California short sales to speed up?

Note: I found an analysis from CAR Legal released today basically saying this issue does not affect the timing of the approval of short sales. Merely the timing after the short sale is approved. So this is a non-event. I'll leave the original post below.

From the bill analysis of SB 306:

5. Requires a beneficiary or his or her authorized agent to provide a short-pay demand statement to an entitled person or his or her authorized agent within 21 days of receiving a demand for the statement from the entitled person or his or her agent, but would provide that if a beneficiary or his or her authorized agent elects not to proceed with the short-sale transaction, he or she is not required to provide a short-pay demand statement; instead, the beneficiary or his or her authorized agent is required to provide a written statement regarding its decision not to proceed with the transaction, within 21 days of receiving the demand for the short-pay demand statement.

6. Further provides that if the terms and conditions of the short-pay agreement require approval by the beneficiary of a closing statement or similar document prepared by the escrow holder, approval or disapproval must be provided no more than four days after the beneficiary receives the closing statement, except as specified.

This looks to be an attempt by the legislature to speed up short sales. Basically if you put an offer on a short sale the bank would have to respond within 21 days. Now there is nothing that says the bank won't just say the payoff is the full amount and shove off but then short sales would have a much harder time closing. This could possibly spur lenders to streamline the process or maybe move to a pre-approved short sale model.

UCSB California Economic Forecast - June 2009

Bill Watkins of the UCSB Economic Forecast Project has a presentation up about his prediction for the California economy and the City of Ventura as well. I will post a couple charts from his forecast and I suggest you read through the rest of his presentation as well. The presentation can be found here. You may click to enlarge any of the following charts.

Here is Bills prediction for GDP for California:

Here is his prediction on the Unemployment rate for California:

Here is the forecast for retail sales in California:

This isn't a forecast, this next chart shows the net out migration of people (more people moving to other states than coming here from other states) and international migration (immigration):

I understand that Bill will soon be moving to a new school. I hope we will still have access to his excellent analysis and I wish him the best of luck.

California Loan Modifications update

The Department of Corporations has required mortgage servicers to report their workout and foreclosure prevention effors. Recently the DoC released a report for Q1 - 2009 as to how to what progress (to them) was being made on the workout front. The good thing about this data is it is California specific, Hope Now is national.

Here are the Trustee Sales (Foreclosures) versus Total Workouts over each month:

(click to enlarge)

As you can see from the above charts foreclosures were greatly affected by the various foreclosure moratoriums starting in late July.

(click to enlarge)

Workout closed by type. This is the end result of the previous graphs Total Workouts line broken down by type. Account paid current means the account was brought back into good standing. Deed-in-lieu means the borrower surrendered the house and the lender voluntarily took it back without a foreclosure sale. Short sale means the borrower agreed to sell the house and the lender agreed to be paid back less than the full amount. Modification means an adjustment to the terms of the loan (see next graphic). Forebearance plan means the lender agrees to not accept payments for a few months and places the balance back onto the end of the loan to give the borrower some breathing room.

(click to enlarge)

The above graphic is the previous graphics "Modification" line broken down into its constituent parts. I used some abbreviations to save space:

• IR : Interest Rate - Current Interest Rate for the loan.
  
• SR : Start Rate or Initial Rate - Initial Interest Rate for the Loan
  
• RR : Reset Rate - Rate at which the loan will reset

One thing that jumps out that Reducing Principal Balance is the lowest line on the chart and effectively zero. If borrowers are expecting significant principal reductions they will be disapointed. It simply won't happen. A borrower looking to stay in a home must expect to pay off the balance in full. While modifications are increasing the borrowers are only getting adjustment in interest rates and amortization length. This still leaves underwater borrowers underwater and unable to move (outside of short sale or foreclosure) or expect to create equity when writing out the monthly mortgage payment. Note on the second graph that the only other upward trending line besides modifications is short sales. I expect this to be the growing part of the market moving forward.

SacBee: New foreclosure rules to start Monday

From the Sacramento Bee regarding the additional 90 days added to the foreclosure process rule that goes into effect Monday (emphasis added):

Backers say it will make lenders try harder to keep borrowers in homes. Starting Monday, loan servicers must prove to the state they have comprehensive loan modification programs in place – or be denied rights to foreclose on their own schedules.
"You have voluntary programs that they don't have to do," said Assemblyman Ted Lieu, a Torrance Democrat who was the author of the bill. "This creates an enforcement mechanism to force them to do it. The hammer is the 90-day foreclosure moratorium, which they all hate."
...
"The vast majority of large servicers should have no trouble complying. They have already complied with similar requirements at the federal level," said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.
...
In summary, here's what will happen starting Monday:
• Lenders will submit applications to the state outlining their loan modification programs. That gives them a 30-day exemption from a moratorium.
• If the state OKs a lender's program, the firm is permanently exempt from the 90-day delay on foreclosures.
• If the state rejects the program as inadequate, a lender has 30 days to upgrade it and be reconsidered.

It is "voluntary" but of course you get tremendously punished if you don't comply. I don't think this will have a big effect on the market but it is infuriating the amount of political interference that is happening to stop the bubble from popping when there was none to keep it from inflating in the first place. The politicians are missing the fact that this low interest rate sweet spot is only temporary. Higher rates will come in the future at the same point they have kicked the can down the road. This is not a bad market to liquidate supply and to clear the problem.

Cal State Fullerton: So. Cal. Leading Economic Indicators

A couple of charts from Southern California Leading Economic Indicator report from Institute for Economic and Environmental Studies, California State University Fullerton:



Just in case anyone was thinking this would be over anytime soon..

California foreclosures to rise dramatically soon?

Mr. Mortgage has finished his move and is starting to post. He has lender specific data from ForeclosureRadar and he believes by mid-summer foreclosure / REOs should rise dramatically. I was speaking to a local REO broker a couple weeks ago who said he was hearing from his "AM" (asset managers) that to get ready by mid-summer for a rush of inventory. Right now the market is running out of motivated inventory so any new well priced inventory would be a welcome addition.


I recommend going over to Mr. Mortgage's new blog and reading the whole post but I will post the following graphic to whet the appetite:

California Mortgage Modifications

The Department of Corporations has required mortgage servicers to report their workout and foreclosure prevention effors. Recently the DoC released a report for 2008 as to how to what progress (to them) was being made on the workout front. The good thing about this data is it is California specific, Hope Now is national.

Here are the Trustee Sales (Foreclosures) versus Total Workouts over each month in 2008:

(click to enlarge)

As you can see from the above charts foreclosures were greatly affected by the various foreclosure moratoriums starting in late July.

(click to enlarge)

Workout closed by type. This is the end result of the previous graphs Total Workouts line broken down by type. Account paid current means the account was brought back into good standing. Deed-in-lieu means the borrower surrendered the house and the lender voluntarily took it back without a foreclosure sale. Short sale means the borrower agreed to sell the house and the lender agreed to be paid back less than the full amount. Modification means an adjustment to the terms of the loan (see next graphic). Forebearance plan means the lender agrees to not accept payments for a few months and places the balance back onto the end of the loan to give the borrower some breathing room.

(click to enlarge)

The above graphic is the previous graphics "Modification" line broken down into its constituent parts. I used some abbreviations to save space:

• IR : Interest Rate - Current Interest Rate for the loan.
• SR : Start Rate or Initial Rate - Initial Interest Rate for the Loan
• RR : Reset Rate - Rate at which the loan will reset

One thing that jumps out that Reducing Principal Balance is the lowest line on the chart and effectively zero. If borrowers are expecting significant principal reductions they will be disapointed. It simply won't happen. A borrower looking to stay in a home must expect to pay off the balance in full. While modifications are increasing the borrowers are only getting adjustment in interest rates and amortization length. This still leaves underwater borrowers underwater and unable to move (outside of short sale or foreclosure) or expect to create equity when writing out the monthly mortgage payment. Note on the second graph that the only other upward trending line besides modifications is short sales. I expect this to be the growing part of the market moving forward.

If red was good we'd be doing alright..

Private mortgage insurance provider PMI released their Winter 2009 report today. For the Los Angeles MSA they predict a 99.8% chance that home prices will be lower two years from where they are today. Many mortgage insurers have tighter guidelines for California, Nevada, Arizona and Florida than they do for the other states, even those other states they classify as declining. Based on the above picture you can see why the insurers and lenders are extra cautious. On page 8 of their report they show how good their model is relative to their back testing from 1985 forward.

"More are moving out of California than in" - LA Times

Just in case there are any housing bulls left I'd like to point them to the fact that for the fourth year California has experienced net out migration to other states. This doesn't mean't population has declined, due to births and international migration population has still risen. But it is clear more and more Californians are giving up on California and moving to places they can actually afford.



"The outflow -- last seen during the economic and social struggles of the 1990s -- started when it became too expensive for most people to buy homes in the state, and has kept going throughout the bust with the loss of so many jobs.The trend underscores the state's sour economy as layoffs continue, the fiscal strain on government grows and home values continue to decline.

...

"I just gave up," said Grace Bryant, a former Glendora resident who fled to Texas after 18 months without consistent employment as a residential appraiser. "California is too much of a struggle."
...

"This was the epicenter of the housing meltdown," said John Husing of Economics & Politics Inc., a regional economic research firm. "People started leaving California because of housing prices -- particularly younger couples that just couldn't afford to buy a house.""



Economist John Husing remains bullish though:

"The native Californian said the state had always priced out the working class and been an expensive place to do business, yet it continued to reinvent itself through innovation and entrepreneurship."



I think young couples and people wanting to retire on their equity will leave the state, leaving quite a gap between haves and have nots. It isn't clear how we can continue to price out the working class and retain an attractive place to live. It has been working so far and I think the credit bubble was one of the reasons it could work. But with the strains coming to local & state government the entitlement programs will be under seige and I think the working class will find more and more reason to leave.



WSJ has a graphic and article on the coming budget crisis: