Building A Second Wave Of Distressed Properties
The Banker & Tradesman reports on Massachusetts. “Foreclosure starts in the Bay State continued to climb in October, posting a 91.5 percent increase year-over-year, according to The Warren Group, publisher of Banker & Tradesman. This marked the eighth consecutive month of year-over-year increases and is the highest number of starts since November 2012. ‘Lenders continue to work through their backlog of long-delinquent mortgages and push the legal work through a pipeline that was clogged for all of 2013,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘The experience in Massachusetts is similar to national trends.’”
The Washington Post. “The opportunity to buy a bargain-priced foreclosure hasn’t completely passed, though, because some foreclosures are still coming on the market in the Washington area, particularly in Prince George’s County. ‘Prince George’s County’s housing market has been recovering well in recent years, but it has a higher number of foreclosures than other parts of the D.C. region,’ says Will Stein, broker/owner of Belair Realty in Bowie. ‘Banks have been holding onto their inventory of foreclosures, so we’re expecting an increase in the availability of these properties over the next 18 months.’”
The Press of Atlantic City in New Jersey. “Court-ordered delays kept banks and other lenders in the New Jersey market from processing foreclosures, building a second wave of distressed properties. ‘As I’ve said the past year, I fully expected in 2014 to see median home prices fall, not as a function of a broad-based depreciation, but more as a function of the big inventory of distressed assets that would come onto the market,’ said Anthony D’Alicandro, broker with Coldwell Banker Argus Real Estate in Northfield. Also, about 20 percent of sales are short sales, in which the amount owed on the mortgage exceeds the sale price, ’so they’re not people who could be moving up’ to a better home, he said. That plus foreclosures, he figures, have reduced demand for middle- and upper-market homes by about a third.”
From WHEC Rochester in New York. “Back in September, we showed you one home in the North Winton village that’s been vacant for almost five years. Despite Bank of America giving the homeowner a foreclosure notice in 2009, we’re told the foreclosure process was never completed. Now, less than three months after our report aired, neighbors tell us that home has been demolished. Del Smith, Commission of Department of Neighborhood & Business Development, says, ‘With one lender at this point and time we have over $1 million in demolition costs and maintenance costs associated with just maintaining their set of properties that are in the zombie state.’”
“In the City of Rochester there are currently 2,400 abandoned homes. At last check, 320 of those homes were scheduled to be demolished.”
From King 5 in Washington. “Zombie Houses are on the march in Mukilteo. Like their monster movie counterparts, zombie houses just won’t go away. The owner has walked away but the bank hasn’t taken ownership, either because of paperwork problems or because the bank doesn’t want to declare a loss. As a result, the houses just sit and fall apart right before their neighbors’ eyes. Mukilteo, an affluent enclave in Snohomish County has no laws on the books to deal with abandoned houses. Neighbors are concerned that the dilapidated homes will lower property values, allowing crime to creep in. At that point the zombie houses begin feeding on the value of other homes and turning them in to zombies, as well, just like in the movies.”
“‘It’s just a mess,’ said Jerry Arnold, who lives across from one. The house across from Arnold’s place has a tree down in the middle of the driveway. A tarp has been torn off the leaky roof, and no one has lived there for more than six years. ‘It’s sad because it didn’t have to happen,’ he said.”
From Vegas Inc in Nevada. “Banks seized tens of thousands of homes in the valley after the economy collapsed, and Nevada’s foreclosure rate led the nation for years. Lenders aren’t repossessing nearly as many homes anymore, but with the economy sluggish, they still deal with plenty of delinquent borrowers. Nevada had the third-highest foreclosure rate in the country in October, according to RealtyTrac. Meanwhile, local officials still grapple with abandoned homes, one of the more visible side effects of the recession.”
“At the same time, a large number of people live in their homes mortgage-free. Whether they can’t afford to pay or just don’t bother to, residents are skipping payments without consequences because banks, under closer scrutiny from government officials, have been waiting years before seizing homes from delinquent borrowers. A man who recently visited the Financial Guidance Center hadn’t made a mortgage payment in more than seven years. CEO Michele Johnson’s group meets daily with others who haven’t paid in three or four years. ‘It is not an exception,’ she said.”
“In the year ended June 30, people in Clark County spent almost $5.5 billion at car and auto-parts dealers, furniture and home-furnishings stores and electronics and appliance shops. That’s down 9 percent from 2007 but up 43 percent from 2010, according to the Nevada Department of Taxation. Locals beefed up their savings at the depths of the recession, but — perhaps lulled into a false sense of security because the worst of the economic carnage is over — ‘now you can see what they’re doing with their money,’ Johnson said. ‘We have very short memories,’ she said.”
‘There were 178 counties (37 percent of all counties analyzed) with a combined population of nearly 100 million where the foreclosure rate on loans originated in 2014 was higher than the foreclosure rate on loans originated in 2013, including Cook County, Ill., in the Chicago metro area, San Diego and Orange counties in Southern California, Kings County (Brooklyn), N.Y., Miami-Dade County, Fla., Queens County, N.Y., Clark County, Nev. (Las Vegas), King County, Wash. (Seattle), Santa Clara County, Calif. (San Jose), and Broward County, Fla. (Miami).’
“There was an uptick in foreclosure rates on 2014 vintage loans compared to 2013 vintage loans in more than one-third of the counties we analyzed,” Blomquist continued. “This is concerning given that the 2014 loans are newer and have had less time to sour than loans originated in 2013.”
http://www.realtytrac.com/content/foreclosure-market-report/home-price-bubble-early-warning-signs-report-december-2014-8196
I don’t get how a significant share of loans originated in 2014 could already be in foreclosure. Can someone who understands this kindly explain?
Amy, are you out there? If so, tell the Professor how hungry you are for clients and will bring to the bank just about anybody for the signing of the dotted line because you make your money from the sale and only from the sale.
1. Lever-up at the bank to buy an overpriced crap-shack to flip.
2. Buy it from another flipper who now makes you the bagholder.
3. Add a throw rug, paint a bathroom and put it back up for sale.
4. Don’t bother making any payments, as it will ’sell immediately’.
5. Realize that you missed the wave and walk away.
6. Bank believes that market is better now so they jump upon foreclosure.
Did a poorly - underwritten loan get made somewhere along the lines of your scenario?
Absolutely. EVERY time a bank lends money for the purpose of asset-price speculation its a poorly underwritten loan. They might as well loan me $400k so that I can go to Vegas.
At least there’s odds you might come out ahead in a casino.
‘Santa Clara County’
Now why would people take out loans in God’s Country and stop making payments within months? Must be some fine scrutiny they went though before the government backed these gigantic loans. Now that I think of it, this almost immediate default rate increase happened in the spring of 2005 too.
Think carefully here. If they just got the loan, did their income situation change that much? Or was their income not what the lender believed? Or is it because they owe more than it’s worth, and are choosing to not make payments?
They were waiting to be rescued by the uber-rich foreign investors, but alas- the cavalry never came…
“You just wait until all of the filthy-rich Chinese, Brazilians, Greeks and Somalis swoop in to snap-up these bargains! Resplendent in their brightly colored kilts and head-dresses, crafted from only the most exotic and endangered species, they will arrive in their private jets carved from solid diamond. At lavish banquets they will feast upon the tender flesh of the children of renters and other peasants, before engaging in vicious, cage match, all-cash bidding wars where the opening is 1000x asking price.”
I just listened to a Logan podcast and he stated, “stated income loans are widely available in CA.”.
Remember that RealtyTrac makes money if people buy their data. People buy their data if they are scared, and want information to make them feel more informed in a scary environment.
In other words, whenever RealtyTrac says something is concerning, you should look at the data and make your own determination if something is concerning or not.
The actual data for the increases in foreclosure rate range from not very scary at all, to pretty shocking:
In the not very scary category:
In Santa Clara County, it’s 0.07% in for 2013 vintage vs. 0.16% for 2014 vintage.
San Diego: 0.11% (2013) vs. 0.16% (2014)
Orange County, CA: 0.09% (2013) vs. 0.20% (2014)
SF County, CA: 0.05% to 0.14%
San Mateo County, CA: 0.03% to 0.06%
All could be categorized as “big increases” on a percentage basis, but the overall level of foreclosures are still really low. The question is whether these numbers are the seeds of a new problem, or just a blip in the data. Time will tell.
On the other hand, in the “whoa, WTF is happening there” category:
Miami Dade: 1.39% (2013) vs. 2.24% (2014).
Kings (NY): 0.73% (2013) vs. 1.89% (2014).
Broward (FL): 1.10% (2013) vs. 1.66% (2014).
There is clearly something going on in these markets that IS concerning.
‘People buy their data if they are scared, and want information to make them feel more informed in a scary environment’
Oh please, the RT VP bent over backward to tell everyone there was nothing to worry about. So why put this out at all? They haven’t said anything like this before, why now? Because it didn’t happen last year. There ain’t no way 2014 defaults should be more than 2013 unless something is wrong.
A bubble is in the price, not the loan. Most foreclosures are prime loans. The weak stuff defaults first, but then it snowballs. Fact is, you’ve got people taking out loans in these expensive areas and failing to make payments in just a few months.
But I like complacency. Makes it easier to get ahead of the pack.
The fact of the matter is that cumulative default rates rise with the maturation of a particular loan vintage. The faster the rise, the worse the underwriting/unsafer the loans.
There have been many articles noting how credit overtightened, as evidenced by early default rates being lower than pre-bubble- era vintages. I’ve heard the word “pristene” noted several times regarding the early delinquencies for recent vintage loans.
Is the increase in some of these places from 2013 to 2014 a sign of trouble? Or simply that underwriting standards are loosening somewhat?
I would submit that an increase like that in Santa Clara County (from 0.07% to 0.16%; or 7 in 10,000 loans to 16 in 10,000 loans) is more likely that of loosening standards than a sign something is horribly wrong with the 2014 loan vintage or the market. And since there were probably WAY fewer than 10,000 loans made in Santa Clara County in 2013 or 2014, the number of additional defaults within one year is probably measured on one hand as compared to 2013.
On the other hand an increase like that in Miami/Dade from 139 in 10,000 to 224 in 10,000 (more than 10x the rate in Santa Clara) is an indicator of poor underwriting or a troubled market.
You can see how delinquencies increased with the various vintages in Fannie’s latest credit supplement.
By year 5 for the 2006 and 2007 vintages, default rates exceeded 6% (2006 vintages) and 9% (2007 vintages).
2009 vintage mortgages are approximately 0.65% after a similar passage of time, about 1/10th the rate of the worst vintages. This is well under the 2004 vintage loan curve.
2010 is tracking below 2009.
2011 is tracking below 2010.
2012 appears to be tracking below 2011.
2013, and 2014 are all hard to judge (they all look like they roughly overlap.
In any event, going over 1% within a year or two is shockingly bad (I’m talking 2007-vintage bad). Something is seriously wrong in Miami/Dade, Broward, etc..
That’s what foreclosure moratoriums do Rental_Fraud. They understate delinquency, default and foreclosure rates.
Funny how that list of counties manages to include most of the bubbliest momo play areas in the country.
Looking at the tables, the only names missing seem to be Phoenix and LA. Are they next?
Don’t forget the Denver metro area.
Mercer Island, WA Sale Prices Plunge 11% YoY As Prices Fall Across State
http://www.zillow.com/mercer-island-wa/home-values/
“‘It’s just a mess,’ said Jerry Arnold, ‘It’s sad because it didn’t have to happen,’ he said.”
And Jerry, it wouldn’t have happened if you had simply taken over the payments, taxes and maintenance of that worthless pile of used building materials you claim to be so concerned about.
“From WHEC Rochester in New York. “Back in September, we showed you one home in the North Winton village that’s been vacant for almost five years. Despite Bank of America giving the homeowner a foreclosure notice in 2009, we’re told the foreclosure process was never completed. Now, less than three months after our report aired, neighbors tell us that home has been demolished. Del Smith, Commission of Department of Neighborhood & Business Development, says, ‘With one lender at this point and time we have over $1 million in demolition costs and maintenance costs associated with just maintaining their set of properties that are in the zombie state.’”
And this is just one lender in one state. Just how many empty excess and defaulted houses are there in NY? 4 million? 6 million? Now multiply it by 50 and you’ll understand why there are tens of millions of excess empty and defaulted houses out there.
“The Banker & Tradesman reports on Massachusetts. “Foreclosure starts in the Bay State continued to climb in October, posting a 91.5 percent increase year-over-year, according to The Warren Group, publisher of Banker & Tradesman. This marked the eighth consecutive month of year-over-year increases and is the highest number of starts since November 2012. ‘Lenders continue to work through their backlog of long-delinquent mortgages and push the legal work through a pipeline that was clogged for all of 2013,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘The experience in Massachusetts is similar to national trends.’”
Another state with an endless supply of excess empty houses.
Do you think it explains why sale prices have fallen state wide in MA?
Sale Prices Plummet 5% YoY Statewide In Massachusetts
http://www.zillow.com/ma/home-values/
From the NV article;
“At the same time, a large number of people live in their homes mortgage-free. Whether they can’t afford to pay or just don’t bother to, residents are skipping payments without consequences because banks, under closer scrutiny from government officials, have been waiting years before seizing homes from delinquent borrowers. A man who recently visited the Financial Guidance Center hadn’t made a mortgage payment in more than seven years. CEO Michele Johnson’s group meets daily with others who haven’t paid in three or four years. ‘It is not an exception,’ she said.”
It’s worth noting that this is the case across California. This is the direct end result of foreclosure moratoriums.
Las Vegas, NV Sale Prices Crater 15% YoY
http://www.zillow.com/las-vegas-nv-89144/home-values/
The Vegas Inc article is worth the time reading in full.
So are the comments.
They’re pretty wild in some cases!
Yeah…Vegas it appears is still in big trouble although its been masked over for sometime….I am going at the end of January…I will attempt to get out and cruise some outer burbs for a look-see…
Is it legal to live in a house for years while never paying your monthly, freeing up money to buy cars and other big ticket goods and services?
Legal? What’s this legal word you speak of?
Legal or not, it’s all okay if it is done for the children.
(So, just why is it that you harbor within yourself this extreme hatred for kids?)
That is just as legal as a federally-regulated bank not enforcing its loan agreements while being propped up by the feds.
I’m simply not smart enough to spot and captalize on such “deals.”
Legal or not the new normal is only pay your bills if you *feel* like it.
What’s your financial mood??
“The Washington Post. “The opportunity to buy a bargain-priced foreclosure hasn’t completely passed, though, because some foreclosures are still coming on the market in the Washington area, particularly in Prince George’s County. ‘Prince George’s County’s housing market has been recovering well in recent years, but it has a higher number of foreclosures than other parts of the D.C. region,’ says Will Stein, broker/owner of Belair Realty in Bowie. ‘Banks have been holding onto their inventory of foreclosures, so we’re expecting an increase in the availability of these properties over the next 18 months.’”
Gee… with a full 24% of mortgages severely underwater in MD and rising, 2011-2013 mortgages failing, what did you think was going to happen?
Here’s a hint.
Maryland Sale Prices Fall 5% QoQ and 2% MoM; YoY Gains Evaporate
http://www.zillow.com/md/home-values/
“But it also means the market will rely more on those regular buyers. That could turn the slowdown into a slump, as many locals can’t get a mortgage because of tighter lending requirements and past bankruptcies, foreclosures or short sales.
“We’re not in a healthy situation,” Restrepo said.”
Rarely if ever mentioned factor in discussion of the difficulties mom and pop face in getting a mortgage: The investors inflated prices out of reach.
And real analysis never results in an honest look at what it really is. Simply an artificial bottleneck holding back mega-inventory.
Whac-A-Bubble™ said:
Rarely if ever mentioned factor in discussion of the difficulties mom and pop face in getting a mortgage: The investors inflated prices out of reach.
Housing Analyst said:
And real analysis never results in an honest look at what it really is. Simply an artificial bottleneck holding back mega-inventory.
These two realities are why we continue to rent in Las Vegas. In my neighborhood, houses were selling very close to their inflated list prices. This spurred more listings at increasingly outrageous prices for this area. Then the sales stopped; the latest listings are just sitting there.
Things are so crazy here that we squatted for a year (2009-10), even as a renter.
“analysis never results in an honest look at what really is”
Thus your handle
Cheers!
Falling prices of all types are positively bullish and good for the economy.
Cambridge, MA Sale Prices Down 4% YoY As Prices Fall Statewide
http://www.zillow.com/cambridge-ma/home-values/
Interesting take on what we already know…..
http://politicalcalculations.blogspot.com/2014/12/declining-affordability-in-sales-mix-of.html#.VICBCNLF-VB
“zombie houses just won’t go away. The owner has walked away but the bank hasn’t taken ownership, either because of paperwork problems or because the bank doesn’t want to declare a loss. As a result, the houses just sit and fall apart right before their neighbors’ eyes.”
Any bank that uses zombies to keep losses off the books is guilty of FRAUD against their shareholders! It means their quarterly reports are intentionally falsified and deceptive. Need the SEC and the FRB to crack down on banks who do this… but I’m sure if they do the bank lobbyists will whine that the administration is not being “business friendly.”
The entire housing racket is a ruse.
If you live in a nabe with zombies and you’re upside down, why walk away? Just stop paying and squirrel the money away somewhere safe, where creditors cannot find it later.
It would also be massively deflationary to housing prices. Ending the fraud means asset prices also go poof, and we can’t have that.
It was the mod to the FASB rules in March of ‘09, where assets held no longer had to be marked to market, that gave the green light for this shenanigans. Why claim losses when a bank can continue to claim its assets at inflated fantasy prices, and borrow at the fed discount window for 0% ?
‘now you can see what they’re doing with their money,’ Johnson said. ‘We have very short memories,’ she said.”
So goes the narrative in the good ‘ol US of A.
‘The important moment in the book for me comes conveniently after Barofsky recounts this FDL News item, one of my HAMP horror stories. Barofsky shows how HAMP’s faulty design led to all sorts of problems like this, with trapped borrowers, extended trial payments, no-doc modifications, and eventually unnecessary foreclosures. Barofsky mused that Treasury didn’t care about the suffering of borrowers under HAMP, and the issue came up in a meeting with the Treasury Secretary, which was also attended by Elizabeth Warren, then the head of the Congressional Oversight Panel, another TARP watchdog.’
‘Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, “We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.”
‘This is a revelatory moment for Barofsky in the book, and should be for everyone reading. Geithner’s concern, first of all, was with how the banks would respond to the program, not how homeowners would respond to it. In fact, homeowners are quite besides the point. Regardless of their situation, they will be one of the 10 million foreclosures, in Geithner’s construction. His goal was merely to space out the foreclosures and give the banks time to earn their way back to health, mostly through the other parts of the bailout, that enabled them to earn profits.’
‘This is a classic “extend and pretend” scheme; banks can extend the time frame for their losses, and pretend they were financially strong in the meantime. We previously had evidence that Geithner and the Treasury Department thought this way. In August 2010, a Treasury official (which Barofsky outs in the book as Geithner) made basically the same defense of HAMP, that it would give time for the banks to absorb foreclosures rather than have them come on the market all at once. But that came as a defense of the program after the fact. This scene with Warren and Barofsky came in mid-2009, when the program was in its infancy. And it’s prospective, not retrospective. It’s not that Treasury came up with a justification after the performance of HAMP faltered. It’s that it was designed this way.’
‘As Barofsky says, HAMP was not separate from the bailouts, it was part of them. It squeezed a few extra payments out of borrowers and then allowed banks to do with them whatever they wanted. It stretched out the foreclosure crisis, by design. In fact, by the end of this, HAMP may not help even the borrowers secure in permanent modifications. Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all.’
‘So in 2014 and 2015, we’re going to see hundreds of thousands of recasts, like on an adjustable-rate mortgage.’
http://news.firedoglake.com/2012/07/20/barofsky-book-geithner-confirmed-in-2009-that-hamp-was-designed-for-banks-to-spread-out-foreclosures/
HAMP, HARP and foreclosure moratoriums hid tens of millions of excess empty and defaulted houses…. temporarily.
C’mon folks. You can’t hide a house. Certainly not tens of millions of them.
“give the banks time to earn their way back to health…”
The banks, degenerate gamblers that they are, invested in commodities. Good luck with that.