Recent Articles
Oct 2, 2009 | No Comments | Sean Mills
Mark Hansen has been a beacon online prescription drugs of light since 2006 in an attempt to illuminate the wave of problems facing real estate and the mortgage industry. His new website is a great source of information for the California market and unfortunately the articles cannot be copy or transfered here. So take [...]
Mark Hansen has been a beacon online prescription drugs of light since 2006 in an attempt to illuminate the wave of problems facing real estate and the mortgage industry. His new website is a great source of information for the California market and unfortunately the articles cannot be copy or transfered here. So take a little time and read what he has to say. His website is www.mhanson.com/blog. -Sean
Oct 2, 2009 | No Comments | Sean Mills
My background is accounting first and commercial real estate second so this has always been a given that the Commercial Real Estate (CRE) market would tail dive after the residential market corrected. Any doubts check with some big commercial brokerage firms and inquire about sales activity. One of two answers will emerge: 1) No… sales [...]
My background is accounting first and commercial real estate second so this has always been a given that the Commercial Real Estate (CRE) market would tail dive after the residential market corrected. Any doubts check with some big commercial brokerage firms and inquire about sales activity. One of two answers will emerge: 1) No… sales volumn is fine/great we are seeing positive signs or 2) We have seen a slight correction on sales volumn. Remeber people a brokerage firms first goal is to have sales volumn or else they cannot stay in business. The bigger brokerage firms are handing out the kool-aid quicker than an usher at the Jamestown’s last bible study.
At the IMN Distressed Residential Real Estate Symposium last month in LA a reputable lending source stated production was off over 85% from the volumn in early 2008. No one on any of the panels speakers has cheap Propecia bought ANY real estate in the past 18 months. They were only buying non-performing loans (NPLs). With the exception of one speaker who admitted to a purchase of “a small amount of single family residences” which he was embarassed to admit. -Sean
Another Crisis is Brewing
A commercial real estate crisis is brewing and Bernanke either does not see it or will not admit it. Expect to see dozens of small to mid-sized regional banks go under as a result.
Why Stop There?
There are potential financial crises related to the jobs, currencies, banks, commercial real estate, pay option ARMs, Fannie Mae, pension plans, state funding issues, global trade, protectionism, credit card defaults, deficit spending, unfunded liabilities, derivatives, and a still rising unemployment rate.
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Oct 2, 2009 | No Comments | Sean Mills
This article will touch a nerve with a lot of people, not the ones dropping the old house for a newer cheaper one to take advantage of the bail out but the people who are not struggling financially but can’t seem to morally walk away just to take advantage of the “free ride”. I am seeing [...]
This article will touch a nerve with a lot of people, not the ones dropping the old house for a newer cheaper one to take advantage of the bail out but the people who are not struggling financially but can’t seem to morally walk away just to take advantage of the “free ride”. I am seeing this a lot in the areas I visit and research.
The classic definition of a “strategic default” is a borrower who can afford their mortgage, but stops paying it because they owe far more than their home is worth. This measurement from Experian is very different and includes many people who can no longer afford their mortgage. Long ago borrowers paid their mortgages first – to keep their homes – but that was when people actually had money invested in their homes. -Calculated Risk
Morals and ethics people, morals and ethics.-Sean
Oct. 1 (Bloomberg) — Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it’s worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their monthly payments are weighing whether to sell and pay the difference, stick it out until housing prices recover, or walk away. In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for New York-based Deutsche Bank Securities. In parts of California, Florida and Nevada, it’s as high as 75 percent.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC, a Dublin-based credit-checking company, and Oliver Wyman, a New York-based consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
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Oct 1, 2009 | No Comments | Sean Mills
Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009
Modified Loan Performance … [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the [...]
Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009
Modified Loan Performance … [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages for which data were available. Modifications made in third quarter 2008 showed the highest percentage of modifications that were 60 or more days past due following the modification. Modifications made during fourth quarter 2008 and first quarter 2009 performed better in the first three to six months after the modification than those made in the third quarter 2008.
Note: This doesn’t include HAMP yet because all of those modifications are still in the “trial period”. That raises a question: If a borrower re-defaults during the trial, will they still be considered a “re-default”? Something to watch for if the re-default rate drops sharply next quarter – they might be excluding the trial period re-defaulters.
Click on graph for larger image.
This graph shows the cumulative re-default rate by quarter of modifications. About 25% to 30% of modifications fail in the first three months.
For Q1 and Q2 2008, about 55% of borrowers have re-defaulted. Q3 2008 will probably be worse, and Q4 2008 and Q1 2009 about the same.
Over time, I expect a very high re-default rate since many of these modifications are just “extend and pretend” (the missed payments and fees are added to the principal, and the rate is reduced for a few years), although about 10% of borrowers received a principal reduction in Q2 (more than double as in Q1).
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Oct 1, 2009 | No Comments | Sean Mills
U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.
Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in [...]
U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.
Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests.
Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent.
The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group.
A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.
Signs of life have emerged in both home sales Buy Propecia and prices, helped by government stimulus programs including an $8,000 first-time home buyer tax credit.
The outlook for housing is split, however. Some in the industry predict another sales slide if the tax credit is not renewed and others say there will be a gradual recovery slowed by the usual winter sales malaise.
“We’re going to see another leg down, and if we lose the tax credit it will be a significant leg down,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California.
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Sep 30, 2009 | No Comments | Sean Mills
A client told me the earlier this year “you’re such a bear, is there anything you like right now?” Those of you who know me can easily answer this question. As for this article from Market Ticker, it speaks for itself. It is nice to know I am not the only “Bear” [...]
A client told me the earlier this year “you’re such a bear, is there anything you like right now?” Those of you who know me can easily answer this question. As for this article from Market Ticker, it speaks for itself. It is nice to know I am not the only “Bear” in the forest these days.-Sean
Following up on the quick mention now that I have a story to cite from Amherst:
Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.
Let’s put some numbers on this.
There are roughly 125 million single-family homes in the US.
Of those, roughly 30% have no mortgage on them at all. This leaves 87.5 million single-family homes with mortgages.
Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity. This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)
These numbers are, with a high degree of confidence (90%+) low – that is, losses will exceed these estimates, perhaps dramatically so. It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.
From this we can develop a “cocktail napkin” view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar “commercial” paper.)
$200,000 X 40% = $80,000 loss per foreclosure.
87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.
10,867,500
x 80,000
=============
$869,400,000,000
or $869 billion in losses remaining in single-family mortgages alone. 
What if the average outstanding is higher and negative equity greater than 20% (which is likely)? Losses will almost certainly be well north of a trillion dollars.
The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is “eating”, is insolvent. These facts are why the government is lying – they’re well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.
(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed Buy Propecia Online values for these loans by 50% or more – as was seen with Colonial.)
It gets better. The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has – contrary to its mandate – been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its “guarantee” should they default.
Care to argue with the math folks?
Sep 29, 2009 | No Comments | Sean Mills
I have been saying this for months that the banks are holding high numbers of non-performing loans. The research confirms it, high NODs and postponed auction properties. -Sean
The ratio of first mortgages 90-days late in Orange County rose for the seventh straight month in July, hitting 6.7% of all loans outstanding. That’s the highest percentage [...]
I have been saying this for months that the banks are holding high numbers of non-performing loans. The research confirms it, high NODs and postponed auction properties. -Sean
The ratio of first mortgages 90-days late in Orange County rose for the seventh straight month in July, hitting 6.7% of all loans outstanding. That’s the highest percentage since at least January 2007, when it was a mere 0.7%, and is up slightly from 6.6% in June, reports First American CoreLogic.
The percentage of mortgages here with some type of foreclosure filing rose to 2.4% in July from 2.3% in June and 1.6% in July’08.
However, the ratio of bank-owned properties (REOs) held steady for the fourth month at 0.4%.
I am guessing banks are delaying foreclosures as they try loan workouts and see who qualifies for the Obama administration’s loan modification plan. Most folks 60-days late nationwide are not getting trial modifications under the plan, data have shown.
Loan mods outside the Obama buying prescription drugs online without a prescription plan have a re-default rate in the range of 50% to 60%.
Note: First American released July’s delinquency figures earlier this month, but I just received their revised historical data. So here’s an updated chart showing 90-day lates, loans with a foreclosure filing (FF) and REOs going back to January 2007:
The chart tells a similar story to the one I published Sunday on outstanding foreclosure auction notices hitting a record.
More from this blog…
FDIC may borrow from banks to avoid taxpayer support
Sep 28, 2009 | No Comments | Sean Mills
WASHINGTON — The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.
The move would further cement the government’s role in propping up the housing market even as some lawmakers push to curb [...]
WASHINGTON — The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.
The move would further cement the government’s role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.
The effort, which could be announced as early as this week, is aimed at relieving pressure on government-operated housing finance agencies, which have been struggling to find funding amid the downturn. These agencies, or HFAs, are a small part of the housing market but are critical to many first-time and low-income home buyers, who can get lower-rate mortgages through an HFA than they could through a private-sector lender. Rates are typically 0.5 to one percentage point lower than commercial lenders.
Administration officials are concerned that HFAs have largely stopped making new loans, exacerbating the housing market’s woes.
Details are still being finalized. The plan requires formal approval from Treasury Secretary Timothy Geithner and the White House.
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Sep 28, 2009 | No Comments | Sean Mills
From Calculated Risk
From the WaPo: As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking
… Under a policy quietly formalized in 1998, the Fed refused to police lenders’ compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencies.
The hands-off policy, which the Fed reversed [...]
From Calculated Risk
From the WaPo: As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking
… Under a policy quietly formalized in 1998, the Fed refused to police lenders’ compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencies.
The hands-off policy, which the Fed reversed earlier this month, created a double standard. Banks and their subprime affiliates made loans under the same laws, but only the banks faced regular federal scrutiny. Under the policy, the Fed did not even investigate consumer complaints against the affiliates.
“In the prime market, where we need supervision less, we have lots of it. In the subprime market, where we badly need supervision, a majority of loans are made with very little supervision,” former Fed Governor Edward M. Gramlich, a critic of the hands-off policy, wrote in 2007. “It is like a city with a murder law, but no cops on the beat.”
… prescription drugs online since its creation, the Fed has held a second job as a banking regulator, one of four federal agencies responsible for keeping banks healthy and protecting their customers. … During the boom, however, the Fed left those powers largely unused. … The Fed’s performance was undercut by … the doubts of senior officials about the value of regulation …”Is there any point to which you would wish to draw my attention?”
“To the curious incident of the dog in the night-time.”
“The dog did nothing in the night-time.”
“That was the curious incident,” remarked Sherlock Holmes.
The failure of oversight was a serious and unfortunately common problem during the boom. For more examples see: Inspector General: FDIC saw risks at IndyMac in 2002 and Federal Reserve Oversight and the Failure of Riverside Bank of the Gulf Coast.
The WaPo title reminds us of the conversation between Colonel Ross and Sherlock Holmes in Sir Arthur Conan Doyle’s “Silver Blaze”:
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