Wednesday, August 13th, 2008 at 4:13 PM
Neg-Am Recasts
CR is highlighting the Countrywide’s 10-Q today, from which I plucked this little ditty about their neg-am portfolio – it looks like 2011 is the peak, though the $9.5 billion to be repaid seems optimistic. Maybe when they say ‘repay’ they really mean ‘foreclosed’? :
Not to worry though, this is their description of what they are doing about it (but no mention of waiving recasts yet)
To minimize credit losses we actively monitor our portfolio of loans held for investment and work with borrowers who contact us or who become delinquent on their loans. Our portfolio monitoring activities may provide us with information that allows us to take actions to limit our loss exposure such as suspending borrowers’ access to their home equity lines of credit when their loans or related senior liens reach a specified delinquency status or when their property values decline below aspecified threshold.
We use several tools to establish communication with and assist borrowers in curing defaults on our loans, including frequent outreach efforts throughout the collection process using tools such as brochures, housing fairs, counseling letters andDVD mailings. Our objective in the loss mitigation process is to develop payment plans or workout options that have both the highest probability of successful resolution and minimal risk of loss to Countrywide. We have also developed loan modification programs designed to assist borrowers with refinancing their ARM and pay option ARM loans before their loans reset.
Posted on Wednesday, August 13th, 2008 at 4:13 PM in Uncategorized | 15 Comments » | 
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Interesting that they believe almost half will pay off. I wonder what this is based on? Is this based on past performance when people who lied about their income, etc were able to refi into any loan? What happens to their bottom line if half of the balances do not pay off?
Waiving the recast and changing the terms of the loan would force the bank to consider the loan an impaired asset. In this case they would have to reserve for the loan as if it was in foreclosure. The bottom line of the bank would be unchanged.
Further, Fannie Mae recently reported that when they let people create a new loan for all their missed payments these loans defaulted 40% of the time (Within 6 months). Waving the recast as you suggest would not save than bank but would rather create a larger loss in the future at least 40% of the time.
I agree with most everything you write, but extending up to 125% is a big time loser. While maybe you make up your money in roulette by increasing your bet, this will not work with mortgages.
LV Renter | August 13th, 2008 at 5:16 pmJim, did you read the shadow inventory link in the comments of the previous post?
Do you think it is possible that there are 166 REOs in "shadow inventory" for every 100 MSL listings in SD?
FreedomCM | August 13th, 2008 at 5:18 pmI think they’re assuming that most will refi out (and "pay off" the loan with another loan) before the reset period. Isn’t Countrywide one of the lenders frantically sending out letters asking folks to refi?
The problem is that, by 2011, most of these homes will be underwater, since most of these loans were made with so little down. Yuck. I don’t envy Countrywide/BofA here.
ericabiz | August 13th, 2008 at 5:44 pmLV Renter,
I offered the 125%-cap idea as an alternative to more crazy and ineffective government schemes. True, it only puts off the inevitable for most.
If they let it ride and we have catastrophic recasting of billions of neg-am loans within a 1-2 year period, it’s OK with me. I’d like to get this over with, but I fear that the government won’t agree and meddle further.
Jim the Realtor | August 13th, 2008 at 5:57 pmIf the government does meddle, though, it’s likely to do it by essentially giving the banks money so they don’t fail. I don’t see how this will alter house prices much, except possibly if the banks decide to drag their feet even more on the foreclosure process than they already have.
I also think this is pretty likely to happen in some way or another. Of course, it won’t be called the "Give Your Dollars to Bankers So They Can Make Their Lexus Payments Act". It’s more likely to be called the "American Apple Pie Homeowner Property Safety and Family Financial Security Act", and have as its main provision that every bald eagle in the country will be captured in a net and have an American flag tattooed on its butt, and oh by the way says in a footnote that it also gives your dollars to bankers so they can make their Lexus payments.
Dwip | August 13th, 2008 at 6:42 pmFreedomCM,
I did check out that link, thanks to Bluestreak for providing it. Here it is again:
Link
If they are relying on RealtyTrac for data, their numbers are probably screwed up. RealtyTrac admitted to me that they don’t review or edit their data, just throw it all on there. They have properties listed as being in foreclosure that got foreclosed and already sold to a new buyer months ago, and they still have them in the count.
If they rely on more accurate sources, then they’ll get my attention.
I took these numbers from Ward’s site:
23,454 NODs this year, and the researchers are using two-thirds of the NODs to come up with their number.
0.67 x 23,454 = 15,714
The researchers have 31,168 listed as the amount of shadow inventory, so I guess they are saying there are 16,000 left over from last year? I doubt that, there were only 8,416 trustee’s deeds in all of 2007.
The 31,168 is overstated, and they can blame RealtyTrac for that.
The REOs that I’m selling were foreclosed on in April and May. If we want a better guess at the number of properties coming to market shortly, let’s use the total REOs on Ward’s site for May, June, and July = 6,208, with another 10,000 NODs in the works.
The researchers called the foreclosure inventory more ‘toxic’, but I don’t agree with that term. They are more realistic on value, which is healthier for the market, if you ask me. Toxic is having a load of over-priced unrealistic sellers wasting everyone’s time.
Jim the Realtor | August 13th, 2008 at 6:47 pmGreat comment, Dwip.
Kwaping | August 13th, 2008 at 7:35 pmThe REOs that I’m selling were foreclosed on in April and May.
Wow, with the summer over we’re just starting to get into the REOs from months that saw record foreclosure numbers. These are likely from January, February NOD’s as well, and NOD’s have shot up since then. If I was a gambling man, I’d bet that we’ll see more NOT’s than MLS sales soon.
JordanT | August 13th, 2008 at 7:40 pmI agree, and the only way it doesn’t happen is if the REO sales pick up the difference, which we probably saw some evidence of in yesterday’s chart comparing the two.
Let’s predict:
6,208 = already foreclosed from May, June & July
12,293 = 90% of NODs from Apr,May,June,& July
18,501 = REOs still coming to market in 2008.
Foreclosures for everyone!
There are 18,471 active listings today.
There were a total of 8,457 homes sold between 8/1/07 and 12/31/07 on the MLS, an average of 1,691 per month.
Jim the Realtor | August 13th, 2008 at 7:58 pmFound this on cnbc today:
http://www.cnbc.com/id/26162093
It’s a video of a caller who didn’t even know he’s in foreclosure. He did, however, know he hasn’t paid bills for 12 months. Borrowed from . . . yup, Countrywide.
The Blur | August 13th, 2008 at 9:32 pmI just don’t see 3,000 sales per month after summer is over. I’m not saying it couldn’t happen, since we are living through historic times when it comes to houses. If investors take over the market, then I could see seasonality not being as big of a deal as it has in the past.
The second way it happens is if the government passes a bill banning foreclosures in the next month and paying banks to let the people stay. I’m not ruling this out, but considering it’s the August recess I doubt it.
JordanT | August 13th, 2008 at 9:44 pmJordan
Well it was reported the slight drop in NOD was due to the Ca legiclation which required additional notices prior to NOD. Prob take another six months before another law adds an additional month to the time line.
Jim are you going to spend time on DT condos again soon?
LV Renter | August 14th, 2008 at 12:45 amIs that reported recast the recast based on paper set dates or actual burn rate of the borrowers? I’m guessing paper dates and we’ll see reports next quarter on how people are utilizing the minimum above expectatios due to the economy or some such BS.
No_Such_Reality | August 14th, 2008 at 4:04 amWoohoo! Foreclosures for everyone! You said it Jim!!!!
greenlander | August 14th, 2008 at 8:08 am"Forclosures for everyone!"
Although I’m sure that statement was intended in jest, I am planning on spending the next few years amassing as much real estate as possible (prudently, of course). I believe we are at the cusp of a revolution where labor, even intellectual labor, will see a rapid fall in value. From "The Economics of the Singularity"
http://www.spectrum.ieee.org/jun08/6274
In other words, most humans will live on state welfare, while owners of hard assets will be the only ones able to produce income. I believe this could happen in as little as 20 years.
Mr Tech Guy | August 15th, 2008 at 12:47 am