What are we going to do with all the delinquent borrowers? Should we forgive their debts? Should we forgive $476,500 in HELOC abuse?
Irvine Home Address … 14 Foxglove, Irvine, CA 92612
Resale Home Price …… $586,550
I am my own parasite
I don't need a host to live
We feed off of each other
We can share our endorphinsProtector of the kennel
Your scent is still here in my place of recovery!Nirvana — Milk It
Everyone is milking the system. I can't blame them. If I were a loan owner, and if I knew the end were coming, and if the lender were encouraging me to squat to protect their asset, I would squat indefinitely. If given the choice between paying rent or living for nothing, few are going to move out of a free house — a house they still feel like they own — to move into a rental. I don't know that entitlement dependency is good for the spirit long term, but short term, no housing cost is certainly good for the pocketbook so many people squat until the sheriff comes.
What are we going to do with all the borrowers in default?
Shadow inventory is a huge issue worth revisiting periodically. I wrote Shadow Inventory Orange County and Shadow Inventory Revisited and most recently I noted the S&P Reports Three Years to Clear Shadow Inventory and the Market Slices First Wave of Knife Catchers. When you look at the options for dealing with delinquencies, none of them look plausible.
- Loan Modifications have proven to be a dismal failure, and these programs will continue to fail; therefore, it is not reasonable to assume we will amend-pretend-extend our way out of this mess. And dancing until rising prices save the market isn't going to happen either.
- Rising prices do not absorb inventory. Rising prices can occur as a result of a lack of inventory, but buyers will not push through a massive overhead supply and make prices go up. That is fantasy thinking. Without rising incomes and a robust economy, absorbing shadow inventory will be difficult even at lower prices.
- Cash buyers do not take over. Cash buyers can buoy prices in small neighborhoods, but the supply of cash buyers is limited, and few homeowners have cash equity to move up because the market collapse eliminated equity from lower rungs on the property ladder. Those who have defaulted are eliminated from the buyer pool, and the calvary of cash-heavy first-time buyers is not going to ride over the hill and save us.
- Inflation will not save the market. Does anyone really think they will be seeing 10% YOY raises any time soon? If we do see inflation, it will come in the form of rising prices, which lower our standard of living, and in the form of currency devaluation which robs everyone of their wealth. If house prices are maintained by reducing the buying power of currency by 50%, I don't see how that is a benefit.
- Foreclosing on all the homes that should go through foreclosure will crush prices to the stone ages and keep them there for eternity. The people foreclosed will not be able to buy, so investors will need to convert them to rentals to shelter the recently foreclosed. This scenario is already taking place in Las Vegas, Phoenix, and Riverside County.
I really don't see the end game here. A quick recovery to peak prices followed by double-digit appreciation is not going to happen. Stabilization of prices is tenuous if millions of properties must go through the meat grinder. The areas least impacted by foreclosures will still face the substitution effect as beaten down neighborhoods attract bargain hunters.
If we push every defaulting borrower out and remove them from the potential buyer pool for five years, we will not have enough buyers to absorb the supply. If we don't push defaulting borrowers out, we encourage moral hazard on a grand scale. Once all sanity is lost, the taxpayer funded bailouts will continue to grow as we bail out every form of borrower foolishness. We don't have many good options.
For now, lenders are beginning to foreclose in earnest, but they are still falling behind the defaults and creating more shadow inventory.
March 15, 2010 4:33am
- But despite foreclosure inventories, foreclosure sales drop
- ‘The disconnect between delinquencies and foreclosure sales continues to widen’
After reaching the lowest level in a year in January, Notice of Defaults, the start of the foreclosure process, increased by 19.7 percent in February, according to a report Monday from ForeclosureRadar Inc., a Discovery Bay-based foreclosure information company that says it tracks every California foreclosure.
The number of properties scheduled for foreclosure sale remained near record levels in February, yet foreclosure sales, either “Back to Bank” or “Sold to Third Parties,” dropped by 11.9 percent total.
“The disconnect between delinquencies and foreclosure sales continues to widen,” says Sean O’Toole, founder and CEO of ForeclosureRadar.
In short, we are building shadow inventory.
“While efforts to slow foreclosures are clearly working, it remains unclear that anything has yet addressed the core problem of excess household mortgage debt,” he says.
Nothing is being done because lenders see excessive household debt as a virtue to be preserved and policymakers don't care.
After four consecutive months of decline, Notice of Default filings bounced up by 19.7 percent to 31,004 statewide. Filings of Notices of Trustee Sale, which sets the date and time of the foreclosure auction, increased slightly as well, rising 3.6 percent to 28,195 filings, according to ForeclosureRadar.
Foreclosure sales are the last step in the foreclosure process and result in the property being transferred from the homeowner either back to the bank, or to a third party, typically an investor.
Foreclosure sales decreased 11.9 percent in February, with the portion going “Back to Bank” dropping by 14.3 percent and the portion to third parties dropping by 2.7 percent.
“Despite our prediction that we may see a wave of cancellations as the [Obama] Administration pushed to make trial loan modification permanent, cancellations remained flat, likely indicating that the Home Affordable Modification Program conversion drive is failing,” says Mr. O’Toole.
I am surprised Mr. O'Toole predicted a government bailout program had a chance at success. He must not watch the workings of government very closely. His observation is correct: the program is failing.
Despite the increase in Notice of Default filings in February, ForeclosureRadar’s estimated number of properties in Preforeclosure dropped 8.0 percent due to the relatively high number of Notice of Trustee Sale filings, it says.
Properties exiting the foreclosure process nearly matched the number of new Notice of Trustee Sale filings, leaving the number of properties scheduled for sale in February flat compared to January. Year-over-year, the increase in properties scheduled for sale “is a dramatic 126.3 percent, as more and more homeowners have found themselves on the brink of foreclosure,” the report says.
Banks continue to resell their bank owned (REO) property in “a timely manner,” with their inventories also flat from January to February, says ForeclosureRadar.
The courthouse steps remain highly competitive with discounts to market value dropping from 17.5 percent in January to 15.2 percent in February, the report says. “Despite fewer foreclosure sales overall in February, as well as smaller discounts due to competitive bidding, third party investors purchased more foreclosures, at 23.2 percent, than at any other time since we began tracking trustee sales in September 2006,” it says
Trustee sales are the action. Increased liquidity in this market is a dream for lenders. Once they begin catching up on their shadow inventory backlog, investors will be there to mop up the mess.
You do have to wonder how a property that has doubled in value ends up as a short sale.
- This property was purchased on 4/24/1998 for $293,000. The owners used a $263,500 first mortgage and a 29,500 downpayment.
- On 10/9/2001 they opened a HELOC for $96,000.
- On 8/6/2002 they opened a HELOC for 93,500.
- On 8/25/2003 they refinanced the first mortgage for $322,700.
- On 11/24/2003 they opened a HELOC for $70,000.
- On 6/14/2004 they opened a HELOC for $125,000.
- On 2/18/2005 they opened a HELOC for $282,500.
- On 5/23/2007 they refinanced the first mortgage for $592,000.
- On 6/8/2007 they opened a HELOC for $148,000.
- Total property debt is $740,000.
- Total mortgage equity withdrawal is $476,500.
Recording Date: 06/11/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Recording Date: 03/04/2009
Document Type: Notice of Default
JP Morgan/Chase wrote that last HELOC. WTF were they thinking?
Given the pattern of HELOC abuse, why would you loan these people money? Oh yeah, real estate prices always go up.
Even with all we have seen, the ignorance and sheer stupidity of lenders still amazes me.
Irvine Home Address … 14 Foxglove, Irvine, CA 92612
T-Sale Home Price … $586,850
Home Purchase Price … $293,000
Home Purchase Date …. 4/24/1998
Net Gain (Loss) ………. $258,639
Percent Change ………. 100.3%
Annual Appreciation … 6.0%
Cost of Ownership
$586,850 ………. Asking Price
$117,370 ………. 20% Down Conventional
5.05% …………… Mortgage Interest Rate
$469,480 ………. 30-Year Mortgage
$122,206 ………. Income Requirement
$2,535 ………. Monthly Mortgage Payment
$509 ………. Property Tax
$122 ………. Special Taxes and Levies (Mello Roos)
$49 ………. Homeowners Insurance
$133 ………. Homeowners Association Fees
$3,347 ………. Monthly Cash Outlays
-$435 ………. Tax Savings (% of Interest and Property Tax)
-$559 ………. Equity Hidden in Payment
$231 ………. Lost Income to Down Payment (net of taxes)
$98 ………. Maintenance and Replacement Reserves
$2,683 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$5,869 ………. Furnishing and Move In @1%
$5,869 ………. Closing Costs @1%
$4,695 ………… Interest Points
$117,370 ………. Down Payment
$133,802 ………. Total Cash Costs
$41,100 ………… Emergency Cash Reserves
$174,902 ………. Total Savings Needed
Baths: 2 full 1 part baths
Home size: 2,092 sq ft
($282 / sq ft)
Lot Size: 3,040 sq ft
Year Built: 1967
Days on Market: 77
MLS Number: P716613
Property Type: Single Family, Residential
Community: University Park
According to the listing agent, this listing may be a pre-foreclosure or short sale.
4 Bedrooms,2.5 Bath,convenient floor plan,now shown by appointment only,Masterbedroom with two balconies,seperatedfamily kitchen area,gated side& backyard provide privacy,highly ratedtop schools,convenient location to shop,school & market,inside laundry
Trustee sale opportunity
Today's featured property is scheduled for auction on April 1, 2010. The short sale listing is for $590,000, but if we obtain the property at auction, we would sell it at $586,850. The comps suggest the resale value is above $600,000. The outlier, 20 Queens Wreath Way, is directly on the 5. The other 4 comps are better with 32 Foxglove being closest.
|20 Queens Wreath Way — A 4 bed 1,896 SF SFR — 1965||5/05/2009||$ 455,000|
|18 Bayberry Way — A 4 bed 2,700 SF SFR — 1967||9/29/2009||$ 650,000|
|10 Wintersweet Way — A 4 bed 2,231 SF SFR — 1966||9/03/2009||$ 658,000|
|32 Foxglove Way — A 4 bed 2,000 SF SFR — 1967||8/04/2009||$ 650,000|
|26 Wintersweet Way — A 4 bed 2,145 SF SFR — 1966||1/28/2010||$ 658,000|
This would be a reasonable deal by current market standards.