Foreclosures are surging

Everywhere but California! It seems I was wrong about the newest foreclosure moritorium that took effect in June. I did not think it would have much effect because most lenders appeared to be exempt since they already had mortgage workout plans in place. But I've noticed another drop off in new REO's hitting the market. The numbers had just started picking up again in May and now it seems they've dropped off a cliff.

Other bubble cities are seeing foreclosures surging again. Phenix saw foreclosures jump nearly 40% from May to June. In Las Vegas the increase from May to June was a whopping 54%! Even the "it's different here" places saw an increase. Seattle foreclosures jumped 37% from May to June.

I haven't seen the number for the IE but my guess it that we dropped from May to June due to the newest meddling by the state. So instead of the lenders getting the homes on the market during the peak season, it looks like they will be backed up 3 months to the fall. That's not going to help the banks get the most for the properties..


If you think the foreclosure crisis is behind us I suggest you log on to one of the many foreclosure sites (like realtytrac or foreclosure.com) and take a look at what is coming. This image is a small part of Eastvale in Corona. It's about 1/4 of the Eastvale area and you an see just how many foreclosures are in the pipeline. The yellow dots are homes that are waiting for the trustee sale. The orange dots are pre-foreclosures and the green ones are bank owned. Most of the bank owned are probably already in escrow, because there's not a lot of REO's listed in the area. But those yellow dots will soon turn green and most of those orange dots will go yellow...then green too.

foreclosures, better for the banks too!

WASHINGTON - Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded.

Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.

The problem is that modifying mortgages is profitable to banks for only one set of distressed borrowers, while lenders are actually dealing with three very different types. Modification makes economic sense for a bank or other lender only if the borrower can't sustain payments without it yet will be able to keep up with new, more modest terms.

A second set are those who are likely to fall behind on their payments again even after receiving a modified loan and are likely to lose their homes one way or another. Lenders don't want to help these borrowers because waiting to foreclose can be costly.

Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them.

Analysis downbeat on modifications
A study released last month by the Federal Reserve Bank of Boston was downbeat on the prospects for widespread modifications. The analysis, which looked at the performance of loans in 2007 and 2008, found that lenders lowered the monthly payments of only 3 percent of delinquent borrowers, those who had missed at least two payments. Lenders tried to avoid modifying the loans of borrowers who could "self-cure," or catch up on their payments without help, and those who would fall behind again even after receiving help, the study found.

"If the presence of self-cure risk and redefault risk do make renegotiation less appealing to investors, the number of easily 'preventable' foreclosures may be far smaller than many commentators believe," the report said.

Nearly a third of the borrowers who miss two payments are able to self-cure without help from their lender, according to the Boston Fed study. Separately, Moody's Economy.com, a research firm, estimated that about a fifth of those who miss three payments will self-cure.

Lenders also worry that borrowers may re-default even after receiving a loan modification. This only delays foreclosure, which can be costly to the lender because housing prices are falling throughout the country and the home's condition may deteriorate if the owner isn't maintaining it. In some cases, lenders lose twice as much foreclosing on a home as they did two years ago, said Laurie Goodman, senior managing director at Amherst Securities.

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The failure of the modification programs isn't really news to us. We know the modification programs are just to extend the defaults over a long enough period so that the banks can absorb the losses. But this brings up the interesting point that doing so almost ensures the banks will lose even more in the long run. Of course if we assume that the majority of the price declines are behind us then the banks may not see any additional losses by foreclosing 2 years from now versus foreclosing today.

New home sales up 11%

Wow, that sounds like encouraging news for the economy, doesn't it? Up 11% from May to June. The media is trumpeting this horn but is the tune really all it's cracked up to be?

Of course it's not. This June was better than May but why compare it to May? There's always a difference from month to month. Could be the number of days could be that there are always more sales in June due to the summer bounce. When comparing sales numbers, year over year is a more accurate measure of the health of the market. So how did those new home sales stack up against last June? Down 21%! There's the real headline, "New home sales fall 21%".

Oh and I might have forgotten the best part of this sales spin. There's little mention of the fact that the median price of those new homes fell a whopping 13% in ONE MONTH! May median was $219k and the June median fell to $206k. It's little surprise when you factor in the buyer incentives, especially here in the west. Buy a new home in Cali and you can get $18k in credits. With FHA offering 3.5% DPs and the government giving up to $18k in credits it certainly makes new homes more attractive. You also don't have to fight the mob trying to get the REO's.

Home builders are still having a hard time competing with the prices of foreclosures and REO's. It's simply too expensive to build a new home and get the price in line with the REO's. Part of the reason is the McMansion syndrome. Now days everyone thinks they need a 3000 s/f home. Well it's costs a lot to build a home that size. If the builders want to compete they will need to start building to a price point that is competitive. Many of the builders are saddled with expensive parcels of land. Unless they write the value down, or default on them they might never be able to put an affordable house on that land. I'm sure over the next few years builders will start to downsize the homes they are building. It happened in the early 90's and I see it happening again. KB in Perris started building smaller homes. Putle dropped the price at Stellan ridge $100k....or did they. Well actually what they did was add 2 new smaller models. The price of the other homes didn't really change.

I'de really like to see new homes selling again. That would really go a long way to pull us out of this economic quagmire. But the unfortunate truth is that new home sales are the lowest they've been since the early 80's. It's nothing price can't fix though!

Here's a shorty a few readers might be interested in

7438 Jola Dr is an older home in the Hawarden Hills area of Riverside. This is pretty much the best area in Riverside. This house has been on and off the market for darn near two years. Its a 4 bedroon 2.75 bath home that is listed as being 3443 sq/ft, sitting on a half acre lot. The home is old and there are no pictures of the interior. The outside looks nice and it has obviously been updated. I thinks it's safe to assume the inside is decent. Last month they dropped the price to $399k (short sale). This is the first sub $400k listing in the area. I'm a little surprised this is still on the market after more than a month. Maybe I missed it and it went pending and fell through, I dunno know. I only saw it tonight. I would think if this is half way decent it would sell fairly quickly at that price.

At this price it's back to it's sale price in 2001 ($400k). Which is where most of my charts say prices should be. This might be a decent deal if it could be picked up for the asking price.

More foreclosure dribble....

From Dataquick:

The number of foreclosure proceedings started against California homeowners fell slightly in the April-through-June period compared with the prior three months, but remained higher than last year. The dip from earlier this year occurred as lenders and their loan servicers took time to revise procedures and priorities in an environment of continuing home price depreciation, economic distress and mortgage defaults, a real estate information service reported.

Lenders sent out a total of 124,562 default notices during the second quarter (April through June). That was down 8.0 percent from the prior quarter's record 135,431 default notices, and up 2.4 percent from 121,673 in second quarter 2008, according to MDA DataQuick.

"There is a perception that the housing market is dragging along bottom, that it probably won't get much worse, and that the lenders need to get serious about processing the backlog of delinquencies, either with work-outs or foreclosure. We're hearing that some lenders and servicers are doing just that, hiring more people to do the necessary paperwork. That means the foreclosure numbers will probably shoot back up during the third quarter," said John Walsh, DataQuick president. (I'll believe it when I see it!)

While most first quarter 2009 foreclosure activity was still concentrated in affordable inland communities, there were signs that the foreclosure problem was intensifying in more expensive areas. The state's most affordable sub-markets, which represent 25 percent of the state's housing stock, accounted for more than 52.0 percent of all default activity in 2008. In first quarter 2009 it fell to 47.5 percent, and last quarter it dipped to 45.0 percent.

On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the notice of default. The borrowers owed a median $12,911 on a median $345,000 mortgage.

Although 124,555 default notices were filed last quarter, they involved 122,829 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit). Multiple default recordings on the same home are trending down, DataQuick reported.

Mortgages were least likely to go into default in San Francisco, Marin and San Mateo counties -- the historical norm. The probability was highest in Merced, Riverside, and Madera counties.

Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 45,667 during the second quarter. That's up 4.7 percent from 43,620 for the prior quarter, and down 27.9 percent from 63,316 for second-quarter 2008. They reached a record 79,511 during last year's third quarter before dropping because of a new state law that slowed the entire foreclosure process and lenders' temporary policy changes (e.g. a temporary foreclosure moratorium).

In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The state's all-time low was 637 in the second quarter of 2005, MDA DataQuick reported.

Notices of Default (first step in foreclosure process)
houses and condos

County/Region	2008Q2	2009Q2	Yr/Yr%
Los Angeles	21,632	24,622	13.8%
Orange	7,564	8,261	9.2%
San Diego	9,519	9,866	3.6%
Riverside	14,974	14,302	-4.5%
San Bernardino	11,817	10,852	-8.2%

Trustees Deeds Recorded ( homes were lost to foreclosure)
houses and condos

County/Region	2008Q2	2009Q2	Yr/Yr%
Los Angeles	9,609	6,706	-30.2%
Orange	3,242	1,906	-41.2%
San Diego	4,807	3,518	-26.8%
Riverside	8,814	5,726	-35.0%
San Bernardino	6,251	4,769	-23.7%

NIce try, next time don't include pictures....

I was checking out the new listings tonight when I ran across this house. It's not really a new listing because I saw this house last year. The price has dropped quite a bit. I think it was listed for $499k back then and now it's at a more reasonable $325k (shorty). Anyway, the front of the house looks good. I like the style so it caught my eye and I looked at the full listing.

Here's the description,
Great home in Woodcrest with almost an acre of land---remodeled kitchen, beautiful backyard with fruit trees as well as in-ground pool and spa. A joy to show. Don't miss this one!

Ok, so it's a little light on details, but at least there are no spelling errors, it's not all caps and there's only one exclamation mark. My faith in realtors is almost restored. But wait, remodeled kitchen? really? Take a look at the pick and tell me what part of that kitchen was remodeled.

I'm guessing it's the addition of the Brita water filter, or possibly the addition of knobs to those 1980's cabinets. That kitchen is so dated it almost makes me want to bust out my Twisted Sister album and put on some eye shadow.

Sorry for that last pic, but I just had to do it ;-)

Stategic default, or ethical walk away

There's a lot of emotional chatter on the net when the subject of walking away comes up. There are some righteous snobs that feel it's just wrong. Then there are the rest of us that see it for what it is, a simple financial decision based on what's best for individual. I found this piece over at Piggingtons that explains the rational behind the non-recourse laws.
btw, Permission was given by the author to copy the piece.

Increasingly, I see references to the ethical considerations with respect to defaulting on a home purchase loan as a response to declining home values. In a few words, there are no ethical considerations with respect to defaulting on a home purchase loan as a response to declining values in jurisdictions where explicit "non-recourse" laws are on the books.

In various jurisdictions, California being one of them, the lawmakers thought about it for a while and came to the conclusion that the multi-way negotiation between a home buyer, home seller, real estate broker, and mortgage lender was not a negotiation between parties of equal sophistication in financial matters, and that there was risk that the home buyer would be taken advantage of by the other parties, who were (accurately) thought to have greater knowledge, experience, and resources, in most cases.

The lawmakers then wrote laws which said, in effect, that the home buyer had rights which could not be signed away, because they are protections of the law, superior to any words in the contract. The "non-recourse" laws hold that a lender who makes a loan to a home buyer, the entire proceeds of which are used exclusively for the acquisition of the home, bears the entire burden of insuring that the home-as-collateral has a true value that protects the lenders interest in the event of default by the borrower.

The clear intent of such laws is to expect the lender to have good knowledge of property values and to require down payments and/or mortgage insurance in a proper combination to adequately protect themselves in the event of borrower default. Substantial down payments are clearly the best case, creating the greatest incentive for the borrower to hold up his end of the bargain.

If a wealthy person, or a retirement/investment fund, or a foreign country turns money over to a lender to make home-purchase loans in non-recourse jurisdictions, they inherit the burden of protecting themselves, by insuring that the lenders are lending on a sound basis.

NON-RECOURSE LAWS ARE NOT IN THE CATEGORY OF LOOPHOLES OR UNINTENDED CONSEQUENCES. They are clear statements by lawmakers that lenders are responsible for their own welfare as to property valuations, and that home buyers will have some government-provided protection against overpaying due to the actions of more influential market participants.

The story plays out, with the investors, lenders, and government participants trying to figure out how to prevent home prices from receding to their natural levels. Perhaps government will figure out some action to stall further declines, allowing inflation to (eventually) establish a natural equilibrium, no longer requiring government intervention. Or perhaps home prices will continue declining. I predict the latter.

But don't try to make the owner-occupant-borrower the villain in this story. The non-recourse laws were clear instructions to lenders (and to investors supplying lenders with funds) to keep lending on a rational basis - instructions that went unheeded. Upside-down owner-occupant-borrowers have an option that was intentionally provided to them as a countermeasure to the actions of others (who were the ones acting unethically).

Bits and pieces

Man what a week I had..... sometimes work just sucks!

Looks like SoCal had two bank failures today. Vinyard Bank and Temecula Valley Bank were both seized by the FDIC today. The estimated losses for the FDIC and nearly a BILLION between the two banks! It's not going to take many more failures of this size to decimate the reserves of the FDIC. Another two smaller banks failed. One in S Dakota and one in Georgia. Those will take another 120 million from them. 4 banks per weekend is getting to be a trend.

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The California employment mumbers are out. The state held steady at 11.6%. Unfortunately the IE jumped up the chart. We shot up to 13.7%. That's a new all time high (well for as far back as they have records).

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The June housing numbers are out and as expected there is an increase in the median. Many had expected a bump mainly due to the lack of low priced homes. The current leveling off of prices can be attributed more to the low inventory and the shift of sales to higher prices homes than to actual rising prices. Inventory usually rises this time of year. The spring/summer selling season is when most people put there homes on the market. This year the inventory is plummeting. Mainly due to the banks not getting the foreclosures through. The listings that regular Joe's would placing are just not happening because they know they can't sell them for what they need to get. This whole market is being held together with duct tape and bailing wire....

From DQ news

A total of 23,262 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties last month. That was up 12.0 percent from 20,775 in May and up 29.0 percent from a revised 18,032 a year ago, according to San Diego-based MDA DataQuick.

June’s sales were the highest for that month since 2006, when 31,602 homes sold, but were 17.7 percent below the average June sales total since 1988, when DataQuick’s statistics begin. June sales peaked at 40,156 in 2005 and hit a low last year.

Foreclosures remained a major force in June, but their impact on the resale market eased for the third consecutive month.(because the banks are still not foreclosing)

Foreclosure resales – homes sold in June that had been foreclosed on in the prior 12 months – represented 45.3 percent of Southland resales last month, down from 49.7 percent in May and down from a peak 56.7 percent in February this year. Last month’s level was the lowest since foreclosure resales were 43.7 percent of resales in July 2008.

Resales of single-family houses priced $500,000 and above rose to 19.6 percent of all existing houses sold in June, up from 18.0 percent in May but still down from 29.2 a year ago. The last time the $500,000-plus market made up more than 19 percent of sales was last October, when it was 19.9 percent. Sales of $500,000-plus houses dipped to as little as 13.4 percent of sales in January this year.

The recent shift toward higher-cost markets contributing more to overall sales has put upward pressure on the region’s median sale price – the point where half of the homes sold for more and half for less.

Sales Volume			Median Price
All homes	Jun-08	Jun-09	%Chng	Jun-08	Jun-09	%Chng
Los Angeles	5,678	7,636	34.5%	$415,000	$320,000	-22.9%
Orange	2,538	2,958	16.5%	$470,000	$418,000	-11.1%
Riverside	3,757	4,694	24.9%	$275,000	$185,000	-32.7%
San Bernardino	2,215	3,438	55.2%	$240,000	$140,000	-41.7%
San Diego	3,077	3,692	20.0%	$370,000	$314,250	-15.1%
Ventura	767	844	10.0%	$420,000	$365,000	-13.1%
SoCal	18,032	23,262	29.0%	$360,000	$265,000	-26.4%

Here's a little light reading

I particularly like page 25!

T2 Partners

Prices to fall through 2011

Even the insurance company is expecting lower prices.....

Home prices will be lower in two years compared to Q109 for much of the country’s metropolitan statistical areas, (MSAs) according to an economic trends report released by PMI Mortgage Insurance Co.

As many as 324 — just over 85% — of the country’s 381 MSAs are facing the risk of lower home prices in 2011. In addition, 28 of the top 50 MSAs are now in the report’s highest risk category.

Florida, California, Nevada and Arizona are home to 36 of the most risky MSAs, but other regions are not immune, according to PMI’s chief economist and strategist David Berson.

“Rapidly rising foreclosure and unemployment rates, continuing declines in house prices, and weakening consumer demand all worked to increase risk in the general economy, and the housing market specifically,” Berson says in a statement today. “As a result of the continued weakness in prices, and the relatively low level of interest rates, improvements in affordability across the nation’s MSAs will continue to incentivize repeat and first-time homebuyers back into the market.”

The MSAs most likely to see decreased prices are the Riverside-San Bernardino-Ontario, California, Miami-Miami Beach-Kendall, Florida, and Los Angeles-Long Beach-Glendale, CA regions.

And here's a blurb on foreclosure numbers from the Times,

The percentage of Los Angeles County mortgages delinquent by 90 days or more in May was nearly double the rate last year, First American CoreLogic reported today.

May's 9.5% delinquency rate for L.A. County was up from 5% of mortgages late by 90 days or more in May 2008. First American bases its foreclosure analyses on public records.

While the default rate has nearly doubled, the number of homes actually being sold at auction -- the final foreclosure stage -- has shrunk. In May, the L.A. County repossession rate was down to 1% of mortgages, from 1.1% a year ago. This discrepancy is the "foreclosure backlog" now looming over the housing market. It's caused by various government-mandated and voluntary foreclosure moratoriums, and possibly by lenders trying to manage the flow of repossessed homes entering the market.

Nationally, First American reported 6.5% of mortgages were in default in May, up from 4% in May 2008. The national repossession rate was 0.7% in May, up from 0.6% in May 2007.......

This foreclosure backlog story is starting to show up everywhere! I just wish the foreclosures would start showing up.

More foreclosure fodder....

From the LA times comes another article about the coming foreclosure wave. I sure as hell hope it hurries up.

Mortgage defaults have surged to record levels amid rising unemployment and falling home prices. Lenders are expected to move quickly to clear up backlogs as moratoriums on foreclosures expire.

Reporting from Washington -- Just as the nation's housing market has begun showing signs of stabilizing, another wave of foreclosures is poised to strike, possibly as early as this summer, inflicting new punishment on families, communities and the still-troubled national economy.

Amid rising unemployment and falling home prices, mortgage defaults have surged to record levels this year. Until recently, many banks have put off launching foreclosure action on the troubled properties, in part because they had signed up for the Obama administration's home-stability plan, which required them to consider the alternative of modifying loans to make it easier for borrowers to make payments.

Just how big the foreclosure wave will be is unclear. But loan defaults are up sharply. And with many government and banks' self-imposed foreclosure moratoriums expiring, the biggest lenders indicate that they are likely to move more aggressively to clear up a backlog of troubled mortgages.

But rising foreclosures will depress home values, pushing more homeowners underwater. Mark Zandi of Moody's Economy.com estimates that 15.4 million homeowners -- or about 1 in 5 of those with first mortgages -- owe more on their homes than they are worth.

The rapid pace of layoffs is of particular concern. Employers shed nearly a half-million jobs in June. Homeowners who are out of work have little chance of having their mortgages modified. That puts many homeowners on a collision course with banks that are preparing to take a more aggressive stance.

"Absolutely," Chase Bank spokesman Tom Kelly said when asked about an impending surge in foreclosures. Since April 6, Chase has approved modifying 138,000 loans under Obama's program. But an undisclosed number of other Chase borrowers didn't meet modification eligibility, and many of those homeowners face possible foreclosure.

Bank of America, the nation's largest servicer of home mortgages, also did not release the volume of likely foreclosures. The bank said it had extended offers to modify loans to more than 45,000 borrowers under the Obama plan. Bank of America spokesman Dan Frahm said the company was projecting a "slow increase" in the number of monthly foreclosures, potentially reaching 30% above previous normal levels.

Much will depend on how quickly lenders can push the process along. It generally takes three months to a year from the time a borrower receives a notice of default to a foreclosure sale, in which case the lender usually takes title to the property.

Government and company reports show that the number of completed foreclosures nationwide slowed sharply late last year and into early this year, largely because of various moratoriums in effect during much of the first quarter.

But anecdotal reports indicate that foreclosure sales have started to climb again in the second quarter. And the pipeline is clearly getting fuller.

California accounts for an outsized share of mortgage loan defaults. A stunning 135,431 homeowners in the state were hit with notices of default in the first quarter, an increase of 11% from the earlier peak in the second quarter of 2008, according to real estate information service MDA DataQuick. Foreclosure sales in the state have been moderating after averaging a high of 26,500 a month last summer.

But just recently, said the 37-year real estate veteran, there's been a surge of requests for so-called broker price opinions, or appraisals that lenders often ask brokers to provide just before they put a foreclosed property on the market.

"I think it's going to be a very big wave," he said. "Just like what we saw through 2008."

Predatory lending....it's back!

Predatory lending is back, this time the predator is the government though. Our brilliant leaders have now decided that Obama's foreclosure prevention legislation did not offer enough help with it's 105% LTV refi limit. The brainiacs in Washington have increased the loan to value limit all the way to 125%. Bravo, it only took them 2 years to forget that programs like this is why we are in this mess. Not that 125% LTV will help many Calfornians. We will need 200% LTV before it helps.

Another government program designed to turn homeowners into debt slaves. Most homeowners are not that financially savy. That's part of the reason they are in the mess they are in. They didn't take the time to find out that they could never hope to afford a home that was 10x their yearly income. A broker or agent told them, "I can make your payments $xxxxx" and that was all they needed to hear. The same thing will happen with this loan program. A banker or broker will tell them "I can get you into a fixed rate loan for $xxxx/mo" and they will take it. They will then be trapped in a home, unable to sell for a decade or two. And the worst part is they will probably have traded a non recourse purchase loan, that they could have simply walked away from, for a recourse loan. A loan the bank can garnish their wages, take their car, their stocks and their beloved singing fish in order to satisfy when they default. And the banks are not going to tell them about that because they get fees from the refi and a nice big fat check from the government for every refi they do under this program.

Aint it grand, you and me get screwed twice by the same program. It will slow down the correction, AND our tax dollars to towards the payment the bank recieves from the government.

Updated 100 year chart

Still some altitude left to lose.....