Foreclosures, foreclosures

Headlines from today's DataQuick report on California foreclosures in the 3rd Quarter of '07:
--Notices of default spiked by 144% in LA from 3Q 06 to 3Q 07, a slightly slower rate of increase than the statewide rise of 167%.
--The rise in actual loss of homes to foreclosure is pretty much the same in LA (up 578% from 3Q 06 to 3Q 07) as it is statewide (605%).
--The foreclosure "hot spots" continues to be the Inland Empire and the Central Valley.
--Ominous trend: homeowners in default are much more likely to lose their homes than they were a year ago -- A year ago, only 19% of homeowners of homeowners in default were headed toward foreclosure; the rate is now estimated at 54%.

LATimes lede: 'Foreclosures statewide were at an all-time high for the three months ended Sept. 30, after shattering a record level the previous quarter, the La Jolla firm DataQuick Information Services said."

Reuters lede: Mortgage lenders launched more than 70,000 foreclosure proceedings in California in the third quarter, marking a record for the state, where many housing markets are slumping amid mortgage market turmoil, according to a report released on Friday.

Your thoughts? Comments? Insights? Email story tips to lalandblog@yahoo.com.

Comments

[speedlet]

Has anyone noticed that the mid-to-high-end restaurants in LA seem to have emptied out?

[Cal]

I was just working on this data set from DQ, if you go back historically you can see the cycle breaking down and feeding on itself.

2006 Third Quarter, Notice of Trustee sale (NTS) as a percentage of sales reported by DQ for LA County in 3Q06: 1.93%

2007 Third Quarter, Notice of Trustee sale (NTS) as a percentage of sales reported by DQ for LA County in 3Q07: 20.35%

So 1 in 5 sales last quarter essentially have been replaced by more motivated sellers.

2006 Third Quarter, Notice of Default (NOD) as a percentage of sales reported by DQ for LA County in 3Q06: 14.68%

2007 Third Quarter, Notice of Default (NOD) as a percentage of sales reported by DQ for LA County in 3Q07: 76.23%

3Q06 percent of NOD able to avoid Trustee Sale: 81%
2Q07 percent of NOD able to avoid Trustee Sale: 55%
3Q07 percent of NOD able to avoid Trustee Sale: 46%

Making some conservative assumption, I think by the next report we will be around 5000 NTS and 14000 sales for the quarter.

[longdriver]

Using the 54% rate and the record number of NODs to guestimate next quarters foreclosure numbers gives the rather shocking result of 37,000 foreclosures statewide. That's more than double the old record set in 1996. This snowball is gather steam at an alarming rate.

[Paul Hiller]

A year ago, only 19% of homeowners of homeowners in default were headed toward foreclosure; the rate is now estimated at 54%.

The majority of defaults we are seeing now are the tip of the front end of the large wave of 2 year sub-prime resets. There is as much as one year lead time from default to foreclosure. It can be less but the work-out departments are just now ramping up. Last year there were still buyers for the homes. Now, only the most competitively priced homes are selling. This group of borrowers doesn't usually have the equity cushion to refinance, or the ability to drop the price without bringing cash to close. 100% financing is a curse in a falling market. Watch for the percentage to push towards 100% failure as prices keep dropping and the larger waves of sub-primes start resetting. The largest group will be hitting that mark within the next 9 months, but won't even show as a notice of default until the 3rd or 4th quarter of next year. Countrywide's plan to help is just window dressing. They would have to forgive at least 40-50% of the debt and then re-write the note to have any real impact. That sounds radical but it may the lien holder’s best option. Their foreclosure model is calculating [according to Countrywide] a 65% recoup. Events on the ground will overtake that very soon.

[Martin]

I'm still upbeat on the ability of the California real estate market ultimately pulling out of this mess in a few (maybe four or five) years. But, for now, raindrops keep falling on the heads of many.

To those who think there should be no help for those in distress, I say hogwash. How bad do things have to get before we realize there should be business and government intervention. This isn't just about a foolhardy homeowner who never should have taken on what first seemed like a cheap mortage. It's about trying to ease the impact of what will be a national recession. Many businesses and jobs are going down with the ship. We have to realize that together we sink or together we float.

I'll say it everyday if I have to. This is The Great Real Estate Panic of 2007. We need leadership to calm everyone's nerves and restore our faith in our real estate market and dollar.

[Cal]

From Cagans Foreclosure impact study last year (looking only at when lenders actually sold the REOs it had):

"Foreclosure is a lagging indicator. When a market turns, or when an individual borrower gets into trouble, it usually takes several months to a year to actually lose the property to REO repossession, and then it takes weeks to months for the lender to resell the property. Thus, foreclosure resales do not occur in high numbers until well after a bear market has begun."

I hope he updates for 2007, but the first half of 2007 will look completely different than the second half.

[Inland Empire]

--Ominous trend: homeowners in default are much more likely to lose their homes than they were a year ago -- A year ago, only 19% of homeowners of homeowners in default were headed toward foreclosure; the rate is now estimated at 54%.

Nice to see some actual comparisons (thanks Cal). But the above number is HOMEOWNERS IN DEFAULT. How about contrasting that number to all mortgages taken out? Is this number 5%, 20%, 70% of all mortgages or something else? What's the big picture?

[Tim K.]

Martin - those are big words but with no actual solutions. What solution do you propose that won't make the situation WORSE? If you are proposing any MEANINGFUL assistance your advocating MORAL HAZARD and which will ensure this sort of thing happens again. Is that what you want? Didn't think so.

Take your lumps. Yes, a recession will be painful, but it's NEEDED. You seem hell bent on avoiding the pain. PAIN IS GOOD because it reminds you never to touch the hot stove again!

[dog-walker]

Martin,

Think of it as tuition, for a lesson you'll never forget: the gaining of wisdom, something no government can give, and without which, no society can survive.

[CD]

-Pain is good it reminds you never to touch the hot stove-
Tim K. is right. But we must always be on the look out for crooks and thieves and they are all in our Senate and Congress.Not easy. This is a country that asks us to shop so we can feed China. The US government does not want us to save under our mattress, they invent one fake economy after another to take us to the cleaners.Soon they will do away with cash and we will become just another Chinese province.It is becoming harder and harder to keep one's sanity.

[joeinlosangeles]

Martin says: To those who think there should be no help for those in distress, I say hogwash. How bad do things have to get before we realize there should be business and government intervention. ... I'll say it everyday if I have to. This is The Great Real Estate Panic of 2007. We need leadership to calm everyone's nerves and restore our faith in our real estate market and dollar.

The problem with your viewpoint is that you seem to think there aren't any "real" issues connected to the problems of RE and the dollar, so the problems will all just disappear if the President gets on TV and makes a convincing enough speech.

Businesses will intervene as they always does -- in support of their self interests. They will provide support and restructure loans if it makes economic sense for them; if it doesn't make economic sense, they won't. Not sure what else you expect them to do. As far as government intervention, I can think of, and haven't heard any specific ideas, that make any sense to me. But if you have some, feel free to share.

[Cal]

Inland Empire,

I dont have specific breakouts for California but from the MBAA last delinquency report had the following to say:

"The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.12 percent of all loans outstanding in the second quarter of 2007 on a seasonally adjusted (SA) basis, up 28 basis points from the first quarter of 2007, and up 73 basis points from one year ago, according to MBA’s National Delinquency Survey.
The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.40 percent of all loans outstanding at the end of the second quarter, an increase of 12 basis points from the first quarter of 2007 and 41 basis points from one year ago. "

"“What is not clear, however, is whether subprime ARM loans are causing the problems for California or whether California is causing the problems for subprime loans. California has 17 percent of the subprime ARMs in the country and over 19% of the foreclosure starts on subprime ARMs. The four states of California, Florida, Nevada and Arizona have more than one-third of the nation’s subprime ARMs, more than one-third of the foreclosure starts on subprime ARMs, and are responsible for most of the nationwide increase in foreclosure actions. "

If you just assume, subprime and Alt-A are "a problem" and know that subprime and Alt-A are/were a huge part of the California market, it is clear we have "a problem".

[Martin]

Tim K writes: "You seem hell bent on avoiding the pain. PAIN IS GOOD because it reminds you never to touch the hot stove again!"

Just because I want to see people in distress supported, it does not mean that I am in distress too. I have not been impacted by any of this. ...At least, not yet.

My "big words" sans solutions are my right. I am not an economist. Again I say "hogwash." If a person eats a few minutes before he swims, does that mean we should reconsider saving him from drowning -- particularly if he's tied to a leaking boat?

Shouting at the moon about moral hazards when literally all of us are exposed if there is a major recession is simply wrong.

[Kathy]

It's hard to believe people are still advocating 'helping' the borrowers in trouble, without realizing those borrowers are mostly in homes they can't afford with a standard, fixed rate mortgage. How do you help them stay in those homes without keeping prices artificially propped up, thus delaying the needed price drop and eventual return to normalcy?

[Toby]

My "big words" sans solutions are my right. I am not an economist. Again I say "hogwash." If a person eats a few minutes before he swims, does that mean we should reconsider saving him from drowning -- particularly if he's tied to a leaking boat?

Shouting at the moon about moral hazards when literally all of us are exposed if there is a major recession is simply wrong.

Posted by: Martin

Helping a few save there investments (cause that's what they are to them, not homes) while screwing everyone else through high property taxes IS NOT THE MORAL THING TO DO!

For example: Santa Fe, NM. The poor and the elderly are literally getting taxes out of their homes.

This is happening because Flippers came in and artificially drove up prices SO high...that the property tax themselves have surpasses the mortgage payments for most of the long term residences.

So tell me something, what is the MORAL thing to do. Run out and help save reckless investors investments OR Just let the market do it's thing and in the process help Grandma Milly keep her home she's had since 1960?

You tell me? Which one is the high road?

[Aaron Kramer]

Outcomes are not guarenteed in capitalism and inequality always exist. Outcomes and misery are shared under socialism. I wish we could help everyone but we can't. We can't force people to feel "confident," we can't force lenders to lend. If you really feel that we shoud force people to adhere to a system which will lead to a desired outcome, than give up all your freedoms to the government and pray that they do the right thing. Why should one party be bailed out at the expense of another? There are winners and losers in a capitalist system and there always will be, this is just a fact. There is no avoiding the DEPRESSION that is on our horizon. We have to pay the piper, the sooner the better. If the governemtn inacts foolish policies as a respose than we will only make matters worse. The solution is painful but at the end of the day capitalism, not socialism, made this counrty what it is today. If the government determines who wins and who loses then we have all lost. I know you may think that I'm not compassionate or sympathetic but delaying the inevitable through bailing individuals and institutions out, will bankrupt everyone and rob us of the capital we will need in the future to rebuild or economy.

[Martin]

This is an endless argument. I understand the logic others are stressing here. But I'm not saying save the investor of a home that is not owner-occupied or the greedy banker. I'm saying save the families -- the individual homeowner -- if an agreement can be worked out. Give them the right to work hard to make their situation right. This will not falsely prop up general values, taxing (in other states, not California/Prop. 13) the elderly and other good people out of their home. This is helping the group that might deserve some help.

I've known people who went into the first stages of foreclosure (after failing to make a mortgage payment for three months). Each time the banks worked with these people with a forebearance program that allowed them to pay down their overdue amount over time. Now, add in the fact that the bank does have it in their power to convert their adjustable loans to a fixed rate. Don't some deserve that chance?

Yes, I can hear the natives here shouting all sorts of things at my words. ...That investing and business is all a gamble and we should let the chips fall where they may until housing sorts itself out the natural way. But I still argue the bigger picture; the lost jobs and businesses and a declining dollar against other currencies. We have to plug up some holes somewhere/somehow before The Real Estate Panic of 2007 becomes the Great Recession of 2008 (and likely longer).

[are they crazy]

Before we talk about bailout, we need to define who should be bailed out and what percentage of the mess they are. How many of the foreclosures are victims? How many have already extracted all their equity and spent the money? How many are failed flippers? How many are speculators? How many lied on applications to buy houses they couldn't really afford? How many lied and said it was their primary residence? Once you eliminate these groups, how many are left? I object to bailing out any of the above-mentioned groups.

[Linda Slocum]

Many homeowners are CHOOSING foreclosure as a new kind of bankruptcy. They get into a home they can barely afford, max it out with a cash-out refi, max out a bunch of credit cards, put a couple of $80k Mercedes in their garage, and then walk away from it all.

They have this so well planned out that it's clear that they know EXACTLY what they're doing... One Mercedes was turned in for a "voluntary repossession", and then another purchased (bigger, newer, better) using a family member as co-signer (bye-bye to that person's credit score), and they say they'll start the whole scheme over again in a few years. Oh, and the guy is in law enforcement, no less, so apparently he feels like he's Teflon-coated.

Those who have worked with this couple feel really hosed (including myself) because we didn't realize what type of game they were playing until they'd used up a lot of our time and energy trying to "save" them, when they planned on walking away the whole time. These types of "players" not only make the foreclosure stats more than a bit skewed, they also make us "normal" people foot the bill for their games.

In this case, there was over $400k in debt that was wiped out in an instant. The holder of the 1st mortgage came out whole, the holder of the 2nd mortgage ate over $300k of debt, and then there's the credit cards ($100k worth) that will be wiped out via a new bankruptcy filing.

Scam? You betcha! And it's more prevalent than you think!

[Jason M.]

You're deluding yourself if you think the government's going to bail anyone out. They'll talk a good game, have some hearings, set up a committee, and then in 2-3 years (once all the foreclosures are finished) we'll get a report saying that the Fed should have done more to explore opportunties in helping homeowners who were in danger of losing there homes. By then, there won't be many adjustable rate home owners left standing and the issue will fade away.