Orange County Trustee sales for August 2009

Here are the trustee sales for Orange County for August 2009. Sales were down .9% MoM and down 38.7% YoY. Third party sales continue to come in at higher and higher levels. I have a real hard time believing all of these pencil out from an investment standpoint but maybe the market is that hot in the OC. Since some of these areas are more affluent maybe buyers are just surpassing traditional buying avenues and buying themselves.

Trustee Sales for Los Angeles County August 2009

Here are the trustee sales for Los Angeles County for August 2009. Trustee sales barely beat July 2009 and came in up 1.4% MoM and down 26.1% YoY. Third party activity is picking up as investors start figuring out the areas which have low inventory and they go and try to fill the gap.

Ventura County Trustee sales for August 2009

Here are the final trustee sales number for Ventura County for August 2009. Foreclosures increased 7.2% MoM and are down 37.2% YoY. Trustee sales started off the month slow and picked up during the middle of the month only to slow down again in the final week. Third party investors are still a large part of the market. I would think if the servicers increase sales into the slower fall months the investor participation would drop. The reasons I think this would happen is that since the absorption rate drops in the Fall (less demand) so it gives investors fewer opportunities to push price and there would be the increased competition from higher REO sales.

San Diego Trustee Sales August 2009

Here are the trustee sales for San Diego County for August 2009. Foreclosures were up 3.5% MoM and down 29.7% YoY. Third party sales moderated but not dramatically so.

"Postponing the day of Reckoning"

Note: Fixed broken Wiki link.

An article by American Banker showing how the banks are foreclosing on as few properties as possible in a desperate hope to not realize losses right now. This article is a must read (free registration may be required). A classic prisoner's dilemma is forming. As the old saying goes, "Don't panic. But if you do panic, panic first".

From the article (emphasis added):

Pick up just about any city's newspaper or turn on any news show, and if the topic is real estate, the banking industry is likely being lambasted for foreclosing on troubled homeowners.

But industry data and anecdotal evidence suggest banks and servicers have been dragging out the process — not rushing to kick people out of their homes
...
"The goal is to hold off on foreclosures and take losses as slowly as possible to keep balance sheets up,"
...
The foreclosure process — and it is a process — now takes, on average, 18 months to two years, up from 15 months a year ago...plenty of signs indicate that the mortgage companies themselves are in no hurry to seize their collateral.
...
"There are borrowers who are six or eight months in default; they may have exhausted their workout options; but they're put on a forbearance plan because it's an interim to a final resolution, which is foreclosure," he said. "Banks don't want to take the losses now."
...
"Banks are believed to be carrying a lot of loans at accounting levels well above their true market value," he said. "But once a property goes into foreclosure, their options have disappeared."
...
"we do not believe that prices are actually improving for any part of the housing market, except possibly certain foreclosure markets due to a shortage of foreclosed inventory from the recent drop-off in liquidations. … This drop-off has nothing to do with fewer people becoming delinquent. … Instead, it has to do with banks and servicers reducing the rate at which they take back the properties."
...
banks now see an advantage in modifying instead of foreclosing "because it cures the delinquency and they may get par value out of the loan, if property values are stable. Even if they get [only] a few payments, if property values go up, they could do a bit better once they take out the borrower."

Oh what a tangled web we weave...

Mortgage interest deduction in the crosshairs

I wonder how many people buying homes planned on having the whole deduction when buying. Just as important.. How many banks are underwriting with the future heavier tax burdens of the borrowers in mind? FHA and GSE's certainly aren't factoring it in.

From the LA Times:

Tops on the CBO's hit list for housing: Slash deductions for homeowner mortgage interest from the present $1.1-million limit to $500,000, phased in with $100,000 annual reductions starting in 2013.

Taxpayers now can write off mortgage interest on their principal home debt up to $1 million and on home equity debt up to $100,000. Under the CBO's option, that maximum mortgage debt amount would shrink yearly until it hit $500,000. Over a 10-year period, this change would boost tax collections by an estimated $41 billion.

The CBO offered up a second option if Congress wants to raise a lot more money: Replace the mortgage interest deduction with a flat 15% tax credit for everybody with mortgage amounts below the declining limits in the first option. Rather than taking write-offs tied to income tax bracket, every homeowner would get a credit worth 15% of mortgage interest paid.

This would be effective wage deflation for many. The NAR will definitely gunning full bore for mortgage interest deductions to be left alone. I am thinking this might be more of a political move to try and pass the "compromise" of maxing out the deduction at 28% as has been suggested in a few different places. For high cost areas like California the deduction is a much bigger part of "affordability" than lower cost, lower wage areas of the country.

Ventura County Loan To Value Chart - April 2009

If you click and enlarge the chart it basically shows how much people are putting down at different price points. A dot at 80.0 and $300,000 means that a borrower put 20% down on a $300,000 place. This gives us a feel for how (down payments and loan types) people are getting into the market and where (sale price) they are getting into the market.

For people in the market right now if you go to the left hand side and look and find around the price at which you are thinking of buying and then you can go to the right and see what your competition has done as far as down payments and loan types.

The FHA loans at the higher price ranges are, in my opinion, very risky. FHA used to be for low income people and were underwritten with lower DTI ratios. Now they are used somewhat by high income people at higher income ratios, their prospect of higher income is low and lower income is high. I think this will affect the higher end move up markets as the people who rushed to buy have little to no equity for many years. I think this is true of FHA used in massive quantities in the market like we have now (which was 39.1% of the So Cal market in April according to Dataquick). With little down it will take that much longer to buildup significant equity and long term move up and relocation transactions in the market should stay low.

Weekly Housing Inventory update for SFV & Ventura - 08/29/09

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Update: Please see the home page for the latest graphs, I am reverting earlier weeks to text to maintain site speed.

San Fernando Valley:
Single Family Homes
Active - Total 1906
Active - Short sale 535
Active - REO 145
Backup - Total 718
Backup - Short sale 426
Backup - REO 38
Pending - Total 1569
Pending - Short sale 783
Pending - REO 345
Distressed active / Total active = 35.7%
Distressed pending / Total Pending = 71.9%

Condo
Active - Total 629
Active - Short sale 313
Active - REO 60
Backup - Total 270
Backup - Short sale 209
Backup - REO 13
Pending - Total 537
Pending - Short sale 285
Pending - REO 127
Distressed active / Total active = 59.3%
Distressed pending / Total Pending = 76.7%

Ventura County:
Single Family Homes
Active - Total 1456
Active - Short sale 193
Active - REO 108
Contingent - Total 959
Contingent - Short sale 635
Contingent - REO 50
Pending - Total 670
Pending - Short sale 198
Pending - REO 183
Distressed active / Total active = 20.7%
Distressed pending / Total Pending = 56.9%
Release from Showing 288

Condo
Active - Total 430
Active - Short sale 104
Active - REO 33
Contingent - Total 424
Contingent - Short sale 319
Contingent - REO 24
Pending - Total 275
Pending - Short sale 91
Pending - REO 85
Distressed active / Total active = 31.9%
Distressed pending / Total Pending = 64.0%
Release from Showing 76

Ventura County Demand versus Inventory - August 2009

This is August 2009 Demand versus Inventory chart for Ventura County. Demand continues to be concentrated on the lower end "affordable" areas with inventory in those areas being drawn down. Inventory is being built up in many segments of the $500,000+ market. This is a supply constrained market and while inventory is being cleared on the low end the higher end discretionary sellers are still waiting to find a buyer. I think the headlines of median prices rising because fewer low end homes selling because of the inventory shortage will embolden the higher end sellers to keep to their price and just ensure they will not sell. It does not look good for higher sales moving forward unless some more inventory comes online.

Famers Insurance to cut 750 Jobs in SFV

From the LA Times:

California's largest auto insurer, Farmers Insurance Group, said Thursday that it planned to slash jobs at the offices of its newly acquired 21st Century Insurance unit in Woodland Hills.

Los Angeles-based Farmers told employees that it would cut 554 jobs by the end of this year and that the total would reach 750 by the end of 2010.

The Woodland Hills complex, which had been 21st Century's headquarters until last November, currently has 979 employees, Farmers said.

That's a pretty decent sized hit to the local economy, it has both CRE and residential housing implications for the area.

Higher mortgage rates?

From Jeffrey Lacker regarding the Fed purchasing MBS:

With the economy leveling out and beginning to grow again later this year, and with bank reserve demand ebbing as financial conditions improve, I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide.

The Fed is a huge driver of demand for MBS for the people calling bottom on housing that bottom is precipitated on 5% interest rates. If a significant amount of demand is removed yields will definitely rise and housing prices will fall as a result.

July 2009 Inventory and Median Price from peak - C.A.R.

From the CAR:

FHA won't implement HVCC

A blurb from National Mortgage News:

The Federal Housing Administration has no plans to implement the Home Valuation Code of Conduct, Commissioner David Stevens told a delegation from the National Association of Mortgage Brokers.

I'll see if I can find the whole speech.

San Fernando Valley Inventory July 2009

Source: SRAR

From the following graphics you can see the drop in inventory, especially on the low end. As well as the fact that in many spots demand is lower for the market segment but Months Supply has still dropped.

The SFV is a supply constrained market. But help may be on the way.... (foreshadowing to a August 31st report..)

San Fernando Valley home sales report - July 2009

San Fernando Valley Single Family Home sales for July 2009 came in at 745 which is down 3.87% MoM and up 3.91% YoY. The median price for single family homes came in at $400,000 which is up 6.67% MoM and down 8.05% YoY. The movement of mid-level homes down the price change has opened that market a bit which is causing the mix shift to rise. Sales volume is still horrible with this being the 4th worst July on record. Considering interest rates are down over 1% since last year and the tax credit is in effect that is quite amazing that sales volume is still so bad. Part of the reason sales are so bad are due to inventory issues of the market. Inventory is quite low, especially in the affordable ranges. This is due to the foreclosures being leaked on the market and long processing times for short sales. There is a massive amount of inventory sitting at pending and contingent in the SFV and much of that can still be considered active inventory. Between that inventory and foreclosures slowly starting to increase inventory issues should lighten up going into September.


Condo sales came in at 203 which is down 13.98% MoM and down .97% YoY. Median price for condos came in at $228,000 which is up .88% MoM and down 18.57% YoY. Condos continue to perform horribly with this being the 5th worst July on record. There are a lot of condo projects in the Valley which only put 1 or 2 units on the MLS so inventory is definitely underrepresented.

There are a lot of lines on this chart. The red line is the prediction for next months sales. The predictor line hasn't been fairing well, over predicting the last few months. I think this is a combination of fewer homes able to close and longer underwriting times. I expect sales to be down slightly next month. There are still more homes going on market than sold, yet expiration's are dropping and inventory is going down. Strange.

Weekly Housing Inventory update for SFV & Ventura - 08/22/09

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Update: Please see the home page for the latest graphs, I am reverting earlier weeks to text to maintain site speed.

San Fernando Valley:
Single Family Homes
Active - Total 1930
Active - Short sale 563
Active - REO 135
Backup - Total 734
Backup - Short sale 433
Backup - REO 46
Pending - Total 1569
Pending - Short sale 780
Pending - REO 358
Distressed active / Total active = 36.2%
Distressed pending / Total Pending = 72.5%

Condo
Active - Total 640
Active - Short sale 323
Active - REO 58
Backup - Total 265
Backup - Short sale 206
Backup - REO 12
Pending - Total 538
Pending - Short sale 285
Pending - REO 136
Distressed active / Total active = 59.5%
Distressed pending / Total Pending = 78.3%

Ventura County:
Single Family Homes
Active - Total 1469
Active - Short sale 201
Active - REO 102
Contingent - Total 976
Contingent - Short sale 631
Contingent - REO 59
Pending - Total 638
Pending - Short sale 193
Pending - REO 174
Distressed active / Total active = 20.6%
Distressed pending / Total Pending = 57.5%
Release from Showing 288

Condo
Active - Total 434
Active - Short sale 102
Active - REO 30
Contingent - Total 421
Contingent - Short sale 307
Contingent - REO 28
Pending - Total 266
Pending - Short sale 89
Pending - REO 85
Distressed active / Total active = 30.4%
Distressed pending / Total Pending = 65.4%
Release from Showing 69

Supply Constrained

Just a couple of graphics from the CAR which show that California is currently a supply constrained market:

Bursting the bubble: Shadow Inventory does not exist.

I see the constant murmur regarding shadow inventory, Doctor Housing bubble referenced it today and you see it on many blogs and message boards. The idea that the banks have foreclosed on a massive swath of the population but due to accounting tricks and/or political pressure they won't put that inventory on the market. It's a great, sexy story, easy to believe and relatively hard to prove so people jump all over it. The biggest problem is it isn't really true. Now before you think I have lost my mind let me clearly define shadow inventory once again... Inventory that the banks have taken possession of but is not on the market.

To understand the current foreclosure inventory situation you have to know how the post foreclosure process works. Once a home is foreclosed the bank will assign it to either an asset management company or even just an individual agent to get it ready for sale. The initial step is determining occupancy and getting the occupant removed and taking possession. If vacant this step doesn't take much time at all. If owner occupied and the owner doesn't want to leave then they have to go through the eviction process. If it is tenant occupied then they get at least 90 days and then if they don't leave they have to go through the eviction process. After possession is gained the house gets cleaned up for sale ("trashed out") and then priced (usually by several different BPO's being done) and finally put on market. So as you can see this will take a bit of time and at any one moment there is a "float" of homes in the pre-list stage getting these steps done. These homes aren't being withheld for any sinister reason they just haven't got ready to go onto market yet.

The other concept that the shadow inventory crowd needs to learn is absorption rate of homes. Doctor Housing Bubble had this graphic from the RealtyTrac report showing that shadow inventory is a huge problem waiting to engulf us all:






45,419! That's a lot... wait.. or is it? What is the context of that number relative to the number of sales. For Q2-2009 there were 121,185 homes sold in California. So that represents a little more than a third of sales. Looking at REO resales (meaning it has been taken back by the bank and then sold via auction, MLS, whatever) vs trustee sales we actually see that REO resales have been above trustee sales since the fourth quarter of 2008. REO inventory is dropping, not climbing. The net difference between REO resales and Trustee sales since the beginning of 2008 is around 30,500 homes, about a months to a month and half supply at current REO absorption rate. This number can easily be explained as mostly homes in the pre-list stage getting readied for sale.


Foreclosures are a matter of public record.. so anyone wanting to prove that shadow inventory exists should easily be able to do so. Every once and awhile you will see a REO come on the MLS and it was foreclosed on over 6 months ago (so I consider that shadow inventory) but the numbers are very small. I've searched public records and MLS data extensively to try to quantify the number of foreclosed homes sitting on the sidelines ready to come on as supply. The numbers have not been encouraging. If you give the bank/servicers any sort of realistic "float" period the homes not on market but foreclosed on becomes extremely marginal.

This is a long way of saying if you want to know how much foreclosure inventory is coming on market soon just check the monthly foreclosure reports.. the banks are basically keeping the homes flowing as fast as they can once they foreclose.

Once you accept there is no huge amount of shadow inventory already foreclosed on it brings you to the real shadow inventory. All those homes in default but not foreclosed on.. or possibly not even in the foreclosure process. Matt Padilla over at the Mortgage Insider has the following graphic:

This is the real shadow inventory.. huge swaths of homeowners in default many of which the banks haven't even put in the foreclosure process! You see ever increasing number of borrowers in default... increasing number of people in the foreclosure process... yet the percentage of people foreclosed on is dropping. This is the tremendous amount of political pressure being applied to the servicers and banks to modify loans instead of foreclose. If anyone ever argues the banks aren't doing anything for homeowners just show them this graph.

But just as there a concept of effective demand, that it isn't enough to want to buy you have to have the means in which to make the transaction happen, there is also effective supply. The banks or homeowners may want to sell but can't. The banks can't because of massive political pressure and the homeowners can't because they are underwater. The homeowner stops paying and the banks can't do anything about it. Everyone keeps waiting for this wave to break but it is the stated policy of the United States Government that they do not want that to happen. The USG has been winning that fight so far and there is no indication of them shifting their position anytime soon.

For more on foreclosure wave that may never break I highly recommend Sean O'Toole's "Waiting to catch a wave? Surge of REO listings is unlikely." post.

Newsflash: Contracts still matter

From the NYT (emphasis added):

Countrywide, the big mortgage company, had argued that the legislation automatically voided its pledges to buy back loans from investors if those loans were modified for troubled borrowers.
...
Investors who own mortgage securities receive interest and principal payments from borrowers over the life of the loans. When servicing companies modify those loans, investor payments are typically reduced.

“I view this as an opening salvo and a demonstration that investors do have contractual rights, even when it is politically unpopular,” said William A. Frey, one of the investors who brought the lawsuit. “This is ultimately going to be one of many legal battles over who should pay the hundreds of billions of dollars in losses on mortgages.”
...
It argued that the matter belonged in federal court and that any contractual obligations to repurchase modified loans were trumped by the Helping Families Save Their Homes Act of 2009. Under that law, servicing companies that agree to modify loans receive some protection from liability arising from the loan changes.

Judge Holwell ruled that the immunity granted under the legislation did not prevent Countrywide’s investors from trying to enforce their rights under the mortgage securities contracts. The investors must prove that Countrywide’s pooling and servicing agreement covering their loans does indeed require it to repurchase mortgages the bank modifies, the judge said, ruling that the case belongs in state court.
...
The case highlights the potential for conflicts of interest in the loan servicing business. Loan servicers have a duty to investors not to do anything that jeopardizes the income stream to holders of the securities.
...
Investors in mortgage securities are increasingly concerned that the companies may put their own interests ahead of those of their servicing customers when they modify loans.
...
As the mortgage crisis has deepened, servicers have also come under immense pressure from the government to modify loans. The goal is to keep borrowers in their homes and curb the flood of foreclosures, but changes to loan terms can put servicers at odds with the investors they have a duty to serve.

I think this is an amazing case. As I understand it, Countrywide/BofA buys servicing rights on a pool of loans it originated. Gets sued for originating bad loans and agrees to modify the loans but tried to foist the losses onto the investor instead of taking the losses themselves hiding behind the safe harbor provided by Congress.

Congress it trying to get servicers to modify loans over the objections of the investors who own them and want a say in the process. Congress has provided a safe harbor shielding the servicers from liability if they modify them in a specific way even if the investors do not agree. The servicers fiduciary duty is to the investor, not the borrower. It is incredible that the investors rights are being trampled like this.

As always I wonder who would ever invest in a mortgage backed security ever again. And of those who would still invest, I wonder why any of them would do so with BofA.

Ventura County July 2009 Home Sales

The July 2009 Ventura County home sales were released by Dataquick today. Homes sales came in at 837 which was down 3.80% YoY and down 0.83% MoM. The median price came in at $375,000 which was down 10.70% YoY and up 2.74% MoM. The median price is heavily influenced by the mix shifts and seasonality. Currently, due to REO supply being restricted, fewer homes are selling on the low end and the higher end homes are adjusting price and some are selling coming up from their ultra-low sales volume. The combination of the mix shift and the usual seasonal strength on the higher end increased the median. Basically we had prices falling on the high end and the low end stagnated due to low supply and that moved the median up while sales dropped.

One might ask where is all the tremendous sales volume we have been hearing about? Agents are leading people to believe all these houses are just flying off the shelf with multiple offers.. yet here we are with extremely low sales. This is a supply constrained market.. the buyers are out there but are restrained by affordability. Any home that comes on the market on the low end gets swarmed with offers with the first cash offer anywhere close to asking many times getting it. I saw a REO that closed today with a marketing time of 2 days get sold 10% under asking for cash. 2 days marketing time.. the banks are making sure inventory won't build up and most are aggressive with the inventory.

The world has gone mad, WSJ edition.

So apparently Vermont has some strict lending rules and the WSJ was presenting the Pros and Cons of such rules. I have to admit some of the cons left me a bit flabbergasted.

From the WSJ (emphasis added):

Vermont's strict mortgage-lending laws largely prevented the state's residents from signing the types of dubious home loans written in other markets across the country. Its 1990s legislation made mortgage lenders warn customers when their rates were relatively high, and put the brokers who arranged loans on the hook if their customers defaulted. Now, by at least one measure, the state has the lowest foreclosure rate in the U.S.
It came at a cost. The rules also kept some Vermonters like Ms. Todd from buying homes, keeping this rural corner of New England on the sidelines of the housing boom and the economic bonanza that came with it. Vermont's 10-year growth trails the national average.

Turns out when you opt out of the biggest credit bubble in human history your growth will lag a bit. But you won't bust as hard either. I just love that an unsustainable credit bubble that has created an economic situation not seen since the great depression was considered an "economic bonanza". I bet at one time the author wrote about how all the other villages in Guyana missed out on the delicious Kool-Aid served over at Jonestown.

"It's not that complicated," said U.S. Rep. Peter Welch, a Vermont Democrat. "There just has to be a connection between the amount you borrow and your ability to pay."

Critics say such rules put a brake on growth.
...
developers and others "can't march into the state and start doing business."

If you require that someone prove they can pay back a loan it puts a brake on growth. You get less malinvestment and you have more good loans and a solid base to build an economy. I get the feeling the author either is trying to make a story out of nothing or really doesn't understand that there was a credit bubble and it isn't done deflating.

Insurance adjustor Ginger Shields says she tried for years to qualify for a home loan. After a decade and a half of renting, she and her husband sought a loan in 2003 from a TD Banknorth office in her north-central Vermont town of Barre. The bank's loan officer said their credit score of 550 -- below the level considered healthy -- wouldn't allow them to qualify.

A local mortgage broker said the same thing, recalls Ms. Shields, now 59 years old. The couple had no savings, and were saddled with credit-card and other debts. They had liabilities she says they didn't know about, including debt on a totaled car they thought the insurance company had paid off.

TD Banknorth wouldn't discuss the specifics of Ms. Shields's application. But the rejection of someone who can't show their ability to repay a mortgage "is more common than not in the state of Vermont," said Stephen Kaminski, a senior vice president of mortgage products.

The bolded comment suggests that in many states people who can't show their ability to repay a mortgage still commonly gets loans. Which is a scary thought.

Ms. Todd, the onetime self-employed landscaper, was also turned down repeatedly starting in 2004. With a 750 credit rating, she wanted financing for a home in the $160,000 range.

Banks wanted Ms. Todd to prove her income could support a mortgage -- in contrast with brokers in many other states who wrote loans without requiring proof of income. It didn't help, Ms. Todd said, that she wanted to put no money down, also commonplace in other markets.
...
The extra hoops were a "great thing" in the end, she figures.
...
"Five years ago if I'd gotten the loan," she said, "I would have been in over my head now."

I wonder how many people wish they were forced into delayed gratification instead of becoming part of the ownership society before they were ready. There are no shortcuts. The banks should be telling borrowers no, it protects the borrower and the bank. The banks should have conservative appraisals, it protects the borrowers and the banks. The downside risk of a society that does not rely on financial innovation for significant economic growth just don't seem like downside risks to me. Easy money turns out to create rather hard landings later on. Nothing is free.

Orange County Trustee sales for Mid-August 2009

Here are the trustee sales for Orange County for Mid-August 2009. Currently sales are on pace to slightly beat July 2009 by approximately 5%. I remain impressed at the number of third party deals being grabbed. Anything that remotely pencils out (and I suspect a few which don't!) seems to be being grabbed at the courthouse steps.

Trustee Sales for Los Angeles County Mid-August 2009

Here are the trustee sales for Los Angeles county, Mid-August 2009. Los Angeles County is on pace to match July 2009. Third party sales are ticking up as investors figure out that the LA County area has many areas yet to be fully exploited by trustee sale investors.

Ventura County Trustee sales for Mid-August 2009

Here are the trustee sales for Ventura county for Mid-August 2009. Trustee sales are roughly on pace of July 2009. Third party sales fell slightly but if you break down sales by city (not something I have done here) areas like Simi Valley and Camarillo have seen a surge in the percentage of homes sold to third parties.

Weekly Housing Inventory update for SFV & Ventura - 08/15/09

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Update: Please see the home page for the latest graphs, I am reverting earlier weeks to text to maintain site speed.

San Fernando Valley:
Single Family Homes
Active - Total 1949
Active - Short sale 557
Active - REO 141
Backup - Total 709
Backup - Short sale 430
Backup - REO 47
Pending - Total 1575
Pending - Short sale 765
Pending - REO 362
Distressed active / Total active = 35.8%
Distressed pending / Total Pending = 71.6%

Condo
Active - Total 642
Active - Short sale 332
Active - REO 58
Backup - Total 253
Backup - Short sale 195
Backup - REO 13
Pending - Total 542
Pending - Short sale 285
Pending - REO 135
Distressed active / Total active = 60.7%
Distressed pending / Total Pending = 77.5%

Ventura County:
Single Family Homes
Active - Total 1459
Active - Short sale 182
Active - REO 98
Contingent - Total 973
Contingent - Short sale 646
Contingent - REO 50
Pending - Total 650
Pending - Short sale 198
Pending - REO 185
Distressed active / Total active = 19.2%
Distressed pending / Total Pending = 58.9%
Release from Showing 284

Condo
Active - Total 442
Active - Short sale 102
Active - REO 31
Contingent - Total 414
Contingent - Short sale 307
Contingent - REO 30
Pending - Total 275
Pending - Short sale 88
Pending - REO 90
Distressed active / Total active = 30.1%
Distressed pending / Total Pending = 64.7%
Release from Showing 68

San Diego Trustee Sales Mid-August 2009

Here are the trustee sales for San Diego for Mid-August 2009. We are approximately halfway through the business days for the month and we are on pace for matching July 2009 pace. There is a slight mix-shift but relatively minor. So far any surge in the pace of foreclosures is not being seen.

Is the focus shifting from mods to short sales?

This is a small tidbit from Mortgage Servicing News and it comes from someone who would be financially benefitted by the shift so it may be more wishful thinking than actual policy shift but the suggestion is that short sales might be getting a bit more attention soon:

Recently industry experts attended a series of meetings organized by Treasury and the GSEs to discuss best practices and future strategies.

One of the attendees, Rich Rollins, CEO of National Quick Sale, Jacksonville, Fla., a provider of Web-based short sale management and workflow platforms, told this publication the meetings revealed the focus of the overall loss mitigation strategy may be shifting.

"So far the focus has been in home retention and retention strategies, and it has become apparent that those haven't been as successful as the Treasury has hoped," he said.

The new focus is on nonretention strategies of which a primary mechanism would be a short sale since short sales can be used to attract real estate investors who will lease back to the occupants and keep them in their homes, he explained.

"The issue with short sales is that there's no standardization of processes and electronically capture the data and the documents that are required in order to begin the analysis, or business rules that will help use the technology to grab all the
needed information."

A technology expert, Mr. Rollins says another issue at the forefront is how to use existing technology to effectively gather, analyze and deliver loan information in an expedited fashion. "There is no uniform way of analyzing the data to see if a short sale may fit the borrower based on overall data valuation. A lot of technology will have to be employed, a lot of automation."

I stated last year that I thought foreclosures had peaked. Not because the number of homes in the foreclosure processed had peaked but because it is clear that short sales are a better way of moving the inventory IF the banks worked on resolving all the issues like what lien gets paid what amount, etc. Unfortunately it appeared the banks put zero effort into resolving these issues and can't foreclose due to political pressure and can't modify because it makes little economic sense to do so. Short sales have a benefit to the seller as well, there are loan programs that allow people to buy immediately after a short sale, I know of none that allow the same after foreclosure. A properly designed short sale strategy for the marketplace is desperately needed.. and it would be best if the recourse issues were standardized as well so the issue isn't hanging around for the next 20 years. The industry and administration really need to put a lot more effort into this avenue.

90% off peak for Riverside development

From the Globe and Mail, Canadian asset management company Brookfield has said they purchased an unamed (as far as I can find so far) Riverside development out of bankruptcy for 90% off peak value.

There are 3,200 unfinished McMansions sitting in a suburban Los Angeles neighbourhood, where developers spent more than $150-million (U.S.) to build sewers, grade lots and pave roads for an upscale development, only to see the market crash.
These homes are at the heart of the real estate meltdown and Toronto-based Brookfield Asset Management Inc. recently bought this Riverside, Calif., development out of bankruptcy – for 20 cents on the dollar.
...
“We do know this is currently one of the worst residential markets in the U.S.,” Mr. Flatt said in explaining the Riverside project during a conference call last Friday. “However, just to put it into perspective, the lots are within an hour of Los Angeles [and] were purchased for less than 10 per cent of the value attributed to land and infrastructure at the peak. … So these are at pretty low values.”

Here is how the purchase is described in their press release:

“We do know this is currently one of the worst residential markets in the U.S.,” Mr. Flatt said in explaining the Riverside project during a conference call last Friday. "However, just to put it into perspective, the lots are within an hour of Los Angeles [and] were purchased for less than 10 per cent of the value attributed to land and infrastructure at the peak. … So these are at pretty low values.”

It will be interesting to see how well the investment does over the long haul but buying at 10 cents on the dollar from the peak does certainly limit the downside loss potential. I am not sure how far along the lots are but if they are fully entitled I would think they can compete with REOs if they wanted to do so.

California Foreclosures for July 2009

The July 2009 ForeclosureRadar foreclosure report for California was released today. It continued to show high levels of Notice of Defaults (NoD), Notice of Trustee Sales (NTS) and Trustee Sales.

The main takeaway from the report is one any follower of foreclosures would see since last July:

“Despite the failure of the California Foreclosure Prevention Act to slow Notice of Trustee Sale filings it is clear that lenders and servicers are delaying foreclosure” says Sean O’Toole, founder and CEO of ForeclosureRadar. “More homeowners are now sitting at the brink of foreclosure, just days away from the next scheduled auction date, then ever before, yet we simply aren’t seeing the wave of foreclosures many predicted.”

Anyone saying the banks aren't doing enough isn't looking at the issue they face. Underwater borrowers with little income in a high cost area of the country. Few modifications pencil in this type of enviroment. We have low rates, a ready pool of buyers (many areas are still over 50% renters) and prices above their historical norms.. it makes very little sense for servicers to hold off foreclosing in areas like So. Cal. Yet here we are.. few foreclosures and rising defaults. The banks have been harangued by the politicians from doing something other than what makes economic sense and instead will carry this albatross around their necks for many years to come.

Weekly Housing Inventory update for SFV & Ventura - 08/08/09

Here are the weekly inventory and pending counts for Ventura County and the San Fernando Valley. For the legend Single Family Homes is abbreviated SFH, Ventura County is abbreviated VC and San Fernando Valley is abbreviated SFV. For readers who might not know, REO are bank owned foreclosures and short sales are owners hoping to sell the home for less than what is owed on the mortgage balance.

Update: Please see the home page for the latest graphs, I am reverting earlier weeks to text to maintain site speed.

San Fernando Valley:
Single Family Homes
Active - Total 1969
Active - Short sale 563
Active - REO 148
Backup - Total 703
Backup - Short sale 427
Backup - REO 39
Pending - Total 1565
Pending - Short sale 751
Pending - REO 382
Distressed active / Total active = 36.1%
Distressed pending / Total Pending = 72.4%

Condo
Active - Total 641
Active - Short sale 329
Active - REO 52
Backup - Total 248
Backup - Short sale 192
Backup - REO 13
Pending - Total 547
Pending - Short sale 286
Pending - REO 137
Distressed active / Total active = 59.4%
Distressed pending / Total Pending = 77.3%

Ventura County:
Single Family Homes
Active - Total 1455
Active - Short sale 179
Active - REO 96
Contingent - Total 1017
Contingent - Short sale 665
Contingent - REO 51
Pending - Total 654
Pending - Short sale 184
Pending - REO 204
Distressed active / Total active = 18.9%
Distressed pending / Total Pending = 59.3%
Release from Showing 246

Condo
Active - Total 455
Active - Short sale 104
Active - REO 34
Contingent - Total 406
Contingent - Short sale 295
Contingent - REO 28
Pending - Total 259
Pending - Short sale 88
Pending - REO 87
Distressed active / Total active = 30.3%
Distressed pending / Total Pending = 67.6%
Release from Showing 62

Random Tidbits

Just a few things I thought worth perusing.

You may have seen several articles referencing the Deutsche Bank report saying 48% of homes will be in negative equity situation by 2011. The following blog has links to the full 19 page report. I thought they didn't give enough credence to loan modification pressure but other than that they were very conservative in their methodology.

Represenative Richardsons antics have caused her to be investigated by the House ethics panel. I can only hope the voters toss her out the next chance they get.

Finally, Matt Padilla posted an excellent chart that shows what is going on in this market very well. Huge percentage of owners 90+ days behind payments and it is increasing. Number of owners with NOD and/or NTS filed and the numbers are increasing. Yet the number of homes servicers are taking back is decreasing.... Clearly showing the political pressure the servicers are under to not foreclose. Anybody tells you the banks aren't giving borrowers enough breaks.. show them that chart.

Trial modification difference between servicers.

In an American Banker article titled Shame May Be Only Stick U.S. Holds Over Mortgage Servicers servicers with a lower number of trial modification explain that the lower level is caused by underwriting the loan upfront before the trial mod is given instead of giving the trial mod based on verbal information and then later underwriting the modification.

From Wells Fargo:

Heid said, saying the servicer did not want to put borrowers in a trial modification and later re-underwrite the loan. "We took more of a 'gather the documents first' path. We wanted to make sure that we had the actual pay stub, the actual tax returns in hand… Now that we've got some operating experience on the program, we feel we can be less restrictive on that."

From Ocwen:

Ron Faris, president of Ocwen Financial Corp., which helped 5% of its eligible borrowers, said in an earnings call Tuesday that some of the numbers are deceiving. He said some servicers are just taking verbal income information from the borrower and sending them an offer immediately, following up at a later time with required information. He argued such a method would result in a high number of modifications initially, but they may not last.

Other institutions, like Ocwen, are requiring borrowers to submit all the documentation first before underwriting a modification.

Offering a trial modification based on verbal information seems like a very bad idea. It doesn't take long to produce income and employment documentation, run a credit report or sign a 4506-T (allowing the servicer to get the borrowers tax returns). Full underwriting does take longer but will have to be done anyways before giving out the full modification. Why not do it up front? If you were an investor and saw your servicer handing out trial mods so easily wouldn't you be worried? The servicer is the fiduciary to the investor not the borrower and it is looking like some servicers are caving to political pressure knowing ultimately the money they lose by handing out more modifications than prudent is not their own. In fact the HAMP and related programs incentivize the servicers to set aside their fiduciary duty.

As I sit back watching all of this unfold I keep asking myself who (besides the Federal Reserve) would ever buy a mortgage bond ever again.

Short Sale & Foreclosure for Ventura County

Note: I have added a foreclosure research link to the site, see here

Here is the sales breakdown for Ventura County for July 2009. I expect some late reporters to increase the total sales just a bit but I don't think July 2009 will beat July 2008 in terms of sales. Sales level seem to have hit their peak so far. I don't think that will change unless servicers get extra motivated on short sales or new foreclosure inventory comes on market. By looking at the weekly inventory reports posted every Saturday here we can see that the inventory decline seems to be over. It also appears like pendings and contingents have peaked for Ventura County. Short Sales did show their highest levels since I've been measuring them. While foreclosures have been declining as a percentage of sales I would expect that percentage to increase around Octobers numbers through next February as higher supply meets lowered seasonal demand.

Short Sale & Foreclosure for the San Fernando Valley

Note: I have added a foreclosure research link to the site, see here

Here are the sales for June 2009 for the San Fernando Valley broken down into distressed and non-distressed categories. Non-distressed sales have increase with seasonal demand and lower distressed sale inventory. Distressed sales are continuing to weaken as a percentage of sales matching the trend seen in the weekly inventory reports. This is the main reason sales remain so weak historically, distressed supply is constrained and non-distressed supply is overpriced. Right now distressed supply in many markets is like water drops hitting a hot skillet, it just instantly evaporates. We can see from the weekly inventory charts that inventory appears to be bottoming. We can also see from the trustee sale charts that some more foreclosure inventory is on its way.

It is amazing to think that we have had such amazing price drops, a tax credit and over 1% drop in long interest rates and sales are below where they were at the same point the year before. We will get some later reporters and I expect sales will eventually come close to the July 2008 number. When you hear the glowing reports about the market about multiple offers on foreclosures.. remember it isn't translating itself into huge sales increases. We've just had sales bounce of a low level but they are still very weak historically. Only more supply and lower prices will help the sales regain their momentum.

Ventura County Shadow Inventory quicky.

I was able to check 690 homes against the Ventura County Regional Data share, these homes went back to the bank between January 1st and April 30th of this year.

I was checking to see of the 690 homes how many were Active, Pending, Contingent or Sold during this period after being taken back by the bank.

There were 473 entries listed out of the 690 APN's entered. Or about 68.5% homes that have been put up for sale. This doesn't include homes that might have been put up on other MLS and could possibly include double counts if people were flipping. I think 70% would be a conservative count and that would mean there were 200 more homes waiting in the wings from the first four months of this year. That would equate to about 25% of one months sales in Ventura County.

I still don't feel that there is more than, at most, a couple months of "shadow inventory" waiting in the wings that are bank owned outside of the homes foreclosed the last couple months (which could be considered to be still in the pre-list stage) and I don't feel this is a huge issue that will overwhelm the market. In fact I think the banks would do very well listing any shadow inventory now as the market is clearly starved for inventory and buyers are unable to push their purchasing power.

I will endeavor to quantify the issue further, possibly by looking at the issue on a city by city basis to make the process more manageable.

"Multiple offers" - Are taxpayers on the hook for the REO bidding frenzy?

One of the loan servicers, Ocwen, has a website where you can see active offers on their foreclosed properties. Here is an example of some homes on the market getting offers. Click to enlarge any graphics shown.


1377 North Heathdale Avenue, Covina,Ca (Note: link will no longer be valid when offer is accepted)

So the highest net offer is $307,000. Lets break that down.

Offer price: $345,000
Assumed Commissions and fees ~5%: $17,250
Difference between offer and net: $20,188 or approximately 6%.


Here is another house 2020 Snow Avenue, Oxnard, Ca


Two offers at $270,000 with a net of approximately $240,000.



Offer price: $270,000
Assumed Commissions and fees ~5%: $13,500
Difference between offer and net: $16,500 or approximately 6%.

That maximum seller contribution for a FHA loan turns out to be.... 6%! Coincidence?

So FHA buyers are offering more because they are using the FHA guarantee to overbid. FHA doesn't fall under HVCC so the appraisal can be shopped as well. The 6% will go to closing costs, the up front mortgage insurance premium (so the FHA insurance permium fund is partly funded by funds it is guaranteeing!), buying down the rate, origination fees, etc. I have even see mortgage brokers indicate that the funds can be used to pay the first year property tax and/or HOA fees (unknown if true). I am betting many FHA borrower are beg/borrowing/stealing the 3.5% downpayment and then overbidding essentially making the lender and insurer pay itself all its fees through money the lender provides itself. If a borrower asked his/her parents for $8,000 with the promise to pay them back once they get the tax credit... It would be technically loan fraud but the kind that would never be found out. FHA allows downpayment funds to be "gifted".

You can go through the property list for California here. And you can see many homes have offers on them but obviously much lower than current list. So any buyer should be aware of that "multiple offers" doesn't really have any meaning without proper context and knowing the details of the offer. Cash offers are much different than Conventional or FHA offers. And just simply knowing the offer price doesn't really tell you how desirable the offer is. Many foreclosed homes won't meet the Minimum Property Requirements of FHA so an FHA offer is essentially useless. The new appraisal code (HVCC) can present an issue for REOs going over list so Conventional loans can present a problem as far as getting closed.

Trustee sales divided by Total sales per quarter for LA and Ventura County

Here is just a quick chart I generated for trustee sales by quarter divided by the total number of quarterly sales as reported by Dataquick.

Ventura County Trustee sales for July 2009

Here are the trustee sales for Ventura county, July 2009. Trustee sales dropped 21.80% MoM and 52.29% YoY. July 2008 has been the peak of this cycle so far. Third party sales continue to increase as trustee sales investors are grabbing every deal they can with the belief they can move inventory through this low foreclosure inventory environment. I know there is a very active investment group in the Simi Valley area, in one week they grabbed 70% of the available homes.

Trustee Sales for Los Angeles County July 2009

Here are the trustee sales for Los Angeles county, July 2009. Trustee sales dropped 15.18% MoM and 34.42% YoY. July 2008 has been the peak of this cycle so far. Third party sales continue to increase but not as much as other counties profiled. This suggests either there are some missed opportunities at the courthouse steps or prices are falling here more than other areas.