Rising interest rates will be the end of our Spring rally. Transaction volumes will fall first, and prices will fall later.
Asking Price: $399,000
Address: 157 Lockford, Irvine, CA 92602
I’m sitting over Neptune City
I used to love it
It used to be pretty
I’ll come down, walk around a while
Until I’m sure I can never go home again
Neptune City — Nicole Atkins
Prices have stabilized locally through a combination of very low interest rates and very high downpaments. Downpayment amounts have been steadily declining as those few with substantial downpayments have spent themselves. Now, the other component of the purchase price is under tremendous pressure; rising interest rates is reducing loan amounts.
When interest rates go up and incomes do not — a condition we are witnessing now — the amounts people can borrow declines. In the short term it means many deals that went into escrow assuming the borrower could get a 4.5% rate are going to fall out of escrow. The cumulative impact of all these deals falling out of escrow over the next 30 to 60 days is going to be a drop in transaction volumes. By August, this will translate into lower prices as people bidding on properties must adjust their offers to the new level of financing.
It looks as if 4.5% interest rates are gone for good. So what does that mean for future home values?
The brief stabilization we have been experiencing was caused by
interest rates under 5%, and large downpayments. Now that most of the
knife catchers have burned up their downpayment money and interest
rates are approaching 6%, 15% of the buying power in the market just
evaporated. As interest rates keep climbing, buying power keeps
diminishing. This will lead to even lower transaction volumes and lower
prices.
Unless interest rates start dropping again — which doesn’t seem likely — the Spring rally the market has been enjoying is dead.
It should not be surprising that the rally isn’t sustained. There is no way our housing market or the local economy is at a
bottom. Californians have borrowed too much money, far more than their incomes can support. As long as this debt exists, house prices will continue to
decline, and the economy will suffer.
Think about it, if 20%-30% of the population has more debt than they
can service—which they do thanks to liar loans and unstable loan programs—these debt levels must be decreased to
serviceable levels. Reducing these debt levels requires a sale,
foreclosure or bankruptcy. To complete a sale, someone who can afford
the debt must buy a house from someone who cannot afford the debt.
There are only so many of these people out there who are able and
willing to do this. The rest—all the rest—will go through foreclosure.
There are many who believe that loan modifications are the answer. I have expressed my doubts about principal reductions being part of these modifications (see No Forgiveness). Any loan modifications that do occur will simply restructure debt to the maximum serviceable payment level. This will drain all disposable income from borrowers and wipe out our local economy–unless you believe appreciation and mortgage equity withdrawal are coming back soon.
To the extent that loan modifications succeed, our local economy
will suffer. Imagine an economy where everyone is has received loan
modifications. They are all trapped in their homes because they have no
equity, and they are making the maximum possible loan payment their
overlords believe is possible. How is that any different than serfdom?
In such an economy, there would be little or no discretionary spending
to support local businesses because every available penny will be going
toward debt service.
Many individual homeowners are praying for loan modifications that are not going to happen. It is a classic example of being careful what you wish for because if everyone were to get a modification, it would be a disaster.
Asking Price: $399,000
Income Requirement: $99,750
Downpayment Needed: $79,800
Purchase Price: $645,000
Purchase Date: 1/26/2007
Address: 157 Lockford, Irvine, CA 92602
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,496 |
| $/Sq. Ft.: | $267 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Other |
| Stories: | 3+ |
| Floor: | 1 |
| View: | Peek-A-Boo |
| Year Built: | 2002 |
| Community: | Northpark |
| County: | Orange |
| MLS#: | S577596 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
open floorplan. Kitchen with granite counters and Beechwood cabinetry,
deep cast iron sink, convection oven/microwave.
Somebody paid $645,000 for a two bedroom condo. Unreal.
It didn’t take long for this woman to lose everything. The property was purchased on 1/26/2007 for $645,000. The owner used a $516,000, a $129,000 HELOC, and a $0 downpayment (it is possible she put $129,000 down and was pre-approved for a HELOC).
If this property sells for its teaser asking price and a 6% commission is paid, the total loss on the property will be $269,940. This property is being offered for 38% off its peak purchase price.
What is a Peek-A-Boo view?
It’s where you sneak over to your bedroom window naked and suddenly jerk the window shade open while screaming “PEEK-A-BOO!!” in order to startle your sleeping next door neighbor who is 5 feet away.
That was you this morning?!
Wa hahahahahah! That’s funny! That’s why I dislike the super close together houses in Woodbury.
Ocean? From Portola? Maybe hillside. Ocean?!? No way! Really!?
Believe it or not, there are ocean views in the highest lots in Portola Springs. The next time you drive down the 241, you can see the ocean from where it intersects with the 133.
If you stand in the southwest corner and hang your head and torso out the window, and it’s a clear day in May, and the moon is the second house, and Jupiter aligns with Mars, you can see a sliver of ocean. But only if it’s high tide. Or something like that.
OOps, see above.
It generally means that if you stare long enough and hard enough in the direction of the ocean, you might be able to convince yourself that you have a very small view of the ocean. Most of the time it requires the houses between you and the beach to be bulldozed, or at least their trees to be razed. But it is often overly generous to use that description (like “hey, if you stand on the roof and the planets are aligning just right, you’ll see a tiny glimpse of the Pacific!”).
IR, speaking of stagnating incomes, why is it that there doesn’t seem to be much attention paid to the people who are independent contractors (self-employed, consultants, sales, studio teachers, moonlighters, etc.). My sister used to teach kids on movie sets and she was an independent contractor – she couldn’t ever collect unemployment. I am sure that much work in that area has dried up, and that there is a huge chuck of people who fall into this category (I know a few people who have gotten laid off from their “consultant jobs” that they really needed to make ends meet for their family) yet there is no discussion of it in employment figures and no way that I know of to capture it – is there?
Because of the way our unemployment reporting system is set up, the actual rate of unemployment is understated. Most of the realtors and mortgage brokers who have been idle for much of the last 3 years is also unreported. The biggest “employer” of this decade has been people’s houses through mortgage equity withdrawal. Now that the housing ATM is broken, one of the biggest employers in the State has shut down.
The effects of this are difficult to write about because there are not any reliable statistics reporters can use to back up their claims. I think the loss of MEW as a prop to our economy is the biggest story of this recession, but I haven’t seen many prominent stories written about it yet. I know Matt Padilla is becoming interested in the phenomenon; hopefully, he will write some more stories about it.
Is that a fact, or just an exaggeration on the people who have been living off their HELOCs?
Mortgage Equity Withdrawal was definitely the single largest “employer” in Orange County, especially since the money taken out wasn’t subject to Social Security, Medicare, or state or federal tax when it was realized.
IHB covers the anecdotes, but the actual sums were huge. At its peak, in 2006, nationally, MEW was over 200 billion dollar a quarter, and over 9% of personal income.
Most of this equity withdrawal was occurring in boom markets like Orange County, where high prices allowed billions of dollars a month in spending based on tax-free withdrawals with refinancing and HELOC abuse. The house was one more wage earner, and sometimes the biggest earner in the family.
At its peak, MEW was somewhere in the range of 10% to 20% of personal income in Orange County, dwarfing the payroll of any other employer.
You need to extrapolate to get these numbers, but there’s no question that the numbers were very large and very significant.
And that money’s not coming back.
If you want a tangible example, look at what OCTA is now projecting to realize from sales tax from the Measure M renewal. They forecast 11.8 billion over 30 years from the 1/2 cent sales tax. Now that we don’t have the disposable income we were taking out of our houses, they are projecting that number to be 38% smaller.
Wow, if MEW really was responsible for about 10% of “income” in Southern California, and if MEW has been eliminated (or nearly so), it’s pretty amazing that our economy hasn’t fallen more than it already has. Or perhaps there is still some more severe economic decline to come as the MEW cash flows out of the system.
What’s interesting about Orange County, is that we exported our affordable housing to adjoining counties, so our unemployment rates show up in Riverside county. The recession starts inland and spreads to the coast.
There are indeed more declines coming for our economy here. State and local budget cuts, and their multiplied effect, will add another 2% to the state unemployment rate.
Orange County is still like Wile Coyote, legs pumping madly after he’s run off the cliff, but doesn’t know yet that he’s going to plunge.
the total loss on the property will be $269,940
My God, that’s a loss of a quarter of a million dollars on a 2-bedroom condo in Irvine. Think about that.
All this money being lost, by the owner, the lender, the taxpayer, and still…
• The sellers realtor plans to make $11,970 for a 27 word description and filing some relatively standard forms.
• The buyers realtor stands to make $11,970 for having a lock box code and filing some relatively standard forms.
• The closing costs will no doubt be ~$10,000.
Where is the value added here?
And the financial institution who is responsible for loaning this moron the money, is being bailed out by the govt … AND, the new buyer will be subsidized by the govt with a buy-down mortgage, and special onetime tax advantages.
We’re presently ripping off the next generation of Americans because we refuse to accept responsibility for our actions.
Perhaps more accurately, the lender is being bailed out by the taxpayer…at the govt’s discresion.
Honestly, I see plenty of hard work, hand wringing and hair pulling in the govt’s discresion – not totally happy with the situation, but the motive seems at least ‘nice’.
Realtors getting $500/hr, or whatever it works out at though gets my goat (as an embittered home seller).
I’m not sure how much a pool costs, but if you took those realtor fees and installed a pool, wouldn’t that bring more value to a property, it’s owners and the great wide world?
Damn, I’m bitterer than I thought!
Tim … you’re speaking to the converted. IMO, real estate is the most unproductive sector in our economy. We just move paper around, with realtors/mortgage co’s collecting tolls.
Actually, I want to restate that.
IMO, real estate is the most unproductive private sector in our economy.
I’m thinking I should change career path and become a realtor, even in ‘these hard time’ it’s a sweet deal.
Believe it or not, my wife is thinking about it.
Out with the old, jaded, latte drinking bimbos, and in with the new blood, who can do more with less.
I was thinking if I should become a realtor, and use a model similar to what IR is working on. More of a pay-for-services model.
Great Post IR–
RE can suck you in and you see this with free classes they will sign you up get you to pay the fees involved, give you an office–you will pay out first that is how it works in hope you sell a house. The vast numbers of RE agents here in the OC were 1 license for every 22 households back in feb. 08′
http://www.ocregister.com/money/estate-real-number-1970845-people-last
A bubble for sure–
“IMO, real estate is the most unproductive private sector in our economy.”
Perhaps the RE sector should not be considered the private sector since a lot of the profits are channeled to the politicians via the lobbyists.
NOOOOOOOOOOOOOOOO!
Although if she does, she should team up with the new generation, and absolutely avoid the old model.
Just a reminder:
REALTOR isn’t a profession, it’s a lobbying organization. (It just means you’re a member of the NAR.)
I want to be a REALTOR like I want a hole in my head.
“REALTOR isn’t a profession, it’s a lobbying organization. (It just means you’re a member of the NAR.)
I want to be a REALTOR like I want a hole in my head.”
You took the words right out of my mouth.
It has come down to this then, The realtors has been the smart ones all along. They are the mediators between stupid lenders and stupid people. What you are surmising is lenders and people will continue to be stupid so why not try to take advantage of this stupidity.Interesting.
You have a hole in your head – several – starting with your mouth… (grin)
This is a fine 300K property, its only 100K overpriced……..
We had a property owner visit the blog from Tuesday’s property.
Property Owner
He was quite nice.
You weren’t kidding. He was extremely nice.
Does that mean we’re nearing the bottom? Bears are no longer the mortal enemy of property owners, their lies do not need to be exposed, their injustices do not need to be decried, their motives don’t need to be questioned, and their discussion boards do not need to be loaded with profanity.
I remember someone on this board suggesting that we’d know the bottom when interest in this site dried up.
Another sign we will see when we are near the bottom is that people will tire of the schadenfreude. There comes a point when people are just “over it.” People on the blog will view the smug saps who went from real estate gurus to penniless paupers as harmless and hapless fools. When we see that transition, when kool aid intoxicated are viewed as disease victims that need help, we will be much closer to the bottom. As long as kool aid intoxication is strong, and as long as people still enjoy the carnage of quarter million dollar losses, we are not at the bottom.
Give it about 2 or 3 more years….
I can’t say I’m tired of the schadenfreude, but my tolerance has gone up. I can’t say a quarter-mil loss does very much for me.
I keep looking forward to the weekends when you reach a little further out of town to dig up an $8M loss… mmm…
Schadenfreude doesn’t really enter into the equation when we’re the ones covering the loss.
Funny, I thought I was over it until my coworker showed up in a new car that he bought with HELOC dollars and proudly announced his house, which he sold short, closed escrow. He now says he’s has figured out a “one to two year recovery plan” and believes he will be buying again… this time, in Irvine. It irritates me to think that in the future, I may be competing for a house with this dude…. whose downpayment, by the way, should now be pretty close to mine… since he’s been living in his house rent-free for quite some time, plus the left-over heloc dough. Sure, his credit isn’t as good, but that’s nothing to him, at least for now. Anywho, I have to see his face quite often and hear about how good he’s got it, so that tends to resurface the Schadenfreude. When the faces are nameless to you, perhaps it’s easier to forget.
Unless they change the regulations at the GSEs or the FHA, he will not qualify for a loan insured by them for at least 5 years. You won’t have to worry about competing against him for quite some time.
I wonder if he found ‘The Crooked House’ title amusing or irritating.
But even if he found it irritating, he was a good sport and left it alone. He got some great exposure and his good attitude makes him appear very approachable. The IHB just might help him sell.
When you read the post, you see that I was not making fun of the owner’s taste in decor or the house itself. I don’t go there very often, although the comments often do. The post does point out the poor presentation of the agent, but that is something the owner should go discuss with the agent. In fact, I hold out hope that local agents will improve their presentation to avoid the ridicule, but so far, I seem to be presented with an endless stream of awful pictures and poor descriptions.
True, you were not making fun of the house, but the quality of the pictures. But many homeowners are so emotionally touchy about their property they may still be offended.
Taking good pictures does require some skill and effort. Many RE agents seem to lack the talent or energy required to put together high quality listings.
Bottom line is being a RE agent is a sales job and the ones with the best sales skills will often get the listing while the ones with the photo skills, but are less sales orientated will not. This and many listings go to relatives and friends of friends. I seems everyone is related to, or knows, an agent.
Too nice if you ask me.
That person’s astute observation read like a Pollyanna in the throws of a Kool-Aid hangover trying to convince themselves that all is dandy.
It shows you that there are still a good portion of people sitting on the denial slope of the curve.
He was sure to portray himself as a move up and by no means desperate to sell. It came across as overcompensating for something if you ask me…Fear perhaps?
AZDavidPhx,
I am sorry you feel that being too nice is a negative. I am just a generally friendly person and try to always have the ‘glass is half full’ attitude. I want to pass that trait onto my children.
You state I am overcompensating due to fear.
What am I fearful of? Dropping prices? Well, lower prices do acutally have a benefit for me. The lower in value my house drops, the lower in value the house I want to buy will most likely drop. So I benefit in the fact my property tax burden will end up lower. Please don’t conjecture unless it is just a light hearted ribbing.
Either way, I think it might be interesting if there was ever a “meet and greet” organized so we can put faces to the posts we read here.
Have a nice day!
IR does have meet and greets occasionally, but not all of us are locals.
Come back and let us know what it sells for.
Best of luck. This may have been good exposure, it certainly can’t hurt. But most readers on here still feel the whole market is overpriced so aren’t prepared to pay today’s prices to buy from you. But, you never know, there could be lurkers. And most of the Irvine buyer market is presumably not reading this blog, evidently, anyway, since they’re buying now. So our pricing opinions are a bit irrelevant.
Back in the day we used to get in fights over today’s price as well as where the bottom price would be.
Thank you so much, Property Owner, for dropping by and being such a good sport.
The publisher of this blog has always been scrupulous and decent, eschewing critiques of people’s taste, and respecting personal privacy, but being sharply critical of the folks who thought their homes were ATM’s, although commentors, including me, are sometimes downright mean.
In my opinion, you’re definitely one of the good guys from every perspective, and I wish you and your family well.
I don’t know what got into AZDavidPHX with the crack about overcompensating. I took your comments to be heartfelt, honest and gracious.
I don’t know what got into AZDavidPHX with the crack about overcompensating. I took your comments to be heartfelt, honest and gracious.
At first, I sort of thought it was some over-compensation going on, but now that I have read some more, I have the opinion that property owner is wanting to cash out while he can. Sticking some foolish knife catcher with a depreciating asset is not really his concern. I guess it shouldn’t be. The entire situation is annoying to watch.
Calling your observations “astute” regarding “property owner” are giving you way too much credit. Just own up, apologize, and lets move on Dave. Generally your posts are worth reading but you are making yourself look very bad on this.
Yes, for the most part he provides interesting input, but every once in awhile goes off the deep end a bit.
Just own up, apologize
I mistook Property Owner’s opptimism as possible denial, but after reading more, I don’t think that’s the case. I think he is just looking to stick it to a knife catcher and walk with a windfall while he can (assuming he can find someone dumb enough to buy his house for the listed price). I think that the listing price is offensive and greedy. Property Owner could most likely not afford to buy his own house at its presently listed price if he were in the same financial situation that he was in back in 2000 looking to buy.
I’m not going to go out there and be a cheerleader and congratulate this guy for his profits while we are in the middle of a recession, people are losing jobs, banks are taking bailout cash, and prices are falling.
Calling your observations “astute” regarding “property owner” are giving you way too much credit
I never did. Nice try.
“Either way, I think it might be interesting if there was ever a “meet and greet” organized so we can put faces to the posts we read here.”
The next one is scheduled for June 30 at 6:30 at JT Schmids at the District. It would be great if you could attend.
Darn, there was a sale on Southwest Airlines today… $38 + tax one-way for SNA/PHX. <$100 RT, shoulda taken up a collection to bring AZDave out, I woulda chipped in a few bucks!
Actually, your logic of your “move-up” home being lower priced due to declines is flawed. Just ask the people who claim their “nicer” neighborhood’s haven’t been effected by the real estate down turn.
Property Owner –
I want you to admit that you could not afford your own house.
If you paid 327K back in 2000 and your debt is now down to 250K then you have taken about 9 years to clear away 77K in equity. I don’t even know what your down payment was, but I can certainly tell you that even a 77K down payment is not going to be enough to bring to the table for your house at it’s current listing price. We have not had enough inflation to justify this change.
Your excuse of not wanting to divulge personal income is a straw man. I didn’t ask you to do that.
All I am asking for is a little intellectual honesty here.
AZDavidPhx,
I did not say inflation is the only factor in today’s home prices. Either way, I will try to answer your question the way you want since it seems to be a real sticking point for you.
Back in 2000, I bought a house that I could afford based on my downpayment and income. There were other houses a few blocks away for sale at double what I bought my house for but I did not buy those houses. Other people did because they either had a bigger down payment, made more money or both. At the time, I could not afford those ‘expensive’ houses. So to answer your question: At that time, with the downpayment I had, I could not afford a $600K+ house.
That is why I am not selling a $1.2 million dollar house which is what those $600K houses back then are going for now.
Some people can afford a condo, some an SFR house and some an oceanview mansion. There are people that have different income and cashflow levels. In addition, people have different motivations for what they want in a home.
Hopefully this answers your remaining question.
Just as a side note, I sensed a bit of frustration or anger from you and I just want to let you know I feel no ill will toward you and I hope you feel the same. To me, we are just having some friendly banter.
If you got the impression that I was angry, that is correct – but it is at the banks and politicians that caused the situation to unfold.
Naturally, some of it spills over onto the house sellers but it’s nothing personal.
Don’t worry everyone, the altruistic nannies within the California government are charging in with their dumbass law of the day California Foreclosure Prevention Act (WOOoOOoOO! Sounds official!) to save the world. It sounds a lot less offensive than a California Recession Extension and Keep Homes Unaffordable Act. Chalk it up to good marketing.
The White Knight is coming to help you. There is nothing to fear but fear itself!
Foreclosure freeze prods banks to modify loans
Carolyn Said, Chronicle Staff Writer
Tuesday, June 16, 2009
(06-15) 18:25 PDT —
California implemented a new foreclosure moratorium on Monday to goad banks into modifying mortgages for struggling fauxowners(sic).
The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90 days onto the time period between when fauxowners(sic) default on a loan and when their home can be repossessed in foreclosure. Banks can avoid the 90-day holdup by having a comprehensive program in place to make mortgages more affordable by reducing the interest rate, extending the loan term, or reducing or deferring some of the principal. Such programs must be approved by regulators.
“The goal is to compel banks to do systematic loan modifications across California to reduce our foreclosure rate, which is the highest in the nation,” said Assemblyman Ted Lieu, D-Torrance, who wrote the bill. “Until we slow that down, the California economy cannot recover.”
“This law is most useful as a stick to supplement the Obama administration’s carrots to get loan servicers to adopt a much more systematic framework for doing loan modifications,”
In the past few months, 15 servicers have agreed to implement the Obama plan, according to the Web site MakingHomeAffordable.gov. Government spokesmen have said that about 100,000 fauxowners(sic) nationwide have been sent offers for trial modifications, a relatively modest number compared with the administration’s goal of helping 3 million to 4 million fauxowners(sic) avoid foreclosure.
In California, the Department of Corporations will determine whether banks qualify for an exemption from the moratorium. About a dozen servicers had applied as of last week, said department spokesman Mark Leyes; they will now have a 30-day grace period while their applications are reviewed. A list of the participating banks will be at http://www.corp.ca.gov.
Leyes said the department will monitor the servicers’ success rate regularly, not just accept their word that they have a program in place. Still, he added, “There is no guarantee in the law or anywhere else that anybody is going to get a loan modification. What we’re looking for is a good-faith effort on the part of the servicer to do what they can to make the loan affordable and sustainable for the fauxowner(sic).”
Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, said lenders generally do not like moratoriums because they haven’t worked in this past,
In September, California implemented another law that required servicers to make more efforts to contact fauxowners(sic) before foreclosing. That law caused a dip in the number of foreclosure filings throughout the fall months, but they have resurged this year now that lenders have caught up with the requirement.
This bill is a classic example of denial politics. It makes the government look like they are doing something when in reality, they are doing nothing. Since every lender in California already has a loan modification program in place, they are all exempt from this legislation. This will not even register as a speed bump on the road to foreclosure.
This also gives cover to the lenders who have a shadow inventory. As long as they are being told to not foreclose (and they can continue to value their collateral (house) “assets” wildly high), they can continue to make their books look healthier than they are, and they can continue to kick the can down the road re: shadow inventory not being foreclosed on. That’s all it is, more cover for the lenders. Shame on any reporting that makes it look like it’s change we can believe in.
“California implemented a new foreclosure moratorium on Monday to goad banks into modifying mortgages for struggling fauxowners(sic).”
If you must use “sic“, use it correctly – it indicates that you are quoting exactly, despite an error in the original text.
Thus using “sic”: “…for struggling homeowners[sic].”
Or not: “…for struggling [fauxowners].”
Also, a link to the original story (a href=”http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/16/BUIH187NE7.DTL”>http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/16/BUIH187NE7.DTL)would have been appreciated.
And of course my nit-picking post had an error in it. Let’s see if I can get the link right this time:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/16/BUIH187NE7.DTL
I know exactly what it means and how it is used.
I’m using “fauxowner(sic)” as satire of the original author’s perspective. Obviously anyone who reads what I posted is going to know that the original author did not say “fauxowner”. I guess you didn’t get the joke and based on your reply, I am not really surprised.
Nice sense of humor, there, djd.
Then you should use it properly. When I read your post, I had to pause and think about what was going on because it didn’t make sense. Eventually I figured it out. That’s the thing about writing, if you want people to understand you, then you should use the appropriate tools.
I had to pause and think about what was going on because it didn’t make sense
http://www.crackthecode.us/images/cry.jpg
What an assahola you are(sic).
I posted this over at OCR blog, but realize Padilla probably thinks he’s addressed this already (unfortunately he does more reporting/regurgitating than investigating).
I wonder if commenters here, or IR himself, might have some real insight to the NOD vs Foreclosure discrepancies.
In reference to numbers like this (thx dafox):
http://spreadsheets.google.com/pub?key=pGy0BQU1PZ9DkdsiaqdkuEQ&gid=3
—————————–
This is a topic worth investigating. I’d enjoy an indepth article covering this.
What is currently happening between the NOD and Foreclosure status? It’s a black box, and we’re seeing way more NODs going in than Foreclosures coming out. Inquiring minds want to know: WHY?
Possible reasons:
1. Short sales and loan mods are a huge success! They make up the difference between the NOD #s and the resulting foreclosures. (this seems unlikely, though may explain some of the difference. How much?)
2. People who defaulted are getting their act together, and righting their finances. (Doesn’t seem likely in this economy).
3. Log jam between NOD and Foreclosure, the black box is just getting BIGGER. (If the numbers from 1and 2. don’t add up, this must be the case.)
And if 3. is the case, why the back-up?
1. Banks are overwhelmed, they can’t keep up with the paperwork.
2. Moratoriums and efforts to work with borrowers are delaying the process. The bank is hoping the borrower can get his/her act together.
3. Banks are purposely delaying the NTS and Foreclosure stage to keep properties off the market (ding ding ding?!). Why? Well either they foresee a rebound in the future, or they’re hoping to CAUSE a rebound by shutting off supply (and then gradually releasing foreclosures). Or maybe they’re just smart enough to know they can’t take the hit to the books yet.
Regardless, how big can the black box get? People living in homes are not paying their mortgages, this has got to be costing the banks money. They’re also probably not paying their HOAs and taxes, and also probably letting the home deteriorate around them. All of this the bank will be on the hook for. Is this not enough to give the banks incentive to streamline the process to get those properties onto the market and out of their hair?
Let’s investigate!
——————-
People like MrM say “the tsunami of foreclosures is coming!” and it seems like it must be. But really, must it? I doubt these NODs are taking care of themselves, so how long can the banks sit on these? What incentive do they have, especially now that prices are temporarily stable, to put these houses on the market?
Sorry this post is a bit of a mess.
Just today I had a conversation with a reliable source that told me that one of our major lenders here in California is preparing to foreclose on 95,000 to 100,000 homes. I can’t say more than that.
I also had a conversation with a very reliable source today who sees a tsunami of foreclosures, with some of them going to vulture funds. There’s a huge backlog of bad loans where they are trying to value the properties and the loans, but it’s been a moving target, and the loan servicers are hopelessly unprepared and paralyzed by the magnitude of the problems.
The real leading indicator has been the number of folks who were 90 days past due on HOA assessments. I posted quotes previously from Merit, the largest HOA management company in the state, showing these numbers had tripled in a year.
There have been a number of jittery people here and in the forums. I try to assure them that these foreclosures are indeed coming, but some do not believe me.
Yikes, a bit of a dumb move. The consensus is borrowers should continue to pay HOA as they can pursue you in court and 99.9% of the time they’ll win, AND you pay attorney costs. So long as your home is your primary home with only a 1st TD, foreclosure puts you in the clear.
But I guess it doesn’t matter if the borrower files bk, especially if they’ve got a 2nd TD coming after them.
IR: Even if a mortgage is modified, the re-default rate is about 60-70% 6 mos down the road.
All of this just postpones the solution. On the other hand, buyers will be rewarded (unless, of course, the old maxim “I’m from the federal government and I’m here to help you” finally proves true 🙂
IR, how did you come to the conclusion that ” Now that most of the knife catchers have burned up their downpayment money”? Just few days ago there were remarks here on the blog that Asians are following Irvin’s market very closely and wait. How do you know when knife catchers are gone? How can one predict it?
IrvineRealtor in our forums has been tracking every transaction in Irvine for the last couple of years. His spreadsheet is showing a steady decline in downpayments since the beginning of the year.
This makes sense when you think about it; those with the most cash can bid highest, and as they purchase, you keep dropping down the downpayment ladder until everyone with more than 20% to put down is spent. With the absence of jumbo financing, the sales prices of homes are the conforming limit plus downpayments. This will hold true until rising interest rates prevent people from financing loans at the conforming limit.
As for the influx of Asian money, that myth appears in every market bust. There is some truth to the idea that foreign money is always late to the party and ends up holding the bag. See Rich Toscano’s analysis on the subject: Dumb Money. In short, there is no way outside Asian money will support our housing market; although, it is common for people to think that it will.
Man I’m so jealous, I wish I had someone tracking this for my market in Northern Virginia…
Sigh.
Yes, his data has resolved much bickering over what people think is happening in the market. We know exactly what is going on.
Glad I refi’d into a 15 year fixed at 4.375% back in April. But I’m one of those non-distressed owners who was just looking to save on interest. So no new sales activity resulted. I have a question about the 28% DTI. Does it include property taxes or not? And is the income net or gross? I’m in Illinois, and things are different here than California. My mortgage for my 4100sf house is $1600/month, but my property tax adds another $1000/month. So my DTI is much higher with the taxes than without them. My taxes actually went down $50/month last year, and at least our schools are decent. So I’m almost getting my money’s worth with 2 kids and a 3rd on the way. I’ve got cash in a money market, so increasing interest rates are a good thing from my perspective.
DTI is calculated based on Gross Income, and it includes payment, taxes, insurance and HOA dues.
One of the things I applaud about the artificially low interest rates is that they have rewarded people like yourself who were financially prudent. The stated purpose of the low interest rates was to permit overextended borrowers to refinance and stay in their homes. That purpose failed, but the unintended rewarding of good behavior is something I think is great.
> One of the things I applaud about the artificially low interest rates…
In spite of all the talk of how the frugal, responsible folks are getting stuck with the cost of cleaning things up, it bears repeating that many elements of the past few years presented easy pickings for the sane and responsible.
I have made some terrible moves in the past – particularly with credit cards – but it was clear that something unsustainable was afoot. I don’t think it took any particular acumen to see what was coming, but the large percentage of the population – including some PhDs – who didn’t suggests that my Cassandra genes served me well in this one instance.
Anyway, I don’t feel particularly put upon by the bailout and the impending death of the dollar, because the housing bubble paid off all my debts and will give me sweet cheap rental prices for a few years while my landlords sweat like pigs.
Smug? You bet! But I think a fair number of people who acted in the interest of self-preservation benefited greatly from the last few years.
IR,
Aren’t the loan modification programs setting the new payment levels at about 33% of income? Wouldn’t that generally represent a decline in the payment that the owner is currently paying? I just don’t see the logic to how these loan modifications are going to choke all disposable income and consumer spending out of local economies.
When the first loan modification programs came out, they tried to freeze DTIs at 38%. This debt service level was too burdensome, so default rates were astronomical. This time around, they are trying to freeze it at 33%, which is about the limit of what someone can afford without going under. Once people pile on the other debts–which they will–even 33% of DTI is going to be very burdensome. Historically, 28% DTIs have shown to be the limit to what people can handle for a sustained period of time without defaulting. That is why the old standard used to be 28%/36%. Only the introduction of supplemental income through MEW and artificial payment reductions through toxic financing made the bubble system work.
If you think about the difference 5% of gross income makes to a local economy, you can see why loan modification programs are not a big help.
I understand your point…makes sense. I guess I am looking at it more as households that are currently at 40% DTI and 50% DTI are going to get a loan mod down to 33% DTI, which theoretically should give them more disposable income in the short term….assuming there income doesn’t decline.
Yes, but the alternative for these people is not to continue at the 50% DTI payment, it is to walk away and rent at 28% of income (or less).
Balcony is perfect for entertaining and serving Kool-Aid.
Suggestion: Wouldn’t it be great to have a big ticker for how much money has been lost over each profiled house we have thus far? Sort of like the debt clock. Some comments above state that 1/4mil is no biggie, let’s start adding it up! 🙂
What is the fallacy behind Property Owner’s logic about not sweating it if he doesn’t sell his property until sometime in the future?
He wan’t to buy a new property to if his goes down so do the others?
I’m not understanding what is “bad” about that?
The second sentence should read:
He wants to buy another property, so if his goes down so do the others he may be interested in.
The govt said the most they will kick in is 2% on the interest and they must be current on the payments. That MIGHT help those on the margin, possible DTI of 30% to 40%. But for most, it will likely result in two things:
1. Private loan being converted to a govt. loan (moving the toxic asset from the private market to the govt). This will pay off the private lenders in full.
2. Converting a non-recourse loan to a recourse loan. No more walk away with only bad credit for 5 years. Now the debt will follow you. If you don’t pay, the taxpayer will be stuck with the bill.