Irvine Housing Blog |  |
| Delinquencies TWO times, foreclosures EIGHT times historic norms Posted: 09 Aug 2011 03:30 AM PDT Delinquency rates are declining, but they are still double their historic norms. Foreclosure rates are temporarily declining, but they are still eight times their historic norms. Mortgage distress is very high. Irvine Home Address ... 27 GEORGIA Irvine, CA 92606 The party's over The housing bust has entered a new phase; inventory liquidation. Lenders have been accummulating REO and delinquent loans for several years, but with fewer and fewer new delinquencies being added to the inventory, lenders are turning their focus on clearing out the debris. It's going to take a while. LPS Mortgage Monitor June 2011 During the housing bubble, borrowers were given loans that were much too large and with terms which doomed them. When people began succumbing to the toxic debts they were given, delinquency rates began to rise. As delinquency rates went up, lenders realized they made a huge mistake, so they stopped underwriting stupid loans. Without Ponzi loans to bail out the overextended, delinquency rates rose to levels never before seen. Couple the mortgage distress that was built into the system with recession unemployment, and the delinquency rate peaked at 10.97% in January of 2010. In the 18 months that followed, delinquency rates have declined as new delinquencies have slowed and foreclosures have begun clearing out the shadow inventory. At the current rate of decline, it will be at least another 18 months before the delinquency rate falls to 5.5% and re-enters its historic range. That assumes the double dip and strategic default doesn't cause fresh delinquencies and recent slowdowns in foreclosures doesn't slow the decline in the delinquency rate.
New delinquencies are still being added to the system at a lower but still alarming rate. Lingering unemployment and strategic default from the house price double dip are largely responsible for the high rate. Lax underwriting is no longer the driving force behind delinquencies. Back in late 2008, the amend-extend-pretend dance caused the correlation between delinquency and foreclosure to break down. The result is a large backlog of foreclosures known as shadow inventory. Lenders have been metering out their REO as the highest rate they can which does not crash the market. The slower they sell their REO, the longer the problems will linger. The faster they sell their REO, the more prices will drop and more borrowers will opt to strategically default. It's a difficult balancing act. Shadow inventory is full of delinquent mortgage squatters. Millions of people are occupying homes they are not paying for. The high end has more shadow inventory than the low end as lenders have been foreclosing on smaller loans while leaving larger loan balance borrowers alone.
Lenders are foreclosing on fresh delinquencies while allowing older delinquencies to remain in shadow inventory. However, they are making more headway on reducing shadow inventory as the percentage of foreclosures on old delinquencies is steadily rising. The big problem for lenders is clearing out the backlog. As the chart above notes, the foreclosure starts relative to their delinquent inventory is still low. That number needs to rise from 10% to 100% before shadow inventory is clear. The chart above is very revealing. In the summer of 2010, lenders reduced their foreclosures dramatically. The chart below reveals this slowdown is a result of problems in judicial foreclosure states. California is a non-judicial state, so Robo-signer and other procedural delays have not impacted the foreclosure rate. In judicial foreclosure states like Florida or New York, many more borrowers are being given extra squatting time. The above charts are a different way of looking at the same procedural delay problem in judicial foreclosure states. It will take time to clear the inventory overhangThe important fact to take away from this post is that it will take a long time before the market is not burdened by homes that need to be sold. Let's take a look at some of the inventory overhang in Irvine. Foreclosure Date -- Amount -- Address Dec 16, 2008 -- $856,029 -- 78 Dovecrest Irvine, CA 92620 When are these properties coming to the market? If lenders are waiting for peak prices, they may own some of those properties for decades. Locally lenders have not capitiulated yet. At some point, these properties will be sold. The current supply is being temporarily constricted, and people are not being allowed to have the beneficial use of these properties. Most are sitting empty as if they didn't exist. However, they do exist, and at some point they will need to be sold. I'm not the only one who has noticed this problem locally. Distressed sales could last 5 yearsBy JEFF COLLINS / THE ORANGE COUNTY REGISTER -- August 5, 2011
Ponzis since 2001Some people figured out Ponzi borrowing from their house earlier than others. The owners of today's featured property began with a small down payment in 1999, and parlayed that into several hundred thousand dollars of mortgage equity withdrawal as a few years of squatting. To them, housing is not a cost, it is a reliable source of income supplementation.
Foreclosure Record Foreclosure Record Foreclosure Record Foreclosure Record Foreclosure Record Foreclosure Record These are the kinds of homeowners the system could do without. These people have gamed the system for maximum advantage. They will endure a serious fall from entitlement after their sale or foreclosure because for the first time in more than a decade, they will actually have to pay for housing rather than having their housing pay for them. ------------------------------------------------------------------------------------------------------------------------------------------- Irvine House Address ... 27 GEORGIA Irvine, CA 92606
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The above list is a small sample. Most of these were mortgages over $1,000,000, and many of them have been owned by lenders since 2008.
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