- Forward Look at Defaults, Foreclosures and Balance Sheet Losses
- Wells & Wachovia Defaults & Foreclosures Highlighted
- Home Sales are not as Strong as Most Think
- Negative Housing y-o-y Comp Sales Likely Soon
** For those of you that Twitter – my name is MrMortgageTRUTH
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With proprietary default and foreclosure data only available to a select number of firms in the nation and decades of mortgage and real estate experience, we are able to provide high-level and granular broad-market and company-specific insights never before available – sometimes months ahead of public news and events. Looking ahead of the mortgage and housing market and into bank’s residential mortgage portfolio and balance sheet is now much easier. Best, Mark Hanson
Data in partnership in ForeclosureRadar.com
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If Wells Fargo’s pre-announcement is any indication (which is a stretch), in Q1 the banks benefited from a perfect storm of low mortgage rates spurring increased mortgage activity; foreclosure moratorium pushing out losses and reserves alike; and massive government capital backing. The question going forward is can earnings outpace losses?
If the economy and housing have indeed bottomed and new loan defaults have peaked then perhaps the banks will do very well. But if Q1 was more of an ‘eye of the storm’ then can banks — relying upon consumers and business — out earn the losses at a time when consumers and businesses are experiencing increased balance sheet stress.
The following charts show why some banks may out earn their residential credit losses in Q1. But it is not about what happened in Q1 with the mortgage lender-banks and housing – it’s about going forward. Judging from the hard data over the past several month’s, real estate and mortgage have in fact been the eye of a storm that carries us from the Subprime Implosion to the overall Mortgage and Housing Implosion.
Monthly foreclosures at 1.5 year low…for now – the chart below shows actual CA monthly residential foreclosures for the past two years. As you can see, foreclosures — that result is significant losses especially in the bubble states — were down considerably due to gov’t intervention and bank/GSE specific moratoria. This will keep losses at a minimum for Q1. If banks chose to reserve based upon these temporary conditions in Q1, then that may benefit their bottom line. But foreclosures are a lagging indicator.
New Loan Defaults Surging – forward looking. But coming down the pipe is a massive wave of mortgage Notice-of-Defaults (NOD) that dwarfs the highs we saw when things began to get really out of control in Q1 2008. In the month of March new CA loan defaults hit a record high of over 50k for the very first time. This translates into approximately 150k defualts nationally. Actual foreclosures lag NOD’s by 4-5 months so it is no guess that there is a massive foreclosure wave bearing down with the first part of the lip from the Dec NOD surge hitting in April/May.
The Wave is upon us - The chart below show just how close the wave is from hitting. Last month the Notice-of-Trustee Sale (NTS) counts surged. From the time an NTS is filed, the property is taken to foreclosure within 21-45 days. This will result in an increase in foreclosures by 100-200% in April when reported in the first part of May.
Jumbo’s Loan Defaults Surging this time around – In CA, the Jumbo loan amounts are getting hit very hard. Loans like Pay Option ARMs, Intermediate-term ARMs and Alt-A are leading the pack going forward. Jumbo loans now make up 31% of all new loan defaults. Wells/Wachovia for example is loaded with these very same loan types. New Jumbo loan defaults are outpacing mid-to-higher end house sales significantly. This is exactly how the lower-end house price crash began.
Wells – Wachovia Specific – So far — and especially in Q1 — Wells/Wachovia benefited from gov’t and bank-specific foreclosure prevention and moratoria. Below shows actual CA foreclosures on loans that each bank originated. The losses and write downs to date have been very small. But again, this is backward looking.
New Loan Defaults Surging – looking forward. But just like the total default count chart above, bank-specific default counts are spiking which is evident with Wells. Wachovia still remains on a semi-moratorium as Wells uses the loss provision it took up front to try and work out borrowers. The wave of defaults will lead to increase mortgage losses in Q2.
**For those of you that need more color and actual dollar amounts, shoot me a note. Also, the data below DO NOT include second mortgage losses – we have other reports for that.
Home Sales are not as Strong as Most Think
Be careful believing that the housing market is improving. While the price fall has gotten ‘less worse’ at very low price range, the CA housing market is by no means ’strong’ with total sales level far below levels seen from 2003-2006.
All-important move-up buyers are non-existent and the market is being carried by its historically weakest participants — the investor ad first time home buyer. At these transaction levels, the market may have reached a point of maximum demand from these two segments.
There are four primary forms of housing supply – they are:
- Ma and Pa Organic (includes short sales) 65% of supply / 40% of sales
- Foreclosure (REO), 30-35% of supply / 60% of sales
Harder to measure but equally as important to the supply/demand balance are:
- Foreclosure pipeline supply (Notice-of-Defaults and Notice-of-Trustee Sales that will become supply in one to nine months)
- Pent-up (those that want to sell but values fell too quickly through their strike price taking them out of the market)
New Home supply, permits etc are virtually meaningless in this market environment.
Although REO sales make up 60% of total sales in most bubble states, REO listings make up only 33% of total listings and Ma and Pa Organic make up the rest. Of the Ma and Pay Organic listings, 50% are advertised as short sales.
I would argue that pent-up supply makes up the greatest amount but that is impossible to quantify as it is a percentage of the total listings pulled from the market over the past two years as house prices declined. If house prices were to climb even ever so slightly homeowners that tried — but were unable to sell in the past due to suddenly finding themselves in a neg-equity position — will come out of the woodwork feeling lucky they can finally get out.
This inventory that very few even think about could keep a cap on prices indefinitely by itself. Add in Ma and Pa, foreclosures and foreclosure pipeline supply and it is obvious that housing — particularly in the mid-to-high end market — is going down the exact same path as the lower end did beginning in 2007.
Negative Comp Sales Soon
Year ago com sales have been very easy to beat because at the end of 07 through Q1 08 house sales plunged as loan programs rapidly vanished while house prices were still near all-time highs.
But unless house sales in CA — and the other bubble states — pick up sharply by May the year-ago comps will start coming in negative.
In the chart below, the light blue line below tracks 2009 CA total sales and the yellow line 2008 total sales. In April the two lines will converge making for negative comp sales unless demand picks up in a big way and soon. Negative sales comps being reported in the media could add a layer of negative sentiment to the market while foreclosure supply is flooding in further suppressing prices.
**For more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
Best Regards,
Mark Hanson
Mark@TheFieldCheckGroup.com
Analysis by Mark Hanson, Field Check Group Real Estate & Finance
Data in partnership with Foreclosure Radar
April 11th, 2009 at 12:53 pm
Thank you, Hedgie!
April 11th, 2009 at 1:30 pm
Mr M., thanks a lot. I had been missing your posts, and tried to search your new website couple of times. Here it is. I got it from Patrick’s site.
April 11th, 2009 at 3:00 pm
1) How about comparing Wells’ provisions to their DQ pipeline?
2) Why do you keep calling your database proprietary when anyone can buy the data from several sources including First American or Fidelity?
April 11th, 2009 at 4:17 pm
Finally, found your blog… I signed up for your email, but didn’t receive any so I went searching…. your traffic would increase greatly if people knew where to find your posts… perhaps a YouTube or a link as Implode-o-Meter… Thanks for the info and hard work. I know many of us deeply appreciate your take on things.
Robert & Diana (just trying to by a home to live in)
April 11th, 2009 at 8:29 pm
Thanks for your free service, great job.
April 11th, 2009 at 8:44 pm
Thank you so very much.
Now I know how Wells Fargo “got away” with their lie. Thanks for the information.
Clark
FishGoneBad.com
April 11th, 2009 at 9:46 pm
Just got word from a friend w/ an Option ARM that he was contacted by lender (even though he is paying and has not asked for loan mod) about his $750,000 neg-am loan. Offered to change the rate to 1%, going up in slightly every year for 5 years. After 5 years it rolls into a 30 year fixed not to exceed his original rate (~5%).
Can this be right? Anyone else have stories like this?
April 12th, 2009 at 8:32 am
Wow.
Nothing like an article from Mr. Mortgage and a cold shower to sober me up.
April 12th, 2009 at 12:11 pm
#7 Art, what is the loan balance going to be when year five hits? Sounds like a blow up in year five. It doesn’t sound like buying a house, more like a lease with a promise to buy.
Many are claiming bottom in 2011 but with dragging out of these types of refails, it looks more like 2014-15. These types of fixes are not refies but bottom line are going to be refails packaged as a refi. But if your losing your non recourse loan to a recourse one in process, walking still is the superoir option.
In the last depression, the tax act of 1928 stayed in effect until the tax act of 1932 which showed significant increases. How long will the government be able to go without sourcing new funds from the populace? If we go on the last depression tax increase, we will get a hefty tax increase in 2011. Since the government is more proactive in building utopia, it could very well be 2010.
Also at issue on the tax side is SS, which is projected to have only a 3 billion surplus. Being that this is a government projection and projections to date have been far too rosy, it will likely be that SS actually goes negative an an increase in employee/employer increases will be necessary.
California will likely get hit with another round of increases to bring up tax revenues. Therefore, expect to get hit federal, state, SS and medicare.
It should also be noted that in 1933, the government withdrew gold from circulation and then revalued it, bolstering government coffers. This also devalued the dollar by 67%.
Therefore, one should prepare for higher taxes and a possible devaluation (things cost more) coming down the pike, and how tight your current/future mortgage payment may be.
April 12th, 2009 at 2:50 pm
Chinese proverb:Beware of interesting times! We gotem baby!
April 13th, 2009 at 4:16 am
#9 BertDilbert -
Falling home prices is deflationary. Houses will be 1/3 the price they were at the peak. If you have cash, you will be able to buy way more house with that cash, once house prices drop. Sure, down the road we might see the price of bread and milk go up, but the economy is driven by housing.
April 13th, 2009 at 5:47 am
#11 SoCal
Yes and commentators say “Housing has led us out of all previous recessions and housing will lead us out of this one too.”
Houston, we have a problem….
April 13th, 2009 at 7:12 am
Mr. Mortgage,
Nice to see you back, but how did you disappear for so long , with all that was going on the past 2 months !
April 13th, 2009 at 8:54 am
A friend of mine told me the other day she got her loan modified to 2% fixed for 30 years. Her mortgage went from about $5000 a month to about $1,500 a month.
Does this sound believable or is there something she’s not telling me… or you think she made up the whole thing?
April 13th, 2009 at 9:55 am
Mr. M, 2 points:
1. Why no mention of the huge 600k+ shadow inventory? Or is this in foreclosure Pipeline supply?
2. Like the surfing analogy. Lots of owners caught in the impact zone when wave 2 of this set rolls through this summer.
April 13th, 2009 at 12:26 pm
#14 Wonton. The government has a program to lower the interest to up to 2% or until a DTI of 31% is reached. HOWEVER, with that program, after 5 years it becomes the rate at the time of modification as I understand it. So the 2% is just for a time and will have a future reset. This sounds like what she has just from the 2% you mentioned. The plan may be fixed over 30 years but I seriously doubt 30@2% over the entire term IMO.
April 13th, 2009 at 12:49 pm
Does anyone know a good Attorney in Orange County CA that understands this issue and represents consumers victimized by this sort of thing? Thank you, Victim of the “no cost” loan that has cost me everything except my daughter..and I thank God for her daily.
April 13th, 2009 at 1:25 pm
I have been trying to get my mortgage with BOA backed by Freddie, modified thru the Homeowners Affordable Program and keep getting told by BOA they are not ready to roll out the program yet…..WTF !
is anyone having this problem or better yet, has anyone had their mortgage modified thru NOBAMA program yet ???
PS i qualify thru all the hoops and hurdles that they have listed on the website
April 13th, 2009 at 1:35 pm
Mr.Mortgage,
Thank you for your post. I have a question, as a low end buyer <350k from the Bay Area. I am contemplating buying so I seek some advice:
Prices may fall another 20% in another year or so. However interest rate could begin climbing. So what would be the ideal time to buy , I mean ideal low price(%lower than current price) and healthy interest rate?
Thanks,
Brian Boyle
April 13th, 2009 at 1:57 pm
#12 BertDilbert -
I’m not sure if deflationary pressure from falling housing prices will, by itself, lead us out of the recession. Deflation will lead to historical norms in prices, however.
This will certainly help the recovery, as people will be able to buy at reasonable prices and have a reasonable and manageable mortgage. Less money spent on shelter means more money to spend on other things.
April 14th, 2009 at 1:01 am
Finally found your blog after being without your excellent analysis since your last you-tube post. I also signed up for e-mail alerts at your former site but never received anything about this site, very good to know you are doing well and still in the thick of it. Thanks for posting.
April 14th, 2009 at 7:06 am
Brian Boyle
“is anyone having this problem or better yet, has anyone had their mortgage modified thru NOBAMA program yet ???”
I read on ml-implode that *drumroll* exactly one mortgage, yep just one, has been modified through the Obama program.
April 14th, 2009 at 7:18 am
Hedgie
Your unselfish work is greatly appreciated. many thanks!
April 14th, 2009 at 9:47 am
“Mr. Mortgage said…
the CA housing market is by no means ’strong’ with total sales level far below levels seen from 2003-2006.”
You mean sales arent as stong as they were during “THE BUBBLE” when everyone with a pulse was buying with junk loans given out like candy? You do realize of course that those levels of sales got us into this mess. Why do you want to see them again before you can declare a market “strong”?
April 14th, 2009 at 10:14 am
Anti Spin
I agree with your assessment on Mr. Mortgage’s statement that “the CA housing market is by no means ’strong’ with total sales level far below levels seen from 2003-2006.”
I mean the question is are we near the bottom or not. Are we dropping or moving back up? To compare current volume to the bubble years deserves a “duuhhhhh”.
April 14th, 2009 at 4:29 pm
Mr. M, I finally found your site thanks to JAllen putting it on Mish’s blog. Your work is very good. The comparison to 2003 is a little off as that was a hyped-out year. Late 1990’s data may be more “normal”, but I’m not sure as the CA real estate market tends to climb and dive with few long periods of steadiness.
April 14th, 2009 at 10:09 pm
Also glad to have found you again from a mention on Mish’s blog. We missed you but guess nothing much changed…bad…bad..and getting worse.
April 15th, 2009 at 9:05 am
I agree that the 2003-2006 sales comparisons are off the mark.
A friend warned me a long time ago that Mr. M may have a tendency to portray things in the worst possible light so as to keep readership (and ad dollars) up (i.e. once we decide its bottom, we quit reading)…
After seeing this comment, I can see where my friend is coming from…
April 15th, 2009 at 11:08 am
#28 RPB, tisk tisk.
Mr. Mortgage makes the comment yes but he points out where the “strength” in the market is coming from and produces a chart. In his chart he only includes 2006 and probably from the standpoint of showing the latter half of that year to show the event of the breakdown in financing and effect on sales for that period. Mr. Mortgage’s point has remained the same since I have been reading the blog. That point is that the biggest player in the RE market has historically been the “move up home buyer”. Because of neg equity conditions, the move up buyer is cut out of the market. This means that the market will be comprised of new home buyers and investment buyers, which are the weakest segments historically.
Because the move up buyer is out and reliance on sales is confined to weak sectors, home sales could have trouble making the number! This is not neg spin as you propose but what is called “insight into the market”. Mr. M puts forth the challange and places the chart in plain view to back up his projections. You can agree with the chart, disagree with the chart, whatever. His point is come May sales, 2009 is going to have a tough time generating a number that will be able to produce positive media spin.
April 15th, 2009 at 12:07 pm
Bert Dilbert…
This is not neg spin as you propose but what is called “insight into the market”.
Perhaps – but negative spin is certainly a possibility with this guy. I remember last autumn when socal sales were up YOY but he insisted on using negative spin and calling these numbers “worse”. He eventually changed his post but not until we called him on this “NAR in reverse” tactic of using MOM numbers which dont take seasonality into effect. Then, once they were up MOM and YOY, he just quit posting them on his free site since there was no way to netatively spin them…
That was on his old blog, and so far he has been much less the hypster (and lets be honest here – his content is EXCELLENT)! Still, as we continue to progress toward recovery, we need to watch and see if he slips into his old ways.
April 15th, 2009 at 5:09 pm
Always appreciate you sharing your data and analysis Mark.
I have a question: How will inflation affect home values? I am still a little unclear whether inflation will drive values up or down. I have read conflicting articles and analysis.
April 15th, 2009 at 5:15 pm
BertDilbert, there is no doubt Mr. Mortgage has provided an excellent article using charts and historical figures. However, you can’t argue that the comparison to the bubble years was ridiculous, just plain insulting.
Look at the stock market, it’s not hard to find a stock that was $30+ not long ago and had crashed to $2. Then in recent weeks had gone from $2 back up to $10. One can make a reasonable argument that the stock has performed well recently. It would be outright stupid for anyone to say, “you might think $10 is good, but it is not anywhere near the $30 range that it once was…” Well, duhhhhhhhhh!!
April 16th, 2009 at 2:24 pm
Wonton, I understand what you’re saying, and truly, that comparison to the ‘03-’06 run was ridiculous because of how much it skews the analysis to such a negative extreme, but it’s obvious to anyone that the numbers are way off from a historic norm.
And just as the bubble was such an extreme fluctuation of historic trends, median home price to median income ratios etc., markets will overcorrect to the negative.
It’s that happy medium, that norm, that stability that we should all be hopeful for. But I doubt we will see it any time soon – it really does look like the Fed, government etc. are following the Japanese lost decade bubble/super recession playbook here – and if you look at that scenario, after the hyper run up until ‘89 and ‘90, R.E. values plummeted to 10-25% (depending on city/urban versus suburban/countryside) of what they were at the peak, over a 15+ year period. They only just started to bottom out from a multi-year flatline a couple of years ago, and once again the Japanese are in another recession.
Unemployment numbers keep climbing. The mid and upper end markets haven’t even really begun to pop yet. I can definitely see nothing but countless reasons to remain extremely pessimistic for the foreseeable future.
April 16th, 2009 at 9:09 pm
Brian Boyle,
I’m in the same boat as you. I’m itching to buy as a new home buyer, a single, early 30’s guy looking to buy his first home. I’ve accepted prices WILL still decline, but I wonder if a 10-20% decline in the next year or two will be at least somewhat balanced by the currently low interest rates, and the Fed and State tax credits. I plan on holding on to the house for the long, long term. It’s in a great area with top public schools and a master planned community – Rocklin, CA.
Can you shed any insight to this predicament, Mr. Mortage? New home + low interest rates + 18k in Fed/State tax credit versus waiting another 1-2 years when things change (more money saved up for downpayment, higher interest rates, no tax credits, etc.).
-Randy
April 17th, 2009 at 3:02 pm
Randy,
Heres my logic…if I like a home and know this is good, will throw a low ball of 10-20% of the listing price. If I get it, am happy about getting what I wanted at a good interest rate etc etc else I’m happy cos there are many more to arrive.No attachment to any property and an open mind that there is more hitting the market. However, critical to know that…at the lower end the cheaper it gets the more the competition. I threw a low ball of 300k for a 330k property and was beaten with a 300k ALL CASH offer. ROYAL FLUSH I’d say mate!!
So the golden question… ideal time + price+ interest rate. Mr.Mortgage would be nice to hear your thoughts.
Bb
April 21st, 2009 at 4:56 pm
Brian Boyle – wait, you’ll throw an offer of 10-20% OF the listing price, or 10-20% OFF the listing price? Big difference between the two. One is “lowball” and one is really LOOOOOOOOOOOOOOOOOOOOOW balling.
I’m assuming it’s just a typo and you meant to type “OFF”, as in 10-20% OFF the listing price. I’m always keeping my eye out in some of the nicer parts of LA, primarily west LA, and 10-20% off the asking prices would be a massive ripoff, since the current asking prices are absurdly high. Just waiting and watching the NODs add up, watching the amounts owed add up into the 10’s and even 100’s of thousands, and waiting for the inevitable flood of foreclosures.
These sellers and their agents are nuts if they think their McMansions, “valued” at 1.5-2.5 mil at the peak, are a “steal” at discounts of only 20-30%. Nothing like walking into a dead open house, with a nervous, desperate and suicidal seller and agent, and giving them a verbal offer at 50% of their asking price. If they get angry, it’s even funner to follow that up with “well, you can take that now, or I can get it for 25% of your asking price in a few months when the bank takes it back…”
April 21st, 2009 at 6:17 pm
Steve,
Thanks mate, that sure was a typo however “of” would be applicable in parts of Florida and Michigan I guess.
Anyways, you are right… I just dont understand how prices are still so high even if the seller is desperate (Short Sale) situation etc. Being in the market , I notice situations where the seller wants to get out and take whatever he can but its the realtor who likes playing the waiting game for a better offer until the property goes into foreclosure. Couldn’t you atleast accept the low ball and begin negotiations with the lender rather than allowing it to go to the banks who would just sit on it anyways for like …….
Wonder if its only me who feels this way!!
Bb
May 4th, 2009 at 4:16 pm
I am glad I finally found Mr Mortgage again!
Did you know that “what happened to mr mortgage” is now a “Suggestion” on google suggest?! People are really missing you.
Welcome back.