"You can't fix stupid" - update

Filling in the information gap from a previous post regarding a CNN profile of buyers using the tax credit. Buyers Mike Spence and Noel Delisle mortgage has been recorded. I was hoping that the loan would show a significant down payment or something else that would make the purchase not seem so tenuous. Well, apparently, it is worse than I thought. Even though the FHA maximum limit is $729,750 the loan has been recorded for $736,415. I'm guessing closing costs or the Mortgage Insurance Premium was rolled into the loan.

The tax credit phases out over $150,000/yr in income and is completely lost after $170,000/yr. So we have a reasonable upper limit of salary for the couple, a "Level 3 Hair Designer" and a Crane operator for a tree removal company. The article mentions a 5.5% interest rate which gives us a ~$4,180 /mo for principal and interest. Property tax rate of 1.25% gives ~$781.00 / mo in property taxes. ~$70 / mo for insurance. The monthly MIP is 0.5% a year of the original loan balance which comes in at ~305 /mo for insurance. At $170,000/yr income their front end debt to income ratio would be a whopping 37.4%. At $150,000/yr income their front end debt to income ratio would be 42.4%!

This is not a loan that should be made. The debt to income ratios are insanely high. It seems like their future prospect for higher income is much lower than a low income couple with similar debt ratios but their future prospect for lower income is higher. And on top of it is the very real prospect of depreciation. Is it any wonder that people believe we will be bailing out FHA? Are we really helping this couple buy a home or just throwing them under the runaway bus to help slow it down?

Ventura County Trustee sales for September 2009

Here are the final trustee sales number for Ventura County for September 2009. Foreclosures decreased 4.1% MoM and are down 37.8% YoY. Third party sales are in a definite uptrend as investors look like they think they will be able to push homes through the slower off season months. October 2008 was the first major decline in trustee sales last year so it will be interesting to see if October 2009 will give positive YoY sales. BofA has been jawboning that they will be definitely increasing foreclosures in Q4, I wonder if Ken Lewis replacement will bow to pressure to reduce foreclosures once he takes over in Q1 of 2010. We could see a holiday moratorium from the end of November to beginning of January and then political pressure on a new CEO of a major servicer put a cap on sales through Q1 of 2010 (just presenting a possible scenario). Alternately we could see servicers finally taking more homes back as modification efforts fail.

Trustee Sales for Los Angeles County September 2009

Here are the trustee sales for Los Angeles County for September 2009. Trustee sales came in down 9.5% MoM and down 27.8% 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.

Orange County Trustee sales for September 2009

Here are the trustee sales for Orange County for September 2009. Sales were down 8.8% MoM and down 34.1% YoY. Third party sales are incredibly high. 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.

San Diego Trustee Sales September 2009

Here are the trustee sales for San Diego County for September 2009. Foreclosures were down 7.8% MoM and down 26.2% YoY. Third party sales are essentially flat the last three months.

Weekly Housing Inventory update for SFV & Ventura - 09/26/09

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 1757
Active - Short sale 477
Active - REO 143
Backup - Total 742
Backup - Short sale 454
Backup - REO 36
Pending - Total 1523
Pending - Short sale 780
Pending - REO 311
Distressed active / Total active = 35.3%
Distressed pending / Total Pending = 71.6%

Condo
Active - Total 608
Active - Short sale 268
Active - REO 57
Backup - Total 326
Backup - Short sale 236
Backup - REO 15
Pending - Total 576
Pending - Short sale 307
Pending - REO 148
Distressed active / Total active = 53.5%
Distressed pending / Total Pending = 79.0%

Ventura County:
Single Family Homes
Active - Total 1353
Active - Short sale 174
Active - REO 101
Contingent - Total 985
Contingent - Short sale 629
Contingent - REO 57
Pending - Total 707
Pending - Short sale 206
Pending - REO 179
Distressed active / Total active = 20.3%
Distressed pending / Total Pending = 54.5%
Release from Showing 295

Condo
Active - Total 373
Active - Short sale 83
Active - REO 30
Contingent - Total 454
Contingent - Short sale 341
Contingent - REO 28
Pending - Total 257
Pending - Short sale 91
Pending - REO 73
Distressed active / Total active = 30.3%
Distressed pending / Total Pending = 63.8%
Release from Showing 72

The new forecasts are here! The new forecasts are here!

(With apologies to Steve Martin's The Jerk for the title)


Bill Watkins over at California Lutheran Univerity Center for Economic Research and Forecasting has put up his groups forecast for California and the United States. I thought I was bearish but for California Bill is predicting negative Net In-Migration through 2011. Unemployment peaking at 13.8%. Real Wage and Salary growth negative through 2011. 8 more quarters of home prices dropping. No job growth through 2011. Not a lot of rosy predictions moving forward. But the good news for me personally is that if all the predictions come true all my preparations for the zombie apocalypse will also be helping me through the California crash.


It is definitely difficult to see how a state which has inflexible budgets and taxes, too much spending, an unfriendly business environment, a legislature unwilling to make any hard decisions, lots of debt at every level of government and an overleveraged constituency will do anything but underperform the rest of the USA.


For those looking to define shadow inventory for California I thought these two graphics from this group of slides were interesting.

You will notice the number of loans in default in California looks to be about 9.2% of all outstanding loans but the number of loans in foreclosure are only about 5.5.%. Some of that difference may lie in multiple loans on a property are in default and only one foreclosing but I think a significant percentage are also in default with no NOD filed yet. Dataquick has reported it took lenders a median of 5 months of non-payment before the NOD was filed.

Note: There will be no more posts here until Monday September 28th as I will be off watching the Kings play in Vegas. Weekly inventory reports (with inventory being taken Monday instead of the traditional saturday) and an analysis of a new law potentially affecting short sales will be up early next week.

San Fernando Valley Inventory August 2009

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 than the previous year for the market segment but Months Supply has still dropped. Inventory is being worked off and new supply is being held off the market.

San Fernando Valley home sales report - August 2009

San Fernando Valley Single Family Home sales for August 2009 came in at 670 which is down 10.07% MoM and up 0.60% YoY. The median price for single family homes came in at $389,000 which is dow 2.75% MoM and down 8.47% YoY. Sales continue to be horrible with this being the third worst August on record only missing being the 2nd worst sales on record by 5 sales. We have an interesting market dynamic, sales continue to be cratered but inventory is dropping. Few discretionary sales because sellers feel like they don't want to sell in a down market and are hoping beyond hope that somehow things will get better than ultra-low 5% interest rates and a tax credit. Few short sales because the banks are slow in responding (This might change soon, I'll post on why later). Few REOs because the administration has made them verboten. This is not a functioning market but one on life support. Reality has been suspended until Uncle Sam decides otherwise.

Condo sales came in at 230 which is up 13.30% MoM and up 33.72% YoY. Median price for condos came in at $230,000 which is up .88% MoM and down 16.36% YoY. Condo sales are doing a bit better right now than SFH sales. I think the lack of affordable SFH inventory has pushed desperate buyers wanting to cash in on the tax credit to consider condos but that is supposition on my part.

The red line is my predictor line for next months sales. There has been a disconnect since May on the predictor overpredicting sales. It could be the longer underwriting time lines is messing it up or some other variable I haven't accounted for. If pendings slow and the predictor line drops below reported sales I will know the longer time lines are affecting the prediction and make adjustments.

Weekly Housing Inventory update for SFV & Ventura - 09/19/09

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 1792
Active - Short sale 488
Active - REO 141
Backup - Total 739
Backup - Short sale 440
Backup - REO 49
Pending - Total 1550
Pending - Short sale 781
Pending - REO 332
Distressed active / Total active = 35.1%
Distressed pending / Total Pending = 71.8%

Condo
Active - Total 634
Active - Short sale 295
Active - REO 54
Backup - Total 308
Backup - Short sale 216
Backup - REO 18
Pending - Total 549
Pending - Short sale 295
Pending - REO 137
Distressed active / Total active = 55.0%
Distressed pending / Total Pending = 78.7%

Ventura County:
Single Family Homes
Active - Total 1346
Active - Short sale 170
Active - REO 83
Contingent - Total 1001
Contingent - Short sale 635
Contingent - REO 60
Pending - Total 693
Pending - Short sale 200
Pending - REO 182
Distressed active / Total active = 18.8%
Distressed pending / Total Pending = 55.1%
Release from Showing 284

Condo
Active - Total 391
Active - Short sale 88
Active - REO 22
Contingent - Total 448
Contingent - Short sale 338
Contingent - REO 28
Pending - Total 269
Pending - Short sale 89
Pending - REO 80
Distressed active / Total active = 28.1%
Distressed pending / Total Pending = 62.8%
Release from Showing 72

More WSJ on USG and Housing

From the WSJ:

Right now, housing remains on government life support. Treasury-backed entities are guaranteeing about 85% of new mortgages, while the Fed buys 80% of the securities into which these taxpayer-backed mortgages are packaged.
The optimistic take is that this support, though large, will shrink when market forces regain confidence. But there is a darker possible outcome: The emergency assistance is entrenching a system in which the taxpayer takes the default risk on most mortgages, while a small number of large banks get a larger share of the fee revenue from originating and servicing mortgages.

Market forces cannot hope to exert themselves when the risk/reward calculation is so low. Interest rates compensate for risk but spreads between treasuries are at all time lows and overall rates are at all time lows. Banks would make market rate loans but with the Fed distorting the market with its purchases they've actually become net sellers of mortgages instead. The market is saying that rates need to rise in order for them to lend but the USG doesn't want to hear that answer.

Wells Fargo CEO is very direct:

Despite the bust, conforming mortgages that qualify for government backing remain mispriced. That can be seen in the fact that banks have no desire to keep the most common mortgage on their books. Wells's chief executive, John Stumpf, recently said: "We're not putting on 30-year [fixed-rate] mortgages at these rates."

This housing market "bottom" being sold right now is predicated on ultra-low rates. These ultra-low rates are only possible because of the massive QE purchases by the Fed. How much longer will the purchases go on? Not only have the purchases reduced the spread over the 10 year note to very low levels, they have lowered overall rates as demand for MBS has wained and the normal MBS purchase money has gone to purchase other notes (the supposition is it went into Treasuries to wait out the market which reduces mortgage rates further).

San Diego Trustee Sales Mid-September 2009

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

Orange County Trustee sales for Mid-September 2009

Here are the trustee sales for Orange County for Mid-September 2009. Currently sales are on pace to come in slightly lower than August 2009. 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-September 2009

Here are the trustee sales for Los Angeles county, Mid-September 2009. Los Angeles County is on pace to come in slightly lower than August. 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-September 2009

Here are the trustee sales for Ventura county for Mid-September 2009. Sales are roughly on pace to match the previous two months. Third party sales are increasing and will result in less motivated inventory on the market and lower sales and higher prices in the future. Looking at the upcoming calendar for the rest of the month scheduled sales appear a bit light so it would be of no surprise if trustee sales miss to the downside this month.

I have little doubt we will have a holiday foreclosure moratorium this year starting in late November and last through the beginning of January. If so it is highly unlikely we will see anything resembling a significant increase in foreclosures this year.

California Foreclosures for August 2009

The August 2009 ForeclosureRadar foreclosure report for California was released today. NOD and NTS are down MoM, foreclosures are essentially flat. Third party sales continue to rise as investors jump into the supply constrained market. I thought Sean O' Toole did such an excellent job in the release that I will just highlight his comment. Any emphasis added is my own.

"It is clear at this point, that foreclosures are being HAMPered” says Sean O’Toole, founder and CEO of ForeclosureRadar. “Where foreclosures head from here will depend a lot on the administration’s Home Affordable Modification Program, commonly referred to as HAMP. We can clearly see that this program is postponing an awful lot of foreclosures, but don’t expect a wave of foreclosures if it fails, instead expect further government intervention.”
...
A key feature of the HAMP program is a 3-month trial period, during which foreclosures are postponed to see whether or not the homeowner makes the new, reduced payment as agreed. As a result,the number of scheduled foreclosures that
are being postponed at the lenders request or with their agreement has doubled since details of the program were announced. At the end of August 2009 there were 131,300 foreclosures scheduled for sale, compared to 64,177 at the end of February 2009. If the HAMP trials succeed, foreclosures should begin to cancel at record rates, which has yet to happen. If HAMP trials fail, foreclosure sales should increase, which also has yet to happen.

"but don’t expect a wave of foreclosures if it fails, instead expect further government intervention."

The government has yet to reduce any level of support for the housing market in history, once a level of support has been introduced it has always remained in effect. I think this is the money quote for the whole article and people need to change their expectations of the market going forward. To expect a rational market where a weak overleveraged borrower who isn't paying is replaced by a stronger borrower who can and will pay is apparently just not going to happen. Money will be printed, the sanctity of contracts will be set aside, it is clear whatever can be done will be done to keep the market inflated. But the other side of that is sales will stay low and the whole RE industry will lose jobs and be much smaller, you can't have it both ways.

Ventura County August 2009 Home Sales

Here is the Ventura County home sales report based on the Dataquick news release. Sales continue to perform horribly. We are at the same basic level as the mortgage market blowup in 2007 but prices are much lower, there is a tax credit and rates are much lower. There was a small bump in rates about 6 weeks ago of a half of point that may have temporarily disrupted sales but it is doubtful that is what caused such anemic sales. The data keeps pointing to a supply constrained market, the only place strong sales are seen in the low cost markets with ready supply like Riverside and San Bernardino.

The strength in the median has been a lot based on mix shift but there has been a firming of prices on the low end. As the supply becomes more constrained fewer borrowers can buy and the few who can buy are generally of the stronger financial profile.

The real estate industry who have been crowing about the recovery of the housing market will start to feel the slow sales pinch their revenue. After all, they are the rake, if the hand isn't played the rake isn't dropped. Commissions won't be made, fees won't be collected.. it will be the second leg down for an already battered industry. I also feel the lending industry, who are currently staffed up to process the HAMP wave, will then have to adjust staffing levels. Not a bright future for those in the RE business when sales stay low. Of course the NAR is renewing their push for renewal and expansion of the tax credit, they need something to artificially boost sales for their flagging membership.

The people who are doing well in this market are the trustee sale investors who are buying the supply before if ever gets to market then selling it at retail prices. REOs were one of the few things keeping the market liquid but as the trustee sale investors have become more active you see sales drop. This is a completely logical consequence of low supply and high investor activity removing motivated supply in the Ventura County area.

WSJ: No Easy Exit for Government as Housing Market's Savior

From the WSJ:

His administration released a 51-page report detailing rescue programs that are slowly being scaled back. But the Treasury Department, author of the report, noted that housing is one area where it's too early to exit.

Flash of the obvious that the USG won't be backing away from housing anytime soon. But there is a difference between making sure the mortgage market doesn't freeze up and the tremendous distortion of mortgage rates now being undertaken by the Fed. While one is USG policy and the other is the "non-political" (/sarcasm) Fed they are working in concert.

More from the article:

Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.

As I understand it the MBS issuance part of the market is something like 97% government supported (according to a recently released GAO report). So you either fit the GSE/FHA guidelines or find a local bank whose guidelines that you can fit and they portfolio the loan. But the support is at every level, the Fed is buying $1.25 Trillion in MBS debt and $200 billion in short term GSE debt. This is causing rates to be ultra low. This confluence of Fed and Treasury policy along with political policy has completely been directed in keeping housing afloat. One certainly wishes they spent a tenth of the energy before the boom making sure this didn't happen instead of wasting all this energy once it happened trying to keep the dreaded DEFLATION from happening.

In regards to the expended "jumbo conforming" loan limits is will be of no surprise that no administration would ever allow these "temporary" loan limits to ever revert back to their previous levels. The political cover to raise the limits, and thus the risk to the GSE was that it was temporary. Anyone with any sort of sophistication at all knew the lie when it was being told. The loan limits have never gone down and the government has never done anything to support the housing market less. As the article states:

The government temporarily raised the size of the loans Fannie and Freddie can guarantee in February 2008 and is unlikely to ever return to previous levels. The higher levels have been extended once, and the mortgage industry is lobbying to keep them high.

And on the Feds role:

When the Fed buys up to $30 billion in mortgage securities every week, regardless of price, "it makes it very difficult for the market to find its own equilibrium," says Ajay Rajadhyaksha, head of U.S. fixed income research at Barclays. He said investors are trading in Treasury securities instead, pushing rates lower in that market, too.

The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March, and then taper off gradually. Some Fed officials will likely argue for stopping sooner, even as soon as next week's regular policy meeting.

If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays's Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the
market.

Note they suggest that it is possible that the Fed will finish out the $1.25 trillion purchases this year then come up with a new level of printing money and "slowly" back away from the market. While MBS purchases may eventually wind down in the next year (I'm being optimistic) the short term GSE debt purchases I am sure will continue to keep them afloat.

It all boils down to continued long term heavy USG and Fed involvement. Like the traders in the MBS market who have backed away from purchasing MBS because of the massive Fed distortion, I wonder how a rational home buyer can enter the market now. They are either ignorant of the risks, don't care about the risks or are rich enough where it doesn't matter. People have to understand that the market "bottom" is predicated on 5% rates and supply being choked off while non-paying borrowers get a pass. You would have to be very confident of those two issues continuing for a significant time horizon or don't care you are throwing money away buying a home because you won't be able to sell it for what you owe later.

Also the hyperbole needs to end, literally everyone has assumed that if any of these programs get scaled backed or stopped the housing market ends. No, it doesn't end, prices just go down. Demand is there, if anything the housing boom has proven is that people want to buy homes and will go to great lengths to do so. Rates need to rise to a level commiserate with the risk being taken, then the private market will return to lending. Instead we have massive subsidies to the system. Prices need to fall to a level where local incomes support them at normal interest rates. We have some really hard choices to be made and time has passed and there is no evidence that they will be made. We just keep kicking the can down the road.

End Game?

Much of this post is speculation on future events by me. Do not take my opinion/rant as facts. I only offer up a possible outcome over the near future for the housing market. As I have watched the market I have seen little more than the emergency brake have been hit by the Fed with little resolution to the fundamental problems facing the market of overleveraged borrowers getting in way over their heads. I present this as possible outcome:

I found this summary of a report Amherest Securities Group on Housing Wire
to be interesting and could point to a final plan developing to remove the mortgages off the banks books and onto the backs of the taxpayers. Basically the report points out that short sales result in higher recovery rates than foreclosures. This makes sense for two reasons. One, the property is still owner occupied or just recently vacated meaning the home would have less deferred maintenance than your typical foreclosure. And two in a declining market the sooner you get out the more your recover. This shows why the industry needs to come up with a uniform way of first and junior liens cooperating to divvy up the proceeds of a short sale instead of the senior liens telling the junior liens "this is what we are offering" and the junior liens using the "hostage value" of their lien to try and get more.

The other part of this report points out that a new Hope for Homeowners (H4H) is in the works. With this option Amherst believes the loss would be the same as the short sale, the owner still keeps the home and the bank no longer has a bad loan on its books. Any default from that point forward comes out of the FHA insurance fund and, if that fails, the taxpayers. I believe this to be the end game for the administration. The Fed can tremendously influence rates, however temporarily, they can bring down rates to even lower levels so the qualification for H4H is easier and the banks can put as many loans in H4H in as little time as possible. While there may be a hit to capital to the banks they magically turn a non-performing loan into a performing loan which carries zero risk and they wouldn't have to withhold any capital or increase loan loss reserves against it.

Moral Hazard? Yes, not an issue to the Fed. Price Discovery? No, exactly what the banks and government want. Overleveraged borrowers get to keep "their" home? Yes. Saving the too big to fail banks? Yes, it may require an additional capital injection depending on the initial H4H losses. Keeping the housing market stagnated and inflated? Yes.

I think it is as good as the administration can expect given their goals of keeping the housing market inflated and as many borrowers in homes as possible. Needless to say I see a taxpayer funded bailout for FHA coming a few years down the road but they get to kick the can and politicians will always do that over making the tough decisions.

The only losers are the fiscally responsible and those who pay the majority of taxes. Truely this is an ownership society and homeowners are a protected class of people. I am sure we will hear more about a new much more lenient H4H probably by early next year.

EDIT:
From the April 28, 2009 MHA press release:

"Support for Legislation to Strengthen Hope for Homeowners: In order to ensure that many more borrowers are able to participate in Hope for Homeowners, we are working to improve the program and actively pursuing legislation so that the FHA may reduce fees paid by borrowers, increase flexibility for lenders to refinance troubled loans, permit borrowers with higher debt loads to qualify, and make further improvements to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program. "


"Treasury Purchase of Special Ginnie Mae Pools to Provide Liquidity for Hope for Homeowners Loans: Under HERA authority, Treasury or the GSEs would purchase special Hope for Homeowners Ginnie Mae IIs wrapped by the GSEs. These purchases will increase secondary market liquidity for new Hope for Homeowners loans, supporting additional assistance to homeowners. "

September 15th

Just a quicky note the additional 90-day foreclosure delay put in by the California legislature started on June 15th. While most major servicers are exempt it is possible that many investors are not considering loan modification in line with what is expected by the law and therefore the additional delay may have applied. So it is possible past Tuesday we will start seeing more notice of trustee sales being filed (NTS) and then 21 days later a bigger uptick in sales. Or it could be the NTS is already filed and the lender could have waited an additional 90 days as a CYA move. In which case we should see a bigger uptick over the next two weeks.

I have no way of knowing why certain foreclosures are being delayed but am presenting this as a possibility for more foreclosures soon. I think the bank regulators are slowing down foreclosures more than any state law and I don't think this law has done much. But I just thought it would be something to watch in the coming weeks.

Weekly Housing Inventory update for SFV & Ventura - 09/12/09

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 1829
Active - Short sale 504
Active - REO 142
Backup - Total 744
Backup - Short sale 437
Backup - REO 37
Pending - Total 1588
Pending - Short sale 780
Pending - REO 353
Distressed active / Total active = 35.3%
Distressed pending / Total Pending = 71.3%

Condo
Active - Total 664
Active - Short sale 309
Active - REO 52
Backup - Total 298
Backup - Short sale 214
Backup - REO 17
Pending - Total 545
Pending - Short sale 289
Pending - REO 133
Distressed active / Total active = 54.4%
Distressed pending / Total Pending = 77.4%

Ventura County:
Single Family Homes
Active - Total 1394
Active - Short sale 175
Active - REO 94
Contingent - Total 985
Contingent - Short sale 641
Contingent - REO 64
Pending - Total 689
Pending - Short sale 205
Pending - REO 175
Distressed active / Total active = 19.3%
Distressed pending / Total Pending = 55.2%
Release from Showing 283

Condo
Active - Total 417
Active - Short sale 92
Active - REO 35
Contingent - Total 438
Contingent - Short sale 337
Contingent - REO 26
Pending - Total 259
Pending - Short sale 85
Pending - REO 78
Distressed active / Total active = 30.5%
Distressed pending / Total Pending = 62.9%
Release from Showing 69

There are economists I like...

..and economists who I don't like. Anyone want to guess which category the above falls into?

I enjoy reading the various economists and market watchers publicly available work. It is a hobby of mine, I am more interested in their thought process than their actual predictions. I have only seen Schniepp quoted in the paper and his recently introduced newsletter and he is clearly always very bullishly biased instead of data driven. He is so bullish he calls CNBC bearish (it's true!)!

I prefer my economists to at least be able to find the minus sign on their calculator. Today they had a conference regarding their Ventura County predictions. Normally, I would feel bad I didn't get to go to the conference to hear the findings. But in this case I have the feeling I didn't miss much.

I much prefer David Rosenberg, Calculated Risk, Chris Thornberg, Paul Kasriel, and Bill Watkins.

American Banker: Treasury Short Sale guidance coming soon

From American Banker:

The Treasury Department plans to announce financial incentives for servicers to pursue short sales and deeds in lieu of foreclosure for troubled homeowners who do not qualify for the Obama administration's loan-modification program.
...
Under the Treasury plan, which is expected to be announced this month, servicers would get a $1,000 "success fee" when a short sale is completed, according to short sale experts who have been briefed on the policy.

The home seller would receive up to $1,500 to assist with relocation expenses, similar to the "cash for keys" programs that various servicers offer.

The article also talks about codifying just how much junior liens should take. If short sales ever become structured, where the banks basically take fair market now and all the liens divvy up the proceeds in some agreed upon way it would go a long way in liquefying the market. There are many short sales sitting waiting for an answer from the bank (see the weekly inventory reports), if that answer get reduced to a couple week time period the market will take off. It also means the foreclosure peak will have definitely passed as the distressed inventory will be moved early in the process for all but the most unwilling.

Purchasing power

From the "I meant to post this a couple months ago" file , a graphic from the Joint Center for Housing Studies annual The State of the Nation's Housing report:

From 2004 through 2007, homebuyers were able to chase prices higher without adding to their initial monthly payments by taking advantage of various affordability products. In fact, more than one-third of borrowers took out adjustable-rate (ARM) loans n 2004 (Table A-3), while nearly one-fifth took out interest-only or payment-option loans in 2005. Instead of reducing their payments as a share of income, though, most borrowers used the loans to keep up with rising prices—especially in markets with rapid appreciation and heavy speculation. In California and Nevada, for example, more than 40 percent of loans originated in 2005–6 had payment-option or interest-only features.

The impact on purchasing power was profound. In 2005, a household with the median owner income of about $57,000 and spending 28 percent of income on mortgage principal and interest could qualify for a 30-year, fixed-rate loan of $225,000. But if the same household took out an adjustable-rate loan with a discounted interest rate, the maximum loan amount increased to $263,000 (Figure 20). Adding an interest-only feature to that ARM and qualifying the household based on the initial interest-only payments raised the potential loan to $356,000. And under the common practice at the time of allowing the borrower to spend 38 percent of income on mortgage costs, the amount the household could borrow with an interest-only ARM jumped to some $482,000.

After regulatory guidance issued in 2006 pushed the industry back towards tighter, more uniform standards, interest-only and even some adjustable-rate loans became hard to get. By mid-2007, teaser discounts on adjustable-rate mortgages began to shrink and the spread between fully indexed fixed- and adjustable-rate loans hit zero and then turned negative. As a result, households can no longer use these loan features to leverage their incomes to buy ever more expensive homes. With a 2008 median owner income of about $64,000 and prevailing interest rates through April 2009, a household spending 28 percent of income could qualify for a 30-year, fixed rate loan of just $277,000.

Borrowers can still push the front end ratio even today. Fannie/Freddie will max out DTI at 45-50%, they look at total debt not just housing debt and group it into one ratio. As for the boom time ratios simply didn't matter. Stated income got around any ratio issues, all you had to do is make sure you stated a income high enough to make the ratios work. Lending is very lax today. The issue many have as far as restricted are related to needing "stated" income because they cheat on their taxes. Now that lenders are pulling 4506-T and checking that incomes are in the ballpark it has removed or reduced the buying power of a swath of borrower who, technically, has the cash (at least until Uncle Sam figures it out).

The interest only "affordability" product was very popular in California, people were only building equity through appreciation and in a down market that isn't working out for them. They can't afford an amortizing loan even if they could refinance. Decisions will have to be made.

Redfin: Los Angeles County least and most discounted areas.

From the Redfin blog:

The cheap, close to job center, high foreclosure areas with the strongest showing. The prestige areas are performing the worst.

Weekly Housing Inventory update for SFV & Ventura - 09/05/09

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 1841
Active - Short sale 521
Active - REO 137
Backup - Total 739
Backup - Short sale 432
Backup - REO 41
Pending - Total 1552
Pending - Short sale 777
Pending - REO 332
Distressed active / Total active = 35.7%
Distressed pending / Total Pending = 71.5%

Condo
Active - Total 656
Active - Short sale 300
Active - REO 67
Backup - Total 280
Backup - Short sale 217
Backup - REO 13
Pending - Total 538
Pending - Short sale 280
Pending - REO 124
Distressed active / Total active = 55.9%
Distressed pending / Total Pending = 75.1%

Ventura County:
Single Family Homes
Active - Total 1422
Active - Short sale 179
Active - REO 102
Contingent - Total 975
Contingent - Short sale 647
Contingent - REO 57
Pending - Total 665
Pending - Short sale 201
Pending - REO 171
Distressed active / Total active = 19.8%
Distressed pending / Total Pending = 55.9%
Release from Showing 278

Condo
Active - Total 419
Active - Short sale 99
Active - REO 37
Contingent - Total 426
Contingent - Short sale 328
Contingent - REO 25
Pending - Total 270
Pending - Short sale 89
Pending - REO 81
Distressed active / Total active = 32.5%
Distressed pending / Total Pending = 63.0%
Release from Showing 73

You can't fix stupid... but apparently you can give it a tax credit.

From CNN Money (emphasis added), What I bought with my $8,000 tax credit:

Location: San Carlos, Calf.
Property: 3 bed, 2 bath, 1,600 s.f.
Price: $750,000

My fiance and I were running around making wedding plans and looking to buy a home in San Carlos -- about halfway between San Francisco and San Jose. We finally found the right place on Roost.com.

We get married in November, but we're moving into the house this month. I'm excited because it's the best entertaining house we've ever seen. The house is built around a courtyard, and there's a barbecue. I love to entertain.

We felt like we had to hurry and buy before the end of the year so we wouldn't miss out on the tax credit. That turned out to be truer than we thought: As we got closer to the end, we realized how much closing costs and other fees would add to the purchase price, which was high enough already.

The $8,000 tax credit is saving us. Wedding, new house, we're tapped out. We're definitely big fans of the tax credit!

Still, we feel good about the purchase. Even though it's a lot to pay, we feel we got a good buy. The house next door is going for $1.2 million.

Prices have tumbled in this area, so the house is a lot cheaper than it would have sold for a year or two ago, and we got a great rate, about 5.5%, on a FHA loan. We'll use some of the credit money to updating some of the home's circa-1950's decor -- fake wood beams and chandeliers, textured wallpaper and the like.

This article was interesting. It was interesting that many were already buying so the tax credit didn't really effect their purchase timing or effected it very little (meaning, the tax credit didn't really stimulate an additional sale). Many homes were at or below the national median with some borrowers stating they were using FHA. But these blessed borrowers featured above. buying a $750,000 house using a FHA loan (meaning they don't have much down) AND are in the process of planning a wedding.

This house would require about $5,000 a month in PITI and $200,000 a year income (31% front end ratio FHA max which I'd bet can be pushed higher using AUS) for this hair dresser and crane operator to maintain. This is why FHA and high cost areas doesn't make sense. Your future prospect for increased income is low and prospect for decreased income is high yet the loans are underwritten the same for low income/low mortgage balance vs high income/high mortgage balance. Note their plans aren't to use the tax credit for rebuilding depleted reserves or paying down the mortgage. They are going to use it to redecorate their new home. Our tax dollars at work. What is funny is this is exactly the type of high consumption behavior the Fed & Government is trying to encourage with their actions. Malinvestment at its finest. It is no wonder people have little doubt that the taxpayers will be bailing out FHA soon. They will go hat in hand to Congress for a bailout and claim nobody could have possibly seen this coming.

EDIT: Commentator dafox noted that the income limit kicks in at $150,000 for the tax credit which makes the above couple situation even weaker than I first thought.

Watching the can..

Mortgage servicers have been clearly kicking the can down the road when it comes to delinquent borrowers. Yesterday, Diane Olick of CNBC talked with someone at BofA regarding foreclosures. They had this to say (emphasis added):

Foreclosure sales have been abnormally low since we learned of the pending implementation of the administration’s Making Home Affordable program. From that point, we delayed the initiation of foreclosure proceedings and sales for customers that may eligible for a loan modification under MHA. As a result of this policy, our foreclosure sales in recent months have been as little as half the normal pace we experienced before.

Until a foreclosure is completed, Bank of America continues to exhaust every possible option to qualify customers for modification or other solutions.

Now that Making Home Affordable programs are operational, we do project an increase in foreclosures as we exhaust every available option to qualify customers for modifications and other solutions.

While we have very strong loan modification programs now available, unfortunately, these foreclosure projections reflect the increasing number of customers who will not qualify for loan modification because they have suffered major life events servicers can’t solve...primarily unemployment and underemployment.

We do not hold foreclosed properties off the market. The vast majority of mortgages serviced by Bank of America are owned by third-party investors. We have an obligation to them to prepare foreclosed properties for market and sell them as efficiently as possible.

Also an analyst was quoted the following (for those believers of the huge shadow inventory of REOs sitting off market):

He says there is no clear evidence of purposeful accumulation by the banks of these foreclosed properties. They are, he believes, working through the huge onslaught of new defaults as fast as possible, but it takes time. He says they are selling REOs at a fast clip as well, within about three months of taking them as REO.

So here is one way you can see if BofA has stopped kicking the can as they are very clearly trying to manage expectations towards higher number of homes foreclosed on. Many ex-Countrywide (now BofA) loans use Recontrust as the Trustee. Recontrust website lists currently active NTS and the past 31 days trustee sales (both Back to Beneficiary and Third party sales). By watching and tracking these sales we can see very quickly if BofA starts taking more assets back.

Here are the charts I have of weekly totals listed for California and select counties:

While I don't think I will make a weekly posting of the data if I notice any large changes I'll post the charts again.

Short Sale & Foreclosures for the San Fernando Valley

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

Here is the sales breakdown for August 2009 for the San Fernando Valley. The pace of the REO percentage decline has slowed and short sales had there best showing yet since I've been tracking the statistics. Traditionally the SFV has a higher amount of late reporters so I expect sales to come in around the 875-900 range which will be flat to slightly up from the year before. The SFV market has the same supply issue plaguing other markets and that essentially puts an upper limit on sales. The mortgage rates may be at 5% rates and a tax credit but it don't matter one bit if a buyer can't find a home they can both afford and want to pay for. This would have been a pretty good market to liquidate inventory into but instead it seems like a wasted opportunity.

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 August 2009. August was the first month in which the percent of sales which are REOs increased since last December. This may be somewhat due to the increase in foreclosures since June but I think the slowdown in the total overall sales has more to do with the percentage increase. I expect the REO percentage to increase as more supply comes online and sales slow. Sales continue to be anemic, notice they are down again YoY, this is due more to limited supply than limited demand. The supply that is plentiful is in the wrong price ranges for the significant demand that is out there and so we get this stagnant market. The consistent story you see from agents is that there buyers can't find homes to buy and they end up either choosing to try to wait out a short sale or try the bidding war route with the few REOs which make it on market.