More Californians ‘In Over Their Heads’
The California press reacts to the Dataquick release. “Foreclosure activity across California soared by its biggest margin in 14 years during the second quarter in response to diminishing price appreciation, an industry tracker said Wednesday. During the April-through-June period, lenders sent 20,752 default notices to homeowners in the state, up 67.2 percent from the year-ago period and up 10.5 percent from the first quarter, said DataQuick Information Systems.”
“That’s the biggest annual quarterly increase since La Jolla-based DataQuick began mining these numbers in 1992.”
“In Los Angeles County, activity increased 45.3 percent to 4,586 default notices. In Ventura County, activity increased 80.8 percent to 452 notices. In Southern California, activity increased 69.5 percent to 12,222 notices.”
The LA Times. “‘This is a key measure of financial distress,’ DataQuick analyst Andrew LePage said. ‘If it continues long enough it could impact home values.’ The number of foreclosures in the state is rising too. The second-quarter total was 1,901, according to DataQuick, a 215% jump over the 604 in the same period last year.”
“How bad things are, and how bad they’ll get, remain a matter of dispute. Analyst Sean Snaith has changed his metaphor for the state’s real estate market from a souffle (delicate, full of hot air) to a crepe (less exciting but less likely to collapse).”
“Patti Hale, a San Diego agent, had a succinct summary of the market: ‘It stinks.’”
“Mortgage default notices in San Diego County nearly doubled this spring to the highest figure in the past seven years, according to a report.”
“Arnie Levine, a (foreclosure) broker in Mission Valley, said he has alerted his clients to about 400 houses and condominiums on the market that have been foreclosed on or been hit with notices of default. They range from a 42-year-old, 588-square-foot home on 50th Street in San Diego, priced at $159,000, to a 14-year-old, 3,671-square-foot home in El Cajon with an asking price of $1.2 million.”
“‘It’s bad for the people (selling) but good for our clients, because they’re looking for foreclosures,’ Levine said.”
“Roxanne Carr, of the Mortgage House in San Luis Obispo, said she’s not worried that local homeowners are getting into serious trouble making their mortgage payments. But she acknowledged that homebuyers should take care when choosing creative financing options that could leave them paying more per month than they anticipated.”
“‘People have to be careful,’ she said. ‘It’s (a mortgage) a big expense.’”
“Every Bay Area county except Marin experienced an increase in the notices of default on houses and condos during the one-year period ending June 30, according to DataQuick’s figures. The increase in the Bay Area was 37 percent. Default notices increased 74 percent in Napa County; 65 percent in Solano County; 53 percent in Sonoma County and 51 percent in San Mateo County.”
“Dennis Kelly, of Coldwell Banker in San Rafael, said DataQuick’s figures sound ‘extreme,’ but he said he has recently noticed anecdotal evidence of some people in Marin County falling behind their mortgage payments, especially those with 100 percent financing of their mortgage. He said the default notice rate in Marin County could increase.”
“Sutter County led the state with a 229.4 percent increase over the same time last year. Placer County, with 276 notices in the second quarter, was up 126.2 percent. That figure, up from 239 during the first quarter, was the highest since 1998. Placer County’s record is 322 notices in 1996.”
“Sacramento County recorded 1,352 notices of default during the second quarter of 2006, up 108.6 percent from 2005. ‘We’re seeing more people calling and coming in and wanting to know what to do,’ said Pam Canada, of Sacramento-based Neighborworks Homeownership Center. ‘They’re in over their heads basically and can’t be bailed out with refinancing. The real heartbreaking part is there’s not a lot of solutions.’”
“Many have mortgages that represent more than 100 percent of their home’s value, she said. Others face rising monthly payments with adjustable-rate mortgages and don’t have enough equity in the home that would allow them to move to a different mortgage, Canada said.”
“‘In San Joaquin County, the number of foreclosure notices was up almost 90 percent from a year ago, rising from 318 in the second quarter of 2005 to 604 in this year’s last quarter. Ron Cutler, broker-owner of Suntec Financial, Stockton, said he believes there’s a nationwide problem developing with foreclosures resulting from questionable mortgage loan deals that allowed people to buy in a pricey housing market.”
“Some mortgage brokers and lenders put people into adjustable-rate mortgage loans with introductory payments as low as a 1.25 percent interest rate the first two years, he said. When those ARMS kicked in with current higher interest rates that often doubled the house payment, many of those home buyers found themselves going into mortgage default, he said.”
“‘It’s evident those people were getting into homes that they basically shouldn’t have qualified for,’ he said. ‘Now the market is starting to change. They’re trying to sell their house, and that’s not happening either when you have a large amount of houses on the market.’”
“Mortgage brokers and lenders had no business doing those kinds of deals, he said. ‘I believe there’s been a lot of fraud committed already in the mortgage industry, and it’s beginning to come out,’ Cutler said.”
Things have played out just as the regulars on this blog have predicted. Decreasing sales, rising inventory, and now increasing notices of default. What else could be next but dropping prices.
Well, the subprine lenders have made their money and some have left town. Ameriquest and others are not hurting. It is Joe and Jane Sixpack with their limited financial knowledge who are hurting with more distress to come.
meant subprime lenders.
Don’t forget tightening credit after the increasing notices of default.
The biggest thing that is comeing is the drop off in “Consumer Spending”. The erosion of the psychological “Wealth Effect” is about to turn this slowly bursting bubble into a slowly bursting economy. Of course, as jobs begin to slip hard after xmas and the RE shows year over year declines, the RE professionals will be able to say “see we told ya it took job loss for houseing to lose value”. These things just irritate the heck out of me. /sigh
OCBear
I agree with OCBear.
I think most RE professionals (especially the ones who have been around for a long time) know that a crash is inevitable. So they say something like: “prices won’t go down significantly unless there is a recession”.
It’s like saying: “On a summer day, temperatures won’t go up significantly unless the sun rises.”
I have been in home lending in for almost 30 years. I think that there is more risk in this market than I have ever seen. I have an opinion on how high real estate is overvalued here in SoCalif, but I am doubting my own ability to analyze the situation, and say how low they will drop. I sold two investment properties in 02 and 03 and I counseled someone not to buy in 03……….and prices are up big since then. I would like to say that they will drop to 2002 levels but that might just may be me wanting to be correct…….
Foreclosures chugging along at ‘95 rate. I’ll wait til it gets down to ‘92-93.Then will be a time to growl and eat.
Analyst Sean Snaith has changed his metaphor for the state’s real estate market from a souffle (delicate, full of hot air) to a crepe (less exciting but less likely to collapse)
Better metaphor — breast implants:
- Overly inflated
- Completely artificial
- Out of control in Southern California
- Subject to eventual downward trajectory
- Cause for future lawsuits
lol!
Not meaning to be immodest here, but I must reserve bragging rights to being first on the fake breasts metaphor:
http://patrick.net/wp/?p=184
I gotta trump you on that, harm. I actually first posted this late last year. Can’t find the post, but maybe Ben can back me up on this…
Ok, fair enough. Whoever coined it, it’s a great metaphor and should be re-used as often as possible!
So housing is a B-Cup by 2008?
I guess someone need to figure out how to design an “I” Cup.
the best description was “california real estate auto-erotic asphyxiation.” i dont remember who posted,
is there a website with a graph showing foreclosure history over the last, say, 30 years? % increase doesn’t help me much given the low foreclosure rates over the last decade due to the exponential rise in real estate values.
bingo -rate of change is ok, but I’d like to see % compared to 1990 -92
I found this chart for San Diego. I don’t know of anyone who has compiled county by county historical data on foreclosures for the entire state of CA though. You’ll notice a bit of a lag between a spike in notices and an increase in sheriffs sales. I doubt foreclosure numbers have ever been as low as they have for the past five years in CA. They may be making up for it next year.
How about this?
Great chart.
I got it off an anonymous post at inventory tracker, I think. Yes, it is a good chart.
That is a truly excellent chart, and it bodes ill fof FB’s if patterns repeat, which by all indications (based on fundamentals) they will. Scary indeed.
This may come back a triple post:
http://www.foreclosureforum.com/mb/messages/16791.html
“That’s the biggest annual quarterly increase since La Jolla-based DataQuick began mining these numbers in 1992.”
And the resets have only just begun…
See
> close tag
Sorry - mangled the link.
See at Calculated Risk for foreclosures vs home price.
How long can the NAR and its cronies continue to spew the company line about a ” buying opportunity?” I would think the word it out unless you ride the short bus.
Speaking of NAR spew, doesn’t David Lereah usually come out of his hole about a week before the FED meeting to beg for a pause?
BB obviously didn’t pay any attention last time. I recommend Davey try lipstick and high heels.
I don’t know…….BB might like him just the way his.
They gotta create some activity. Maybe next it’ll be an “investor’s Market” or some crap. I can just hear it: “It’s a great REO Market!”
Roxanne Carr, of the Mortgage House in San Luis Obispo, said she’s not worried that local homeowners are getting into serious trouble making their mortgage payments. But she acknowledged that homebuyers should take care when choosing creative financing options that could leave them paying more per month than they anticipated.”
“‘People have to be careful,’ she said. ‘It’s (a mortgage) a big expense.’”
I am not sure that I can figure out what this MB is stating. I agree with people need to be careful and that a mortgage is a big expense. Even a 6 yr old could figure that out. I think the average 6 yr old has more intelligence than many of the recent homedebtors and soon to be homeless F&CKED folks living under the 405. Ask a 6 yr old if they could pay back a $10 loan, and most would say no because they don’t have that much money. So, I don’t understand where most people with suicide loans won’t get into trouble. The 6 yr old stands a better shot of paying back his $10 loan if he/she tried. They could sweep a sidewalk, etc for $.25 at a time. But it would seem like a long time and a lot of money.,
““Roxanne Carr, of the Mortgage House in San Luis Obispo, said she’s not worried that local homeowners are getting into serious trouble making their mortgage payments.”
She’s not worried? Compassionate bit*h. Her home loan’s okay, so why worry about the FB’s she helped tank.
Indeed, why should she care ? She made a large commision selling the overpriced property to someone who couldn’t afford it and now gets the chance to sell it at a smaller commision to someone who likely will be able to afford it. She may even reap more money if an investor buys it and hires her to rent it out. A Win-Win for her.
From the name of the company she works for, she probably peddles loans, not RE.
“RRRRRRRRRoxanne . . .”
(I probably date myself by admitting I was a fan of ‘The Police’. :))
“you don’t care if it’s wrong or if it’s right…”
psst Bubbles this one is low hanging fruit
Roger that…….she’s in denial. Symptom #1.
A real buying opportunity in California. Buy those Hesperia and Victorville $400K and up homes. Within 2 yrs, you couldn’t get a buyer at $100K and will be dodging bullets from all of the section 8 housing that most of the area will be turning into. Don’t believe me? Look at Palmdale and Lancaster of 1991 to 1996. And they are going to be repeating the same darn history.
already happening. Melody posted this write up last week:
http://www.ripoffreport.com/reports/ripoff157237.htm
Great post from the ripoff report moqui. That is absolutely scary and horrifying.
Great cautionary tale, but it’s hard to summon up much sympathy for these bleating herd creatures as they discover that promises and assurances from people who have a vested interest in selling you something, cannot be taken at face value (shock, horror). Caveat Emptor, fools.
Can’t wait until stealin copper out of homes is big business again.
LOL
Methheads in OR in 2004 were stripping aluminum guard rails from rural bridges for salvage value.
It ain’t that far off.
when the jury gets a case of mort fraud resulting in mame or murder of a mort huckster ,they’ll walk em- and I’ll laugh my ass off
So, the blood is in the streets and the realities of the bubble are becoming evident. Those who have been given to squashing the ‘equity locusts’ of California can take added joy in the damage done within the state. While without a doubt some Golden State residents have contributed to the national carnage, they have more likely feasted on their own young, running up prices so that at this point only equity-heavy boomers can buy, or those brainless few that will never ‘get’ it till the roof falls in. Apparently it’s starting to.
Gotta disagree; the blood isn’t even close to the streets yet. (I agree ‘the realities of the bubble are becoming evident’.)
Wait until “Arnie’s ARM-y” starts getting hit with resets.
“This is a key measure of financial distress”
But, but, but, I thought notices meant nothing!?!?! LOL!
“”This is a key measure of financial distress,” DataQuick analyst Andrew LePage said. “If it continues long enough it could impact home values.”"
“”Housing bears will tell you the world is coming to an end,” said Scott Simon, mortgage portfolio manager for Newport Beach-based investment giant Pimco. “But by every historical standard, this is still insanely low,” he said of the latest DataQuick numbers.
On a scale of zero to 10, Simon suggested, the current level of defaults is about 1.”"
At this stage, at this level they don’t.
This from an article GS posted earlier:
“In records going back to 1992, San Diego notices of default have fluctuated from a quarterly high of 5,139 in the first quarter of 1996 to a low of 649 in the third quarter of 2004.
Put in the perspective of the entire local real estate market, the latest number still represented a small percentage of mortgage financing activity. The second quarter of the year saw the sale of 14,950 new and resale homes, more than eight times the number of default notices in the same period, according to DataQuick figures.
By contrast, in the first quarter of 1996, at the tail-end of San Diego’s last major recession, there were 6,867 housing sales, just 1,728 more than the default notice count. ”
See how far away California is from notices affecting the market. Do you realize how much that would need to ramp up to have any significant effect on the market?. And if it does ramp up significantly that it’s at least a year away from impacting the market. Those numbers are far from anything to get excited about.
“Do you realize how much that would need to ramp up to have any significant effect on the market?”
You forgot to mention that Marshall Prentice suggested significant price effects if the default rate doubled, and that I estimated a fifteen month time to double (although my estimate is conservative — recent data suggests acceleration in the default rate). Given that declining SD prices are already showing up in the data, I guess it will get pretty bad by Nov 2007…
Agree. Many on this blog lack historical perspective. Interest rates are still historically low. Foreclosure numbers are still at historical lows.
Prices, however, are at historical highs. Inventory numbers are reaching, and in some cases, surpassing the norm. Inventories, likewise, are now equalling and surpassing the historical higs.
History is bunk. Sunk costs are sunk. (or so I was told in B-School). Where from here doesn’t look very appealing.
Highs, not “higs”; sorry to be redundant. Must read post B4 posting
MR.INCOME
A mildly increasing market, instead of the extreme increases of the last 4-5 years has brought defaults up rather quickly. This would appear to be just the tip of the iceberg in regards to defaults. The heavy ARM resets haven’t begun yet and appreciation has slowed, stopped, and even reversed in limited areas currently. I think you are right in that the “Bear camp” is seeing this as the beginning of a watershed event.
You obviouslly think otherwise, only time will tell.
OCBear
OCBear –
I will forecast here and now that MrIncome is soon to go the way of former posters BeaConst, LV_Landlord, and friends…
DCBubble, MA_Homeowner, Va_Investor……
Mr. Income, it looks like you’re trying to convince yourself you’ve got 1 more year of easy money coming. I hope you do. I know where I’m at I got a year more than I originally forecast before we ran into a wall. I was ready for the crash in ‘05, but the market gave me another year. One more year was great for the “Depression Account”. But from what I’ve seen in the past on how quickly things can meltdown in So Cal, I wouldn’t bet the farm on it. I was there in the early 90’s. In fact, the early 90’s mess is what landed me in NNV. You seem to me to know the inevitable is coming, but want just a little more out of this thing. We’ll see……..
No not really, As you and I both know or anyone seasoned in the business knows no matter the market someone always needs and has equity to get money. All I’m saying is that the current foreclosure numbers (speaking as someone who has actively worked in a down market and knows) would have to increase at least ten fold to have any significant impact on the market. From what I see the California market is far from that. Even if California gets back to historical averages that’s not enough to pull down prices. The banks are going to have to pull back a significant amount of inventory that exceeds by far historical averages to kill this market. For one there’s too much cash on the sidelines willing to catch falling knives. Two you have people who are paid on average 2k a month just to go knock on the door of someone who has a notice to check whether they want to refinance or sell that activety alone will keep the market and comps afloat for many months. Especially when you have one of the biggest investors in California who has a history of buying anything and everything whether it makes sense or not, who has very deep pockets and a myraid of credit lines actively advertising on radio and tv that he will buy all cash with his marketing slogan no agents. That type of activity has increased not decreased. Me and a fellow industry guy were speaking about it the other day about how many new faces are running around chasing the notices. These new guru’s will go to great lengths just to get a deal from overleveraging their house to stealing from their mother. Three the what’s called future value money and the guys who use that to get illegals in houses for $1,500.00 total skin in the game after a shoddy rehab and refinance in the ghetto’s. Four there’s not enough inventory coming back to change the guard from sellers to R.E.O. Managers controlling the market. As long as the sellers contol the market it’s going to be a slow and painful ride down. That’s why I say N.O.D’s right now are not important they are fool’s gold. Call me when you have significant numbers of Trustee Sales. When the Trustee Sale numbers are what the N.O.D. numbers are right now or rising significantly in that direction then you have something to get excited about. When R.E.O. managers don’t have the luxury of waiting out the market because the feds are breathing down their backs and he might lose his job of shining a seat with his a$$ if he doesn’t start liquidating quick fast and in a hurry.
I personally believe that when California crashes it’s going to make Phoenix look like a Real Estate Mecca. But the current forclosure increases won’t have an effect untill they ramp up at least tenfold and again that’s at least a year away. If people have any sense about them which they probably don’t and if they are willing to pay the price of points some maybe able to use what little equity they have left to at least stabilize and secure themselves for the next 5 or 10 yrs. But a lot don’t have that kind of business acumen. Looking for the continous free ride. The party is over but the fat lady hasn’t even finished clearing her throat nevermind singing.
Take it easy on Mr. Incomestream.
He has got legit bear credibility and certainly ain’t no perma-bull.
I value his input just like Robert Cote’s even though I disagree at times.
I bet Cali gets a big Earthquake right about in the middle of what should be a normal RE decline and that just crashes the home values.
I have always had insurance for that, even though the deductibles are high. I doubt that more than 15 or 20% of Californians buy earthquake insurance.
“But she acknowledged that homebuyers should take care when choosing creative financing options that could leave them paying more per month than they anticipated.” said Roxanne Carr
Yelling ‘Fire!’ after the theatre has burnt to the ground is not very helpful.
Here is Marketwatch.com’s take on the rising rate of CA defaults.
————————————————————————–
Mortgage defaults up 67% in California
Notices filed on late loans highest in more than three years
By Nick Godt, MarketWatch
Last Update: 12:11 PM ET Aug 3, 2006
NEW YORK (MarketWatch) — The number of defaults on mortgage payments rose to a three-year high in the second quarter in California, a 67% increase from the year earlier period, according to DataQuick, a real estate data-compiling firm.
Lenders sent 20,752 default notices to homeowners across the Golden State, up 10.5% from 18,778 the previous quarter and up 67.2% from 12,408 in the second quarter of 2005. Notices of default are formal documents filed with the county recorder’s office which mark the first step of the foreclosure process.
The 20,752 defaults were the highest since 25,511 were filed in the first quarter of 2003.
http://tinyurl.com/palwl
P.S. Rising CA defaults and increased risk of higher Fed Funds rates must both be good news for the home construction industry, because builder stocks are on a wild upswing today…
From the article:
” ‘We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress,” Prentice said. “While there’s no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation.’
Slowing prices make it harder for homeowners who fall behind on mortgage payments to sell their homes and pay off the lender. ”
First, if the problem was “slowing appreciation” it wouldn’t explain the defaults…the problem isn’t “slowing appreciation” it’s no appreciation or a falling price.
Second, the author’s reference to “slowing prices” echoes the “slowing appreciation” comment in the quote and reveals the journalist’s basic financial incoherence. Prices don’t “slow”‘; they rise or fall.
Slowing or negative appreciation doesn’t make people default. Most people will continue paying the mortgage if they can whether they are upside down or not. It’s only those that can’t manage their debt payments in the first place who are “saved” by appreciation. Sad thing is, alot of them couldn’t read the writing on the wall and refinanced rather than sold, merely delaying their day a recconing.
Precisely.
According to all the perma-bulls (including DQ spokesmen) over the last few years, the boom was driven mainly by equity-rich buyers and solid economic fundamentals, not reckless speculation fueled by cheap credit. Prentice seems to be implying that people currently in default (a) were counting on perpetual appreciation, and (b) either had no existing equity to begin with or have spent it all.
Bottom line is, Prentice is implicitly admitting they were lying to us all along. The emperor has no clothes.
Some brilliant quotes in here…
‘This is a key measure of financial distress,’ DataQuick analyst Andrew LePage said. ‘If it continues long enough it could impact home values.’
‘People have to be careful,’ she said. ‘It’s (a mortgage) a big expense.’
Wow, talk about your Deep Thoughts.
and don’t forget the change from “it’s a souffle!” to “My bad! it’s really a crepe.”
BayQT~
Analyst Sean Snaith announced today that he has once again changed his metaphor for the state’s real estate market. “Today I’m calling it eggs on toast with bacon on the side.” When asked the significance of that breakfast lineup Sean replied, “Well, mostly because I’m just hungry for that today. I like to mess up the egg on my toast and put salt and pepper on it. That just sounds really good.” Asked how it related to California’s real estate market he added, “Oh yeah, it mirrors the real estate market because… it’s flat, really messed up and tastes delicious. The bacon is significant because… um… it will kill you if you have too much of it for too long. But I must add that these will not collapse, they might stay flat for a while, but there’s no chance of them ever ever collapsing in a million billion trillion years OK?”
Funny stuff.
This parrot is dead!
- John Clease, Monte Python
“Well it might be a bit poorly”.
- The Pet Shop Owner, Monty Python
DataQuick reported Wednesday that areas of California with the most depreciation in home values typically saw the biggest jump in default notices. That included the capital region, where Sacramento and Placer counties saw June median sales prices for new and resale homes and condominiums fall below June 2005 levels. San Diego County also saw June sales prices fall from a year earlier, and similarly reported a sizable increase in default notices.
If this is accurate, then where does this seemingly blase attitude towards foreclosures come from? Unless the Dataquick boys and girls, and the realtors associations truly believe that home prices are at a ‘permanantly high plateau’, then the coming drop in home prices will be a disease that feeds on itself. Kinda like a flesh-eating bacteria for the housing industry.
“…then the coming drop in home prices will be a disease that feeds on itself.”
Exactly. Higher default rates lead to an increase in fire sales (e.g., short sales, banks unloading REO, etc), putting more downward pressure on prices. And lower prices tend to make it difficult to liberate equity in order to pay the bills…
If people don’t want to say the word “pop,” then I don’t mind if they use the deflating terminology/foods. However, I wouldn’t say that the air is slowly coming out - it’s more like the air is being sucked out. Kind of like what happens when you suck on those fruit juice packs long after you’ve finished the juice.
Is there a Sniglet for that fruit juice thing?
“If this is accurate, then where does this seemingly blase attitude towards foreclosures come from?”
It comes from fear of the “kill the messenger” effect. Anyone in the biz who was honest about how bad things are likely to get could easily reap blame for triggering a crash.
Nobody wants to yell “fire” but they are all edging towards the door.
CHUCK JAFFE
Painful ARM twisting
Resets of adjustable mortgages will leave costly stretch marks
By Chuck Jaffe, MarketWatch
Last Update: 7:08 PM ET Aug 2, 2006
BOSTON (MarketWatch) — It is becoming increasingly obvious that financial advisers, real estate experts and parents will someday point to what is happening in the mortgage market today and use it as a cautionary tale of what can go wrong when a buyer stretches to get too much house during a market that seems invincible.
http://tinyurl.com/lwrzb
———————————————————————————-
Hah! We have been pointing to the stupidity of using suicide loans to buy unaffordable homes on this blog for over a year now. But it is sweet to see the mainstream financial journalists carrying the torch these days…
GetStucco,
Yeah, I’ve read Chuck from time to time over the years and I’d have to call him “Master of the Obvious” with his stupid investment of the week. Pointing this out now (as NBC Nightly News did last night) isn’t going to help one single FB! Thanks Uncle Chuck!
At least if you publish what is already plainly obvious, nobody can accuse you of being the stopped clock which is right twice a day…
“There is no apples-to-apples comparison from the kind of mortgage someone could get a year ago and what they can get today,” said Anthony Hsieh, president of LendingTree.com. “As rates rise on adjustables, there are steps people can take to reduce the sticker shock, but they’re probably not going to be too happy with what they have to swallow now. … They had a 42-year low in mortgage rates, but they were more concerned with how much they would have to pay each month than how much they could afford and buy a home reasonably.”
…
Says (Bankrate.com Senior Analyst Greg) McBride: “There is still time to get off the tracks before the train gets closer, but people need to act now. A 7% mortgage today beats an 8% refi a few months from now.
“People’s choices are only going to get uglier, and plenty of people are on their way to trouble. … For everyone who has avoided this trouble, they’re going to look back someday — when their kids are looking for a mortgage and are tempted to stretch too far by using an ARM — and have stories to tell about how they saw a time when everything that could go wrong with that strategy did go wrong.”
————————————————————————-
There is a disconnect in these assessments, as those who used ARMs as affordability loans to get into large houses at barely-manageable initial monthly payments will soon discover there is no way to refinance their way out. Higher interest rates, tightening credit standards, and resets with amortization of principle will collectively drive their monthly payments skyward, regardless of product choice.
3 MONTH YIELDS ARE NOW ABOVE THE 30YEAR. We now have a full yield curve inversion. Ready or Not - Recession and Foreclosures here we come!
If this is accurate, then where does this seemingly blase attitude towards foreclosures come from?
Because the defaut rate my be up but it’s still managable. When you have several houses in a neighborhood in foreclosure the fun begins. Right now you will still have trouble finding a foreclosure to buy at a highly discounted price. In the next few years if you ask your Realtor for a forclosure they’ll ask, “so how many do you want ?”
Yeah. And I can guess that the number of ‘agents’ plying their trade will inversely proportional to the number of foreclosures. Nothing like trying times to test the souls of the fairly soulless.
Stick a ‘be’ in it.
And it’s done.
I always marvel at the statement that foreclosure notices are not that significant. Think about what a foreclosure notice means. It means that at the end of the month, someone literally did not have the cash, or credit available on a credit card, HELOC, 401(k) loan, or whatever to make their mortgage payment. You have to be pretty tapped out to hit that point. A foreclosure notice is a lot more scarey than a margin call: they’re not going to just sell your stocks, they’re going to put you in the street.
The idea that the foreclosure numbers are still historically low misses the point. It’s the trend, which is picking up speed, which is alarming.
What’s the reality of foreclosure?
How do the loses stack up?
What happens to your credit?
As far as credit goes, it means if you want to buy a home sometime in the next 2-4 years, you better have 30-35% for a downpayment at double digit interest rates. It also means 25-30% interest rates if you need to buy a car. No bank will give you a credit card unless you agree to come up with the cash as collateral (a secured credit card).
On the plus side, there will be a lot of former real estate investors for at least the next 7 years.
That last sentence is beautiful, subsonic. You are right on!
“Amateur Real Estate Investing” is about to go underground until the middle of the next decade.
(Kind of like Cicadas!)
“No bank will give you a credit card unless you agree to come up with the cash as collateral”
that is not true. they care about it as far as how much interest they wanted to charge your newly issued credit card. it is not pretty if your credit history is not good.
Plus, I think that a lot of CCs now have universal default provisions that allow them to jack up the rate (to the astronomical default rate) on existing CC debt if you default on any other debts. So, a default on your mortgage could cause your credit card interest rate to skyrocket (on existing debt as well as new debt). Just what these FBs need, higher interest rates on CCs when they are having trouble paying their mortgage.
The uniformity of the denial is amazing. When that damn pesky reality is obvious to all and everyone, only then do the analysts (take that word with caution) see the light. Then they quickly move on to the denial of the week - in this case foreclosures - and play the same game again. Maybe a sure sign of their profession is the bruised forehead, as in (slap) ‘Duh! so that’s what those falling numbers meant.!’
Like that television ad where the monkeys have taken over the board room. They sit in front of a chart showing crashing sales, tumbling profits, a real cliff, what do they do, after the only smart human in the room tells them of the obvious, the monkeys turn it sideways so the line is going up again and start partying.
The species of monkeys in the commercial were the Nar Monkey indiginous to the coasts of the United States.
mort question
w Ditech and automated sights around how do human mort providers get extra margin to get their cut ? by humpin the prospects ?
“Roxanne Carr, of the Mortgage House in San Luis Obispo, said she’s not worried that local homeowners are getting into serious trouble making their mortgage payments. But she acknowledged that homebuyers should take care when choosing creative financing options that could leave them paying more per month than they anticipated.”
“‘People have to be careful,’ she said. ‘It’s (a mortgage) a big expense.’”
Can I just slap her? Please? Just once…
BayQT~
Anyone think this’ll affect the birthrate? It’s hard to get your freak on when you’re already getting screwed.
Call me a doom and gloomer, but this can’t help things 20-30 years out when there’s even fewer people entering the workforce - if this turns out the be the case.
I would think it would HELP the birthrate. Got to send those kids to work to help pay the mortgage.
But seriously, poor people will always have kids regardless of their ability to pay. And for everyone else…if skyrocketing education, healthcare costs and crime haven’t dampened the mood, I seriously doubt that housing would.
Number of kids per mother tends to be inversely proportional to income levels, both within and between countries. It also tends to be inversely proportional to life expectancy. As wealth and life expectancy go up, number of children per mother go down. Gapminder.org has some nice animated charts that show this, along with other global development data (and there’s a cool presentation from someone with the organization that was made to Google, which is on Google Video).
Well if you can’t afford to go out for dinner and a movie…Seriously the divorce rate will go up and we’d HOPE that would decrease the birth rate.
“20-30 years out”
Lighten up — by then, Homeland Security concerns may well have abated, and we will be able to once again import large numbers of Asian engineers to run our technology sector firms…
its probably the other way around. no other cheap entertainment will be available to these FB except the joy of making *babies*.
If a home is foreclosed, does the “owner” (FB) get to walk away from the debt? Do the banks eat the difference b/w the “firesale” and what was originally owed? Just curious….
The balance will follow where ever they go.
Thank you wmbz, so they are still, the FB’s, liable for the difference right?
Do the banks get to write off the debt as a loss?
I’m wondering if we, the few, the fiscally responsible, are going to have to bail these people out, and if I should put my shillings somewhere out of Uncle Sam’s reach…really don’t want to help these miscreants out.
NO. At the end of the year the FB will recieve a 1099. He/she is still liable for the taxes on the “gift/goodwill” of the difference between what the loan balance is and what the property is sold.
MANY FB’s in the past thought they could walk away from homes only to get double whammied by the IRS for back taxes. Considering how Congress royally screwed up the BK laws last year, I suspect that thousands of FB’s will not only lose everything they own, but will be in hock for a substantial portion of their lives.
ouch!!!! the plot thickens…Thank you BigDaddy63. I guess there really is no way out for the FB’s (other than moving to another country after faking your own death)
BUT, there is such a thing as *tax forgiveness* from the irs, it you are really that destitute and you have a good tax lawyer (oxymoron?).
Do they do an ‘offer and compromise’ for that? They could be liable for only 10% of their debt, if that is the case.
If the loan on the foreclosed house is a “refinance”, then the loan is a “recourse loan”, the lender can go after the FB for the difference. In the case that the lender choose not to go after the FB, the FB will receive a 1099 & will have to pay the tax.
If the loan is an “original” loan, the FB can walk away with just a bad credit history.
You can read more details in this article:
http://www.ocregister.com/ocregister/money/abox/article_1206268.php
It ceases to amaze me that RE agents here in Orange County think that this area is immune to price reduction because incomes are higher and what they call “value product” ,insulates this area from the rest of the economy. I just recall that the Orange County Assessors office announced that many mortage holders are behind in their taxes. How is this possible if we are in a high income area? Does anyone have any data on the median sales price in this area?
I think this area can fall hard also as many households live above their income, high income area or not.
And don’t most mortgage servicers REQUIRE you to escrow enough for taxes. After all, if there’s a tax lien they won’t be first in line for their pound of flesh.
No you can get a loan up to 100% now with no impounds (taxes and insurance) thats why you see so many folks with tax deliquencies now.
Perhaps the tax delinquencies are a fn of either/or … either I pay the minimum pmt. on my option-ARM or I pay the prop. taxes, but I can’t afford both.
How long can a game like that last? I.E. How long will the tax assessor allow tax liens to build-up before selling the home on the courthouse steps?
I think it’s more likely that the tax liens are older people who couldn’t keep up with the outrageous tax increases. As was mentioned before new mortgages collect money for tax and insurance along with the mortgage payment. You can’t chose which to pay, they want both. The tax liens have to be people with older mortgages and no escrow or people with no mortgage at all.
If it matters CA has fully 1/2 of all tax liens in the country. Just check out foreclosure.com
Climber:
CA has prop 13 which prevents wild increases in taxes unless you buy or sell a house. That is the only point at which property gets reassessed (minus a nominal inlfator) in CA.
I’m sure it varies by jurisdiction as to how long you have before the tax man sells the home. In OC, it’s five years.
Climber - I’m guessing that, at least in CA, the tax liens are coming from newer buyers. Prop. 13 limits tax increases, so the folks who bought pre-bubble haven’t had their taxes increase because of the run up in prices. And, while I don’t have first hand experience with this, I think mrincomestream is right that the more recent loans allowed buyers not to have impounds (even on 100% financing). So, I’m guessing that norjacwy is right on his either/or proposition. FBs guessing that it’s better to miss the tax payment (have 5 years to clear that up) versus the mortgage payment (only a matter of months before the bank comes calling).
Any opinion on the effect of all this on retail sales in Los Angeles? Retail properties are selling like 2005 condos there.
Thank you wmbz, so they are still, the FB’s, liable for the difference right?
Do the banks get to write off the debt as a loss?
I’m wondering if we, the few, the fiscally responsible, are going to have to bail these people out, and if I should put my shillings somewhere out of Uncle Sam’s reach…really don’t want to help these miscreants out.
Apparently it varries alot from state to state. If some FB has any assets I predcit that the mortgage issuer will go back over the application with a fine-toothed comb looking for fraud. “Hey you said that you made 70k but the IRS says that you only declared 54k last year. Hand over grandma’s silver or see you in court.”
jim A, thank you. I suppose that grandma’s silver is of no use when eating Ramen noodles for breakfast, lunch, and dinner, so no big loss there…this whole situation is akin to watching a train derailment in slow motion and having people say, that’s not a derailment, it’s merely a “track readjustment”…
Banks are such to the specific charge off method when it comes to loans going bad.
From the update:
‘In San Joaquin County, the number of foreclosure notices was up almost 90 percent from a year ago, rising from 318 in the second quarter of 2005 to 604 in this year’s last quarter. Ron Cutler, broker-owner of Suntec Financial, Stockton, said he believes there’s a nationwide problem developing with foreclosures resulting from questionable mortgage loan deals that allowed people to buy in a pricey housing market.’
‘Some mortgage brokers and lenders put people into adjustable-rate mortgage loans with introductory payments as low as a 1.25 percent interest rate the first two years, he said. When those ARMS kicked in with current higher interest rates that often doubled the house payment, many of those home buyers found themselves going into mortgage default, he said.’
‘‘It’s evident those people were getting into homes that they basically shouldn’t have qualified for,’ he said. ‘Now the market is starting to change. They’re trying to sell their house, and that’s not happening either when you have a large amount of houses on the market.’
‘Mortgage brokers and lenders had no business doing those kinds of deals, he said. ‘I believe there’s been a lot of fraud committed already in the mortgage industry, and it’s beginning to come out,’ Cutler said.’
‘Mortgage brokers and lenders had no business doing those kinds of deals, he said. ‘I believe there’s been a lot of fraud committed already in the mortgage industry, and it’s beginning to come out,’ Cutler said.’
Ah yes, fraud the last thing to come out of the shadows as a bubble bursts. In good times, everyones makin’ the dough, nobody cares about the fraudsters. But when the pain arrives, we gotta start looking at where the blame needs to go.
Considering foreclosures are a lagging indicator (you have to be late 2 months or more before the lenders even send out the NODs) I think we’re in for a real sh@t-splitting good time in the years ahead.
This may well be the understatement of 2006.
By the way, the monthly charts (for July) will be going up on my blogprobably by Saturday night for the LAX and south bay area.
““Today I’m calling it eggs on toast with bacon on the side.” When asked the significance of that breakfast lineup Sean replied, “Well, mostly because I’m just hungry for that today.”
When these “experts” start comparing the housing market to their bowel movements, THEN, we’ll know the sh*t’s hit the fan.
not all lien holders require the escrow of tax payments. for a slightly higher interest rate, the bank will let you be responsible for your own tax pmts. this may differ by state. also, people who’ve paid off their houses are resp. for their own taxes…the nonpayment of which creates a market for tax lien sales.
http://www.foreclosureforum.com/stats.html
Average number of monthly san Diego foreclosures ending in sales has been fairly constant until this year:
2001: 69
2002: 76
2003: 47
2004: 46
2005: 47
01/06: 62
02/06: 73
03/06: 106
04/06: 114
05/06: 134
Whoa, that’s incredibly grim. Shape of things to come? Or is that as bad as it can get?
Looks like you can draw a straight line through the last 5 data-points….. I wouldn’t be surprised if it’ll keep going up at this rate. The number of foreclosures is rising steadily.
No it can get much worse. Those are the numbers right there that are important. They are still low. But they are going in the right direction to kill the market.
Analysts, agents, brokers….who cares what they think? They will try to control the damage on the way down, but there’s no telling how far to the bottom. One thing is for sure - 2007 will be far worse than 2006.
I think market distress is starting to knock a little louder on the front door in the Pacific Northwest.
We had three clients (two refinances and one purchase) break down (tears) at the closing table last week of July(a first). One of the clients was a Realtor team. But what can you do? You feel for them, but it’s their signature on the line. We give people time to compose themselves and tell them they do not have to sign anything, but they invariably do.
I’m afraid we’ll see a lot of our clients again down the road.
I’m not sure I get it — why were these people crying? What were they signing at the closing table that got them so upset?
What’s to stop this evil plan from working: you’re from Russia, you get a mortgage after lying your ass off for $300,000, you heloc half the house for cash on hand for $150,000 and you hop on the next flight to Moscow with the stash in a suitcase?
I know a loan processor from Turkey than plans to do just that : (
I was day dreaming of getting a $100,000 handed to me and then putting it in gold & silvah stocks.
In my plan, I would pay off my loan using a fraction of my silvah profits.
It is amazing how fast this market is going south.
It amazing people are still buying even if at at a slower rate. Prices are very high. Almost everyone I talk to sounds wary of the market yet the ratio of pending to listings is roughly 1:6 for San Diego zip code. I think there is going to have to be a twelve step program for people who just have to buy real estate….That said I know some people who are going to trade up if they can sell the current house. Trading up handcuffs for a guillotine.