The Presumed Recovery in the Housing Market Might be Stalling

For the Bank of America, the news that the real estate market in 2011 is beginning to stall must come as a nightmare. There were some positive signs before but it is now clear that the problems are still persisting and that something serious will have to be done in order to ensure that there is a clear strategy for dealing with the housing market. According to the bank reports there is a 37.5% decline in earnings during the first quarter of the year. Although there is some hope that the economy might be healing, the big news is that the recovery is not anywhere as robust as the earlier reports might have suggested.

Have the intervention strategies been successful for the real estate market?

There was a serious attempt to get the housing market back on track using the much vaunted stimulus package. There are those that are not yet convinced that this was the right strategy at the time. Nonetheless the development of the market had to take into consideration that they were operating in an allegedly free market economy. The banking incomes are related to their involvement in real estate. Therefore this decline might be an indicator that the optimism is farfetched. Bank of America had a net income of $2 billion which roughly equated to 17 cents per share. This was a downfall compared to the previous quarter where the earnings were $3.2 billion or about 28 cents per share. The forecasts had been at 27 cents a share based on the presumed recovery of the housing market.

The real estate is a drag on the banking figures with losses of $2.39 billion in the residential mortgage unit. This was up from the $2.07 billion loss within the same quarter in the previous year. Perhaps these woes are related to the fact that in 2008 Bank of America decided to purchase Countrywide. At the time this was the largest seller of subprime home loans.

The total portfolio was $4 billion as part of the legacy investments. The problem is that it is this sector that faced the most problems when the customers were unable to pay back the money that had been borrowed. They were already attached to the notorious financial arrangements of Fannie Mae and Freddie Mac to the tune of $3 billion. With the government involvement, this was one of the banks that had to accept the reality that they had to follow the official requirements as defined by the secretary of state.

One of the debilitating clauses that were related to the housing market included the need to meet underwriting standards. Failure to do so might bring out some penalties that were within the wide discretion that government had at the time. The housing units for most banks have been struggling under the weight of an economy that is tittering on the edge of double digit unemployment. The underemployment figures are estimated at 16% in some quarters. All these issues combine to create an atmosphere where the real estate market will continue to struggle.

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