Risky Loans ‘Tied Directly To Housing Prices’
The Denver Post has the latest on foreclosures in Colorado. “Colorado earned a distinction in March it would rather avoid, the highest ratio of foreclosures in the country. One out of every 339 homes in the state was in some stage of foreclosure during March. ‘We look at foreclosures as a lagging indicator. It usually says something else bad has happened,’ said Rick Sharga, at RealtyTrac.”
“Home construction has outrun population growth in some counties, keeping a cap on price gains. Borrowers here also lead the nation in their reliance on adjustable-rate and interest-only mortgages. ‘We made it easy for people to buy houses and difficult for them to hold onto them,’ said Tom Clark.”
“One out of 128 homes in Adams County is in foreclosure, nearly nine times the national ratio. In Arapahoe County, one out of every 161 homes is in foreclosure, seven times the national ratio. Other counties with heavy foreclosures are Denver, Weld, Larimer, Elbert and El Paso.”
“Foreclosures, like a funnel cloud, tend to create their own downward spiral once they get started, said Lori Strange, at the Adams County Housing Authority in Commerce City. Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said. That further depresses resale prices, making it harder for sellers needing to get out to pay off their mortgages.”
“That triggers more foreclosures, more pressure on lenders to dump properties and more downward pressure on prices.”
“Peter Crosswith the Arapahoe County Housing Authority, points a finger at mortgage brokers, who are unlicensed in Colorado. ‘People are not getting the best information and the best deal for their families,’ he said. Cross said he recently counseled a couple who refinanced out of a reasonable fixed-rate traditional mortgage and into a one-year adjustable rate mortgage that they couldn’t keep up with.”
“Borrowers who bet on interest rates staying low on the advice of their mortgage brokers are paying the price for that decision, Cross said.”
From My San Antonio. “Local mortgage brokers have a warning for people already struggling to make their adjustable-rate mortgage payments: Get out of them now. ‘It’s going to double the payment,’ said Lance Bryce, branch manager with Countrywide in San Antonio. ‘They could literally see their mortgage double this year.’ And that’s just the first adjustment.”
“‘They’re going to be losing their homes,’ said (mortgage broker) Scott Thomas in San Antonio. ‘I think a lot of these people were so happy to get into a mortgage that they have no idea what kind of repercussions this will have.’”
“The adjustable-rate mortgage has been growing in popularity across Texas, where 11.3 percent of home buyers chose an ARM last year. ARMs have been especially popular in Austin, where home prices are the highest in the state and 22 percent of buyers in 2005 chose an ARM. ‘It’s tied directly to housing prices,’ said Bob Visini, of marketing for LoanPerformance. ‘The higher the housing price, the higher the incidence of these types of loans.’”
I suspected that not long after price appreciation stopped, much less prices fall, we would see a lot more foreclosures. When prices were going up every day, it was easy to refinance out of trouble or sell. Today, if you are upside down, and cannot afford your payments you are between a rock and a hard place. As this ramps up, I’m sure the evening news will be awash with stories of foreclosures and the courts will be jammed with lawsuits from both sides of the fence.
The first thing that comes to mind, is that if you lied on a mortgage application and comitted fraud, you may not be eligible to dismiss these debts in bankrupcty and may even end up facing criminal charges. NOT worth it!
Good point re: fraud. BTW am seeing alot more foreclosures in No. VA. Was going to go to one today, but it was cancelled. I wanted the property but also wanted to see first hand whether the crowds at these sales have disapated (sp?).
OT - interesting article front page of Wash. Post Business Section regarding local housing outlook. For some perplexing reason, the “experts” disagree.
“Dissipated.” Are you really ready to buy, in N. Virginia? It’s a tad early, no?
It’s about time the Post at least entertain the discussion. I for one will not be taking any “expert” advice about when to buy. At least Dean Baker, the bear, is honest, having sold his place last year. Shame they didn’t interview the guy from the Mortgage Bankers Association who sold his house in McLean last year, swearing up and down he and his middle-aged bride just felt they “wanted to rent for while.” Right.
Doug Duncan - that’s his name.
Yes, I do believe itis early to buy foreclosures. This one was of particular interest to me and would have been a long-term hold. I would have bought it at the right price.
they are having a bull orgy over on the live WashPost.com real estate discussion right now, and the new writer answering the Q’s must’ve bought in July 2005…
check out this sweet quote:
“Thus, real estate here will sell no matter where it is or the home type. Crime, poor schools, high prices, lack of space from your neighbor. Doesn’t matter. For those who bought before or during the boom, they’ll earn a profit regardless by selling (after multiple years of 25%+ appreciation).”
Bacon - Check this out - some guy asks a very thoughtful question, and look at the moderator’s response! I can’t believe the Post is letting the NAR moderate for them! Holly sh*t!!
Drew - DC: Someone called “bubble” just talked about supply and demand but wondered why it mattered what a rental property goes for. Isn’t a house supposed to be a place to live? How come rent is so cheap right now, compared to buying? Is it possible rent reflects supply and demand of houses, as places to live, better than sales prices?
Tomoeh Murakami Tse: Take a look at that link I posted a couple minutes ago on rent vs. buying. Folks are predicting that the rental market is tightening. I’m thinking of writing a story soon about how you make the decision to go from rent to buying. If you or your friends have recently gone through this process or are contemplating it - and are willing to talk about it - please contact me at tset@washpost.com
Thank you!
_______________________
Tomoeh Murakami Tse: Oh, I thought of another story that maybe you all could help me on - - I’m looking for some condo sellers in the 20009 or 20001 Zip Code. Anyone?
_______________________
Tomoeh Murakami Tse: I’m afraid our time is up.
Thank you so much for writing in!
that response, or lack thereof, was par for the course. Tomoeh’s a new writer so i’ll cut her some slack this first round… the last Q&A was doom & gloom so maybe NVAR had their folks fill the queue before it even began. next time Tomoeh will have to do some actual prep and sift thru the submittals to present a more balanced perspective, for her credibility’s sake.
this reminds me, speaking of rent vs buy issues…
I was sifting thru some openhouse paperwork, found a sheet from a mortgage co affiliated with the realtors hosting this open house, and looked at their chart analysis of buying vs renting. of course you can’t buy anything really for 200K here anymore, but they showed a 200K buy with 10K down vs renting at 1350/mo (anything selling for that little would rent for more like 1000), and they assumed a modest appreciation rate of 3% per year and a parallel rent rate increase. After 5 years they had the buy and then sell at a 22K advantage over renting. I stared at it a long time before I realized that they had included a tax advantage of 25% of the total mortgage interest per year. I’m guessing that almost everyone looking at that in the 25% tax bracket does *not* itemize, so this is underestimating by quite a lot (about half, in their 200K price example) the ‘monthly costs’ of buying.
Do rent v buy calculators standardly do this?
given that the whole house of cards really needs for entry-level buyers to decide to stop renting, this whole tax benefit deception really bugs me.
It’s selective advertising, that’s all. I saw a realtor’s ad in my local paper the other day that laid out the rent vs. buy thing, too. The “assumptions” were hilarious and I won’t even go there, but what really got my goat was the the “average” equity build the ad claimed per monthly payment. Mortgages are front-loaded with interest, so the “average” equity build changes with every payment and doesn’t max out until the final check is written, 30 years out. These bastards will say and do anything to make a sale.
What a bunch of morons. Hasn’t anyone told them yet that the bubble has already popped, the bloom has left the rose, the air is hissing its way out of the balloon, and the tsunami tide is returning to the sea?
I believe many bought under the impression that the worst thing that could happen would be the market tanked and they’d be upside down. In this case their plan B is to simply walk away from the home and let the chips fall where they may. Not a good strategy though.
i find that an interesting issue…I’d love to hear more about people’s (or ’sheeple’s’, as is the term here!) assumptions about bankruptcy. Do people really feel it’s no big deal? Do young’ins really say to themselves hey, if I get messed up creditwise it’s just a little legal stuff and 7 years and I’m still in my early 30s and ready for phaseII, so there’s nothing to lose?
Do older folks feel they’ll just walk away and be okay?
Lots of things are “acceptable” to the younger generations that would mortify some or most of us boomers. For example; moving back in with mom & dad, unwed pregnancy, welfare as a living, bankruptcy, unemployment, etc.
There is no shame anymore and everything (including not buying a house) is someone else’s fault.
Not that I approve of such behaviour, but it seems to me that the younger generation is just following the example of behaviour set by the role models around them. The leadership of this country is morally bankrupt IMO.
That’s right, young college grads are solely to blame for the doubling or tripling of housing costs over the last five years, which priced them out of the market. They just want to blame everybody. Really, they could afford it, they’d just rather complain.
Thanks for more sage wisdom from another greedbag boomer who fails to see a piggish hyperconsumer when they look in the mirror. It’s people like you who browbeat the Gen X and Gen Y’ers into desperately jumping into a death-or-glory loan with your “it was hard when we were college grads too” and “just brown bag your lunch for an extra year” and “you just have to jump in even if it looks too expensive” talk to explain away the fact that, to buy the median priced home, one must make MORE THAN double the median household income.
How many homes do you own? Right. That’s what I thought. Do you suppose that might have something to do with the fact that young families buying their first home now don’t even have a fighting chance? Oh yeah, I forgot, you’re going to spout your “if they hadn’t bought so many Hummers and soy lattes” defense to explain this away. Klassy. Go back to the safety of your smug, elitist enclave and scoff at the struggling younger generations some more — it’s what you do best.
Boomers often forget that their generation benefits from a demographic shift that will probably never happen again: lots of boomer kids to share the responsibility of caring for their elderly parents, and few kids of their own to care for. Boomers have had it easier than any generation ever.
In the meantime young people are going to have to pay taxes out the nose to prop up social security and medicare for boomers
Try telling that to the most smug, elitist, NIMBY, I-got-mine-so-F-you generation that ever lived. They’ll neve admit it, not take responsibility for anything. My father-in-law owns six houses in Orange County, all from being a landscaper in a city job, while mom stayed home. He thinks that the two-income family of today have been forced into perpetual rentership because they don’t have his level of unmatched business prowess. This is truly a generation who was born on third base, and think they hit a triple.
OC MAX …I’m a baby boomer and I think your right . GenX
and Gen.Y have it alot harder . Just try to learn from the mistakes you have seen the baby boomers making .All I can say is keep working hard and maybe it will pay off . I hope that this is possible for your generation .
Thanks, Wiz. Trying not to make those mistakes, though I’m sure I’ll make some of my own that the next generation will scoff at.
To be balanced, I must say that, while my fellow Gen Xers seem to be diligent about not making the same mistakes and seem to have dialed the materialism down a notch or two from the Boomers, unfortunately my generation also suffers from a mind-boggling financial illiteracy which I fear will prevent us from navigating these troubled waters.
Cry me a river.
I’m 40 - came along late to every party. Boomers got there first. But, along the way, I realized something: They’re such a huge demographic that if you can figure out their needs, you can pick a line of work with lots of growth to it. For instance, I educate their kids, who spend billions of their parent’s bucks on university every year. Boomers are going to be shedding money like you wouldn’t believe for the next 30-40 years - it’s just a matter of figuring out what they’ll want next.
In va_investor’s case, it’s crying Dom Perignon from his hilltop throne where he sits all day, patting himself on the back for being born at the right time. Then when someone on his street parks a pickup truck in the driveway, or paints daisies on their mailbox, he cries to the HOA like the elitist little b*tch that he is.
Are they “ARMS” or “Option ARMS”(where you don’t have to pay full interest).
Anyone know what the min. int rate is on option arms? Is it 1/2 of the ARM rate, less? I wonder what happens to all these option arm people in the past few years who counted on selling into a rising market when their option period expired.
I have covered this several times on my blog. Check out the popular posts and you will see several option-ARM related posts.
SoCalMtgGuy
Another F’D BorrowerFB FORUMSMoney Magazine - 5 best financial blogs
I actually looked on your blog before, but it’s hard to find specific details like this without reading 1000 posts.
SoCal
Good to hear from you! How is the new job?
“I wonder what happens to all these option arm people in the past few years who counted on selling into a rising market when their option period expired.”
Pain. For the Borrower and for the Lender.
I am just curious as to what is wrong in Denver. I udnerstand the economy got slaughtered with the tech crash and they had a difficult time afterwards, but is it really that bad there?
Simmssays…
http://www.AmericanInventorSpot.com
Take a look at an aerial around Denver (Google Earth does this well). For being in the mountains, it is FLAT, with lots, and lots of land. There was no discipline in building new homes. Lots of supply makes for a weak market. Land prices got pushed up, pushing new home prices up, and the people who bought were hoping for appreciation that was much less likely to happen given all the land around.
I often ask the same question. Whats wrong with Denver that it did not participate in crazy surge in housing prices over last 5 years.
Tech burst hit hard but that was more than 5 years ago.
After that :
Denver area economy is stuck in neutral. Influx of tech job from West coast and East coast has stopped.
Rents have fallen by 25% compared to their peak in 2001. Housing
has gone down 2% to 3% per year over last 4 years. Last year the houses that were sold, were sold after several price reductions.
Yet I see signs of stupidity such as one of the family I know recently put their house on market for 585K which they purchased 2 years ago for 485K or something. May be their house is “special” that I fail to understand
(Note: 585K is expensive around here)
Builders have continued building like there is no tomorrow. I saw opening announcement of a brand new townhome project near where I live.
May be Denver is running ahead of rest of the country by couple of years.
But this ain’t over yet. Not by long shot, especially when those IO’s and
ARM loans are about come and bite in the a**.
I grew up in Colorado and still have family there. If love the state and the friendly, honest, easy-going people. However, to be perfectly honest my personal opinion is that by and large people there are just more gullible and less sophisticated than what you find on the coasts. Growing up there over and over again I saw locals fall easy victim to hard sales tactics and scams much more so than other places. I go back regularly to visit family and I’ve watched the bubble there inflate and implode. The mortgage brokers came in there with hard sales tactics on ARMs and I/O neg am loans, etc and people bought it hook line and sinker and trusted these people. Basically they were suckered in.
Furthermore wages are too low there to support the current housing prices and new construction is rampant and land almost limitless. There is a joke there that Colorado has four seasons, winter, winter, winter and construction and that about sums up the oversupply problem. The state is full of carpenters, painters and carpet layers who have purchased $300K+ homes that they can’t afford. There is a double whammy of job dislocation from construction and declining real estate values that is leading to foreclosure as the bubble implodes.
Low wages, oversupply of homes, realtor & mortgage broker scammers and a gullible less educated population and an economy over-reliant on the housing bubble – that is what happened to Colorado and the big crash has just gotten started there. It’ll get much worse.
You can also make this case for most bubble markets.
I would agree and add that most of the pop. growth in the Front Range has been young Californians who had been priced out and cultured out of their previous digs. They have settled along the I25 corridor from FortCollins to Denver, west to Longmont and, for those that came to work the Tech bubble, down south in Douglass County.
The homes these folks were/are buying are in large developments that are being hit first. There really is nothing special about these homes - they are all of a kind; grey, out in the flats snout houses.
So what you’re saying is, Denver had its bubble before everyone else did.
I’m seriously considering a move to Denver myself. I have noticed that while house prices are lower than what they are in the more infamous bubbly areas, they’re still overpriced relative to rents. You can find good 1BRs in Capitol Hill (a nice neighborhood just east of downtown) for $600/month or less, which would imply a fair purchase value of $100K or less. But 1BR condos are asking about $150-180K. “For Rent” and “For Sale” signs are everywhere, so sale prices should come down and rents seem to have very little upward pressure.
The economy seems OK there, not great, not terrible. Lots of blue-collar jobs seem to be available. I think because its bubble already popped, it shouldn’t do much worse than the super-bubbly places.
If you are considering moving to Colorado I would suggest you first rent for a few months. The rental market there is very different than most of the country. It is common to rent an entire home month-to-month for a few months rather than for a full years lease. Also “for rent” signs are often put up in windows or front lawns and these often aren’t even listed in the papers or online. The best way to find a rental is just driving around and calling the number on the sign or asking people if they know of a good rental.
Once you rent something take a drive around the state. There are much nicer towns than Denver proper. Boulder is wonderful but more expensive. Ft. Collins real estate is cheap with a nice college town atmosphere, some big employers (which attract more educated folks) and a little warmer climate than either Boulder or Denver because of the way the winds move over the mountains there. It’s also has a lower crime rate and it’s a great place to retire as well. Once you find the right town find a good real estate agent that specializes in finding foreclosures because there are going to be a ton of foreclosures in all these markets. Find a bargain and then buy and settle down and enjoy. The lifestyle there is very laid back and relaxing and the Rocky Mountains are an endless adventure. You’ll love it there! Good luck!
Thanks, any inside info like that is a help. It did seem like a lot of rentals weren’t “published” in newspapers, craigslist, etc.
I was planning on renting for at least a few months while I settle in, find a job I’m comfortable with, etc. I’ve been around most of Colorado and have even hiked nine 14ers, and at this point in my life there isn’t much of a “worst-case scenario” by leaving here (Chicago). But the point would be to do much more exploring once I’m there.
You’ll never regret moving to Colorado. The quality of life is superlative, the mountains and wilderness areas are an adventure beyond imagination and the people are warm and friendly. Good luck with the move!
and the people are warm and friendly
As long as your a Bronco fan!
Why do you think $600 rent implies $100k value rather than $60k value? If you pay $100k per unit for apartments, I don’t think they will cash flow after mortgage, taxes, insurance, naintenance at $600/mo rent.
Fair enough, but I don’t think that in the first place. I did write $100 OR LESS. My point was that I didn’t even have to do the math to know Denver RE is overpriced, even though it may not look that way.
A very nice 1BR on Cheesman Park with a west view (toward downtown and the Rockies) might rent for $750 and sell for $180K+. I looked at LoDo too, but rents/prices are completely ridiculous there and they’re nowhere near done building yet.
I lived in Denver area for a few years, and if you have a good job there I would recommend moving. But don’t plunk too much $$ in a house, because the prices remain flat, and they are building all the way to the Moon there.
I was going to say, your concluding paragraph sounds a lot like Florida, only minus the out-of-town speculators masquerading as “vacation/second home owners.” As for mortgage brokers, a group of young guys took out an ad in a local publication last week where they posed to emphasize their casual, informal style. I swear they looked like a bunch of frat brothers on their way to spring formal. I wouldn’t trust those guys to recommend a beer, much less a mortgage.
Exactly the type I was referring to. The snakes are alive and well in Colorado! The Colorado foreclosure problem is a bit different than what I see going on out here in the California bubble. People out in Colorado don’t have the kind of street smarts or sophistication you have out here in California. They’re small town types and they’re easily taken advantage of. It works both ways. Back in Colorado I can leave my house unlocked and not worry. People trust each other – it’s a very nice feeling compared to California. But the flip side is these same people are just easy targets for slick snakes slithering in from LA or NY tempting them with that shiny neg. am I/O loan. They have no clue. I told my family back there last year this foreclosure thing was going to hit Colorado very hard and here it’s already started and it’s going to get much worse. People are in over there heads.
Also, I noticed that in CO people are more prone to go over their heads in debt. Many finance their stuff with their walls.
Of course this leads to foreclosures. I remember “We buy ugly houses” ads along Colfax Ave.
“There is a joke there that Colorado has four seasons, winter, winter, winter and construction”
I’ve lived in Denver since 1978. At least in regards to the weather you don’t know what you are talking about. In addition to 300 days of sun, the average temperature in January is 47 degrees, and that is the coldest month here. In the summer the average humidity is about 15%. About asclose to a perfect climate as I’ve been able to find in the US. But, go ahead and say its awful weather here…we already have too many people living here…lol.
I agree about the climate Ken, it really is nice. All the clouds in the SF Bay Area depress me. I miss all those Sunny Colorado days!
Ssshhh..
PEOPLE OF CALIFORNIA:
The weather is Colorado is the worst in the northern hemisphere. Imagine taking the winter winds of Chicago, the low persistent cloudy pall of the British Isles and the choking smog of LA and mixing them all together, then multiplying that my ten. They don’t have 300 days of sunshine, they have 300 days when the dim glow through the clouds suggests that a sun may, in fact exist. The other 65 days are 24 hours of pitch-black smoggy blizzard-racked night. Don’t move there. You will always regret it.
Seriously. Move to Las Vegas instead. LV Landlord might rent you one of her investment properties.
May in Colorado is amazing - real thunderstorms, rain and sun. I miss those here in Bay Area.
Bay Area seasons are more like - some sun, rain, cold rain, liquid nitrogen rain, cold rain, rain, some sun.
That is some funny stuff there Max! I totally know what you mean - LOL!
plain and simple, you are seeing the results of unbridled lending in the backdrop of a flat to stagnant market. the saying “equity cures all” has been all too true in the bubble markets. when the appreciation stops you end up with the denver market. there is still kamikazee lending going on, from my email box this morning from our friends at indymac:
If you have any 80/20 loans, full doc or stated with: the primary borrower’s FICO > 620, 2 years out of BK,
and no foreclosure in past 3 years, CONTACT ME!
Our 80/20s will allow: unpaid collections, no reserves, no VOR, the co-borrowers FICO can be less than 500, 6% Seller concession and many other niches you can use to offer outstanding service to realtors and borrowers.
ickkkkkkk!
This is the best post so far, Ben, that tells the tale of the bad practices of these lenders and the bad outlook for their “lendees”. Definitely one to give to people who think they need to be buyers right now.
Nothing new there. I have been saying that for a long time on my blog.
BTW…got a new post up today.
SoCalMtgGuy
Another F’D Borrower
Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said.
Yeah, and speculator and investors and people with exotic mortgages “overpriced” the market.
There is nothing particularly bad in lenders trying to unload a foreclosed house for cheap. It’s just a return to “normal” prices, right?
Off topic but have you guys seen this? The Hall of Fame for overpriced properties:
http://overvalued.blogspot.com/
I nominate this site as thehousingbubbleblog.com un-official sister site. Apologies if it has been posted before. Hilarious.
I read that site daily. It is very amusing. I love the creativity.
That is an amazing blog. I will e-mail it to people.
This bubble is funny but it is sad too.
In a word, lugubrious.
(thats one of my favorite words, and I so seldom get to use it
I wonder if banks will be MORE quick to foreclose and sell in a falling market. Normally, the lender will bend over backwards to help the borrower, often delaying payments and such, with the idea that the borrower just needs a little time to get back on their feet. Plus, banks don’t really want to own/sell houses anyway.
But if there is a massive downturn in the market, as many here expect, then it makes sense for the bank to foreclose and sell as soon as possible. With prices falling or steady over a long period, there is no motivation for the bank to hold the property. And with massive job loss in the RE industry and ARM resets, the chances that a borrower with negative equity will “turn things around” seem dim.
In Colorado the evidence so far is that bankers are trying to drag it out as long as possible.
“‘They’re going to be losing their homes,’ said (mortgage broker) Scott Thomas in San Antonio. ‘I think a lot of these people were so happy to get into a mortgage that they have no idea what kind of repercussions this will have.’”
Brokers purposefully hid the repercussions from borrowers because the riskiest loans paid the highest broker commissions.
It looks like the exotic mortgage chickens are coming home to roost, in flocks. It doesn’t take a genius to see that having to str-e-e-e-tch to make a “teaser” payment WHICH WILL GO UP is a bad idea. If you have to scramble to make a low payment, then when the payments go up as they inevitably will - U R Skroode.
I am not holding my breath for this, but I want to see a crackdown on exotic loans. The mortgage lenders have handed out what they seem to think is Monopoly money to anyone who can fog a mirror and it’s not only coming around to bite THEM in the butt, there are a lot of innocent people who just want a house to live in who will suffer in the inevitable bloodbath.
“The adjustable-rate mortgage has been growing in popularity across Texas, where 11.3 percent of home buyers chose an ARM last year, according to LoanPerformance.”
I question the accuracy of this information. Anyone know whether 11.3 percent is accurate or if the source is questionable?
I suspect that if anything it is low, based on national averages, but Texas is a wierd state.
Doing some bank audits bank in the 90’s I recall the REO property being referred to as the “black plague”. Once it was out of the loan section and onto the REO section of the Balance Sheet. The regulators would be on the banks ass to get it sold and converted to cash. Many properties were sold for 50 cents on the dollar just to get the regulators of their ass.
so much for superstar cities.
“Americans are leaving the nation’s big cities in search of cheaper homes and open spaces farther out.”
http://news.yahoo.com/s/ap/20060420/ap_on_re_us/fleeing_big_cities_1
NYC is the only major city to regain its 1950 population and that just barely and only temporarilly. The housing bubble caused some degree of seeking out substandard solutions. Thus the minor “dead cat bounce” aka “the urban rennasiance.”
People don’t want to live in cities anymore. People don’t even want to work there either but inertia keeps some jobs there. Publicpurpose.com and demographia.com are excellent resources for this issue.
Imagine those mile upon mile tracts in Palmdale, Riverside and Phoenix when the first REO breaks down values 40%. The other banks won’t care that 40% off of the highest price only compares to a few of all homes and they won’t care that interest rates also ate 20% of the equivalent price. What they’ll care is that on the books every single mortgage in the entire development is seriously underwater. I’m going to embark on a new career; Mortgage Falcon, MF if you prefer ;). I will circle overhead watching the lemmings. I’ll visit the County Recorders Office and Assesors Office making sure there aren’t any liens or tax arears. I’ll fly over the houses, looking for garage conversions and cable disconnections and brown lawns. I’ll look for the signs of “going out in style,” the New Tundra and LS450 in the driveway, moving vans, Garage Sales, FSBO ads. And every week I’ll circle down and land on the arm of a banker and wisper in his ear. He’ll reward me with a chunk of flesh from the latest kill. It’ll get so I’m famous. The neighbors will see me and call out in appreciation “Hey! MF! (Mortgage Falcon)” and I’ll continue my patrol, keeping the worlds financial system safe for all mankind.
LOL! Awsome. I’m going to call you Mortgage Falco or MoFa for short from now on.
I’ve read that the majority of foreclosures occur in the 3rd and 4th years of a mortgage. Since we’re already seeing foreclosure headlines with prices just “softening” a bit over the past several months, just imagine what 2007-2009 will be like. “Soft landing”…yeah, right.
We don’t know. Used to be 3rd year was the worst but we don’t have a clue how this will play out in an environment of rising rates and declining prices and rapid reporting. In case you can’t read between my lines; I’m positive that banks are poised to come down fast and hard. If you read my humorous letter you’d know that I also expect a new wrinkle; mortgage recision based on fraud/tax arears/changed occupancy status. If you had a 5% fixed out there on a house purchased 4 years ago and you knew it wasn’t owner occupied what would you do? Ans; noting until now. Now however you can call the loan and force them into higher rates or cal the loan and foreclose on a house with substantial appreciation. It pays in this environment to have a “hole card” and the best part is you get to blame the Fed and their insistence on lending standards.
Robert: Why in the world would any lender question a note that is being paid as agreed? And here’s a question I can’t for the life of me find an answer to: If loans are stipped into pieces and sold into the secondary markets as MB securities, how could they ever get “called?” I understand that the mortgage “servicer” is empowered to go after a deadbeat, but they can’t possibly be allowed to “call” a note, that is owned by 1,000 different people who’ve never met? If I own the note, I decide whether it gets called, right?
Can you, can someone, explain how this works?
A lender would call a performing 5% fixed with a late tax bill or other minor violation because it can only be replaced with a 6.5% fixed. Everyone else “upstream or down” still gets their 5% and you get rich. That’s why.
Loans get closed out all the time with no problem. Happens when you refi. Funny story, our last refi was away from Wells Fargo because they were jerks more than anything. Guess who bought our new loer loan to fill the hole in their portfolio? Yep, the jerks who wouldn’t give us a half percent but gave somebody else 1%.
OK, I get the first part. But still, I don’t understand how a loan, that has been stripped by Fannie, and sold to 1,000 chinese guys, whatever, can get “called.” If I am the borrower, and I refi, I am making a choice to pay off the note. How can the “lender,” the 1,000 chinese guys who own my note, and speak different dialects, “call” my mortgate in, for payment in full? I’m not trying to be a pain, just a slow learner.
I’m willing to gamble the (elected) judges where I live are not gonna allow foreclosures when loans are in good standing.
Loans, bonds, all kinds of debt are often subject to early calls. Happened to lots of municipal bond holders in the last few years as cities refied themselves locking in low rates. Most times there’s a limit say not callable in the first two years without penalty or only callable between 5 and 10 years, that kind of stuff.
But more important what is said; these loans are NOT in good standing. THe bank knows it is not a primary residence like on your application, they know when you are late with a tax payment or lapse on PMI or even just regular home insurance. These are all violations exposing the borrower to being called.
If the lender is under scrutiny by the Federal Reserve and they investigate the loan portfolios - any loan that is questionable eg. NOO underwritten as a OO can be immediately called. Exceptions are if the property was OO’d for 1 year prior to becoming an investment. Similarly 2nd homes must have been used as 2nd homes if the tax returns show investment depreciation the borrower is liable and the loan is immediately due in full. IMHO this is the bell tolling.
I remember my first mortgage loan - got a lecture from the broker about living in the place for “at least one year, not a week less.”
I’m here to learn, not argue, but I can’t see federal bureaucrats running all over the country with flashlights and magnifying glasses trying to figure out if properties are owner-occupied or not. I see no red flags on SFR mortgages that are current. Besides, if/when lending standards tighten, any “technicalities” discovered that allow notes-in-good-standing to get called will muck up the works for higher-rate mortgage in Robert’s example. A good note getting called then becomes a foreclosure - very messy, very expensive for the banks.
Bank is not going to call a performing loan. No matter what the circumstance especially with all the defaults that are going to be coming down the pipe in the next few years. Calling one that’s performing because of a “technicality” is a waste of time and effort on everyone’s part. On top of that they would have to call about pratically 50% of the loans in California.
“Foreclosures, like a funnel cloud, tend to create their own downward spiral once they get started, said Lori Strange, at the Adams County Housing Authority in Commerce City. Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said. That further depresses resale prices, making it harder for sellers needing to get out to pay off their mortgages.”
“That triggers more foreclosures, more pressure on lenders to dump properties and more downward pressure on prices.”
I am looking forward to this…
“Foreclosures, like a funnel cloud, tend to create their own downward spiral once they get started, said Lori Strange, at the Adams County Housing Authority in Commerce City. Lenders who suffer a large number of foreclosures try to recover whatever they can, often underpricing the market, she said. That further depresses resale prices, making it harder for sellers needing to get out to pay off their mortgages.”
In the realm of natural disaster analogies, I prefer the tsunami to the twister. The wave of subprime lending lifted housing prices in the same way an incoming tsunami lifts the sea level along the shore. The ensuing defaults will decrease the housing price level similarly to the effect a receding tsunami has on the sea level, with analogous devastation to household net worths…
I have been tracking the Denver metro inventory numbers for almost a year now and keeping it on a spreadsheet. Since Jan 1 about 75 new homes get added every day, with the total near 29k now. I think around 30k is the all time high we reached during the late 80s crash. Of course the total housing stock is much higher now than it was then.
There seems to be two distinct markets in Denver. The lower end is really suffering. In this sector of the market there has been little appreciation for almost 5 years now, since Denver had it’s bubble in the late 1990s.
The other part of the market, the $300+/sq ft new condo construction in LoDo, downtown and near downtown is going strong. New buildings where prices start at $300/sq ft seem to sell out without too much problem.
In rentals, in spite of an approximately 10% vacancy rate, developers continue to build some large new projects in the central Denver area.
To be honest, I don’t get it. Who the heck is buying these $400k, 1000 sq ft condos? And do they think they will be $500k, and then $600k in a few years?
Yeah, as I mentioned elsewhere, LoDo seems like a complete joke. You can go across the river (a 10-minute walk) or up to Capitol Hill (a 15-20 minute walk and buy or rent for HALF as much, if not less.
Or put it another way, prices and rents in LoDo are about what they are on the Gold Coast of Chicago. OK, maybe 5-10% less for a studio/1BR/2BR in LoDo. If you’re familiar with both cities you know that just ain’t right.
And there are acres and acres of dirt near Union Station they’re still waiting to build on. It’s like a little piece of Miami at the foot of the Rockies, or something.
ken,
at least in boulder, the buyers of this high end real estate are definitely out of staters. the demographic is mid to late 50’s affluent empty nesters. i guess comparitively, we are cheap and the quality of life justifies the price. that is, until the coastal markets seize up and they can’t cash out of their high priced real estate.
Colorado is just now what the rest of the country will be feeling in a couple of years or maybe months. For the past couple of years, Denver real estate propaganda was we could not be a bubble here because property had not substantially appreciated over the past 6 years like in other markets.
As some prior posts suggest, I don’t think that we can rely upon the “sophistication” of folks in California and the East Coast to be sane and stop falling hook, line and sinker for crazy loans. I have lived in Colorado for the past 14 years and I have also lived in California, Oregon, Utah and Florida. It never appeared to me that in general Coloradans were more naive than other Americans. When I was in graduate school at U.C. Berkeley, I remember that the bartenders and waiters in San Francisco referred smugly to my Colorado driver’s license as my “Cowboy I.D.” They must have thought that I was one of those unsophisticated, naive Colorado folk.
People out in Colorado don’t have the kind of street smarts or sophistication you have out here in California.
Considering what people in California are paying for RE, I’m not so sure Coloradans are the stupid ones.
In the Bay Area we have rampant smart-person-stupid-choices syndrome. You have a lot of people in professional jobs thinking that because they’re successful as, say, a software engineer they know everything there is to about buying residential real estate. I’ve seen the stupidest housing-buying perpetrated by some very smart people–I just shake my head.
I agree very much with the “smart-person-stupid-choices syndrome.”
I’ve said it before and I’ll say it again. The San Francisco Bay Area could lead the world in the number of financially self-delusional who reside here.
SF Bay area =- smart people, as related to their particular job function or other specialty. Completely ignorant and stupid as far as making a wise financial decision. Too many people here just think they need to keep up with the Jones = bigger home (BIG Toxic mortgage), Hummer II (H1 not big enough), and specialty everything. Outdo each other on kid parties, weddings, etc. It would make you sick.