We have at least three years worth of distressed inventory in Orange County, and that assumes we don't add more to it. Despite the rise in the median price, the housing market is not healthy.
Irvine Home Address … 103 AMBIANCE Irvine, CA 92603
Resale Home Price …… $1,375,000
{book1}
So you though you'd like to change the world
Decided to stage a jumble sale
For the poor, for the poor
It's a waste of time if you know what they mean
Try shaking a box in front of the Queen
'Cause her purse is fat and bursting at the seams
It's a waste of time if you know what they mean
Too many hands in too many pockets
Housemartins — Flag Day
Headlines about 8.4% mortgage delinquency rates don't convey the enormity of the disaster. Headlines about rising prices mask the reason for rising prices: withheld inventory. A large number of Orange County homes are going to be sold over the next several years as we liquidate the properties of squatters everywhere.
So how many loan owners in Orange County are failing to make their payments?
Number of OC Homes Delinquent on Mortgage Payments
|
|
1,029,603
|
|
|
61.4%
|
|
Total Owned Housing Units
|
632,176
|
|
|
68.4%
|
|
OC Homes With Mortgage
|
432,409
|
|
|
8.4%
|
|
OC Homes Currently Delinquent on Mortgage Payments
|
36,322
|
(Links to source material provided above.)
According to ForeclosureRadar.com, there are 14,214 properties in Orange County with either a Notice of Default or a Notice of Trustee Sale. The ratio of visible to shadow inventory is comparable to national norms.
8.4% of O.C. mortgages 90 days late
Published: June 7, 2010 3:46 p.m.
According to CoreLogic’s latest late-mortgage report, 8.40% of Orange County home-loan borrowers as of April are 90 days-plus late with their house payments. That’s +2.60 percentage points vs. a year ago. Also …
* Compare that change in delinquency rate to the national movement in a year of +2.87 percentage points vs. a year earlier or +3.15 percentage points in California.
* 2.37% of Orange County homes were in the foreclosure process; +0.15 percentage points vs. a year earlier.
* 0.35% of Orange County homes were repossessed by banks as REO (real estate owned); -0.10 percentage points vs. a year earlier.
* Orange County 90-day delinquency rate is -3.20 percentage points vs. the state’s slow-pay rate and -0.50 percentage points vs. national pace
* At right is a table showing how Orange County mortgage troubles compare to state and national payment woes.
If it is "different" in Orange County, if we are wealthier and more financially sophisticated than the rest of the nation, then why is our delinquency rate almost the same as the national average?
And if our delinquency rates are nearly the same as national averages, why are the foreclosure rates and REO rates much lower? Are lenders afraid to foreclose here because they know what it will do to prices?
Is anyone else amazed that lenders are choosing squatting over foreclosure?
At least Orange County isn't the worst, right?
One in 7 U.S. homeowners paying late or in foreclosure
(Reuters) – One in every seven U.S. households with a mortgage ended the first quarter behind on payments or in foreclosure, although a peak in unemployment could mean repayment stress is easing, the Mortgage Bankers Association said on Wednesday.
While the rate of new foreclosure actions has slowed, the stockpile of loans that are seriously delinquent or in foreclosure means a long path to recovery for the U.S. housing market.
"It's like shutting off the oil leak, but you still have a lot of oil in the Gulf to deal with," Jay Brinkmann, the MBA's chief economist, said in an interview.
Interesting analogy…
The analogy breaks down because the pipeline has not been shut off. Delinquencies are still rising, and the pipeline is flowing at full strength.
Loans that are 90 days or more past due or in foreclosure represent a historically high 68 percent of all problem mortgages. High unemployment is overwhelming efforts by lenders to alter loan terms to borrowers.
Looming foreclosures and short-sales "suggest we will have more house price declines where we'll see a bottoming of the price decline very late this year into early next year," said Mark Zandi, chief economist with Moody's Analytics in West Chester, Pennsylvania.
Prices have toppled about 30 percent peak to trough on average but have stabilized in recent months.
"But the good news is that early-stage delinquencies and foreclosures are falling, so we should see a definitive rise in home prices by the spring 2011 selling season," said Zandi.
Give me a break. If we bulldozed about 30,000 homes of delinquent borrowers, perhaps prices may start rising by 2011. Zandi is market cheerleading. 
The combination of loans in foreclosure and those that are at least one payment past due declined to 14.01 percent on a non-seasonally adjusted basis from a record 15.02 percent in the fourth quarter, according to the MBA's National Delinquency Survey.
New claims for unemployment insurance in the first quarter were higher than expected, the MBA said, which stymied improvement in the 30-day delinquency rate. The rate has stabilized, Brinkmann said, though "a bad situation that is not getting worse is still bad."
…"Overall, we see a continuation of the pattern of declines in short-term delinquency rates, at least on a non-seasonally adjusted basis, the continued historically high share of delinquencies that are 90 days or more past due, and a leveling off in the pace of foreclosures," Brinkmann said in a statement.
In other words, the amend-pretend-extend dance will continue until we see a reason to stop it.
U.S. national unemployment, which hovers just below 10 percent, is forcing more homeowners to default in states other than those most hurt in the initial foreclosure tidal wave spawned by high-risk loans. Joblessness and wage cuts kept boosting defaults on prime, fixed-rate loans, or relatively safe mortgages made to borrowers with high credit quality.
… "Some might take comfort from the apparent topping out in the number of foreclosures started, but the inventory of foreclosures continues to rise — in other words, this headwind will linger," said Tom Porcelli, senior economist at RBC Capital Markets in New York.
Thanks for telling us how to take comfort from this terrible data.
Get it through your thick skulls people…
There is no cause for alarm from these problems, I have it from a reliable source that everything here will be all right. Orange County is different:
You're kidding yourself if you think prices are going to drop even more. We have already hit the bottom. I don't understand why "potential homebuyers" are under the assumption that there is going to be some sort of "correction." Get it through your thick skulls people…..right now is seriously the time to buy. I am not saying this as a Realtor but as a person with common sense.
Don't get me wrong, many areas of the US will continue to face declining RE markets, but not Orange County.
I am not saying this as a Realtor but as a person with common sense? Is he demeaning realtors or people with common sense? I can't tell. Would it have been better for him to say it as a Realtor? Would that have made his statement more believable?
JP Morgan Chase gets crushed
Today's imploding Ponzi stripped his equity as it appeared just like many others at the time.
- This property was purchased on 6/10/2004 for $1,205,500. The owner used a $964,350 first mortgage and a $241,150 down payment.
- On 9/17/2004 he opened a HELOC for $100,000.
- On 6/12/2006 he obtained a $500,000 HELOC.
- On 7/6/2007 he refinanced the first mortgage for $1,350,000 and got a $50,500 HELOC.
- On 9/25/2007 JP Morgan Chase extended him a HELOC for $270,000.
- Total property debt is $1,620,000
- Total mortgage equity withdrawal is $655,650.
- Total squatting time was less than a year.
Foreclosure Record
Recording Date: 02/23/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 08/12/2009
Document Type: Notice of Default
Luther Burbank Savings bought this property at foreclosure on 3/29/2010 for $1,457,000 which was the full amount of the deed plus missed payments and expenses. Notice these miscellaneous charges added up to $107,000. The value and cost of squatting is very high on these jumbo loan properties.
Irvine Home Address … 103 AMBIANCE Irvine, CA 92603 
Resale Home Price … $1,375,000
Home Purchase Price … $1,205,500
Home Purchase Date …. 6/10/2004
Net Gain (Loss) ………. $87,000
Percent Change ………. 14.1%
Annual Appreciation … 2.1%
Cost of Ownership
————————————————-
$1,375,000 ………. Asking Price
$275,000 ………. 20% Down Conventional
4.84% …………… Mortgage Interest Rate
$1,100,000 ………. 30-Year Mortgage
$279,544 ………. Income Requirement
$5,798 ………. Monthly Mortgage Payment
$1192 ………. Property Tax
$225 ………. Special Taxes and Levies (Mello Roos)
$115 ………. Homeowners Insurance
$235 ………. Homeowners Association Fees
============================================
$7,564 ………. Monthly Cash Outlays
-$1463 ………. Tax Savings (% of Interest and Property Tax)
-$1361 ………. Equity Hidden in Payment
$510 ………. Lost Income to Down Payment (net of taxes)
$172 ………. Maintenance and Replacement Reserves
============================================
$5,422 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$13,750 ………. Furnishing and Move In @1%
$13,750 ………. Closing Costs @1%
$11,000 ………… Interest Points @1% of Loan
$275,000 ………. Down Payment
============================================
$313,500 ………. Total Cash Costs
$83,100 ………… Emergency Cash Reserves
============================================
$396,600 ………. Total Savings Needed
Property Details for 103 AMBIANCE Irvine, CA 92603
——————————————————————————
Beds: 4
Baths: 3 full 2 part baths
Home size: 3,500 sq ft
($393 / sq ft)
Lot Size: 6,674 sq ft
Year Built: 2005
Days on Market: 36
Listing Updated: 40312
MLS Number: P734152
Property Type: Single Family, Residential
Community: Quail Hill
Tract: Sien
——————————————————————————
According to the listing agent, this listing is a bank owned (foreclosed) property.
This property is in backup or contingent offer status.
OPEN HOUSE SAT MAY 8 FROM 1 TO 4…Absolutely gorgeous highly upgraded home situated in prime location at the end of a cul de sac iin the wonderful community of Quail Hill. Spectacular back yard with spa, fireplace and outdoor fireplace. The casita which could be another bedroom and bath was turned into a fabulous wine room. Beautiful kitchen with granite, amazing master suite, this home has it all. Simply fabulous from the curb to the outdoor grounds and everything inbetween. Not your typical bank owned property.
Not your typical bank owned property? LOL. Yes, only because banks are not foreclosing on properties like these and kicking out the squatters.
These pictures are pretty. The wet concrete is wet enough to create some good reflections.
.
Back when you were computing expected losses for properties, I suggested you add in the missed payments to the total loss. Missed payments during the time a property can be REO should also be included. It seems like properties sell faster in CA’s OC than areas in FL I’m familiar with, but in those FL counties, time sitting as REO is a real expense.
Can the lender sue for the loss that will be realized? Can they sell the interest in that debt to a third party that could then sue?
I once was involved in a judicial foreclosure proceeding – for a commercial not residential property – in California. When we sought the deficiency judgment from the court we were able to include in our claim accrued an unpaid interest (up to the date of the foreclosure sale at the default interest rate) as well as fees (eg brokerage fees, legal fees, etc.). the borrower could and did object (eg they argued that we had taken too long to foreclosure, our lawyer was too expensive etc etc.) and the final determination was decided by the court (who awarded us about 95% of what we were looking for).
Had we gone for a non-judicial foreclosure we would have received only the deed and no right to a deficiency claim (ie one-action rule).
Correction:
“The analogy breaks down because the pipeline has not been shut off.”
Should be:
“The analogy is perfect because the pipeline has not been shut off.”
Also good analogy because zillions of little bacteria (like zillions of taxpayers) will eventually consume the spill and make it go away
Don’t harsh on the Red. We’ve got a similar color in our home. It’s not quite the bordello theme you might think it is. 🙂
The “it’s different here” meme makes me wince every time I hear it. Then I shut off the resource who says it because they clearly have no idea what they are talking about.
Might OC’s squatting timeline be extended because of the size of the loans involved? One of these behemoths is equal to three or four Palmdale homes in terms of loss severity. Why fight someone with the legal means to drag things out for a great deal of time? It’s easier, less costly, and much faster to pound the IE with foreclosures than it is to put a finishing move on the OC market. The banks are simply biding their time before they storm the beaches of The OC.
My .02c
Soylent Green Is People.
Actually, I find that red room attractive. Red always stands out… for better or worse.
Doesn’t that room remind you of the Enterprise if you just put some seats in the middle of the room and replace the windows with futuristic looking computer terminals?
That ain’t nothing compared to Tonye Alleyne’s flat redone to
become the Starship Enterprise
http://www.telegraph.co.uk/news/picturegalleries/howaboutthat/5290491/Tony-Alleyne-and-his-Star-Trek-flat.html
IR,
Here is a link to US land prices that you might find interesting.
http://real-estate-and-urban.blogspot.com/2010/05/little-experiment-in-house-price.html
Best
That link seems to indicate that prices (for land and the land value of a house) have overshot on the way down and should, therefore, increase significantly, at least in the medium term or longer.
For those that understand Macro economics, it is clear that real estate will continue to crash. The banks (watch the libor rate) are tightening credit again and people will have to qualify for a loan. Also, when the dollar crashes (and it will) the bond rates will skyrocket and so will mortgage rates.
Thanks for the link.
Projecting prices based on historical appreciation is one method, but it isn’t very reliable because it provides no reason for the past. This method was the favorite of bulls up through 2006.
Right now, most properties in beaten down markets have a negative development value. It costs more to develop the land and build the house than what the house can be sold for. In that sense, the market has clearly overshot to the downside, but some of these markets may never recover or may only do so decades in the future.
Shouldn’t your Net Gain (Loss) calculation reflect the most recent sale and owner, i.e. Luther Burbank Savings $1,457,000 rather than the 2004 purchase?
And what can LB Savings be thinking? Why make Morgan Chase whole even for missed payments, just to flip it for a big loss (assuming it sells at all)? What is going on?
I could have calculated the price based on the foreclosure, but that wasn’t a market price, it was determined by the outstanding value of the loan.
JP Morgan Chase is not being made whole. In fact, they lost everything in the foreclosure. All subordinate liens, which would include the Chase second mortgage, were wiped out at trustee sale.
Assuming the trustee sale was forced by the 1st lien lender, the 2nd lien hasn’t had their ‘one action’ – their lien is extinguished but don’t they retain an unsecured claim against the original looter I mean homeowner?
Yes. Its just like credit card debt at that point, but since most borrowers are also insolvent, the probability of collection is low. Someone with assets should worry about the collection people. Collecting on second mortgage debt that is no longer backed by property will be a growth area over the next several years.
Until the collection agencies chief alchemist can begin to extract blood from turnips, the odds are quite long in getting dollar one from failed seconds. They will try, but they won’t get far.
Hey, how about the State of California turning refinanced loans into non-recourse debt, up into the amount that was refinanced, but not the “cash out”. (Link unavailable at time of post. Was on CR this weekend if I recall) If this thing ever passes, I can’t imagine the crash this will cause. For example:
I buy at $500k with a $400k 1st and $50k second. I refinance to $500k to combine the two loans and take cash. Then 12 months later I refinance again to $500k with no cash out. Is the State then going consider the third refi where no cash was extracted now all non-recourse debt? Imagine trying to untangle the serial refinancers chain of refi’s… and what about the taxes due on that MEW?
What a tangled web we weave, when first we practice to deceive – Walter Scott.
My .02c
Soylent Green Is People.
yet another unintended consequence by govt and lobbying NAR/CAR do-gooders.
how many ways will the masses find to game this one?
I believe that when you refinance, all loans are recourse. Only the original first loan is non-recourse.
SGIP,
One of the old forensic test for blood was positive for turnip juice.
The banks are getting signs of false positive for a sustained recovery and profitably their new juicing schemes at taxpayers’ expense. How much are the seconds being valued as long-terms assets?
I don’t see a quick end to the govt/taxpayer sponsored Ponzi Scheme. High prices on the change to hit it big. Just a delay to transfer the banks liability to the GSE.
I was surprised that the 90+ day delinquency rates were so low in OC (8.4%). The rate should be higher with the squatters’ stimulus package. This low 8.4% would indict that people either have some equility or don’t know of this new stimulus packge benefits or waiting for a more opportune time to use the benefit (when money runs out or after consolidation of multiple loans to a single one action loan).
Matt138,
You’re assuming that the NAR/CAR and the govt are do-gooders and unaware of the consequences. The masses get the consolation prize, it’s the banksters and officals that get the grand prizes.
IrvineRenter,
Was the back taxes included in your figures?
Did the owner actually use the HELOC or just has it available and bank filed upon having the money avaliable?
Not for long….
http://www.calculatedriskblog.com/2010/06/california-senate-passes-bill-to-extend.html
Some loans might soon be less “recourse-y” than others.
My .02c
Soylent Green Is People.
It sounds like the non-recourse would apply only up to the purchase price and not the total refin amount. How would the one action rule apply?
Sound like another lawyer stimulus package for ligation. The law has not been fully approved, so lots can be added or removed.
Some people are just more equal than others. Bah…Bah…Bah.
This Zandi guy is a real hoot. He says that early stage delinquincies and foreclosures are falling so his computer models tell him that prices bottom by the end of the year.
My question is – how does he account for all the squatters who have not made payments and have not yet had NOD filed?
Can’t his declining delinquincies be explained by banks increasingly choosing to stick their heads in the sand and not take action against the deadbeats thus making his statistics useless?
There is certainly no shortage of houses for sale. Everytime a knife catcher takes one off the market, a new one pops up within a day to take it’s place.
How can he seriously believe prices stop falling in 2011 when the Option ARM wave surges through 2012, unemployment predicted to be high for years, and government deficit spending pointing to higher interest rates and taxes in the not too distant future. Zandi just ignores all of this? HELLO? Where is the money going to come from to ignite a price rally, Chief? Liars loans? 100 year mortgages? Where?
Every time one of these quacks takes a snapshot of today’s conditions and extrapolates them out into their future fantasy land I cannot help but cringe.
Whoops!
Zandi Calls 2009 Housing Bottom
Must have been the intensifying economic gloom despite the media regularly pumping us with stories about how all is well and a surging stock market!
Don’t worry about it chief, I am sure your new prediction is the right one! You are not a fool or a Charleton at all! No sir!
Housing Has Further to Fall in 2010 According to Mark Zandi
Prices to Stabilize Summer 2009 According To Zandi
Whoops!
Nice finds.
I’m no highly paid chief economist or anything, but I am sensing a trend here.
What will be the prediction be next year? “Prices to keep falling until summer of 2012”? Might as well keep issuing the same proclamation every year and just hope you live long enough to get it right. Call it the broken clock strategy, perhaps?
So, I have been following the market closely and reading this blog for the past few weeks. I find the data presented and the subsequent analysis insightful. I’ve been thinking about buying for the past year or so, but continue to hold off. I have to say, though, that it is somewhat discouraging to see inventory remain low. I agree that the number of distressed properties is quite large, but it seems that the banks continue to hold them indefinitely. What has led you to believe that they will change this behavior? I like your cartel analogy, but the incentive for a bank to cheat and break from the cartel is not obvious to me. Finally, do you have any sense of when this might happen?
Thanks for your hard work!
I think banks did some financial modeling and compared the costs to them of these 2 scenarios:
* hold
vs.
* sell
hold = do a bare minimum of foreclosures on delinquent mortgages, “wait it out” until the economy improves, for premium places like coastal, California
sell= dump houses no matter what, liquidate
And for Irvine they decided to hold, and it’s been working for them for the last 1 year.
For me, it is not obvious why the banks have any reason to sell either.
Common sense says that the banks use their own money to buy up these houses at auction. So there would be an incentive to sell these things in order to get liquid and have more reserves so that they can issue new loans.
There is also the property taxes, HOA, and maintenance that I assume the banks are responsible for which is another incentive to offload the houses.
But as we are seeing, the banks are borrowing money at next to 0% and buying up treasuries that pay them a profit. WTF is all I can make of it. It’s as though the banks don’t even have to make loans anymore and are instead just the shill businesses being used to cover the government’s money laundering schemes.
How does an ABSOLUTELY GORGEOUS house compare to a DROP DEAD GORGEOUS? A question for anyone with experience in listing houses for sale?
Is it more of a STUNNING sensation versus instant death?
Are buyers willing to pay higher premiums to be killed? Or do they prefer a house that temporarily awes them?
AZDavidPhx,
Absolutely Gorgeous is lipstick on a pig drunk on Vodka. So it is more intoxicating (a bit like being stunned).
Drop Dead Gorgeous is more like lipstick on a corpse/zombie.
So I’m considering buying a home in Fountain Valley for roughly $750k. 2700 sq ft. But I’m concerned the value will drop by as much as 10% over the next year.
The question is, do I have a legitimate reason for concern?
The banks need knife catchers. Don’t you want to help save the banks? Take one for the team and buy a 750K house.
Brock,
Three quarters of a million dollars is STILL quite a bit of money. Three quarters of a million dollars 10 years ago probably could have bought you a nice house with an ocean view…that’s how absurd this bubble got. I know quite a bit of people who bought in the last 8 or so years and many are sick and tired of “owning” a house, or should I say being house poor. In the back of their minds they know there will be no appreciation for many years to come (I would guess at least 5 years).
This time, no one will get priced out forever. Buy only if it makes sense for your personal situation…if not you can rent, save money and enjoy life for the next few years. The train will still be in the station and the tickets will probably be cheaper.
Yes. And the stock market appreciates 8% per year on average. Except since I started investing 13 years ago, where it kind of has averaged negative 5% each year. Hmmm, when you start investing around a bubble, it seems it gets really hard to make any significant gains.
Many people keep thinking that housing market will appreciate significantly. They don’t seem to understand that it already did. That is, all the current measures by the government have made home as expensive at it can be. Sure, it could go up more from here if the government institutes bigger subsidies and starts hiring all the unemployed. Which is looking very possible 🙂 I am not surprised by this government anymore. If we had free markets, housing would’ve felt 20-30% more (here in Irvine) and then would’ve appreciated slowly from there. But the government help prevented that drop from occurring. So we already had 30% rally, just we didn’t get to benefit from it, only the people that already own homes.
Like the people who say house values and cost of living goes up 3% per year, as though it is some kind of universal constant like gravity and declared by God.
It’s all an average. 10 years of nothing followed by a giant spike one year caused the 10 year average to be 3% and ignoramuses go running with it.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” -Albert Bartlett
Today, Monday June, 14, 2010 marks a day that will live in investment infamy: Not only has the European Sovereign Debt crisis intensified; but also, the world entered into global debt deflation as world stocks, VT, and US Treasuries, IEF, TLT and ZROZ, turned lower on the announcement of Moody’s downgrade of Greece debt to junk.
Debt deflation is the contraction and crisis that follows credit expansion. One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
Beginning today the banks capital is going to be progressively depleted. As selling probably will not look to attractive, the banks are going to start to lease or evict the squatters.
The reality is you better off being a flake in America
I have lived in OC since 1982.
The “FAKE” Housewife of OC keeps the MAN from selling and renting cheap. There are only 1 million Americans with a NET WORTH over $5 million, excluding primary residence! That’s terrible! 99% are “paycheck 2 paycheck” if at all. My average 2000 to 2009 return for 200 properties sold is 49.22% a month Gross Return. My Expected Projected return for 2010 to 2020 will be about 75% per month Gross return based on the 5000-10,000 acres of California Land I will sell.