibility, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford. In short, this plan will not save every home.

Read the full text of the Obama Foreclosure Speech

The Obama plan calls for:

* Helping borrowers who owe more than 80% of their home's value to refinance and reduce their monthly payments.

* Creating a $75 billion homeowner stability initiative to reduce monthly payments for at-risk borrowers by subsidizing interest rates. The goal would be to bring payments to no more than 31% of a borrower's income.

* Providing multiple incentives to servicers to modify loans and to proactively help at-risk borrowers while they are still current in their payments.

* Creating a $10 billion fund to protect investors and servicers against further home price declines.

* Requiring all financial institutions receiving government funds to participate in a standardized loan modification program, while seeking to have all federal agencies that own or guarantee loans also apply the guidelines.

* Allowing judges to modify mortgages during bankruptcy, a measure the financial industry has strongly opposed.

* Providing more Treasury Department backing of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and expanding the number of mortgages the agencies back.

'Option ARM' mortgages were agressively marketed by banks because they generated huge amounts of phantom profits. Using generally accepted accounting principles, or GAAP, banks could count as revenue the highest amount of an Option ARM payment -- the so-called fully amortized amount -- even when borrowers made only the minimum payment. In other words, banks could claim "phantom income" that they never received and in the current scenario will never receive. This "phantom income" inflated reported earnings and allowed bank executives playing this game to receive enormous bonus income and enjoy dramatically inflated stock prices. Many now defunct banks, and soon to be defunct banks, reported inflated earnings that were bolstered by this phantom income. It was not unusual for "phantom income" to account for more than half of the earnings being reported.

James Grant wrote that negative-amortization accounting is "frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity."--Grant's Interest Rate Observer

He wrote this back in 2006.

Default rates on so called 'Option ARM' mortgages are rising fast.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics, a data firm that analyzes mortgage performance.

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs.

This sobering news indicates that the bad news from the housing market is far from over and is not likely discounted in the stock markets.

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An 'Option ARM' is typically a 30-year adjustable rate mortgage that initially offers the borrower four monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, or a 30-year fully amortizing payment. These types of loans are also called "pick-a-payment" or "pay-option" ARMs.

'Option ARMs' are particularly toxic because they allow the borrower to make a small minimum payment each month with the unpaid part of the monthly payment being added to the principle of the mortgage outstanding. In other words, these mortgages are subject to severe negative amortization. If you make the minimum payment, the principle amount you owe on the mortgage loan goes up each and every month. Current statistics indicate that 80 percent of the consumers owning these loans selected the minimum payment option.

Let's say, for example, that the fully amortized monthly payment is set at $1500. The homeowner decides to elect the minimum payment (the option) and pays $1000. The unpaid $500 is then added to the mortgage's principle balance outstanding. It only gets worse. Not only does the amount owed grow each month; this higher loan balance is immediately reflected in the next month's calculation.

The owner of an 'Option ARM' is borrowing the difference between the minimum payment and fully amoritized amount of the loan each month. In effect, the option arm mortgage holder is making a new loan each month and this amount is tacked onto the existing mortgage. Then the mortgage holder ends up paying interest not only on the increasing principle but also interest on interest. Sounds a little like loan sharking--doesn't it?

It is easy to see that the amount owed on an option ARM mortgage could grow fast. Imagine watching the amount you owe on your mortgage go up each month as you make the minimum payment. It only gets worse. This 'ticking time bomb" of a mortgage has another toxic feature built in--they reset once the principle balance owed hits 110-125% of the original loan. This fully amortized amount includes the original loan amount plus all the negative amortization. So while it appears that an 'Option ARM' works like a typical adjustable rate mortgage this in not true. A standard adjustable rate mortgages has an annual cap and the interest rate can only rise by 1-2% a year. This is true in an "option ARM" with one exception--when the 110-125% cap is hit the mortgage fully amortizes and the morgage resets to the market. This means a monster sized jump in the monthly payment. It is likely that the owner of the 'Option ARM' will see the monthly mortgage payment nearly double when the cap is hit.

Current owners of these "time bombs" are now in the unenviable postion of watching the amount they owe on the mortgage go up, the amount of their monthy payment skyrocket, and the value of the house drop like a lead stone. Talk about a double edged sword. Or is that three edges?

It appears most American's are making an easy decisions on these loans--walk away, stop paying, and go to foreclosure.

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance, an industry publication.

Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

Interestingly, most 'Option ARMs' were issued to people with an above sub-prime credit rating. However, it is well known that many of these mortgage holders bought homes they intended to sell "quickly" for a profit. In effect, they were speculating in the housing market. What better way to keep the payment low than with the 'Option ARM' mortgage.

'Option ARM' mortgages were agressively marketed by banks because they generated huge amounts of phantom profits. Using generally accepted accounting principles, or GAAP, banks could count as revenue the highest amount of an Option ARM payment -- the so-called fully amortized amount -- even when borrowers made only the minimum payment. In other words, banks could claim "phantom income" that they never received and in the current scenario will never receive. This "phantom income" inflated reported earnings and allowed bank executives playing this game to receive enormous bonus income and enjoy dramatically inflated stock prices. Many now defunct banks, and soon to be defunct banks, reported inflated earnings that were bolstered by this phantom income. It was not unusual for "phantom income" to account for more than half of the earnings being reported.

James Grant of Grant's Interest Rate Observer wrote that negative-amortization accounting is "frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity."

He wrote this back in 2006.

Many banks moved defaulted 'Option ARMs' into "held for sale accounts". This shady accounting practice allowed banks to sequester or "hide" the loans from investors. Under normal economic conditions these loans would be sold to collection agencies or investors. However, given the enormous amounts of these loans, their uncertain futures, and the uncertainty in the market place they are now nearly impossible to sell.

When you hear proposals for the Federal government to buy "toxic assets" these are the types of loans that bankers want taxpayers to take off their hands. The bankers that issued three quarters of a billion dollars of Option Arms did so to enrich themselves.

• They have already received obscene bonuses and sold inflated stock bolstered by "phantom income".
• They now want to pass these assets to taxpayers via the bailout.
• They want us to bail them out so they can stay in their jobs.

I continue to wonder if anyone in Washington understands this scam? Or, are they going to perpetuate the scam and pass the buck to our children?

It should be mentioned that banks paid higher than usual commissions on these loans to the "hordes" of unregulated independent salespeople they used to "huckster" this product. It is already well documented that many of these so called "mortgage bankers" used pressure tactics to convince consumers that an 'Option ARM' was a good thing and that they would benefit. They might have failed to mention the onerous prepayment fees that came with these mortgages and it not likely that they explained the how negative amortization worked. I wonder if they fully disclosed that the loan became full amortized when the 110-125% cap limit was hit? Did they explain that the cap limit would be hit within five years if they made the minimum payment; and that, the monthly payment could nearly double or worse?

I believe most stock market investors think that the effects of the housing crisis has been discounted by the markets. This is not likely and the potential fallout from the coming 'Option ARMs' explosion is still to be seen.

We have not yet reached the worst part of the 'Option ARM' cycle. The news on these toxic loans is going to get worse beginning in April when thousands of Option ARM mortgage holders are going to see their monthly payments spike. This phenomena is going to continue until 2010 once it starts.

I wonder if investors understand how this will effect the banks that are still holding these loans? How the shock wave from this explosion is likely to effect banks that do business with these banks? How this might effect consumers, employment, and the psyche of investors? Uncertainty does not usually lead to sustained rallies in the markets. Of course, the market might take a tumble and discount this information at any time.

Option ARM--The Toxic Mortgage

Six Errors on the Path to the Financial Crisis

Alan Blinder wrote an interesting article in the New York Times last week. He spells out in easy to understand terms the six errors that led us into this financial mess. He points out that if simple choices has been made along the way the situation would not be as dire as it is today. He goes on to point out that the current situation is not the failure of capitalism but about human errors. By putting a clear, concise "frame" around the current situation he makes it easier to understand. A better basic understanding of the problem would help our politicians in Washington to make decisions about how "taxpaper" money should and could be used to exacerbate the current financial problems. The real issue right

now is whether or not the way taxpayer money is being used is helping or just delaying the inevitable.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

Six Errors on the Path to the Financial Crisis

By ALAN S. BLINDER

WHAT’S a nice economy like ours doing in a place like this? As the country descends into what is likely to be its worst postwar recession, Americans are distressed, bewildered and asking serious questions: Didn’t we learn how to avoid such catastrophes decades ago? Has American-style capitalism failed us so badly that it needs a radical overhaul?

The answers, I believe, are yes and no. Our capitalist system did not condemn us to this fate. Instead, it was largely a series of avoidable — yes, avoidable — human errors. Recognizing and understanding these errors will help us fix the system so that it doesn’t malfunction so badly again. And we can do so without ending capitalism as we know it.

My list of errors has six whoppers, in chronologically order. I omit mistakes that became clear only in hindsight, limiting myself to those where prominent voices advocated a different course at the time. Had these six choices been different, I believe the inevitable bursting of the housing bubble would have caused far less harm.

WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the Commodity Futures Trading Commission, sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. While her specific plan may not have been ideal, does anyone doubt that the financial turmoil would have been less severe if derivatives trading had acquired a zookeeper a decade ago?

SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. Before then, leverage of 12 to 1 was typical; afterward, it shot up to more like 33 to 1. What were the S.E.C. and the heads of the firms thinking? Remember, under 33-to-1 leverage, a mere 3 percent decline in asset values wipes out a company. Had leverage stayed at 12 to 1, these firms wouldn’t have grown as big or been as fragile.

A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. Lending standards fell disgracefully, and dubious transactions became common.

Why wasn’t this insanity stopped? There are two answers, and each holds a lesson. One is that bank regulators were asleep at the switch. Entranced by laissez faire-y tales, they ignored warnings from those like Edward M. Gramlich, then a Fed governor, who saw the problem brewing years before the fall.

The other answer is that many of the worst subprime mortgages originated outside the banking system, beyond the reach of any federal regulator. That regulatory hole needs to be plugged.

FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. The broad contours of the foreclosure tsunami were clear more than a year ago — and people like Representative Barney Frank, Democrat of Massachusetts, and Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, were sounding alarms.

Yet the Treasury and Congress fiddled while homes burned. Why? Free-market ideology, denial and an unwillingness to commit taxpayer funds all played roles. Sadly, the problem should now be much smaller than it is.

LETTING LEHMAN GO The next whopper came in September, when Lehman Brothers, unlike Bear Stearns before it, was allowed to fail. Perhaps it was a case of misjudgment by officials who deemed Lehman neither too big nor too entangled — with other financial institutions — to fail. Or perhaps they wanted to make an offering to the moral-hazard gods. Regardless, everything fell apart after Lehman.

People in the market often say they can make money under any set of rules, as long as they know what they are. Coming just six months after Bear’s rescue, the Lehman decision tossed the presumed rule book out the window. If Bear was too big to fail, how could Lehman, at twice its size, not be? If Bear was too entangled to fail, why was Lehman not?

After Lehman went over the cliff, no financial institution seemed safe. So lending froze, and the economy sank like a stone. It was a colossal error, and many people said so at the time.

TARP’S DETOUR The final major error is mismanagement of the Troubled Asset Relief Program, the $700 billion bailout fund. As I wrote here last month, decisions of Henry M. Paulson Jr., the former Treasury secretary, about using the TARP’s first $350 billion were an inconsistent mess. Instead of pursuing the TARP’s intended purposes, he used most of the funds to inject capital into banks — which he did poorly.

To illustrate what might have been, consider Fed programs to buy commercial paper and mortgage-backed securities. These facilities do roughly what TARP was supposed to do: buy troubled assets. And they have breathed some life into those moribund markets. The lesson for the new Treasury secretary is clear: use TARP money to buy troubled assets and to mitigate foreclosures.

Six fateful decisions — all made the wrong way. Imagine what the world would be like now if the housing bubble burst but those six things were different: if derivatives were traded on organized exchanges, if leverage were far lower, if subprime lending were smaller and done responsibly, if strong actions to limit foreclosures were taken right away, if Lehman were not allowed to fail, and if the TARP funds were used as directed.

All of this was possible. And if history had gone that way, I believe that the financial world and the economy would look far less grim than they do today.

For this litany of errors, many people in authority owe millions of Americans an apology. Richard A. Clarke, former national security adviser, set a good example when he told the commission investigating the 9/11 attacks that he wanted victims’ families “to know why we failed and what I think we need to do to ensure that nothing like that ever happens again.” I’m waiting for similar words from our financial leaders, both public and private.

Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve. He has advised many Democratic politicians.

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Original content All American Investor

Mortgage Holders Walk Away From Their Homes

An estimated 9 million American households, or 10.3 percent of all single-family homes, owe more than their home is worth, according to Moody’s Economy.com. By comparison, 4.8 percent of home loans were in foreclosure or delinquent by 60 days or more at the end of last year, according to the Mortgage Bankers Association.

Follow the link to read the story.

clipped from www.nytimes.com “Let me also emphasize that any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator,” Treasury Secretary Henry M. Paulson Jr. said in late March. “Washington cannot create any new mortgage program to induce these speculators to continue to own these homes, unless someone else foots the bill.” Jon Madux, a founder of the site YouWalkAway.com, which helps borrowers leave their homes, said a majority of the site’s clients default because of financial hardships. The Mortgage Bankers Association estimated that the owners of 18 percent of the homes in foreclosure as of September 2007 did not live in those properties. Investors “are going to default right away because they have negative equity,” said Robert Van Order, an adjunct professor of finance at the University of Michigan. “But that’s different from people who moved into the house.”