3 to 5 years.....

April 28 (Bloomberg) -- The U.S. housing market won’t recover for three to five years as mounting foreclosures hold down prices, according to mortgage-bond pioneer Lewis Ranieri.

“There’s another big leg down and the question is how long does it stay,” Ranieri, chairman of Ranieri Partners LLC, said during a panel discussion today at the Milken Institute Global Conference in Beverly Hills, California. “You can’t have much of a rally when you’ve got this big overhang.”

Home foreclosures probably will reach a record this year with more than 1 million properties seized by banks, according to data seller RealtyTrac Inc. Unemployment was 9.7 percent in March, unchanged for a third month, according to the Labor Department, and a fifth of mortgaged U.S. homes were worth less than their loans in the fourth quarter, Zillow.com reported.

‘Leave Them Alone’

Larry Mizel, chief executive officer of Denver-based homebuilder MDC Holdings Inc., said the federal government should allow homes to be foreclosed on and sold at reduced prices to new buyers.

“The best thing they can do is leave them alone,” Mizel said during the panel discussion. “We now have affordable housing. The best thing, in my view, is just let the process take care of itself.”

Buyers have no Moral Duty to lenders

As a result of the housing collapse, many Arizonans have seen their homes lose half of their value. Many owe several hundred thousand dollars more than their homes are worth and are unlikely to dig out of their negative equity hole for decades. To compound the stress and anxiety, when they've called their lender to work out a solution, they've discovered that their lender won't even talk to them about a loan modification or a short sale as long as they are current on their mortgage.

With no help in sight, some of these underwater homeowners have decided that they would be better off letting go of their homes and have stopped making their mortgage payments. Many have done so with the hope that defaulting will finally bring their lender to the table, but they are also resigned to the fact that they will likely lose their homes.

It has been suggested that such homeowners are immoral or, at least, irresponsible. I disagree. The arguments against homeowners intentionally defaulting on their mortgages generally center on the same three basic points.

First, underwater homeowners "promised" to pay their mortgages when they signed the mortgage contract. Second, foreclosures lead to depreciation of neighborhoods, so underwater homeowners should hang on in order to help preserve their neighbors' property values. And, third, if all underwater homeowners defaulted, the housing market might crash. Homeowners thus have a social obligation to pay their underwater mortgage in order to save the economy.

While all three of these arguments might hold some initial appeal, none holds water.

First, a mortgage contract, like all other contracts, is purely a legal document - not a sacred promise. Think of it this way: when you got your cellphone, you likely signed a contract with your carrier in which you "promised" to pay a set monthly payment for two years. Would it be immoral for you to break your contractual "promise" to pay for two years if you decided that you no longer needed the cellphone and elect instead to pay the early termination fee? Of course not. The option to breach your "promise" to pay is part of the contract.

Though involving more money and something of great sentimental value to most people, a mortgage contract is simply a contract. Like a cellphone contract, a mortgage contract explicitly sets out the consequences of a breach of contract.

In other words, the lender has contemplated in advance that the mortgagor might be unable or unwilling to continue making payments on his mortgage at some point and has decided in advance what fair compensation to the lender would be. Specifically, the lender included clauses in the contract providing that the lender can foreclose on the property and keep any payments that have been made. By writing this penalty into the contract, the lender has agreed to accept the property and any payments already made in lieu of the remaining payments.

hat's the agreement. No one forced the lender to make the loan or sign the contract. Indeed, the lender wrote it. And, to be sure, the lender wouldn't hesitate to exercise his right to take a person's house if it was in his financial interest to do so. Concerns of morality or socially responsibility wouldn't be part of the equation.

In short, as far as the law is concerned, choosing to exercise the default option in a mortgage contract is no more immoral than choosing to cancel a cellphone contract. Indeed, exercising the default option in your mortgage contract is similar to cashing in on an insurance policy. You paid for it - and have you a right to exercise it.

But what about the argument that mortgage default hurts neighborhoods and the economy?

Well, first, in a capitalist society, we don't generally expect individuals to make personal economic decisions for the collective good. Aside from this fact, however, it's unfair, in my opinion, to ask underwater homeowners to prop up neighborhood property values, or the housing market, on their backs - especially if means sacrificing their ability to send their children to college or save adequately for their own retirement.

So what's next

This is the last week for the federal tax credit. You have to sign a contract by the 30th to be eligible. I can't wait to see what silliness they roll out next. I've been seeing overpriced homes that have sat on the market for ages going pending in the last week or two. Are there that many people willing to overpay in order to get a $8k credit? I'm not sure how many of those will appraise though, so the sales may not actually close.

We should start a pool on what the next bailout will be.

Gawd, I heard it again

I stopped an an open house today, I couldn't help myself. I saw the sign and it pointed to an area I am interested in so I followed the signs to a house WAY larger than anything I would ever consider. But I stopped just for the hell of it. I was greeted by a typical realtor who proceeded to tell me about the house (which was fine). Then he asked if I had an agent, and on and on. Then he let fly with the "there's never been a better time to buy". Ok, fight's on. I ask "how so?". Well the interest rates are at historic lows making payments more affordable than ever. I wasn't feeling much like arguing so I said "thank, but it was too big for me and left".

How do you feel about these low rates. The low rates are making homes more affordable than they have been in a long time. However the low rates are also helping to prop up home prices. People buy homes based on monthly payment, not total price. Most buyers will figure out what monthly payment they can afford and the current interest rate will allow them to calculate how much they can spend. Rates are currently very low compared to long term average rates. So, what happens if rates go up? People can't afford as much house. This puts pressure on prices. In a normal market demand dictates prices. If people cannot afford the payments at a higher interest rate, demand drops and prices will follow.

Assuming the monthly payment is the same, what's better, a low price with a high interest rate or a high price with a low interest rate? It should seem obvious but a lower price with a high rate is better for several reasons.

1) If rates drop you can refi. With the rates as low as they are now you can forget about a future refi to take advantage of rate drop.
2) A lower purchase price means lower property taxes. And who doesn't like lower taxes.
3) If you do buy when rates are low you face the possibility of a drop in value if rates spike. You could easily find yourself underwater, trapped in the house.

There are some other advantages of a high interest rate. A lower purchase price and a high interest rate it makes paying off the home early much more attractive. If you can pay extra towards the principal you can really cut down on the total cost of the home and pay it off early. Because much more of the monthly payment is interest the mortgage write off might be higher.

Are interest rates going to shoot up. I'm sure they are..... eventually. Personally I don't think they are going anywhere for a few years. The government will need to keep the rates low in order to keep the economy from totally tanking. Also inflation is still relatively low so there isn't much pressure to raise the rates. But 5 years from now things could be very different. So if you buy, buy something you will want to stay in for a while.

Inside deals

When you watch the market as closely as I do it does not take very long to see that there is probably more monkey business going on now than there was at the height of the bubble years.
Everything from short sale shenanigans to pocket listings to outright insider fraud. If you just look at the active listings you might not notice these deals. However, if you look at the pendings and the sales histories you will start to notice many of the sales just don't pass the smell test.

Take this one for instance, 3162 Vandermolen in Norco. It hit the market just this morning at what looks like a reasonable price. I saw it pop onto Redfin this morning and figured I would go look at it this weekend. But when I got home from work it's already pending. More than likely a pocket listing. The agent already has a buyer but has to show the bank it was actually listed. Maybe I should contact the bank???

How about this one at 1440 Valley. This was another house that hit the market for about 30 seconds and then went pending. The listing price is probably about $75k-$100k less than this house would sell for on the open market. It's a short sale so maybe the bank will get wise to the deal.

Between deals like these, flippers and clueless agents it's no wonder most buyers are finding this market a frustrating thing to deal with.

Weekend bits and pieces.

I'm out of here for the weekend feel free to post about whatever.

California sets a new record! Unfortunately its a new high in unemployment, 12.6%

You have only 2 weeks to left before the federal tax credit expires. To qualify you must sign a contract by April 30th.

Here They Come.

It looks like BofA is ramping up the foreclosure engine as reported a few posts ago. That post from IHB said that BofA expected to increase foreclosures by 600% by years end. This report from The San Diego North County Times indicates the increase has begun. Riverside saw a 67% increase from Feb to March. Most of those homes will not hit the market for a few months though.


Bank of America, the nation's largest mortgage lender, ramped up its foreclosure activity in March, sending hundreds of letters warning delinquent borrowers in the region that it could sell their homes at auction in as little as three weeks, according to North County Times analysis of data from ForeclosureRadar.
The bank said the increased activity was a natural consequence of borrowers running out of options. Analysts and real estate agents said the moves by the Charlotte, N.C., banking giant, which controls a large share of the Southern California mortgage market, could signal a final reckoning for homeowners who have been protected by government programs for months or even years.

Last month, a Bank of America division called ReconTrust N.A. sent out a flurry of "notices of auction," which alert owners of the date their homes could be sold in foreclosure proceedings.The notices went to 230 homeowners in North San Diego County, a 69 percent increase from February, and to 391 owners in Southwest Riverside County, up 67 percent from February. By comparison, in March 2009, ReconTrust sent a total of 31 such letters to both regions combined.
ReconTrust was formed as the foreclosure division of Countrywide Financial Services Inc., the company that helped drive the real estate boom of the 2000s with its no-documentation "liar loans" and enormous subprime portfolio.

More foreclosures expected
When Bank of America agreed to take over Countrywide in January 2008, Countrywide said it managed 9 million loans valued at $1.5 trillion. Richard Simon, a Bank of America spokesman, wrote in an e-mail that he couldn't speak to the sharp increase of notices in San Diego and Riverside counties, but that the bank has expected more foreclosure activity.
"We have reported recently that we anticipate a rise in foreclosure activity through the coming months as homeowners are unable to qualify for loan modifications, fall out of modification programs or go into delinquency due to the ongoing stress in the economy," he said.
Bank of America has permanently lowered monthly payments for 12,700 borrowers through the Treasury Department's Home Affordable Modification Program, more than any other lender. But the program as a whole is widely deemed a failure, because just 17 percent of applicants nationally have managed to qualify and keep up their payments, according to the latest Treasury report.

Data showing that Bank of America borrowers were falling out of HAMP and into foreclosure in rising numbers didn't surprise analysts. "That makes sense," said Jamie Peters, a financial analyst who covers Bank of America for the investment research firm Morningstar Inc. "'We've given them the chance, it hasn't worked, we need to move ahead' type of idea," Peters said.
Another analyst who tracks Bank of America, Shannon Stemm of investment bank Edward Jones, said the loans now being foreclosed are "older," meaning borrowers had plenty of time to try a modification, and the bank had to get the delinquent loans off their books. "A lot of the bad loans we're seeing from a couple of quarters ago are getting to a place where (Bank of America) need to make a decision for what to do with that bad loan," she said. Morningstar's Peters thought the bank might be taking advantage of a strengthening California housing market.
"My Bank of America asset manager told me we'd really start to get hit with inventory in mid-May to June," said Teri Garcia, a real estate agent based in Escondido who sells Bank of America foreclosures.

"If they're sending notices of auction in March, that about fits," she said. Garcia said the local supply of foreclosed homes has been low all through the winter. She was thrilled to hear that more homes might be coming onto the market this summer. "Let's get them on the market, get them sold, and get through all this," she said.

March numbers

Dataquick posted the March numbers today. SoCal overall is looking ok but the IE is still struggling. The number of sales in Riverside county took a pretty good dive from last year. That's a little surprising although could be attributed to the lack of sale-able inventory. The price remained about the same as last month, no surprise there. The percentage of foreclosure sales are really dropping off but the slack is being taken up by short sales which they don't track. So most of the sales are still distressed properties. Another surprising number was the FHA sales. Nearly 40% of the sales were FHA. That's not a healthy sign since most FHA buyers are marginal buyers at best. There's a much higher chance of a default with an FHA buyer (another wave of future foreclosures?) Another 27% of the purchases were all cash. Those are primarily investors and flippers. That's also not a good sign for those looking for a normal market.

So while the number look good on the surface the other data is telling a different story. FHA buyers, flippers and distress sales are most of the market. And that market is not a healthy market.

A total of 20,476 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 33.3 percent from 15,359 in February, and up 5.0 percent from 19,506 in March 2009, according to MDA DataQuick of San Diego.

Sales always go up from February to March. Last month was the 21st in a row with a year-over-year sales increase. The March sales average is 24,936 going back to 1988, when DataQuick’s statistics begin.

“It’s a reflection of just how grim things got, that we’ve now had almost two years of sales gains and we’re still 18 percent below the sales average. The market won’t rebalance until mortgage lending patterns normalize, and that’s just not happening yet. Some of the best deals out there right now are happening when the buyer comes in with cash,” said John Walsh, MDA DataQuick president.

The median price paid for a Southland home was $285,000 last month, up 3.6 percent from $275,000 in February, and up 14.0 percent from $250,000 for March 2009.

The median peaked at $505,000 in mid 2007 and appears, so far, to have bottomed out at $247,000 in April last year. The peak-to-trough drop in the median was due to a decline in home values as well as a shift in sales toward low-cost homes, especially foreclosures.

Foreclosure resales accounted for 38.4 percent of the resale market last month, down from 42.3 percent in February, and down from 54.8 percent a year ago. The all-time high was in February 2009 at 56.7 percent.

Meanwhile, Uncle Sam continues to prop up lending for many low-to mid-priced homes. Government-insured FHA loans, a popular choice among first-time buyers, accounted for 38.6 percent of all mortgages used to purchase Southland homes in March.

Absentee buyers – mostly investors and some second-home purchasers – bought 21.3 percent of the homes sold in March.

Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 27.1 percent of March sales. In February it was a revised 30.0 percent – an all-time high. The 22-year monthly average for Southland homes purchased with cash is 13.8 percent.

The “flipping” of homes has also trended higher the past year, though it eased a bit in March. Last month the percentage of Southland homes flipped – bought and re-sold – within a three-week to six-month period was 3.2 percent of total sales, down from 3.5 percent in February but up from 1.6 percent a year ago. Last month flipping varied from as little as 2.6 percent of total sales in Riverside County to as much as 3.9 percent in Los Angeles County.

All homes	Mar-09	Mar-10	%Chng	Mar-09	Mar-10	%Chng
Los Angeles	5,971	6,747	13.0%	$300,000	$329,000	9.7%
Orange	2,433	2,652	9.0%	$385,000	$432,000	12.2%
Riverside	4,409	4,156	-5.7%	$187,000	$198,000	5.9%
San Bernardino	2,897	2,955	2.0%	$150,000	$152,000	1.3%
San Diego	3,020	3,227	6.9%	$285,000	$330,000	15.8%
Ventura	776	739	-4.8%	$326,000	$375,000	15.0%
SoCal	19,506	20,476	5.0%	$250,000	$285,000	14.0%

The short sale plan kicks in

The newest Obama plan to save us from the housing apocalypse has kicked in. This is HAFA, the home affordability forclosure "alternative" plan. In other words, "Ok, so you really can't afford that house you bought, now what". This is another voluntary plan for the banks to speed up short sales. It gives them a few buck, it gives the home debtors a few bucks and it gives any second lien holders a few bucks in return for letting the short sale go through.

There's already a bunch of articles in the news this week talking about the upcoming short sale tusnami.

Today the Administration's Home Affordable Foreclosure Alternative Plan takes effect, offering incentives to borrowers, servicers, investors and second lien holders to push short sales through the system. Yep, everyone gets a cut of government funds to get these troubled borrowers out of their homes and get them sold, even if the sale price is less than the value of the loan.

I find it interesting that before the plan even went into effect today, the Administration upped the incentives a week ago, doubling the amount of cash to $3000 offered as borrower "relocation expenses" and juicing the payoffs to the others as well. Of course they want to push short sales because of course they know that their modification program isn't working as planned.

But the biggest impediment to the plan is the lenders themselves, who have to weigh what's going to save them the most money and cause them the least bleeding on their books.

I'm also starting to hear rumblings among the number crunchers that the wave of foreclosures we keep hearing about is about to hit with a thunderous roar.

Servicers are ramping up the mod process and pushing those who don't qualify out the door more quickly than ever. A big jump in inventories, which we already saw last month, right in the midst of the Spring market will turn home prices on their heels.

Time for another bailout

I came across this gem on bubbleinfo.com

Timothy Geithner is a Sniveling Scamster
Whew. That was fast. It didn’t take long for Wall Street to figure out how to game Obama’s new mortgage modification program, did it? The plan was hyped as help for “struggling homeowners”, but it turns out, it’s just another stealth bailout for pudgy bank-execs. It’s funny, the program hasn’t even kicked in yet and, already, bigtime speculators are riffling through their filing cabinets looking any garbage paper they can find to dump on Uncle Sam. Take a look at this on today’s Bloomberg report:

“Subprime-mortgage securities are rising at an accelerating pace as the U.S. begins to encourage reductions to homeowners’ balances, which may lead to fewer foreclosures and a quicker end to the housing slump….Senior-ranked bonds tied to borrowers with poor credit will mostly benefit after the Treasury Department said for the first time it would seek to cut the size of mortgages, reducing the likelihood that loan modifications will fail, according to JPMorgan Chase & Co., Morgan Stanley and Barclays Plc. (Bloomberg)

What does it mean? It means that Obama’s mortgage modification extravaganza has touched-off a gold rush in toxic paper. Subprime securitizations, which had been worth next to nothing, are now the hottest trade on Wall Street. It’s a subprime bonanza! The investment sharpies are scarfing up all the crummy MBS they can get their hands on, because they know they can trade it in for Triple A FHA-backed loans when the program get’s going. It’s another swindle cooked up by Treasury Secretary Timothy Geithner to keep the brokerage clan in the clover. Here’s how a Wall Street veteran explained it to me:

“It looks like the investors in securitizations will be swapping underwater real estate for govt-insured paper… I think the scam here is just to provide some cover so the hedge funds and other high net worth individuals can trade their low grade paper for Triple AAA mortgages insured by the FHA at the taxpayer expense.”

That’s it, in a nutshell. The faux-foreclosure prevention program has nothing to do with helping homeowners. That’s just diversionary gibberish to confuse the public. The real objective is to create a government landfill (aka–FHA) where the banks and other financial institutions can dump their toxic MBS-sludge and walk away with gov-backed loans. Get a load of this:

(Bloomberg) — The Federal Reserve’s completion this week of its program to buy $1.25 trillion in mortgage bonds probably won’t mean significantly higher U.S. home loan rates as investors return to the market, replacing the Fed…

What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds,” said Christopher Sebald, chief investment officer for Advantus Capital Management in St. Paul, Minnesota…

Advantus is purchasing mortgage bonds after the Fed’s program drained supply in the $5.4 trillion market.” (Bloomberg)

Of course, they’re “purchasing mortgage bonds”, because the government is going to insure them. It’s a “no brainer”. And don’t you love that expression, “a handoff”, because that’s exactly what it is. The government hasn’t stopped pumping liquidity into the system; they’ve just found another entry-point where they can push it in. Here’s how it works: The new program offers incentives to banks and other deep-pocketed investors (in mortgage-backed securities) to slash the principal on underwater mortgages which keeps people from strategic default or foreclosure. Sounds good, right? But here’s the catch: When the mortgage is refinanced, it’s converted into a FHA-backed loan which provides an explicit gov-guarantee. So, for a slight loss on the face-value of the MBS, the investors (ie–investment banks, hedgies, etc) are able to resuscitate their moribund securitizations (MBS) and reap hefty gains. It’s like taking Fido’s steaming pile on the front lawn and turning it into the Hope Diamond. Abracadabra!

Geithner has figured out how to put together a bailout that will cost taxpayers hundreds of billions of dollars without any money actually exchanging hands. The value of the putrid mortgage-paper will soar because of the gov-underwriting, and the ginormous losses won’t be realized until the mortgages start blowing up sometime in the future. That’s when FHA will be put-to-pasture along with fellow-homicide victims, Fannie and Freddie. Pretty clever, eh?

So, the cutthroat speculators and bunko artists who fleeced us all with their dogshit subprimes, have returned for another dip at the public trough. That means taxpayers will get scalped on the same investments a second time. Hey, it’s a double-whammy!

This really takes the cake. You gotta hand it to that sniveling scamster Geithner. He had his back to the wall and, presto, he extracts another rabbit from his hat. What a guy. He knew he couldn’t go begging to congress for more money, or they’d kick him to the curb. So he worked out a scam that picks up where the Fed’s $1.25 trillion quantitative easing bailout leaves off. It’s a seamless transition from one massive corporate giveaway to the next. Now the Fed has nearly $2 trillion worth of structured garbage on its balance sheet, (which it will undoubtedly dump on Fannie or Freddie) the banks are loaded with fresh reserves, and another trillion or so is earmarked for the shadow bankers who provide funding to the regulated banking system. AND IT’S ALL 100% FREE. Such a deal.

This bank/credit cabal is robbing us blind in broad daylight and no one seems to give a hoot. Maybe Barack Obama will save us from all ruin?

Fat chance!
By Mike Whitney

Riverwalk Vista

Riverwalk Vista, this development could not have had worse timing. Opening right when the market was in free fall. They opened the models with laughable prices and not surprisingly they closed them after a few months and boarded up the few homes they had built. You can drive by it today and see the plywood on the windows of the homes. There must be 30 or 40 homes just sitting there rotting. They are still maintaining the clubhouse, pool and exterior landscaping though. So at least it's not a total eyesore.

I have been wondering what the heck was going on with this development. The Press Enterprise had an article on it today.

More than half of the 402 residential lots in Riverwalk Vista, a master-planned community in Riverside, sold at public auction to a joint venture for $9.5 million.

The winning cash bidder for 217 roughly graded lots was Forestar Land Partners, a joint venture between Foremost Communities, an Irvine-based land developer, and Starwood Capital Group Global, LLC., a $1 billion private equity fund in Greenwich, Conn., that is investing in distressed properties.

As part of the transaction, Forestar Land Partners also acquired the rights to serve as master developer of the entire 100-acre project located south of Interstate 91 at La Sierra Avenue. The project was formerly under development by Griffin Industries, which acquired the land from Riverside Community College.

Steve Cameron, president of Foremost Communities, said development of Riverwalk Vista stalled when the real estate market tanked in 2007 but the completed facilities, including a swim club, fountains, entry gates and a large park, continued to be well maintained.

Competition for the controlling half of the property was expected to be fierce, Cameron said. He said for a time the sale was put on hold while the foreclosing banks Bank of the West, Wells Fargo and City National Bank worked out a business plan.

But when the property went to went to auction March 17 on the steps of the Corona Civic Center, Forestar Land Partners was the only bidder other than the foreclosing banks. The banks raised the opening price by $600,000 before Forestar made the winning bid, said Cameron. ( x One Bidder, not exactly FIERCE bidding)

Forestar Land Partners would like to buy the remaining 185 lots in the project when they become available for sale, Cameron said. Included, according to the city, are six furnished models and 30 houses that are almost completely built. No houses in the community are as yet occupied.

Cameron said he expects the banks will select a buyer for the rest of the lots within a few months and that Forestar Land Partners will have an edge over the competition because of its master developer status.

Clara Miramontes, principal planner for the city of Riverside, said city officials are pleased to learn than the Riverwalk Vista project is going forward. "We are very glad the banks were able to find a developer that has the financial resources to jumpstart the project again," she said.

>>>>>>>>>>>>>>>>>>

9.5 Million for 217 finished lots. I'm fairly sure all the streets and services are in already so that's a smoking deal. $44k per lot should give the developer a lot of room to build reasonably priced homes. I think it will still be a couple of years before this development gets opened back up.