Archive for July, 2012

In a recent post, I noted that FHA mortgage delinquencies skyrocketed more than 25%. Since most FHA borrowers only put 3.5% down, when factoring in a 6% commission, 2% closing costs, and a declining market, nearly all FHA borrowers over the last five years are effectively underwater. When these borrowers sell or quit paying, the losses will be huge because the capital recovery will be far less than the original loan balance. With a 9.4% serious delinquency rate, the FHA is facing 713,104 future foreclosures. This rate has been rising steadily, and many more delinquencies are coming because many borrowers will want to move before prices regain peak values. Many borrowers may opt for a strategic short sale or strategic default,…[READ MORE]

Shadow inventory is composed of delinquent mortgage holders who still occupy the houses they are not paying for. Many in shadow inventory have been living payment free for years, and many will continue living for free for several more. So why did banks do this? Ordinarily, banks would foreclose quickly to get their capital back to loan it profitably to someone else. What was their benefit in allowing so many to squat for so long? In mid 2008, house prices were crashing hard, particularly in subprime dominated markets which were the first to implode when their toxic mortgages required higher payments. Lenders quickly realized prices were crashing because they were flooding the MLS with inventory, and the available buyer pool…[READ MORE]

When I checked yesterday, the rate on a 30-year mortgage was 3.55%. That is the lowest reading I have ever seen, and we should be seeing news reports about new record low mortgage interest rates. These new low rates are making my reports on affordability show housing is a screaming buy in many cities even here in Orange County. However, super low interest rates have a problem. What happens when interest rates go up? Will rising interest rates cause house prices to crash? I don't think interest rates will rise fast enough to cause house prices to crash again. The federal reserve needs to bail out its member banks by pushing house prices back up to the peak to…[READ MORE]

realtors never want to see a deal die because the buyer can't get financing. Lawrence Yun, chief economist for the NAr, recently lamented about "unnecessarily tight credit standards" and "frictions related to obtaining mortgages." In a realtor's world view, there are no unqualified buyers. Back during the height of the housing bubble, the lending community agreed with them, and billions of dollars worth of loans were underwritten to people who had no hope of paying back the money absent continuing rapid appreciation. realtors should be careful what they ask for because getting their way with the lending community is what caused the devastation we are dealing with now. The reason lending standards are tight, and will continue to tighten, is…[READ MORE]

Why do short sales take so long? Basically, banks don't want to take a loss, and short sales cause them to lose money -- a lot of money. Short sales come in two basic varieties; properties with second mortgages and properties without. If a property does not have a second mortgage, short sales are generally quicker and easier to approve. The first mortgage is often covered by mortgage insurance, and as a percentage of the total loan amount, any losses are generally small. If a property has a second mortgage -- and millions do -- then the situation becomes much more complicated. In lien priority, when a property sells in a short sale, the first mortgage holder gets paid in…[READ MORE]

Home equity lines of credit (HELOCs) were the favored tools of Ponzis during the housing bubble. These were used like a credit card with an ever-expanding credit balance that didn't need to be paid back because the house was paying for it. Most borrowers viewed this as truly free money, and they behaved accordingly. This influx of spending drove the economy during the first half of the 00s, and the elimination of this stimulus and the subsequent need to repay this debt is what's causing our economic doldrums today. HELOCs are similar to other revolving lines of credit with a few key differences. HELOCs are secured by real estate whereas a credit card is not. If a borrower does not…[READ MORE]

The consensus among economists for June home sales was that sales volumes would continue to increase. Proving their fallibility, the consensus of economists was wrong -- very wrong. June and July are typically the best months for sales volume in the prime selling season, and sales volumes dropped in every region in the US. A large decline in existing home sales is further evidence that the house price bottom the consensus of economists is also predicting is in jeopardy. Nominal prices are moving higher, but it isn't based on the strength of demand, it is due to the restriction of supply. And with millions of homes in shadow inventory, weakening demand is not a good sign for the housing market.…[READ MORE]

Usually when you come across a homebuying advice article, it's a puff piece put out by realtors. These articles usually emphasize the emotional aspects of buying a home, ignore the troubles and potential downside, and try to create urgency to motivate buyers to act. In other words, homebuying advice articles are generally self-serving NAr bullshit. Today's featured article from the Wall Street Journal was surprisingly different. Either that, or the changing market conditions have made these articles less objectionable. I'll let you decide. Yea! Home Prices Hitting Bottom. Now, the Bad News. WSJ -- July 14, 2012, 9:16 p.m. ET This is a great time to buy a home in many parts of the country. There are signs that the…[READ MORE]

At some point, the dodgy loans of the housing bubble will be recycled, delinquency rates will fall back to normal, the shadow inventory will be processed, and foreclosure rates will decline to the point they no longer dominate market sales and keep prices from rising. But when will that happen? Based on the most recent data from Lender Processing Services, I have extrapolated recent trends to attempt to answer that question. But first, we need to understand where we are in the process. In early 2012, lenders halted processing shadow inventory of long-term delinquent loans to attempt one more round of loan modifications to comply with the national settlement agreement. They have taken advantage of this to greatly reduce their…[READ MORE]

CA - Foreclosure Outcomes Banks are slowing foreclosure rates yet again, and it isn't because they are out of borrowers to foreclose on. With the settlement earlier this year, banks began to clear out their existing REO inventory, and they slowed foreclosures in the Southwest in order to modify mortgages to meet their requirements under the settlement (note the uptick in cancellations last month). Ideally, the banks would like to modify loans to keep borrowers in place and complete short sales for those who want to leave. They don't want to resolve there legacy toxic loans by foreclosure. Unfortunately, borrowers are not cooperating. Borrowers benefit more by squatting until a foreclosure. BofA Give-Away Has Few Takers Among Homeowners: Mortgages By…[READ MORE]

In Memoriam: Tony Bliss 1966-2012