As we reported recently, people whose mortgage payments are reduced through loan modifications often are still drowning in other types of debt. The loan-mod treatment can be akin to using a small Band-Aid to try to cover up a mortar-sized wound.
We may be relying too heavily on that limited loan-mod cure partly because another more holistic therapy, bankruptcy, is no longer as attractive to the patients.
A recent working paper from Wenli Li of the Federal Reserve Bank of Philadelphia and others tries to measure the degree to which the 2005 reform of U.S. bankruptcy law led to more defaults on home mortgages.
Bankruptcy has always been a way for distressed borrowers to save their homes by allowing them to shed other debts and concentrate their resources on mortgage payments. But the 2005 legislation raised the costs of filing for bankruptcy and decreased the amount of debt that is wiped out. “We argue that an unintended consequence of reform was to cause mortgage defaults to rise,” the paper says.
The paper looks at mortgage loans originated in 2004 and 2005 and concludes that the bankruptcy changes led to an additional 200,000 mortgage defaults per year. The paper doesn’t provide estimates for mortgages originated after 2005.
Of course, sloppy lending standards and crashing home prices would have led to an epidemic of mortgage defaults in any case. Nearly 8 million American households–around 15% of those with mortgages–were behind on their mortgage payments at the end of 2009, according to the Mortgage Bankers Association. But bankruptcy-law changes may have made a terrible situation even worse.
The authors of the paper suggest “rolling back” the cost of filing for bankruptcy to pre-2005 levels.
Here’s another idea: Teach your kids not to gorge on credit when it’s easy to get.
The previous video showed how similar homes in La Costa Oaks were selling in a wide range, and being manipulated by one realtor’s fraud and deceit. About a mile away in La Costa Valley, where the inventory has been much tighter and rarely a foreclosure, there’s a different story – even though they are both in the Encinitas/San Dieguito school districts.
The La Costa Oaks REO on Corte Romero in the previous video is 3,465sf, listed for $699,900.
The La Costa Valley regular sale seen below is 2,602sf, listed on the range $795,000 to $825,000.
Both went pending in the first 16 days on the market:
(I was going off memory on the price and sf in the video)
The lack of transparency aggravates the search for true value. It’s hard enough trying to measure apples-for-apples, with every house having its own location and upgrades to consider.
Be suspicious when you see similar tract houses selling for more than 10% differences:
Housing was slightly more affordable for first-time buyers in San Diego County in the opening months of 2010, as interest rates remained low and prices stayed relatively flat.
The California Association of Realtors said first-time-homebuyer affordability rose to 58 percent in the first quarter, heading toward the record 60 percent set in the first quarter of 2009. It was the third straight quarter-to-quarter increase and paralleled a similar climb statewide.
The number is based on how many households have the income to afford an entry-level, single-family resale home — defined as 85 percent of the realty group’s median price for all homes in a given area, a 10 percent down payment and an adjustable-rate mortgage at 4.3 percent.
For San Diego, the realty group said the entry-level price in the first quarter was $322,120, the qualifying income $54,330 and the monthly payment $1,810. The 58 percent affordability rate was up from 57 percent in the fourth quarter of last year and 56 percent in the third quarter.
There was no mention or explanation of the higher-end markets, like North SD County Coastal, where there were 204 detached sales over the last 30 days. The median sales price was $770,000, and the average sales price was $1,039,327 (avg. $365/sf).
Over the same period last year there were 172 sales, with a median SP of $726,500, and average SP of $1,001,878 (avg. $370/sf).
In the last 12 months there have been 2,172 detached sales in North SD County Coastal, with an average sales price of $1,017,352 (avg. $358/sf). What a run!
The trustee sales have to provide some fruit someday, right?
The more you know about them, the more comfortable you might feel with pursuing a purchase there. Here is a good introduction to buying at the court house steps, done Foreclosureradar.com, and filmed at the SD County Court House:
The $100 million in tax-credit money is holding up OK. If every applicant got the full $10,000, we’re about a quarter of the way done, after nine business days:
Applications for First-Time Buyer Credit received as of 5/13/2010:
Yesterday’s article in the U-T suggested that home prices in SD County were rising because the median sales price in 1Q10 had risen 14.7% year-over year.
Are prices rising?
There will always be occasional lucky sales, and a few lowballs that succeed. To identify a solid trend, the best place to look is in tract neighborhoods, and compare model-matches:
Zillow Zestimate: $1,295,000 (up from $900,000 less than a year ago).
Tax Assessor’s Value: $1,600,000 (even number = re-assessed within the last year).
House has been on the market since the beginning of 2008.
There has only been 4 sales in the last six months over $1 million. One of the four sales that closed for $1.3-something had mentioned in the remarks, “Was once listed for $3,500,000”.
I also said that it’s not just us, that all buyers would look at this evidence the same way, and expect to buy the house well under list. This was the response from the agent, who CC’d the sellers too:
Zillow does not know CRAP. The Sellers are not going to counter. The offer was too low, and the approach as to the $100,000 reduction per month was offensive.
Watch the creative techniques, sellers are sensitive enough.
At least this made the cut, although it was the sixth paragraph down:
Although San Diego prices rose, they remain far below the peak set in 2005, and some analysts say the increase reflects a change in market mix — more high-priced homes selling than in previous quarters — than a major increase in value.p>
The misleading part is that they keep saying that “prices rose”. All that happened was that the median price went up, that’s it. Here is the brief ‘market mix’ noted above of SD County detached homes in the first quarter:
2009/2010
# of sales
% chg.
$-psf
$0-$400K
3,232/2,513
-22%
$180/$199
$4-800K
1,281/1,610
+26%
$242/$259
$8-$1.20
171/280
+64%
$354/$343
$1.20+
129/180
+40%
$569/$523
Totals
4,813/4,583
-5%
$213/$241
It looks like there are more mid-range and high-end homes selling, which skew the median sales price. Let’s work in some more detailed analysis over the next few days. Any personal observations?
It looks like Bank of America foreclosed on approximately $6 million in loans on the package deal offered for sale in Leucadia. The same agents who sold Magno-Bressy are on this case too, and it seems very casual and soft-sold. Are there dozens of buyers waiting in the wings after they saw how Magno-Bressy turned out? Take a look:
As we reported recently, people whose mortgage payments are reduced through loan modifications often are still drowning in other types of debt. The loan-mod treatment can be akin to using a small Band-Aid to try to cover up a mortar-sized wound.
