Where, oh where, are you tonight? Why did you leave me here all alone? I searched the world over, and I thought I'd found true love, You met another, and PFFT! You was gone!
By Frank Ahrens Washington Post Staff Writer Friday, August 27, 2010
Foreclosures and late payments on home mortgages dropped slightly in the second quarter of this year, but sustained high unemployment and a stalled economic recovery could make the improvement short-lived.
Although one in 10 mortgages in the United States is still behind by at least one payment, the number of "seriously delinquent" loans - those that are at least 90 days late - dropped compared with the first three months of this year, the Mortgage Bankers Association said Thursday.
Also, the percentage of homes in foreclosure dropped to 4.57 percent in the second three months of this year, compared with 4.63 percent in the first quarter.
So what happens when there are 10% delinquency rates and 4.5% foreclosure rates? You build an enormous shadow inventory. That's what happens.
However, the number of seriously delinquent mortgages is still higher than it was during the comparable period last year.
"When I'm asked, 'Are things getting better or worse?' my answer is like most things these days," Mortgage Bankers Association chief economist Jay Brinkmann said in a conference call Thursday. "It is a combination of good news and not-so-good news. And there are areas of concern even with the good news."
In other words, the news is awful, and we have difficulty spinning it as anything other than totally awful.
The nation's foreclosure and mortgage-delinquency statistics are dominated by depressed markets in the "sand states:" Nevada, Arizona, California and Florida. In the second quarter of this year, California had 13.2 percent of all outstanding mortgages and 14.7 percent of all foreclosures, the association said.
The positive numbers are the result of three shifts, Brinkmann said. Last year, there was a drop in the number of mortgages that were only one payment past due, Brinkmann said. Moving to this year, that means the number of mortgages that are several payments past due has decreased. However, the association has seen a recent uptick this quarter in new delinquencies.
The decline in delinquencies was likely the result of attempting loan modifications, and the uptick is registering their failure.
Second, a number of homes with distressed mortgages have been sold, thanks to the federal homebuyer tax credit. But when that credit expired at the end of April, home sales predictably tumbled, with sales last month of previously owned homes hitting a 15-year low.
Third, some of the mortgage-relief programs appear to have worked, chiefly those engineered by banks in the private sector. Government efforts to keep troubled homeowners from defaulting on their mortgages have had little effect. President Obama's signature mortgage-relief plan has a dropout rate of nearly 50 percent, the government reported last week. Historically, 40 to 60 percent of all reworked mortgages fall back into delinquency, Brinkmann said.
So sales are way down and loan modification programs are a dismal failure. Whocouldanode?
The State Foreclosure Prevention Working Group, a collection of state attorneys general and state banking regulators, said this week that homeowners who had recently reworked their troubled mortgages were faring better than those who did so earlier during the financial crisis, giving [false] hope that a second wave of mass defaults can be avoided.
Brinkmann said that the report provided "cautiously optimistic news" about the mortgage market but that as long as unemployment remains near 10 percent, Thursday's good news will probably be short-lived.
"A number of us are having to rethink our forecasts based on numbers that have come in in the past month or so," Brinkmann said, referring to last week's higher-than-expected new jobless claims, the stock market's dismal performance this month and downgrades in estimated economic growth for the year.
This news story misses the broader point. The foreclosures are not primarily a result of unemployment. Sure, unemployment has pushed many loan owners over the edge, but huge distress in the mortgage markets was going to create a huge number of delinquencies and foreclosures regardless of what happened with the economy or employment. We are witnessing the collapse of a massive Ponzi Scheme, and as long as the toxic debt remains, any decline in foreclosures is likely to be temporary.
As financial experts warn that falling property prices in the US could affect economic output and create a double dip recession there is more mixed news for the country’s real estate sector.
Although figures shows that the number of foreclosures decreased nationally in the second quarter of 2010 compared to the first three months, mortgage delinquencies increased, suggesting that foreclosures could rise again by the next quarter.
A key point buried and lost in the article above is that delinquencies are back on the rise.
The delinquency rate for a prime adjustable rate mortgage (ARM) increased 47 basis points to 9.3% while the rate for a fixed rate mortgage (FRM) increased 8bps to 4.75%, according to the latest figures from the Mortgage Bankers Association.
This can no longer be spun as a subprime problem. Almost 10% of prime ARMs are delinqent. That is an astonishingly high number. And 4.75% of fixed-rate mortgages are delinquent, another very high number, unprecedented by historic measures.
Foreclosures for both types of mortgage loans remained relatively flat quarter on quarter, ARMs dropping only 4 basis points to 3.92% and FRMs increasing 1 basis point to 1.11%.
But for subprime mortgages, ARM delinquency rates jumped 114bps points to 30.9% and foreclosures fell 113bps to 10.6%. Subprime FRMs followed a similar, less drastic, trend, with delinquencies climbing 56bps to 22.5% and foreclosures falling 24bps to 4.8%.
Those subprime numbers are horrendous. Of course, we are used to that, and they will likely get worse. Very few subprime borrowers will sustain ownership before this mess is cleaned up.
Mississippi had the highest delinquency rate at 13.7% and Nevada had the highest foreclosure rate at 2.9%.
And the latest figures from the Lender Processing Services index shows that almost 900,000 loans that were current at the beginning of the year were at least 60 days delinquent or in foreclosure as of July.
Almost a million loan owners gave up this year. We haven't foreclosed on that many homes. Not just haven't we tackled the backlog, we haven't been keeping up with the new additions to shadow inventory. Anyone who thinks this problem is near resolution is really deluding themselves.
Although delinquency volume fell 2.3% month on month in July to 9.3%, it remains near historically elevated levels and record high numbers of delinquent loans are still entering the system, according to LPS. The volume of delinquencies increased 1.4% year on year, the report also shows.
The length of time these loans are staying in the foreclosure process is increasing as well. The average number of days a loan spends delinquent before it is finally forecloses reached 469 days in July, about a year and three months. In July of last year, the average was 351, more than three months shorter.
The total amount of loans in the foreclosure inventory passed 2 million in July, a 3.5% increase from a year ago, and 2.1% more than the previous month. The amount of foreclosures making it to REO status is picking up after diving earlier in the year. LPS reported nearly 100,000 REO properties in July.
The foreclosure inventory described above as 2 million homes is the visible inventory, loan owners that have received a foreclosure notice. The shadow inventory is several million more.
The bottom line is that delinquencies are far exceeding foreclosures. At some point, foreclosures must exceed delinquencies, and the foreclosures must be pushed through the system. We have many, many more foreclosures to come.
Put your cash in, take your cash out
The owners of today's featured property win the hokey-pokey award. They put in a large down payment, then proceeded to withdraw all of it and then some. I hope the huge down payment was not a gift from parents. If it was, I can't imagine the parents are too thrilled to see how this couple wasted all that money.
The property was purchased on 7/22/2002 for $540,000. The owners used a $270,000 first mortgage and a $270,000 down payment. They put 50% down.
On 5/11/2004 they refinanced with a $333,700 first mortgage.
On 6/29/2004 they obtained a $230,000 HELOC.
On 5/3/2007 they refinanced with a $700,000 first mortgage.
Total property debt is $700,000.
Total mortgage equity withdrawal is $430,000 including their down payment.
Total squatting time is only about 7 months so far.
Foreclosure Record Recording Date: 08/11/2010 Document Type: Notice of Sale
Foreclosure Record Recording Date: 05/10/2010 Document Type: Notice of Default
How do you put $270,000 down then go on a massive MEW binge? At first, they looked very prudent, but then they behaved like the worst of HELOC abusers. Very strange.
Home Purchase Price … $540,000 Home Purchase Date .... 7/22/2002
Net Gain (Loss) .......... $107,660 Percent Change .......... 19.9% Annual Appreciation … 2.7%
Cost of Ownership ------------------------------------------------- $689,000 .......... Asking Price $137,800 .......... 20% Down Conventional 4.50% ............... Mortgage Interest Rate $551,200 .......... 30-Year Mortgage $134,655 .......... Income Requirement
$2,793 .......... Monthly Mortgage Payment
$597 .......... Property Tax $0 .......... Special Taxes and Levies (Mello Roos) $57 .......... Homeowners Insurance $400 .......... Homeowners Association Fees ============================================ $3,847 .......... Monthly Cash Outlays
-$466 .......... Tax Savings (% of Interest and Property Tax) -$726 .......... Equity Hidden in Payment $230 .......... Lost Income to Down Payment (net of taxes) $86 .......... Maintenance and Replacement Reserves ============================================ $2,971 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $6,890 .......... Furnishing and Move In @1% $6,890 .......... Closing Costs @1% $5,512 ............ Interest Points @1% of Loan $137,800 .......... Down Payment ============================================ $157,092 .......... Total Cash Costs $45,500 ............ Emergency Cash Reserves ============================================ $202,592 .......... Total Savings Needed
Property Details for 26 RUSTLING WIND Irvine, CA 92612 ------------------------------------------------------------------------------ Beds: 4 Baths: 2 full 1 part baths Home size: 2,550 sq ft ($270 / sq ft) Lot Size: n/a Year Built: 1978 Days on Market: 15 Listing Updated: 40416 MLS Number: F1853776 Property Type: Condominium, Residential Community: Turtle Rock Tract: Vt ------------------------------------------------------------------------------ According to the listing agent, this listing may be a pre-foreclosure or short sale.
Beautifully decorated sweet home in famous Turtle Rock Hills Community. Travertine Floors & Fireplace, Plantation Shutters, Crown Molding, Plastered Ceilings, Custom Built-ins, Recessed Lighting and Casablanca Ceiling Fans. Spacious living room with panoramic views. Walk to award-wining schools including University high, Turtle Rock elementary. Close to Newport Coast, Fashion Island, UCI, and easy access to freeway. Enjoy association pool, spa and Tennis.
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.
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