May162014
California foreclosures up 27% YoY, REO inventories rising nationally
Banks kicked the can for five years, but they finally began ramping up foreclosure processing to clear out delinquent mortgage squatters.
The headlines in the financial media give the false impression the foreclosure crisis is past. It’s not. Millions of borrowers are not paying their mortgages, and millions more are making partial payments on doomed loan modifications. The banks bought time with loan modifications, but this was a temporary measure that allowed them to better manage their REO inventories and delay final resolution on their bad bubble-era loans. The day of reckoning, though delayed, has finally arrived, and banks are increasing their foreclosure processing to finally clear out the trash.
Most housing economists failed to see this coming, which is no big surprise. In the post Bold California housing market predictions for 2014, I made the following prediction:
Foreclosure processing will increase from 2013 levels
The conventional wisdom states the foreclosure problem is behind us. Forecasters nearly universally agree foreclosure processing will decline because borrowers are going back to work and catching up on their mortgage payments. I believe they will be proven wrong. First, almost nobody cures once they go 90 days delinquent. Most borrowers end their misery by selling, lately by equity sale, but also by short sale or foreclosure. Since most market forecasters erroneously believe these borrowers cure their loans when they regain employment, these forecasters will be surprised when the high delinquency rates prompt lenders to begin foreclosure processing.
So what is happening with foreclosures and REO in 2014?
CoreLogic: Completed Foreclosures Up 5.9% In March
by MortgageOrb.com Tuesday April 29 2014
About 48,000 foreclosures were completed in March, an increase of 5.9% compared to the approximately 45,000 completed in February ….
About 5 million homes have been across the country have been foreclosed upon since the financial crisis began in 2008. …
“The inventory of homes in foreclosure and serious delinquency status are back to 2008 levels, yet remain elevated from a historical perspective,” says Mark Fleming, chief economist for CoreLogic, in a release. “…, the housing market is a long way from being fully recovered. By way of comparison, distressed stock inventories are more than three times higher than the levels of the early 2000s, before the most-recent housing boom and subsequent financial crisis.” …
Foreclosure processing is up because banks are finally resolving their bad loans. With about 6 million active loan modifications, we still have a long way to go.
So what is happening with this REO?
4 Percent Increase in Bank Repossessions
May 13, 2014, By RealtyTrac Staff
… Bank repossessions increased from the previous month in 26 states and were up from a year ago in 16 states, including New York (142 percent increase), Oregon (91 percent increase), New Jersey (58 percent increase), Illinois (55 percent increase), Indiana (52 percent increase), Maryland (45 percent increase), Connecticut (44 percent increase), California (27 percent increase), and Nevada (15 percent increase).
California bank repossessions are up 27%. This should help alleviate the shortage of homes on the MLS, assuming the banks start listing them for sale rather than wait for higher prices.
“The rise in bank repossessions in many states is a sign that those markets are working through the final remnants of foreclosures left over from the recent housing crisis,” said Daren Blomquist, vice president at RealtyTrac. “Many of these bank-owned homes are bottom-of-the-barrel properties in terms of location or condition, but they will provide some much-wanted inventory of homes for sale in some markets in the coming months. Investors and other buyers willing to do more extensive rehab will likely be best-suited for these incoming REOs.” …
This should be good news for flippers.
Scheduled auctions increased from the previous month in 22 states and were up from a year ago in 17 states, including Oregon (up 229 percent), Utah (up 101 percent), Colorado (up 87 percent), New Jersey (up 73 percent), Alabama (up 25 percent), New York (up 25 percent), and Florida (up 8 percent).
Foreclosure starts, which are scheduled auctions in some states, increased from the previous month in 26 states and were up from a year ago in 16 states, including Massachusetts (up 101 percent), Indiana (up 60 percent), New Jersey (up 15 percent), and Wisconsin (up 13 percent).
With the lack of available MLS inventory, banks should have no problem disposing of their REO, but despite this fact, they are accumulating more of it.
REO Inventory Rising Once Again
Recent Improvement in the Stock of REO Properties Fades in 2014
May 14, 2014, Sam Khater
Real Estate Owned (REOs) Properties Are on the Rise
This chart is a huge surprise to most real estate economists who were telling everyone the foreclosure crisis was past.
After reaching a trough in August of 2013 of 375,000 properties, the number of real estate owned (REO) properties increased 15 percent to 430,000 as of March 2014 (Figure 1). The increase in REO properties was broad based, rising in 46 states. While the increase was moderate nationally, some states had large increases. Idaho led the way with the stock of REO properties nearly doubling between August 2013 and March 2014. Maryland had the 2nd largest increase in the number of REO properties, which increased 78 percent, followed by Nevada (up 70 percent), Oregon (up 47 percent) and North Dakota (up 42 percent) (Figure 2).
The rise in REOs across most states reflects several inter-related factors. The “robo-signing” scandal in the fall of 2010 caused servicers to delay the foreclosure process, increasing foreclosure timelines. The number of REO properties had been increasing until September 2010 when the issue became public and after September the flow of completed foreclosure immediately fell by one-third in October 2010 and remained lower. That caused a rapid fall off in the number of REO properties until very late 2011 and early 2012 when the number REO properties began to rise again. Not surprisingly, the rise in the number of REO properties coincided with the National Mortgage Settlement, which was signed in February 2012 and provided more clarity and standards on foreclosure resolutions which led to the rise in REO properties.
As lenders began to accelerate the foreclosure process in early 2012, investor demand for REO properties began to rapidly increase. Investor demand more than offset the acceleration of foreclosure resolutions and led to a rapid decline in the number of REO properties. However, investor demand began to drop off last September partly in response the twin impact of rapid price increases and the rise in mortgage rates. In addition, short sale activity reached its peak in late 2012 and early 2013 and began to decline in subsequent months due to the Mortgage Forgiveness Debt Relief Act of 2007. Some properties that may have avoided foreclosure as short sales are instead being foreclosed upon and contributing to the rise in the REO stock.
The combination of all these major factors began to coalesce during the fall of 2013 and led to a rise in the inventory of REO properties.
Rising prices caused investors to lose interest in these properties. The banks hoped owner-occupants and boomerang buyers would step up and absorb the excess, but that isn’t happening. Also in Bold California housing market predictions for 2014, I predicted boomerang buyers would fail to materialize. In March I noted a lack of boomerang buyers keeping purchase originations down.
While the level is lower than the peak in the crisis, it signals that the rapid improvement in the REO stock during the last two years is over and the market has entered a new phase as it continues to process the legacy of the foreclosure crisis.
So is this a small problem easily absorbed by the market? Given the weak demand we have today, I don’t think this problem goes away easily.
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MR – Who is the better gold speculator, you or Jim Rogers? Maybe he needs your advice?
Jim Rogers: Governments Will Loot Pensions, Savings – Hold onto your Gold
Obviously, he didn’t sell when he should have, but the question as to whether he is better would depend on his cost basis. My cost basis was $630 and I sold at $1,630.
Also, if you notice he didn’t go on the record until Fall of 2011, after gold had peaked. Well, it’s a lot easier to make a call in the rearview mirror now isn’t it? You know for a fact that I called a bubble prior to the peak.
+1 MR
+2 MR
Okay, but I am not sure if you answered my question.
MR – Who is the better gold speculator, you or Jim Rogers? Maybe he needs your advice?
Can I deduce that you think that you are better than Jim Rogers at speculating on gold since, “Obviously, he didn’t sell when he should have …” and “My cost basis was $630 and I sold at $1,630.” and “if you notice he didn’t go on the record until Fall of 2011, after gold had peaked.” and “I called a bubble prior to the peak.”
Why do you always put your arrogance on display by claiming knowledge on things you have don’t have any idea about? I have no idea when you made any call, not a clue. You give my memory way too much credit and think yourself way too important to think I or anybody else remembers everything you say. I can remember a couple of things, but specifically when or what you pick out from the myriad of nonsense you have spewed, are you serious?
homeowners believe documents are legally and correct in each mortgage but few cases as ours their names are used without affidavit or signatures as that become a negligence or new way to do identity theft
http://www.amazon.com/Let-banks-used-your-names/dp/1499281781/ref=sr_1_2?s=books&ie=UTF8&qid=1400257574&sr=1-2&keywords=let+the+banks+used+your+names
Not bad for spam. At least it fits the context of the site. I hope these spammers realize all my comment links are “no follow.”
my case is real and what i tried to do is give information what some of the banks do in some cases as used our names in other homes we dont have idea was as we buy them
and instead we found out the small claims division has a free program to help them instead to paid an attorney
http://www.amazon.com/Let-banks-used-your-names/dp/1499281781/ref=sr_1_2?s=books&ie=UTF8&qid=1400257574&sr=1-2&keywords=let+the+banks+used+your+names
You’ll have to forgive me then. I get spammers here all too often.
i understand we lost everything
my career, my credit and in trouble with IRs,DMV and even my license
with Board of pharmacy was in hold for the title compay used our
names for more of 3 years and recorders office was as well
ignored us
all these are inside our pamphlet as well few friends
they really need to move from their homes and lenders destroy their carees and credits as well
but few places really help
http://www.amazon.com/Let-banks-used-your-names/dp/1499281781/ref=sr_1_2?s=books&ie=UTF8&qid=1400257574&sr=1-2&keywords=let+the+banks+used+your+names
Fitch: FHFA’s new putback standards a boon for mortgage lenders
Mortgage lenders will benefit from a reduced risk of loan buybacks, owing to the easing of borrower performance measures that are mandated by the Federal Housing Finance Agency, a new report from Fitch Ratings says.
Fitch says increased certainty around repurchase risk will likely increase mortgage lending to credit-worthy borrowers. The FHFA announced the newly eased standards this week as part of a review of its 2014 strategic priorities.
The FHFA’s actions are expected to encourage lenders to offer credit to borrowers that may have been viewed as more susceptible to delinquencies, particularly borrowers with the middle tier credit scores and higher loan-to-value ratios.
Many lenders have applied credit overlays to Fannie Mae and Freddie Mac guidelines to minimize their repurchase liability, limiting lending to a small segment of super prime quality borrowers.
Fitch’s report says analysts don’t believe that the expanded relief will introduce additional systemic risk to the residential market.
Increasing lending to less qualified borrowers may not increase risk to the financial system, but it certainly increases risk to the US taxpayer who will pay the price when these loans go bad.
Where Can the Middle Class Buy a Home?
For the majority of homes, buying is cheaper than renting. But as home prices rise faster than incomes and mortgage rates slowly head upwards, the question of national affordability becomes ever more germane. Compared to the longer-term past, homeownership still looks relatively affordable as home prices remain undervalued and mortgage rates remain near historic lows. However, affordability for the middle class in some areas of the nation is becoming problematic.
In a blog post, Trulia’s Jed Kolko notes that certain discrepancies do arise, specifically along the coasts, for middle class homeownership. Kolko explains his methodology of defining what counts as middle-class, and what counts as affordable before breaking down nationwide trends.
Affordability is based on whether a home’s monthly payment, which includes mortgage, insurance, and property taxes, was less than 31 percent of the surrounding metro’s median household income. The designation “middle class” is fluid, dependent upon each metro’s local median household income.
Kolko found that the middle class is getting priced out of California, but finds more success in the Midwest. In 80 of the 100 largest U.S. metros, most of the homes for sale are within reach of the middle class.
In the most affordable housing markets, more than 80 percent of homes are within reach. Akron, Ohio tops the list at 86 percent of homes affordable for the middle class. “The 10 most affordable markets include eight in (or near) the Midwest, plus the southern markets of Columbia, South Carolina, and Little Rock, Arkansas. Five of the top 10 are in Ohio,” Kolko writes.
Indeed, the top three metros for affordability include Akron, Toledo, and Dayton, Ohio, each sporting percentages above 80 percent of homes as affordable for the middle class in May 2014.
Seven of the 10 least affordable markets reside in California. Not surprisingly, the rest of the top ten is rounded out by New York City, Fairfield County, Connecticut; and Honolulu, Hawaii. San Francisco remains on top as the least affordable city in the nation, with only 14 percent of homes for sale in San Francisco affordable to the middle class, despite higher median incomes.
Education also plays a factor, affecting income which in turn directly reflects one’s ability to afford a home.
“Household income is strongly correlated with education. Median household income is $33,500 for households headed by someone with a high school degree or less, $49,300 with some college or an associate’s degree, $77,500 with a bachelor’s degree, and $100,000 with a graduate degree,” Kolko commented.
He notes that the higher the education of a metro’s population, the more homes will be available for purchase with a median income: “Take the Washington, D.C., metro area as an example: for a high-school-or-less household, just 23% of homes for sale are affordable, compared with 75% for a bachelor’s-degree household and 83% for a graduate-degree household.”
Furthermore, the supply of available homes matters, with lower affordability markets experiencing a low supply from a lack of new construction, driving prices upward and out of the range of middle class families. For America’s most expensive markets to come down in price, there would have to be a subsequent drop in demand or an increase in construction. Cities like San Francisco, south Florida, and parts of the Northeast are geographically limited by their availability to construct new homes, and thus, are inherently limited in their ability to construct new homes, according to Kolko.
Unfortunately, his conclusions aren’t exactly great news for the middle class family looking to purchase a home in more expensive markets. “In all, today’s unaffordable markets are likely to stay unaffordable. A collapse in demand is nothing to wish for; geographic constraints are nearly impossible to change; and strong political forces make building regulations difficult to relax,” he writes.
House prices will start rising again…
Mortgage Rates Decline for Third Straight Week
Mortgage rates pulled back slightly again this week, responding to what little major economic developments there were.
According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year average fixed-rate mortgage (FRM) eased to 4.20 percent (0.6 point) for the week ending May 15, a drop of just 1 basis point from the last survey. It was the third straight week of declines, Freddie Mac reported, bring the 30-year fixed average to a six-month low.
At the same time, the 15-year FRM averaged 3.29 percent (0.6 point) this week, dropping from 3.32 percent.
On the adjustable rates side, the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.01 percent (0.4 point), down from 3.05 percent, while the 1-year ARM was unchanged at 2.43 percent (0.5 point).
“Mortgage rates were little changed amid a week of light economic reports,” said Frank Nothaft, chief economist at Freddie Mac. “These lower than expected rates are welcome news with the spring home buying season underway and may even provide those who haven’t already refinanced possibly a reason to take another look.”
We are getting very close to rates being down YOY. Freddie Mac has June 2013 30yrFRM rates as 4.07%. Best execution is currently 4.125%. We could find ourselves with lower rates on a YOY basis in the next few weeks.
Query:
How much longer will the US dollar be the world’s reserve currency?
100 years?, 200 years?,Forever?, 10 years?, 5 years?, 1 year?, a couple more months?, not a clue and who gives a hoot?
I’m in the “who cares” camp.
The dollar should be worth the value of goods and services produced in our economy. Being the reserve currency gives the dollar a small boost in value as other people use it to store wealth. If we lose status of reserve currency, the value of the dollar will adjust, and life will go on. This is not a big deal.
I believe we will see an alternate world currency evolve over the next several decades that isn’t controlled and managed by central bankers. Bitcoin has the right idea. When someone figures out how to overcome the problems of Bitcoin, we could see the emergence of a new world currency. Of course, central bankers will resist an independent currency, but I believe it’s coming. The IMF has a currency unit based on a basket of world currencies. That may be a start as well.
Disappointing Sales Knock Down Builder Confidence
The National Association of Home Builders (NAHB) released Thursday its Housing Market Index (HMI) for May, reporting another slip in builder confidence as single-family home sales continue to disappoint.
The index, a gauge of homebuilder sentiment toward the single-family housing market, dropped to 45 from a downwardly revised reading of 46 in April. A score below 50 indicates a market viewed by more builders as “poor” rather than “good.”
With April’s revision and the latest decline, the index has been in a holding pattern since tumbling 10 points in February.
“After four months in which the HMI has shown little signs of fluctuation, it is clear that builder sentiment is becoming more in line with the market reality of a continuing but modest recovery,” said NAHB chairman Kevin Kelly. “However, builders expressed some optimism that sales will pick up in the coming months.”
Looking at the index component measuring expected sales in the next six months, builder confidence rose one point to a level of 57, aided by a rise in observed traffic from prospective buyers, which was up to a reading of 33.
Meanwhile, the current sales picture inspired little confidence, with that component dropping to 48 from a “neutral” 50 in April.
Confidence levels were flat in the North and Midwest at indexes of 34 and 45, respectively. In the South and West, sentiment was down slightly to indexes of 47 and 44, reflecting declining optimism in the country’s two most active housing regions.
“Builders are waiting for consumers to feel more secure about their financial situation,” said NAHB chief economist David Crowe. “Once job growth becomes more consistent, consumers will return to the market in larger numbers and that will boost builder confidence.”
10 ways Wall Street skims $100 billion of your money
Commentary: Stop paying excessive fees, do your own investing
The classic example in residential real estate is ignoring expenses. People who brag about how much they made on their housing investments generally ignore their carrying costs and conveniently forget their sales costs. If you do a discounted cashflow analysis on a negative cashflow investment, even with large amounts of appreciation, the monthly negative burn drastically reduces the rate of return.
“…The classic example in residential real estate is ignoring expenses…”
No news on this blog, but owning a home is an expensive proposition.
I am astounded how prevalent poor record keeping is amongst homeowners. If every homeowner really kept penny accurate records, I believe they would be stunned about the true cost of home ownership.
If you properly factor property taxes, insurance, HOA dues, maintenance and set aside reserves for major issues (ie. new roof) and the like , I think a reasonable rule of thumb is a home will cost 3%-4% of the purchase price/year.
Thus for a Irvine ‘run of the mill’ $1mm home, we are talking $30-40K per year. That’s a lot of cash expense, most of which cannot be kicked down the road.
You would think such hard reality would be a major factor in limiting the run up in prices.
Apparently not.
Ignoring reality is a classic sign of optimism bias.
Hah I’m guilty of this. Last year when my IRA performance sucked and my short term trades were awesome, I told myself I did great that year and that my IRA was just in it for the long term. This year is the exact opposite and I’m telling myself that I’m a long term investor, and only insiders can time short term trades.
“I make mistakes like the next man. In fact, being–forgive me–rather cleverer than most men, my mistakes tend to be correspondingly huger.”
― J.K. Rowling, Harry Potter and the Half-Blood Prince
Nice quote. I read the entire Harry Potter series earlier this year. I had to go to the kid’s section to buy them. They are really good books. I see why she became a billionaire.
“The day of reckoning, though delayed, has finally arrived, and banks are increasing their foreclosure processing to finally clear out the trash.”
I don’t know if this is a day of reckoning as much as it’s a day of absolution. A day of reckoning is the day you have to atone for your sins. With property values having risen to where they are now, and banks cherry-picking the homes in their foreclosure pipeline, this is more like parole day than execution day. The banks have been on work release for the last five years and are now having their ankle bracelets cut off.
Good point. I appreciate your analogy.
The MSM spin never ceases to amaze…
Was watching NBC Nightly News last night and they did a story covering the increase in percentage of cash sales (up to 43%) we’ve heard about lately.
Instead of accurately attributing the “rise” to the fact that traditional mortgage applications are dropping – inflating the % of cash buyers – they went into full spin mode.
We know that ALL buyers (cash, conventional, or otherwise) are dropping YOY. Do they report this? No. Instead, this huge “increase” in cash buyers is crowding out the poor conventional buyers in the feeding frenzy that is todays housing market.
It’s no wonder sheeple think housing – and the economy – are “fine”.
http://www.nbcnews.com/nightly-news/got-cash-first-time-home-buyers-face-tough-market-n106681
“Flooding the market”. Yeah…
http://s.wsj.net/public/resources/images/BN-CM500_EHSYOY_G_20140423111115.jpg
“The MSM spin never ceases to amaze…”
If you go read the entire source articles I linked to today, you see how much spin I had to cut through to get the factual nuggets that formed the basis of my post. The spin has been dizzying lately.
New-home construction soars in April, beats expectations
http://www.chicagotribune.com/business/breaking/la-fi-housing-starts-20140516,0,4577296.story
Builders ramped up construction of new homes in April, providing a jolt to a slowing housing market and the broader economic recovery.
Housing starts jumped 13.2% from March to a seasonally adjusted annual rate of 1,072,000 — the highest since November, the Commerce Department reported Friday. The gain surpassed analysts’ expectations and came largely from the more volatile multi-family sector.
Economists polled by Bloomberg News had expected a rate of about 980,000.
The surge comes as the housing recovery has shown signs of cooling. New construction has been muted in recent months, a trend economists blamed partly on severe winter weather across much of the country.
Would-be home buyers have also struggled to afford houses after swift price increases last year locked some out of the market.
Those affordability pressures, along with a shortage of ready-to-build lots, have builders worried. On Thursday, the National Assn. of Home Builders reported builder confidence fell in May to the lowest level in a year.
Still, builders reported growing optimism for future sales. And for the moment, construction has picked up amid warmer weather across the nation.
Housing starts climbed in all regions. In the West, a major home-building region, starts climbed 11.1% from March.
Nationally, builders started new single-family homes at a 0.8% faster rate compared with the previous month; much of the gain came from apartment building.
Building permits, a gauge of future construction, jumped 8% nationwide, the Commerce Department said.
There is more to the story…
Housing Is Recovering. Single-Family Homes Aren’t.
But even in the good new numbers, there is a clear trend evident: The entirety of the improvement is coming from more building of housing in structures with five or more units, most commonly rental apartment buildings.
Continue reading the main story
Related Coverage
One reason the housing market has not expanded enough to support robust economic growth is that young adults are not setting up their own households at anywhere near the historical norm.
Starting Out Behind: How Student Debt May Be Stunting the EconomyMAY 14, 2014
The number of permits issued for single-family homes rose by a mere 2,000 annualized rate in April, where the number for units in these so-called multifamily structures rose by 81,000. The same story applies for housing starts, where the number of single-family homes rose a measly 5,000, versus 124,000 for multifamily units.
I look forward to all of the new units in and around OC coming on line over the next year or 2.
We know demand (at today’s prices) is decreasing – bring on the additional inventory. 🙂
Larry-
I’ve seen you highlight how the media manipulates data with charts by shrinking the scale in the past, and yet that’s exactly what Corelogic’s REO chart featured today is doing. By starting the chart at 300,000 instead of 0 it exaggerates what is really just a blip in the data and makes it look more extreme than it really is. I don’t especially care because manipulating a chart doesn’t change reality, but I just thought I’d point it out so your readers don’t gain too much false hope from this.
Nice catch. I didn’t even notice that.
If people are grasping for straws about a collapse, then, yes, this is just false hope. I point it out because I believe this new stream of inventory will keep appreciation in check. It’s not a flood, but it should be a steady supply of homes that should have been liquidated years ago. We should also see more inventory recovery because of it.
The UK exported 160 tonnes of physical gold bullion in 2012.
The UK exported 1,739 tonnes of physical gold bullion in 2013. That is more than 5 times the amount of gold bullion that the UK imported. World gold mining output was about 2,900 tonnes, but none of that mining output came from the UK. The UK does not have any gold mines.
[…] Full story at OCHousingNews.com. […]
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