REOs Winding Down

The counts of local bank-owned properties are not out in the open, and people are wondering – are there loads of REOs waiting to hit the market?

Here are the SD County REOs from the tax rolls, compared to April 8, 2008:

Lender 4/8/08 Today
US Bank
JPM Chase

With a county population of 3 million people, there should be adequate demand to soak up the remainding REOs once they finally hit the market.

San Diego REO Pricing

Institutional investors entered the housing market at a rapid pace this past year, but their level of purchasing activity is relatively small compared to the overall market.

For instance, Blackstone Group is expected to be the largest institutional purchaser in 2013, committing to 15,000 properties.

However, when compared to the 600,000 individual investor purchases in 2012, it’s clear that institutional investors are still the underdogs in the market, according to CoreLogic’s market pulse report.

To come to this conclusion, CoreLogic created a list of 16 markets that include the top five markets for REO declines, the top 10 markets ranked by the total of REOs and the top REO markets identified as attractive by investors.

REO pricing YOY

San Diego had the highest increase in 4Q12 REO prices of the cities that don’t have a rising share of institutional investors.  Go Mom and Pop!

Read the full article here:

Not Foreclosing Update

Wouldn’t it make sense for banks to be unloading REOs when all we see are bidding wars everywhere?

Initially we thought that the drop-off in foreclosures was because banks were pushing people to short sale instead. With this being the last year of debt-tax exemptions, wouldn’t we be seeing a surge of new short-sale listings?

Nope, instead it appears that they have shut down the foreclosure machine:

San Diego County New Listings between Jan 1 and Feb 28:

Year SS Listings REO Listings

Defaulting homeowners are going to squat as long as possible because they really don’t want to move – besides, rents are high and their credit is shot.

For short sales to occur, banks have to threaten to foreclose in order to keep the pressure on, otherwise defaulters will just keeping living for free.

But both short-sales and REO listings have plummeted.

Pollyanna thinks that people are making their payments again, or that the foreclosure settlement caused enough loan-mods that the problems are solved. No way. Filings are down, and cancellations are up because that has become policy now.

San Diego County Filings

San Diego County Trustee-Sale Results

Distressed vs. Non-Distressed

How many short sales and REOs are happening in the elite areas of NSDCC?  12%

Detached Sales between April 1 and July 31 in Del Mar, Solana Beach, RSF, and CV:

Type # of Sales Avg $/sf % of Total

Here is the map of where the SS & REOs were located:

There are 135 SFRs on the NOD and NOTS lists, so there will be a few more dripped out, but for the most part we are in a non-distressed market – at least as far as we can tell.

Will banks keep the pressure on those behind in payments?

No Short-Sale Surge (Yet)

With the tax exemption of debt-relief expiring at the end of the year, we keep thinking that there will be a surge of short-sale listings coming to market.

Not only is there NOT a surge of short-sale listings, there’s not a surge of ANY listings, relatively.

Here are the total new listings that came on the market in SD County between March 1st – 15th:

Year New Listings LP $/sf

San Diego Foreclosure Counts

We thought the August blip of increased NOD filings might be a one-time event, but it looks like the servicers are keeping up the pace.  Hopefully it’ll translate into more trustee sales:

San Diego County Filings

Unfortunately, we know that a surge of NODs and about $4 will get you a cup of coffee, but at least the cancellations are moderating – though they are the dominant number:

San Diego County Trustee-Sale Results, Weekly

Freddie REOs Could Take 15 Years

From HW:

Freddie Mac vendors sold fewer REO properties in the third quarter than they did earlier in the year as nonperforming loans continue to climb.

More than 25,300 repossessed homes held by Freddie Mac sold in the third quarter, down 13.5% from the nearly 30,000 in the previous three months. It was also a 17% decline from the record-setting 31,600 sold in the first quarter.

At the same time Freddie unloaded the 25,300 REO, it repossessed another 24,300 homes back into the inventory. At the end of the quarter, Freddie held 60,000 REO on its books, which has been trimmed — as new foreclosures are completed — from 75,000 one year ago.

If the current trend holds, and the GSE reduces a net 1,000 REO from its inventory every quarter, it would take 60 quarters to unload its entire inventory — roughly 15 years.

Meanwhile, nonperforming assets continue to mount. These troubled mortgages totaled $127.9 billion, or 6.6% of its total mortgage portfolio, in the third quarter. That’s up 3.2% from the previous quarter.

To help manage the still mounting problem holding back housing and as an extension the overall economy, the Obama administration and the Federal Housing Finance Agency began asking market participants for ideas on selling these properties in bulk and even possibly renting them.

Before a House subcommittee Thursday, FHFA Acting Director Edward DeMarco reiterated that such a strategy will not be implemented nationwide but on a local level.

“We are not looking to develop a single, national program for REO disposition. We are most interested in proposals tailored to the needs and economic conditions of local communities,” DeMarco said. “We received nearly 4,000 responses to the RFI and are reviewing the submissions.”

Slow-Motion Drip

Someone asked, “JtR, why do you keep posting stories about the can-kicking programs being employed by the government?”

The answer is because the media and government keep insisting that we can’t handle a flood of foreclosures, and that together, they’ll do whatever is necessary to protect from what they think is certain peril. The media is complicit in this charade, because they won’t search out the truth – that the majority of people in this country pay their bills, and are tired of the coddling. 

It is important information for those potential sellers and buyers who are waiting for “the mess to be over” before proceeding.  If the government/media/banks are going to do whatever is necessary to drag this “mess” out for years, participants should devise their strategies accordingly.

Another reminder, from HW:

The housing market faces several more years with 800,000 to 1 million new foreclosed properties per year, according to Rick Sharga, an executive vice president with Carrington Mortgage Services.

Sharga recently left RealtyTrac, where he helped build a network that tracked foreclosure filings across the country. Recently, analysts at Bank of America Merill Lynch estimated REO sales would peak until 2013 when nearly 1.5 million properties would be sold.

According to RealtyTrac, there have been 8.9 million homes lost to foreclosure since 2007, the height of the credit crisis.

Sharga said based on lender behavior, he doesn’t see a spike happening, rather a slow, steady burn in order to spare home prices from further reductions. Today, roughly 4 million homes sell per year. If 1.5 million REO sold, that would be almost 40% of the market, which would be double the current market share of these properties.

“I think it’s less likely that we’re going to see a ‘peak’ year in REO sales that looks dramatically different than what we’ve been seeing over the past few years. This is partly due to relatively weak demand, partly due to what I’d call ‘inventory control’ being executed by the lenders and servicers, and partly due to the fact that foreclosure processing, evictions and redemption periods have all become extended, and often appear to be in a state of flux,” Sharga said.

The largest delay came when servicers were found to be improperly foreclosing on homeowners last year. RealtyTrac said the delays, investigations and ongoing attorneys general settlement talks pushed more than 1 million foreclosures that were supposed to occur in 2011 to 2012.

According to Lender Processing Services, mortgages facing foreclosure are delinquent an average of 611 days. Once a foreclosure is initiated, Sharga said it can take as long as 400 days to complete. So, he said, a loan entering foreclosure in December 2011 won’t hit the market as an REO until January or February 2013.

“Sales volume will be high in 2012, 2013 and probably 2014 as well,” Sharga said. “But it still seems more probable that we’ll see consistently high – yet closely managed – numbers of these sales over several years than it is that we’ll see a huge spike followed by a precipitous drop.”



So I guess we can expect 1,000,000 or so foreclosures per year across the country until done, with no flood of trustee sales on the horizon. Combine those with the baby-boomer liquidation, which is already underway, and we can expect a steady stream of “under-improved” properties coming to market – which will keep a throttle on prices.

In October, there were 771 properties foreclosed in San Diego County, which was very similar to September’s 755.  In NSDCC there were 28 SFRs foreclosed, continuing the usual average of one a day – it’s a little too uniform, isn’t it? 

For those hoping for more well-priced new listings, it is a frustrating wait.  Here are three of the best foreclosed in October:

Default Notices – September

In August we saw a spike in NODs, mostly due to Bank of America’s increased output.

It was mentioned here that last month’s NODs appeared to be slowing.  But I just figured out that the NOD reporting by runs about 10 days behind – even though they report the results of trustee sales the same day.  Here are the September NODs – and it appears that we’re back to “normal”, after the August bump that was driven mostly by Bank of America. (revised from earlier today)


Of course it doesn’t mean much unless they are going to actually foreclose on defaulters, which lags behind by at least four months.  Lately, the completed trustee sales aren’t on the rise:

Hopefully we’ll be in for a big spring kick, led by BofA!

SD Foreclosure Graphs

Yesterday’s graphs from foreclosureradar weren’t the most recent; but these are the latest available.  I think we’ll see an increase in NODs for the 3Q11 – those totals should be out soon:

San Diego County Filings

The banks are giving plenty of latitude these days:

San Diego County Average Free Rent, days (in green)

The cancellations look like they are getting back to “normal” on the quarterly chart:

San Diego County Trustee-Sale Results, Quarterly

But over the last few weeks, it looks like cancellations, and 3rd-party buys, have been bouncing around lately:

San Diego County Trustee-Sale Results, Weekly

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