GSE Foreclosures Shatter Record Highs, Keep Climbing

The GSEs have stopped fooling around and begun foreclosure proceedings in earnest.

Irvine Home Address … 39 DESERT WILLOW Irvine, CA 92606

Resale Home Price …… $959,000

You got a fast car

I want a ticket to anywhere

Maybe we make a deal

Maybe together we can get somewhere

Any place is better

Starting from zero got nothing to lose

Tracy Chapman — Fast Car

For the last two years, the GSEs under direction of our government have been trying to make deals with people on loan modifications to keep them in their houses. Together they could have kept some of the distressed inventory off the market. It didn't work out that way.

The dismal failure of these programs was completely predictable because most of the people in trouble could never afford the homes they bought. Everyone was trying to get ahead, and like cars packing in to the fast lane, the volume of traffic brought things to a standstill. Any place is better than were these debtors are now. Most can rent for far less than their current and future payments, many are underwater, and few have any realistic hope of equity for the foreseeable future.

Starting from less than zero, they have nothing to lose… except perhaps their debts.

GSE Foreclosure Starts Start Coming Faster in 2010

Tuesday, July 27th, 2010, 4:13 pm — Jacob Gaffney

The level of foreclosures starts in mortgages owned by Fannie Mae and Freddie Mac, the government sponsored enterprises (GSE), is at its highest point ever in 2010 as the rate of new foreclosures continues to increase.

The June 2010 Mortgage Monitor data provided by Lender Processing Services (LPS) Applied Analytics shows that the spike in foreclosure starts is greatest at 6+ months of delinquency. Analysts have suggested that this may be occurring due to the recent increase in HAMP cancellations. Total foreclosure starts for 2010 are at 1.46m, compared to 1.68m for the same period in 2009 and 1.25m in 2008, to be sure, but the rate at which the starts increase during 1H10 is at the fastest pace LPS Applied Analytics has seen.

Look at that massive spike! The GSEs have stopped fooling around with borrowers. While the commercial banks are shifting their emphasis to short sales to liquidate their backlog of delinquent loans, the GSEs are ramping up their foreclosures.

In a conversation about the findings, vice president Herb Blecher said that "HAMP trials originally were meant to last three months, but almost 1.3m mortgages were trialed in a short period and so we know that some trials run four, five or six months before they are either converted or cancelled."

To be sure, the official HAMP default rates are different, standing a 1.7% after six months — a claim that's hotly disputed.

After delaying the process for two years with a series of failed loan modification programs, the most recent of which being HAMP, the government appears to be giving up on delinquent borrowers. Nobody can reasonably argue that the government didn't do everything it could to save people's homes encourage widespread moral hazard through its indefinite squatting programs.

However, LPS finds that the foreclosure trend is not bleeding over into the market-at-large. Delinquencies and foreclosures remain stable, though elevated, with seasonal trends somewhat muted. Foreclosure starts on non-agency mortgages have also been relatively stable over the last several months, as have the rates on 90+ days default.

In short, for every mortgage performing, the mortgage data analytics firm finds two are deteriorating. At a loss mitigation conference last week, Edward DeMarco, acting director of the Federal Housing Finance Agency, said that banks should consider foreclosing when borrowers are not being rehabilitated.

We are falling farther and farther behind and building an ever-larger shadow inventory.

There are some in government who see the right answer and are pointing the way.

FHFA Director DeMarco: No "Silver Bullet" for the GSEs

Wednesday, July 21st, 2010, 4:39 pm — Jacob Gaffney

… He said that streamlined and transparent loss mitigation is "critical" to saving the GSEs. In the Q&A, DeMarco told an attendee that the FHFA believes the area of principal forgiveness remains "fraught with difficulty,"

Is that secret code for "its a dumb idea that isn't going to happen?" Do any of you want to see the army of HELOC abusers be given a free pass and be allowed to keep their homes?

People get principal reduction all wrong. What we should have is foreclosure, which provides debt reduction, then we should forgive those debts through bankruptcy. The debt needs to be foregiven, but the people need to move out of the houses they can't afford and didn't pay for first. Foreclosure is a superior form of principal reduction.

and in cases "where there is no borrower," even if homeowners are avoiding contact, then the bank should foreclose.

"If you have an abandoned property or a borrower not willing to discuss or work with anything, then get going," he advised.

This is why the transition to short sales will ultimately fail. There are far too many properties that are empty, or where the loan owner has simple stopped responding to the lender. Many of the latter group are simply going to squat until they are kicked out.

And it isn't only the GSEs that are increasing foreclosures. Some banks are finally getting around to booting out the high-end squatters.

Foreclosures boom among nation's most creditworthy

Foreclosures among borrowers with prime conforming loans have shot up 425% since January 2008, according to Lender Processing Services, which compiles mortgage data. Conforming loans are those eligible for purchase by Fannie Mae and Freddie Mac, the federal agencies that buy mortgages from lenders.

Jumbo prime loans not eligible for purchase by Fannie or Freddie have done even worse — foreclosures on those have increased nearly 600%.

Jumbo loans are typically mortgages worth more than $729,750.

Those percentages are so large because the number was so small in January 2008. These numbers will continue to increase as the hopelessly overextended accelerate their defaults.

"Jobs is a major impact. It's a huge factor," says Ken Shuman, a spokesman with Trulia.com, a real estate search engine. "A lot of homeowners on the higher end are also savvy investors. They're seeing their home has lost 30% of their value, we're seeing a lot of strategic defaults."

A strategic default occurs when a borrower stops paying a mortgage they can afford to pay, often because the house's value has fallen below the loan balance.

An accelerated default occurs when a borrower stops paying a mortgage they can't afford to pay long term, often because the payment will increase, the house's value has fallen, and they can rent something for far less.

While the U.S. may be seeing signs of a peak in foreclosures in some of the hardest-hit markets, foreclosure activity continued to rise in many of the nation's metropolitan areas in the first half of the year.

RealtyTrac reports today that 154 of 206 U.S. metropolitan areas with populations of 200,000 or more posted year-over-year increases in foreclosure filings, covering properties in various stages of the foreclosure process.

The top 20 metro areas with the highest foreclosure rates were in four states — Florida, California, Nevada and Arizona, according to the report.

Other RealtyTrac findings:

•94,466 properties received a foreclosure filing in the Miami-Fort Lauderdale-Pompano Beach metro area during the first half of 2010, more than any other metro area.

The metro area with the second-highest total filings was Los Angeles-Long Beach-Santa Ana, which had 93,263.

•Las Vegas continued to post the nation's highest metro foreclosure rate in the first half. One in 15 of its housing units received a foreclosure filing — more than five times the U.S. average.

Foreclosures are falling one month then rising the next as lenders grope for solutions to the catastrophe they're facing. The only thing that has been constant is the delinquency rate that has risen for the last three years and continues to rise.

The answer to the problem is a combination of short sale and foreclosures, and to clear the market of the mortgage debris will require low interest rates, low prices, and more qualified buyers. We have the low interest rates, we will have lower prices, and as for qualified buyers, that may take a while.

He paid how much?

I am always astounded when I see what people paid in Columbus Grove.

  • The original buyer paid $1,273,000 for this property on 4/19/2006. He used a $1,082,050 first mortgage and a $190,950 down payment.
  • After waiting the minimum two month period, he refinanced with a $954,750 first mortgage and a $142,000 HELOC — and gave up his non-recourse protections in the process.
  • On 5/16/2008, he added another to the title and trashed their credit too.

Foreclosure Record

Recording Date: 11/18/2009

Document Type: Notice of Default

He didn't get much squatting time as this was sold to our flipper at auction on 5/21/2010 for $785,000. That is $488,000 less than the original buyer paid. Not a bad deal for the flipper.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 39 DESERT WILLOW Irvine, CA 92606

Resale Home Price … $959,000

Home Purchase Price … $785,000

Home Purchase Date …. 5/21/2010

Net Gain (Loss) ………. $126,050

Percent Change ………. 16.1%

Annual Appreciation … 82.8%

Cost of Ownership

————————————————-

$959,000 ………. Asking Price

$191,800 ………. 20% Down Conventional

4.62% …………… Mortgage Interest Rate

$767,200 ………. 30-Year Mortgage

$190,070 ………. Income Requirement

$3,942 ………. Monthly Mortgage Payment

$831 ………. Property Tax

$550 ………. Special Taxes and Levies (Mello Roos)

$80 ………. Homeowners Insurance

$175 ………. Homeowners Association Fees

============================================

$5,578 ………. Monthly Cash Outlays

-$946 ………. Tax Savings (% of Interest and Property Tax)

-$988 ………. Equity Hidden in Payment

$332 ………. Lost Income to Down Payment (net of taxes)

$120 ………. Maintenance and Replacement Reserves

============================================

$4,096 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$9,590 ………. Furnishing and Move In @1%

$9,590 ………. Closing Costs @1%

$7,672 ………… Interest Points @1% of Loan

$191,800 ………. Down Payment

============================================

$218,652 ………. Total Cash Costs

$62,700 ………… Emergency Cash Reserves

============================================

$281,352 ………. Total Savings Needed

Property Details for 39 DESERT WILLOW Irvine, CA 92606

——————————————————————————

Beds: 5

Baths: 3 full 1 part baths

Home size: 3,200 sq ft

($300 / sq ft)

Lot Size: 5,282 sq ft

Year Built: 2006

Days on Market: 12

Listing Updated: 40376

MLS Number: S624539

Property Type: Single Family, Residential

Community: Columbus Grove

Tract: Alex

——————————————————————————

This property is in backup or contingent offer status.

Fabulous floorplan!!! Offering approx. 3200 sq. ft. with all the ammentities …Rich hardwood floors downstairs with new carpet and paint. Gourmet kitchen with granite counters and stainless appliances. Rod iron staircase. Attached three car garage.

ammentities?

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend, and don't forget to come join us Sunday evening from 5:00 to 9:00 at JT Schmids.

Irvine Renter

https://www.irvinehousingblog.com/wp-content/uploads/images/uploads/01%20Post%20Images%202010-8/Fund%20Party%208-1-2010%20.jpg

22 thoughts on “GSE Foreclosures Shatter Record Highs, Keep Climbing

  1. winstongator

    Reading this, and especially the part about empty houses, reminds me about the geographic dependence of this problem. Granted everywhere is hurting, but the degree of overbuilding and the reliance of a local economy on home building, remodeling, real estate, mortgage financing, and heloc’ing, makes different areas suffer differently. There are not many vacant homes in my area of NC, and the local economy has one of the few large but not TBTF banks that is growing fairly rapidly. My parents area in SE Fla has lots of vacant properties, especially in apt/condo conversions and other multi-family units, and it’s economy has been crushed (homebuilding + tourism). They are in the Miami/FtL/Pompano metro area mentioned by reatlytrac.

    The most important factor going forward is how an area’s housing stock relates to its level of qualified buyers/owners. If you have an area that people are moving to because of jobs, it can absorb a level of foreclosures because there is someone to absorb it at a near-comp price. Once the buyer pool of REO properties goes to investors, even with the huge incentives we recently had, prices have to fall dramatically.

    1. IrvineRenter

      LOL! I can’t believe I missed that one. Rod Iron sounds like a good name for a porn star.

        1. Soylent Green Is People

          Thrust your willing buyers deep into this screaming deal of a home. Their desire will climax as they enjoy rod iron in the back yard.

          This stuff just writes itself doesn’t it…

          My .02c

          Soylent Green Is People.

          1. lowrydr310

            Keep this up, and IHB may soon be blacklisted by my corporate content filter! 😀

          2. tonye

            Truly a property that will bring ecstatic pleasure to the satisfied owner well into the night.

            Perfect for the hedonist entertainer.

            (hmm… maybe “hedonist” is to big a word for a listing agent?)

          3. AZDavidPhx

            Anyone else as enchanted by the hard wood flooring as I was? I wonder how far it stretches.

      1. AZDavidPhx

        What a gorgeous house with stallion-like rod iron and huge voluptuous ammentities.

        Wonder what the realtor had on their mind. Must be all that sitting around the office with not much to do these days.

  2. Anonymous

    I suspect the jumbo loan defaults are not strategic. I suspect the borrowers simply ran out of money.

    The reason that I suspect this is, I am a skinflint and like to get bargain meat out of the upscale grocery store clearance sections (ex. Gelsons or Albertsons). It used to be really easy to pick up some great deals there (ex. 99 cents a pound ground beef, or six Gelsons custom wrap sausages for $2). However, lately, it is near impossible for me to get any of that stuff because someone has already gotten to the store and bought it out before me. I also see more and more people dropping by the clearance sections to see if anything is there.

    So the upper end has discovered clearance meat shopping. People are cutting back. They’ve finally admitted they have run out of money.

  3. wheresthebeef

    I seriously can’t believe these places are still selling for close to 1M (if they get the asking price). Even methadone won’t cure this kool-aid intoxication.

    On the bright side, the new owner can save money on water and won’t need a gardner…what the hell is up with the concrete back yard? This gives low maintenance a new meaning.

    1. AZDavidPhx

      Are you saying that the prison yard look is no longer in fashion? As a staging prop, I was totally thinking of dressing up a stolen Abercrombie and Fitch dummy in a jailer outfit with a high powered rifle and mounting it up on the corner of the yard there. The added security will add value to the house as well. You have to think outside the box in today’s tough market.

    2. Soylent Green Is People

      Columbus Square is a mystery to me. A similar area in Los Angeles also directly under the flight path sell for 1/4 if not less than properties in OC. Would you pay that price to live under a jetway?

      Not me.

      Soylent Green Is People.

    3. Alan

      Fill in the lines between the sections and add some paint, and you’ve got your own basketball court, tennis court or something like that. Something that you might expect to find in the back yard of a $1M place.

      If this flipper got a good deal, I find it still absurdly priced. If the flipper loses about $400k it may be coming into the reasonable zone … for someone with a decent and steady income.

  4. tenmagnet

    It seems like there’s quite a bit of sales activity.
    32 Desert Willow, another 3rd part Trustee sale flip, is under contract as well.
    The knock on the VOC is that it’s considered inferior to other Irvine villages like Woodbury which was built around the same time.

  5. irvine_home_owner

    Columbus Grove isn’t right under the flight path… but it’s close by. The big knock about this area is being so close to the concrete smasher and other industrial businesses in that area next to it… especially the waste facility, which you can smell sometimes going down Warner towards The Distict shopping center.

    There was also a big stink a few years back when the builder started doing price reductions on the adjacent tract, Lantana. The old IHB even had a blog article about it:

    https://www.irvinehousingblog.com/blog/comments/bitter-buyers-say-williams-lyin/

    This particular model is one of the best ones Lennar had built, it’s an Alexandria Plan 3 and one of the few newer homes that had a non-tandem 3-car garage set up and a standard master retreat. I miss these more traditional multiple living space floorplans compared to the Woodbury Great Room ones:

    http://floorplans.irvinerealtorsite.com/ColumbusGrove/Alexandria/AlexandriaC3168.jpg

    Some of the comps bargains compared to what they originally sold for but those are the ones that back Harvard. Not quite 40% off as an average but it shows how this area is less “desired” than others (or either more overpriced than they should have been).

    Interestingly enough, it feeds into one of the top Elementary schools in Irvine (Stonecreek) and is close to the first 99 Ranch in Irvine.

    1. IrvineRenter

      I am always surprised Columbus Grove doesn’t command any premium for being in the Irvine school system. I would buy there before I would buy in Northpark.

  6. FoolishRenter

    “The GSEs have stopped fooling around with borrowers. While the commercial banks are shifting their emphasis to short sales to liquidate their backlog of delinquent loans, the GSEs are ramping up their foreclosures.”

    The new GSE’s and loan modifications are not defective loans and not the banks’ liabilities — non-performing yes, but not defective. The risk and lack of income were stated in the new loan analysis and rating. The old loans are defective and need to pretend that the loans are good for the banks/originators’ liability issues. The old loans need to be cleared by selling the house or refinancing with true incomes on the application. The hold back on the new GSE FC are: 1. Political pressure for the upcoming election and 2. to give the banks time to unload (“get rid of the liability”) by refinancing the current non-performing loans.

    I’m still waiting for the big one “massive FC” but still feel like the FoolishRenter, when I could of been squating.

  7. FoolishRenter

    IR,
    Is the chart for actual FC sales or just that the GSE loan payments are delinquent? It seems like the latter to me. Can one start the FC process be accomplished with only 2 months missed payments?

  8. CE

    “That is $488,000 less than the original buyer paid. Not a bad deal for the flipper….”

    Paying less than the previous owner doesn’t necessarily mean you got a deal…. Lots of investors in Las Vegas or Detroit bought up properties at steep discounts, only to see the prices fall much further. This one looks like it has a lot more downside.

Comments are closed.