– Will loss reserves decrease again in Q2?
– Long-term default trends broken
– Prime, Jumbo Prime, and Option ARMs leading the way
– FL and NV – 1 in 5 homeowners in default or foreclosure
– 637k NEW mortgage delinquencies in May
– Q1 new loan production down slightly from Q1 2008
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Our mission is to provide our clients a significant edge. This is done by turning the daily, market-moving real estate and mortgage news flow and events into old news by the time it makes headlines. – Mark Hanson
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**We chose one of many weekly research reports and notes for this blog. For more information on our variety of absolutely unique research offerings please see the website.
First published in The Mortgage Pages research – July 5th 2009
With earnings on tap, one of the major pro-financials arguments I have been hearing lately is the continued reduction of loss reserves. I just assumed that everyone was in the ‘reserve building’ camp this quarter. Non-performing assets and core earnings will be key this quarter. And the fact is, defaults are rising across the board. With respect to residential real estate, defaults and foreclosures were up over 20% in Q1 relative to Q1 our data show.
A couple of weeks ago Lender Processing Services put out its monthly mortgage performance observation report that I skimmed through. The charts and results looked a lot like our data, so I filed it away in the mental hard drive and moved on. But upon closer examination over the past few days, the report was very enlightening. They also show that conditions continue to worsen, but only in the past couple of months long standing seasonality trends were broken and mortgage performance turned markedly worse.
Defaults, Foreclosures and Seasonality Trends Broken
May month-over-month default increase over 300% above the average for past four years.
Foreclosure inventories across Pay Option, Subprime and Alt-A continue to surge — up 88.3% y-o-y. This shows how lagging foreclosures actually are. The foreclosure resales for sale today are from 30-day loan defaults that first happened from 1 to 1.5 years ago — the heart of the Subprime Implosion. This highlights how much housing supply is in the foreclosure pipeline at any given time.
As explained in the previous chart, the massive default surge in higher grade paper over the past 6 months shown below will not produce foreclosure-related housing supply for months down the road…even longer with mortgage modifications in full force that extent out the default and foreclosure crisis. This will keep supply/demand fundamentals strained indefinitely, especially with lending outside of $417k still extremely tight relative to 2002-2007.
ONE in FIVE properties in FL and NV are in some stage of foreclosure. Now that is what you call supply.
This number even shocked me -- this equates to 1.3% of ALL mortgage loans in the country becoming delinquent in May alone. This is out of control. We track from Notice-of-Default, which is at 90-days typically. At 90-days most borrowers don’t cure. But as values come down, jobs continue to be lost and financing remains tight, more and more 30-day delinquencies are making all the way to foreclosure. Therefore, this 637k number is now very important and comes into play.
What happened in April and May? A complete break of trend can be seen here. This is significant.
The same significant trend break can be seen here.
The perfect mortgage credit crisis — the perfect borrowers, many that don’t need the help and that will not spend their $100 month refi savings, are the only ones able to borrow.
The epidemic mortgage mod re-default rate averaging 60%-70% will keep foreclosure-related housing supply on the market for years.
This is another great example of why mortgage mods are ineffective – they are addressing the problem far too late in the process. As a mortgage mod bear, this data is a positive to me. But if they wanted to make mods more effective, they would hit the borrower with force at the 30-day late mark.
Best Regards,
Mark Hanson
This document is for your private information only. In publishing research, Mark Hanson and M Hanson Advisors are not soliciting any action based upon it. Mark Hanson and M Hanson Advisors publications contain material based upon publicly available information, obtained from sources that we consider reliable. However, Mark Hanson and M Hanson Advisors does not represent that it is accurate and it should not be relied on as such. Opinions expressed are current opinions as of the date appearing on Mark Hanson and M Hanson Advisors publications only. Mark Hanson and M Hanson Advisors are not liable for any loss or damage resulting from the use of its product. Mark Hanson and M Hanson Advisors are Limited Liability Corp registered in CA.
July 19th, 2009 at 1:05 pm
As always, thanks for piercing through the clouds of obfuscarity that usually passes for information. ”…1.3% of ALL mortgage loans in the country becoming delinquent in May alone.” That’s something to chew on.
July 19th, 2009 at 1:12 pm
I always look forward to your reports – hard statistics, not speculation. Added to this are anecdotal reports from friends and aquaintances. . .my sense is that a lot of people who have been “hanging in there” waiting for the market to improve, are finally being washed out. I heard of two instances this week where people are in the “walk away” process. . .these are properties with loans in the 700K plus range, with similar properties selling by developers in the 580K range.
July 19th, 2009 at 1:14 pm
Mark
This is the mother of all car crashes about to happen. We are only extending out the problem with the revised 105% to now 125% LTV home affordable programs. Tact on 6% for realtors and 3% for seller concessions for closings costs and prepaids. Maybe a subordinating 2nd. They would be 134% LTV when they opted to sell a few years down the road. We have trapped our previous clients, friends, co workers and fellow americans as full time renters. I urge all to soak in Mark’s data and make a sound decision before committing to one of those programs. My 2 cents..
JB Beyer
July 19th, 2009 at 6:02 pm
I suspect the Fed is okay with extending the problem out, as it allows the banks to earn there way out of the problem. If they had to take the losses all at once, we’d be looking at a completely insolvent banking system. I believe in the stress test, the Fed estimated the 19 largest banks would earn roughly 600Bill. over the next couple of years. That fills a fairly deep hole! This is another argument against the inflation camp, and another reason why deflation is the issue at least for the next couple/few years.
July 19th, 2009 at 6:11 pm
good point housingrealist,
They will review the 105% numbers to see how many people they helped then evaluate it.
I have a gut feeling they will try the 125% LTV program for 8 -16 months and box as many people as they can before slowly immplementing major principal reductions. a kind of quantative easing…
July 19th, 2009 at 6:38 pm
Guys,
You are missing much.
The loan mods are being done, after the calculation of Net Present Value, regarding what brings more money for the investors, as dictated by the Pooling and Servicing Agreements. Whatever is most profitable for the investor, is what is done.
The PSA covers the guidelines for mods and reductions. Most do not even give reductions any consideration. If there is no mention in the PSA of reductions, then reductions are not an option.
Most people do not even realize the purpose for TARP money. The majority of the TARP money is going to the Master Servicers of these bad loans. The reason is that for every missed payment by a borrower, the Master Servicer must “advance” the missed payments to the investor to keep up the income stream. The advances can only stop when it becomes a point of realization that the borrower will never be able to make up the payments, and foreclosure is the only option. Then the NOD is filed, the Master Servicer stops making advances, and once the home is foreclosed upon, the Master Servicer can sell the home and recoup the advances, leaving the Junior Tranche holders holding worthless bonds.
Patrick Pulatie
loanfraudinvestigations.com
July 19th, 2009 at 8:56 pm
Mark, great piece of work. But is it seriously 20% of all PROPERTIES in Florida and Nevada are at some point of default? Not just 20% of all mortgages, but rather 1 in every 5 HOMES?!? That is unbelievable. And California is standing at just over 1 in every 7 homes in default/nts/foreclosure?
I can’t believe anyone would be stupid enough to think the worst is over, TARP and Obama have saved the day etc, and the general denial and stupidity of the regular Joe Citizens, as they seem to be moving back towards spending like no tomorrow.
The subprime meltdown of last year is going to be nothing compared to this nightmare…
July 19th, 2009 at 10:20 pm
With no growth, we’re doomed.
Mark’s chart postings point towards further deflation in housing prices (over supply and no buyers).
Counter parties on derivative bets which are not even reported/tracked will be backstopped by the printing of more debt to prevent a worldwide calamity which will further erode confidence in the US dollar.
Price deflation with a loss of consumer confidence will unleash currency inflation to stop gap and bridge to a recovery that is decades away.
That’s the best case scenario as I see it.
July 19th, 2009 at 10:40 pm
Los Angeles still needs to drop more….any predictions for areas like Glendale/Burbank/Pasadena/Northridge/Porter Ranch/etc????
July 20th, 2009 at 4:52 am
Mark,Is there any way to separate primary residences from from second/vacation/investment homes? I looked at Realtytrak and didn’t see anything. Thanks so much for sharing info with us.
July 20th, 2009 at 6:48 am
All the US help for defaulting mortgages has been aimed at primary residences, no? Nothing has really helped, not -5% underwater, not -25% underwater and now we have a proposal for the US to buy and rent foreclosures. One big problem however, according to NAR between 33% and 40% of home sales in 2004-2007 were second homes not eligible for help. The proportion of second home sales must be considerably higher in the bubble states and these homes were bought at or near the top. Depending on the leverage these owners no longer have ANY skin in the game and the US programs aren’t designed to save the banks from risky loans on second homes. Foreclosure sales of second homes should be enough to crater home values on their own. Maybe the banks are dumping their bad second homes and holding the primary homes hoping for a huge US bailout?
July 20th, 2009 at 6:59 am
Why do people think that the government has any TRUE desire to help people?
July 20th, 2009 at 7:12 am
Patrick, you are referring only to the securitized products correct? I was aware that this problem existed, which appears to be the true elephant in the room when it comes to why the servicers don’t want to/can’t offer principle write downs. It’s my understanding that the equity tranche continues to put pressure on the servicer to not complete principle write downs, but are also positioning themselves to sue the servicer if foreclosure takes place to quickly. The equity tranche wants to lengthen out the time of the foreclosure process, because as you specified the servicer must continue making the payments to them until the home is sold. To me this appears to be a stealth way of transferring value from the senior tranches to the equity tranche holders. In a sense the equity tranche has the entire loan and servicer by the short hairs. Patrick, are you able to go into more detail regarding this issue? It appears you have some knowledge in this area.
July 20th, 2009 at 8:00 am
There is so much involved in the Securitization Process, and after a year of researching it, I only know probably have about 70% of it understood.
You nailed it on the Junior Tranches. Carrington has filed suit against AHL for just that reason. I am actually in the process of talking with Carrrington about supporting their lawsuit. The reason is that what I can show, would open up Carrrington to save the Junior Tranche investors, yet allow mods to take place.
When the loans were securitized, different tranches were awarded different income streams from the loans. The problem is that the Senior Tranches are paid first, whether it is the income streams, or it is payoff of the loan. If there is not enough money from the payoff or the income stream, then the Junior Tranche holder is “holding the bag”.
When the loans were securitized, there were “protections” in placed for such eventualities. However, these protections were based upon certain probabilities of events. What has actually occurred was far beyond the estimated probabilities.
The Servicers do have the ability to conduct loan modifications to a certain degree. However, it must meet a Net Present Value Test. The problem is that there is no true set standard for the test. The Fannie Mae/Freddie Mac test has tried to standardize the test, but the Servicers can make certain assumptions about the loans, and can work around the standards in that manner.
For the Private Securitizations, there is no standard for this determination.
Another thing that affects the Tranche holdership is the Credit Enhancements. These are the methods and processes of attemtping to ensure that if defaults did occur, there would be funds available to pay the income streams. Some of the enhancements were
Credit Default Swaps
Substitution of bad Loans with new “good” loans.
Income Reserves from monthly payments. The Tranche owner might receive a portion of the monthly payment, with the rest going into a “slush fund” in the event of too many defaults, and missed payments would be made from this fund.
Now, imagine this. Many of the investors who bought tranches would then take those tranches and break them up into new, smaller tranches and sell those slices off. And some of the new buyers would do the same thing again. Just imagine the headaches on all of that.
It would take hours to explain this whole mechanism. I am having the devil of a time explaining it to attorneys and writing it up in a simple format for the courts to understand.
July 20th, 2009 at 9:43 am
Patrick, I think what you described at the end is what they refer to as CDO sqaured and CDO cubed. It is amazing how complex, and nearyly impossible it will be to deal with this problem. I think it may just have to play out.
Mr. M – How do you see your princ. write down happening with the issues we’ve been discussing?
July 20th, 2009 at 11:29 am
The only way to get true principal reductions would be to litigate them, for the most part. This would mean making each case so expense for the servicer and lender that they would accept the easiest route.
Part of this tactic would involve attacking the legality of MERS and also Securitization, which involves “breaking” holder in due course, which I am working on now.
July 20th, 2009 at 12:03 pm
Excellent posts, Housingrealist and Patrick. I too cant understand Mr M’s advancement of the PR strategy without him addressing the hurtles securitization presents.
But this…1.3% of ALL mortgage loans in the country becoming delinquent in May alone.
I would love to be a fly on the wall at Obama’s economics meetings. Some savage realities must be entertained by Obama and his staff. The prospects of boxing a few million borrowers back in to good standing through 2012 with a “throw ‘em a bone” modification sounds like a solid strategy to spread the pain.
The admin truly believes housing will rebound in time for modified mortgages be converted by a sale or refi. From the Home Affordable plan recasting in year 5, I assume the admin sees the bubble as a symmetrical one.
July 20th, 2009 at 1:19 pm
Record high sales volumes and prices in the bubble years with over 35% vacation/investment homes so there are 10-12 million bad RE investments out there, a lot of them highly levereged with the investors way under water in non-recourse states. Non of the federal programs address bad RE investments and the volumes of these going bad will suck down the entire market.
July 20th, 2009 at 1:33 pm
“Part of this tactic would involve attacking the legality of MERS and also Securitization, which involves “breaking” holder in due course, which I am working on now.”
Patrick, could you explain this is more details?
July 20th, 2009 at 3:11 pm
Change the engine while the car is running?
Didn’t junior get more interest? Now you want senior to split with juniors? Hmm… I don’t see that hapening.. my .02 cents, but hey, if the bankers allow it between them..fine with me!
I would imagine to see then, this kind of change hapening through out the whole stock market.. un-intended consequences.. Nobody would want to loose, no matter what tranch they’re on!
July 20th, 2009 at 3:34 pm
The only way to get true principal reductions is FC! rebuild, and buy later! Prices must (and will) get to a price that’s afordable…
btw, isn’t Carrrington the old suprime lender? (New Century..bought for 139 million?)
July 20th, 2009 at 4:19 pm
“The only way to get true principal reductions is FC! rebuild, and buy later! Prices must (and will) get to a price that’s afordable…”
I agree with you 100% ex_owner. Any other excuse for a PR is BS.
July 20th, 2009 at 4:38 pm
Patrick
Is there a way you could email sample of standard PSA to see how it reads…very interesting..
also lots of outsourcing loss mitigation going on also
Saxon is outsourcing to Hill Bridge Capital Group
Taylor Bean to Sparta Servicing
CIT outsourcing to Loan Resolution corp.
we closed a short sale in May where American Home Mortgage originated it and sold ti Citi Financial. American Home mortgage maintained servicing when payments were good. When it went south they transferred to Real Time Resolutions.
We played who has the damn note for awhile finally we found
Strategic recovery group had it on someone’s desk for 3 months.
who are all of these companies?
July 21st, 2009 at 7:00 am
still NO principal reductions yet ???…what is Timmy Tax Cheat doing about this disaster that gets worse every month ?
July 21st, 2009 at 8:16 am
Javagold, go ask your banker for one
July 21st, 2009 at 11:01 am
even if i were to get one from my banker ex owner it will not help me when the value of everyones homes goes down another 40%….they can kick the can down the road all they want the longer they wait the more people will lose their homes, which helps NO ONE, PR are the only solution to flush the ponzi scheme housing bubble and wash eveyone to start fresh again
answer is so simple evwen a renter should be able to figure it out
July 21st, 2009 at 12:28 pm
I have been receiving quite a few mailings and a voice mail from Chase asking me to call about refinancing into fixed (I have a 5/1 ARM set to recast in 2010). And I’m talking a letter a week for the past month. I am not sure if Chase is doing some mass promotion being “new” in CA or targeting ex-WaMu bubble borrowers specifically.
I am trying to fix a threshold for doing business with them.
I estimate my rate indexed to the 1 year CMT to drop from 5.x to 3.x on recast day. My home is still above water by 5-7 %. And, in all of WaMu’s wisdom it made more sense for them to lend to myself with stated income than to both my wife and I, i.e my wife is NOT on the loan.
So, stick with 5.x% for through mid 2010, the 3.x % through mid 2011 and see how this economy plays out, or refinance to current jumbo rates (6.5+) and expose my wife’s credit to this home?
The answer seems clear to me, but my situation illustrates the leverage many prime borrowers have over the lender.
July 21st, 2009 at 1:55 pm
Well Javagold, you should spend less time attacking Timmy Tax Cheat, and more time focusing on paying your mortgage.
“PR are the only solution to flush the ponzi scheme housing bubble and wash eveyone to start fresh again answer is so simple evwen a renter should be able to figure it out”
BS!!!
July 21st, 2009 at 6:47 pm
Javagold and others talking about PR. Please go back up and read the posts by myself and Patrick. With securization and the fight going on between servicers, senior tranches and subordinated tranches, PRs are not going to take effect on a large scale. They can’t unless you do away with the contracts those securities have. Not happening!!!
July 22nd, 2009 at 8:05 am
Mr. M – I know you have detailed info and thoughts on Danville, any thoughts on Lafayette, just down the road? What are you seeing there?
July 24th, 2009 at 10:00 am
I’ve been reading this blog for the past 6 months or so and I just don’t see prices falling in West LA area. Houses out here are still 800k+. MB and SM has very little under $1mil. Unless you are willing to rebuild on a lot, prices out here is still way out of whack. And as much as I wish they would fall, so I can buy one they simply aren’t falling much. I don’t see foreclosures either… There are a few here and there but nothing that is depressing the market. Prices have rolled back to about 2004-2005 prices, which by most accounts, is pretty inflated from the run up from 2000 already.
If this shadow inventory is out there, why are the banks holding on to them? It doesn’t add up for me…very weird.
July 24th, 2009 at 3:20 pm
WestLA… desirable areas..are the last to drop.. they all do in the end!
July 25th, 2009 at 3:10 pm
MM,
Are you planing to write an article on the shadow inventory volume? Any plan for it if you know? When/will it be released to MLS?
I think that would add a lot of traffic to your site!
thanks,
Ex_owner
July 25th, 2009 at 3:21 pm
or do banks plan on selling the shadow inventory through some other avenue? bulk to investors? or not planing on selling them yet.. ?? or slowing down the whole re-sale time…
I would imagine at the rate is going.. it’s only getting bigger..
July 26th, 2009 at 3:38 pm
I read another article that stated more directly that the US would buy the foreclosed homes from the banks. After all how can the US rent them out if they don’t own them? It will take a colossal amount of money to buy all these foreclosed homes. 19 million unoccupied/marginally occupied homes of all types – thats enough for 60 million people!
July 26th, 2009 at 6:01 pm
I am absolutely shocked by the chart showing the amount of loans in relation to FICO scores.
We are at least two years into this and to me it looks like lending standards only really tightened significantly in the last 4 months or so.
This makes me a little worried that as soon as real estate “appears” to stabelize, they will bring out the mirrors for the fog test soon.
July 27th, 2009 at 5:51 pm
loans in relation to FICO.. are those gov, non-gov or combination?
Can we get a ratio between gov and non-gov?
July 27th, 2009 at 5:53 pm
MM,
I know you’re bussy… but you’re now runing at 2 articles per month.. are you super bussy with investors groups that pay you? ( I don’t blame you then ).. or just nothing more going out there?
July 28th, 2009 at 7:19 am
West LA says: “If this shadow inventory is out there, why are the banks holding on to them? It doesn’t add up for me…very weird”
Part of what I recently discovered, is why the banks do not push the foreclosure process is that is not on their books as bad debt yet. The longer they can stall a foreclosure the cleaner their books look. Shortsale / Preforeclosure are still in the borrower’s hands. Not the bank/lenders.
So why should the banks push the foreclosures? On the preforeclosure process, even if the homeowner has left the property, the bank is not responsible for the property, including taxes and insurance. Amazing games out there, but it is what it is. They are releasing REO homes in small drodes, hoping to not loose as much on the value. I call this major constipation on the banks part. The longer they drag this out, the longer the pain will be.
July 28th, 2009 at 3:57 pm
Spot on, LovinLife. We are looking at the Japanese gameplan from 89-2006 (or even to present)…just one long, drawn out downtrend and super recession.
But hey, it’s better than a depression, right? Better than getting through this as quickly as possible, getting the pain all at once and working through it fast and rising from the ashes. Nah, we’ll just delay, stall, and draw out the inevitable.
Anyway, WestLA, can you give us a couple of zip codes you are looking at? You should check them out in realtytrac. Even if you don’t sign up, you can still see by zipcode how many properties are in preforeclosure, get an idea of the shadow inventory. Something tells me there is plenty hiding under the surface, even in the most high end areas.
July 28th, 2009 at 5:49 pm
Maybe the banks are hanging on to the foreclosures/abandonments until it becomes such a monumental mess that the US must bail them out – a variation of Too Big To Fail, the US will buy the homes at bank cost and then hold them til they can sell them at breakeven, like they’re doing with their ownership of AIG and CITI, even if breakeven is 50 years away
July 29th, 2009 at 10:42 am
After all is said and done, the question is… Where is this huge wave of foreclosures that were suppose to hit the market? At first, it was suppose to hit in May, then we moved it to July, but now as we’re approaching August, we see nothing yet.
July 29th, 2009 at 12:32 pm
This foreclosure wave, especially of Option ARMS has been delayed due to three major factors.
1. Obama’s programs, which don’t do a thing, except to delay foreclosure a bit.
2. State actions which have slowed things down.
3. Low Index values on the Option ARMs which makes resets drag further into the future.
July 29th, 2009 at 9:53 pm
As an appraiser I find these observations to be true. is there stability in the market or slight increase in prices? We don’t see evidence. Several times in the past couple of years we heard the same predictions and prices continued to slide. I think that 2011 is likely to be the turning point.
July 30th, 2009 at 8:12 am
Hi Mark and all,
I want to thank all of you who write in here, I value the insight and common sense.
In reading the papers over the last 2 weeks, one would believe that the banks are riding high in profits, the recession is over,Foreclosures are a thing of the past, Loan mods are working, short sales are hard to find due to lack of inventory……………..
I mean come on!! Is it the banks intention to just spit out a controlled inventory in the worst areas over a period of time to help maintain their “false” profit margins? How can they even claim to be making profits without knowing what their losses are?
Or, do they know what their losses are and are not disclosing them?
Are we seeing the banks becoming liars to the government and the public just as they did in the boom years! Why mislead the entire nation about profits! Who gains on this type of monumental deception? In my business circles, I find that I am the lone ranger in my beliefs that the real estate market still has to suffer another nasty wave of Foreclosures. Many scoff at me. I point people to this website, but if it isn’t on CNN, then it is propaganda to them.
I barely passed economics in high school, but I do run my own business, and I do know that if I am losing more than what I am making, then I am not making a profit. I can try to delay or hide my losses, but eventually I have to address the losses and deal with them. In other words, I have to add them to my bottom line and adjust as necessary. Anyway, I have vented enough. I just hate to see us being lied to again, being fooled into believing that all is good and that the worst is over.
July 30th, 2009 at 8:37 pm
Appraiser – your right, but they use accrual accounting and hope they can spread the losses out over several years, so they can “earn” there way out of the problem. If they were forced to market to market, they would be insolvent. Nobody wants that, not even me, as I sit here just licking my chops setting aside cash just waiting for the opportunity to pounce in a big way. It wouldn’t be good for our country. Total disaster!
July 31st, 2009 at 4:43 pm
Thanks Mr M and all contributors — I appreciate the time you take to share your knowledge. Today the President and Newsweek’s cover announced the recession is over —- I am shocked that the real picture is being so blurred by the media. Fortunately, there are other sources, such as this site, that help to get the truth out! Thank you again for your posts.
July 31st, 2009 at 6:02 pm
Mr. Mortgage… just want to say thank you. I started reading your blogs and watching your youtube vids just in time… your insights are clear, concise, and your opinions are backed by real data, and I’m pretty sure you and others like you have saved me a couple hundred thousand bucks so far… and I am sure you’ve saved other people like me from financial disaster.
My realtor (who told me last winter was the bottom and we are running out of houses) is not so happy with you… but if you’re ever in SoCal my family will be happy to buy you dinner!
August 1st, 2009 at 7:29 am
my father is a real estate attorney and as he did in 2003 he is warning me that the mortgages and refinances he is seeing are MORE risky than the subprime loans of 2002-2004….he says they are all 3% FHA loans for way more house than they can afford but that in the last 3 months they are coming in daily……SOMETHING DOESNT SMELL RIGHT……….. AGAIN !!!
August 1st, 2009 at 8:37 am
Everyone in the industry with any true experience has always referred to FHA as the new Subprime.
10 years ago, if a borrower could not be approved traditionally, and since subprime really did not exist, FHA was used for what would have been subprime.
August 1st, 2009 at 8:52 am
It is all a matter of confidence. Obama is trying to create some level of confidence in the market by holding back foreclosures, getting FHA to refi. There are lots of buyers in the sidelines waiting for a deal. Why buy now if it will go down another 10%. Even the folks here on these forum are potential buyers sitting on the sidelines – that is why they are here.
No doubt that the folks on this forum are more sophisticated given that the info provided here is so informative. Remember that avg Joe Blow is also waiting on the sideline, going to house openings and reading local papers and CNN. Once they think that prices in his neighborhood is creeping up he will bite. And when he does the herd will do the same.
So in a way the huge build up in foreclosure inventory held by the banks is no problem. After all Citi, Wamu, BOA are in a way controlled by Fed and they can hold these inventory for a very long time.
August 2nd, 2009 at 1:25 am
I was just reading over the new 125% HARP guidelines and comparing to HAMP program. In the HARP is states there will be TBA or To BE ANNOUNCED securities…So when these new loans get booked with extremely high LTV’s they will somehow get securitized. Does anyone think they will do the Credit default swaps on those? I would be interested on comments on that subject please.
August 2nd, 2009 at 6:48 am
The real question to HARP:
What fools would actually buy them?
August 2nd, 2009 at 7:34 am
The 105% was a joke,and 125% will be marginal benefit in the areas that need the most help,and remember second homes were 35-40% of purchases in the bubble years and they don’t get any help at all with these programs.
I never saw the % of second home purchases by states but I’m sure NV,FL,SC are at least at the 35-40% range, probably a lot higher.CA and AZ might be more balanced. Anyway large scale foreclosures in the second home market will crtaer all prices in these areas IMO
August 2nd, 2009 at 8:05 am
Patrick – I think a lot of people will buy the HARPP MBS, as you and I are the backers through FNMA and Freddie guarantees. No different than FHA or GNMA now.
August 2nd, 2009 at 9:37 am
Is the purchase of the REIT IPO PMT a method to invest in foreclosures?
“PENNYMAC MTG INVT TR (PMT)”
August 2nd, 2009 at 10:32 am
Gator – Yes they are investing in distressed mortgage back secs. The IPO was very underwhelming. They had to cut their offering by over 1/2. Track record of those running this sec. is not exactly trustworthy or ethical.
August 4th, 2009 at 11:13 am
Mark,
Great report! In So. Cal, the SFH REO supply is tight in cities such as Irvine, Chino Hills, and western part of Corona. It seems contrary to what the statistics are saying. REO Supply ought to be abundant but that’s not the case here. I heard from the grapevines that banks are sitting on their supply so they can keep prices from tumbling and hope that over time housing price will recover. I’ve heard from one individual account that he’s been in a house without paying mortgage for 9 months and the bank hasn’t kick him out.
Is this what’s been happenning with the REO supply? I’d appreciate your inputs.
Thanks,
August 5th, 2009 at 4:54 am
The shadow inventory is right where you said it is. They are living in the houses without paying. 5 houses foreclose, and 35 are postponed. Cans kicked down the road, not to mention those not paying. This will go on for years.
August 5th, 2009 at 9:24 pm
News from CNBC states 41% of all conforming loans in the USA are underwater.
August 6th, 2009 at 5:32 pm
…and it’s going to top 50% by 2011, according to that report!
August 8th, 2009 at 6:32 am
Mark, thanks for continuing to look at the numbers and speaking the truth, even when the Greek chorus around you insists on drowning out facts like these.
August 8th, 2009 at 8:25 am
I am amazed at the financial media that bellows from the roof tops that home prices have bottomed. Can they not see the recasting and resetting of loans that is about to begin in the next few months. It is going to not allow for a true housing bottom until probably 2011 or 2012. The one point that may lengthen it out, is the fact that the Fed. has kept interest rates so low that the option arms margins may reset lower for now yet explode up in the out years.
August 8th, 2009 at 5:53 pm
Has anyone used the new feature on google maps that allows you to search for foreclosures?
If you go to maps.google.com, enter a search for Los Angeles, CA, then click on the “show search options” to the right of the search field. Open the drop down menu that appears, and select “real estate”.
A whole mess of options will appear on the left side of the map, including a checkbox that allows you to select to show only “Foreclosures” (includes pre-foreclosures). Now, a ton of red dots will appear all over the place. It doesn’t look like there very many on the map, until you zoom in.
Try zooming into nice areas, almost down to the street to street level (tightest zoom in), and you will be amazed. HUNDREDS and HUNDREDS of entries for the higher end areas – Beverly Hills, Hollywood Hills, Los Feliz, Hancock Park, Bel Air, Malibu, Santa Monica, the beach cities etc.
August 11th, 2009 at 9:54 pm
Great article in today’s WSJ discussing the new subprime, FHA-GNMA. Would encourage all to read. Was not aware that FHA was refinancing people @ 125% CLTV and then writing down principle with tax payer taking loss up to 30% of loan amount. The gravy train is just getting longer and longer.
August 12th, 2009 at 11:38 am
Housingrealist…
“writing down principle with tax payer taking loss up to 30% of loan amount.”
I believe you mean WHEN A (FHA) FORECLOSURE.. takes places .. the priniciple write down…is really a tax payer loss…
btw, where is MM? MIA??? MOVING AGAIN?
August 12th, 2009 at 2:50 pm
No – I don’t mean in foreclosure, I mean mortgage mod. They specifically stated that FHA has implemented princple write downs on mortgages up to 30%. REad the article.
August 12th, 2009 at 5:01 pm
WSJ article with 30% prin writedown mentioned, WOW, unbelievable!
Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too.
Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. (See the nearby table.) Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?
Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.
Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.
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On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices. It found that the FHA’s default rate has grown to 7%, which is about double the level considered safe and sound for lenders, and that 13% of these loans are delinquent by more than 30 days. The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.”
The IG also fears that the recent “surge in FHA loans is likely to overtax the oversight resources of the FHA, making careful and comprehensive lender monitoring difficult.” And it warned that the growth in FHA mortgage volume could make the program “vulnerable to exploitation by fraud schemes . . . that undercut the integrity of the program.” The 19-page IG report includes a horror show of recent fraud cases.
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If housing values continue to slide and 10% of FHA loans end up in default, taxpayers will be on the hook for another $50 to $60 billion of mortgage losses. Only last week, Taylor Bean, the FHA’s third largest mortgage originator in June with $17 billion in loans this year, announced it is terminating operations after the FHA barred the mortgage lender from participating in its insurance program. The feds alleged that Taylor Bean had “misrepresented” its relationship with an auditor and had “irregular transactions that raised concerns of fraud.”
Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards. A few weeks ago a House committee approved legislation to keep the FHA’s loan limit in high-income states like California at $729,750. We wonder how many first-time home buyers purchase a $725,000 home. The Members must have missed the IG’s warning that higher loan limits may mean “much greater losses by FHA” and will make fraudsters “much more attracted to the product.”
In the wake of the mortgage meltdown, most private lenders have reverted to the traditional down payment rule of 10% or 20%. Housing experts agree that a high down payment is the best protection against default and foreclosure because it means the owner has something to lose by walking away. Meanwhile, at the FHA, the down payment requirement remains a mere 3.5%. Other policies—such as allowing the buyer to finance closing costs and use the homebuyer tax credit to cover costs—can drive the down payment to below 2%.
Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans. HUD just announced that starting this week the FHA will refinance troubled mortgages by reducing up to 30% of the principal under the Home Affordable Modification Program. This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.
In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi. We also know from other government and private loan modification programs that a borrower who has defaulted on the mortgage once is at very high risk (25%-50%) of defaulting again.
All of which means that the FHA and Ginnie Mae could well be the next Fannie and Freddie. While Fan and Fred carried “implicit” federal guarantees, the FHA and Ginnie carry the explicit full faith and credit of the U.S. government.
We’ve long argued that Congress has a fiduciary duty to secure the safety and soundness of FHA through common sense reforms. Eliminate the 100% guarantee on FHA loans, so lenders have a greater financial incentive to insure the soundness of the loan; adopt the private sector convention of a 10% down payment, which would reduce foreclosures; and stop putting subprime loans that should have never been made in the first place on the federal balance sheet.
The housing lobby, which gets rich off FHA insurance, has long blocked these due-diligence reforms, saying there’s no threat to taxpayers. That’s what they also said about Fan and Fred—$400 billion ago.
August 12th, 2009 at 6:35 pm
A little positive news would be nice . Lie to me. Being in New Orleans we feel somewhat isolated from other areas. Whether it’s having our head in the sand cause we are still too busy rebuilding from Katrina. Or just the natural laid back cultural deficiency we have always suffered who knows. Thanks for your insights.
August 12th, 2009 at 6:59 pm
JC – great info ! Isn’t the 30% mod going to be recaptured when the borrower sells or refinances? Shouldn’t that save a few bucks for the taxpayer?
I’m nauseated by all the giddiness in the press these days. If they aren’t interested in the inner workings and hidden mechanisims of the market, maybe they could just take a look at the google map mentioned by Ubu. The maps tell quite a story. The few properties I checked that were recent REOs and re-sold do not appear on the map — it looks pretty current to me.
August 12th, 2009 at 8:53 pm
Mr. M – I’m “jonesin” for some new data. Please throw us a bone!
August 12th, 2009 at 9:17 pm
Housingrealist…
My bad.. I’ve found the article…
FHA Commissioner David Stevens said the changes “offer borrowers an opportunity to stay in their homes, make payments that are manageable and defer [payment of] the money owed to a later time when, hopefully, home values have improved.”
…
Under the FHA plan, mortgage servicers can reduce the amount of principal on which the borrower must make loan payments by as much as 30% to get monthly payments to affordable levels. The borrower makes the reduced payments for the life of the loan, but is responsible for paying off the full loan amount when the home is sold or the loan is refinanced. This approach is designed to fit guidelines set by Congress, FHA officials said
…
Mortgage servicers will receive incentive fees of as much as $1,250 for each successful modification. FHA officials said they expect the approach to save the government money by reducing foreclosure-related losses on loans the government insures.
UMM…WELCOME TO THE GREATER DEPRESSION..JAPAN GOT NOTHING ON US!
August 12th, 2009 at 9:29 pm
Karen,
I think you’re correct… anyone that has an FHA loan, and the (up to 30%) reduction helps them keep payments afordable (no more than 31%).. gets to keep the home… what a nice deal..TAXPAYER GETS BACK THE $ (AT SOME POINT.. COULD BE 30 YEARS)…considering:
- owner is employed / has income
- not late more than 1 month
- wants to keep the home
- has an FHA loan
- these people will get in debt again, have learned nothing!
- does the loan become recourse, should they become “late” again?/forclose anyway after?
What’s the reason for anyone else to buy? to save FOR A DOWN PAYMENT? just wait for/get an FHA loan?
MM…doES high end market needs to get bellow 729K to sell (FHA) loan.. I’m DEBT FREE NOW….and hope to get 2 million dollar home (peak price) for 729K.. with 5% down.. what’s my chance??
CAN YOU SAY STAGFLATION!!!!!!!!!!!
August 12th, 2009 at 9:36 pm
wE’ve avoided (maybe) deflation.. looking at stagflation…it’s sure temptation..to stop spending out of desperation.. to get an FHA modification.. There must be a corelation.. what’s up with this nation? Can you MM tell us your analyzation?
August 13th, 2009 at 5:16 am
So the 30% principal (and imputed interest) is deferred until the final balloon payment is made when the home is sold? So lets say this is applied to a $300K mortgage and $100K is deferred and the homeowner stays 30 years – he then has an exit payment of about $300K with the imputed interest?
Someone staying that long is very unusual but the deal looks a lot less sweet for the homeowner. The basic beneficiary is the lender who continues to get a stream of payments and then they collect the remainder at sale, depending how the price of the home has moved the lender kind of seizes the home at sale, this is a delayed foreclosure process – help the banks avoid losses on immediate foreclosures.
From the homeowners perspective just tossing the keys and starting over is probably a lot better economically if the home is way underwater, they could make their stream of payments and still have zero equity at the end. They might never be able to avoid the ramifications of initially overpaying.
August 13th, 2009 at 8:31 am
JC – I’m not so sure that interest continues to accrue on the principle write down. Please confirm your source as to the accrual of interest. I suspect this is a stealth way the gov’t can support princple write downs without as much public backlash! Without interest accrual the current princple write down amount is inflated away over the next 30 years.
August 13th, 2009 at 11:59 am
I’m only going by what is posted here – and I think the rules are being made while the game is played
August 17th, 2009 at 11:39 am
Hey Karen and everyone,
In regards to the new google maps Real Estate feature that I pointed out, one thing I realized is that a LOT of the foreclosure/preforeclosure listings that come up on the search don’t have accurate addresses, because they are coming from pay-only sites like realtytrac. So realtytrac may have a listing like “Blah Street #301, L.A. CA 9XXXX”, and it’s obviously a condo somewhere, and the google feature will grab that entry and convert it to “301 Blah Street, L.A. CA 9XXXX”.
But I believe the numbers and general locations should be accurate – i.e. these are not ghost listings. Not sure about how much of the shadow inventory is on there though.
August 17th, 2009 at 2:01 pm
I think MM moved again his website… mhanson dot com
August 17th, 2009 at 9:16 pm
mm – you’re killing your blog. just a nugget. Gone from several times a week, to a few times a week, to several times per month, to twice per month, now down to once per month, and if nothing posts in two days, looking at bi-monthly. Killing the following my brother!
August 18th, 2009 at 1:15 pm
HEY ALL – YOU CAN FIND MARKS NEW BLOW AT MHANSON.COM – LOTS OF GREAT INFO
August 18th, 2009 at 1:16 pm
Meant to type BLOG not BLOW
October 3rd, 2009 at 3:58 pm
Many thanks for the well presented info! I appreciate data that is concise and easy to digest!
There is a big error in the map and the following statement though:
“ONE in FIVE properties in FL and NV are in some stage of foreclosure.”
What you meant I think was that one in five homes _that have mortgages_ are in foreclosure — your figure is incorrect as it ignores all the homes that are owned free and clear. It would be interesting to know how that changes the numbers – one in eight or ten homes perhaps in FL/NV? A drive around some neighborhoods noting “For sale” signs might give an idea.
Retirees in particular have often paid off their homes. In my own family, 2 of 4 homes are owned free and clear and the other 2 were purchased in the 1990’s. After being paid down for 10-15 years and because they were bought at 1990’s prices before the bubble, there is tremendous ’skin in the game’, too. So in my family only 1 of 4 homes has even a small chance of going delinquent (should my brother lose his job.) 3 of 4 simply not possible.
I think because of the many Americans like us with a lot of home equity and savings, after the Option ARMs resets wring out the remaining weak hands, we are likely to see some sun break through the clouds in housing and the economy. The scary numbers we are seeing now are the subprime/lost job/overpaid/minimal down payment crowds. I bet that 2/3’s or more of existing mortgages are old enough to not fit that bill.
October 16th, 2009 at 2:51 am
It appears that there may be some fraud in the assignments prior to foreclosures. If such fraud does exist, does that create title problems in the future? If so and this fraud in securitized mortgage assignments is rampant, what does that mean going forward for title insurance?
December 20th, 2009 at 12:11 pm
From my experiences is true.
January 26th, 2010 at 4:51 pm
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May 26th, 2010 at 9:04 am
Very interesting article. Keep us posting buddy !
May 29th, 2010 at 4:54 pm
You got to admit, there is no fast solution.
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