For the last two years, the GSEs under direction of our government have been trying to make deals with people on loan modifications to keep them in their houses. Together they could have kept some of the distressed inventory off the market. It didn't work out that way.
The dismal failure of these programs was completely predictable because most of the people in trouble could never afford the homes they bought. Everyone was trying to get ahead, and like cars packing in to the fast lane, the volume of traffic brought things to a standstill. Any place is better than were these debtors are now. Most can rent for far less than their current and future payments, many are underwater, and few have any realistic hope of equity for the foreseeable future.
Starting from less than zero, they have nothing to lose... except perhaps their debts.
Tuesday, July 27th, 2010, 4:13 pm -- Jacob Gaffney
The level of foreclosures starts in mortgages owned by Fannie Mae and Freddie Mac, the government sponsored enterprises (GSE), is at its highest point ever in 2010 as the rate of new foreclosures continues to increase.
The June 2010 Mortgage Monitor data provided by Lender Processing Services (LPS) Applied Analytics shows that the spike in foreclosure starts is greatest at 6+ months of delinquency. Analysts have suggested that this may be occurring due to the recent increase in HAMP cancellations. Total foreclosure starts for 2010 are at 1.46m, compared to 1.68m for the same period in 2009 and 1.25m in 2008, to be sure, but the rate at which the starts increase during 1H10 is at the fastest pace LPS Applied Analytics has seen.
Look at that massive spike! The GSEs have stopped fooling around with borrowers. While the commercial banks are shifting their emphasis to short sales to liquidate their backlog of delinquent loans, the GSEs are ramping up their foreclosures.
In a conversation about the findings, vice president Herb Blecher said that "HAMP trials originally were meant to last three months, but almost 1.3m mortgages were trialed in a short period and so we know that some trials run four, five or six months before they are either converted or cancelled."
To be sure, the official HAMP default rates are different, standing a 1.7% after six months — a claim that's hotly disputed.
After delaying the process for two years with a series of failed loan modification programs, the most recent of which being HAMP, the government appears to be giving up on delinquent borrowers. Nobody can reasonably argue that the government didn't do everything it could to save people's homes encourage widespread moral hazard through its indefinite squatting programs.
However, LPS finds that the foreclosure trend is not bleeding over into the market-at-large. Delinquencies and foreclosures remain stable, though elevated, with seasonal trends somewhat muted. Foreclosure starts on non-agency mortgages have also been relatively stable over the last several months, as have the rates on 90+ days default.
In short, for every mortgage performing, the mortgage data analytics firm finds two are deteriorating. At a loss mitigation conference last week, Edward DeMarco, acting director of the Federal Housing Finance Agency, said that banks should consider foreclosing when borrowers are not being rehabilitated.
We are falling farther and farther behind and building an ever-larger shadow inventory.
There are some in government who see the right answer and are pointing the way.
Wednesday, July 21st, 2010, 4:39 pm -- Jacob Gaffney
... He said that streamlined and transparent loss mitigation is "critical" to saving the GSEs. In the Q&A, DeMarco told an attendee that the FHFA believes the area of principal forgiveness remains "fraught with difficulty,"
Is that secret code for "its a dumb idea that isn't going to happen?" Do any of you want to see the army of HELOC abusers be given a free pass and be allowed to keep their homes?
People get principal reduction all wrong. What we should have is foreclosure, which provides debt reduction, then we should forgive those debts through bankruptcy. The debt needs to be foregiven, but the people need to move out of the houses they can't afford and didn't pay for first. Foreclosure is a superior form of principal reduction.
and in cases "where there is no borrower," even if homeowners are avoiding contact, then the bank should foreclose.
"If you have an abandoned property or a borrower not willing to discuss or work with anything, then get going," he advised.
This is why the transition to short sales will ultimately fail. There are far too many properties that are empty, or where the loan owner has simple stopped responding to the lender. Many of the latter group are simply going to squat until they are kicked out.
And it isn't only the GSEs that are increasing foreclosures. Some banks are finally getting around to booting out the high-end squatters.
A record number of borrowers once judged the most creditworthy are heading into foreclosure as the job market leaves more homeowners unable to keep up with mortgage payments.
Foreclosures among borrowers with prime conforming loans have shot up 425% since January 2008, according to Lender Processing Services, which compiles mortgage data. Conforming loans are those eligible for purchase by Fannie Mae and Freddie Mac, the federal agencies that buy mortgages from lenders.
Jumbo prime loans not eligible for purchase by Fannie or Freddie have done even worse — foreclosures on those have increased nearly 600%.
Jumbo loans are typically mortgages worth more than $729,750.
Those percentages are so large because the number was so small in January 2008. These numbers will continue to increase as the hopelessly overextended accelerate their defaults.
"Jobs is a major impact. It's a huge factor," says Ken Shuman, a spokesman with Trulia.com, a real estate search engine. "A lot of homeowners on the higher end are also savvy investors. They're seeing their home has lost 30% of their value, we're seeing a lot of strategic defaults."
A strategic default occurs when a borrower stops paying a mortgage they can afford to pay, often because the house's value has fallen below the loan balance.
An accelerated default occurs when a borrower stops paying a mortgage they can't afford to pay long term, often because the payment will increase, the house's value has fallen, and they can rent something for far less.
While the U.S. may be seeing signs of a peak in foreclosures in some of the hardest-hit markets, foreclosure activity continued to rise in many of the nation's metropolitan areas in the first half of the year.
RealtyTrac reports today that 154 of 206 U.S. metropolitan areas with populations of 200,000 or more posted year-over-year increases in foreclosure filings, covering properties in various stages of the foreclosure process.
The top 20 metro areas with the highest foreclosure rates were in four states — Florida, California, Nevada and Arizona, according to the report.
Other RealtyTrac findings:
•94,466 properties received a foreclosure filing in the Miami-Fort Lauderdale-Pompano Beach metro area during the first half of 2010, more than any other metro area.
•The metro area with the second-highest total filings was Los Angeles-Long Beach-Santa Ana, which had 93,263.
•Las Vegas continued to post the nation's highest metro foreclosure rate in the first half. One in 15 of its housing units received a foreclosure filing — more than five times the U.S. average.
The answer to the problem is a combination of short sale and foreclosures, and to clear the market of the mortgage debris will require low interest rates, low prices, and more qualified buyers. We have the low interest rates, we will have lower prices, and as for qualified buyers, that may take a while.
He paid how much?
I am always astounded when I see what people paid in Columbus Grove.
The original buyer paid $1,273,000 for this property on 4/19/2006. He used a $1,082,050 first mortgage and a $190,950 down payment.
After waiting the minimum two month period, he refinanced with a $954,750 first mortgage and a $142,000 HELOC -- and gave up his non-recourse protections in the process.
On 5/16/2008, he added another to the title and trashed their credit too.
Foreclosure Record Recording Date: 11/18/2009 Document Type: Notice of Default
He didn't get much squatting time as this was sold to our flipper at auction on 5/21/2010 for $785,000. That is $488,000 less than the original buyer paid. Not a bad deal for the flipper.
If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.
Home Purchase Price … $785,000 Home Purchase Date .... 5/21/2010
Net Gain (Loss) .......... $126,050 Percent Change .......... 16.1% Annual Appreciation … 82.8%
Cost of Ownership ------------------------------------------------- $959,000 .......... Asking Price $191,800 .......... 20% Down Conventional 4.62% ............... Mortgage Interest Rate $767,200 .......... 30-Year Mortgage $190,070 .......... Income Requirement
$3,942 .......... Monthly Mortgage Payment
$831 .......... Property Tax $550 .......... Special Taxes and Levies (Mello Roos) $80 .......... Homeowners Insurance $175 .......... Homeowners Association Fees ============================================ $5,578 .......... Monthly Cash Outlays
-$946 .......... Tax Savings (% of Interest and Property Tax) -$988 .......... Equity Hidden in Payment $332 .......... Lost Income to Down Payment (net of taxes) $120 .......... Maintenance and Replacement Reserves ============================================ $4,096 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $9,590 .......... Furnishing and Move In @1% $9,590 .......... Closing Costs @1% $7,672 ............ Interest Points @1% of Loan $191,800 .......... Down Payment ============================================ $218,652 .......... Total Cash Costs $62,700 ............ Emergency Cash Reserves ============================================ $281,352 .......... Total Savings Needed Property Details for 39 DESERT WILLOW Irvine, CA 92606 ------------------------------------------------------------------------------ Beds: 5 Baths: 3 full 1 part baths Home size: 3,200 sq ft ($300 / sq ft) Lot Size: 5,282 sq ft Year Built: 2006 Days on Market: 12 Listing Updated: 40376 MLS Number: S624539 Property Type: Single Family, Residential Community: Columbus Grove Tract: Alex ------------------------------------------------------------------------------
This property is in backup or contingent offer status.
Fabulous floorplan!!! Offering approx. 3200 sq. ft. with all the ammentities ...Rich hardwood floors downstairs with new carpet and paint. Gourmet kitchen with granite counters and stainless appliances. Rod iron staircase. Attached three car garage.
ammentities?
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
Have a great weekend, and don't forget to come join us Sunday evening from 5:00 to 9:00 at JT Schmids.
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