10 things we know FOR SURE are:
1. Not all Foreclosures are being stalled by the moratorium.
California Foreclosure Prevention Act imposed a 90-day moratorium on housing foreclosures under a new law that took effect Monday. California Assemblyman Ted Lieu said “We’re getting about 80 to 90,000 foreclosure filings every month. That’s one every 30 seconds”
What else are they going to do but try to stall foreclosures? The lenders simply cannot get to all the people who need help. By stalling them, at least they may be able to modify more loans and thwart off some foreclosures. Some lenders would rather just foreclose. On the flip side, many people may look at this as a chance to simply stay in their homes for free for another 90 days and ultimately still walk away. I have personally seen several cases at You Walk Away where the lender simply will not take back the property. (Mostly jumbo loans)
There is a list of lenders who have become exempt from this moratorium click here to see the list.
2. Banks are holding back REO’s
This is a genius move by the Banks / Lenders. By holding back the REO inventory on the market, they are manipulating the supply and demand on Foreclosed homes and creating a feeling of scarcity. There should be no wonder right now why there are multiple offers on REO properties. If the banks were to dump there properties on to the market all at once, all the values would drop drastically and there would be no demand.
Recently I sat across the desk from a bulk REO purchaser and he was complaining that the bulk buying of REO “tape” has seemingly dried up and they were moving into bulk buying of distressed notes.
3. Unemployment is on the rise
Taken from an AP article on July 2, 2009, The Labor Department is scheduled to release a report Thursday expected to show the nation’s unemployment rate edging closer to double digits. Wall Street economists predict the jobless rate will rise to 9.6 percent in June from 9.4 percent in May. That would mark a 26-year high.
The rising rate comes as recession-weary companies continue to cut workers. Economists expect a loss of 363,000 jobs in June, up from 345,000 job cuts in May. Economists believe a chunk of those cuts will be tied to shutdowns at General Motors Corp. and fallout from the troubled auto industry.
Today we found out that there were actually 467,000 job losses in the month of June. That was about 100,000 more than economists predicted.
4. People are running out of money!
People I know are saving more than ever. Others are doing their “Last hurrah” just before filing BK. But one thing I know for sure is that the money in our economy is shrinking and people have less and less to spend. Many are also starting to save, thinking they may need it if they lose their job or if the economy worsens. While running out of money, people are maxing out credit cards to supplement income. See this chart taken from Bloomberg.
5. Credit card defaults are soaring
Credit card defaults are on the rise and so are bankruptcies. At YouWalkAway.com we hear constantly that people are still using their credit cards to pay their mortgage payments. Sometimes our customers come to us just as they used the last of their credit card limit and / or their savings. Others (IMHO) come sooner, before they max out their credit cards, use all their savings and deplete their retirement accounts on a losing asset. Once your credit has reached its limit, your savings and retirement are gone, it’s going to be a much harder to get back than the 3 years it takes to be able to buy a home again after a foreclosure.
Taken from CNN Money.com, Bank of America (BAC, Fortune 500), the nation’s largest bank, said its default rate jumped to 12.5% in May from 10.5% the month before. Other major banks, including Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Capital One (COF, Fortune 500), also reported increases in May default rates.
6. A large % of real estate sales are investors/speculators
I talk with real estate agents on a regular basis, one of the most common things I hear is cash offers. Investors have cash, not first time home buyers.
In Ft. Meyers, Florida almost 60% cash buyers!
Of the 6,474 homes sold in Lee County between Jan. 1 and May 31, almost 60 percent went to cash buyers. The proportion of cash buyers is even higher on foreclosed properties. About 64 percent of bank-owned properties are going to buyers with cash.
7. Loan applications are down and loans are ridiculously difficult to get.
A reduction in average mortgage rates last week didn’t stop the decline in applications
for home loans, the Mortgage Bankers Assn. reported this morning.The refinance boom continued to fizzle out, with applications down 30% from the previous
week, to the lowest level since November. Purchase applications
fell by 4.5%, according to the report, which you can read at the website below.
http://www.mbaa.org/NewsandMedia/PressCenter/69498.htm
Recently I spoke to a loan officer relative of mine in the Mortgage industry. She said that people at her (very large lender) were quitting their jobs because it was SO difficult to get a loan funded. People all over are reporting how difficult it has become to get a mortgage loan. The lenders keep asking for more and more documentation and delay the process so long that people either lose their rate locks, or can’t close escrow on time.
Cnnmoney.com reported today that: Mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30%, data from an industry group showed Wednesday.
At www.youwalkaway.com we speak to people everyday who have recently tried to refinance or get a loan modification… Declined, declined, declined.
8. Lenders are modifying loans
MortgageDaily.com reported on Tuesday, June 30th that:
Chase Hires 1,000s as Mod Activity Leaps
JPMorgan Chase & Co.’s banking business has approved more than 100,000 trial loan modifications during the past three months, and the company is pleased so far with first-payment activity. Thousands of new employees have been hired to handle increased modification and origination activity.
From April 6 through June 30, the New York-based institution approved 138,000 trial mortgage modifications, an announcement today said.
Included in the total were 87,100 modifications under the Making Home Affordable program and 50,900 of its own modifications.
9. People are walking away from their modified loans
An Attorney friend of mine who runs a Law Firm in San Diego told me recently that he has noticed a good number of homeowners that receive a loan modification, feel that the new modified terms are “just not good enough” and they would rather walk away from the property. The number of people re-defaulting on modified loans is anywhere between 24%-60% depending on the type of modification.
Here’s what the JP Morgan analyst said about the data they pulled together from the Loan Performance database.
Moving on to the subject of re-default, we note that the overall re-default rate stands at 40%. Breaking that number out by modification methods, we observe that capitalization has the highest re-default rate of 54%, and rate reduction the lowest of 24%. Also, the more severe the starting delinquency status before modification, the higher the re-default rate (Table 7). Despite rate reductions seemingly being more effective than principal forgiveness in terms of re-defaults, we note that lowering the balance of a mortgage through a modification by 20% or more results in a re-default rate of 32%, compared to 43% when the balance is increased (mainly due to capitalization)—i.e., balance modifications impact redefault rates.
There also seems to be a strong correlation between monthly payment amounts and re-defaults (Table 6), reaching from 26% of modified borrowers re-defaulting when their payment drops by 30% or more, to 59% redefaulting when the payment increases. Given the mechanics of capitalization (delinquent amount is added to the loan balance and the loan is re-amortized resulting in higher payments) and the high re-default rates with an increase in monthly payment, it is obvious that the payment increase is the main driver for high re-default rates when capitalization is applied. Therefore the combination of capitalization and rate reduction, which results in an unchanged or decreased monthly payment 94% of the time and a re-default rate of 41%, is much more effective than just capitalization with a 54% redefault rate. Additionally, 66% of re-defaults happen within six months after modification. We think a 40% re-default rate for modified loans is reasonable going forward.
10. Many Homeowners are still delusional about their property value
Why wouldn’t they… the real estate market is recovering!!!! (sarcasm of course)
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Great job ! everything is pretty much on the money except
foreclosures being stalled . yes and no . most all of the banks that matter, have attained a license exempting them from this moratorium ! check it out ! http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf
Not that it would make a difference ! just thought i would mention it .
Nice. I don’t know why USA government is hesitating with printing money and creating new jobs for a people… It seems that private investors are without idea…
Great post..
We spoke with a Wachovia/ Wells Fargo official 2 weeks ago who told us that the banks are reporting literally hundreds of thousands (with Wells and BOA alone..110,000) 60 day lates. Stats show that 90%+ of all homeowners who miss 2 payments are going to lose the home through foreclosure or the smart ones will sell via short sale.
No where near the end….that is for certain.
Banks holding back their REO inventory will only prolong the time for the RE market to bottom out. Instead of a quick coagulation they prefer the long slow bleed out which could result in much longer and more depressed economy. Yes, the selling of the loans at a deep discount will help the banks reduce their paperwork and dump the bad debts from their books but then what will the investor do with the bad loans? FORECLOSE !
Surely printing more money is not the answer. All that does in cause hyper inflation. You and I and our progeny for years to come will be paying for the screw-ups of our government and the money mongers.
The best thing for the guy that sitting in a house that is upside down is to NOT WALK AWAY. Best thing is to STOP making mortgage payments and live in the property until served a sheriff notice to vacate after the new owner of the property goes through the unlawful detainer action. This way they can bank what they would have paid out in mortgage while waiting for the eviction notice. In present day climate, that would equate to 12-24 months of saving the mortgage payment.
That’s my 2 cents worth
In regards to Tim’s comment about 90% losing their home that are 60 days late..those facts are way off..a HUGE percentage of those homeowners who are 60 days late are doing this due to the response of the lenders who REFUSE to work with homeowners who are not past due(regardless of Obama Affordability Program saying you don’t need to be behind…remember his Program is VOLUNTARY ONLY)….
I work at a loan mod center and most of the 60 day lates we are dealing with are doing this because of the standard answer they are told when they call…”We are working with those that are behind first”…a huge percentage NEVER go past the 60 days…if you want to look at the foreclosure ratio you need to look at those homeowners who are 120 days past due or more..
ANNA , im not sure where you live but here in San Diego County,
records show about 50 percent of notices of default are turning into bank-owned foreclosures . recently, San Diego County accumulated 4,100 notices in the first four months of the year !
the notices of default during the first four months of the year translated into 525 foreclosures per month. you do the math ! ive been investing in real estate estate for over 25 yrs . this is the worst ive seen it !I personally know of areas in the inland empire that exceed 50% and have approached the 90% mark for a short period time ! of course this number will very depending on where ! maybe you should investigate this for yourself before correcting tim’s comment .
No question that the banks are holding back REOs. At least on the higher end houses. Last month my realtor walked me into a handful of bank owned houses that had not been listed on the market. The houses had been sitting complete empty for months in higher priced housing tracks. I don’t agree with the comment “Loan applications are down and loans are ridiculously difficult to get.” I think this statement should be qualified. “Loan are impossible to get under previous terms- zero down, no proof of income….” I had no problem just qualifying and buying a higher end house. I put down 25% cash and provided pay stubs to show income. Bank had no problem prequalifying and providing loan.
MJR says to stay in the house until the sheriff shows up to evict. I don’t know if this good or bad advice. But, I remember reading sometime ago that some people were doing just this in $2million condos overlooking the beach in Florida. The banks were taking them to court saying they were foreclosing for lack of making the monthly payments. The condo owners challenged the banks in court saying the banks were not the owners of the condos and had no legal standing in court. Their lawyers demand that the banks produce the original notes/deeds/mortgage papers. Since the banks had sold off the mortgages to investors, they could not produce the papers showing they were the legal owners. The judges ordered the banks to produce the papers or the case was getting dismissed. The banks couldn’t produce the papers because they were sold to pools of investors and they could not track them all down. So, the condo owns have been sitting in these $2million plus condos not paying anything with banks unable to foreclose. And, I am talking staying in these condos for two years or more without making mortgage payments.
Jose Perez is right. Anyone being threatened with foreclosure should contact a lawyer and challenge the banks to show proof that they have the right to foreclose on your home by producing the original note and trust deed. A lot of these were packaged and sold off to investor pools and tracking of them was lost. My inside information is that alot of these original docs ended up in storage and warehouses then when some of these companies overseeing these docs like banks and lenders went bankrupt, the bankruptcy judge said they could be destroyed so guess what? No originals, no foreclosure. If you leave your house or refinance, you loose because you sign new loans docs that will now again enslave you. People wonder why short sales don’t work. Same reason, the banks have to go to all those investors in the pool that own your docs and get approval. How easy is that? To get written permission from 20 people who own a piece of your property. Good luck and don’t give up!