Thursday, October 30, 2008
In January of the the servicers surveyed only 5.69% (974) of completed workouts were short sales. By September that grew to 13.41% (3,732) of completed workouts. Reductions in principal were 0.08% (14) in January and 0.28% (79) in September. Reducing the interest rate at or below the initial/start rate was the most likely outcome for borrowers in January this represented 19.44% (3,327) and 20.36% (5,666) in September. One of the reasons why I don't think the Alt-A resets will be as big of a deal as some might think is how much latitude servicers have in dealing with rate reset issues. It is a far bigger deal for the borrower as to the type of loan they have than if the rate is resetting sometime this year or next. An Alt-A or subprime borrower is screwed because of the issues inherent in the loan and the marketplace much more than any rate reset potential.
The new FDIC plan being rumored to be unveiled is basically a standardized version of the rate reduction (usually for 5 years) for borrowers in default. There is a possibility of principal reduction under the plan but as we see from the above statistics, it is the road less traveled. I think it will do little to help the situation over the long term but may relieve some pressure over the short term.
Sunday, October 26, 2008
San Fernando Valley:
Release from Showing 317
Release from Showing 74
Friday, October 24, 2008
Septembers sales report is out for the San Fernando Valley. SFH sales came in at 658, down 1.20% from the month before and up 81.77% from the same month a year earlier. This "strength" in sales comes as median price fell to $392,500, down 7.65% from the month before and down 37.07% from the same month a year earlier. Last year at this time the full force of Countrywide and all other lenders switching over from a Wall Street model to a Fannie/Freddie/FHA model hit the market. Fannie and Freddie still had ultra loose guidelines and stated income available at that time. This is what ground sales to there lowest levels in history. Now with prices dramatically falling the best the market can muster is a month which is the third weakest showing for September in history.
Condo sales came in at 211, up 22.67% from the previous month and up 36.12% from the year before. Median price for condos fell 5.45% from the month before and are down 33.33% from the year before period. One thing to remember about condo supply is that it has greatly increased in the boom years and it will be hard to match the sales low of the 90's.
Total Pendings for September are at 1,305, their strongest month of the year. See my previous post regarding the large amount of fallout in the market as to why this might not be as strong of a sign as it would be in normal times. I think the elimination of FHA seller assisted down payment on Oct 1st (one of the last bastions of 100% financing) and all major mortgage insurers backing away from California financing greater than 90% will start affecting sales after this month (people still have locks on old loans and can close under the looser guidelines until those expire). I haven't even mentioned the local and national economic turmoil which is another issue entirely.
I'll give a forecast for October sales on November 2nd and will update pendings and inventory this weekend.
Here is the BOM as a percentage of the current months pendings (blue line) and as a percentage of the previous months pendings (red line).
Here is a chart of sales (orange) , pendings (green) and BOM (purple) over time.
Wednesday, October 22, 2008
San Fernando Valley:
The REO flag appeared later in 2008 for Ventura so that is why you see the lack of REO sales being tracked early on. I think many agents weren't setting some of these flags and some of what you see isn't a natural progression of the market but more of an education of listing agents. Official DQ foreclosure numbers should be out this next week and we'll get a better feel for these types of things. As you can see though short sales are becoming a significant force in the market. As servicers improve their procedures and work to move inventory sooner rather than later I think short sales will become an even greater force.
Monday, October 20, 2008
San Fernando Valley:
Release from Showing 313
Release from Showing 79
Thursday, October 9, 2008
Wednesday, October 8, 2008
- Seller Funded Down Payment Assistance no longer allowed for FHA Loans - This removed one of the last widely available avenues of now down payment loans for borrowers. Effective October 1st.
- All major private mortgage insurers no longer allow above 90% LTV - This moved the bar from 5% down to 10% for Fannie/Freddie loans. Vast majority went into effect in October or before. Last holdout goes into effect in November. This isn't nationwide but California and Florida specific.
- Conforming Jumbo limit dropping to 625k from 729k - Effective January 1st with money so tight I think this will really affect the 800k-1,000k homes. The guidelines on super jumbos are just much tighter on borrowers and the rates are very expensive.
- Income waivers are becoming very hard to get - Brokers were using income waivers as a backdoor stated income loan. The Fannie/Freddie underwriting engines would give waivers for documenting incomes if the borrower had a good credit score and a little down. These engines were updated this last week and income documentation waivers are now very hard to come by. It is becoming a full doc world.
I would expect the market to start to weaken even above normal seasonality in about 45 days as old loan locks are lost and new borrowers are subjected to the newer guidelines. That said the market is still a "good" one, a well priced home (at or slightly under market) in the sub $600,000 range will be gone in a week. The mortgage market is still very liquid because of the Feds actions, it is just becoming much more a vanilla loan market. I would still expect the final quarter of this year to handily beat last years 4th quarter. This has more to do with the just how historic the sales declines were last year around this time and the massive price declines that have happened since then than any strength or recovery signs in the current market.
Monday, October 6, 2008
Click to enlarge
The pink line represents the new conforming limit on January 1st 2009. These "super conforming" loans represent a lowering of the conforming jumbo limits by $104,000, the loans above this line represent the new jumbo limits and these loans will have higher credit standards, much higher rates and fees. I think these loans will essentially be eliminated and supply will have to fall under the pink line in order for it to see any effective demand.
The green area represents Mortgage Insurance territory and the blue dots (non-FHA/VA) will be the items affected here. Most mortgage insurers have announced guidelines that limit their loans in California to the conforming limit of $417,000 and 90% max LTV. Demand in this area will either have to be met through FHA or be eliminated if the property or borrower doesn't meet FHA guidelines.
It is clear there are more headwinds coming for the mortgage market. The government has done everything possible to keep it as liquid and functioning as it can but credit is still contracting. Even though falling prices can help meet demand, prices alone aren't a panacea. The demand in the green square if unable to get insurance must be met by saving more money for a down payment or choosing a much cheaper home.
Update: I've looked at the top Mortgage Insurers guideline and I don't see a single one who will lend over 90% LTV in Los Angeles or Ventura County. This includes United Guaranty (p.29), MGIC (p.8), Genworth, RMIC and PMI. The area in the graphic above in the green shade is definitely in trouble.