Foreclosure Radar just released its report on May foreclosures. The change in bank’s behavior since the beginning of the year is becoming apparent. Lenders are determined to steadily reduce their standing REO inventory. At current liquidation rates, they will have cleared out the backlog of standing inventory by the middle of next year. Of course, this comes at a price. Lenders are not making headway on shadow inventory, and those who have been delinquent on their mortgages for a long time are going to get to squat even longer. Lenders are hoping these people will opt to short sell their properties. In all likelihood, since doing nothing gets them month after month of free housing, most will stay committed to squatting until foreclosure. 2012 will be the golden age of delinquent mortgage squatting. When the standing inventory of REO is purged this year, 2013 will be the year lenders finally expunge the Ponzis.
Below is the chart and table of foreclosure inventories in California over the last year. Examine the slope of the red line and the numbers on the bottom of the table displaying total REO in the State. Starting in February, lenders have been steadily reducing their REO inventory by about 5,000 units per month. In a normal market environment, it would take four months to dispose an REO, so the number of REO will likely not fall below 20,000 as long as lenders are moving them through the system — which they will be doing for the next five to eight years. To reduce the total from 75,000 to 20,000 at the rate of 5,000 per month will take 11 months.
This same pattern of steady reductions in REO inventories can be seen in most counties and cities across California.
As we have all noticed, the reduction in REO inventory has not come about because lenders are selling more REO on the MLS. In fact, lenders have actually slowed the speed at which they sell properties they already own. Their REO processing went from a leisurely 7.5 months in May of 2011 to a sedate 8.7 months in May of 2012.
On interesting trend to note above is the sudden decrease in the time to foreclose. If they bother to issue a Notice of Default — and they still haven’t filed notice on the delinquent mortgage squatters with bubble-era loans — lenders are moving to auction much quicker. This is likely a recognition of the failure of loan modification programs that were delaying the process. Lenders are not delaying the process once they get started. However, they still are in no hurry to get started….
Filings ticked up in May, but they are still below last year’s levels. The slower pace of foreclosure filings drags out the processing time of shadow inventory. Lenders are barely treading water with regards to shadow inventory. By quickly foreclosing on new defaults, they aren’t adding to it, but by not foreclosing on old defaults, they are increasing the age of their delinquent loans and giving long-term squatters an enjoyable free ride (notice the recent upturn in aging).
So how are lenders reducing standing inventory?
They are not acquiring more properties at auction.
In January 2012, lenders acquired nearly 9,000 properties at auction. In May of 2012, they acquired about 4,500. That’s a 50% reduction in the number of properties acquired at auction. What is also interesting to those hedge funds looking to acquire properties at auction is that the number of third-party sales has held steady, and in May, they actually increased significantly from April’s numbers. Apparently, the banks don’t want these houses themselves, but they don’t mind selling them to others.
This trend is notable statewide. In Orange County, lenders have reduced their auction acquisitions by nearly 70% from last year’s tally. They are actually selling more to third parties than they are taking back themselves. This is very unusual. Banks typically take back two REO for every one they sell to a third party.
When will the MLS inventory return?
Nothing I see in the recent bank behavior suggests they are planning to put more properties on the MLS. The recent uptick in filings may be a start, but unless loan owners start opting for short sales or lenders become more motivated to clear out their existing REO inventory this year, I don’t see the MLS inventory returning any time soon. A recent report from CoreLogic suggested the lack of MLS inventory is due to the prevalence of negative equity. This is nonsense. We have had the same amount of negative equity for the last three years, and inventory only dried up this year. The real reason for the lack of MLS inventory is outlined above. Lenders simply aren’t buying more REO to replace the ones they are currently selling.
Why So Few Homes Are on the Market
By Karen Weise on June 11, 2012
For people looking to buy a home, pickings are slim these days. The number of existing homes for sale is at its lowest level in more than five years. In March the number of new homes for sale this spring was the lowest since the government started tracking the data in 1963, and rose just 1 percent in April. Inventories are so tight, buyers now face bidding wars in some cities.
Usually, low inventories would be a sign of strong demand, indicating that houses were selling as soon as they hit the market. Today’s low inventory, though, may not be the result of growing demand, but instead reflect a lack of supply—because some potential sellers aren’t putting their homes on the market at all.
This is a key point I have made a number of times. Strong demand would be a sign of market strength indicating the recent uptick in prices may actually signify the bottom of the market. Unfortunately, we don’t have strong demand. I have serious doubts about the durability of the recent spring bottom because the real reason for the uptick in prices is a lack of supply, which is a sign of market weakness.
In a new report, the housing data firm CoreLogic says inventory is low because so many homeowners have negative equity—they owe more on their mortgages than their homes are worth, so selling would not give them enough money to pay off their loans. CoreLogic analyzed data from the country’s 50 largest housing markets and found that areas with the lowest number of homes for sale also had the highest number of borrowers with negative equity. In markets where more than half of homeowners are underwater, there was just a 4.7-month supply of homes for sale. That’s about half as much inventory as in areas where less than 10 percent of homeowners are underwater.
It’s no surprise then that cities such as Bakersfield, Calif., and Phoenix have seen some of the sharpest decline in inventory over the past year, according to data from the National Association of Realtors. “The presence of negative equity … restricts the ability of owners to list their homes for sale as the demand side of the market improves,” Sam Khater, a senior economist at CoreLogic, says in the report.
Correlation is not causation. It sounds plausible that negative equity would be the culprit, but since negative equity has been around for three years and didn’t cause a drop in inventories, there must be another cause. The new causal factor responsible for the decline in inventory is the reduction in bank REO.
A small timer
The former owner of today’s featured property didn’t own an expensive enough property to enter the HELOC abuse Hall of Fame, but he still more than doubled his mortgage and managed to lose his home. 
- This property was purchased on 11/25/1997 for $159,000. The owner used a $151,400 first mortgage and a $7,600 down payment.
- On 7/13/1998 he refinanced with a $170,000 first mortgage and retrieved his down payment plus a little spending money.
- On 1/10/2000 he obtained a $43,000 HELOC.
- On 0/12/2004 he opened a $100,000 HELOC.
- On 12/9/2004 he refinanced with a $333,700 first mortgage.
- On 9/28/2007 he got a $100,000 HELOC.
- Assuming he maxed out the HELOC, the total property debt was $433,700, and the total mortgage equity withdrawal was 282,300.
Aliso Viejo Overview
Median home price is $334,000. Based on a rental parity value of $542,000, this market is under valued.
Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased from $241/SF to $242/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $33 last month from $2,215 to $2,249.
Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.
Market rating = 8
Proprietary OC Housing News home purchase analysis 
4 REX Ct #21 Aliso Viejo, CA 92656
$374,000 …….. Asking Price
$159,000 ………. Purchase Price
11/25/1997 ………. Purchase Date
$215,000 ………. Gross Gain (Loss)
($12,720) ………… Commissions and Costs at 8%
============================================
$202,280 ………. Net Gain (Loss)
============================================
135.2% ………. Gross Percent Change
127.2% ………. Net Percent Change
5.8% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$374,000 …….. Asking Price
$13,090 ………… 3.5% Down FHA Financing
3.74% …………. Mortgage Interest Rate
30 ……………… Number of Years
$360,910 …….. Mortgage
$103,599 ………. Income Requirement
$1,669 ………… Monthly Mortgage Payment
$324 ………… Property Tax at 1.04%
$83 ………… Mello Roos & Special Taxes
$94 ………… Homeowners Insurance at 0.3%
$376 ………… Private Mortgage Insurance
$130 ………… Homeowners Association Fees
============================================
$2,676 ………. Monthly Cash Outlays
($254) ………. Tax Savings
($545) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$67 ………….. Maintenance and Replacement Reserves
============================================
$1,961 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,240 ………… Furnishing and Move In at 1% + $1,500
$5,240 ………… Closing Costs at 1% + $1,500
$3,609 ………… Interest Points
$13,090 ………… Down Payment
============================================
$27,179 ………. Total Cash Costs
$30,000 ………. Emergency Cash Reserves
============================================
$57,179 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # P824398 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$240,000 22681 OAKGROVE #414 |
0.11 miles 2 bd / 2 ba 1,158 Sq. Ft. |
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$424,900 6 JOCELYN Ct |
0.13 miles 3 bd / 2.5 ba 1,300 Sq. Ft. |
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$349,900 1 SEA PINES Pnes |
0.22 miles 3 bd / 2.25 ba 1,502 Sq. Ft. |
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$325,000 95 TROFELLO Ln |
0.46 miles 2 bd / 2.5 ba 1,150 Sq. Ft. |
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$319,000 190 TROFELLO Ln |
0.46 miles 2 bd / 2.5 ba 1,150 Sq. Ft. |
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$335,000 35 SOBRANTE |
0.52 miles 2 bd / 2 ba 1,000 Sq. Ft. |
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$300,000 14 HILLGATE Pl |
0.8 miles 2 bd / 2.5 ba 1,301 Sq. Ft. |
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$309,000 13 DESTINY Way |
0.8 miles 2 bd / 2.25 ba 1,303 Sq. Ft. |
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$299,900 8 OVERTURE Ln |
0.83 miles 2 bd / 2.5 ba 1,327 Sq. Ft. |
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$398,766 16 EMPIRE Dr |
0.87 miles 2 bd / 2.5 ba 1,568 Sq. Ft. |
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[...] denies solutions – Telegraph China Boosts Support for Housing Market – Fox Business Banks cut REO inventories by reducing new acquisitions by 50% – OC Housing News Foreclosure activity jumps in troubling sign for housing recovery – [...]
May Busy with Foreclosure Activity After Slowdown: RealtyTrac
After seeing months of consistent decreases, May turned out to be a busy month for foreclosure activity.
Foreclosure filings, which include default notices, scheduled auctions, and bank repossessions, were up 9 percent in May from the previous month of April, but still down 4 percent from a year ago, according to RealtyTrac’s U.S. Foreclosure Market Report for May 2012.
Foreclosure filings were reported on 205,990 properties in May after two consecutive months below 200,000, but activity levels were still down on a yearly basis for 20 consecutive months now. In April, foreclosure filings totaled 188,780.
Brandon Moore, CEO of RealtyTrac, said the increase in activity shows the ride to the bottom of the foreclosure cycle will be “bumpy.”
The report also revealed that one out of every 639 homes had a foreclosure filing during the month.
After three straight monthly decreases to a 49-month low in April, bank repossessions (REOs) climbed 7 percent month-over-month, but were still down 18 percent from May 2011. In May, lenders completed the foreclosure process on 54,844 properties.
Foreclosure starts – default notices or scheduled foreclosure auctions, depending on the state – were filed on 109,051 properties in May, a 12 percent monthly increase and a 16 percent jump from a year ago. The annual increase was a first after 27 consecutive months of yearly declines.
“Based on the rise in pre-foreclosure sales we’ve seen so far this year, a higher percentage of these new foreclosure starts will likely end up as short sales or auction sales to third parties rather than bank repossessions going forward,” said Moore. “While pre-foreclosure sales have less of a negative impact on home values than bank-owned sales, they still represent a discounted sale where a distressed homeowner is losing his or her home.”
Moore added that more banks are treating delinquent mortgages with short sales rather than bank repossessions to help minimize losses and also avoid taking on more REOs, which have to then be managed, maintained and marketed for sale.
On a state-by-state basis, foreclosure starts increased over a one-year period in 33 out of 50 states – 17 of the states have a judicial process and 16 states a non-judicial process.
Judicial states with the highest increases in foreclosure starts included New Jersey (118 percent), Pennsylvania (97 percent), Florida (83 percent), Massachusetts (60 percent), New York (59 percent), South Carolina (43 percent), Ohio (32 percent) and Illinois (28 percent).
Non-judicial states that posted the highest increases in foreclosure starts were Tennessee (165 percent), Texas (51 percent), Missouri (35 percent), Georgia (30 percent), and Michigan (24 percent).
Foreclosure activity in Georgia spiked 33 percent from the previous month and 30 percent from a year ago, giving the state the highest foreclosure rate out of all states.
In the previous month, Georgia actually had a lower foreclosure rate than Arizona, Florida, California and Nevada.
Arizona foreclosure activity rose by 24 percent in May month-over-month, giving the state the number two spot for its foreclosure rate. Foreclosure activity for the state, however, was down 29 percent from a year ago.
Even though Nevada saw a 66 percent yearly drop in foreclosure activity, the state still came in third for its foreclosure rate.
California decreased its foreclosure activity by 19 percent on a yearly basis, but still managed to have the fourth highest foreclosure rate.
Illinois, on the other hand, had a 54 percent yearly increase in foreclosure activity; the state had the fifth highest foreclosure rate.
Other states with foreclosure rates in the top 10 category were Ohio, Michigan, South Carolina, and Utah.
Among the metro areas, Riverside-San Bernardino in California came in first for the highest foreclosure rate among the 20 largest metropolitan statistical areas by population. One in every 179 housing units in the Riverside-San Bernardino metro had a foreclosure filing in May, which is more than 3.5 times the national average.
Atlanta came in second for its foreclosure rate, Phoenix third, Chicago fourth, and Tampa came in at fifth.
RealtyTrac is an online marketplace of foreclosure properties, with more than 1.5 million default, auction and bank-owned listings from over 2,200 U.S. counties, along with detailed property, loan and home sales data.
What it all boils down to… Calif is the straw that will break the camels back… lenders are defending current price levels ‘at all cost’. If it goes, they go.
Prospective buyers take note: price is something you charge people for, but does NOT equate to actual value.
Banks certainly do seem intent on preserving current price levels. It’s astonishing how low they have allowed interest rates to fall. Even when they make a loan these days, they don’t make much money. I guess the old adage is true that bankers become less concerned with return on capital as they do with return of capital.
The is a change in REO management that had occurred over the last several years. The long squatters are in, I never thought this would have happen in 2008.
Why are lenders now selling more homes to 3rd parties?
Interesting how bad analysis spreads in the media, even the specialized media which should know better.
Negative equity holding back sellers
Inventory of unsold homes on the market declined in April as the share of underwater homeowners rose, according to a monthly report from data aggregator CoreLogic.
The number of unsold homes on the market was at its lowest level in more than five years in April — a 6.5-month supply. While that supply level is considered “reasonably healthy,” it also means that there are “significantly fewer buyers” on the demand side of the market, according to Anand Nallathambi, CoreLogic’s president and CEO.
“Historically, current homeowners trading up represent the biggest segment of the purchase market,” he wrote in the report. “But with more than 20 percent of homeowners underwater, another 25 percent of all homeowners possessing less than 20 percent equity in their homes, and tightened underwriting requirements, this potential pool of buyers has effectively been eliminated.”
One of our active commenters, Perspective, is on the forefront of a new trend of increasing equity through paying down mortgage balances. BTW, this is how equity is supposed to be acquired.
Americans See Biggest Home Equity Jump in 60 Years: Mortgages
Home equity in the first quarter rose to the highest level since 2008 as homeowners taking advantage of record-low borrowing costs to refinance their loans brought cash to the table to pay down principal. The gain in percentage terms was the biggest jump in more than 60 years, according to an analysis by Bloomberg of Federal Reserve data.
It’s the strongest sign yet that Americans’ home-loan debt burden is beginning to ease after the record borrowing that created, and ultimately popped, the housing bubble, leaving almost a quarter of homeowners with mortgages owing more than their properties were worth, said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. Half the mortgages refinanced in the fourth quarter reduced loan size, a record, according to Freddie Mac, the government-owned mortgage buyer.
“The willingness of homeowners to carry housing debt has been radically altered,” said DeKaser, chairman of the American Bankers Association’s Economic Advisory Council. “When the market was booming, a mortgage was used as a leveraging tool, and now it’s seen as a risk.”
This is hope for Americans after all…
Uh… there is no equity until it’s actually realized = illusory. just say’n
“Residential mortgage debt peaked in 2007 at $10.6 trillion, doubling in six years, according to Fed data. Since then, it has fallen 7 percent as the value of all residential property has dropped 23 percent. ”
I addition the article states that some people (with equity) are getting shorter terms loans.
Any deleverging is a positive sign although a long way to go. But I wonder how much of the 7% is loan mods, forgiveness, sales at foreclosures auctions, or short sales. How much of this debt reduction is people pay off their principal balance?
On the other side auto and student loans debt is up. The result of the home ATM machine being cut off?
My refi effort is on hold. If you need a jumbo (> $417K) mortgage, and your LTV is high, the only option on the market is a 30 year FHA that comes with 175 bps upfront MI and 125 bps annual MI. MI is not deductible.
However, if you’re financing <= $417K, then a bunch of other options open up at much lower costs: conventional loans in addition to FHA, all terms (10, 15, 20, 25, 30), and the MI is much cheaper in conventional loans with NO upfront!
Color me “shocked”. I’m still waiting to find the report that says Flipped this house is flaked. True heroes in Real Estate.
“House Hunters:” Subjects say it’s fake
The blog Hooked on Houses is giving fans a dose of reality about the HGTV series “House Hunters.” According to an interview with a former participant, Bobi Jensen, much of the popular show, which has been on the air since 1999, is faked.
The premise of ‘House Hunters’ is that viewers follow a buyer as they anxiously decide between three different houses. Jensen says that, in fact, one house has already been purchased–the producers wouldn’t even finalize her as a subject until after the closing. “When I watch other episodes of the show now I can usually pick out the house they were getting based on hair-dos alone,” says Jensen. Houses are sometimes shot months apart. While the two rejected properties may be on the market, in Jensen’s case, “They were just our two friends’ houses who were nice enough to madly clean for days in preparation for the cameras!”
A former subject of the spin-off “House Hunters International” confirms that one house on the program has already been bought before filming begins. Ted Prosser, who did his real estate search in the Virgin Islands, said in an interview with a St. John blog: “The show is not really a reality show. You have to already own the house that gets picked at the end of the show. But the other houses in [my] show are actually the other houses we considered buying.”
Hooked on Houses originally busted the program for using houses already in escrow in 2010, but now they are providing more dirt about other phony details. Jensen says producers tweaked her storyline to make it more TV-friendly. “The producers said they found our (true) story–that we were getting a bigger house and turning our other one into a rental–boring and overdone.” Instead they had Jensen emphasize that their old home was too small, something that she claims makes her “cringe” with embarrassment when she watches the episode.
When confronted with Jensen’s allegations, a publicist for ‘House Hunters’ told Entertainment Weekly in a statement:
“We’ve learned that the pursuit of the perfect home involves big decisions that usually take place over a prolonged period of time – more time than we can capture in 30 minutes of television…. We’re making a television show, so we manage certain production and time constraints, while honoring the home buying process…. Showcasing three homes makes it easier for our audience to “play along” and guess which one the family will select. It’s part of the joy of the ‘House Hunters’ viewing experience. Through the lens of television, we can offer a uniquely satisfying and fun viewing experience that fulfills a universal need to occasionally step into someone else’s shoes.”
Notice no denial of Jensen’s claims. Do you feel cheated that the folks on “‘House Hunters” are probably only pretending to wring their hands over details such as closet space and kitchen cabinetry or is this standard on so-called reality shows? Please let us know in the comments below.
Does not bother me
We are looking to purchase an investment property in the Temecula/Murrieta area for under 180k. The single-level homes that appear on the MLS (with no HOA) are selling in a matter of days. Since we can only get there on the weekend (we live in OC) we have little hope of finding something until this buying ‘frenzy’ slows down. We decided to wait until Fall and start looking then.
That’s a wise choice. There is no need to chase the market and buy into a frenzy. More houses will come to market eventually.
nothing to suggest that banks cant keep inventory off the mkt though…but where are the normal sellers? oh yeah, they are pricing it at crazy prices…
The equity sellers are still living in 2006. Psychological anchoring is very strong.
First we had this gem:
el ORACLE says:
March 7, 2012 at 3:33 pm
Well, that’s just incredible muchacho, barely 7000 homes for sale in OC. Hopefully, the tax credits will come back to fuel another “sustained bounce in prices” and we can all put our anti-gravity boots back on and ride HELOC’s to the moon. Lolllllll
And then this:
el ORACLE says:
March 15, 2012 at 6:00 am
IT”S NOW OFFICIAL: everyone can file the Steve Thomas market time benchmark (signature housing measurement) metric in the ‘useless data’ bin.
And now we get:
1st Rise For O.C. Home Prices in18 Months
http://lansner.ocregister.com/2012/06/13/busiest-may-for-o-c-home-sales-in-6-years/163570
I never thought I’d see the day when el Oracle would be outsmarted by a bankrupt realtor. Truly sad.
bwahahahaaa…. that is priceless muchacho, especially the ”outsmarted” part.
Clearly, you’ve been sleep deprived
PS: I hope all is well with your latest family addition.
WSJ: Why housing affordability is a mirage:
http://blogs.wsj.com/developments/2012/06/14/why-housing-affordability-is-a-mirage/
That article is so simplistic and nonsensical. Affordability is not a MIRAGE… it maybe be FLEETING.. but it’s not a mirage.
You have to factor in rents in an area.. Which the article doesn’t even touch on. You have to live somewhere.. and in most areas in 2012.. It’s about on par to own as it is to rent a similar condo or home.
Except with owning… and the ultra-low interest rates.. You are building LOADS of equity each month. I’m paying down my principal of $350K… by $7000 a year.. and increasing each year. In a few years I’ll be paying down $10K a year of my principal.
Thanks for that paper. I am going to use that as the basis of tomorrow’s post. I agree with “nonsense,” the paper’s analysis is shoddy and its conclusions are erroneous.
[...] Banks are slowing their acquisition of foreclosures to reduce their standing inventory of REO. They are also slowing the rate at which they are selling on the MLS and putting fewer and fewer homes for sale. Delinquent mortgage squatters are not taking up the slack and listing their homes as short sales, primarily because they get a free ride if they simply wait and do nothing until the bank finally forecloses. With both banks and loan owners choosing not to list their homes, the inventory available for sale on the MLS has fallen substantially. Until the incentives change, neither banks or loan owners are going to replenish the MLS inventory. [...]
[...] due to a sharp reduction in pending REO inventory, something I described at length in the post Banks cut standing REO inventories by reducing new acquisitions by 50%. CoreLogic has a very poor definition of shadow inventory because they include properties that have [...]
[...] established that banks are cutting standing REO inventories by reducing new acquisitions by 50%. They are reducing their inventory by allowing delinquent borrowers to continue to live [...]