The foreclosure tsunami appears to be on its way – new defaults, re-defaults, and foreclosure numbers are rising, and there’s still the backlog of those who are attempting to loan mod that will eventually get denied.
According to foreclosureradar, there are 4,047 bank-owned properties in San Diego County, and 20,215 outstanding NODs and Notices of Trustee Sales.
Will the impending flood of REOs depress sales and prices further?
I don’t think so.
I think an increase of foreclosures would IMPROVE the coastal market, turning it into a frenzy-like condition. The lack of well-priced inventory up and down the coast has been very frustrating for summertime buyers, and they’d love to have a shot at buying a well-priced “bank deal”.
The banks are listing their REOs for close-to-retail too, so sales prices would only crash if they did literally flood the market with new REO offerings.
Here are a few examples for evidence that when a decent REO comes on the market.
There were 28 detached north-coastal REOs that closed escrow in the last 60 days, and their average SP/LP was 100%. Fifteen of them sold for OVER LIST PRICE:
Cam de Orchidia
It’s safe to say that sales will definitely improve if REOs flood the market – if the bank-sellers need to lower the price to find a buyer, they will. But frustrated buyers just want to buy a house, and if they have to pay list price, or higher, just to get a “bank deal”, they’ve been doing it. It would take a blunder by the banks – unloading hundreds of REOs at a time – to cause prices to plummet.
About 1 in 10 Californians with a home loan is now in default, and there’s growing evidence that the mortgage meltdown is spreading to commercial real estate.
The home mortgage delinquency rate — the percentage of borrowers who have missed several payments and are in the first stage of foreclosure — climbed in June to 9.5% in California and 9.9% in Los Angeles County, according to First American CoreLogic.
The staggering number of home mortgage defaults probably will lead to large numbers of foreclosures through at least this year, housing experts say.
“It’s probably a given we’ll see a high number of foreclosures in the next couple of quarters due to the level of defaults plus the recession and jobs lost. There’s plenty more pain to come,” said Andrew LePage, an analyst for real estate research firm MDA DataQuick of San Diego.
This house is located near the intersection of Ave T and Van Sicklen:
Occupying what used to be a driveway, it’s a 1br/1ba home on a parcel of land 7.25 feet wide and 113.67 feet long. The interior area is just under 300 square feet:
The living room, looking towards the front of the house:
From the living room looking back:
They’ve managed to fit a washer and dryer into the kitchen!
The bedroom comes with a Murphy bed, which is a necessity in such a space. Here it is down:
The bedroom with the Murphy Bed retracted:
You also get some patio space in back, looking towards the house:
And here’s the patio looking towards the back:
Here are the home’s ‘Listed Features’:
* Completely redone top-to-bottom, front-to-back!
* Tumbled stone entrance walk
* Renovated Bath
* Renovated Kitchen with new stove, new cabinets and new stacked washer/dryer
* Bedroom with Murphy Bed + ‘Built-ins’ … (doubles as a den)
* Walkout to fenced patio
* 100 Amp service
* 2 Satellite Dishes and Receiver
* Window Air Conditioner Available
THE PRICE ? ? ?
“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month. “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”
She cited Ocwen Financial, which reported that nearly 12 percent of its income in 2007 came from fees to borrowers.
“It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial.
“I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”
As a home slides toward foreclosure, mortgage companies pay for many services required to take control of the property and resell it. They typically funnel orders for title searches, insurance policies, appraisals, and legal filings to companies they wn or share revenue with. Ocwen established its own title company, Premium Title Services, in part to keep more of the revenue from foreclosures, said Ms. Golant, who helped start it.
Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.“It was hugely profitable,” she said. “Premium Title would charge for the title when it got transferred to Ocwen, then charge again when it got transferred to the new buyer, and then sell title insurance. It was easy money.”
Mortgage companies not only gain this extra business through their subsidiaries, but also collect reimbursement for the payments when the houses are sold.
The investors who own bad mortgages accept whatever is left. Investors typically do not notice how much they give up to the servicers, because fees are embedded in complex sales.
“It’s under the radar,” Ms. Golant said.
Ultimately, the benefits of delinquency erode incentives for mortgage companies to dispose of troubled loans quickly, say experts, allowing distressed houses to decay and fall in value — a fact of little interest to the servicer.
“At the end of the day, it doesn’t matter what the house sells for, because they don’t take that loss,” said Ms. Golant. “Meanwhile, they are collecting all these fees.”
My wife and I were biking around Mission Bay yesterday just before sunset. My wife was wearing your Bubbleinfo shirt.
Just as we slowed down to avoid hitting a renegade kid crossing the bike path, a 20-something female jogger walked up to my wife and said “I recognize that shirt. How did you get Jim to give you one?”
Needless to say we had a long conversation about you and your website. The female jogger (never did get her name) has never posted on Bubbleinfo.com but reads your blog each and every day. She and her fiance plan to buy a house in Carlsbad next year and will be using your services. You certainly have a loyal following.
That’s the third time now I met a young female with your t-shirt. Pretty impressive for a gray-haired, 50-something, overweight guy. Maybe should advertise your shirts as ‘Certified chick magnets. Better than a Bichon!’
So how’s that “Bubbleinfo Hand Gesture” plan working? I wanted to do a special hand gesture to solidify our special bond as we parted ways. But a simple bye-bye wave had to do.
This video shows six properties in Carmel Valley that have a trustee-sale date in the next 4-5 weeks – I blew the first one though, it just closed as a short sale for $875,000. There are more, but we’ll add the five to our Carlsbad Nine to use as our test group of fourteen. Do they get auctioned off at the court house steps, do they postpone forever – or do they finally get their loan mod?
What happens to the people who get denied for their loan modification? The free rent program must be addicting, are they saving their money and willing to go back to making their old payments? They may think so in the beginning, but after getting denied there would be a natural bitterness towards the lender after jumping through all of their hoops. We may see some defaulters get their trustee sale cancelled, only to reinstate later.
How many do you think eventually get foreclosed? If you see any you like to buy, let me know and we’ll pursue them – here’s the youtube video tour:
JtR note: If your house isn’t selling, and you are thinking of renting it instead, base the decision on your encumbrances, and your ability to hold out. If you can have a positive cash-flow from renting, then great, consider the joys of being a landlord, and plan to hunker down for the long-term.
But the sellers who are highly-encumbered should sell now, because your selling difficulty will remain high in the short-term (next few years) due to:
a. Trying to sell a tenant-occupied property (they usually don’t show as well, or as easily).
b. Trying to sell a previously-tenant-occupied property (tune-up costs + monthly payments add up).
c. Any combination of lower prices or higher interest rates.
Sell for what you can get today, or risk selling after one (or more) of those impact you.
The country is finally starting to see some positive signs in the housing market. But don’t tell that to Treasury Secretary Tim Geithner, or the countless other Americans who still can’t sell their homes.
That was in February. By May, he cut the price $60,000 but still got no takers. A few weeks later, May 21, the home in New York’s Westchester County was reportedly rented for $7,500 a month.
“Mr. Geithner’s house is a textbook example of what is happening in the market here,” said Leah Caro, president of Bronxville-Ley Real Estate and president of the Westchester Board of Realtors. “Many sellers are bringing their houses on [the market], finding that they don’t have a buyer for it, making price adjustments in hope of luring a buyer into the marketplace. In the case of Mr. Geithner, he had to move. And renting was his best option.”
Many properties in the suburbs north of New York City are on the market both for rentals and sale, real estate agents there said.
“Sellers who are trying to sell their houses and may not be able to, have decided that getting some money every month is better than getting no money, particularly in the case of vacant homes or owners who are relocating,” Caro said.
And while $7,500 a month might seem a lot to rent Geithner’s 3,600-square-foot home that includes an eat-in kitchen with black granite countertops, it probably falls short of his monthly expenses for the house.
Records show Geithner and his wife, Carole Sonnenfeld Geithner, paid $1.602 million for the home in 2004. The couple have two loans totaling $1.25 million and pay about $27,000 a year in property taxes.
Scott Stiefvater of Stiefvater Real Estate in nearby Pelham, N.Y., said that rentals right now are surpassing the sales.
“The renters are coming in in droves. There are people coming in from Argentina, London, all over the country, all over the world and they’re coming to Westchester and they’re looking to rent before they buy,” Stiefvater said. “People are still waiting for the bottom and they just haven’t seen the bottom, so they don’t want to invest all their money in real estate yet.”
Some people are signing rental leases with the possibility of buying at the end of the rental term, he said. Other clients come in and try to see which of the sellers might be willing to rent, instead.
In that kind of market, it was probably wise for Geithner to rent. His last asking price was already $27,000 less than what he paid five years ago for the house. Add in any improvements he made to the home and a broker’s fee — up to $90,000 on a sale like that — and Stiefvater said he could be anywhere from $200,000 to $400,000 in the hole. That’s about the size of his down payment.
“I don’t think anybody’s in a position to say that he overpaid, or anybody overpaid, when he bought his house because market value is market value,” Stiefvater said. “Back in the those days, everybody was overbidding — I’m not saying overpaying, but overbidding — and getting into bidding wars and multiple offers escalated the sale prices to what I think was higher than market value.”
Stiefvater said renting was a “wise choice” for now.
“If the market continues to go down, as some are saying, and he loses his tenant next year and can’t find another tenant to pay him the $7,500 that he’s getting now … that’s a different story,” Stiefvater said. “The market is overflowing with similar houses and he’s not prepared to reduce his price to reflect the true market value.”
With inventory of homes being half of what it was two years ago, buyers and agents are having to consider short sales – besides, they are EVERYWHERE now.
Here are the detached listings that have been marked pending or contingent this month:
Town or Area
If the banks cut loose, and there were dozens of REOs to choose from, the short-sales would fall out of favor immediately. Plus, also note how many listings are not selling (896) – there were only 598 closed sales in these same zips for the entire second half of 2008!