March New Loan Default Summary
- Total CA Foreclosures — At 1.5 Year Lows
- Total CA new Defaults – Surging
- Subprime -- Declining
- Alt-A — Constantly Rising
- Pay Option ARM – Surging, Despite Wachovia being on Moratorium
- Jumbo Prime – Relentless
- Super Jumbo – Surging
- Fannie – Freddie – Surging
CA House Prices are Bottoming – But for the Wrong Reasons
————————————————–—————————————————————-
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
————————————————–—————————————————————-
The mortgage default and foreclosure news flow has been heavy over the past couple of weeks. But aggregated news is tough to make sense of or trade. At Field Check Group we can break down the default and foreclosure data hundreds of different ways including by originating and foreclosing lender, loan type, loan amount, present property value, MSA/City/State/Zip and more making it easy to understand.
Below are various looks at the default universe by loan type. When breaking it down this way, what has happened to date and going to happen in the future becomes much clearer. It also gives a clear picture of the task at hand the Administration has with respect to its new foreclosure prevention plans, as the loan default wave is a mile high and they are swimming into it with a canoe.
-Total CA Foreclosures — At 1.5 Year Lows
In March, new foreclosures were at 1.5 year lows. Actually in Q1 2009, foreclosures were much lower than in Q1 2008 due to broad market legislation and bank-specific moratoriums. This has kept distressed inventories at a low and allowed the low-end housing market — the only segment getting any action — time to consolidate a bit. But remember, supply is everywhere. Although foreclosure-related sales are 50%+ of the market in the bubble states it is only about 35-40% of total supply at this point in CA. The rest of the supply comes from Ma and Pa Organic homeowner who is being squeezed out or can’t sell due to epidemic negative equity. Of the 60-65% of supply that is organic, 50% are typically listed as a short-sale.
-Total CA new Defaults — Surging
New loan defaults – of which a large percentage will turn into foreclosures 5-7 months following the notice month — are surging. In the past that would be indicative of a major foreclosure wave coming. Now with aggressive moratoria and mortgage mod initiatives in place, the eminent wave may not break all at once. It will break, but could be stretched across more months than typical. One thing is for sure, there is a pig the size of Godzilla in the python right now that has worked its way to the lower intestine.
Subprime Defaults — Declining
New Monthly Subprime notice-of-defaults have eased off considerably. This is because the mortgage crisis started with Subprime, and mortgage mod initiatives and moratoriums are most targeted to Subprime loans.
Alt-A Defaults — Constantly Rising
New Monthly ALT-A notice-of-defaults have surged along with total defaults but not with such an aggressive rate of change. This is because mortgage mod initiatives and moratoriums are most targeted to Alt-A and Subprime loans.
Pay Option ARM Defaults — Surging
Pay Option ARM defaults are continuing to surge despite one of the nation’s largest Pay Option holders — Wachovia — remaining on near full moratorium.
Jumbo Prime Defaults — Relentless
The Jumbo Prime default chart is absolutely unique but increasing steadily along with total defaults. Within this category supply this high can’t be absorbed into the housing market because sales over $417k are so slow.
Over $750k Loan Amount Defaults — Surging
Defaults on original loan amounts over $750k are surging with total counts higher than total sales in this segment. Supply from foreclosure is about to hit hard in the mid-to-upper end housing market. And remember, foreclosure supply is only one form and account for only about 35% of total supply.
When we look back at 2009 on December 31st with Champagne bottles in hand, we will reflect upon 2009 as being the ‘year of the mid to upper end house price collapse’.
Fannie-Freddie Monthly Loan Defaults — Surging
This goes hand in hand with the FHFA report put out yesterday showing new GSE loan delinquencies and defaults are surging. This is what the low-to-mid end of the market can’t handle right now — it has finally reached a point of decent supply-demand with help from mortgage mod initiatives and foreclosure moratoriums kicking the can down the road.
A surge in GSE defaults and foreclosures will bring around round 2 of the low-to-mid end house price fall. Many are hopeful that Obama’s new mortgage mod plan focused upon GSE loans will prevent this. But given that the GSE’s at present have 1.229 million delinquent and defaulted loans and were only able to pump out 9k mortgage mods in January, I believe that is wishful thinking.
House Prices Are Bottoming — But for the Wrong Reasons
Present values of properties at the notice-of-default stage are clearly rising due to the shift in the mix of loans/properties going into default from lower to higher. This ‘mix-shift’ effect may push up median house prices in 2009 creating the appearance that the market is improving when in reality it is because more higher-value properties are defaulting, being foreclosed upon and reselling through the Realtor network.
This is the last look at prop values before they become REO and are listed for resale. Present values of props at the actual foreclosure stage have stabilized but are not yet increasing as they are at the NOD phase shown previously. Given 60% of all resales are from this foreclosure stock, this does not indicate prop values in CA will rise in the near-term.
For any of you that play MSA based house price futures, this chart series nails the Case-Shiller.
**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 provided by ForeclosureRadar.com
April 23rd, 2009 at 1:54 pm
“One thing is for sure, there is a pig the size of Godzilla in the python right now that has worked its way to the lower intestine.”
Mr. Mortgage… that’s the funniest thing, in a sick kind of way. So the moral of your story is “now is not the right time to stand behind the python”?
April 23rd, 2009 at 1:59 pm
Great work, to bad we don’t get this type of information from the mass media.
Does this take into account loan mods/refinancings that could have occured after the NOD was issued.
Keep up the good work and good luck.
April 23rd, 2009 at 3:07 pm
THANKYOU MARK !
April 23rd, 2009 at 6:21 pm
Your work is still the best thing around. Thank you.
It sounds like the low-end may be stabilizing for a while as it has been so completely abused in the last 2 years almost all the bad debt has been vetted? Accurate assumption?
April 23rd, 2009 at 9:30 pm
i hear nothing but story after story of people just NOT paying their mortgages….these started as whispers and now everyone almost seem to be bragging about it….this has to have a bad ending for ALL involved….im sticking with what i always believed PRINCIPLE REDUCTIONS ACROSS THE BOARD FOR EVERYONE is the only way out of this ponzi scheme/housing bubble/banking fraud
i do NOT of anyone who has even AN APPLICATION even taken over the phone yet for this Making Homes Afordable BS Program…..nothing like being in a hurry to help the 4-5 million homeowners that Geithner and Obama have stated need helping
When the BIG COLLAPSE finally does come , do you think its going to hurt or is everyone so numb that we will not even feel it or care ??
April 23rd, 2009 at 11:53 pm
Thank you for the good work. Very interesting data that jives with what I believe….prices will still fall in places like California, etc.
I’m currently in a debate with idiots on the REDFIN site blog who think things are going back up and bidding wars are still the norm.
If so, let them bid their little heart’s content away…it ain’t my money and I will not shed a tear if they lose their shirts. Better for me.
April 24th, 2009 at 6:58 am
I totally agree with the ignorance which still remains out there. My next door neighbor just got approved for a loan mod on his home…purchase price $500k in Jan 07, annual prop taxes $9000, 80/20 100% financing, current value of home ~ $225k. The 1st lender is offering a PITI of $2100 and he thinks this is a great deal. Rent in our area for a comparable home is around $1750 right now but dropping. He says that if he can get the second lender to settle for ~$10k he will accept the mod from the first.
I don’t see how this can possibly be a long-term success path. He says that the lender lowered his payment down to 31% of his gross income. If this is true, what the hell was he doing buying the home in the first place? That would put him at a gross of around $80k which is not enough to make it in this house. The real kicker is that the lender’s mod is only for 5 years, at which point the loan will go back to the market rate. He feels that in five years he would at least be able to break even on the home…assuming that he can settle the second, the home would have to go up nearly 100% in the next five years to cover realtor fees and break even. I point this out and it is not sinking in. Any one have any suggestions which can help me convince my friend not to make the same mistake he made two years ago when he bought the home?
April 24th, 2009 at 7:02 am
Do anyone have any insight into why banks are not modifying with principal reductions? If a SoCal home bought in the past 2-4 years goes into foreclosure, the bank WILL take a principal reduction no matter what. The only difference is when it is getting reduced. Do the banks get reimbursed (mort ins?) if a house sells for less than the balance at auction or REO sale but not get reimbursed if they lower the principal for the owner? I just don’t understand this.
April 24th, 2009 at 7:52 am
You guys still don’t get it??
forclosures … not everyone will participate (some losses)
reductions in principal for everyone like JAVAGOLD wants.. (big losses) is too much for banks…
I say let ex owners buy sooner!
April 24th, 2009 at 8:00 am
If you lost a home in 2007, 2008, 2009… the wait for FHA should be 1 year!
April 24th, 2009 at 8:02 am
Obama…r u listening?
April 24th, 2009 at 8:41 am
Thank you Mark.
If it was not for your in depth research the MSM would have had us believing the bottom was in in 2007 … no 2008 …. no NOW is the bottom.
April 24th, 2009 at 8:57 am
Ex_owner,
I am trying to interpret your post…are you saying that if the banks reduce the principal on all bad/risky loans they will fail? The reason this doesn’t make sense to me is that the banks ARE going to accept less money for these homes than they originally loaned. Why would they prefer to absorb the additional cost of foreclosure as well as carrying costs of the homes (potentially) when they take them back instead of reducing the principal and keeping the owner in the home. Either way they are taking a bath, but it seems like they are opting for the most expensive method of resolving these situations. Please expand on your thought above. (complete sentences would be appreciated so I can grasp what you are trying to say) Thanks.
April 24th, 2009 at 9:13 am
Partyboy,
Tell your friend to walk and buy another home for close to $255K. If the house ever appreciate, he can realize the full benefit of the appreciation. Not only that, the payment on a 220K loan (assuming a downpayment of 35K or so) would be around $1300 per month plus a lower property tax. But here is the real kicker, once a loan is modified, it becomes recourse and not no-recourse like it currently is. This means that after 5 years if the owner decides to walk, the bank can come after the owner for the rest of his life. Make sure he gets that part.
If he walks now, there is nothing the bank can do. Why not get a 220K loan right now, pay a much lower mortgage payment, and realize all the upside? The only drawback is that he will have bad credit for a few years, but so what? Would not a saving of close to 300K compensate him for bad credit for a few years?
April 24th, 2009 at 9:27 am
Sam,
Thanks for the reply. Your post sounds exactly like my conversation with him. I think that part of the problem for him is that his wife is very emotionally attached to the house and to the neighborhood, which is funny because almost everyone in our hood is currently delinquent and preparing to walk. Another reason they want to stick it out for at least another five years is that they put in ~$25k of their own money in landscaping, moldings, etc. and if they walk now, they feel like they paid $1000/mo for the use and enjoyment of those things. If they stay five more years, they will lower their cost/month of usage to $300 or so. I know this is an insane point but this is their stance. Our street has 25 homes, 2800-3200 sq ft, and at least half of them have stopped paying. With the wave of foreclosures coming soon on our street, prices will have no chance at all of increasing. In fact, of the 275 homes in the subdivision I would be significant money that over 100 will be or will have been foreclosed on at least once by 2012.
My other point to him is that if he walks now and stockpiles cash for the next 2-4 years, he can buy another similar home with a 50% down payment. If he makes more than he is reporting (which I would have to guess because everyone else in our hood makes at least $100k), he should be able to exceed a 50% down payment in a couple of years.
Thanks for the reply. Just wanted to see if there was another approach to take other than what I have tried.
April 24th, 2009 at 9:32 am
If he signs that modification, then he is dead. The bank will own him for the rest of his life. I don’t get it really with people who are chasing their down payment. They will get more by walking. Why cant they get that? Same comparable house for a lot less mortgage principal and mortgage payment. If the house does appreciate (something I highly doubt) he would be ahead instead of hanging on to a deeply upside down house.
April 24th, 2009 at 9:32 am
Mark,
thank you for this information. I just googled you and came across this site. Even though I was on your mailing list I never got any notification of this new site. The emails just stopped a couple of months ago. Just thought I’d let you know, in case you weren’t aware of it. I’m sure there are others on your list that didn’t get notified
April 24th, 2009 at 9:40 am
Sam,
Completely agree with you. Are you certain that signing a modification makes a non-recourse loan into a recourse loan? I looked into modification (did not accept any) and they said that the loan remains non-recourse if it is a modification but turns into recourse if it is refinanced. I don’t trust banks or lenders at all but I can’t say with any degree of certainty that a mod is automatically recourse.
April 24th, 2009 at 10:32 am
Sam and Partyboy,
Shame! You and your crummy neighbors got in over your heads with your little McMansions, thinking there would always be a bigger fool to bail you out. Now, your solution is to walk. The casual manner in which you talk about the strategies of defaulting on your obligations just takes my breath away. It seems we’re becoming a nation of walkers. Yeah, so the banks/lenders are a bunch of crooks, too — so what? Dance with the devil, then wonder why you get burned? Those of us who did the math and realized what would happen if we bought into the bubble are now being forced to subsidize your irresponsible behavior. I hope you walk all the way to skid row — you’re just a bunch of bums.
April 24th, 2009 at 11:00 am
I have to agree with GrumpyGuss…if indeed that is what Sam Stern and Partyboy are encouraging their friends to and they themselves also.
That’s some really crappy advice you are give people Stern. That sort of mentality is what has driven this market to where it is…absolute greed, absolute gorging.
None of these people deserve to walk..they deserve to fry.
April 24th, 2009 at 12:00 pm
i have no problem what Partyboy or Sam are discussing…..They have a duty to worry about themselves/families first and whats “right” 2nd and what is “right or wrong” has been blurred by the ponzi scheme/housing bubble that was allowed to happen and anyone who has a down payment that has disappeared because of that fraud and is now upside down (and never to get right side up) has to MAKE THEIR OWN BAILOUT/STIMULUS PACKAGE…..no one else is going to worry about you, especially if you dont stick up for yourself…..PRINCIPLE REDUCTIONS allows everyone to WASH the stink and fraud of the past 5 years and start the meter running from TODAYS VALUE….its the only fair and “RIGHT THING TO DO”…..
April 24th, 2009 at 12:10 pm
I can understand the emotional responses to walking away. I get it. But I do not understand why some people think this is a bad idea. Buying the house when we did (Jan 07) was not a good idea and I regret doing it. But I learned from my mistake and think others who are deeply underwater should as well. At this point, people can either compound their problems or wipe the slate clean and move on with their lives. I believe the difference between walking and staying is so drastic that it is an easy decision. The casual nature with which I talk about this is due to the writing on the wall being so crystal clear. I am sorry if this if offensive to anyone but I think there is just too much logic in walking away to allow emotions to cloud someone’s judgement.
As for the gross assumptions and attacks in the above posts…GG-I did not buy in the hopes of getting bailed out. I took a new job in a new city and bought instead of renting because the price difference was neglible. Admittedly, that was a mistake. But I knew the terms of the mortgage and realized there was nothing but my credit score at risk if something happened (ie. layoffs, medical emergency, etc.) I didn’t plan on a bailout plan, I just knew there was an out if necessary. I was plenty qualified for the loan and could have put money down but it was not required. Why would I commit the down payment if it is not required? That just wouldn’t make any sense. One I pay that money on the house, I can never get it back. But if I keep the money in my account, I always have the option to use it on the house in the future if I please.
The “No money down” practice by the lenders was the worst move made by any party during the housing bubble. I think the lenders were complete fools to allow people to borrow money with nothing down as the borrowers have no personal stake in the home. I have read hundreds of posts alluding to the fact that the buyers were all speculators and gambling on home values going up, when in fact it was the lenders who were gambling because they actually have money at risk.
I find it interesting that GG wants all walkers to walk on down to skid row. The way to make sure that happens it to keep these walkers in their underwater homes. I’m sorry my man, skid row will be filled up by people who stayed too long in a losing situation, not by the people who “sacrfice” their credit for a better financial future. Today’s walkers will be tomorrow’s (well, 2-4 years from now) buyers, and the people who try to hang on now will be renting from them.
Noz…The mentality which got us into this mess was to keep spending and keep borrowing. People who walk are doing the complete opposite. They are basically throwing in the towel, cutting back on expenses, and not borrowing (their ruined credit won’t allow it). So I don’t understand where you are coming from, implying that people who continue to overextend themselves and pile on more debt are actually helping the situation. Your point is confusing at best. And saying that walkers deserve to fry? They are simply playing by the rules which were set forth by the lenders and lawmakers. I will admit that people who obtained their mortgages via fraudulent methods should be punished, but it doesn’t sound like that is who you are trying to crucify.
And last but not least, for those of you who had the foresight to see all of this coming and not buy into the bubble mania, you should be thanking the walkers as they are the reason your decision to wait has paid off. Had all of the people who have defaulted on their mortgages stayed current, you would still be priced out of the market and your rent would be higher than it is today. Just so you know…
April 24th, 2009 at 12:24 pm
Partyboy is dead on correct. There is no morality to this tale.
Step back and cooly decide what is in the best interest for you and your family. Does it make sense to walk or not? What are the consequences of walking and what are the benefits of staying? Make the calculations and act upon them. I agree with partyboy that the difference is crystal clear. Everyone should walk.
The banks knew the terms of the deal when they made the loans and assuming no fraud was involved, now all parties must deal with the consequences. It is legal. The homeowner has the right to walk even if he has the ability to pay the mortgage. If he chooses to do so the banks have legal remedies at their disposal too. Namely to foreclose and take back the house. Period.
April 24th, 2009 at 1:16 pm
Walking away should not be so easy. Sorry guys, no matter what drugs the banks were using to entice you, you and millions of others should have said no. Now the US and elsewhere is in a situation where we have spent 20 years of earnings before they have been earned. Who has to pay for this mess? Walkers, I doubt it. I hope you enjoyed spending your money on housing crap, new cars, pools, vacations and living mortgage free for a year before the bank takes your house. How can that sound morally right to anyone?
April 24th, 2009 at 1:21 pm
What’s love got to do with it?–Tina Turner
What’s morality got to do with walking away? Is it smart and efficient for people who are grossly underwater to walk away? We are playing within the parameters that were outlined in the contract. Is it moral for GGP (general growth properties) to declare bankruptcy? or Chrysler or GM and screw the retirees out of their pension and health benefits?
April 24th, 2009 at 1:26 pm
Fabulous! Thanks so much for all this information and analysis!
April 24th, 2009 at 1:28 pm
Shannon,
I agree with what you are saying. However the walkers will pay for just as much as anyone else for this mess. I don’t think that is fair for any taxpayer. If a stock I own goes down in value, I eat that loss. A mortgage is basically a stock which some investor owns, except that it is backed by an actual good. So why don’t the banks/investors simply lose the money which has seemingly evaporated over the past few years? And I don’t recall saying that I was duped or druged or anything else by the banks. I just made a bad decision at the wrong time. People who blew their money living the high life will be screwed. I wouldn’t advise that to anyone. I think that when people realize their situation is unrecoverable, they should stop paying and save like crazy until they have to leave. Pay off some CCs if they have them and learn their lesson. You’re right though, walking shouldn’t be so easy. Perhaps we will see some legislative changes in the future to try to help prevent this epidemic from happening on such a grand scale in the future.
April 24th, 2009 at 1:34 pm
Sam,
It is so offending to see companies screw over their employees on contract obligations and change the rules mid stream. Walkers read their contracts and signed them anyway. Now they want to change the rules. Go ahead and walk but it should not be so easy to get another loan a few years later. By the way, can I borrow some money? I promise to pay it back.
April 24th, 2009 at 1:44 pm
Shannon,
Walkers are not changing the “rules”. The contract says that the owner can keep the house as long as he pays on. If he stops paying, the bank gets the house. What is being changed here? It’s a pretty simple “If – Then” contract. The problem is that the lenders took virtually zero measures to ensure the buyers had a vested interest in the house other than the inconveience of moving out and maintaining their credit rating.
April 24th, 2009 at 1:46 pm
Partyboy,
A mortgage is not a stock. It is a loan contract signed by the buyer guaranteeing that the buyer would pay back the loan or mortgage and the house is used as collateral. When the house is paid off the home is free and clear of its’ mortgage obligation.
April 24th, 2009 at 1:47 pm
Jeez, so it’s ok for Wall Street to get everything they could possibly want after helping create the biggest financial garbage dump in history, but j6p wants to walk to save his behind and that’s somehow “unethical”. Give me a break. No, I think I’ll just take it.
April 24th, 2009 at 1:52 pm
What is being changed? Many buyers are simply choosing to walk away regardless of their ability to pay back their signed contract obligation. Let them. It is only helping lower prices to a more affordable level. I just think ( and you disagree) that it is irresponsible to have put ones self in this situation in the first place and then to not have any remorse is dificult for me to understand. Where is our personal responsibility? Don’t blame the banks for giving the money away. Many people did the responsible thing and rented instead of bought.
April 24th, 2009 at 1:56 pm
peterb,
Walking is fine but turning around and getting a new loan after 1 or 2 years is a joke. Many people who have been renting and saving have waited 6-7 years to be able to buy a house honestly. Walkers should go way back to the end of the line.
April 24th, 2009 at 2:30 pm
Shannon,
People buy stock to make money. Banks lend money to make money. Both transactions have an element of risk. The investor, be it bank or individual, needs to evaluate the investment and be prepared to absorb the loss if the investment goes south. I don’t blame the bank for my situation, but I do think that they should absorb the losses for the defaulting mortgages…not you or I or any other general taxpayer.
I don’t get why you think walkers should go to the back of the line. The person who goes to the front of the line is the person who can present the best case as to why the bank should lend to them. If a person with bad credit but a high income and a high down payment is competing with a person who has good credit but mediocre income and a low down payment, the bank will (or should) conduct a risk assessment and decide who gets priority. This is not about fairness. It’s about making money, at least from the bank’s perspective. Your opinions seem to indicate that you feel that buying a house is an inherent right and not a business transaction. Perhaps I am wrong about that, but that is how you come across to me. If you want to go to the front of the lending line, have a lot of cash and make sure you have the education/skills to have a high-paying job. It’s just business…