Foreclosure stats and updates

For those who are forum members, then you are probably familiar with the foreclosure thread. For those that are not members, I recommend you join, as there are some great topics, even beyond housing. But, in that thread, I try to update it to show what is happening with the foreclosure numbers, both in OC as a whole, as well as Irvine. Anyway, the idea of sharing these stats on the main blog were suggested, and I will be posting them periodically. I would like to do it every day, but I can’t say I will always be able to find the time. I will do these posts in the evening, so that everyone can enjoy the post of the day.

For those that are not familiar with the process, or the abbreviations, here are the basics…

NOD = Notice of default. This is the first stage, and it is recorded 90 days after the first missed payment.

NTS = Notice of trustee sale. This is the second stage, and it is recorded 30-90 days after the NOD. This is posted in a newspaper, like the Irvine World News, and lists the time and place of the auction, the address, the NTS amount, and various other legal info. It has to be published for three weeks.

Trustee sale/REO = back to the bank, or someone bought it at the auction. This is the final stage, and it is when the owner loses the house.

What a way to start the new year, but with record NODs and foreclosures!

NODs 2156, or 103 per day, and an increase of 18.7% from last month.

NTSs 1185, or 56.4 per day, and a decrease of -3% from last month.

Trustee sales 824, or 39.2. and an increase of 18.1% from last month.

Just how bad are the trustee sales? Comparing the worst month on record in 96, there was 1 foreclosure for 832 owner occupied homes in OC, and in 2008, it is 1 foreclosure for 746 owner occupied homes.

How about adjusting for household population? Will it look better that way? In 96, there was 1 foreclosure for 3903 people, and in 2008, it is 1 foreclosure for 3706 people. Well… it looks like it is worse than even the worst month on record. Considering NODs are double than what they were a year ago, and nearly double from the average of last year, then I suspect it will only continue to get worse. Since the ratio of NOD to foreclosure is about 50%, then 2008 could bring a month with a 1000+ foreclosures. This is starting to get really ugly, really, really fast.

Yesterday, 41 homes went back to the bank at the Santa Ana courthouse. Some of the lenders still do not get it, and they are holding tight to what the NTS amount is. However, there are many lenders that do get it. There are more, and more lenders discounting the minimum bid $100k-$200k below the NTS amount.

My favorite foreclosure of the week, went back to the bank for $1.65mil, with a NTS amount of $2.11mil, a $460k discount from the amount owed on the loan. I thought Newport Coast, and the high end was immune? This place is so new, that zillow only has one satellite photo of a completed home, and that is if you click on west.

There weren’t any homes that went back to the bank in Irvine yesterday, but this one in Tustin Ranch did for $882k. It sold for $610k in 2001, and then someone shut off the ATM.

Today there were 22 homes that went back to the bank, and one condo on Fairview in Santa Ana sold for $102.5k, but it sold for less than half of the NTS amount of $211.5k. This must have been a scratch and dent lender, or an IB who bought a mortgage pool for $0.30 cents on the dollar, and they still made a profit.

This week two homes in Irvine went back to the bank. 16 Salton #65, for $545k, and 106 Kazan St., for $292k. Currently, there are 44 homes in Irvine scheduled for the auction, from Monday to 3/20/08. More will be added, and some will get canceled, but we will see how it goes. There are a bunch in Quail Hill, including a big one with an NTS amount of $1.5mil. Finally, there are four homes in Woodbury scheduled for the auction, including one on Rising Sun, just across the street from the pool.

I hope everyone enjoys this post, as well as those to come. Comments, questions, and suggestions are welcome…

Liar Loans

Living easy

Loving free

Season ticket on a one way ride

Asking nothing

Leave me be

Taking everything in my stride

Don’t need reason

Don’t need rhyme

Ain’t nothin’ I would rather do

Going down

Party time

My friends are gonna be there too, eh

I’m on a highway to hell

On the highway to hell

Highway to hell

I’m on the highway to hell

Highway to Hell — AC/DC

“The Road to Hell is Paved with Good Intentions.” — Samuel Johnson. Most people who took out a “liar loan” did so to provide shelter for their families and hopefully make a few dollars speculating in real estate. Most people did not intend to defraud anyone when they took out the loan, but they ended up doing so by walking away from their payment obligations. This Highway to Hell is paved with good intentions, and it is very well traveled.

State Income Loans

One unique phenomenon of The Great Housing Bubble was the utilization of state-income loans, also known as “liar loans” because most people were not truthful when stating their income. Loan documentation is usually a routine part of obtaining financing. Lenders ordinarily require a borrower to provide documentation proving income, assets and debt. However, during the final stages of the Great Housing Bubble, loan documentation was seen as an unnecessary barrier to completing more transactions, and loan programs which circumvented normal documentation procedures flourished. The fact that these programs existed at all is a remarkable proof of the risk lenders were taking through the relaxing or outright elimination of lending standards. According to a study by Credit Suisse, 81% of Alt-A purchase originations in 2006 were stated income, and 50% of subprime originations in 2005 and 2006 were stated income. Stated income loans increased from 18% of originations in 2001 to 49% in 2006 according to Loan Performance. In a related study by the Mortgage Asset Research Institute, 60% of stated-income borrowers had exaggerated their incomes by more than 50%. Obviously, lying about one’s income to obtain a loan is not a conservative method of financing a property purchase.

The stated-income loan, also known as liar loan due to the built-in incentive to exaggerate one’s income, was originally provided to borrowers such as the self-employed who most often do not have W-2s to verify income. When these loan programs were first started, they were not made available to borrowers with W-2s as the transparency of the lie would have been obvious to all parties. During the bubble rally, these loans were made available to anyone, and not just were the borrowers encouraged to lie, they were often assisted in fabricating paperwork by aggressive loan officers and mortgage brokers. Since the loan could be packaged and sold to investors who had no idea what they were buying, there was a complete lack of concern for whether or not the borrower actually made the money stated in the loan application and thereby could actually make the payments on the loan. Everyone involved was making large fees, the borrower was obtaining the real estate they desired, and for a time, the investor was receiving payments from the borrower. As long as prices were rising, everyone benefited from the arrangement. Of course, once prices started to fall, borrowers did not want to continue making payments they could not afford, and the whole system collapsed in a massive credit crunch.

Today’s property is a WTF listing price in Northwood II. This neighborhood is getting destroyed, and most sellers are losing money on their 2004 and 2005 purchases; however, today’s seller believes his property is different, and in fact, it has appreciated over 40% since he bought in 2004. I imagine he wishes liar loans were still available so someone could come up with the money to buy him out.

Asking Price: $1,699,000

Income Requirement: $424,750

Downpayment Needed: $339,800

Monthly Equity Burn: $14,158

Purchase Price: $1,237,000

Purchase Date: 11/9/2004

Address: 31 Lily Pond, Irvine, CA 92620

Beds:	5
Baths:	4.5
Sq. Ft.:	3,963
$/Sq. Ft.:	$429
Lot Size:	6,000 Sq. Ft.
Type:	Single Family Residence
Style:	Mediterranean
Year Built:	2004
Stories:	Two Levels
Area:	Northwood
County:	Orange
MLS#:	P620491
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Absolutely Gorgeous , Luxurious Home in Gated community! Very Open , Roomy Floor Plan. Incredible Highly Upgraded top to Bottom. Professional Paradise Landscape! AttractiveCustomised paint all inside house, * * Crown Molding , Hardwood Floors, Customised Carpet, Wood shutters, Large Gourmet Kitchen w/ Granite Counter Top & Huge Island, Luxurious master suites w/ walk-in closet. Large walk-in Pantry, Extended Family Room , Charming water fountain in Backyard. Best Location in NW II.

No greed here, this seller only wants to make $462,000 for a little over three years of ownership. It might have worked out if he had purchased in 2001 or 2002, but a late 2004 purchase makes him late to the party. He is not a real estate mogul, he is a bagholder.

That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

BTW, since AC/DC is one of my favorite groups, I want to share two more songs with you.

Hells Bells

Back in Black

Crash and Burn

When you feel all alone

And a loyal friend is hard to find

You’re caught in a one way street

With the monsters in your head

When hopes and dreams are far away and

You feel like you can’t face they day

Let me be the one you call

If you jump I’ll break your fall

Lift you up and fly away with you into the night

If you need to fall apart

I can mend a broken heart

If you need to crash then crash and burn

You’re not alone

Because there has always been heartache and pain

And when it’s over you’ll breathe again

You’ll breath again

Crash and Burn — Savage Garden

Asking Price: $489,900

Income Requirement: $122,475

Downpayment Needed: $97,980

Monthly Equity Burn: $4,082

Purchase Price: $563,790

Purchase Date: 10/25/2007

Address: 322 Quail Ridge, Irvine, CA 92603

Sales History

Date………………..Price

10/25/2007 $563,790

09/28/2006 $640,000

10/31/2005 $537,000

Beds:	2
Baths:	2
Sq. Ft.:	1,441
$/Sq. Ft.:	$340
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	2005
Stories:	Three or More Levels
Area:	Quail Hill
County:	Orange
MLS#:	S517997
Status:	Active
On Redfin:	11 days

Quail Ridge at its Best. Gorgeous unit with granite counters in kitchen, ceramic tile and breakfast bar. Cozy fireplace in living room with built in media niche. Ample storage. Great location and close to shops and toll road.

Do you like how they carefully staged the garbage can in front of this very ugly front elevation? Judging by the shadows cast from the condos on the other side of the street, this ally/street must feel like a concrete valley.

When I first came out with my predictions of a 40% decline in the median home price early last year, I knew it would take a long time for prices to drop down to those levels. Many bloggers saw the credit crunch coming because of the onslaught of defaults are REOs, but I must admit I have been surprised by the speed of the correction since the credit crunch has taken hold. Today’s unit is priced 23% below its peak purchase price from less than a year and a half ago. The mortgage history on this property is unclear. There appears to have been a straw buyer in May 2007, but there is little information on this sale. It is difficult to tell who is losing here, but if this property sells at its current asking price, and there is a 6% commission paid, the total loss from the peak would be $179,494. That is a lot of money to lose on a 2 bedroom condo.

Edgestone

The damage is done

You’ve had all your fun

The party’s begun

The enemy has won

Walking off a cliff again

You’ve used all your tricks

Your lies don’t stick

You don’t want to admit

You’re done

Walking off a cliff again

Walking Off a Cliff Again — The Mint Chicks

Isn’t this what the market is doing: Walking off a cliff again? The realtors have used all their tricks, and their lies don’t stick, and the sellers don’t want to admit, the market is walking off a cliff again.

Today, I am introducing a new line in the property data: Monthly Equity Burn. Since prices have dropped more than 10% in the last year, and since this trend will likely continue for the next 2 years, anyone who buys now will see a 10% per year decline in the value of their property. If you divide this 10% by 12, you arrive at the monthly loss of equity any buyer will endure for the next 2 years. Look at it as part of the cost of ownership, or call it “equity evaporation,” but it is the reality of our market, and buyers should be educated to its presence and its effect.

Asking Price: $449,900

Income Requirement: $112,475

Downpayment Needed: $89,900

Monthly Equity Burn: $3,749

Purchase Price: $638,000

Purchase Date: 10/31/2005

Address: 20 Edgestone #17, Irvine, CA 92606

1st Loan $504,000

2nd Mtg. $126,000

Downpayment $8,000

Beds:	3
Baths:	2.5
Sq. Ft.:	1,652
$/Sq. Ft.:	$272
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	1984
Stories:	Two Levels
Area:	Walnut
County:	Orange
MLS#:	S520322
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Light and bright unit, this one is clean and ready to live in. Bring the bank an offer today.

The lender is really getting killed on this one. The owner (bank renter) lost their $8,000 downpayment, and assuming the bank gets their asking price and pays a 6% commission, the total loss on the property will be $215,094 of which the lender will lose $217,094. Look at the size of this rollback: the asking price is 29.5% off the 2005 purchase price.

Here is a 3/2 in Irvine with an attached, 2-car garage going for $272/SF. Does $200/SF seem so far away?

Irresponsible

Call me irresponsible

Call me unreliable

Throw in undependable, too

Do my foolish alibis bore you?

Well, I’m not too clever, I

I just adore you

So, call me unpredictable

Tell me I’m impractical

Rainbows, I’m inclined to pursue

Call me irresponsible

Yes, I’m unreliable

But it’s undeniably true

Call Me Irresponsible — Michael Buble

Being financially responsible can be difficult. I haven’t always been, but I guess there are none so religious as the converted, right? There is a belief in our culture that one can be “responsible with debt.” Personally, I think the whole idea is BS perpetuated by the credit purveyors (drug dealers) who want everyone to be hooked on their product. The most responsible way to manage debt is not to have any and use savings instead.

Most people don’t budget well if they budget at all. Instead of running a surplus each month and putting money into savings, most people (who at least try to be responsible) will target a monthly breakeven where they at least do not fall behind. The problem with this approach is the unexpected always comes up and puts you behind. Budgeting for the unexpected is called saving, and most people do not bother or do not realize its importance.

The true spenders do not set out to run up a mountain of debt, but if they see something they want, they buy it, and they end up with a mountain of debt because of this behavior. Usually this behavior will go on as long as someone will extend them credit to enable their lifestyle. These people are only stressed when all their credit lines are tapped and they actually have to live within their incomes (minus debt service of course.) The longer this behavior goes on and the more it is enabled, the more debt this person will take on until finally they experience a personal Minsky Moment, and all of their debts come due. This is generally a very painful experience.

Today’s seller is a profile of a spender who was enabled by the housing bubble. She bought a small place at the bottom of the last cycle in 1997. Over the 10 years that followed, she refinanced 5 times. Each time it was for a small amount and it was likely used to pay off credit card debt (I am speculating, I don’t know for sure.) Rather than run into a credit limit barrier which might inhibit her lifestyle, she was enabled by the speculative equity building in her little condo to continue this pattern of overspending for a full 10 years. Only now that prices have stopped going up and credit is tightening is she going to be faced with a curtailment of her spending habits. If she drops her price much more, she may even become a short sale, and that would cut off credit altogether. This is where the analogy between credit and drugs breaks down — when you go cold turkey from credit, you don’t have any withdrawals.

Perhaps it is unfair to call this behavior irresponsible, particularly if the bills are paid on time and no creditor is facing a loss; however, this seller could have made $350,000 in equity profit which could have been used for more worthy purposes (retirement, move-up housing, etc.) This was perhaps a once-in-a-lifetime opportunity to gain wealth through fortunate timing in a speculative market, and she blew it. If living this way is not irresponsible, it is at least unwise.

Asking Price: $554,900

Income Requirement: $138,725

Downpayment Needed: $110,980

Purchase Price: $163,000

Purchase Date: 12/3/1997

Address: 46 Monroe #77, Irvine, CA 92620

Beds:	3
Baths:	2.5
Sq. Ft.:	1,456
$/Sq. Ft.:	$381
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	1986
Stories:	Two Levels
View(s):	Park or Green Belt
Area:	Northwood
County:	Orange
MLS#:	S518939
Status:	Active
On Redfin:	10 days

Largest model, end unit & ‘premium’ large side yard. New paint in & out. New carpet in master & newer laminate flooring in living room, stairs, hallway & 2 BR. New Italian tile flooring-all bathrooms. Toilets have all been replaced, as water heater, motors in furnace, washer & dryer. 4 ceiling fans. Designer archway with colomns lead to ‘gourmet kitchen’, all stainless appliances, sink, potrack with light over a large added kitchen island. Granite look countertops, custom recessed lighting, all cabinets have been replaced, pull out drawers & built-in ‘wine cooler’! Custom french sliders lead to lush topical paradise paved with flag stone, dramatic lighting, Koi pond and water fall, a place to sit under palm trees and enjoy the soothing sound of rushing water. Evenings entertain in this tropical setting around the built-in bar-b-que (which stays) and can be used with butane or with the newly added gasline. New rollup garage door has just been installed. All this & priced to Sell!!

So how did this seller manager her mortgage?

The property was purchased in December 1997 for $163,000. There was a first mortgage for $156,000 and a $7,000 downpayment.

12/15/2000 the property was refinanced for $190,000.

12/5/2001 another refinance for $194,500. Christmas shopping money?

1/10/2003 a refinance for $232,000. Pay off Christmas shopping debts?

11/28/2005 a refinance for $381,000. Remodel?

1/3/2007 a refinance for $418,000 with an Option ARM.

Ten years and a steadily increasing loan balance on the property. Now if they sell for asking price (which seems high at $381/SF) they stand to walk away with less than $100,000 in cash from a property that went up almost $400,000 in price. Does this seem like good financial planning to you?