Decline in Foreclosures Temporary as a Million Loan Owners Quit Paying in 2010

Foreclosures are still not keeping pace with delinquencies as shadow inventory continues to grow.

Irvine Home Address … 26 RUSTLING WIND Irvine, CA 92612

Resale Home Price …… $689,000

Where, oh where, are you tonight?

Why did you leave me here all alone?

I searched the world over, and I thought I'd found true love,

You met another, and PFFT! You was gone!

Hee Haw — PFFT! You Was Gone!

Decline in foreclosures likely to be temporary

By Frank Ahrens

Washington Post Staff Writer

Friday, August 27, 2010

Foreclosures and late payments on home mortgages dropped slightly in the second quarter of this year, but sustained high unemployment and a stalled economic recovery could make the improvement short-lived.

Although one in 10 mortgages in the United States is still behind by at least one payment, the number of "seriously delinquent" loans – those that are at least 90 days late – dropped compared with the first three months of this year, the Mortgage Bankers Association said Thursday.

Also, the percentage of homes in foreclosure dropped to 4.57 percent in the second three months of this year, compared with 4.63 percent in the first quarter.

So what happens when there are 10% delinquency rates and 4.5% foreclosure rates? You build an enormous shadow inventory. That's what happens.

However, the number of seriously delinquent mortgages is still higher than it was during the comparable period last year.

"When I'm asked, 'Are things getting better or worse?' my answer is like most things these days," Mortgage Bankers Association chief economist Jay Brinkmann said in a conference call Thursday. "It is a combination of good news and not-so-good news. And there are areas of concern even with the good news."

In other words, the news is awful, and we have difficulty spinning it as anything other than totally awful.

The nation's foreclosure and mortgage-delinquency statistics are dominated by depressed markets in the "sand states:" Nevada, Arizona, California and Florida. In the second quarter of this year, California had 13.2 percent of all outstanding mortgages and 14.7 percent of all foreclosures, the association said.

The positive numbers are the result of three shifts, Brinkmann said. Last year, there was a drop in the number of mortgages that were only one payment past due, Brinkmann said. Moving to this year, that means the number of mortgages that are several payments past due has decreased. However, the association has seen a recent uptick this quarter in new delinquencies.

The decline in delinquencies was likely the result of attempting loan modifications, and the uptick is registering their failure.

Second, a number of homes with distressed mortgages have been sold, thanks to the federal homebuyer tax credit. But when that credit expired at the end of April, home sales predictably tumbled, with sales last month of previously owned homes hitting a 15-year low.

Third, some of the mortgage-relief programs appear to have worked, chiefly those engineered by banks in the private sector. Government efforts to keep troubled homeowners from defaulting on their mortgages have had little effect. President Obama's signature mortgage-relief plan has a dropout rate of nearly 50 percent, the government reported last week. Historically, 40 to 60 percent of all reworked mortgages fall back into delinquency, Brinkmann said.

So sales are way down and loan modification programs are a dismal failure. Whocouldanode?

The State Foreclosure Prevention Working Group, a collection of state attorneys general and state banking regulators, said this week that homeowners who had recently reworked their troubled mortgages were faring better than those who did so earlier during the financial crisis, giving [false] hope that a second wave of mass defaults can be avoided.

Brinkmann said that the report provided "cautiously optimistic news" about the mortgage market but that as long as unemployment remains near 10 percent, Thursday's good news will probably be short-lived.

"A number of us are having to rethink our forecasts based on numbers that have come in in the past month or so," Brinkmann said, referring to last week's higher-than-expected new jobless claims, the stock market's dismal performance this month and downgrades in estimated economic growth for the year.

This news story misses the broader point. The foreclosures are not primarily a result of unemployment. Sure, unemployment has pushed many loan owners over the edge, but huge distress in the mortgage markets was going to create a huge number of delinquencies and foreclosures regardless of what happened with the economy or employment. We are witnessing the collapse of a massive Ponzi Scheme, and as long as the toxic debt remains, any decline in foreclosures is likely to be temporary.

US real estate foreclosures fall marginally but mortgage delinquencies increase to bring more gloom

Monday, 30 August 2010

As financial experts warn that falling property prices in the US could affect economic output and create a double dip recession there is more mixed news for the country’s real estate sector.

Although figures shows that the number of foreclosures decreased nationally in the second quarter of 2010 compared to the first three months, mortgage delinquencies increased, suggesting that foreclosures could rise again by the next quarter.

A key point buried and lost in the article above is that delinquencies are back on the rise.

The delinquency rate for a prime adjustable rate mortgage (ARM) increased 47 basis points to 9.3% while the rate for a fixed rate mortgage (FRM) increased 8bps to 4.75%, according to the latest figures from the Mortgage Bankers Association.

This can no longer be spun as a subprime problem. Almost 10% of prime ARMs are delinqent. That is an astonishingly high number. And 4.75% of fixed-rate mortgages are delinquent, another very high number, unprecedented by historic measures.

Foreclosures for both types of mortgage loans remained relatively flat quarter on quarter, ARMs dropping only 4 basis points to 3.92% and FRMs increasing 1 basis point to 1.11%.

But for subprime mortgages, ARM delinquency rates jumped 114bps points to 30.9% and foreclosures fell 113bps to 10.6%. Subprime FRMs followed a similar, less drastic, trend, with delinquencies climbing 56bps to 22.5% and foreclosures falling 24bps to 4.8%.

Those subprime numbers are horrendous. Of course, we are used to that, and they will likely get worse. Very few subprime borrowers will sustain ownership before this mess is cleaned up.

Mississippi had the highest delinquency rate at 13.7% and Nevada had the highest foreclosure rate at 2.9%.

And the latest figures from the Lender Processing Services index shows that almost 900,000 loans that were current at the beginning of the year were at least 60 days delinquent or in foreclosure as of July.

Almost a million loan owners gave up this year. We haven't foreclosed on that many homes. Not just haven't we tackled the backlog, we haven't been keeping up with the new additions to shadow inventory. Anyone who thinks this problem is near resolution is really deluding themselves.

Although delinquency volume fell 2.3% month on month in July to 9.3%, it remains near historically elevated levels and record high numbers of delinquent loans are still entering the system, according to LPS. The volume of delinquencies increased 1.4% year on year, the report also shows.

The length of time these loans are staying in the foreclosure process is increasing as well. The average number of days a loan spends delinquent before it is finally forecloses reached 469 days in July, about a year and three months. In July of last year, the average was 351, more than three months shorter.

The total amount of loans in the foreclosure inventory passed 2 million in July, a 3.5% increase from a year ago, and 2.1% more than the previous month. The amount of foreclosures making it to REO status is picking up after diving earlier in the year. LPS reported nearly 100,000 REO properties in July.

The foreclosure inventory described above as 2 million homes is the visible inventory, loan owners that have received a foreclosure notice. The shadow inventory is several million more.

The bottom line is that delinquencies are far exceeding foreclosures. At some point, foreclosures must exceed delinquencies, and the foreclosures must be pushed through the system. We have many, many more foreclosures to come.

Put your cash in, take your cash out

The owners of today's featured property win the hokey-pokey award. They put in a large down payment, then proceeded to withdraw all of it and then some. I hope the huge down payment was not a gift from parents. If it was, I can't imagine the parents are too thrilled to see how this couple wasted all that money.

  • The property was purchased on 7/22/2002 for $540,000. The owners used a $270,000 first mortgage and a $270,000 down payment. They put 50% down.
  • On 5/11/2004 they refinanced with a $333,700 first mortgage.
  • On 6/29/2004 they obtained a $230,000 HELOC.
  • On 5/3/2007 they refinanced with a $700,000 first mortgage.
  • Total property debt is $700,000.
  • Total mortgage equity withdrawal is $430,000 including their down payment.
  • Total squatting time is only about 7 months so far.

Foreclosure Record

Recording Date: 08/11/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/10/2010

Document Type: Notice of Default

How do you put $270,000 down then go on a massive MEW binge? At first, they looked very prudent, but then they behaved like the worst of HELOC abusers. Very strange.

Irvine Home Address … 26 RUSTLING WIND Irvine, CA 92612

Resale Home Price … $689,000

Home Purchase Price … $540,000

Home Purchase Date …. 7/22/2002

Net Gain (Loss) ………. $107,660

Percent Change ………. 19.9%

Annual Appreciation … 2.7%

Cost of Ownership


$689,000 ………. Asking Price

$137,800 ………. 20% Down Conventional

4.50% …………… Mortgage Interest Rate

$551,200 ………. 30-Year Mortgage

$134,655 ………. Income Requirement

$2,793 ………. Monthly Mortgage Payment

$597 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$57 ………. Homeowners Insurance

$400 ………. Homeowners Association Fees


$3,847 ………. Monthly Cash Outlays

-$466 ………. Tax Savings (% of Interest and Property Tax)

-$726 ………. Equity Hidden in Payment

$230 ………. Lost Income to Down Payment (net of taxes)

$86 ………. Maintenance and Replacement Reserves


$2,971 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,890 ………. Furnishing and Move In @1%

$6,890 ………. Closing Costs @1%

$5,512 ………… Interest Points @1% of Loan

$137,800 ………. Down Payment


$157,092 ………. Total Cash Costs

$45,500 ………… Emergency Cash Reserves


$202,592 ………. Total Savings Needed

Property Details for 26 RUSTLING WIND Irvine, CA 92612


Beds: 4

Baths: 2 full 1 part baths

Home size: 2,550 sq ft

($270 / sq ft)

Lot Size: n/a

Year Built: 1978

Days on Market: 15

Listing Updated: 40416

MLS Number: F1853776

Property Type: Condominium, Residential

Community: Turtle Rock

Tract: Vt


According to the listing agent, this listing may be a pre-foreclosure or short sale.

Beautifully decorated sweet home in famous Turtle Rock Hills Community. Travertine Floors & Fireplace, Plantation Shutters, Crown Molding, Plastered Ceilings, Custom Built-ins, Recessed Lighting and Casablanca Ceiling Fans. Spacious living room with panoramic views. Walk to award-wining schools including University high, Turtle Rock elementary. Close to Newport Coast, Fashion Island, UCI, and easy access to freeway. Enjoy association pool, spa and Tennis.

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,

Irvine Renter

27 thoughts on “Decline in Foreclosures Temporary as a Million Loan Owners Quit Paying in 2010

  1. winstongator

    If the DP was a gift, it was the product of someone else saving, and MEW probably seemed like another gift. You could have had someone seeing the great investment opportunities and figure that if I can make 10% in real-estate or stocks and pay 6% in interest, plus the tax benefit of that, why not do that. That’s individuals acting like banks, which while banks did their own share of terrible work, many bankers are prudent to the risk of that venture (although many fell into the same trap, so I may be wrong about that).

    Most of the country, area-wise, sees foreclosures as solely an unemployment issue, because if you haven’t seen a home sell for half what it went for in 2006, while still in good condition, you don’t have a good grasp of the negative equity situation.

    Not all areas benefitted equally from the housing bubble, and not all will be as crushed. With that, I’d say be very careful in Vegas…real estate.

    Strategic default is a product of rapid appreciation being wiped out, low down payments, and a disconnect between the price to own/rent. If your mortgage payment is less than a comparable rent, and you’re unemployed, you stick in your home! Going forward, you cannot really do away with strategic default, but you can work to limit bubble-blown appreciation, and require better dp’s, and have some market force that keeps ownership & rental costs comparable.

    1. Geotpf

      The Inland Empire and deserts beyond sneeze at houses selling for only half off peak pricing. Try 60, 70, 80, or even 90% off.

  2. Cosmo Kramer

    IR may I comment on something all the heavy thinkers here have apparently overlooked or just taken for granted: your blog has become some so freaking good it is scary. The writing is as lucid and on the money as ever. But it’s the graphics and incredibly wry humor that makes me want to nominate you for a Pulitzer.

    Too bad one doesn’t exist for blogs; it would be a non contest.

    Now I admit I haven’t been as regular a reader as times past so if you are collaborating with someone else and have mentioned that in a previous post then I commend that person as well. I’m assuming it’s all your work though, which honestly blows my mind that you find the time to track down the perfect apropos image or song. And your captions of course are on par with The Onion.

    Ok, just a little off topic message…well not really 🙂 Please keep up the great work. It’s genius man.

    1. IrvineRenter

      Thank you. What a great compliment to start my day.

      The blogging and cartoons are all me. I enjoy writing for the IHB more than I ever have. In particular I enjoy the cartooning. It’s like desert after a meal of writing.

      Thanks again, you made my day. 🙂

      1. Stryker1sf

        “I enjoy the cartooning. It’s like desert after a meal of writing”

        Since you’re a stickler for spelling, I think you meant dessert unless you enjoy eating sand.

  3. scottinnj

    It is plausible as well that someone in 2002 might have had a large down payment if they were one of the lucky ones working at a and timed their option exercize/sales well a year or two earlier. One of my friends worked at JDSU and did time his sales well (which he admits was just blind luck) and while a low level engineer was able to make enough to later buy a small home which he hasn’t MEW’d.

    Separately there is an interesting post today on the always worth reading Naked Capitalism site. (sorry having problems copying link over into this text box). The point was that they may start getting tougher on the foreclosure process which is backlogging. I’ll believe it when I see it.

  4. Golden

    From WikiLeak

    Lawyer: My Lord, bad news, court will use the Extractor to read your mind
    Bren: Why that’s matter?
    Lawyer: My Lord, we won because the stupid LA jury believes you never love Mrs. Gold.
    Bren: Don’t worry. I don’t even for a 0.0001 sec, even when she gives the birth of new life
    Lawyer: My Lord, I though you go to church.
    Bren: Yes, every given Sunday.
    Lawyer: My Lord, so do you pray for God and love etc.
    Bren: I only pray for gold.
    Lawyer: so…
    Bren: There is no “L-O-?-?” in my dictionary.
    Lawyer: My Lord, we will win again.

    Lawyer: My Lord, court just announces the new decision.
    Bren: I win again right.
    Lawyer: My Lord, not this time.
    Bren: How come
    Lawery: The Extractor find you pray for “Gold” all the time, so the stupid LA jury decides you do love Jennifer.

  5. lee in irvine

    At some point, (I think we’re getting close), the FED and Treasury are gonna lose complete credibility with investors. The entire govt is being run by a bunch of extreme Keynesian idiots. They absolutely refuse to be honest with the general public … but many in the general public are idiots too. Much like the fools showcased above by IR.

    Sorry so gloomy. I feel better saying that.

    Have a great weekend all. Hopefully better than mine … I’ve got to fly to shitty Sacramento today, and stay there for the entire weekend. Blah!

    1. IrvineRenter

      Thanks, Jb.

      I found this on your site. I would like to repost this on the IHB with some further explanation:

      “Net Present Value (NPV): Next, the lender must determine whether it will suffer a greater loss by providing a loan modification as compared to simply foreclosing on the home and selling it. The lender must figure out which option (modification vs. foreclosure) provides the highest Net Present Value to the lender. In both a modification and a foreclosure, the lender eventually recoups some of the money that was lent to the borrower. In a loan modification, the lender will receive monthly payments which include principal and interest (albeit, at a lower interest rate than originally contemplated) over a period of 30 or 40 years. An accountant can look at that stream of 360 (or 480) monthly payments and figure out what is it worth in “today’s” dollars (that’s called the “Net Present Value” of a series of payments). Alternatively, in a foreclosure, the lender will end up selling the property either at a public foreclosure auction or as an REO (bank “Real Estate Owned”), and, after paying the foreclosure and sales costs, the lender will have a lump sum of money which it can (hopefully) re-lend to a new borrower at current interest rates. Again, an accountant can figure out how much money the lender will receive as a Net Present Value from the foreclosure and sale. At that point, it becomes a simple mathematical calculation to determine whether the lender receives more money through a loan modification or by foreclosing and selling the property. That’s the Net Present Value Test. Here’s the problem for a borrower: If the lender has to significantly reduce the interest rate, or extend the maturity date of the loan, or even reduce principal, all in an effort to comply with the Front-End DTI test above (to achieve that 31% target), it becomes MORE LIKELY that a foreclosure will provide a greater recovery than a loan modification. If so, the lender cannot approve the loan modification and must foreclose and sell the property. It is this little known NPV Test that kills many loan modifications, and the borrower is not told why they don’t qualify.”

      If people understood this, they might see why principal reductions are not going to happen and why so many loan modifications get denied.

    1. IrvineRenter

      If the GSEs start pushing these changes, they will cause the lending cartel to crumble. It certainly looks like the government is removing their band aids. I will write about this next week.

    2. SanJoseRenter

      If you watched the banksters on TV during the meltdown, they were non-committal towards anything the government or press had to say.

      As long as interest rates are 0% and banks are worried about their capital reserves, they won’t foreclose.

      With rates at 0%, what we call squatters are actually caretaking the houses for the banks until the situation changes somehow – economy improves, government shoulders the losses, etc.

      Instead, banks will delay foreclosing, and promote short-sales where they can ladder down on lost downpayments and angle for refis that are recourse.

      1. Alan

        Not a bad deal at all! I’d happily be the caretaker for my apartment in return for free rent. Even if I would probably have to move to an equivalent but lower rent apartment in a couple of years.

    3. johnny a.

      i can’t think of any benefit in continuing my mo’y payment ….i have negative equity on my home in ft laud. fl ; and burdened with a heloc of which i have exhausted debt of 475k and counting, while property continues to decline. T AND I amt to another 1k a month; and my HOA FEES ARE 350/MO AND RISING STEADILY BEC OF THE NUMBERS of foreclosures in this beautiful community…….. i can’t sleep at nite with what appears to be plowing mtg payments into a sewer…i can forsee residing here for another 2 yrs with the swamped court system here in Fl and delaying the inevitable…at which pt either the obama admin reroutes its policy and mandates all mtgs to be reset at FMV or the bank does so voluntarily…(fat chance!)…of course I am currently on a ‘performing’ loan and paying on my HELOC…..eventually I will have no credit…but at least i would be socking my mo’y payment away, preparing for rental in days to come.

      what do you think?

  6. DarthFerret

    “The State Foreclosure Prevention Working Group, a collection of state attorneys general and state banking regulators, said this week that homeowners who had recently reworked their troubled mortgages were faring better than those who did so earlier during the financial crisis”

    What a ridiculous statement from this group of cheerleading politicians!

    Wait, they mean to tell us that people who have had LESS time to default on their loans do so at a lower rate than those that have had MORE time to default? Wow, that’s amazing! Why do we pay these guys salaries, again?


  7. BD

    Hello Goup – It is time to reboot. We as a country and individuals need to let the reastate market clear. This will help everyone. We may experience a 3-5 year lull but, we have to avoid the 10-20 year stagnation.

    If we don’t allow the market to clear – especially here in SoCal – we will end up with a long period of stagnation. The only people buying now and paying twice what it costs to rent are hoping for appreciation. The HELOC economony is not comeing back.

    If we are to avoid another decade of stagnation (by the way we are 2000 prices on the dow) we must allow the market to adjust.

    Do you realize that more than 50% of people retire with less than 50K in savings!!!!!

    We were in a bubble and need a flush not policies to prop things up… the more prop up the longer it will take for us to become a vibrant economy.

    Just my .02


    1. Alan

      Actually, aren’t the people who are buying now and hoping for appreciation helping to clear the market? At least those who put down more than 3.5%. The flippers buying for cash are pulling money from somewhere and putting it into real estate. Those who buy from the flippers are putting still more in as well, though probably not so many are all cash or large (50%) downpayments.

      So isn’t it a rather clever technique to tap as many of the greater fools as possible to reduce bankers’ and taxpayers’ losses? I would not at all be surprized to find out that the calculations have been done, and a long period of stagnation is better for the banks and politicians than a big, quick crash followed by a “3 to 5 year lull”. (And the lull after 1929 was raher more than 3 to 5 years – very hard to make predictions in the case of chaos.)

      The one thing America is still good at making is marketers – convince people they want and need something then sell it to them at a hugely inflated price. The road o profits as long as the supply of greater fools is there.

  8. BD

    I should clarify…you probably can find properties in Santa Ana or Downey or Irnvine for that matter which seems like a deal…

    But, the properties that we all want to live in are still too high. The costal stuff is still outrageous. And the sellers think their property has appreciated since 2006/2007. I beg to differ…

    It will fall and put more pressure on the middle and low end.


  9. Swiller

    No Darth. What they are trying to say is that in the beginning, the banksters would flat out refuse a modification if you were currant. If you defaulted, they would stress you out and give you WTF terms, so in reality, you would probably *never* pay the mortgage off before you died.

    Remember, modifications (the VERY best for those of us who “were” in the 800 club) were a 2% loan for 5 years, and a max of 5% for the remaining 25 years. NO PRINCIPAL FORGIVENESS. The banksters got principal forgiveness in the form of a $14 trillion dollar gift from our sickening politicians.

    Now that interest rates are heading to zero, I’ve heard people at work who own large homes (bought at pre-FRAUD pricing), getting 3.75% fixed loans.
    You see, yet again, the people who can afford it already, THEY get the hand-up, and the people hurting, well, the banksters grind them with high interest, or throw their a$$es out. will give you a new perspective of the troubles people are having with the banksters.

  10. theyenguy

    You write: “The foreclosure inventory described above as 2 million homes is the visible inventory, loan owners that have received a foreclosure notice. The shadow inventory is several million more. The bottom line is that delinquencies are far exceeding foreclosures. At some point, foreclosures must exceed delinquencies, and the foreclosures must be pushed through the system. We have many, many more foreclosures to come.”

    Yes, good comments. We need to be reminded of these facts.

    And you relate: “We are witnessing the collapse of a massive Ponzi Scheme, and as long as the toxic debt remains, any decline in foreclosures is likely to be temporary.”

    Foreclosures are going to accelerate very soon!

    I would like to bring to your attention that for this week, the week ending September 3, 2010 world stocks, ACWI, rose 3.7%, taking them up, but below support of early November 2009.

    The 30-10 Yield Curve, $TYX:$TNX, on August 11, 2010 which came as a result of the Federal Reserve Chairmans announcement of August 10, 2010 of the purchase of mortgage-backed securities.

    Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt. This caused the bond rally in US Treasuries, that began April 6, 2010, to fail September 1, 2010, sending bond prices, BND, lower and interest rates higher. The longer out US Government Debt, TLT, and the Zeroes, ZROZ, fell significantly, turning parabolically lower.

    The chart of the 30-10 Yield Curve, $TYX:$TNX, shows flattening since August 11, 2010. This is a process that will continue until bond wealth is extinguished.

    This week marked a mega shift, that is a mega change. Debt deflation came to bonds, BND, with the purchase of the yen based carry trades, on September 1, 2010, which rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66, that is, ”establishing August 31, 2010 as peak credit” … bond deflation has been underway since September 1, 2010.

    September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”. Part of the end of entitlement will be that of “living payment free” in a bank’s shadow inventory of real estate property, as banks, being desperate for income will transition from being holders of real estate to lessors of property.

    With the soon coming stock market driven write down of bank equity, and bond market driven write down of US Treasuries kept at the Federal Reserve in Excess Liquidity, the banks will no longer amend pretend and extend lending as described by yourself and others.

    The bank’s FASB 157 entitlement to value real estate at mark-to-fantasy, rather than mark-to-market, ”will have no meaning in a debt depreciated future”; in other words the FASB 157 entitlement, will be liked an expired option … it will go worthless very soon.

    I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts. He will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

    I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks, KBE, on their delinquent and REO properties as well as those of Freddie Mac, Fannie Mae and the US Federal Reserve.

Comments are closed.