I really don't get that worked up about the squatters and HELOC abusers anymore. I remember back in 2008 or 2009, when I would see someone who was given half a milion dollars for doing nothing -- and spending it -- I was shocked and angered that I would pay for that all with everyone else in a banking industry bailout -- an ongoing bailout if you consider the inevitable inflation that will finish the process.
Now that I have seen several hundred HELOC abusers and squatters, they are a curiosity, nothing more. Sometimes the details are amusing, and imagining how they blew the money goes through everyone's mind. We're all watching the market, passing the time.
Wait until I tell you some of my eviction stories from Las Vegas... Another time...
Before the market improves, lenders must reach a point where loans are not going delinquent faster than they can cure them or foreclose on the squatters. Until the delinquency rates drops or the foreclosure rate rises, lenders will continue to build shadow inventory.
Then they must liquidate visible and shadow inventory at a rate faster than they are adding to it. Right now, shadow inventory is growing, visible inventory is growing, and liquidation rates are at a seasonal low. Liquidation must outpace additions before the inventory problem goes away.
The amount of inventory in visible and shadow inventory will take many years to clear out. The price levels after the liquidation will be determined by incomes and loan terms at the time. The weight of inventory will squeeze any remaining air out of the housing bubble.
• The average loan in foreclosure has been delinquent a record 507 days. This is up from 406 days at the end of 2009, and up from 499 days at the end of November. • Overall, mortgage delinquencies dropped nearly 18% in 2010. • On the other hand, foreclosure inventories were up almost 10% in 2010, and are now at nearly 8x historical averages • “First-time” foreclosures are on the decline, with over 30% of new foreclosure starts having been in foreclosure before
Click on graph for larger image in graph gallery.
This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages.
The percent in the foreclosure process is trending up because of the foreclosure moratoriums.
According to LPS, 8.83% of mortgages are delinquent (down from 9.02% in November), and another 4.15% are in the foreclosure process (up from 4.08% in November) for a total of 12.98%. It breaks down as:
• 2.56 million loans less than 90 days delinquent. • 2.12 million loans 90+ days delinquent. • 2.2 million loans in foreclosure process.
For a total of 6.87 million loans delinquent or in foreclosure.
The second graph shows the break down of serious delinquencies.
LPS reported "the share of seriously delinquent loans that have not made payments in over a year continues to increase.".
Note: I've seen some people include these 7 million delinquent loans as "shadow inventory". This is not correct because 1) some of these loans will cure, and 2) some of these homes are already listed for sale (so they are included in the visible inventory).
This data is not shadow inventory, but most shadow inventory resides there. CalculatedRisk is correct in pointing out that not all of these loans will become future for-sale inventory, and if you take this data as a direct measure of shadow inventory, there would be double counting with visible inventory. I would also note this data does not capture the number of loan owners with toxic financing that will give up over the next several years as prices grind lower and strategic default becomes more common.
Shadow inventory is continuing to grow larger. We aren't adding to it quite as quickly as the past, but we are still not over the hump and actually reducing shadow inventory. That may come this year if the foreclosure rates pick up.
The bottom line for struggling loan owners is that if they decide to quit paying their mortgage today, there is a good chance they will not get booted out of the property for nearly two years. Even then, they won't have to wait long to get a new GSE loan. It shouldn't be surprising that strategic default is on the rise.
A 40% loss in Irvine
The Irvine Company fans reading today will undoubtedly remind everyone that Columbus Grove is not an Irvine Company property. The supposition is that prices in Columbus Grove have cratered so badly because it isn't to the quality of the rest of Irvine. I don't think so. Columbus Grove was hit hard because the builder, Lennar, finished selling out and pushed prices lower until the found a market clearing level. Columbus Grove is close to the bottom, closer than the rest of Irvine.
Columbus Grove does have some negatives, but it is still in the Irvine school district, and it currently represents the best value for the money in the school district. New construction here goes for what 30+ year old construction sells for in El Camino Real. Of course, those old properties have no HOAs or Mello Roos, so the cost of ownership is much lower at the same price point.
Irrespective of your opinion of Columbus Grove, the price declines there have been extraordinary by Irvine standards, and today's featured property is a 40% loss for the bank. They gave out a 100% financing loan back in 2006. The owner quit paying, and this ended up in shadow inventory. How do I know this?
This property went through foreclosure twice. The HOA foreclosed on the property last March for non-payment of dues. They were hoping to force the first lien holder to act. A few days later, an NOD was filed, and the property finally went back to BofA in December.
Foreclosure Record Recording Date: 04/06/2010 Document Type: Notice of Default
If the loan owner was not paying the HOA dues for long enough that the HOA went through a foreclosure, how likely was it that he was paying the mortgage during that time? Not likely at all. If he was not paying his mortgage and there was no NOD filed, this property was in shadow inventory for quite some time.
Home Purchase Price … $801,500 Home Purchase Date .... 11/17/06
Net Gain (Loss) .......... $(322,100) Percent Change .......... -40.2% Annual Appreciation … -10.6%
Cost of Ownership ------------------------------------------------- $510,000 .......... Asking Price $17,850 .......... 3.5% Down FHA Financing 4.84% ............... Mortgage Interest Rate $492,150 .......... 30-Year Mortgage $103,685 .......... Income Requirement
$2,594 .......... Monthly Mortgage Payment
$442 .......... Property Tax $360 .......... Special Taxes and Levies (Mello Roos) $85 .......... Homeowners Insurance $420 .......... Homeowners Association Fees ============================================ $3,901 .......... Monthly Cash Outlays
-$425 .......... Tax Savings (% of Interest and Property Tax) -$609 .......... Equity Hidden in Payment $33 .......... Lost Income to Down Payment (net of taxes) $64 .......... Maintenance and Replacement Reserves ============================================ $2,964 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $5,100 .......... Furnishing and Move In @1% $5,100 .......... Closing Costs @1% $4,922 ............ Interest Points @1% of Loan $17,850 .......... Down Payment ============================================ $32,972 .......... Total Cash Costs $45,400 ............ Emergency Cash Reserves ============================================ $78,372 .......... Total Savings Needed Property Details for 73 JUNEBERRY Irvine, CA 92606 ------------------------------------------------------------------------------ Beds:: 3 Baths:: 3 Sq. Ft.:: 2125 Lot Size:: - Property Type:: Residential, Condominium, Townhouse Style:: 3+ Levels Year Built:: 2006 Community:: Columbus Grove County:: Orange MLS#:: S645081 Source:: SoCalMLS Status:: ActiveThis listing is for sale and the sellers are accepting offers. On Redfin:: 9 days ------------------------------------------------------------------------------ Elegant and refined defines this stunning townhome with upgraded finishes throughout including rich dark wood flooring, granite counters, espresso-colored cabinets and stainless steel appliances in kitchen, granite and travertine in bathrooms; plantation shutters, crown moulding, recessed lighting and extra-wide baseboards! Convenient indoor laundry room on same level as bedrooms. Living room has two-story high ceiling and cozy fireplace. Beautiful home - must see! Close to shopping and award-winning schools.
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