Wednesday, June 11, 2008

May foreclosure numbers are shocking

Shocking in a BAD way! California sets another new record. Lenders took back 10.4 BILLION worth of inventory in May.

Mr Mortgage has the numbers and they are ugly.

For those that are video challenged here's the text version

1. Notices of Default (NOD), the first step in the CA foreclosure process when borrowers go down 90-days in payments, were down 2.5% to 43,011 new filings. However, the average daily filings were actually up 2.4% to 2,009 per day. Last month the total was 44,100 or 1961 per day. These are from people who began missing payments in Jan and Feb. If you remember, in Jan and Feb, there was a mini refi-boom, as rates fell sharply. If not for that, the NOD count could have been much worse. Since then, rates are up sharply and mortgage application volume has been consistently falling. This means more people maybe missing payments due to the lack of financing options, which will lead to an increase in NOD’s over the next few months from these already historic levels.

The vast majority of NOD’s are first mortgages because second mortgage holders quit filing NOD’s months ago, due to values falling to levels that make it futile. If you are a second mortage holder and there is no value in the property, there is no reason to foreclose because the first mortgage holder gets it all. For this reason, second mortgage loan defaults are soaring and the loans are essentially worthless. People know that lenders have to use more tradional means of collection and are not paying their second mortgage payment. A second mortgage lender is usually completely wiped out when a home goes into foreclosure. This problem will not go away.

Roughly 75% of NOD’s make it all the way through the foreclosure auction stage and end up on banks balance sheets. About 25% of NOD’s are cured by various means by the time auction hits. If you combine last months NOD’s of 44,100 and this month’s you get a total of 87,111 meaning banks will take back 65k homes 4-5 monnth out, because that’s how long it takes to get through the auction phase. This means October and November will have record REO coming back to the banks. 65k homes going back to banks is more than the total homes sold in CA in the past two months and will likely be much more than sold in Oct and Nov, which are historically poor sales months.

2. Notice of Trustee Sale (NTS ) were at a record 34, 564 new filings. This is a 15.6% increase over last month’s 28,992. This is huge. This means much fewer people are curing their NOD’s than in the past. These are from Notice of Default’s 3-4 months prior, as by law the NTS can be filed 90-days after the NOD. However, the average time it took a lender last month to file the NTS was 105-days due to the volume. Lenders can take a home to auction 21-days following the NTS. Jan NOD’s were 38,500 so the percentage that made it from NOD to NTS was 89.77%. This is a new record.

3. Total homes that went to auction increased 11.8% to a total of 25,523 properties. This was also a record. Of those, 24,831 or 97% received no bid higher than the lenders opening bid and became lender owned.

One thing to note, 3% of the 25,523 properties were bought by 3rd parties vs. 2.3% last month.

4. Discounts at auction were at a record.86% of all homes were discounted at an average of 28%. The largest subprime areas such as Sacramento, San Joaquin, Stanislaus and Merced saw larger discounts from 31-37%.


ButterMonkey said...

Hmmm, I hope the increase in NODs in the Alt-A and Prime categories means that we will see an increase in REOs in nicer areas such as Canyon Crest because I'm just not interested in most of what's out there at the moment...1200 sq. ft. homes in gang-banger's-ville or nice homes way out in Temecula.

Question. Why are the homes only being discounted by 28%? I know that sounds like a lot to the banks, but reality is that most of these homes will not be affordable to the average Joe until they are discounted 50%. Maybe it's fun to see how long they can keep their REOs? LOL!

golfer_X said...

28% is what the banks are discounting the homes on average. BUT that is not the fall from peak. Remember most (if not all) of those homes had 2nd mortgages of 20%. That entire amount gets wiped out when the home is foreclosed. So the total loss is far more than the 28% that the primary mortgage holder is taking.

Assuming the loans were 80/20s the total loss would be 42.4% if the primary takes a 28% loss.

Rob Dawg said...

The scary number is nearly all of them getting no bid on the courthouse steps. The face value of first loans outstanding may be $10.4b but that is billions in junior loans already worthless and now the 1st note holders are looking at 20% haircuts at least. No bids = Level 3 asset until they sell abandon courthouse steps reserve pricing.

Charles said...

Is this considered good new to us whom want to buy at the end of 08? Now, are banks going to allow only 28% of a discount even after they have so many homes on their books? I was honestly hoping the market would be to the point where we as buyers had the upper hand on what price we are willing to pay for a house. 50%+ discount sound fair to me.

golfer_X said...

For those people waiting for the prices to decline further this is good news. Foreclosures are still increasing and as long as that continues the prices will probably keep falling. I'm hoping for late 08 or early 09. I think once the summer is over and the sales drop off the banks will get even more aggressive with the price cuts. Let's hope so anyway.

WunderPit said...

Golfer, if you're right, I will donate to your blog :o)
I am looking at buying my first home in the IE around the new year. *fingers crossed*

Sellin @ Da Drop said...

Be prepared for the possibility of values dropping beyond 09 though. Considering this is the burst of the nations biggest housing bubble ever and the IE is one of the epicentres.

golfer_X said...

I think values will contiue to drop through 2010 or even 2012. BUT I think the core areas will see most of the drops through the end of this year into mid 09. Some areas like Perris, hemet, MoVal area probably already close to leveling off. The areas that will decline through 2010 or later will probably be the low volume or high end areas like the coastal areas, the west side of LA. In the IE Redlands or the smaller niche areas may take a lot longer to bottom out.

For me it boils down to fundamentals. Once the prices hit the equivilant rental costs that should indicate the bottom. The reason is simple, once that happens investors will start buying. Prices may undershoot (they usually do in a crash) but they should not go too far past the rental costs.

Of course who is to say what rental costs will be in 2 or 3 years?? They could very well go down. What do you base the price on for those Mcmansions? Is anyone going to want those monstrosities in a few years. The cost to own a 4000 ro 5000 s/f house is huge and that will eventually affect the value of those things.

Paige said...

Seriously annoyed. We went to take a second look at a home we're interested in and the key from the lock box was missing. Our agent said this has happened with several other homes and it's probably due to competitive agents.

Again, I'm so surprised so many people are looking.

Santa Ana River Rat said...

Paige, many are looking but few are qualified.

Regarding missing keys, sometimes it's not even the agents, it could also be the absent-minded buyers.

My friend's son, who is an agent, and I were looking at a few homes near Sierra del Oro area and at this one home, we saw an Indian/Arab guy inside the house already, so my agent asked him if we could enter the house to look since the house was already open. But while looking my agent asked the man if he had his business card, assuming he was an agent, but he said he left his wallet at home. My agent became suspicious and asked him which office he worked out of, at which point the guy just stormed out but took the key to the house with him.

Santa Ana River Rat said...

Whenever Mrs and I go out to look at homes we've been seeing lots of Indian families from OC. I think they are Indians or middle eastern people, pardon my ignorance.

sam said...

Santa ana river rat what relevance does their ethnicity have to this thread ?

ButterMonkey said...

Paige, that happened to us too. A few times the whole lock box was missing. Some RE agents are just downright nasty and dishonest. They try to frustrate other RE agents and their clients, hoping to buy time so they can find their own buyer and collect the whole 6% commission for themselves.

Martin Burtin said...

"Santa ana river rat what relevance does their ethnicity have to this thread ?"

I see the PC Police have arrived. Bugger off, nobody is planning any lynchings. (yet) And if we do, there are far too many lawyers and politicians at the front of the line for anyone to seriously worry about any petty racial chit. We all just hav'n fun here.

Maybe she was just try'n to figure out where the money is comming from, to buy homes out here in the IE. I expect a lot of foreign money will start flowing in here, as their Euros or whatever have more value, they will grab up "bargain basement" 'merkin real estate.

Santa Ana River Rat said...

I'm simply stating my observation. Back in the early 80's when the price dropped a few of the apartment blocks near where we used to live were bought out by an investment firm from Dubai. I'm not trying to be racist or anything. Sorry if I have offended anyone.

Jennifer said...

Hi everyone - Mr Mortgage here. Love this blog. I am a fan. Below are my opinions on all the chat going on here. looks like you guys have this down cold.

Buttermonkey - it is spreading from the subprime epicenters and moving towards nicer areas. We are seeing subprime defaults level out and alt-a and prime accelerate.

Golfer - exactly. The initial auction discounts are typically from an 80% first. However, only 3% sell at auctions and at those discounts. The rest go back to the bank and are discounted much more as REO.

Robdawg - of the 25k homes that went back to banks, about 60% had secondary financing that was mostly wiped out.

Charles - not even close. The REO is pile-driving prices, which in turn cause more defaults due to negative equity. More defaults cause more REO etc etc. Without affordable loan programs or values coming down significantly from here, this market will not bottom. I also think due to massive REO supply we will overshoot the bottom, hang and churn there for perhaps years before housing starts to appreciate again. No need to want to jump now. Housing prices in CA has only beel falling for a year.

Sellin@ - right.

golger x - I think due to the sheer supply and horrid econ conditions, rental prices will fall further putting pressure on housing prices.

Santa Ana - wanna go on a date?

Rudi said...

I've heard that lockboxes/keys are being removed by realtors squatting in REOs. I cannot confirm if this is true or not, but I wouldn't be surprised if this were going on.