Statewide data regarding loan modifications.

I saw over on Mathew Padilla's blog that the California Department of Corporations has the results of a survey they take of loan servicers. One of the interesting statistics that matches what I am seeing in the local data is the increase in short sales that lenders are agreeing to. I think this will be the biggest growth segment of the market over the next few years as the majority of servicers work on loan modifications that adjust mortgage rates but few do loan modifications that reduce the principal balance. If the balance isn't reduced there is no way to get out from under the home except appreciation (unlikely anytime soon), short sale or foreclosure. If houses did magically start to appreciate the servicers will see the gain, not the borrower as a result of them not reducing principal balance. The possibility of selling the loan to TARP or on the secondary market is the reason I think few will reduce principal for the borrower.

In January of the the servicers surveyed only 5.69% (974) of completed workouts were short sales. By September that grew to 13.41% (3,732) of completed workouts. Reductions in principal were 0.08% (14) in January and 0.28% (79) in September. Reducing the interest rate at or below the initial/start rate was the most likely outcome for borrowers in January this represented 19.44% (3,327) and 20.36% (5,666) in September. One of the reasons why I don't think the Alt-A resets will be as big of a deal as some might think is how much latitude servicers have in dealing with rate reset issues. It is a far bigger deal for the borrower as to the type of loan they have than if the rate is resetting sometime this year or next. An Alt-A or subprime borrower is screwed because of the issues inherent in the loan and the marketplace much more than any rate reset potential.

The new FDIC plan being rumored to be unveiled is basically a standardized version of the rate reduction (usually for 5 years) for borrowers in default. There is a possibility of principal reduction under the plan but as we see from the above statistics, it is the road less traveled. I think it will do little to help the situation over the long term but may relieve some pressure over the short term.

Weekly Active/Pending counts SFV & Ventura - 10/26/08

I'm going to post the weekly inventory counts for Ventura County and the San Fernando Valley as more time goes by this data set will become more useful.

San Fernando Valley:
SFH
Active 4412
Backup 414
Pending 1417

Condo
Active 1516
Backup119
Pending 423

Ventura County:
SFH
Active 2571
Contingent 587
Pending 730
Release from Showing 317

Condo
Active 810
Contingent 184
Pending 255
Release from Showing 74

San Fernando Valley September 2008 home sales report

Septembers sales report is out for the San Fernando Valley. SFH sales came in at 658, down 1.20% from the month before and up 81.77% from the same month a year earlier. This "strength" in sales comes as median price fell to $392,500, down 7.65% from the month before and down 37.07% from the same month a year earlier. Last year at this time the full force of Countrywide and all other lenders switching over from a Wall Street model to a Fannie/Freddie/FHA model hit the market. Fannie and Freddie still had ultra loose guidelines and stated income available at that time. This is what ground sales to there lowest levels in history. Now with prices dramatically falling the best the market can muster is a month which is the third weakest showing for September in history.

Condo sales came in at 211, up 22.67% from the previous month and up 36.12% from the year before. Median price for condos fell 5.45% from the month before and are down 33.33% from the year before period. One thing to remember about condo supply is that it has greatly increased in the boom years and it will be hard to match the sales low of the 90's.

Total Pendings for September are at 1,305, their strongest month of the year. See my previous post regarding the large amount of fallout in the market as to why this might not be as strong of a sign as it would be in normal times. I think the elimination of FHA seller assisted down payment on Oct 1st (one of the last bastions of 100% financing) and all major mortgage insurers backing away from California financing greater than 90% will start affecting sales after this month (people still have locks on old loans and can close under the looser guidelines until those expire). I haven't even mentioned the local and national economic turmoil which is another issue entirely.

I'll give a forecast for October sales on November 2nd and will update pendings and inventory this weekend.

Back on Market..

I'm still struggling with the best way to represent that amount of homes falling out of escrow. The above graph represents the current months Back On Markets (BOM) divided by the average of the previous 3 months pendings. The number of properties going pending in September was the strongest month this year at 1305, no sign of a seasonal slowdown in that regard. This months number of BOM was also the largest number this year at 440. While we have seen an increase in pendings sequentially every month this year this hasn't translated directly into an increase in sales each month. It is looking like the fallout is winning the war.

If a seasonal slowdown does come the fallout ratio will spike and sales will fall even more dramatically than normal. If the seasonal slowdown doesn't come then one of two things will be happening 1) Housing is in recovery mode, not likely, but you'll be able to tell if this is true by watching prices firm up or 2) The lenders have stayed motivated to move inventory during the fall/winter months and you will see if this is true by watching prices plummet.

Update:

Here is the BOM as a percentage of the current months pendings (blue line) and as a percentage of the previous months pendings (red line).

Here is a chart of sales (orange) , pendings (green) and BOM (purple) over time.

Short Sale & Foreclosure for San Fernando Valley & Ventura County

Here are short sales and foreclosures as a percentage of total sales for 2008.


San Fernando Valley:


Ventura County:



The REO flag appeared later in 2008 for Ventura so that is why you see the lack of REO sales being tracked early on. I think many agents weren't setting some of these flags and some of what you see isn't a natural progression of the market but more of an education of listing agents. Official DQ foreclosure numbers should be out this next week and we'll get a better feel for these types of things. As you can see though short sales are becoming a significant force in the market. As servicers improve their procedures and work to move inventory sooner rather than later I think short sales will become an even greater force.

Ventura County September 2008 Sales

September 2008 sales were 808 which is a 4.9% decrease from the previous month and increased 38.8% from September 2007. Median price was $385,000 down $15,000 (3.75%) from the previous month and down $160,500 (29.4%) from the previous year. This was the second worst September on record the "dramatic" sales increase is just in comparison to the span from September '07 to March '08 where the mortgage credit bubble popped and people had to start proving income. This caused a tremendous vacuum where sales dropped to never seen before levels and inventory climbed. We are now still in the adjustment period with prices, inventory and sales are struggling to find an equilibrium. Next spring season we should see slightly improved sales (March will be much better but the rest of the year shouldn't really knock peoples socks off), inventory should drop down to slightly elevated levels instead of the current high levels and prices will continue to fall.

I was relatively optimistic that 2009 could get very close to the bottom (close enough for those thinking to buy) as far as prices in Ventura. But with the passage of S.B. 1137 and delay it will cause foreclosures to come onto the market I think that will push off the "close enough" bottom to 2010 and the absolute bottom a couple years after that. Foreclosures and short sales will still drive the market but some of the pressure is relieved. I think the foreclosure peak is behind us, servicers will use this respite to perform triage and mod as many loans as they can get away with. Those that can't be saved will be allowed to short sale and if they refuse to work with the servicer, then foreclosed. This is merely my opinion and is backed up with no hard facts. I have heard some chatter regarding servicers (particularly Countrywide) working on an en masse mod program to be rolled out in December. Other servicers are working to get the option-arm reset loans off their books to mitigate that issue. Short sales will have the same pressure on the market as foreclosures but it won't show up in the official foreclosure numbers. This is one of the reasons why I think the foreclosure peak has passed, the servicers recognize that delaying the inevitable just will net them less. I am just not sure if borrowers will go the Short Sale route or choose the low-interest or principal reduction mod and that is why I am less optimistic as to next years sales being much higher or prices dropping as much as they have (percentage wise) in the last year.

Weekly Active/Pending counts SFV & Ventura - 10/19/08

I'm going to post the weekly inventory counts for Ventura County and the San Fernando Valley as more time goes by this data set will become more useful.

San Fernando Valley:
SFH
Active 4416
Backup 385
Pending 1469

Condo
Active 1504
Backup 114
Pending 421

Ventura County:
SFH
Active 2580
Contingent 577
Pending 730
Release from Showing 313

Condo
Active 814
Contingent 181
Pending 253
Release from Showing 79

San Fernando Valley September sales estimates

I'm a little late calculating my preliminary SFV numbers this month, SFH sales currently stand at 676 and a median of $399,000. Condo sales are 225 and median was $250,000, I think there is something up with that median though and using an estimate based on the average price I used $265,000 for the graph. Sales are up both MoM and YoY and prices were down MoM and YoY. Last year at this time the subprime and Alt-A markets abruptly disappeared and the market was left with Fannie/Freddie and FHA and that accounted for such a historic low in sales. Now that prices have fallen sales will look dramatically better when comparing YoY numbers but as you can see from the graphs they are very low historically. So when you hear how great the market is you can keep in mind the historic context and see that the market is still very sick and major price declines continue.

More credit tightening..

Here is a list of changes that either went into effect since October 1st or going to soon go into effect:

1. Seller Funded Down Payment Assistance no longer allowed for FHA Loans - This removed one of the last widely available avenues of now down payment loans for borrowers. Effective October 1st.
2. All major private mortgage insurers no longer allow above 90% LTV - This moved the bar from 5% down to 10% for Fannie/Freddie loans. Vast majority went into effect in October or before. Last holdout goes into effect in November. This isn't nationwide but California and Florida specific.
3. Conforming Jumbo limit dropping to 625k from 729k - Effective January 1st with money so tight I think this will really affect the 800k-1,000k homes. The guidelines on super jumbos are just much tighter on borrowers and the rates are very expensive.
4. Income waivers are becoming very hard to get - Brokers were using income waivers as a backdoor stated income loan. The Fannie/Freddie underwriting engines would give waivers for documenting incomes if the borrower had a good credit score and a little down. These engines were updated this last week and income documentation waivers are now very hard to come by. It is becoming a full doc world.

I would expect the market to start to weaken even above normal seasonality in about 45 days as old loan locks are lost and new borrowers are subjected to the newer guidelines. That said the market is still a "good" one, a well priced home (at or slightly under market) in the sub $600,000 range will be gone in a week. The mortgage market is still very liquid because of the Feds actions, it is just becoming much more a vanilla loan market. I would still expect the final quarter of this year to handily beat last years 4th quarter. This has more to do with the just how historic the sales declines were last year around this time and the massive price declines that have happened since then than any strength or recovery signs in the current market.

What loans are in danger of going away?

Here is a modified July 2008 Ventura County LTV chart:

Click to enlarge

The pink line represents the new conforming limit on January 1st 2009. These "super conforming" loans represent a lowering of the conforming jumbo limits by $104,000, the loans above this line represent the new jumbo limits and these loans will have higher credit standards, much higher rates and fees. I think these loans will essentially be eliminated and supply will have to fall under the pink line in order for it to see any effective demand.

The green area represents Mortgage Insurance territory and the blue dots (non-FHA/VA) will be the items affected here. Most mortgage insurers have announced guidelines that limit their loans in California to the conforming limit of $417,000 and 90% max LTV. Demand in this area will either have to be met through FHA or be eliminated if the property or borrower doesn't meet FHA guidelines.

It is clear there are more headwinds coming for the mortgage market. The government has done everything possible to keep it as liquid and functioning as it can but credit is still contracting. Even though falling prices can help meet demand, prices alone aren't a panacea. The demand in the green square if unable to get insurance must be met by saving more money for a down payment or choosing a much cheaper home.

Update: I've looked at the top Mortgage Insurers guideline and I don't see a single one who will lend over 90% LTV in Los Angeles or Ventura County. This includes United Guaranty (p.29), MGIC (p.8), Genworth, RMIC and PMI. The area in the graphic above in the green shade is definitely in trouble.

Ventura County June & July 2008 down payment size

Here is the scatter charts for Ventura County for June and July. Clearly FHA is gaining in popularity and taking over market share. The loans "at risk" for tightening are the blue dots between 80% and 100% LTV these are the ones affected by mortgage insurers guideline changes. The one issue affecting FHA is seller funded down payment assistance went away October 1st and was very popular. The mortgage insurers are still tightening especially in the main bubble markets like Florida and California.