A recent commentary in Housing Wire lays out the case against strategic default. It expresses a point of view worth examining.

Irvine Home Address … 24 SOUTHERN WOOD Irvine, CA 92603

Resale Home Price …… $1,250,000

Ya just got slapped

Across the face my friend.

Ya just got slapped

Yes that really just happened.

Well, everybody saw it, hah

Everybody laughed and clapped.

‘Cause it was awesome.

The way that you just got slapped.

Marshall Erikson Himyn — You Just Got Slapped

Today's featured article is a commentary from Housing Wire's Kerri Panchuk. Apparently, she does not accept the arguments I made in the following posts:

Strategic mortgage default has become common and accepted in 2011

Strategic default consequences minor and likely to decrease

Strategic default is moral imperative to prevent future housing bubbles

Widespread strategic default is essential to economic recovery

For a variety of reasons, I believe strategic default is a wise course of action for underwater loan owners who are paying more to own than the cost of rental. Let's read the counter-arguments to check their validity.

The new slap in the face of foreclosure

by KERRI PANCHUK — Tuesday, September 20th, 2011, 2:33 pm

Every American upset with the state of mortgage lending should read the Fox Business News article on strategic default in order to meet the “New Face of Foreclosure.”

Strategic defaulters are underwater borrowers who intend to remedy their “upside-down situation” by simply walking away from their mortgages.

The Fox Business article paints a clear picture of a 67-year-old strategic defaulter who is walking away from a $166,000 loan.

So is this man a distressed borrower who lost his job, fell ill or landed on unexpected hard times? No, not really. Those situations tend to garner sympathy, and rightfully so.

Instead, this man admits he collects two pensions, Social Security and generates additional income through a small business.

The defaulter also has the ability to make his payments, but lost his drive to do so when home values dropped, leaving him $45,000 underwater.

Isn't it also sad that he is $45,000 underwater? The unemployed didn't want to lose their jobs, which is sad, but the loan owner didn't want to see his house drop in value. Shouldn't that event also be a sad story deserving of sympathy?

The only difference between the two is the capacity to repay a lender — a lender who was part of a collective insanity in lending which created the valuation problem we are now correcting. The house this man bought at an inflated price would not have been so expensive if not for the behavior of lenders. Prices didn't fall because of the recession. Prices fell because they were too high, and the result was a recession.

The borrower's attitude recently changed in other ways. He now wants to live in the city, but he can't sell his home in this economy. Even if he could, it's impossible to get back what he paid.

The economy had nothing to do with his inability to sell the home. As I stated above, the lender-induced price inflation was the problem. The fact he can't get back what he paid is sad.

It's a type of new-car syndrome, but on a large scale.

Yet rather than sticking it out, the homeowner called a firm that readily advises homeowners on how to strategically default on their mortgages.

Why should he stick it out? Because some lender wanted to profit from his loan? Because of a moral obligation? LOL!

If the borrower gets his heart's desire, he will simply walk away from the mortgage, sending the home into foreclosure while remaining cash-rich and free to move on.

Good move, right?

Absolutely. It's the wisest course of action given his circumstances.

Of course, his neighbors won't be so lucky. They will now be living next to an REO.

So what? This guy is supposed to suffer so his neighbors can continue to sustain the illusion of home equity? The REO will sell at market value, and if that is lower than what the neighbors believe their house to be worth, the neighbors need to re-adjust their perception of value.

Call it the strategic default phenomenon, if you will, but it's more than a trend. It's a threat to the power of contracts

I don't think so… Strategic Default Is Merely Collecting On Home Price Protection Insurance Sold By Lenders.

People fail to keep the promises in contracts all the time. Good contracts spell out the consequences of failure to perform. Rather than forcing lenders to sue borrowers on a Promissory Note and wait for recovery, lenders compel borrowers to sign a mortgage agreement which allows the lender to call a public auction for the sale of the property. Mortgages exist because lenders needed to spell out the contractual consequences of non-performance by borrowers.

Failing to pay a mortgage note is not a threat to contracts. On the contrary, foreclosures are the enforcement of contracts. If you want to see what is a threat to contracts, look at new regulations concerning loan modifications and restrictions on foreclosures, those are threats to the power of contracts.

and an attack against all Americans who are paying for the mortgage crisis in the form of tax dollars that supplement housing initiatives and maintenance on foreclosures.

Strategic default is not an attack against all Americans by usurping their tax dollars; bank bailouts are.

Not to mention that declining home values and tighter lending standards that are keeping new homeowners on the sidelines.

Declining home values and tighter lending standards are wonderful for those sitting on the sidelines. It means properties are getting less expensive, and money is only being loaned to people who will pay it back.

Mind you, we are not talking about those who are truly in distress. Foreclosures from unexpected life changes are a different beast altogether.

Why? I don't believe capacity to pay makes any difference at all. Both parties should be foreclosed on immediately and their properties recycled into the market. The notion that the two groups are separable gives rise to the idea that squatting is okay as long as the squatter is unemployed. Do you believe that?

While businesses should not be excused for unethical practices, the idea that homeowners are committing a permissible sin by not paying affordable debt is not admirable.

No, a loanowner who is sacrificing their family's future in order to pay off a loan they should never have been given is not admirable. The needs of the family outweigh the needs of a bank to make profits.

In fact, it's an insult to borrowers who never bought in the bubble and to other homeowners who keep paying on underwater mortgages despite their frustrations.

No, it should be a wakeup call to loanowners who are underwater on their mortgage. The slap in the face should be a sobering realization that they are being chumps for continuing to pay.

The fact that lenders inflated a housing bubble and taxpayers have to cover the losses is a slap in the face to everyone who didn't buy in the bubble, both homeowners and renters.

A few months ago, an attorney working in default raised the following question: What if the strategic defaulter had made money on the same house? If he bought the home for $144,000 and gained a $20,000 profit, could the originator then call the borrower and ask him to split the earnings?

No. That's exactly why lenders should be careful not to inflate housing bubbles by using 100% financing. Lenders all know now that borrowers will default and leave them holding the bag. If lenders did not fear this, they would repeat the mistakes of the housing bubble. The call option has always been embedded in a loan contract. It's only when down payments are eliminated that the cost of this option becomes so low that borrowers are foolish not to gamble with the banks money.

F. Scott Fitzgerald's famous American novel, “The Great Gatsby,” dealt with a similar phenomenon in his time. While Fitzgerald's rant against the “careless people” of society in Gatsby was interpreted as an assault against rich aristocrats. Fitzgerald's rant was more about carelessness in general. And the principal goes across class boundaries. In his worldview, those who are careless make decisions without consequences. They enjoy the fruits of the high-rolling times and let others pick up the tab when things go bad.

So who is she criticizing here, banks or borrowers? It is the lenders who were careless and abdicated their responsibility to loan to only borrowers who could repay their loans in amounts they could afford to repay. This abdication of responsibility is what inflated house prices and created the incentive for strategic default. Lenders are more culpable than borrowers.

Certainly in the mortgage crisis there were many people and companies who were careless. But the idea that strategic defaulters are common heroes pushing back against a rigged system is the biggest slap in the face to all homeowners who bought into the American Dream only to be stung by the mortgage crisis.

Write to Kerri Panchuk.

Strategic defaulters are common heroes pushing back against a corrupt system. This is not a slap in the face to homeowners, it is a slap in the face to foolish lenders. Lenders are the ones who ruined the American Dream.

I get the impression from the emotional tone of the article above that the author is underwater on her mortgage and lashing out at the injustice she sees as strategic defaulters are benefiting from their decision. Perhaps I am wrong, but she doesn't feel the outcomes she is witnessing are just, and if I were a loan owner still paying, I might feel the same.

Strategic default is about resolving conflicting values

The essence of the strategic default debate revolves around two conflicting values. First, there is the value of keeping one's word and following through with the terms of an agreement, and second, there is the value of providing a viable economic future for one's family. For those who are severely underwater and paying more than a comparable rental, they can't have both. They must chose.

There is no right or wrong, black or white, in cases of conflicting values. Each person must weigh what they believe to be more important. Whatever choices each of us might make does not give us the right to judge others by our standards. Personally, I would chose my family. Some would endure the pain to keep their word. Who's to say which is right or wrong?

They believe they got a good deal

The sellers of today's featured property followed a good buying strategy when they purchased. They found a motivated seller who had given up on the sale, and they negotiated a price well below their recent asking price. Based on what they are asking today — after three and one half years of falling prices — they must believe they got a good deal because know they believe they can sell for a profit.

Date	Event		Price	Source
Sep 17, 2011	Listed (Active)		$1,250,000	SoCalMLS #U11003957
Aug 06, 2010	– Delisted (Withdrawn)		—	Inactive SoCalMLS #2
Jul 06, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 05, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 05, 2010	Delisted		*	Inactive Zillow #1
May 05, 2010	– Listed (Active)		*	Inactive SoCalMLS #2
Apr 01, 2010	Relisted (Active)		*	Inactive Zillow #1
Mar 31, 2010	Delisted		*	Inactive Zillow #1
Feb 15, 2010	Listed (Active)		*	Inactive Zillow #1
Jun 02, 2008	Sold (Public Records)		$1,085,000	Public Records
Jun 02, 2008	Sold (MLS) (Closed)		$1,085,000	Inactive SoCalMLS #S518133
Apr 25, 2008	Delisted		—	Inactive SoCalMLS #S518133
Mar 25, 2008	Price Changed		$1,198,000	Inactive SoCalMLS #S518133
Feb 19, 2008	Price Changed		$1,248,000	Inactive SoCalMLS #S518133
Jan 16, 2008	Listed		$1,298,000	Inactive SoCalMLS #S518133

Turtle Rock has done amazingly well at holding its bubble valuations. That being said, I have my doubts about this one making a profit.

What do you think? Is this property fairly priced, and will it sell for near its asking price.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 24 SOUTHERN WOOD Irvine, CA 92603

Resale House Price …… $1,250,000

Beds: 4

Baths: 3

Sq. Ft.: 2550

$490/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary, Traditional

View: Canyon, Fields, Hills, Mountain, Panoramic, Park/Green Belt, Tree Top

Year Built: 1979

Community: Turtle Rock

County: Orange

MLS#: U11003957

Source: SoCalMLS

On Redfin: 1 day

——————————————————————————

HIGHLY CUSTOMIZED VIEW HOME AT A QUIET CUL-DE-DAC IN PUPULAR HIGHLAND GARDENS WITH SWEEPING VIEW OF HILLS, TREES, SHADY CANYON AND TURTLE RIDGE. ELEGANTLY REMODELED WITH CATHERDRAL CEILINGS, TWO FIREPLACES, MARBLE FLOOING; FAMILY ROOM WITH WET BAR AND A TEMPERATURE CONTROLLED WINE STORAGE; GOURMET KITCHEN WITH TOP OF THE LINE APPLIANCES, GRANITE COUNTER AND BREAKFAST BAR, CHERRY WOOD CABINETRY AND GARDEN PICUTURE WINDOW. NEWER DOUBLE PANED WINDOWS AND ROOF. SOLAR TUBES, BUILT-IN MURPHY BED, RECESS LIGHTING. PROFESSIONALLY DECORATED, STAINED GLASS WINDOW, OPEN FLOOR PLAN, LIGHT AND AIRY. EXTRA SPACIOUS MASTER SUITE WITH PRIVATE BALCONEY; DUAL VANITY GRANITE COUNTER, SOAKING TUB. VIEW FROM ALL ROOMS WITH PRIVACY AND INDIVIDUAL D COR. FULLLY FENCED YARD WITH MANY FRUIT TREES. COVERED PATIO FOR INDOOR-OUTDOOR ENTERTAINING AMANITIES INCLUDING ASSOICATION POOL, SPA, PARK, CANYON TRAILS, CHILDREN PLAY GROUNDS AND MUCH MORE NO MELLOW ROOS AND LOW HOA FEES. THIS IS A MUST SEE!

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Proprietary IHB commentary and analysis

PUPULAR? CATHERDRAL? FLOOING? PICUTURE? BALCONEY? FULLLY? AMANITIES? ASSOICATION?

Resale Home Price …… $1,250,000

House Purchase Price … $1,085,000

House Purchase Date …. 6/2/2008

Net Gain (Loss) ………. $90,000

Percent Change ………. 8.3%

Annual Appreciation … 4.3%

Cost of Home Ownership

————————————————-

$1,250,000 ………. Asking Price

$250,000 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$1,000,000 ………. 30-Year Mortgage

$244,694 ………. Income Requirement

$4,879 ………. Monthly Mortgage Payment

$1083 ………. Property Tax (@1.04%)

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

$260 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$99 ………. Homeowners Association Fees

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

$6,321 ………. Monthly Cash Outlays

-$1279 ………. Tax Savings (% of Interest and Property Tax)

-$1395 ………. Equity Hidden in Payment (Amortization)

$372 ………. Lost Income to Down Payment (net of taxes)

$176 ………. Maintenance and Replacement Reserves

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

$4,196 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$12,500 ………. Furnishing and Move In @1%

$12,500 ………. Closing Costs @1%

$10,000 ………… Interest Points @1% of Loan

$250,000 ………. Down Payment

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

$285,000 ………. Total Cash Costs

$64,300 ………… Emergency Cash Reserves

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

$349,300 ………. Total Savings Needed

——————————————————————————————————————————————————-

Laurie Goodman from Amherst Securities Group believes over 10 million more borrowers will go delinquent if the government doesn't take radical action.

Irvine Home Address … 4 TANGERINE Irvine, CA 92618

Resale Home Price …… $575,000

I apologize,

for the cruel things that I did,

But I don't regret,

one single word I said,

Just walk away

make it easy on yourself,

Just walk away

please release me from this hell,

Five Finger Death Punch — Walk Away

Millions more borrowers are going to default. Most of these defaults will be a direct result of the excessive debts they cannot handle. Some of these will be truly strategic, but most will be a stress-induced strategic default. The borrower probably could continue to struggle and make onerous payments, but they no longer see a point, so they will default. Are those strategic? Lenders would probably say so, but how much distress are borrowers supposed to endure?

However you want to classify these defaults, they are coming. Until that debt is cleared out, the housing market will struggle, and so will our economy.

10 million more mortgages set to default

by JON PRIOR — Tuesday, September 20th, 2011, 10:39 am

Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group.

At the end of the second quarter, more than 2.7 million long-delinquent loans, others in foreclosure and REO properties sat in the shadow inventory, more than double what it was in the first quarter of 2010 (Click to expand the chart below). With the market averaging roughly 90,000 loan liquidations per month, it would take 32 months, nearly three years, to move through the overhang.

And that number is contingent on no other loans going into default.

Mainstream media reports on the months of shadow inventory miss this fact. The shadow inventory problem is not behind us. Borrowers are going delinquent in large numbers.

It is better than it was before, but it is still bad. We are still adding loans to shadow inventory at a high rate, mostly due to strategic default. People know they can squat for a couple of years, so fewer are willing to struggle with their large underwater mortgages.

“Many analysts looking at the housing problem mistakenly assume it is limited to loans that are currently non-performing (or 60-plus days past due). Such borrowers have a high probability of eventually losing their homes. However, the problem also includes loans with a compromised pay history; these are re-defaulting at a rapid rate,” Goodman told a Senate subcommittee Tuesday.

Cure rates are abysmal, and they will continue to be. People can't afford the debt, and restructuring a super-sized debt to make it payment affordable does not solve the problem. That merely leaves debtors underwater and trapped in their homes.

Under a reasonable estimate, which is calculated with more conservative market conditions than what is currently being experienced, Goodman found nearly 2 million re-performing mortgages would default again and another 3.6 million already troubled loans to default as well.

The rest of the 10.4 million estimate is made of always-performing loans at various stages of negative equity. Of the 2.5 million always-performing mortgages with loan-to-value ratios above 120%, nearly half will default. Even 5% of the always-performing mortgages that have some equity left will default, as well, Goodman said.

Most of those defaults will be strategic. Underwater loanowners who are paying more on their mortgage than the cost of a rental are truly throwing their money away. It's ironic that the same crowd who belittles renters as throwing their money away on rent have no problem with throwing twice as much money away on loan interest. Pretty stupid, really, particularly when they are obtaining no equity.

In August, the Obama administration asked the housing industry for ideas on how to more efficiently sell or unload this overhang, and the Senate heard testimony from various housing players Tuesday.

There are people that still deny shadow inventory is a problem. If it weren't why is the Obama administration seeking answers on how to deal with it?

Each, including Goodman, said the government should target private investors.

Yes, they should.

Robert Nielsen, chairman of the National Association of Homebuilders, said government programs should be revamped to assist small and local businesses in rehabbing and unloading these properties.

Nielsen said Fannie, Freddie and the FHA should avoid bulk sales to large investors that have no stake in the neighborhoods in which these properties are located.

“Local and small businesses that have a stake in the future of the affected communities should be the driving force behind the disposition of the REO inventory. This will result in the creation of jobs and the stabilization of neighborhoods,” Nielsen said.

Bulk sales will be a bad idea. These funds will merely act as middlemen selling off individual homes to small investors and owner occupants. The profits made by bulk buyers is money the government could have acquired for itself if it merely continues with its current disposition efforts.

NAHB also urged Congress to extend the current conforming loan limits for Fannie Mae, Freddie Mac and the FHA, which are due to be lowered on Oct. 1.

Homebuilders want to sell homes to their FHA and GSE buyers at higher price points. Nearly half of their sales come from the FHA, and if those buyers can't obtain financing, the homebuilders cannot sell homes.

Stan Humphries, chief economist for Zillow, said the rental market is currently booming and would be able to handle a mass conversion of foreclosures into rentals by investors, but the government, he said, would be wrong in upsetting this dynamic.

“Investors smell a distinct opportunity in this situation: The chance to buy an asset cheaply and rent it out dearly. In fact, close to one-third of the purchases of existing homes this year have gone to all-cash buyers, the bulk of whom are real estate investors,” Humphries said. “Any plan that may upset this balance – such as Fannie and Freddie getting into the rental market and creating competition – will have a chilling effect on private investment in the one segment of the housing market that is performing well.”

Obviously, I agree with his assessment — and not just because I want to buy rentals. If the government starts renting instead of selling, this merely delays the necessary market clearing. These rentals would eventually need to be converted back to for-sale product unless Uncle Sam wants to become a permanent landlord on millions of single-family homes. When these properties are returned to the market, it will put renewed pressure on pricing and extend the housing crash.

How long do we want to prolong the pain? Are we looking to see if we can duplicate what happened in Japan?

But with a Congress currently gridlocked on nearly every issue, none of the panelists so clearly described the looming housing problem and the consequences of continued inaction like Goodman.

“To solve the housing crisis you must create 4.1 million to 6.2 million units of housing demand over the next six years,” she said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior

So how do you create that much housing demand? Job creation would certainly help. Does anyone think the US will create that many jobs over the next six years? I doubt it.

That only leaves one viable alternative. Let house prices crash until cashflow investors absorb them. The surest way to create housing demand is to lower prices enough to attract cashflow investors. Many markets are already at those price levels, and unless the government does something really stupid — like renting properties out instead of selling them — the low resale prices relative to rents will prompt buying by cashflow investors. If the government starts renting these properties out, it will depress rents and thereby reduce the demand for properties from investors. If investors stop demanding these properties, the supply will take much, much longer to clear.

Owner occupants are not the answer. There are not enough wage earners with good credit to buy all the distressed properties. Cashflow investors must be part of the solution.

10% appreciation since October 2010?

We're going to see many property profiles like this one over the next few years. The owner buys in the bear rally, watches the market crumbe around him, but he still puts it on the market at a price that will give him room to negotiate and pay the commissions.

It won't work.

If this guy is going to sell this property, he is going to lose money. Prices are down year over year, and old Irvine condos are no exception. In fact, from what we have observed here, condo prices are still groping for a bottom.

Anyone think he can get $575,000 for this property?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 4 TANGERINE Irvine, CA 92618

Resale House Price …… $575,000

Beds: 3

Baths: 2

Sq. Ft.: 1403

$410/SF

Property Type: Residential, Single Family

Style: Two Level

View: Park/Green Belt

Year Built: 1977

Community: Orangetree

County: Orange

MLS#: I11120523

Status: Active

On Redfin: 5 days

——————————————————————————

This gorgeous garden patio home is located in the highly desirable community of Orangetree in Irvine , just minutes away from John Wayne Airport, Newport Beach, Irvine Spectrum shopping center, Oak Creek Golf Course, Irvine Valley College and Fashion Island. A gorgeous Leaded insert front door opens into well lit living area with impressive vaulted ceilings and beautiful wood laminate floors. The large updated kitchen includes all stainless steal appliances surrounded by custom cherry wood cabinets and recessed lighting. Both kitchen and bathrooms feature attractive and easy to clean granite counter tops with custom cherry wood cabinets. Three private bedrooms are carpeted in neutral colors. Home includes a fabulous landscaped patio with stamped concrete surrounded by a stunning custom redwood fence and gate. Enjoy the beautiful lush green belt located adjacent to the property for year around serenity. The property is extraordinary well maintained and includes an attached, oversized two car garage for extra storage. This home is located within minutes of Southern California's most desirable destinations and excellent Irvine schools.

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Proprietary IHB commentary and analysis

Resale Home Price …… $575,000

House Purchase Price … $515,000

House Purchase Date …. 10/14/2010

Net Gain (Loss) ………. $25,500

Percent Change ………. 5.0%

Annual Appreciation … 11.1%

Cost of Home Ownership

————————————————-

$575,000 ………. Asking Price

$115,000 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$460,000 ………. 30-Year Mortgage

$117,958 ………. Income Requirement

$2,244 ………. Monthly Mortgage Payment

$498 ………. Property Tax (@1.04%)

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

$120 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$185 ………. Homeowners Association Fees

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

$3,047 ………. Monthly Cash Outlays

-$368 ………. Tax Savings (% of Interest and Property Tax)

-$642 ………. Equity Hidden in Payment (Amortization)

$171 ………. Lost Income to Down Payment (net of taxes)

$92 ………. Maintenance and Replacement Reserves

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

$2,301 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,750 ………. Furnishing and Move In @1%

$5,750 ………. Closing Costs @1%

$4,600 ………… Interest Points @1% of Loan

$115,000 ………. Down Payment

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

$131,100 ………. Total Cash Costs

$35,200 ………… Emergency Cash Reserves

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

$166,300 ………. Total Savings Needed

——————————————————————————————————————————————————-

Bank of America increased its foreclosure notices an astounding 116% over last month. The resulting foreclosures are scheduled to hit the market in spring of 2012 thus dooming any rally.

Irvine Home Address … 3 PACIFIC Grv Irvine, CA 92602

Resale Home Price …… $799,000

Go on and write me up for 125

Post my face, wanted dead or alive

Take my license n' all that jive

'cause I can't drive 55!

Sammy Hagar — I Can't Drive 55

The housing market is speeding toward another crash. Demand is weak, prices are falling, and to make matters worse, lenders are gearing up to process the shadow inventory waiting to be dumped on the market next year.

Bank of America shifts West Coast foreclosures into overdrive

by JON PRIOR — Tuesday, September 13th, 2011, 7:12 pm

Notice of default filings jumped nearly 70% in California from the previous month, led by renewed activity from Bank of America, according to the data provider ForeclosureRadar.

Foreclosure starts increased in five West Coast states from the previous month: California, Arizona, Washington, Oregon and Nevada.

BofA foreclosure starts more than doubled in August, jumping 116% from the previous month. Wells Fargo and U.S. Bank also showed increases but fell short of the BofA restart, according to ForeclosureRadar, which monitors West Coast states.

“While it can’t be said for every state in the nation, we are seeing continued improvements in foreclosure volumes in many areas of the country, and that is a potential harbinger for housing market recovery,” a BofA spokesperson said. “Strong gains like that from July to August demonstrate our progress – primarily in non-judicial states like California and Nevada – clearing more volume to advance to foreclosure once we pass the numerous, improved quality controls we have in place and only after all other options with homeowners have been exhausted.”

Notice the carefully chosen words. What does it mean to show “continued improvements in foreclosure volumes?” In the past, this has meant delaying the inevitable. Now it means increases the volume of processing. In more colorful terms, BofA is kicking the delinquent mortgage squatters to the curb.

I fully agree with their assessment “that (this) is a potential harbinger for housing market recovery.” I have long maintained foreclosures are essential to the economic recovery. I didn't think anyone believed me. Apparently, many insiders knew this all along and simply wouldn't admit it until now.

The little factoid missing from the BofA statement is that millions of people are going to finally lose their homes to foreclosure. It's about time. And before anyone sheds a tear for the squatters, remember, new families find the houses lost in foreclosure. There are millions of families waiting to buy properties at affordable prices once the foreclosures finally take place.

California foreclosures set to surge

By JON PRIOR — Monday, September 19th, 2011, 11:01 am

California default notices spiked 55% in August, and the number may keep rising in the coming months as mortgage servicers shake off the robo-signing freeze, according to RealtyTrac Senior Vice President Rick Sharga.

In August, servicers filed 28,961 default notices in California, the first stage of the foreclosure process in the state, RealtyTrac showed. Another filing tracker ForeclosureRadar found a similar boost in foreclosure starts along the West Coast and said Bank of America led all major banks with a 116% jump in August alone.

An increase like that does not happen by accident. Someone at BofA made a calculated decision to dramatically increase foreclosures. I have speculated it was a necessary step to raise cash, but only BofA executives know for sure. Regardless of the reason, such a large increase is telegraphing a serious effort to process foreclosures.

Amend, extend, pretend is coming to an end.

“The industry has not yet returned to normal or necessary foreclosure activity levels, but progress is certainly being made,” a BofA spokesperson said.

In an interview with HousingWire, Sharga said gave some idea on where that “necessary” level might be.

“It wouldn't be a stretch to say that we might see NODs in the range of 30,000 per month in California for a few months, but it's difficult to predict that they'd get anywhere near the record levels we saw back in 2009,” Sharga said.

From January 2010 through September 2010, California NODs averaged 28,000 per month. That dropped to 26,000 per month for the rest of 2010 after the robo-signing scandal broke in October, when servicers were found to be signing affidavits en masse and without a proper review of the loan files.

The slowdown continued into the early part of this year, with the NOD average dropping to 22,000 for the first seven months of 2011.

These filings peaked in March 2009 at 58,858 and averaged roughly 42,000 per month that year, the highest average since RealtyTrac began reporting the numbers, Sharga said.

A restarted foreclosure process means prices in California are set for possibly more drops, but the effect will not be seen immediately, according to Michael Simonsen, co-founder and CEO of the data analytics firm Altos Research.

“The price implications for the foreclosure spike are further down the road,” Simonsen said. “August prices did indeed lose their steam from the first half of the year, but it's largely seasonal.”

Analysts expect house prices nationally to double-dip in the winter ahead and finally hit bottom in the spring of next year. JPMorgan Chase analysts long said the fall could be as much as 5%.

It sounds very reasonable to assume prices will bottom in the winter of 2012. Unfortunately, that does not take into account the surge of REO slated to hit the market when the current batch of NODs are processed. If Bank of America is desperate for cash — and it appears to be — then they will not fool around with this group of NODs. They will likely follow with NOTs in 90 days and push these through the auction sites over the winter and spring of 2012.

.

According to the California Association of Realtors, the median home price in the state reached its highest level this year in August to $297,060, though it is still down 7.4% from the year before. Prices could face other challenges such as the expiration of the conforming loan limits in October and the ongoing deficit struggle, CAR said.

With the foreclosure timelines pushed to historic lengths, Simonsen said these properties will begin reaching an already bloated inventory during the height of the selling season of 2012.

“Look for the price impact of newly initiated foreclosures to be seen in the spring of next year, as they add to the spring inventory,” Simonsen said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

The NODs being filed today are trustee sales in early 2012 and MLS sales beginning next March. BofA undoubtedly timed this move for just that effect. It does them no good to ramp up in the summer and push thousands of home through the process in the winter when there is no seasonal demand, but it makes perfect sense to process NODs now to meet the demand of next spring's selling season. Bank of America is timing these foreclosures to hit the MLS next year.

The liquidation phase of the bubble deflation

Many misguided notions were behind the bear rally of 2009. Government policy makers actually believed they could engineer a bottom ot the housing market through tax incentives, lower interest rates, and relaxed accounting rules. The banks didn't care as long as they were kept alive by the handouts and the higher prices.

The main reason the 2009 rally was not going to be sustained was not due to the economy — although many will blame the economy. The real reason the 2009 rally was doomed before it started was pent-up supply of shadow inventory. I have recently read dismissive accounts of the impact of shadow inventory from an analyst who completely missed the housing bubble. Sometimes I wonder where these analysts think all those houses went. Hiding them in shadow inventory never made them go away.

Each of the next 3 to 5 years, realtors will call the bottom, clueless analysts will agree with them, then both will be surprised when inventory or higher interest rates crush the spring rally. This will happen each year until the overhanging inventory is liquidated and interest rates come up from their temporary cyclical lows.

Remember you read that here.

$345,000 in mortgage equity withdrawal, 16 months squatting

The previous owners of today's featured property paid $520,000 back on 2/14/2001. They used a 400,800 first mortgage, a $80,120 second mortgage, and a 80,080 down payment. With a series of refinancings they ended up with a $650,000 first mortgage and a $175,000 second. They quit paying before April 2010 and squatting until August when the lender took back the property.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 3 PACIFIC Grv Irvine, CA 92602

Resale House Price …… $799,000

Beds: 3

Baths: 2

Sq. Ft.: 2200

$363/SF

Property Type: Residential, Single Family

Style: Two Level, Modern

Year Built: 2001

Community: Northpark

County: Orange

MLS#: P796555

Source: SoCalMLS

Status: Active

On Redfin: 2 days

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Luxrious Northpark home built by California Pacific, located on a cul-de-sac in a 24 hour guard-gated community. Interior will have newer paint and carpet. Spacious Family Room with a warm and cozy fireplace. Upstairs consist of 3 bedrooms with a large a spacious master suite, elegant master bath. This wonderful guard-gated community offers pools, tennis courts, sports courts, toddler lots, must see to appreciate this gorgeous home.

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Proprietary IHB commentary and analysis

Resale Home Price …… $799,000

House Purchase Price … $769,516

House Purchase Date …. 8/12/2011

Net Gain (Loss) ………. ($18,456)

Percent Change ………. -2.4%

Annual Appreciation … 22.8%

Cost of Home Ownership

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$799,000 ………. Asking Price

$159,800 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$639,200 ………. 30-Year Mortgage

$159,997 ………. Income Requirement

$3,118 ………. Monthly Mortgage Payment

$692 ………. Property Tax (@1.04%)

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

$166 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$156 ………. Homeowners Association Fees

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

$4,133 ………. Monthly Cash Outlays

-$730 ………. Tax Savings (% of Interest and Property Tax)

-$892 ………. Equity Hidden in Payment (Amortization)

$238 ………. Lost Income to Down Payment (net of taxes)

$120 ………. Maintenance and Replacement Reserves

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$2,870 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$7,990 ………. Furnishing and Move In @1%

$7,990 ………. Closing Costs @1%

$6,392 ………… Interest Points @1% of Loan

$159,800 ………. Down Payment

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$182,172 ………. Total Cash Costs

$43,900 ………… Emergency Cash Reserves

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$226,072 ………. Total Savings Needed

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MLS Find of the day

A reader emailed me this listing in San Diego with drying marijuana and weighing scale.

My last office in Lake Forest was next to a dispensary before Lake Forest kicked them all out of town. No matter how well ventilated the room, the smell of pot was overpowering even next door. I can only imagine how strong the smell is in that guy's bedroom.

When I first saw these photos I didn't believe it was pot because I didn't think anyone would be able to live with the overwhelming odor of pounds of drying pot, but when I saw the scale, I was convinced. Either this guy runs a dispensary, or he really, really likes to smoke pot — or both.