bubbleinfo.com

Yesterday Calculated Risk highlighted the current Wells Fargo quote of 9.00% for jumbo 30-year fixed rate mortgages, and the Wall Street Journal had a story about lenders tightening their underwriting – here’s an excerpt:

On Thursday, Moody’s Investors Service boosted its estimates for losses for securities backed by jumbo mortgages issued in 2006 and 2007. Jumbo mortgages are those too large to be eligible for purchase by government-sponsored mortgage companies Fannie Mae and Freddie Mac (NYSE: FRE).

Both delinquencies and foreclosures continued to climb for option ARMs. The share of option ARMs in foreclosure jumped to 7.8 percent from 7.3 percent over the two-month period.

Nearly 30 percent of option ARMs originated in 2006 were at least 30 days past due or in foreclosure 2 1/2 years after origination.

One sign that credit tightening is having some effect: Delinquencies are lower for mortgages backed by Fannie Mae and Freddie Mac that were issued in the first quarter of 2008, compared with 2007 loans backed by the agencies at the same point in their life.

Still, the early track record for the 2008 loans is worse than that for loans issued in 2005 and 2006.

“Underwriting has tightened,” said Ted Jadlos, a managing director with Applied Analytics. But the fact that delinquencies aren’t lower, given borrowers’ higher credit scores and tighter loan standards, “tells me that 2008 loans aren’t out of the woods,” he said.

Carl Streicher is who got me in with Countrywide to sell their REOs.

He was telling me yesterday about financing he has arranged for a buyer of a $2 million house who is using a 30% down payment and has a fully-documented package.  Countrywide gave him a 30-year fixed rate mortgage at 6.75% and no points on his $1.4 million loan!

 He explained that with B of A’s backing they are going after the jumbo 30-year fixed-rate market with the intention of keeping the loans in their portfolio, instead of selling them on the secondary market.

 If you, or someone you know, wants to obtain a jumbo 30-year fixed rate mortgage around 6.75%, contact Carl Streicher, and tell him I sent you!

Carl Streicher

Countrywide Bank, FSB

(760) 268-4344

carl_streicher@countrywide.com

We’re having a barrel of fun tracking the homes heading for their trustee sale.  There are so many to consider, and the lenders so lame in publishing their opening bids, it makes it very challenging to find a gem at the right price.

We thought this 4 br/4 ba, 4,200 sf one-story on a half-acre lot in the south end of 4S Ranch would be a decent buy around $1 million.  So I did the last minute check yesterday (see video below) and starting calling for the opening bid.

It finally came through at 9:15am this morning – $1,029,600, and the buyer, who was only available by phone, thought that was close enough.  I jumped in my car and headed south to pick up the million dollars and head for the court house steps.

As I’m getting off at Front St. downtown, I get the call from my contact – the homeowner has just delivered bankruptcy papers to the trustee, postponing the sale.

You ought to try to get one of these!

You may have seen in Forbes Magazine last week a story about foreclosure hot spots.  They mentioned La Jolla and Carlsbad prominently:

The crisis on Wall Street is shrinking net worths and erasing nest eggs. Next on the block: multimillion-dollar homes.

In some of America’s wealthiest spots, that’s already happening. According to RealtyTrac, an Irvine, Calif.-based listing firm that tracks foreclosures and provided the data here, several of the country’s wealthiest ZIP codes–where year-to-date median home sales are above $700,000–have reported foreclosures into the triple digits. They include La Jolla, Calif.; Miami Beach; and Carlsbad, Calif.

In Carlsbad, for example, there are 302 homes in foreclosure. The wealthy beach town–the median home sale price is $710,000–has suffered from overvaluation and risky financing, says Rick Sharga, a senior vice president at RealtyTrac. The only thing that separates homeowners in Carlsbad from those in spots like St. George, Utah, with 274 current foreclosures and a median home price of $218,000, and Ann Arbor, Mich., with 436 current foreclosures and a median home price sale of $225,000, is that in Carlsbad folks are losing their second homes.

Here’s a link to the full article:

http://www.forbes.com/realestate/2008/09/16/foreclosures-luxury-zip-forbeslife-cx_ls_0916realestate.html

A review of the foreclosure rolls in Carlsbad revealed the following:

Today the foreclosures are down to 295, after removing the lis pendens in 92009 (Barratt), and two hangers at Palomar Airport.

The break down by zip code:

92008 – 67

92009 – 117

92010 – 57

92011 – 54

The author mentioned that “Carlsbad folks are losing their second homes”, but are they? 

As far as second homes, a review of the beachfront 92008 zip code showed only three condos in default that were owned by out-of-towners.  But you don’t have to be near the beach to be a second home.

Let’s examine the biggest sample, the 117 homes in default in the 92009 zip code.

A review showed that 93 of the 117, or 79%, listed the property’s address as their mailing address, the typical evidence of owner-occupancy.  So about one out of five are rentals or second-homes.  Looks like the Forbes claim of Carlsbad’s second-home owners in trouble isn’t exactly accurate, 

Instead, it looks like most in default are regular people losing regular homes.

Are those in default trying to sell their home?  Only 38 of the 117 were an active or pending listing on the MLS (31 active, 7 pending).  Literally 68% of the homeowners are going down with the ship and making no attempt to sell. 

Look for the inventory of REOs to swell in the coming months.  Of the 117, only 33 were at the notice of trustee sale phase (28%).

77 of the 117, or 66%, purchased their home since 2004.  The remaining third of the overall group in default have likely refinanced themselves into trouble, and/or just plain old took the money and ran.

Not sure why Carlsbad is mentioned as being a place where multimillion-dollar homes are getting foreclosed.  I only saw nine of the 295 that have a legitimate chance of selling for over a million dollars, and none over $2 million. 

Where Forbes got the idea that ‘Carlsbad folks were losing their second homes’ is unknown – it appears that they are losing the houses they live in, primarily – the bulk of which are in the $600,000 to $900,000 range.

People are wondering if a $700 BILLION bailout will have an affect on the local housing market.  From what I can tell, the answer is NO, and it could make it worse.

The money isn’t going to be used to fund more mortgages, it’s going to be given to those MBS investors who are now holding the bag after trusting that they had bought something of value.  Two of the biggest investors are Deutsche Bank and HSBC, and whether they get a payout or not, you can bet they’ll be buying a lot LESS mortgage paper from now on.

So will many of the others who bought MBS, CDOs, and whatever other bad stuff is going to bought by the Treasury.  The best the government can hope for is that those same investors buy Treasuries now, instead of mortgage bits, to help keep interest rates down.

But don’t expect mortgage underwriting to get looser, exotic loan programs coming back, or any other creative financing that helped get us here in the first place.  Those planning to buy a house will have to qualify by traditional standards for a long time to come, and hopefully forever.  So when you hear that this bailout will help the real estate market, be very skeptical.

Let’s filter it down to the individual homeowner.  Will a $700B bailout make it easier to get a loan modification?  Will your lender/servicer now hire more staff to handle loan modifications? 

No way, if anything they’ll be pushing more borderline borrowers towards foreclosure so the bad paper can be sluffed off on the government. Expect more foreclosures, not less.

In short, this Mother of All Bailout Plans is only the next bailout, not the last.  Unless something is done to bolster homebuyer confidence, the market will continue on it’s current path, and the government will be tempted to cook up more plans that probably won’t work either.

Will they ever think of doing something for today’s homebuyer?  The only plan I can think of that has a chance of encouraging buyers is the buying down of their interest rate. 

Using a 30-year fixed rate of 6%, the P&I payment on $500,000 is $2,997.75 per month.

If the ‘Hanky’ included a couple of hundred billion dollars for FHA buydowns, they could fund loans at 4.50%, lowering the P&I payment to $2,533.43, a savings of $464.32 per month. 

For those FHA buyers putting down less than 20%, include the 1.75% funding fee in the loan and add .50% monthly for mortgage insurance and that’ll get the payment down to $2,789.74, which saves $208.01 per month with as little as 3% down.  (But no more down-payment-assistance programs!)

I don’t think that’s enough savings to cause buyers to make irrational decisions – I think they’ll still be plenty picky about what house they’d buy, and how much they would be willing to pay.  But saving a few hundred dollars per month is what buyers want, and currently the only way that is going to happen is for prices to continue downward.  Prices will still head that way, but there would at least be more incentive for buyers to keep looking. 

If Congress fails to approve the Hanky, it’s OK by me.  But if they continue with the bailouts, help the prudent ones too – having ALL taxpayers be penalized to help the few is wrong.

John Gittelsohn sent along his article in the O.C. Register about Washington Mutual and more mortgage fraud.  The borrowers had been convicted in 2003 of numerous felonies for a real estate fraud scheme, yet WaMu loaned to them again in 2007. 

The more you read, the more you think that WaMu was funding any and every deal they could last year, before finally terminating their wholesale mortgage broker operation – yes, I’m sure they’ll blame it on the brokers.  But WaMu was funding these scammers into 2008.

Here’s a snippet of his article, but click through to read the whole thing and also catch some interesting statistics about WaMu: 

In July 2007, Vijay and Supriti Soni of Corona del Mar paid $440,000 for a home at 2129 W. Civic Center Drive in Santa Ana.

Five weeks later, they resold the house to Javier Hernandez – the family gardener and handyman – for $660,000. That’s a 50 percent gain in 38 days – at a time when real estate prices in Santa Ana were plunging.

But the lender that financed both mortgages – Washington Mutual Bank – took a bath. In March of this year Hernandez’s loan went into default and in July the bank foreclosed. On the trustee’s deed, the bank listed the home’s value at $377,137 – $220,000 less than the outstanding loan.

Records show that Washington Mutual, America’s largest savings and loan and one of its most precariously perched lending institutions, financed at least 43 mortgages worth $24.5 million on properties bought and sold by members of the Soni family since early 2007.

http://www.ocregister.com/articles/soni-washington-mutual-2163800-sonis-family

615 Monica Circle

The 4 br/2 ba REO house on Monica went on the MLS yesterday.

This is the one where we were arguing about price – the AM said $164,900 repaired (carpet and paint), and I said $180,000 ‘as-is’.

He compromised, and it’s out at $176,900 with new paint and carpet to be installed in the next couple of days.

With a 20% down payment the PITI would only be around $1,100 per month, and I think you could rent this for $1,400 to $1,500 per month. 

These are the types of properties that are attracting the investors, and if you are looking to buy in bulk, there are three other REOs for sale on this 20-house culdesac! 

The Downey REO across the street was purchased by the same former owners of this house – this is the place where the daughter became a realtor and convinced her parents to refi out enough cash for the down payment across the street, and they ended up losing both to foreclosure.  She works at McDonald’s now.

OK, we’re back in business – thanks ’Dawg for your assistance last night!

SUBSCRIBERS – ONLY A COUPLE OF DOZEN EMAIL ADDRESSES TRANSFERRED OVER TO THE NEW HOST.  IF YOU’D LIKE TO RECEIVE UPDATES ON NEW POSTS BY EMAIL, ENTER YOUR EMAIL ADDRESS IN THE ’SUBSCRIBE’ BOX IN THE RIGHT-HAND COLUMN – IT’S WORKING AGAIN!

Kelly Bennett published a story yesterday about FHA/VA financing, and the problem it poses for purchasing foreclosures.  Because the pricing of REOs make them look like deals compared to everything else, there has been a lot of action on them lately, with most attracting multiple offers.

But the FHA/VA loans require that the appraiser look for repairs needed – and make their completion a requirement of closing.  As a result, when multiple offers come in, the REO asset managers ignore those with ‘govie’ financing and try to make a deal with the buyers with bigger down payments and conventional financing.

It tilts the REO market in favor of the investors – which are out in hordes in Oceanside these days.  The house on Cottingham ended up with 10 offers on it, with half being from investors.  An owner-occupant buyer was the winner, paying 12% over list, with an investor right behind, about $2,000 lower.

It’s good to see that FHA/VA loans with little or no money down require a more-stringent look at the condition of the property, but unfortunately it’ll eliminates most of the REO fixers for govie buyers.  

Here is the link to Kelly’s story:

http://www.voiceofsandiego.org/articles/2008/09/20/housing/866homebuyer091908.txt

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What happens to those on the edge of foreclosure?

If you are Jan Terry, owner of this house at 2872 Vista Acedera in La Costa Valley and Jenae’s co-conspirator, you pull out all the stops.

First it was to try their lease-option program, hoping to find a renter willing to cover her roughly $9,000/month obligation. But no takers.

Then she tried the typical short sale strategy, starting with a list price of $1,100,000, which was slightly under her purchase price (and 100% loan amount) of $1.25 million in April, 2007. She eventually lowered it down to $890,000, but then cancelled the listing.

Now she has reverted to the last resort. We think she must have sent in a short-sale offer to the bank to postpone the trustee sale, which was scheduled for July 17th.

In the meantime, she has rented the house to 14 surly individuals who come and go at all hours, night and day!

The HOA says they can’t do anything. Carlsbad P.D. says they might tow this car that they park around the corner, but that’s about all they can do.

The neighborhood has already suffered from this inflated sale, which contributed to others paying too much – now the impending foreclosure of a house that is surely in disrepair will help tank values further. Thanks Jenae!!!

We’re going to be wrapping up our stay here at square space in the next day or two, and moving to a new blog host.  There shouldn’t be any disruption, hopefully many won’t notice, but it will require a re-start for the subscribers.

I’ll let you know when, but you’ll have to sign up again to receive notifications on your subscriber service.

We’re also concluding the third year of bubbleinfo.com next week, and I am very grateful for your readership and participation!  It’s impressive that so many people are interested in SD real estate!

How many you ask?

Here are the stats from the last 12 months:

Thank you for being here – and stay tuned!