California foreclosures up 261% from '07 levels

Breaking: DataQuick reports today that foreclosures in California soared 33% from the first quarter to the second quarter of 2008, and are running 261% ahead of year-ago levels.

More, from DataQuick: "Lenders started foreclosure proceedings on a record number of California homeowners last quarter, the result of declining home values and the rampant spoilage of a batch of especially risky home loans made in late 2005 and 2006."

Writing on LATimes.com, Peter Hong leads with defaults rising to record levels: "A record number of California homeowners defaulted on mortgages last quarter, a real estate information service reported today."

Numbers:
-- DataQuick counted 121,341 "notices of default" in the second quarter, up 6.6% from the first quarter and up 124.9% from year-ago levels. The relatively small increase from quarter to quarter "may indicate that we're nearing a plateau," said DataQuick President John Walsh. "We won't know until the end of the year, but it may be that some lenders are starting to prioritize workouts with homeowners instead of grinding things through the foreclosure process."

-- Trustee deeds recorded, or actual loss of a home to foreclosure, totaled 63,061 during the quarter -- up 33.5% from the first quarter and up 261% from the second quarter of last year, DataQuick reported.

More to come on this.

Comments

[TC]

A plateau of half a million households foreclosing a year in California. Nice.

[Cal]

More homes went into Default in Q2 than were sold:
LA - 16139 sales - 21632 had NOD filed - 9609 foreclosed on

Ventura - 2246 sales - 2303 had NOD filed - 1123 foreclosed on.

I do think we are near a peak of defaults for the state but not for LA County, it started peaking later. A whole year at this elevated level would be amazing, the only 2 solutions possible are prices coming down and houses getting moved or banks cutting principal. But only 22 percent of people going into default don't get foreclosed on and that number keeps getting smaller.

It sure looks like getting new home buyers into those homes is the only solution available. But to do so the prices have to come down where the home buyers can afford under todays more stringent guidelines, down payment requirements and uncertain economy. Clearly we have much further to go. This winter should be interesting, loan servicers have a big decision to make.

[anonymous]

Boy, wouldn't it be great if the lenders decided to work with the borrowers? Just a few months ago people like mike were blogging the lenders wouldn't even speak to them, let alone negotiate, and they were trying to keep their homes by putting mortgage payments on their credit cards.

I'm not holding my breath, but it sure would be nice if both sides of this issue took some responsibility for their actions.

[Dave9]

Sit tight, we're only half way there. I still expect the market to bottom out in 2009 or 2010 the way things are going. And that's only true if there isn't a government bailout, which will only delay the bottom.

[TakeFive]

"The relatively small increase from quarter to quarter "... may indicate that we're nearing a plateau"

Might also be a capacity issue. How many notices can be processed each day?

But a plateau? Wait until the state of Caifornia has to face financial reality and start laying off employees making $80K+ per year.

[jb]

I am outraged at the banks who made these loans - to me this is the equivalent of any of us giving all of our money to the first crackhead who asks for it - would we do that? would we expect the taxpayers to rescue us when s/he doesnt pay it back?

The banks knew the risk and collected 250k+ salaries plus huge bonuses each year when their sole job was to manage risk. Now they want a rescue - hell no. We demand the taxpayers not take it in the rear for this, if we have to rescue them, no more high salaries, no future profits, and all stocks wiped out.

[Fred]

The ARMs haven't even begun resetting en masse. I don't think foreclosures have peaked yet. Basically every home bought in L.A. in the last 4 years had an ARM.

[I live in LA, too]

So much for the theory that banks are sitting on NODs, rather than foreclosing.

[sfvrealestate]

I don't want to contradict John Walsh of DQ, but my experience has been that banks are absolutely NOT prioritizing workouts. The "word on the street" is that the lenders are assuming that workouts will eventually turn into short sales, so they're not bothering with them. And it's taking weeks to months to get short sales approved.

[boozy]

these are people who did not truly qualify for a loan when it was granted by greedy gut lenders such as countrywide....shame on them...if you do not have 20% to put down, have a income that will ensure adequate month to month funding...the loan should not be given...

[That's what you get...]

That's what you get when you give a $650,000 mortgage to someone making $30k a year (oh and no proof of income)...

Keep crashing. Maybe you'll come down to the REAL value of your home and property soon.

Here's a hint. If you can't sell your house, then it's NOT worth what you're asking.

[Brian]

I'm not getting in until things start going up. That's the only way to know there's a bottom. Better to buy near the bottom than try to time things perfect.

[David]

The housing market has a long way to go before the resetting of the next blowup in what's called "power option" or "option ARM" loans crest in 2011, so we are looking to 2012 (that magically year again) to see the end of the housing bubble.

http://bigpicture.typepad.com/comments/
2007/10/monthly-mrtgage.html

www.noforeclosures.info (I am the author)

[MyLessThanPrimeBeef]

I think it's the Tibetan Plateau and a very good place for praying, because very few migrating birds can fly over the Himalayas...Demoiselle cranes, maybe.

[jenkins]

The home prices in LALA land don't make ANY sense. They need to come down by 30% before sanity is back in the market. Same goes for Manhattan!

[Cal]

You can see some sellers starting to pull their listings. Not wanting to compete with foreclosures and short sales...

But they clearly aren't thinking about the issue logically when there are no more foreclosures and short sales where will prices be? Much better to duke it out with short sales and foreclosures now while prices are high than later when prices aren't. Unless the sellers decision is simply that they are stuck in the home and won't be selling for a long time it makes no sense.

Realtors next year will be talking about how sales have rebounded and things are looking up. Anyone want to guess just how much more far prices will have dropped? And of course we will be hearing its the bottom again. You may not be able to count on very many agents market expertise but one thing you can count on is their boundless optimism.

[jjm]

Bottom in 2009- just three years after the peak- doubt that. Even past downturns took much longer to bottom. And this one will be worse due to:

1) recession with massive job cuts still to come
2) state and federal deficits
3) higher interest rates on the way
4) consumer with negative savings
5) credit getting tighter by the month
6) ARM and option ARM resets- bulk of which have not yet occurred
7) depressed, cynical public--reverse psychology of the bubble years will cause and overshoot on the way down
8) baby boomers freak out as they see their house savings vanish and have no retirement fundsto fall back on leading to panic selling/downsizing
9) tanking stock market with reverse wealth effect
10) vicious feedback loops of 1-9

JJM

[Jack]

Hilarious to see those ridiculously overpriced California homes crash down to the reasonable range - Party is over and will be for years Time to sell the Porsches and Hummers!!!!!!!!!! - LOL

[Mike]

Thank WaMu for their strict underwriting practices... A fart could have gotten a loan with them in 2005 & 2006

[toby]

I said it once, I'll say it a million times....

Just wait, we get one good shaker (earthquake), and you'll see prices drop to pre 2001 prices.

It will happen. And it will probably happen in the next two years. Umm, it's been 14 years since our last shaker.

[MyLessThanPrimeBeef]

I know I am going to sound like one of those vice presidential hopefuls, but here goes:

I am not looking to buy a house.

But if I am offered a house in one of the finest immunized West Side areas, at 150% discount, I might think, wait, it would be an honor for me and my family, but, I am not actively seeking for a house right...

Excuse me, I have to go throw up right now.

[Nick]

I prefer to see the silver lining, actually. Record numbers of foreclosures means the banks are trying to minimize their losses, instead of giving up and waiting for a bailout, postponing the foreclosures with "work out" failures, or buying into the quick-recovery BS. The faster the banks can push more properties through, the less their losses will be, and consequently the more people they can continue to employ. Moreover, the higher the number of REO's being sold, the faster house prices will correct to where they should be.

It's hard to see the DQ news as anything other than good news, from that perspective. Keep em coming. :)

[peteviles]

mylessthan writes, "if I am offered a house in one of the finest immunized West Side areas, at 150% discount..."

Thanks, myless, I can't resist. A 150% discount? Does that mean, on an $800,000 house (3 br, 1 ba, 1,100 square feet, by the way), they pay you $400,000 to live there?

[BP]

There is so much incredibly false information circulating that it's impossible for consumers to know what is going on.

All this crap about more and more ARMs resetting has been done four times in the last 18 months already. Every time the 'last round of resets' deadline rumor comes out it is six months into the future. Then, when that deadline passes and nothing happened there is another rumor about a new deadline for ARM resets.

Look people, Countrywide is the largest lender in America. They started clamping down on appraisal criteria in Jan 2005! They also got rid of Full Spectrum Lending (their subprime branch) by then. They stopped doing loans for people with no income. They also stopped going investor loans without large down pmts.

Other big banks followed because Countrywide led the pack on conventional lending.

Wall Street firms (especially Lehman) were still going crazy in 2005 with investor/non-owner occupied loans (even though the market had peaked in May 2004 in NV/FL and prices were flat in 2005 and CA peaked in 2005 and flattened by the end of that year). The sub-prime and Alt-A loans were being made by loan brokers who were selling paper directly from Wall Street and a few other people like IndyMac and M&A. But these were not the majority of loans or even 1/3 of loans being originated in 2005 or 2006.

Historically, foreclosure cycles have lasted 18 months. This one is going closer to 36 months. Two major factors which are affecting it are that, for the first time, we have 'loan servicing companies' (like Aurora Loan Services - for Lehman) handling loan problems who have no experience and they are sabotaging their own loans through total incompetence and the other factor is that the 1995 change in cap gains unleased at least $1.5T in new real estate value and activity so there is a much larger real estate market now than there was in 1990 when the last foreclosure cycle occurred in CA.

The good news is that the recovery will also be much faster than it was the last time. CA went from boom in 1989 to bust in 1990 and 30-60% losses in equity by 1992 (which contributed to the 'recession' we had in 1991 which lead to Bill Clinton). And by 1996 there was a recovery starting and by 1998 there was a bull market recovery back to the 1989 prices and it ran for nearly 8 years to more than 100% above 1998 prices.

Because of the cap gains laws (if Obama doesn't destroy real estate by raising this tax also), the recovery will be much faster because we now have a national real estate market with buyers able to choose from any desirable location to purchase second homes or relocations. This did not exist in any prior real estate recovery. And we will start recovering once the banks fess up about what bad loans they still have on their books (are you listening Lehman??? stop holding onto dead loans and FORECLOSE!!!!) and they start lending money again.

Banks can borrow money from the Fed for 1.25% and then lend it to home buyers for 6-7%. Sounds like a no-brainer, huh? It is. But until they finally get rid of the nonsense loans from 2002-2005, they are afraid to tell the Street that they are increasing their exposure to the real estate market. And the longer the banks wait, the lower the value of their existing collateral (ie, the homes which they current have loans outstanding on) will fall.

If you want to help the economy, buy a foreclosed home. Get yourself a steal. Sit on it for a couple of years and make a ton of money. As long as they are available, normal people can't sell their homes. It's a point of total insanity that banks are liquidating their assets by discounting them by 40-60% just to get some cash in their hand when they can borrow it from the Fed for virtually no interest. But anyone who can ought to be taking advantage of that stupidity and buying a foreclosure in the best neighborhood you can afford.

Trust me, you'll be very, very happy in 2009 when you see the other homes being sold by actual homeowners. And you can cash out at whatever the cap gains rate is at the time.

[jay]

my house in 1999 was $242.000, today it is priced at $650.00.

For the market to stabilize it is not enough to go down 10-30%. It needs to go much lower. Regular salaried people in the US can afford a house about $200-300.000 the most and you need a household income even for that.