Waiting to catch a wave? Surge of REO listings is unlikely.

By August 10, 2009Economy

For a number months now I’ve been telling reporters and others that I didn’t think we would see the big wave of foreclosure sales, and subsequent REO listing that some have been predicting. Until recently that was mostly based on a gut level feeling that banks (servicers) simply didn’t have the will to complete more foreclosures given the anti-foreclosure backlash. With a little hindsight, things have become clearer.

First, to be fair to those who have been predicting the wave, the numbers would suggest that California foreclosure sales should be surging right now. After a brief respite due to CA Senate Bill 1137, Notice of Default filings surged last December, and have remained at near records levels since, and even hit a significant new record in March at 52,163 filings. Similiarly, Notices of Trustee Sale have also surged, setting a new record as recently as May. Thus, it would be logical in normal times to conclude that foreclosure sales, and subsequently REO listings, should now be surging too.

But these aren’t normal times. While foreclosure sales have increased since the moratoriums began to lift, they remain well below the peak levels reached July 2008, and as you’ll see in our next CA Foreclosure Report, will actually fall from June to July this year.

So what happened? In my opinion the answer is found in the troubled asset relief announcment made on September 19th by U.S. Treasury Secretary Henry Paulson. Clearly Paulson believed at that time that banks (servicers) would fail unless they were releived of the mounting losses on mortgage backed securities and other troubled assets.

In fact the Fed began purchasing direct obligations of Fannie, Freddie and the Federal Home Loan Banks on September 24, and later began purchasing mortgage backed securities. Click here for details on purchases to date from the Federal Reserve Bank. The total has reached nearly $650 Billion. Keep in mind that the total loan value on ALL foreclosed loans in California since this crisis began is under $200 Billion.

While many will point out this was necessary to keep home loans available and interest rates low, I think it also clearly sent banks a message… you will get more for these assets from the taxpayer than you will through foreclosure. Add to that the mark-to-model rule changes from the Federal Accounting Standards Board, and a ton of politicial pressure and it should be no surprise to anyone that foreclosures have slowed.

Still unsure? Consider the following chart. The grey line is the total number of properties scheduled for foreclosure sale (using scale on right). The blue and green lines are daily foreclosure sales for California, divided into two parts – before and after Paulson’s announcment.

Foreclosures before and after TARP

The drop in foreclosure sales defies logic given the continued increase in properties scheduled to be foreclosed on. But defying logic to do what is politically expedient while simultaneously inflating bank earnings and bonuses and without regard to future consequences IS the new normal. We are yet again trading tomorrow for today.

For those of you still waiting for a surge of foreclosure sales, the truth is you’ll likely be waiting a long time.

No Comments

  • Casey Cooke says:

    Hi Sean,

     

    Curious what banks are going to do about homeowners who are not paying? Or paying partial? That can’t go on forever? I’m a Realtor and I directly mail about 100+ NODs per week. It seems the “length of time” stories about people being in their home without paying are getting longer and longer. I have heard reports now of Countrywide offering to cut monthly payments in half for 6 months when all other loan mod attempts have failed, and the payment is supposed to go back up to normal levels in 6 months. You can sweep dirt under the rug for quite a while but eventually the mound of dirt gets too big to avoid and the whole room starts to stink. I can’t help but think that this growing number of non and under-performing assets has to reach critical mass at some point and will have to be dealt with.

     

    Interesting exercise. I added up all the “shadow inventory” in Escondido, CA and I got about 190 with a population of 135,000. If you work backwards based on a CA population of about 36,000,000 you will get about 50,000 homes. Funny how this is close to your number.

  • Sean, love your site.  Thank you for a great tool.

    At what point does the lobbying power of NAR begin to openly compete with the lobbying power of the financial sector?

    Timothy G was uncharacteristically pissed last week at the lack of cooperation from the industry as a whole.  It would seem that the time is right for all of us involved in this industry in one way or another to set up our own California Summit to meet with Lawmakers in Ca.

    Thoughts?

     

  • Sean says:

    I’d love to see NAR step up to the plate, but unfortunately they regularly seem more aligned with the financial sector than against it. Until they realize that it is not in their best interest to push homeownership at all costs – and instead to focus on sustainable ownership – we may not see much progress.

  • Sean says:

    Casey – thanks for the back of the napkin validation! As for how long it can go on, I think the answer will be a very, very, long time – especially given the Fed’s willingness to inflate their balance sheet as needed to avoid forcing these banks to take the hit directly.

  • bayareabankowned says:

    Great analysis!  I’m certainly in agreement.

     

    So what happens?  Do millions of “homeowners” get to live rent/mtg free for an indefinite amount of time?

     

    Or do the foreclosures bleed out as the extend&pretend (E&P; new jargon!) loan mods eventually fail?

     

    You “think the answer will be a very, very, long time”.  So, in your opinion, how does the very, very long time play out?

     

    How might this affect short sales?  Will they be option #1 ahead of foreclosure and REO?

     

    Does it make more sense to be a squatter in these times rather than a responsible payor of either mtg or rent?

     

    Amazing that irresponsible and even fraudulent behavior (stated loans anyone?) is being so explicitly condoned on such a large scale.

  • I am getting alot of assignments from Fannie and Freddie where they are asking  us to go get financials of homeowners whose homes have gone to auction. Freddie and Fannie are offering to rent back to the foreclosed homeowner so they can stay in the property, and pay rent. I am sure this is only one part of the equation, but it turns a non performing asset into an income property?

  • Sean says:

    If you think stated loans were bad look at your typical loan mod… I heard the other day they now are working to extend loan mods to the unemployed.

     

    I think we’ll have years of elevated foreclosures like we are experiencing now – this IS the new normal.  And yes, millions will get to live rent free until their number comes up

     

    In yet another unintended consequence its possible those homeowners who try to work with their lenders may be the first foreclosed on. Why? Because if they can’t come to an agreement or otherwise fail along the way the bank will no longer have an excuse for not foreclosing.

  • Sean says:

    I’d heard this was coming, nice to get confirmation, thanks. It would certainly turn a non-performing asset into a performing asset – I think the real question is how they get to value it.

  • Anonymous says:

    Sean, I agree with you – especially because you accompany what you say with so much data…kind of like DNA in a murder case – can’t argue with it.  Do you think banks will begin to actively ask delinquent homeowners to do a shortsale…do you think this will even lead to more short sale transactions?”

     

  • Sean says:

    I think more short sales should happen, but I doubt they will. Unfortunately some of the incentives put in place to reduce foreclosures (mark-to-model, promise of troubled asset relief) also remove the incentive for lenders to do short sales. I think this is a significant unitended consequence given that most agree short sales are generally a win-win for borrower and lender (reduces lender losses vs. foreclosure, while doing a bit less damage to ones credit for the borrower).

  • awgee says:

    You say you thing the auctions will be postponed a long, long time.  Can you be specific on how long for a typical property?  My observation is the lender may postpone the auction five or six times and this works our to about three or four months.  At three or four months per auction, the total auctions would be pushed back a bit, but not indefinitely or a long, long time.

  • Sean says:

    Actually I said that I expect this trend to continue for a long, long time. Individual properties will vary. If the postponements are due to loan mod trial periods, which are 3 months, then I’d expect your guess of about 3-4 months to be about right. In any case CA law limits postponements to 1 year max after which the Notice of Trustee Sale has to be re-filed.

  • Anonymous says:

    Everyone is so concerned about home sales and the repercussions of foreclosures, they are forgetting about all the other debt being defaulted on. These people that are not making their mortgage payments are not making their credit card payments, their car loan payments, their student loan payments… Their credit will be ruined for life. These people will never own a home again, taking them out of the buying pool. Fewer people buying will reset everything. Homes will be priced back down to historically normal levels regardless if the shadow inventory ever appears or not. Supply and demand. Don’t worry about the inventory showing up. Drive around a neighborhood you like, look for a house you like, see that it is empty/dark. Find the owner and make an offer. They’ll take it.

  • anon in SoCal says:

    Eventually, through retirement, divorce, job-relocation, or other life changing event, houses will come on the market for sale. Who will qualify to buy these? Won’t Econ 101, supply-and-demand come into play? I’m looking for homes in the more expensive, overheated areas in SoCal like Manhattan Beach to make the next big price drop. Price to income is historically 3-4 times, these area are now 9-10 times incomes. How long can these prices defy gravity?

  • Sean says:

    I don’t disagree that eventually prices have to come down to a point to where they are affordable to the people that live there. One thing that can make a difference in that timing is the amount of turnover and borrowing that happened in that area at the peak. If it was minimal, then the majority of owners are likely not underwater, and not at risk of foreclosure. They may also have no desire to sell at anything much lower than those prices waived in front of them a couple of years back… and they can afford to wait.

     

    These areas may defy gravity longer than you think. As supply remains constrained simply because folks don’t have to move.

     

    That said, I think some of the areas that have been defying gravity so far, have more debt related stress then appears on the surface, and that we’ll see at least a few of these areas shake out over the next year.

  • Byrk says:

    <i>Their credit will be ruined for life.</i>

     

    No it won’t be since those items will fall off their credit report at some point.  In 5-years time they’d easily qualify for a FHA loan as long as they don’t continue running up debt and defaulting on it.

  • Indy says:

    Any plans to expand foreclosureradar to other states?  Need to hire anyone to help do this in Washington?

  • Sean says:

    We just launched in Arizona, Nevada, Oregon, and Washington.

     

    We are always interested in finding great talent, so please feel free to forward your resume to us at resumes @ foreclosureradar.com.

  • oc bear says:

    If you are not making your mortgage payment, you have a substancial amount of money free to do what you want, including saving for another down payment.  We are creating a 2 tiered system:  People who must make their payments to maintain their credit and those whose credit is ruined but are able to live rent free.  The only thing more inequitable would be to declare an amnesty for those who’s credit is destroyed because “everyone” did it.

     

     

  • oc bear says:

    Sean,

     

    The TARP and FED programs exchange Morgage backed securities  for T-Bills.  These are loans as I understand it.  Someday these have to be unwound.  At some point the value of these assets will be discovered.  i’m sure the Govenment would like the value of these assets to increase through a recovery of the market or inflation.  Can they wait that long?

  • Anonymous says:

    Your chart is incorrect. Paulson could not have announced the TARP program in Sept.2009.

     

       We are only at Aug.2009 right now. Have you been using a time machine to go forward a month??

  • Anonymous says:

    It would also be helpful if you DATED each post.

    Can’t tell if these are a day old, or a week old.

  • vvvviking says:

    Your analysis makes no sense.  Equating MBS buying with foreclosure activity?  Remember, when Paulson made those announcements, what else happened?  Fannie and Freddie were put into conservatorship.  And what was one of the first things the convervator did?  Slow down foreclosure sales.

     

    The pattern is: delinquency, foreclosure, foreclosure/REO sale.

     

    Delinquencies continue to rise, but foreclosures dropped off due to the moratoriums, and REO sales did as well as the pool of REOs lessened.

     

    What is happening now?  New foreclosures have started again in earnest.  REO sales will come later, as homes get through the process (the lag varies, depending on state laws).

     

     

  • Sean says:

    Thanks for pointing out the obvious typo, we’ll correct it.

  • Sean says:

    If you were correct about the flow we would have already seen a WAVE of foreclosures – as most predicted. Defaults restarted in earnest in December. And we already had a ton in the pipe ready to be foreclosed on. Just look at the grey line… those are all properties that are through the majority of the process and are ready to be sold at auction right now… but it isn’t happening.

     

    While Fannie and Freddie being put into conservatorship is an excellent point, note that they lifted their moratoriums months ago – and foreclosure sales STILL aren’t going up significantly. As such I’d argue your analysis fails to contemplate the obvious fact that the pattern has deviated from historic norms. Something else is at play.

  • Kaiser123 says:

    First thanks for information on your web page. 

     

    I find it of great value in understanding the California Real Estate Market.

     

    I was viewing housing wire web page and noticed that after the National moratorium the foreclosure spiked again.

     

    http://www.housingwire.com/wp-content/uploads/2009/05/foreclosure-sales.png

     

    It seems that from your chart shown above that the  foreclosure started it raise again after the National moratorium was lifted.

     

    It was my understanding from reading different news articles during April to May 2009 that the State of California was concern about the spike and started a 90 days State foreclosure moratorium on June 15, 2009.

     

    It looks like from your chart shown above that the 90 days state foreclosure moratorium is bring the foreclosure number down again.

     

    I am little confusion, and was hoping you can answer this question.

     

    Is the California 90 days foreclosure moratorium only for the period of June 15, 2009 to Sept 15, 2009 or is it a continous 90 days foreclosure moratorium?

  • Sean says:

    The California Foreclosure Prevention Act (the so called 90 day moratorium) was supposed to delay the filings of notices of trustee sale. Other than a VERY brief respite in June it had no affect and in fact notice of trustee sale filings surged. See our CA Foreclosure Report for more details, but that “moratorium” is a complete red herring.

     

    Yes my chart above does show a recent increase in foreclosure sales… but not as a percentage of those scheduled for sale (the grey line). Servicers clearly continue to foreclose on fewer and fewer homes while the inventory of those scheduled for foreclosure surges.

  • Stephen Goodell says:

    Thanks for your great analysis.  I linked from the WSJ article published today.

     

    Do the banks”really  own the delinquent properties and subsequent REOs?  Or, better asked:  What percentage? 

     

    A substantial number of trust deeds were packaged through Wall Street into CDOs.  Banks service the loans but don’t own all or most of them in default.  How does this delay  the foreclosure AND resale process?

  • Sean says:

    Actually I don’t even think the percentage matters. I think the question is whether or not their potential losses are greater than market cap. So looking at individual banks take a look at 2nds, especially HELOCs – those often weren’t sold and are largely worthless, at least in CA. Next look at the loans they got stuck with towards the end as the CDO market broke down. Finally consider the fact that most servicers were also originators – we have yet to see how investor lawsuits against originators unfold. Finally we don’t have a clear picture as to what their credit default exposure might be.

     

    My admittedly back of the napkin take is that they’d quickly be insolvent if they proceeded at the normal pace with all the defaulted loans.

  • Arun says:

    Intriguing, Sean…

     

    Seems to jive with my experience:

     

    The posting service I follow indicate basically no property transfers at courthouse steps (mine is in Ventura).  So I took a trip down there, and sho’ ‘nuf, the entire auction (7 scheduled for that day) had either been postponed by mutual agreement or similar.  So then I searched each one of the 7 scheduled auctions and I found that every single one of them had been postponed multiple times, the earliest since June, and the latest since Oct 2008!  Seems to track your charting!

     

    So much for a low-level view.  Macro-eco-politically, the banks continue to recieve support to mark these mortgages (or slices thereof) to whatever models might allow them them to remain in the green on paper.  Do you think that there is political will to extend this support to our financial system?  I suppose if the pols can spin it as helping to keep people in their homes, thay might be able to pull it off again.

     

    I shudder yo think how this might all unwind.  Which is probably why Bernanke and the other talking heads, from Zandi to Roubini, are all claiming that the dragon has been slain and that St. George is heading for his warm hearth again.  They’re basically talking up the market to allow the banks to unload with fewer losses.

     

    The more you think about this, the uglier it seems, don’t you think?

  • Froggy says:

    Sean,

     

    I think that you are about half correct on this.  The banks are definitely being allowed to slide on their Tier 1 capital ratios and in reality most US banks are actually insolvent right now.  Be it MBS bonds, portfolio loans (CRE and residential), or derivative trades gone bad, if you levered up 30X (like most banks have) then a 3.3% loss in your overall portfolio means that you have ZERO cash.  Even banks that are 10X levered up have taken >10% losses equalling the same result. 

     

    These banks are in a catch 22 situation right now.  Since their investments are not performing and are worth much less than when purchased they have two problems.  1) Servicing their own debt 2) Maintaining FDIC mandated capital ratios.  Since their investments are not generating the cash they expected, they need to sell assets (homes, loans, MBS bonds,etc) in order to maintain their Tier 1 capital.  Except if they do that, they will be forced to recognize the actual losses on their balance sheets (which are not properly marked to market thanks to the UST) which will annihilate their capital ratios.  They are damned if they do and damned if they don’t.

     

    The FDIC is not policing this aggressively so basically regional/community banks are leaking cash and eventually as they run out, the FDIC shuts them down every Friday.  The one’s with slow leaks don’t want to flood the market with REO causing prices to plummet so they are trying to run out the clock (as you have postulated) in the hope that economic activity picks up, their investments begin to perform, and RE prices increase.  It will not be long before the lack of that happening will crush several hundred banks across the nation.  This process is apparent to people who are paying attention right now, but it will be apparent to all of us by Christmastime.  

     

    We won’t be waiting all that long.  Perhaps the banks won’t be selling the REOs, but the FDIC certainly will be.

  • Kaiser123 says:

    Sean,

     

    Thanks for your insight again.

     

    After reading your reply and a short article on another blog I am begining to see what you mean by “Waiting to catch a wave? Surge of REO listings is unlikely.”

     

    According to the blog I got the impression that FHA picked up allot of the subprime loans that were in foreclosure.

     

    http://blogs.reuters.com/commentaries/2009/08/20/the-subprime-to-prime-mortgage-handoff/

     

    “FHA essentially took on subprime lending last month when
    it agreed to give mortgages with negative equity in their homes. In
    July, it loosened
    its criteria so homeowners significantly underwater could refinance
    into an FHA loan. These borrowers can now borrow 125% of their home’s
    worth, up from 105%.”

     

    Sorry, but more questions

     

    Question 1.

     

    Of those foreclosures listed in your chart, do you know how many of those subprime loans in foreclosure were picked up by FHA (percentage)?

     

    Question 2.

     

    You stated in your reply that “the inventory of those scheduled for foreclosure surges”, if FHA are picking up many  subprime loans that are in the foreclosure process, then are there a dollar limitation on how much more loans FHA can pick up?  In other words how is FHA funded.

     

    Question 3.

     

    Also there was a comment on the blog stated above saying  “The banks prayers were answered with the FASB rule changes”

     

    Can you explain what was meant by FASB rule changes?

     

    Thanks again.

  • Sean says:

    I mention the FASB (Financial Accounting Standards Board) and the mark-to-model rule change that the commenter was likely referring to in my original post above 2 paragraphs before the chart. There is a link there with more info.

     

    The FHA didn’t pick up those loans… they just now offer a loan as an option to those who are upside down and facing foreclosure. The original offering that went to 105% LTV was of little use as many facing foreclosure owed more than 105% of the homes current value. By extending it to 125% they’ve allowed banks to make fees on a new loan, that pays off their bad loan, and transfers the risk of that bad loan to taxpayers. Really brilliant. Only good news is that most borrowers in the hardest hit areas owe more than 125% so they still don’t qualify. Let’s just hope they don’t raise the limit further and transfer even more of these losses to taxpayers.

  • kaiser123 says:

    After reading your reply and  Froggy reply it seem like the banks are trying to buy time first by finding innovated way to generate cash flow (fees on a new loan) then when these inovated ideals run out the banks need to sell their assets

     

    From your reply:  STAGE 1

    “By extending it to 125% they’ve allowed banks to make fees on a new
    loan, that pays off their bad loan, and transfers the risk of that bad
    loan to taxpayers. Really brilliant.”

     

    From Froggy’s article: STAGE 2

    “Since their investments are not generating the cash they expected, they
    need to sell assets (homes, loans, MBS bonds,etc) in order to maintain
    their Tier 1 capital. “

     

    So once the banks get to STAGE 2 where the banks have sold out their asset won’t the FASB (Financial Accounting Standards Board) work against the banks?

     

    I mean if the bank has nothing to report for profit then zero of zero is still zero, perhaps I just don’t under mark-to-model.

  • Anonymous says:

    As an agent with one of the larger real estate corporations in Northern California, I have been tracking the community of Elk Grove.  We’ve been told by the “higher ups” in our company to expect another wave of foreclosures.  In the last 4 monhs I have seen a total of distressed homes (those in default, auction status or foreclosure) remain at about 3400-3500.  Very little movement.  Our inventory of single family homes (including short sales) has  numbered about 800 in the mls.  Roughly 200 of those are foreclosures and I see in the tax records as of August 20, 2009 about 1200 in the bank owned status.  If you calculate that roughly 770 of the  listings in the mls went into a pending sale or sold in the last month, obviously things are moving and being absorbed.   We’re told the on slought of REO’s is coming, but we were told to expect that in July.  So as you say, “something” else is at play and I don’t know anyone who has all the definitive answers.

  • Anonymous says:

    THIS, along with the originating post is the explanation I have been needing to keep my head straight through this mess.

    Thanks.

  • Becky says:

    Sean,

     

    I would submit to you that the logic you apply to the thinking behind the Troubled Asset Relief Program and the idea that banks would fail without it is missing a larger view – one which is cogently and clearly expressed in this piece on Guns and Butter of August 26, 2009 with Dr. Michael Hudson. http://www.kpfa.org/archive/id/53994  I would be very interested to hear your thoughts on this interview and the larger, more disturbing picture it paints of what is truly going on in the world of banks, government and global finance.

    The “new model” of debt as wealth and of global financial monopoly from the IMF and World Bank to the FED may at first seem extreme – but the clear examples of Iceland and Latvia are surely a warning bell to us all.  I look forward to your comments – and ideas on how we shake the miasma of the mark to fantasy and endless default debt cycle which is clearly emerging all around us.  If it is now truly more profitable for lenders to hold a default than to foreclose – then the world has turned on its head – which begs the question – How do we set it right side up again?

     

  • Sean says:

    I was introduced to Dr. Hudson’s work by my good friend Eric Janszen over at iTulip.com. Know that I credit Eric with having helped me not only decide that I needed to sell my real estate holdings just before the bubble burst, but also with helping me realize shortly thereafter that I should get moving on launching ForeclosureRadar.com.

     

    I think more people should take the time to understand a lot more about the role and history of the Fed. Real estate investors should watch these players closely given their role in interest rates and inflation – both of which can significantly impact real estate investments.

     

    A number of the economy blogs in my blog roll on the right are great places to start.

  • Bianca says:

    Hi Sean,

     

    I just wanted to ask what your source of information is on the grey line (number of scheduled foreclosures)?

     

    I apologize for asking if the information has been provided elsewhere on your site.

     

    Thanks,

    Bianca

  • Sean says:

    Source: ForeclosureRadar.com. We track every foreclosure in California including all postponements, cancellations and sales at trustee sale.

  • Bianca says:

    I see.  So is the grey line NOD’s? 

     

    In a previous posting you pointed out that the notion of “shadow inventory” had no foundation, yet here you are showing that properties that are in default are not going through the foreclosure process…   I’m confused about which is true.

  • Sean says:

    Shadow inventory is homes that have already been foreclosed upon (not those in foreclosure), which the banks are holding onto rather than reselling.

     

    The grey line is properties that have had a Notice of Trustee Sale (NTS) filed, and which have not yet been cancelled or sold. In other words it is the number of foreclosures actively scheduled for sale.

  • Bianca says:

    Ok, so if I understand correctly, then you do agree with the notion that there is more inventory on bank balance sheets than what is being sold in the market place?

  • Sean says:

    You need to separate loans from homes – these are two very different assets.

     

    Yes, I believe they are delaying foreclosing on loans – whether or not those loans are sitting on their balance sheet. Keep in mind that many “banks” are actually just servicing the loan so it doesn’t sit on their balance sheet at all.

     

    No, I don’t think they are sitting on inventories of homes, and again remember most won’t be sitting on their balance sheetas they are just servicing the loan. See: Is REO inventory hidden in the shadows?

  • bianca says:

    Hi Sean,

    Yes, I see what you mean.   From my perspective, however, a non-performing home loan that should have been foreclosed upon, but for whatever reason hasn’t, should be counted as part of upcoming housing inventory.

     

    It doesn’t really matter which bank is holding  the non-performing loan on its balance sheet (or Fannie, or an MBS fund) and which bank is servicing it.  The fact of the matter is that eventually these loans will go into foreclosure (or short sales) and will inevitably impact the housing market.

     

    I read your blog “Is REO inventory hidden in the shadows?”, but I find it to be contradictory to what you’ve laid out in this blog.  Perhaps it’s a matter of symantics, but in principle what I’m concerned about is that there are inconsistencies between the number of home loans in default, the number in foreclosure and the number sold.     … and that’s what I think people are referring to with “shadow inventory.”

     

     

  • Sean says:

    The title of my prior post was “Is REO hiding in the shadows”. Don’t think I could have been more clear that I was specifically addressing the claim by many that banks are sitting on REO inventory. Perhaps you are not familiar with the term REO? It means Real Estate Owned, and is those homes that have already been foreclosed on and are now owned by the bank. So by definition it excludes loans that are delinquent or in foreclosure. I certainly never said there is not a backlog of homes that should or could be foreclosured on… in fact I think this post specifically speaks to that. I fail to see any contradiction.

  • Nima says:

    Sean,

     

    From your article, I deduct the following:

     

    1.  The Fed has been buying direct obligations of Fannie, Freddie and the Federal Home Loan Banks.

     

    2. The Fed has been purchasing mortgage backed securities.

     

    So what does the Fed do with these assets?  If my house is part of a mortgage backed security that the Fed purchased, and I default, will the Fed not forclose on me?

  • Charles says:

    Although not the focus of this blog,  much has been reported on CNBC and elsewhere about the leveling out (rising?) of California R.E. prices this summer.

     

    Comments like, “Is the Worse behind Us?”.

     

    In fact, rising deliquency rates in Alt-A and other more conventional mortgages seem to  point to a final crash in the higher-end home segment.   

     

    In the upper-end,  seller asking prices have remained near their all time highs… while sales have slowed to a crawl.

     

    I believe that over time, higher-end distressed sales will become a larger percentage of total monthly sales as high end short sales and foreclosures rise.

     

    Once this occurs…  we will see economists rejoicing over rebounding California home prices as California hi-end homeowners witness increased Foreclosures and advancing price deterioration in their own hi-end neighborhoods.

     

    This will not be a signal of rising California homeowner equity….  It will instead be a conformation that distress properties are finally overtaking the more affluent areas and distroying their equity. 

     

    More short sales and foreclosures in the hi-end will produce more sales of expensive homes and will be the unreported story as to why California R. E. prices are rising!

     

    Comments… ??

  • Sean says:

    The Fed doesn’t foreclose per se, the entity that services the loan forecloses – but yes ultimately the property will still be foreclosed on. I’d venture that the dynamics are bit different though when the fed owns the loan, vs. the bank itself, or some pension fund.

  • Sean says:

    Many people don’t realize that its possible to have prices drop 20% across the board, and yet have median prices increase by 10%. I agree that it is important for everyone to understand that the median prices reported in the press measure the mix of what is selling, not the price.

     

    I think the scenario you describe where we have more high end homes being sold in distress, shifting the mix and therefore the reported media price, upwards. One could argue the recent increases we’ve seen are due to the current lack of inventory at the low end, thus shifting the mix of what is selling upward.

  • kaiser123 says:

    I just watched this video, and I have a follow up question from my previous post.

    How is FHA funded, and can FHA keep on picking up the bad loans?

    http://www.msnbc.msn.com/id/22425001/vp/32698114#32698114

  • In San Diego, we had 6000 REOs not on the MLS in Jul 09, Aug 07, Feb 07, so unchanged.

     

    Our detailed price level analysis (by 9 home sizes) showed a turning point in the summer 04 and again in Oct 06;  prices at the low and mid ends have been rising.  Add to this the mix shift in Aug 09 as inventory of homes under $200k fell by 25%,  and you will see a rise in median price reported when DQ releases its numbers.

     

    One of our clients has been renting an REO for over a year.

     

    Some REO listings give preference to owner occupants (Fannie owned), according to an REO listing agent.  One MLS listing said “no investor offers for first 15 days on market” on a Fannie owned property.

     

    Shadow inventory means nothing.  All that matters is actual supply, the homes listed for sale. 

     

    People need to forget about shadow inventory, and understand what Sean is saying about the reasons this is happening.

     

    My friend was a realtor in the 1980’s, and she managed 500 REOs for Glenborough holdings; she kept them rented for several yrs, and then Glenborough sold them off in groups of 12 after the market turned around.

     

    I really believe banks/servicers will not sell these en masse until prices have recovered.

     

    Q – how likely is the Fed to foreclose on a property which is partly in its own MBS holding, thus damaging its own balance sheet?

  • Broker B says:

    Home in my neighborhood went back to bank, renters in it….its back on market as REO- Home Steps- THE RENTERS ARE STILL THERE!!! They are on a month to month…wow..So Lenders are now prprty mngrs?  I have been selling REOs for last 2 years, first time I have seen them let people live at home during an Active REO listing.

  • Gandydancer says:

    If you don’t foreclose you can’t evict. If you can’t evict you can’t collect mortgages. If you can’t collect mortgages then the MBS purchased from the GSAs can’t be sold by the Fed except at a loss. Which is meanwhile burning through the $1.25T that was clearly intended to be so large a sum as to constutute the pocket bazooka that would not have to be fully deployed. The Fed is going to need another bazooka soon, however, and I don’t see the exit that doesn’t proceed through foreclosures and subsequent sales. Unless it’s inflation making debtors well again.

  • Anonymous says:

    (reduces lender losses vs. foreclosure, while doing a bit less damage to ones credit for the borrower). I did a short sale and my credit report say forclosure. When I ask why the big three credit agency say that the word short sale is not use or being reported. My realtor told me that I will take a less hit if I short sale… Bull they will report it as a forclosure and there ie=s nothing you can do about it. Do not beleive what money hungry realtors or banks that do not care about you except to make money on commisions.

  • CheckThat says:

    Sean, I don’t know how you can say there is no wave coming.  True the REO inventory held in the wings is not large but the incredible wave of defaults behind those is tremendous. If you factor a low rate if 70% of those are likely to be REO.

  • Roxanna says:

    If there is a first and second DOT how can the first drop their opening bid at auction?  I’ve seen some first’s with an opening bid of $200K and on the auction steps drop them to $100K.  How can they do this when there is a second DOT?

  • Big Joe says:

    3-4 times whose income???..If you’re basing this on a nuclear family incole of one wage earner, we are not in Nebraska..Here in LA have 4 wage earners..You got daddy mommy their daughter wityh new baby who moved back after being knocked up and grandma collecting SSI..so lets see thats 120k for executive hack daddy, 60k for secretary mommy, another 60k for para legal daughter and 30k from granny… thats 300k total x 4 which equals $1.2 million to live near the beach….thats the new family per capita income ….so if youre waiting to live in MB for $350k like in the leave it to beaver days,  dem days are long ova pal! Families in LA now live in compounds environments  for practical reasons,  …. fogettaboutit!

  • Sean says:

    That wave of defaults has been there for a year – yet there continues to be no wave of REOs. I get that there SHOULD be a wave, what I’m trying to explain is that there is so much political pressure, and incentive, on banks not to foreclose, that the wave everyone is expecting is not likely to come anytime soon.

  • Sean says:

    It’s the first’s money, they can do with it what they want. Also the second has the right to come down and buy the first at auction so dropping the bid on the first mortgage benefits the second mortgage holder, if they choose to bid on the mortgage to protect their interest. Finally keep in mind that the second will get wiped out by the foreclosure of the first regardless so it doesn’t really matter for them anyway.

  • Gandydancer says:

    Again, not foreclosing on debtors is unsustainable. Tautology: A practice that is unsustainable WILL NOT be sustained. At some point the word gets around that you can stiop paying a difficult mortgage and stay in your house rent-free, with predictable consequences. One of which will then be a surge in REOs. Maybe this won’t happen “anytime soon”, or maybe it will. Nothing in your article or subsequent addresses the LIMITS on the government’s ability to keep a tournequet on the firehose just north of NOD.. But the title, “…Surge of REO listings is unlikely” is simply false. Such a surge is not only likely, it is certain. The only question is whether it will be soon, or not quite so soon.

  • My understanding is, if you do a short sale, your mortgage lender is supposed to report this as “Paid – Not As Agreed.”

     

    There may have been an error in reporting to the credit bureaus.  You should write a letter to all three of the credit bureaus telling them you are officially disputing that item on your credit report.  Along with the letter, send a copy of your escrow closing statement from the short sale.  Explain in your letter that you did a short sale and there was NO FORECLOSURE.

     

    They have 30 days to wait for an answer from your mortgage lender.  I think if you pursue this, you should be able to get your credit report corrected.  It will still impact your credit but not as bad as foreclosure — and your credit reports should NOT say you were foreclosed on if that’s not what happened!!

     

    Good luck, I hope you are successful with this.

  • Sean says:

    Sure, it SHOULD have blown up long ago – but it hasn’t. And with congress back talking about bankruptcy cram downs and revising HAMP to make it easier to apply and get approved, etc. it won’t anytime soon. This very simple fact is why everyone who is screaming about the coming wave of foreclosures has been wrong, and will continue to be wrong for months to come.

  • Gandydancer says:

    I’m not arguing with your thesis that the government has pressured the banks to delay foreclosures and the degree to which they’ve done it so far doesn’t surprise me. Foreclosures are up 20-odd percent year over year but that isn’;t enough to keep up with defaults. HAMP hasn’t worked and easier applications won’t turn it into a success. And the wing nuts pushing for cram downs aren’t going to get them this time either. So neither of the alternatives you offer to foreclosure are going to makea difference. I didn’t say it should have blown up already.And the flood indeed may not happen for “months to come”. But you didn’t write, “Surge of REO listings is unlikely for months”. That wouldn’t be inconsistent with my prediction that it will be underway by mid-2010. But your actual title is an error in judgement.

  • Sean says:

    We will have to agree to disagree. I think it is “possible” that we will see a shift in political will and ultimately have a surge of REO listings – but I stick by my title that it is “unlikely”.

  • We grabbed.
    Today I spotted a weird yet intriguing contest on tor.com, saying theyll give business cards etched into beef jerky using lasers to the first 15 people who photograph a live recreation of one of three Frank Frazetta fantasy paintings. And guess what, we did it. Hit the jump to for pictures and more info.

  • I ate breakfast with a United Nations staffer here in New York. I asked if the worldwide economic meltdown had changed her colleagues thinking and priorities. I was wondering if the U.N. was going to concentrate more on things that might contribute directly to economic development. She responded Absolutely. There have been huge changes. Countries

  • Hi, possibly this entry could be off topic but anyways, Having been browsing about your weblog and it seems seriously awesome. It’s obvious that you know your subject and you appear fervent about it. We are creating a fresh website plus I’m attempting to make it look great, and offer top quality articles. I have discovered a good deal at your site and also I look forward to more quality content and will be coming back soon. Thanks.

  • […] assets were largely purchased by the Fed rather than through TARP, it signaled the beginning of significant government intervention into the foreclosure […]

  • Tks…

    I really need it,thank you very much!!!…

  • Hypothyroidism Problems…

    […]Waiting to catch a wave? Surge of REO listings is unlikely. | ForeclosureTruth[…]…

  • Thank you so much for giving everyone an extremely special possiblity to discover important secrets from this site. It’s always very enjoyable and also jam-packed with fun for me personally and my office mates to visit your website a minimum of three times in a week to study the fresh stuff you have. Not to mention, I am also actually astounded with your special tips and hints you give. Certain 3 ideas in this posting are in truth the most impressive we have all ever had.

X
X