Irvine Housing Blog

IR -

The biggest wrench in the system is going to be securitized trusts.  How fast are the servicers required to sell the properties they service.  Is there any leeway for the servicers to hold on to the properties so as to not flood the market?

The rules for servicers are pretty draconian, so they may be required to sell at a price lower than they would like.

Also, the banks will still have to deal with declining rental prices.  Overbuilding, inflated rents, and migration will lead many areas to lower rent, which translates into a lower rental parity.  I’d love to see a number that compares the number of people in the country vs. the current housing level.

If anything stops the cartel from collapsing, it will be regulators.  However, a significant portion of loans are not owned by banks, nor guaranteed by fannie/freddie.  Because real estate is local, this means you could get local collapses, or not.  In places where only a few lenders or guarantors were active, the cartel might hold.  Places with lots of securitization, where most homes were above the conforming limits, are where cartels are least likely to hold.

That sounds like coastal California.

I’m going to stick with my theory of massive lender incompetence here, with organizations that have been raped, merged, and hollowed out to the point that there is no core competence left.

And I’ll also point out that we’ve seen that the concept of market efficiency is a myth in an age where kleptocratic financiers hold such sway?

How will massively incompetent lenders behave?

They may in fact behave as an informal cartel, but not because of intent, but instead because they can’t even figure out who owns the mortgages, much less make intelligent decisions about what to do with them.

California’s decline into a depression was briefly forestalled by moratoria, stimulus money, and misplaced optimism.

As the state budget implodes, we’ll spiral downwards, with little sympathy from the rest of the country.

IR, I’ll be a knife-catcher if you can help me buy this property for $150k. No financing necessary (all cash).

My uncle got burned on a condo in Orangetree during the last bubble; he bought a 2BR in ‘89 for $150K, then sold it in 2001 for just a few thousand more than he originally paid.

They’re not bad condos, and the location is nice. My only gripe would be the lack of a garage; I’m not a fan of assigned carport parking.

If the owners have a second that recourse, after the first FC on the property, does the second have any recourse to go after the owner?  Is the action on accepting the first’s FC count as a single action?

A relative is looking to prepay a year’s rent on a long term lease.  How can she make sure the owner will not do a walk away and leave her holding the bag?

“I would estimate we will not see a peak in foreclosures until 2012”

Calamity I say, calamity.

The more I think about this, the more I realize “all real estate cartels are local”.  Unlike oil, where lots of producers create similar raw materials which go through similar processes of refining in numerous countries, real estate markets are very local.

Thus, an Irvine cartel might hold up, and a Newport Beach one might collapse.  To destroy a cartel’s hold in an area, all you need is one bank to start underselling the rest by a substantial amount, or…

anyone else who is selling a house might bring prices down.  Probate sales, or longstanding owners who paid off loans might take the comps down.  Related party (e.g., parent to child) transfers might show mildly below market numbers and put pressure on the comps.  Unless the cartel includes builders, an area with new construction might have the builder or their bankruptcy liquidators killing the comps.

In an area where a cartel succeeds in keeping offering prices up, we may simply see very few sales.  If areas nearby are significantly cheaper, people will move to the other neighborhood.

I see 25 Whispering Wind 92614 is for sale. $1,099,000. That is a beautiful street with many remodels. This one is very nicely done. I walk my dog in this area and a few streets over 4 remodels are currently in process. A few more were recently completed. Stay and remodel as opposed to moving?

A couple of questions for any taker(s):
1. June 1 was the start of another 3 mo moratorium in Cal. Is this going to delay significant numbers of f/c again?
2. An current article quantitating the mortgage problem states, “... there are still about half a trillion dollars’ worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There’s an even more alarming $2.5 trillion in “alt-A” loans…”
Option ARM is a type of loan; alt-A is a type of borrower. I see loads of articles quoting numbers in this manner. To me, the numbers are meaningless since the categories overlap, perhaps very significantly - am I correct or missing something?

Just a quick note to say thanks for all the hard work.  I really appreciate the thought and detail that goes into every post.  I’ve been reading since CNBC linked to the blog a couple of months ago.  I’m not located in Califoria, but I find so much of the content to be very valuable.

Given that I’m not in SoCal, I wondered if anything has been written about how to take some of the analysis on IHB and apply it to other markets.  For example, I’d like to know if there are any shortcuts to determine where rental parity in my community.  Does determining the average rent in my area require me to spend an afternoon crunching numbers out of an apartment guide or does is there some friendly beauracrat downtown that knows this stuff?

If it hasn’t already been done, an interesting future post would be an outline of how an amatuer could cobble together some analysis of his/her own market.

Thanks again for the daily content.

Foreclosure: Now an Upscale Blight

By Peter Coy

optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.

But housing can’t revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It’s not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down.

Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. “For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures,” the bankers said. Nearly 13% of loans were delinquent or in foreclosure. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.

The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom.  According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months’ worth of demand at the current rate of sales. That’s four times the rate of oversupply in the housing market as a whole.

Unemployment is exacerbating the problems at the top of the market. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can’t cover the mortgage when even one spouse is out of work.

Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn’t enough to cover their mortgage and credit-card debt, which was swelled by about $130,000
worth of home renovations. They listed the house last year for an “optimistic” $875,000 but didn’t get any takers. After months of price cuts and threats of foreclosure from the bank, they’re days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. “We had no expectation things would come crashing down as fast as they did,” says Stephanie. “We had no one to blame but ourselves. We didn’t have a backup plan if he lost his job.”

The economics at the top of the market aren’t as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can’t purchase a home without selling property they already own.

IR,

Looking at the text of the new law that’s going into effect, it isn’t really a moratorium, but instead a stretching out of the time from NOD to trustee’s sale.

California’s non-judicial foreclosure process
requires a mortgage loan servicer to wait at least three months between filing a notice of default and issuing a notice of sale. As amended, this bill extends that time period by 90 days for owner-occupied homes where the first loan was recorded between January 1, 2003 and January 2,2008.

Lenders who have a loan modification program in place can apply for an exemption.

And it doesn’t do anything with Heloc Abusers who bought before 2003. One of your recent posts showed that the average loan origination date for HELOC abusers going into foreclosure was 2002.

Given the very long delays already between notice of default and sale, this really looks like another well-intentioned exercise in futility, that may not have any tangible effect.

Nice pile of trash in the photo in the first listing.  Seriously, how hard is it to move the junk away to take the photo?

Went to ForeclosureRadar.com last night and counted houses.  Here is the summary:

Irvine as a whole:
71 bank owned properties
222 properties going to auction
476 preforeclosure properties

For just zip code 92603:
7 bank owned
(2 Quail HIll, 5 Turtle Ridge)

28 going to auction
(15 Quail Hill 2 Shady Canyon, 5 Turtle Rock, 6 Turtle Ridge)

47 preforeclosure
(19 Quail Hill, 3 Shady Canyon, 13 Turtle Rock, 12 Turtle Ridge)

hey, IR, I got better data for you re: 9% dq rate (nationally)

CA, Alt-A 90 days late = 11.3%

Sadly, it wont give county data. I’ve done some color matching in photoshop, and you can see where OC is on the scale (look for the red line)

I’m sure someone else has a bit of time to check Irvine zip codes on the color chart. I did lol @ Newport coast looking darker than a lot of other locations!

Sob story: http://www.venturacountystar.com/news/2009/jun/07/loses-possession-of-home-simi-valley-woman-says/

She was tricked by the bank!

My parents bought a house in 1973 (Ventura county) for about $35,000.  My mom did not work.  I think my dad was earning less than $30,000 (but felt his income was very good at the time). 

What are the chances that this bubble collapse will be so severe that it changes the mindset of homeowners for a generation?  If homeowners never assume their home will appreciate in value, won’t it be a bit of a self-fulfilling prophecy, and could prices flatline for 20+ years?  Is there any chance that home prices could fall all the way back to 2:1 income ratios?

The problem I recall is when you heard normal folks exclaiming hey my house is worth hundreds of thousands of dollars more than I paid for it and I have done nothing to it in 20 years.

This is when you knew we were in a bubble when regular living day to day folks had hit rich in their minds and started to live this way. This is when the trouble started buying RE to make money got everyone investing.

The herd mentality flocked into housing. And now we who sold or stayed renting have to wait for the great unwinding to continue to occur.

Problem is though will housing take 10 years to correct because it took 10 years to make this bubble—

I know this is not the right context, but I just couldn’t resist this.

With the economic crises still not abating i dont think the delinquency rate is going to drop, so i think it will be prudent to busy such foreclosed homes. I agree with the post.