Wednesday, March 31, 2010

On that BofA increasing foreclosures rumor...

In case you haven't heard, Irvine Housing Blog said they were are at a conference on Friday when the "OREO Managing Executive for West Region" of BofA said they would be increasing the number of foreclosures a month from 7,500 to 45,000 (this wasn't just for California).

One of the data points pointing to this statement coming to fruition can be seen in my tracking of data from Recontrust the trustee that was acquired during the Countrywide deal. They handle many of the old Countrywide (now BofA) loans.

Here are the Notice of Trustee Sales:

Here are the foreclosures made on a rolling 30 day basis:

As you can see these numbers do seem to be spiking. We shall see if this trend continues.

Monday, March 29, 2010

Picking winners and losers...

From an interview with Barry Ritholtz on NPR (emphasis mine):

SIEGEL: But what's the risk of providing some kind of mortgage relief, whether it's a suspension of full monthly payments, or whether it's a reduction in the principal for somebody whose house plummeted in value and who is also unemployed and really will have a very hard time making the payments regardless?

Mr. RITHOLTZ: From a broad perspective, again, you're keeping them in a house that they can't afford, and they'd be much better off going to a place that leaves them a little spare change in their pocket, as opposed to just draining everything they have to make those payments.

Secondly, if these banks have their balance sheets just festooned with bad loans, we're not allowing them or not forcing them to do what they're supposed to do, which is take the write-down, get it off their books, free up some capital and move forward as a healthy lending institution.

SIEGEL: There's another party to this I want you to address, and that is homeowners who are not underwater, indeed who may have paid off their mortgage or never had a mortgage, for that matter. If the banks, indeed, do clear of all the bad mortgage loans from their books, and we foreclose on everything that's to be foreclosed on, everyone's real estate values would go down as a result, wouldn't they, and therefore homeowners have a stake in seeing that not happen?

Mr. RITHOLTZ: Yes, that's true. But remember, a lot of the value that we've seen, the quote-unquote "price gains in homes," were completely artificial. So by propping up home prices, you're punishing everybody who is waiting to buy a house. Anybody who's been saving, you're forcing them out of the housing market because you're artificially maintaining this house price. And I say this as someone, we own a home, we have a vacation property. It's not in my interest to see home prices come down. But for the rest of the economy, it's in our interest to see prices normalize, and that hasn't happened yet.

The government is picking winners.. they are first and foremost the banks... and secondly the people who strategically default and don't get foreclosed on because the government has massively interfered with that process. I'm sure many strategic defaulters will win twice... first not paying and then.. eventually getting a heavily modified mortgage and resuming paying. Renters, taxpayers and savers get the shaft (pretty much in that order). Lucky for me I am all three!

A fair overview of strategic default

I thought this article was a pretty fair conversation of strategic default. I think it is notable because in general most articles are biased against strategic default or any of the other options on the table. While I don't think this article is particularly earth shattering I am heartened to see at least a fair conversation as to the alternatives being represented.

Rewarding bad behavior...

From "Report shows strategic defaults increasing" (emphasis added):

Even more interesting are other charts that demonstrate borrowers…
…are intentionally defaulting to take advantage of the [HAMP] modification program. Or at least to take advantage of extra time living in the house rent free, courtesy of the modification program.
Amherst concludes:
Borrowers respond to their economic incentives. This has always been the case, be it for refinancing or for defaulting on mortgages that are deeply underwater. Over the past year, however, property values have been largely steady, but the environment has become much more kind to borrowers. There have been foreclosure moratoriums, the emergence of the HAMP modification effort, and the attendant increases of time spent in the delinquency/foreclosure pipeline, as well as a stretching out of the liquidation process in judicial states. As a result, borrowers can stay in their home rent free for a much longer period than was previously the case. However, few of these benefits apply to investor properties. Thus, when we look at the difference pre- and post-HAMP in the behavior of owner-occupied borrowers versus that of non-owner occupants—we find a dramatic difference in performance. Owner-occupied borrowers behave far worse than their non-owner occupied counterparts.

Reward bad behavior and it turns out you get more of it. Who knew? The governments goal of keeping housing prices high to minimize losses to the banks is in fact causing more losses. You now have a stagnant market and borrowers deciding to do what is in their best economic interest, namely live rent free and pocket the money until they get kicked out. I was in a house today that the owner had a NOD filed for over a year before getting sold, they then stayed in the house for 6 more months after the trustee sale. With an average NOD filing taking 5 months that means these people potentially lived rent free for two years. If the lenders hands are basically tied from foreclosing, and thanks to all the government interference they are, then it is the best move of the borrower live rent free for as long as possible. I also wouldn't be surprised if they get cash-for-keys at the very end. You'll find out very quickly who wants and is economically able to keep their home if you made it easier to foreclose instead of harder. Instead all the roadblocks to foreclosure have incentivized strategic default.

Sunday, March 28, 2010

San Fernando Valley home sales report - February 2010

San Fernando Valley Single Family Home sales for February 2010 came in at 458 which is down 7.29% MoM and down 4.58% YoY. The median price for single family homes came in at $375,000 which is down 1.32% MoM and up 10.33% YoY. The supply constrained market is hurting sales in the SFV. Based on what I am seeing in the weekly inventory reports that doesn't appear to be changing anytime soon.

Condo sales came in at 190 which is down 6.86% MoM and up 17.28% YoY. Median price for condos came in at $227,000 which is up 5.58% MoM and up 8.09% YoY. Condos are faring much better than SFH because there is more supply due to all the new condo construction during the boom and it appears some buyers are choosing to buy a condo when they can't find what they want in a detached home.

The red line was my attempt to create a predictor for sales but it hasn't been working out so well since May of this last year. IMHO, it appears that some pendings are being double counted, instead of falling out and going BOM (which would reduce my predictor), they are just switching buyers and updating the pending date which gets them counted in the current months pendings again. This is supposition on my part since I don't know how SRAR constructs their numbers but nothing much else makes sense.

Wednesday, March 17, 2010

Ventura County February 2010 Home Sales

Dataquick reported home sales for Ventura County for February 2010 today. Home sales came in at 580 up 6.4% YoY. The median sales price came in at $350,000 up 7.0% YoY. This report was exactly in line with the prediction I made at the beginning of the month. Slowing YoY sales due to constricted inventory, the second worst monthly sales on record. The market is in an artificial state, low sales and high prices because that is exactly the stated goal of the various government agencies. This month I added in the YoY change graph, as the year progresses I think we will see a shallow decline in solds as the low inventory state has shown no sign of abating. Median YoY changes are highly dependent on mix shift (especially in this small of a market) so I don't have much of a prediction there.

Wednesday, March 10, 2010

Principal Reduction plan coming to Fannie/Freddie soon?

From the Huffington Post:
A senior Treasury official told HuffPost on Monday that the department was heading towards more writing down of principal as part of its mortgage modification efforts, and that an announcement was to be expected in the next few weeks. But a Treasury spokesman e-mailed to say that Treasury was "NOT poised to roll out a major principal write-down program."

Anyone want to bet against Fannie/Freddie rolling out a principal reduction program and the Treasury backing them in the next few months? The above quote makes complete sense when taken in that context. That way the Treasury doesn't get blamed for supporting "moral hazard" but is still putting the taxpayer on the hook for bailing out homeowners. Treasury can say that Fannie/Freddie made the decision and Treasury merely is doing everything it can to keep Fannie/Freddie afloat to keep mortgage funding going.

Monday, March 8, 2010

Ventura County Trustee sales for February 2010

Ventura County Trustee Sales for February 2010 came in at 253. This is essentially flat to the previous months on a foreclosure per day basis. The market continues in its static state with no change apparent on the horizon.

Trustee Sales for Los Angeles County February 2010

Los Angeles County Trustee sales came in at 2515 for February 2010. Flat to slightly lower on a foreclosure per day basis.

Orange County Trustee sales for February 2010

Orange County trustee sales for February 2010 came in at 670. As always I am impressed with the number of third party sales in the OC.

San Diego Trustee Sales February 2010

San Diego trustee sales for February 2010 came in at 1090, Basically flat on a foreclosure per day basis to the previous months.

Tuesday, March 2, 2010

Short Sale & Foreclosures for the San Fernando Valley - February 2010

Here is the sales breakdown for the San Fernando Valley for February 2010. The SFV has a lot more late reporters as a percentage of sales and so it is a bit tougher to discern right now just how weak or strong sales will ultimately be for February . It appears that sales should be lower YoY when all the late reporters are counted. These sales levels are extremely weak historically and just an indication of this highly engineered market. Stagnation continues to be the word of the day.

Short Sale & Foreclosure for Ventura County - February 2010

Here are the sales for Ventura County for Febuary 2010. Sales are still very low, with late reporters I expect the official Dataquick numbers will be up a bit YoY at around 580-600 sales (still very low historically). This continued stagnation in the market is the same boring story, less supply due to government intervention trying to keep prices high at all costs. I don't see any signs of the ice melting yet just more of the same with a bit of seasonal inventory coming on market. The stuff in the affordable ranges gets gobbled up quickly, the overpriced stuff just sits. Short sales and foreclosures are around half the market but the shift has been ongoing for some time from predominately foreclosures to an even split of short sales and REO.