Prime mortgages are defaulting at ever-increasing rates. The problem with mortage delinquency is not improving.
Irvine Home Address … 14902 ELM Ave Irvine, CA 92606
Resale Home Price …… $769,000
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Cars are crashin' every night
I drink n'drive everything's in sight
I make the fire
But I miss the firefight
I hit the bull's eye every night
It's so easy, easy
Guns N' Roses — It's So Easy
It is rare to find a great deal of consistency in financial data. There are always statistical blips where some indicator moves against the prevailing trend, and reporters are keen to report on any insignificant change as if it is a new trend. For the last 3 years, the news on mortgage delinquencies has been very consistent — consistently bad. This is one indicator that hasn't yet provided the slightest glimmer of hope to those waiting for the housing rebound.
Seriously Delinquent Prime RMBS Rise for 37th Straight Month: Fitch Ratings
Diana Golobay — Tuesday, July 13th, 2010, 11:22 am
The 60-plus-day delinquency rate for US prime residential mortgage-backed securities (RMBS) rose in the 37th consecutive month in June, according to Fitch Ratings.
The credit-rating agency noted the "seriously" delinquent rate — of 60 days or more — within prime jumbo RMBS rose to 10.4% in June, up from 10.3% in May and 6.4% at the same time last year.
What is even worse is that once borrowers go "seriously" delinquent, the cure rate has been getting steadily worse.
Think about what we have going on. We have a very large number of borrowers who purchased at the peak and can't afford the home with conventional financing even at very low interest rates. People simply can't pay off a loan that is six-times their yearly income no matter how favorable the interest rate. Add to all these peak buyers the HELOC abusers and other peak refinancers, and you have a recipe for enormous debt that will never get repaid. Once these struggling loan owners stop paying, they enter the abyss never to return.
The five states with the highest volume of prime RMBS loans outstanding — California, New York, Florida, Virginia and New Jersey — represent a combined two-thirds of the estimated $354bn market, Fitch said. Prime jumbo RMBS delinquencies of 60 days or more rose in all but one of these top volume states:
The rate of loans rolling into later stages of delinquency within prime RMBS remained above 1% in June after a dip months earlier, but is still below the record high 1.4% recorded in March.
"The persistently high roll rates indicate that the delinquency declines are more a reflection of increased property liquidation and ongoing loan modification activity than of widespread improvement in mortgage payment performance," said Fitch managing director Vincent Barberio, in a statement, adding that "Prime RMBS has yet to show any signs of a favorable turnaround."
Almost nobody cures their debt by bringing payments current. This used to happen before the bubble, but with the huge debt loads, negative equity positions, and high unemployment, very few borrowers come up with the cash to cure their loans. The next best alternative is to get a loan modification and add the missed payments to the loan balance. Many in our government thought this solution might actually work. It won't because the debt load is far to large, and with negative equity, many borrowers don't see the point. This leaves liquidation through short sale or foreclosure as the ultimate solution. The loan is "cured" because it no longer exists.
Despite improvements in subprime and Alt-A RMBS delinquencies, roll rates remain elevated in those loan types, too.
Subprime RMBS delinquencies fell again in June to 43.7% from 44.8% in the previous month. The subprime RMBS roll rate fell slightly to 4.2% from 4.3% a month earlier.
Alt-A RMBS delinquencies slipped to 3.7% in June from 33.9% in May, marking the third monthly decline since April 2006. Roll rates rose to 3.4% in June from 3.1% in May.
Many of the loans in Irvine are packaged into prime residential mortgage-backed securities. We are not subprime dominated, so despite the high delinquency rates, lenders have not foreclosed on delinquent borrowers here. Orange County has high delinquency rates, and the steady increase in defaults on prime mortgages has not missed Irvine. Each day I profile a property that was likely a prime mortgage gone bad. With the sky-high prices we had here (and still have) the level of mortgage distress is high as well. Perhaps the lender's gambit of allowing borrowers to squat will succeed, and Irvine will not see further price declines. Anything is possible, but I rather doubt it. 
Late buyer still milked the equity cash cow
- Today's featured property was originally purchased on 6/10/2005 for $749,000. The owner, a married woman buying as her sole and separate property, used a $495,000 first mortgage and a $254,000 down payment.
- On 11/10/2005, she refinanced with a $499,000 first mortgage.
- On 1/27/2006 she obtained a $190,000 HELOC.
- On 3/28/2007 she refinanced with a $688,000 first mortgage and she got a $86,000 HELOC.
- Total property debt is $774,000
- Total mortgage equity withdrawal is $279,000 including her substantial down payment.
- Total squatting time was at least 22 months.
Foreclosure Record
Recording Date: 04/23/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 10/23/2008
Document Type: Notice of Default
Palladio Properties LLC also purchased this place at auction. They have been very busy in the foreclosure auction market.
If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.
Irvine Home Address … 14902 ELM Ave Irvine, CA 92606 
Resale Home Price … $769,000
Home Purchase Price … $625,000
Home Purchase Date …. 5/4/2010
Net Gain (Loss) ………. $97,860
Percent Change ………. 15.7%
Annual Appreciation … 85.9%
Cost of Ownership
————————————————-
$769,000 ………. Asking Price
$153,800 ………. 20% Down Conventional
4.59% …………… Mortgage Interest Rate
$615,200 ………. 30-Year Mortgage
$151,880 ………. Income Requirement
$3,150 ………. Monthly Mortgage Payment
$666 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$64 ………. Homeowners Insurance
$43 ………. Homeowners Association Fees
============================================
$3,924 ………. Monthly Cash Outlays
-$755 ………. Tax Savings (% of Interest and Property Tax)
-$797 ………. Equity Hidden in Payment
$264 ………. Lost Income to Down Payment (net of taxes)
$96 ………. Maintenance and Replacement Reserves
============================================
$2,732 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,690 ………. Furnishing and Move In @1%
$7,690 ………. Closing Costs @1%
$6,152 ………… Interest Points @1% of Loan
$153,800 ………. Down Payment
============================================
$175,332 ………. Total Cash Costs
$41,800 ………… Emergency Cash Reserves
============================================
$217,132 ………. Total Savings Needed
Property Details for 14902 ELM Ave Irvine, CA 92606
——————————————————————————
Beds: 3
Baths: 3 baths
Home size: 2,600 sq ft
($296 / sq ft)
Lot Size: 5,000 sq ft
Year Built: 1972
Days on Market: 28
Listing Updated: 40374
MLS Number: S621843
Property Type: Single Family, Residential
Community: Walnut
Tract: Cp
——————————————————————————
College Park Remodeled Home. Wood flooring, Crown Moldings & Recessed lighting throughout. Granite Countertop. 3 Bedrooms plus spacious bonus room. Mater bedroom with Deck. New Air-conditioner & New Stainless Steel Appliances installed. New interior paint. New light fixtures.Walking distance to school & Association Pool.
Any data on how many Irvine properties this particular LLC can flip in a year with 100% cash? I’d be curious to know how many the top 10 firms can buy in a year relative to Irvine inventory which is already 30% pending sales.
Nobody is keeping track of the activity of trustee sale flippers. They act as the conduit between the trustee sale market and the MLS. With an average holding time of about 4 months, these funds turn their investment cash over 3 times per year. Each time they get a property at auction, it ends up on the MLS adding to available inventory. Most of the properties in the pending sales category are short sales where lenders are deciding whether or not to take the deal or send the property to foreclosure. The percentage gets so high because lenders take forever to make up their minds. Unless they start deciding quicker, I expect inventor to continue to rise, and the percentage of pending should rise along with it.
The combined dynamic of trustee 100% cash buyer interest, banking interest, and demand from 20-50% cash buyers definitely cushions prices in Irvine. Price stability breeds price stability while the large declines in Riverside do the exact opposite.
Do you swallow really hard after saying something like that? Is it difficult to keep deluding yourself, day after day?
BTW, that is one fugly house from the outside for 3/4 of a million dollars.
There are some really awesome private schools you get your kids into for the money saved on buying somewhere else.
That’s pretty good for Uni considering that Troy screens their students and Uni doesn’t …
http://www.ocregister.com/news/national-258391-merit-named.html
Troy High School in Fullerton, with 34 honorees, had the most National Merit Scholars of any Orange County high school. Troy was followed by Irvine’s University High School, with 14 honorees.
http://www.troyhigh.com/pdf/school_profile.pdf
“Located
next to California State University, Fullerton, Troy offers unique high-level educational opportunities to students from over
100 junior high schools in four Southern California counties: Orange, Los Angeles, San Bernardino and Riverside”
I actually know some of those kids. They’re my son’s buddies and friends.
IMO, none of them would want to go to school in Fullerton.
Asking price is 20k ABOVE peak 2005 pricing. Let us know if they get it to announce a new peak.
I’m sure some fool will come along and sign up for the 700K boat anchor around his neck for the next 30 years. With the amount of people detached from reality out there, it wouldn’t surprise me one bit.
Lowest rates ever, rental partiy, this is Irvine, Irvine is IMMUNE to the great recession, rich foreigners are buying up everything…if someone can chant that enough, then they can justify their purchase. No thanks, I’ll keep saving and buy my next place cash.
IR…how about profiling a few places that are regular sales with responsible owners for a change?
Conventional sales are less interesting. I like to profile properties with a good backstory, and HELOC abuse or big losses are more interesting that some random family selling their home. I do occasionally profile these. It is nice to celebrate someone who didn’t refinance and pull out cash. Those are pretty rare though.
Who would read about that?
This may be a technical nit but were most of the loans in Irvine really “Prime” loans. Prime as i understand the term, meant that you had verified income (W-2), verified collateral (eg downpayment and/or PMI if low downpayment) and verified credit (min FICO). Rather than prime or subprime, I would think Alt-A loans were the predominant form of finance in a place like Irvine. That is these were not loans that income was verified but were probably to people with decent enough FICO’s so they were better than subprime. The thinking – if it can be called that – was that if you made $50k and had a 780 FICO as you serviced $100k of debt that you could then service $1m since your FICO showed you were responsible – I think I’m slightly oversimplifying Alt A but that is the general point). I think most of the properties featured were loans that weren’t qualified based on income so I’m not sure those are “Prime” loans.
I don’t have a breakdown of the numbers, but you are probably correct that many loans here were alt-A. Irvine is dominated by high wage earners, but many of them overextended themselves with alt-A loans to afford the overpriced properties.
It does make me wonder where the truly prime loans are. Once markets became overheated, they shift from prime to alt-A. Perhaps many of the 2000-2003 vintage loans were prime. It’s hard to say.
If I remember my Tanta lessons correctly, loans are not prime, Alt-A, or subprime. Borrowers are.
Loans are neg am, conventional, stated income, fixed, adjustable, etc.
If I remember my Tanta lessons correctly, loans are not prime, Alt-A, or subprime. Borrowers are.
Loans are neg am, conventional, stated income, fixed, adjustable, etc.
First, we’re talking about an industry (residential RE) that is populated heavily with people with nothing more than a H.S. diploma (unless you count the RE licensing exam). Precision and standards aren’t very high on the priority list.
Having said that, the terminology depends on perspective. A direct lender, for example, looks at the individual borrower, because the actual loan doesn’t exist yet. It hasn’t been approved, and the money hasn’t been lent. They have a prospective borrower and a potential loan. As you stated, these prospective borrowers can be prime, Alt-A, or subprime from the direct lender’s point of view (POV). From the POV of someone buying or investing in a security that includes the loan, the borrower’s status can be used to describe the loan. Hence, all the talk of subprime loans, Alt-A loans, etc. The status of the borrower can be used to describe the theoretical risk of the loan or security.
http://en.wikipedia.org/wiki/Alt-A
-Darth
It is sort of a chicken-and-egg thing. You only use alt-a if homes aren’t affordable, but when alt-a is the norm, prices continue rising to even more unaffordable levels. By 2006, 42% of all loans were neg-am. I have to believe there is a strong geographic correlation.
Voila, the NY Fed tracks this data! How could they have missed the bubble while taking in all this awesome information:
http://www.newyorkfed.org/creditconditions/
NC: 4M homes, 28k alt-a
FL: 8.7M homes, 200k alt-a
CA: 13.3M homes, 550k alt-a
Alt-A’s, even with low DP’s make sense to the lender if you assume homes increase in price. If a default occurs then your loss is made up by the appreciation. They make sense to borrowers because when you sell, appreciation would swamp the neg-am. That was one hell of an assumption…
That assumption worked great for those who bought in the early part of the decade (and the banks, brokers, and agents who were involved in the transaction). Classic Ponzi scheme, benefiting those at the bottom of the pyramid.
I remember shopping for loans in 2005. Was funding 8X income. Unbelievable. The loan was unpayable, but the lender was more than willing. 4X is more in my confort zone.
Foolish Renter,
could of bought
and squat.