Great article from Mathew Padilla, Reporter Orange County Register:
Homeowners nationwide with good credit but artificially low mortgage payments could be forced to pay more to the bank sometime within the next three years, according to Credit Suisse.
If low interest rates remain, some of these borrowers will be spared payment shock. But those with extremely low payments via deferral of interest/principal owed, will not.
While preparing a story about high-priced foreclosure resales selling slowly in Orange County, I asked Credit Suisse for the latest version of its chart on loan resets nationwide. (The chart has popped up on several Web sites in past months.)
To the right is the version updated last month (click on it for larger image). It shows resets increasing from here with peaks in 2010 and 2011/2012 in the range of $30 to $45 billion monthly. The chart also shows subprime resets are still going on, but decreasing in frequency over the rest of 2009. However, prime resets and resets on loans to people with decent credit scores but special circumstances (stated income) are heading straight up through early 2012.
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Note that the chart uses both resets, when interest rates change, and recasts, when payments change. Resets and recasts often happen at once, but not always. Credit Suisse, an analyst told me, used resets in the chart for all loans except option adjustable-rate mortgages, when borrowers can choose a minimum payment that may be less than interest owed (option ARMs are in yellow on the chart… see how they are rising!). For option ARMs it used recasts, which can happen either when the loan amount expands to a maximum allowed — often 115% or 125% of original principal — or a set period, such as five years.
Now here is a copy of the chart published in a February report. This chart goes back further in time. The older chart shows a big peak in 2010 — about $40 to $45 billion a month in loans around September/October 2010. The newer chart pushes that peak about one year into the future into late 2011/beginning 2012.
Some borrowers will hold on a little longer. Maybe the housing market will recover by 2012 and they can sell to avoid foreclosure.
But if any of these borrowers are deferring principal and interest owed, reaching say a maximum of 125% on a loan amount on 2005 to 2007 prices, then it is much less likely home prices will have rebounded enough to save them by 2011 or 2012.
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Next Up: McMansion REOs!
HREU Students, many of you who sell in higher end areas are now experiencing the full blunt of the housing crash. Here is a great article from Bloomberg.com that describes what is going on in two of the countries most prestigious places to live…Newport Beach California and The Hamptons.
Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, California, in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.
Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.
“It’s just wait and see right now,” Dayton said.
Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.
‘Trickle Up’
“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Connecticut. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
Jumbo loans are larger than what government-controlled Fannie Mae and Freddie Mac will buy or guarantee, currently $417,000 in most areas. Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.
Subprime loans were made available to borrowers who never proved they could make monthly payments on time. The loans accounted for more than 20 percent of the U.S. mortgage market in 2005, up from less than 8 percent in 2003, according to Inside Mortgage Finance.
Subprime Implosion
Defaults by subprime borrowers began rising in 2007. Since then, financial institutions that had bet on earning cash flow from home loans packaged into securities have announced credit- market losses and writedowns of almost $1.4 trillion, data compiled by Bloomberg show.
Among all homeowners, 21.8 percent were underwater in the first quarter, Seattle-based real estate data service Zillow.com said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.
Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.
The U.S. government has lent banks $392 billion to stem the losses through its Troubled Asset Relief Program. Another $12.4 trillion was spent, lent or guaranteed by the government and the Federal Reserve to stop the longest recession since the 1930s.
Loan Losses
About $500 billion of prime-jumbo mortgages are bundled into bonds, according to Memphis, Tennessee-based FTN Financial. In February, JPMorgan Chase & Co. analysts John Sim and Abhishek Mistry in New York almost doubled their projections for losses on those mortgages to as much as 10 percent because of increasing defaults.
Foreclosures have come to the Hamptons, the beach towns about 100 miles east of New York City on Long Island, where homeowners have included Blackstone Group LP Chief Executive Officer Stephen Schwarzman, hedge fund manager John Paulson and Goldman Sachs Group Inc. CEO Lloyd Blankfein.
Almost 90 borrowers entered the foreclosure process in the towns of East Hampton and Southampton in the first 10 weeks of 2009. That compared with 109 in the same period last year and 73 in the first 10 weeks of 2007, according to the Real Estate Report in West Islip, New York.
Hamptons Sales Fall
Home sales in the Hamptons fell 67 percent in the first quarter from a year earlier, the most since records were first kept in 1982, according to Town & Country Real Estate of the East End LLC. The median sale price slid 28 percent from a year earlier.
Rule changes spurred by rising defaults now require lenders to work with delinquent New York homeowners before beginning the foreclosure process, said Pat Ammirati, president of the Real Estate Report.
“There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” said Andrew Laperriere, Washington-based managing director at research firm International Strategy & Investment Group. “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”
Short Sale?
Dayton said he financed the purchase of his home, 40 miles south of Los Angeles in Orange County, with a payment-option adjustable-rate mortgage now serviced by JPMorgan’s Washington Mutual. The option allowed him to pay less each month than the interest on the loan, with any unpaid amount added to his debt.
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Dayton refinanced in February 2007 with a $1 million loan from Washington Mutual, and used some of the proceeds for business expenses, said Robin Milonakis, his agent at Altera Real Estate in Dana Point, California. He also took out two private mortgages and now has a balance of $106,000 on those loans, she said.
Dayton went into default on Jan. 29 and owes $46,584 in delinquent payments and penalties, according to First American CoreLogic, a Santa Ana, California-based mortgage data firm. Dayton said he’s found a buyer willing to pay $950,000.
The foreclosure process typically takes about a year. That means jumbo-loan defaults, which are climbing at the fastest pace in at least 15 years, will increase over the next year, according to LPS Applied Analytics in Jacksonville, Florida.
Goodbye Jumbo
President Barack Obama’s Homeowner Affordability and Stability Plan has no provision to help jumbo mortgage borrowers. The plan focuses on shoring up home loans eligible to be bought by Fannie Mae and Freddie Mac, also called conforming loans.
“The government has thumbed their noses at people who have jumbo mortgages,” said Steve Habetz, president of Threshold Mortgage Co. in Westport, Connecticut.
The share of U.S. homes in the foreclosure process that are valued at more than $729,750 increased to 2.83 percent this year through March 10 from 2.21 percent in the same 10 weeks of 2008, according to RealtyTrac. In the same 10-week period, the share of homes valued at $417,000 or less in foreclosure fell to 87 percent from 89.7 percent in 2008, RealtyTrac said.
Price Slump
California is hardest hit by luxury-home foreclosures. More than 1,500 borrowers with properties in the state that once sold for more than $1 million defaulted on their mortgages in February, said Mark Hanson, managing director of the Field Check Group, a real estate company in Palo Alto, California.
About 3 percent, or 254,745, of the state’s 8.5 million houses are assessed for more than $1 million by county assessors, according to San Diego-based MDA DataQuick, a real estate monitoring company.
While sales for all homes in the state increased 2.5 percent last year from 2007, sales of homes valued at more than $1 million declined 43 percent to the lowest since 2003, MDA DataQuick reported. Part of the reason is falling prices as California’s median home price dropped 41 percent in February to $247,590, according to the state’s Association of Realtors.
Another explanation may be stricter lending guidelines, Hanson said.
“You have to have income of $250,000, a 20 percent down payment and near perfect credit to buy a $1 million home now, so the number of buyers isn’t what it was,” Hanson said. “There just aren’t enough buyers to sop up supply. We’re seeing the collapse of the high-end market.”
‘What to Do’
Values have taken longer to decline in more affluent areas, taking some homeowners by surprise, said Philip Tirone, president of Los Angeles-based Mortgage Equity Group Inc.
“People are coming to me to do a refinance or buy another property, and what they thought they had in the equity of the home they don’t have and they don’t know what to do,” Tirone said.
Delinquencies are caused by people who owe more on their mortgages than their houses are worth, said James McLauchlen, a broker and appraiser in Southampton, New York, for James R. McLauchlen Real Estate Inc. and Hamptons Appraisal Service Corp.
“They throw their hands up and say I’m not going to kill myself trying to take care of this debt,” McLauchlen said. “Some folks work hard to make payments. Others just can’t pay. They offer a deed in lieu of foreclosure and off they go.”
Dayton said he doesn’t know when he’ll restart his drywall business, which he shut down in November for lack of work.
“This market is not even close to bottoming out, in my opinion,” Dayton said. “It continues to drop.”
Source: Bloomberg
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The action this spring home-buying season isn’t unfolding in prestigious Manhattan or Beverly Hills, but in a middle-class neighborhood near you.
The global economic meltdown has put a freeze on sales of mansions and penthouse condos, which held strong through years of tight credit, foreclosures, and plummeting prices in lower-cost markets. These days, sales of lower-priced houses are accelerating as first-time home buyers and investors take advantage of bargain prices, low interest rates, and government incentives.
One thing hurting the luxury market is that jumbo mortgages—typically those larger than the conforming limit of $417,000—have higher interest rates and are tough to get, requiring pristine credit, six or more months of reserves, and full documentation. The deteriorating economy also makes it difficult to justify making a discretionary purchase of more than $1 million, especially with so much uncertainty in the job market.
Rick Goodwin, publisher of Unique Homes magazine and uniquehomes.com, said even wealthy Americans who aren’t worried about paying the bills are feeling the “psychological effect” of the economic meltdown.
“Even if you can afford to buy certain things, you’re less inclined because you feel that you should pull back and be a little more careful,” Goodwin said. “Does it really look good, in this kind of market, to be spending this much money on a house, boat, or airplane?”
The luxury market hasn’t been infected by foreclosures the way other markets have. Wealthy people often have large savings accounts and other resources that allow them to continue make mortgage payments even when faced with a job loss or a sinking stock portfolio. Sellers in this market can hold on for a long time without a sale. And that’s what they’re doing.
In Orange County, Calif., for example, homes selling for less than $1 million were taking 3.58 months on average to sell as of February (above the healthy two-month level, but still good), said Mollie Carmichael, senior vice-president at John Burns Real Estate Consulting in Irvine, Calif. But homes above $1 million were taking 19.6 months, well above the six-month level once considered healthy for the luxury segment, she said.
“The days on the market has really increased across many markets on the higher end,” Carmichael said. “There’s just more competition, and assets are sitting longer.”
BusinessWeek.com asked Altos Research in Mountain View, Calif., to find the Zip Codes in large metro areas where listing prices were actually rising. We expected to find places where competition was pushing up asking prices as homes changed hands quickly. Instead, what we found was that the Zips showing the most listing-price appreciation were among the most expensive markets and the median listing price was rising, in many cases, because more luxury listings were entering the mix. In other words, wealthy homeowners were putting their expensive properties up for sale at the same time that the less expensive homes were being sold.
Take Winnetka, Ill., a wealthy suburb 16 miles north of Chicago. The median listing price is $1.5 million, up 12% from a year ago, according to Altos Research. But the mix of listings has shifted to the higher end, and properties are taking 245 days to sell.
“Even though the listing prices are up, this could be the net effect that the houses on the top of the market are coming onto the market because of the negative economic environment,” said Scott Sambucci, vice-president for data analytics at Altos Research. “Even though the list prices are higher, it doesn’t always mean that the market is strong.”
The sellers in the Zip Codes that made our list have plenty to be thankful for. The low-priced markets where sales are spiking and list prices are falling are often dominated by bank-owned listings and listings by desperate sellers facing foreclosure. Of course, it will only help those markets in the long run if inventories of unsold homes are cleared away to make way for a recovery.
The housing market is in terrible shape, but several reports this week provide some reason for springtime optimism. The Commerce Dept. reported that new-home sales increased by 4.7% on a seasonally adjusted basis in February compared with January. Sales of used homes jumped 5.1% in February compared with the previous month’s seasonally adjusted rate, the National Association of Realtors reported. And the Mortgage Bankers Assn. said mortgage applications surged 32.2% for the week ended Mar. 20 over the previous week (though much of that activity was related to refinancing).
The news was encouraging. But rising unemployment could keep any sort of recovery in check.
“The market conditions have improved,” said Lisa Jackson, vice-president at John Burns Real Estate Consulting. But “conditions are still fairly horrible…. Maybe it has moved from an F grade to a D-, but it’s moving in the right direction.”
Christopher Hain, real estate agent for Ramsey-Shilling in Hollywood, said high-end buyers are starting to drop prices because very few big-ticket homes are selling.
“When things don’t sell, there is downward pressure on prices,” Hain said. “But at least you don’t have the added pressure that you have in the lower-end markets of a flood of foreclosures, which can become a double whammy…. A lot of these people can wait things out.”
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SO, over 50% of all home sales in Southern California were Foreclosures.
Anyone enrolled in the Agent REO Secrets coaching program will find this new information to be very good news indeed. The simple (staggering) fact is that the Agents who are listing and selling REOs are making a fortune.
Please understand, we aren’t celebrating the fact that so many people are losing their homes. Matter of fact we want you to learn how to help people keep their homes. Learn how to do loan modifications. Watch this free video now how to start your own loan modification business.
Here is the article from the OC Register…..
Foreclosed homes made up 55% of resale transactions in Southern California – 44% in Orange County and nearly seven out of every 10 sales in the Inland Empire – driving down prices to levels not seen since the spring of 2003, market-tracker MDA DataQuick reported today.
Last month’s price was roughly a buy-three-get-two-free sale for Southern California homes: The median price of a Southern California was $285,000, down 44% — or almost half off — from the value for similar homes at the market peak 18 months ago. That is, a single median-priced home cost $505,000 in June 2007. Last month, you could buy two median priced homes for $570,000, or just $65,000 more.
“Bargains and bargain hunters have kept this market alive,” the DataQuick press release quoted company President John Walsh as saying.
November sales outpaced last year for a fifth straight month, up nearly 27% regionwide. That’s a decent showing considering that there were fewer business days last month than in a typical November. The average number of transactions per day, for example, was just 1% lower than the daily average in October, which had the highest number of sales for any month this year so far.
The median price for areas with the highest sale numbers was under $260,000, with about half of those sales using government-insured FHA financing, DataQuick reported. November sales tended to drop in coastal zones, where the median price was over $500,000 and financing was harder to
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More breaking news for all of you in California…..specifically Orange County.
“The OC”, as its know internationally was the epicenter for the sub-prime meltdown. Several of the nations largest Sub-Prime lenders were based…in The OC. It seems that the housing prices are losing virtually all of their bubble induced appreciation. In other words, homes are tracking to be worth what they would of sold for in 2000-2001. For the millions of homeowners caught in the downward depreciation death spiral this continued ‘correction’ is bad news indeed.
DataQuick’s median selling price for an Orange County home was $400,000, the lowest since since May 2003. Note:
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HREU’s Realtor Coaching Students know this and…it shouldn’t come as a surprise for anyone that the October home sales were lower…given the constant barrage of negative news…
The National Association of Realtors said Monday that sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September.
Home values continue to fall…creating more demand for Realtors who can help sellers with short sales…Agents learn how to do short sales now. Grab your free Agent Short Sale Secrets crash course. Instant Free Download NOW.
The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004.
Now for some good news…..
Sales were up 40.5 percent in the West compared with October last year, without adjusting for seasonal factors. Buyers in places like Las Vegas and Orange County, Calif., snapped up distressed properties at bargain prices.
OK, now the important part….nearly 50% of all sales are Short Sales and REOs. Yet, its estimated that only 3% of all Realtors knows how to successfully close a Short Sale. Clearly, Agents who have become Short Sale and REO Specialists are absolutely cleaning up in this market….
Nationwide, the Realtors group estimates that sales of distressed properties made up 45 percent of all property sales in October.
There were 4.23 million unsold homes on the market in October, down nearly 1 percent from a month earlier. At the current sales pace, it would take 10.2 months to sell all the properties.
Until the inventory of homes falls to more normal levels, analysts say, the housing slump is likely to persist. Inventories are being driven higher by a massive wave of mortgage foreclosures.
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