Archive for 2012

Last fall B of A and other major banks increased their filings of Notices of Default. Since then I have been predicting a spring surge of REO that would snuff out the spring rally. Right on schedule in January, Notices of Trustee Sale and the number of REO acquired increased, and it looked like the REO would hit the market in time for the spring selling season. Then lenders changed their collective minds. In February, lenders abruptly curtailed their acquisition of REOs at the auctions, and in March they took back fewer than in February. CA - Foreclosure Outcomes This has left many, me included, groping for an answer. Why Are We Seeing Fewer Foreclosures? Rick Sharga APR 16, 2012…[READ MORE]

As the crash in house prices continues the number of families displaced from their homes increases due to foreclosure, short sales, and strategic default. Since the foreclosures generally lead to an involuntary property eviction, many former loan owners are upset by the consequences for defaulting on their mortgage. Rather than accept the consequences for their mistakes, many who involuntarily vacated their houses portray themselves as victims deserving of special dispensation. Pandering politicians, mostly from the political left, have lobbied for increased loan modifications, foreclosure remediation, principal reduction, and other misguided policies to prevent those who defaulted on their mortgages from enduring the consequences for their actions. The latest attempt to generate sympathy for loan owners comes from the Brookings Institute.…[READ MORE]

Modern American culture can trace its roots on the North American continent to pioneering English settlers. Life on the frontier is harsh, and each family unit is self-reliant. In a frontier society, if people didn't work, and if they didn't produce their own food and shelter, then they died. Fear of death from starvation or exposure was very real, and anyone who wasn't motivated to produce something of value to themselves or others faced the near certainty of painful death. In a frontier society, there are no bailouts. We have made much progress over the last four centuries, and the fear of death from lack of food has been largely eliminated. Private and public shelters have lessened the fear of…[READ MORE]

Lenders have been slowing their acquisition of new REO since February. In fact, the decline in REO going back to the bank has been rather dramatic. CA - Foreclosure Outcomes Banks are also dramatically slowing the rate at which they put REO on the MLS. As a result inventories all over California have been declining. Banks are obviously planning to withhold inventory until the market bottoms. Expect to see a low-volume rally as the few qualified buyers are forced to pay higher prices. As a result, the kool aid is flowing again.... One thing notably absent from the few foreclosures that are occurring is anything over the conforming limit. Of the 196 REOs listed on the Orange County MLS over…[READ MORE]

A couple days ago, I postulated that lenders would utilize REO to rental programs to the extent feasible: ... First, it gives them immediate capital. They don’t have to wait as they slowly liquidate on the MLS. Opponents of these programs — mostly realtors who fear loss of commissions — postulate lenders will recover less when selling in bulk. Lenders will have to discount the properties more to liquidate in bulk, but they also eliminate a 6% commission to listing agents, so the net may be the same. And since lenders are recovering their capital more quickly, the benefits outweigh the discounts required. Another advantage of the REO to rental program is that lenders don’t have to dispose of those…[READ MORE]

In my view, the housing market here in Orange County is entering a three to five year period of spring rallies and fall declines with prices likely to flatten. The low end may appreciate while the high end will likely come down. That makes me somewhat bearish, certainly not bullish, but neither do I believe we will see another 20% to 30% leg down in the market to match the one we already witnessed. The first drop in the market was necessary to adjust prices back to their historic relationship to rental parity. That decline was destined to be steep because the elimination of Option ARMs and interest-only ARMs caused a sudden and dramatic decline in loan balances. The second…[READ MORE]

This year lenders drastically reduced the number of REO they are getting at auction. The numbers are down 62% over this time last year. Further, they have reduced their MLS inventories by nearly 20% from last year's levels. Apparently, lenders are going to continue to reduce MLS inventory until prices bottom to reverse the two-year slide. This unexpected change is a desperate move to stop the market's downward spiral. It means we will likely see depleted MLS inventories through the spring selling season and into the fall. At that point, the new crop of REOs from today's default notices will enter the market. Lenders are hoping positive momentum from the spring rally will carrry them through the winter. I have…[READ MORE]

A common meme in the realtor community is that distressed sales, REO and short sales, are somehow not part of the market. It's a common misconception shared by agents, sellers, and some misguided housing market analysts. This idea emanates from the desire to see prices rise. Every seller wants to get a premium price, and agents are prone to pander to seller delusions to get listings. When the market moves the other way, agents have to explain to sellers why they couldn't get their WTF asking prices, and rather than admit they pandered to a seller's delusions, agents will blame those pesky distressed sales taking down the market. If not for those distressed sales, prices would be going up, right?…[READ MORE]

Have you ever come across some really in-depth writing on involved topics on the internet? It's pretty rare. I try my best at the OCHN to give a greater level of depth than what people find in the mainstream media, but there are others out there who take it to another level entirely. Last weekend, I introduced you to the Strategic Deals Law Blog. In their own words, “Strategic Deals Law Blog offers insights into the complicated world of business transactions, bringing clarity and the tools needed to make your business a success.” The blog is written by clear-thinking practicing attorneys who really know what’s going on. Is it time to formally make “Single Asset Real Estate” entities ineligible to file…[READ MORE]

I still rent. I own investment properties, but I still rent my primary residence. In all likelihood, the properties at the mid to high price points common in Irvine will continue to come down over the next few years, so there is little urgency. I am enticed by the low interest rates and the historically low cost of ownership, but there are advantages to renting that shouldn't be overlooked. There are two good reasons to rent in today's market: (1) prices are still going down, and buying may result in a loss of equity, and (2) buying today sacrifices mobility. The problem of falling prices is overcome by those with a long ownership period. Locking in a low monthly cost…[READ MORE]

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