California foreclosure crisis 'still deepening'

A couple of reports today on foreclosures, both indicating the problem continues to grow in California.

ForeclosureRadar reports California's foreclosure crisis is "still deepening" and "accelerating," with a record 42,704 Notices of Default issued in March, an increase of 14% from February levels. Though not all defaults lead to foreclosure, the increase could lead to a record flood of foreclosures hitting the market later this year.

RealtyTrac shows a slightly lower level of NODs in California in March -- 40,761 -- but also shows increased overall pre-foreclosure and foreclosure filings in California -- up 20.6% from February levels and 105% from year-ago levels.

Surprising quote from ForeclosureRadar founder Sean O'Toole: "We see the housing pain in California continuing through the end of this year, as the market shakes off the effects of the credit mess and rampant overbuilding. As devastating as this may be, we do think that the end result -- greater affordability for the average Californian, using conventional loan products -- will benefit consumers and the housing industry alike."

Bloviation: O'Toole has been an interesting analyst in this crisis, often pointing to two trends underlying the foreclosure crisis: rampant overbuilding in central California, and no-money-down home financing that stretched the definition of "homeowner" to include borrowers who never made an investment in their home.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: AP

Comments

[Geek Seek]

Vell, if we're not going to be getting a man-on-the-street impression of how the sales of foreclosures are going, from Leo, can we find some other agents out there with a big stockpile of reo's to see how much success they're having?

Stupid aside: My neighbour is a real estate agent... we hear him yelling and cursing every night out on his patio as yet one more deal blows up on him. He might not be the best one to ask. He's seriously having a meltdown, and refuses to go look for a real job. The bonus, though, is that we get to hear a lot of things that the average agent is thinking or discussing behind closed doors.

[original thinker]

Surprising quote from ForeclosureRadar founder Sean O'Toole: "We see the housing pain in California continuing through the end of this year, as the market shakes off the effects of the credit mess and rampant overbuilding. As devastating as this may be, we do think that the end result -- greater affordability for the average Californian, using conventional loan products -- will benefit consumers and the housing industry alike."

Peter, THE "SURPRISING" PART OF THIS QUOTE ISN'T
WHAT YOU HIGHLIGHTED IN BOLD. It's the 2008
timetable that O'Toole offers for seeing the worst of
this pass. All the sub-prime crisis fallout will be
in the radar by the end of this year but then we begin
three years of intense Option ARM resets that promise
to make the sub-prime period look like a mere blip.
All hell hasn't even come over the hill yet.

[Arti]

How could you leave out the absolute best quote in the whole article??

"Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California. Others—IndyMac, Golden West (the creator of the option ARM, and now a part of Wachovia)—wrote many billions more. The really amazing thing is that the meltdown in California is already happening and virtually none of these loans have yet reset."

[trevor]

Housing prices are falling because the market senses that there are weak players out there who can be shaken out. If you own a home and think it's a good move to let it foreclose just because, at this particular moment in time, you've holding onto an upside down mortgage... Well then you're playing right into the hands of the vultures who are just waiting to snap your home up for pennies on the dollar. You're going to be financially destroyed and the losses the bank suffers will be passed onto some lucky investor who'll double his/her money in a couple of years when the next cycle comes around. It's blogs like this authored by someone who frankly has no special insight that I can see, that feed this frenzy by convincing people that they might as well give and that homes will somehow always be available for way less then they cost to build. This seems quite illogical to me anyways and when the next shift in mainstream perception occurs it will happen just as fast as this one.

[Joseph...The Real Estate Guy]

I see California in trouble for for the next 7-10 years!

Even a Bankruptcy in the horizon(For the State).

Welcome to the People's Republic of California!

Want to send me your comments? Please e-mail me at:
asktherealestateguy@yahoo.com

[OptionArm]

OPTION ARM@!!!! Hello...we're not even in the 3rd Inning of this meltdown.

When those Option ARM reset in the next 3 years, housing in CA will fall to an affordable level. This means we have another 40% drop to come.

It ain't going to be pretty. But did people actually think a family making $90k a year buying a $800k make sense?? It sure did for the OPTION ARM Lenders like Countrywide! And look at them now

[jet]

There have been ups and downs in real estate in response to slowdowns in the economy, aerospace, dot com bust etc. Never has Real Estate been the start and underlying cause. Mortgage payments must match wages. No one will ever again assume they can buy a house which can be refied and "pay for itself". The prices will drop by over half and stay there. May undershoot then recover to normal Yearly Wage / House Price ratio of 2.5 : 1 or so. The ratio can be achieved by house price drop, long term low interest rates, or raising wages (inflation).

Prices dropping by 50% is a $10Trillion problem in US and $40 Trillion world wide.

http://latimesblogs.latimes.com/laland/2008/04/
the-global-hous.html?cid=110853668#comments

Here I talk about where the funds came from to drive this and other bubbles and how it might end........

[Lisa W]

5 years of food shortages, and the last two years will bring with it disease. Quit worrying about real estate and stock up on food and medicine.

[Noel]

Bargains? There are alot of people out there buying at so called bargain basement prices. Boy will they be surprised when what sounded like a good deal blew up in their faces. They honestly believe this is the bottom. What happens when these last of the big time spenders/investors are taken out of the equation? There's only so much ready cash out there especially with lending tighter than the lid on a new jar of jam. Bargains? Patience my pretties, when newer houses fall to the levels in Arizona and Texas "mid- 150k" that will be the time to jump in especially out here in the inland empire. Buying a home was never thought of as an "Investment" until the late 1970's. Why? Because you can always build new homes as long as there's tree's and dirt sitting with nothing sitting on it. They used to say investing in baseball cards was a good investment. That was until they fighured they could just print up more cards if the supply got low- kinda like the fed/treasury and the printing press. Save your cash. Trust me cash is king now. Four months after Novembers elections- cash will be emperor. Noel

[amir]

Trevor, take it easy.

This blog has been accurate in its predictions when the market was still in full bubble mode.

If you read this blog, you'll learn a lot about real estate in Los Angeles. For example, this is not a real estate bubble really, but a land bubble. What people paid for during the inflated years was a piece of land, the cost of the house was marginal. We are now seeing land prices plummet.

There is a tremendous amount of insight here, but the conclusions might not be to your liking.

[Geek Seek]

This seems like a good place to insert my favorite Jefferson quote on banks and property:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them [the banks], will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

- Thomas Jefferson

Not only do we have private banks controlling the issue of money, we haven't known HOW MUCH money they've been issuing since March of 2006. Dunno which is worse: not knowing, or finding out. It's weird that the rest of the world isn't demanding to know how much we're issuing, since it affects investment, savings, inflation, trade, debts, um, everything?

How come the world isn't demanding to know? How come we're not? Is it really not important?

[Lou]

I still don't get why the word crisis keeps being used. All I see is a market correction.

[E]

I have a question.

Are their "prime" option-arms?

We already know what's most likely going to blow up.

First it was just a "subprime thing"...and it was "contained"

ooops.

Then there were those darned Alt-A stated income "liars loans"

looks like those weren't too good of an idea either.

So...once again...

What's the bottom line WRT "Prime" ARM's, Neg Am, Stated Income etc.

Toxic is toxic whether it is labeled Prime, Alt-A or Subprime.

[Cal]

I thought the Foreclosureradar report was particularly interesting in that they broke out trustee sales (foreclosures to us lay people, the hous goes back to the bank/servicer), NTS (notice of trustee sales.. letting everyone know they are selling a house, the second step in the foreclosure process) and NOD (notice of defaults, usually filed by the servicers when the borrower is 90+ days late on paying, but can be filed as soon as 10+ day of late payment).

What the charts told was that NOD and NTS were jumping as one would expect (NTS followed NOD graph extremely close just time shifted 90 days forward ) BUT.... actual trustee sales... broke the trend.. They are down. The banks are seemingly becoming more reluctant to foreclose. To soon to tell how much of a trend this is and no way of knowing as of right now how or why they are doing it. But I think it is clear that fewer REOs are coming on the books only because the banks are reluctant to take that finale step.

Here is the chart.
http://img249.imageshack.us/img249/5601/
mar2008caforeclosurerepem8.jpg

[Winfield J. Abbe]

Everyone should notice the silence of Arnold and his cronies in the California Legislature on all this. Is not California the state where government is omnipotent?
After all, in California does not everyone have full access to healthcare regardless of cost, virtual tenure in rental units since the state shafts landords and forces them to allow deadbeat squatters to camp out for years before finally being evicted; the land of "plenty" of rent control, the land that winks at all that cash from the far east, and where it might have come from, to create economic development on top of earthequake faults, the land that permits negligent "hospitals" like King-Drew, to negligently kill and harm innocent patients for decades, and shut it down only by pressure from outside, while the California Attorney General harasses alternative cancer treatments while the orthodoxy cancer treatments fail patients or kill them every day! Why not a new mortgage company, "California Bailout Mortgage Co."? This new company, funded by the unlimited resources of the state, would purchase all delinquent mortgages of California citizens and just let them voluntarily pay on them. And if it all falls apart, or even falls into the earth from an earthquake, just ask Uncle Sam to pick up the pieces. "No Rules, Just Right" for the California hypocrites; capitalize your profits, socialize your losses.
Isn't the called Communism in California?

[Tim K.]

Cal wrote: "But I think it is clear that fewer REOs are coming on the books only because the banks are reluctant to take that finale step."

I believe, based on some second hand evidence from someone who worked at one of the major Alt-A lenders, that reason for this is not one of reasoned reluctance - it's that banks do not have the staff to turn these REOs over to real estate agents to do the selling. The final step does require having regular real estage agent contacts who are versed in how to do this - right now there are not a lot of agents whom the banks have good working relationships with to hand off all of these properties. So it's the last bottleneck, not some conscious decision to sit on the properties.

[GGordon]

Mr. Abbe wrote:
""No Rules, Just Right" for the California hypocrites; capitalize your profits, socialize your losses.
Isn't the called Communism in California? "

Actually, Communism would be: socialize your profits and socialize your losses.

"capitalize your profits, socialize your losses" is the Capitalist party line.

[Rich]

When everyone speculates wildly about ARMS resets, it's time for an alternate view. Check out this article that describes, in part, why much (but not all) of the reset problem was mitigated by recent interest rate activity and when the resets may stop being a problem:

http://seekingalpha.com/article/70975-closer-
look-at-the-arms-reset-problem

[DS]

Here is the dirty little secret message from Wall Street:

Many people simply cannot afford their mortgage. If you purchased a $250,000 home and took out an additional $250,000 in equity the past three years, you may not be able to afford a $500,000 home. If your broker were sold on a $500,000 home and are not making 6 figures, you probably cannot afford your home.

Many of these loans have artificial low rates for the first three years. In other words, these folks may only be paying 1-3% of the principal in a negative amortization mortgage for the first three years. They can barely make the payments now. Once these mortgages reset, they cannot afford 5-6% of $500,000. They may believe that they can afford it, but you simply cannot make $3000 per month payments for 30 years if your monthly income is $4500. Once you add in utilities, food, and other basic living expenses, it cannot be done. And that is not even considering an unexpected medical situation, a lay-off, vacations, dinner at Sizzler, etc.

Now the secret, the people that received financing when they purchased their house are not liable to the banks. They can simply drop off their keys and avoid any deficiency judgments. However, if they refinance, they are on the hook. Wall Street is not happy and would love everyone to refinance and accept personal liability.

Most likely, the only solution to the mortgage crisis (and this will occur either now or prolonged over the next 3 or 4 years) is that the homes most be foreclosed on. Then, they may be sold for their actual value (through brokers or auctions). And their actual value is their fair rental value adjusted for the present value of the expected appreciation over the upcoming years and a premium based on tax advantages of home ownership. Thus, that same $250,000 house that was appraised at $625,000 will find itself valued at $280,000. Then, that same family who was foreclosed upon or their young neighbors who are sitting on the sidelines waiting to buy can afford home ownership and actually make the payments.

[Jail4Bush]

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them [the banks], will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

- Thomas Jefferson

That is what happen with this FAKE, SLIMY GROUP, CABAL called the "Federal Reserve" when there's NOTHING FEDERAL about it. We've got too many Banks, Foreign countries, and thieves controlling American money.

Jefferson, Ron Paul were right. Now we watch the melt down of America because SHEEP...couldn't recognize being led off the cliff

[MyLessThanPrimeBeef]

Winfield, Arnold is too busy commuting between LA and Sacramento to do any heavy weight lifting. Those Mr. Universe days are long gone.

Jet, that reminds me that a house that can be refi-ed and 'pay for itself' is called a perpetual motion machine. And we all know that is impossible. Perhaps physics should be required for all future homebuyers. But wait...it IS taught in high school, or it was when I was in one a long, long time ago. Has education sunk that low?

As for Option ARMS, just remember that IMF estimate of $900 billion + or close to $1 trillion in cost when the whole mess is over. We are not even one third of the way there yet.

[mike]

why is a bunch of RENTERS who got lucky for a while and now their luck has run out and they are back to renting a crisis.

[Cal]

Tim K.,

While I have no hard data, I'm not seeing what you are saying. Every agent and their brother are trying to get into foreclosures and have been for some time. I watch the MLS and see all the new agents getting REO listings where it used to be a select few Nordine type realtors who dominated the market. The servicers are overwhelmed but they have been adding staff. I'm not ready to call it a smoking gun yet but I did find the chart curious and something to monitor for the future.

[Howard]

Spoke this morning with a real estate broker friend in Phoenix. Eighty-percent (yes 80%) of all MLS listing in the Phoenix area are for vacant houses. Close to 40,000 homes. The lenders are soiling their pants due all the walk away's. Normal people with good credit, able to make their payments, but just handing back the keys due to being upside down. There's even companies such as www.walkawaysmart.com to help people do it. I agree with the posts above. If you think it's bad now.....just wait 6-12 months when even more adjustables reset....

[David]

Mr. Winfield, what you don't seem to understand is that most people want a mixture of socialism and capitalism. While imperfect,look at SOCIAL security and medicare, public schools, police & fire depts. ect. Unbridled free markets can be too inhumane for most people, not you of course. If California was so disadvantagous people would stop coming, not happening. The people are the market and they vote in our politicians for a reason, They LIKE their policies. When they don't they get voted out like Mr. Davis. Even Arnold is a republican in name only. He has seen the light.

Wages countiue to decline, jobs and industries vanish along with the middle class and the free market advocates explain away 30 plus years of trade deficits. No need to pay taxes, deficits don't matter. Disregard the 400 plus billion a year in interest on the debt.

If home prices are tied to incomes I bet there are going to be some great deals down the road.