"There are areas in some parts of the country where property values are quite low, and there are no large-scale expectations of them going up. They don't know that they will ever recoup those costs," and so the lenders never re-take title to the properties, allowing them to become derelict." (emphasis added)
There you have it: Abandoned, Non-REO Foreclosures.
The local market conditions are what seems to determine the abandonment decision. In a region where the job and real estate market is doing anything better than "a little soft," I would surmise that abandonment makes no sense at all.
However, at a certain point, in a weaker region, with declining neighborhoods, certain lenders might make the decision to simply walkaway from a large swath of (potential) real estate holdings, on the simple basis that it might be cheaper to do so.
There are very significant costs to this. Consider what the potential impact of these property abandonments by the lender means:
- Total write off of the loan; - Boarded up homes / neighborhoods; - Loss of tax revenue to the local school district or town; - Long delays before the local town, municipality, or state can take possession due to tax arrears.
Thus, these incomplete foreclosures/abandonments can have very significant impacts.
If this becomes widespread, we could be in the process of creating an entire new universe of suburban slums . . .
Actually, I suspect we would end up creating an entire new universe of legal restrictions on just how a lender can handle an REO, or how rapidly a state actor can take possession. (via Instapundit).
Sure, there are pockets of pain around the US, but it's not as if most Americans are losing their homes. More than 99% of homes aren't in foreclosure.
There's a bleakly humorous saying to the effect that a recession is when your neighbor loses his job, and a depression is when you do.
A similar equation is at work in the real estate biz: for those of us who are either in, or threatened with, foreclosure, or who have seen our next-door-neighbor's foreclosure drop our own home's value by 25-30% (my particular situation) this may feel like a crisis.
But for the vast - and i do mean vast - majority of homeowners, the crisis doesn't exist in any meaningful, personal way. And many of them aren't aware of any crisis at all.
Even as Bay Area home values weaken, a new report shows rents are soaring - indicative of the curious mix of a sturdy economy and a faltering housing market.
Average monthly rents in the region's financial and high-tech hubs have jumped more than 10 percent in the last year, and occupancy rates hover around 95 percent, according to a quarterly rental survey by RealFacts.
While robust hiring is boosting apartment prices, the purchase side of the market languishes amid the subprime crisis and a supply of homes for sale that far outstrips demand.
"We have very strong employment, and typically it increases demands for rentals and raises home prices," said Michael Carney, director of the Real Estate Research Council of Northern California. "But because we've had these problems with the mortgage market, the shift is toward rentals."
The average rent for an apartment in San Francisco stood at $2,243 in the third quarter, up nearly 12 percent from one year ago;
Would-be SF residents continue to be caught between a rock and a hard place, as far as housing costs go. While real estate prices are holding steady high in the stratosphere, or falling only slightly - real estate itself is much harder to buy thanks to the utter destruction of the sub-prime mortgage option. Yet rents are beginning to skyrocket again.
What it all boils down to is that in the SF Bay area, people are going to find themselves allocating more and more of their income to keeping a roof over their heads. Which means they'll be spending less and less on all those things that create "strong employment."
Several months ago, Eugene Wright found a foreclosure notice posted on the door of the three-bedroom South San Jose house he and his family had been renting since January. He called his landlord, who told him not to be concerned. It wasn't until a real estate agent showed up in July to tell him that a bank had repossessed the house that he realized he had to move.
Given that about two-thirds of SF's residents rent, this sort of thing would have the possibility of causing widespread chaos. But SF's rent control laws don't permit evictions except for "just cause," and the permissible causes don't include foreclosure.
Breathe easier, San Franciscans. You'll miss at least this much of the potential horror of a bubble collapse. The banks may not be too thrilled, but frankly, banks are pretty low on everybody's pity list.
I have a question for you. Let's say somebody walks into your office in this guy's financial mess.
What would you be able to do for him? Email me your response. Depending on what it is, I may be able to offer you some very targeted local advertising at very attractive rates.
The point of all this is I don't want to sell my own ads to hucksters masquerading as mortgage lenders. That's what got us all into this mess in the first place.
Many of his sales are at a 10% to 15% discount to already-weak market prices...To Mr. Abbott's chagrin, many lenders don't grasp the futility of holding out for boom-time prices in a collapsing market. Lenders trying to sell a foreclosed home for $250,000 often don't react pragmatically by cutting a deal when a bidder offers $230,000; instead they might counter with a token -- and potentially insulting -- price reduction of $1,000.
There is still a lot of wishful thinking in this market.
I feel like I have to get a night job to keep my house or something," said Tony Ramirez from Sacramento. Ramirez and his fiancé Clarissa are not in foreclosure but have received notice from their lender that their loan is adjusting up $300 per month. "I'm pretty upset that when they sent us a letter saying that your house is going to go up, they didn't offer help.
Did they hold a gun on you when you agreed to the terms of your mortgage?
Some said the government should do more to help ease credit restrictions that make it harder to qualify for California's more expensive housing.
...
But Tuesday's action will bring little relief to thousands of Sacramento-area homeowners who owe more than their houses are worth, experts say. Most say today's tightened lending standards will continue to block them from refinancing their way out of trouble. That means more of the defaults that in August caused one foreclosure for every two home sales locally.
Short of simply paying off their mortgages for them, a lot of today's home "owners" (do you own your own home if it's worth less than what you owe on it?) are, simply, doomed to foreclosure.
The notion too many folks have that the government (that is, the rest of us) should protect them from their own stupidity is still far too prevalent. But that won't stop many from continuing to demand it.
House passes HR 1852. This raises the limit for FHA mortgages, appears to lower equity requirements (to less than zero) in certain circumstances, lowers their mortgage insurance ceiling. It also lowers the credit score minimum, and prohibits failures to pay from being reported to credit reporting agencies.
So which has it right? How could major statistical surveys, covering hundreds of thousands of home sale transactions, come to such utterly divergent conclusions?
Take a closer look: It's all about the underlying data and the purposes of the two indexes. The government's index taps into a vast housing database - the combined new loan and refinance transaction records of mortgage giants Fannie Mae and Freddie Mac - but omits home loan transactions on upper-bracket houses and jumbo loans above $417,000. It also omits government-insured loans (FHA and VA), has only limited coverage of houses bought by people with subprime credit, and home mortgages using various "exotic" terms that spurred sales in dozens of areas during the boom. OFHEO's data also includes refinancings, which often have more generous appraisals than do actual home sales, but exclude condominiums.
The Case-Shiller index includes no refinancings, and covers the full gamut of loan types, including the exotics, limited-documentation and subprime loans that Wall Street bought and packaged into securities. In that sense, the S&P database ranges more broadly across the home loan universe.
Which has it right? Well, Case-Shiller is tracking the real world (can you imagine any "index" that omits jumbo loans having any accuracy in the SF Bay area, where everything is financed with jumbo loans, many of them sub-prime?), whereas, as is often the case, the government is tracking some politicized, feel-good world where deficits are assets, and some real property is more real than other real property.
The July foreclosure numbers that came out Tuesday are a sobering reminder of just how bad the nationwide mortgage crisis is becoming. Fueled in large part by shaky lending to people with less than perfect credit, foreclosure filings nearly doubled from a year ago and are running at an annual rate of more than 2 million.
The protracted waiting game between home buyers and sellers continued in July, as Bay Area real estate sales slowed to a 12-year low while prices edged up, according to a report released on Wednesday.
A total of 4,990 existing single-family homes changed hands in the nine-county Bay Area in July, according to DataQuick Information Systems of La Jolla (San Diego County). That was down 13 percent from 5,721 home sales in July 2006.
The median price was $738,500, up 7 percent from $688,955 a year ago.
The median rose because a greater proportion of expensive homes were sold, said Andrew LePage, an analyst at DataQuick. Tighter lending standards after the subprime loan debacle have knocked many entry-level buyers out of the market because they lack down payments, good credit or solid income proof. "If you yank out a bunch of low-cost sales, then guess what happens to the median?" he said.
The situation is even more exaggerated in San Francisco proper, where homes in Pacific Heights in the 2-5 million range seem unaffected (if you're really rich, you ignore credit crunches because, if you feel like it, you pay cash) while those 500k-700k fixer-uppers out in the Avenues move about as fast as a herd of anvils. And all you need to do is drive around town and look at all the various condo projects moving to completion to know that whatever supply overhang exists today is only going to get bigger tomorrow.
I'm still seeing cramped 1200 square foot 3 bedroom condos in average nabes coming onto the market priced at a million plus. I suspect a lot of them are going to end up as rentals.
And here is the real kicker for our area:
In the latest developments in the mortgage market, "jumbo" loans above $417,000 have become more expensive and harder to get, and more lenders are falling by the wayside. All of that could hurt the high-end sales that have been strong up until now. Because sales typically take a month to close, the fallout will not be reflected until data are collected for this month and next.
I'd hazard a guess that it isn't the "high end" in San Francisco (where "high end" means low seven figures up) that will get slammed as much as the mid and lower ranges. Even if the effective median is now 600k, a 20% down deal will still involve a jumbo, since left unmentioned in this article is the fact that so-called "piggy-back loans" (dual loans where you borrow most, or all, of your down payment, as well as the rest of the purchase price) have been downgraded to the point lenders are reluctant to make them at all.
The most significant item about the fed easing of the bank discount rate on Thursday was that it said it would take CDOs and other risky mortgage bundles as collateral. This is, of course, an effort to ease the liquidity crunch. But the question is, will lenders take on even that much risk in today's environment?
Frankly, I doubt it.
I have maintained for some time that there are other factors that will tend to offer more support to the San Francisco market than to the other Bay Area markets, but even The City is going to see prices come down, and find itself with more people than it imagined underwater on their properties, no matter what their credit prospects are.
In other words, look for a lot of walkaways over the next year or two. If you're lucky enough to be in a situation where you have at least forty percent equity in your home, and a long-term fixed you can handle reasonably well, you can probably ride this one out without much of a problem. But if you're in hock on a seven figure property up to your gizzle with a couple of funny loans due to reset any day now, and with the prospect that your property may be actually worth a couple hundred grand less than your financing, well....
Rentals around Dallas are still pretty reasonable, I hear. And Sacramento is coming down fast, and hard.
Since all real estate markets differ across the United States, I would like to keep the real estate figures the same with one local market: the San Francisco Bay Area.
Flashback: It's 2003 and less than 1 percent of all home loans taken out were negatively amortized. Zoom forward to 2005 and we will see in the San Francisco Bay Area that percentage increased to almost 30 percent of all loans originated. That number grew even more in 2006 to 39 percent of all originations.
The problem we will have in 2008 will be because of the high percentage of loans originated back in 2005 that allowed homeowners to make small minimum payments, which causes the balance of the loans to increase. The problem is that many of these loans only allow the homeowner to make the minimum payments to 110 percent or 115 percent of their original loan balance. This means that if someone took out a $500,000 loan they could make the minimum loan payments until their balance grew to $550,000.
With balances compounding and growing faster than $1,200 a month (in some cases growing faster than $1,800 a month), there are people whose loan balance could increase by $50,000 in as short as 2.4 years or in other cases a little over three years. This is how we will build up to dire situations in 2008 when many of the loans that were originated in 2005 will start to reset. Homeowners could face mortgage payments that spike as much as 300 percent after these loans reset. Yes, payments can more than triple!
If you currently have a negatively amortized loan -- also known as an option-ARM or pick-a-pay loan -- there is a good chance you have a prepayment penalty attached to it. The penalties vary within different banks and different states. But in the scenario above for the $500,000 loan, the penalty could be in the range of $15,000 to more than $20,000. This penalty could make refinancing illogical or in some cases, not possible.
And this is his conservative, least harmful scenario.
Sales of existing homes fell for a sixth straight month in September and the median sales price dropped on an annual basis by the largest amount on record, further documenting a lukewarm housing market. The National Association of Realtors reported that sales of previously owned homes fell by 1.9 percent in September to a seasonally adjusted sales pace of 6.18 million units, the slowest sales rate since January 2004. The median price of a single-family home fell to $219,800 last month, a drop of 2.5 percent from the price in September 2005. That was the biggest year-over-year price decline in records going back nearly four decades. Housing, which had set sales records for both new and existing homes for five consecutive years, has been rapidly loosing altitude this year, as consumers were battered by rising mortgage rates, soaring energy prices and a slowing economy. However, economists with the Realtors said they believed the housing decline could be hitting bottom. "The worst is behind us as far as a market correction _ this is likely the trough for sales," said David Lereah, the Realtors' chief economist. "When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market."
Of course they will. Why would I doubt the prediction of a guy representing an association of real estates sales people, when talking about the likelihood of real estate sales improving?
We're well and truly committed to the slide down now. And history teaches us that however high a bubble goes on the upside, the correction will slew that far to the downside...plus a little bit more.
ARMs haven't even begun to reprice in massive numbers yet, but they will. Who does this hired pr guy "chief economist" think he's fooling?
Despite September's short covering of home builders and value buyers trying to cash in on low P/Es and stocks selling at or below book value, a hard landing is now out of the question. We're in for a market crash. Read between the lines, or read actual comments for content.
Here's what Robert Toll, CEO of Toll Brothers said at the Credit Suisse conference. "The market got ahead of itself in recent years, citing "greed on the part of buyers and sellers, and that the current level of speculative inventory is probably the largest ever."
Man, I tell you, I'm glad I'm out of the business today. There are going to be more than a few agents dodging enraged clients with resetting Option ARMs draped across their financial shoulders like albatrosses.
I was pretty certain that there were a lot of ignoramuses dabbling the the real estate market, clueless nitwits who would end up badly hurt when the inevitable downturns occur, but I didn't realise just how stupid they could get until the good folks at Burbed offered living (I think) proof.
And by the way, speaking of stupid - how about that "expert" reply?
The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $3,183 in June. That was up from $3,091 in May, and up from $2,651 for June a year ago. Adjusted for inflation, mortgage payments are 25 percent higher than they were at the peak of the prior cycle 16 years ago.
This is an absolutely amazing number, and entirely unsustainable. Remember, this is $3183 of take-home dollars. This means you need an annual income of $63,000 just to pay your mortgage!
If you want frills like food, clothing, and the occasional trip to the gas station, you need to make a lot more.
The Modesto home where Scott Peterson may have killed his pregnant wife is for sale again.
Owner Gerry Roberts said he has been fired from three jobs since buying the three-bedroom, two-bath "cottage-bungalow" a year ago, and can't afford mortgage payments.
"I've had nothing but bad luck since I've owned that thing," Roberts said.
...Roberts' current asking price comes to $254 per square foot, compared with the $226-persquare-foot average of 20 similarly sized homes sold in the past year within a half-mile radius, according to RealQuest.com.
Let's see if the fact that a notorious murder most likely occurred on this property will be enough to let this guy charge a ten percent premium over the comps.
My guess is, given the greater fool theory, yeah, probably.
Editor -- Thank you for publishing the "Just say no to escrow" article (June 18). We were again reminded of local real estate agents' pricing structures and strategies of underpricing/overbidding homes, producing unprecedented housing costs in real estate in the Bay Area.
In the last few years, this has become the new paradigm for real estate agents in other major U.S. cities.
If supply and demand truly prevailed here, the dot-com bust and post-Sept. 11 economic downturn should have brought about a reduction in housing prices to match the exodus of jobs from the Bay Area.
Thanks to high-risk loans offered in 2003, many homeowners overbid and bought well beyond their means, only to feed the pockets of real estate agents, brokers, bankers and investors who flipped properties for multiple profits all throughout the economic downturn. If it sounds a little like stockbrokers riding the wave of inflated tech-stock tips, it should.
Fortunately, the National Association of Realtors was defeated in lobbying attempts to prevent online listings of homes. That hasn't stopped them from keeping an ironclad grip on pricing and sellers' expectations.
It's time to end the smoke and mirrors games of supply and demand. Let's repaint the face of that little old homeowner lady trying to sell her "cozy, charming, needs TLC" home. Does she, or more likely her heirs, really need 1,000-percent profit? What's the real deal here?
Annemarie Badr
San Francisco
A lot of people in the business don't really understand just how much we are disliked in certain quarters, and on how much mis-information and ignorance that dislike is based. Real estate agents are responsible for high SF housing prices?
Walter Knox spent years as a mortgage broker, but he didn't purchase his own home, a red floating house in Alameda, as an investment.
"You're buying a lifestyle," he said.
In the end, it worked out on both fronts.
Barnhill Marina, with Oakland's downtown office towers clearly visible across the estuary, serves as a sanctuary from the frenzied pace of city life, he said. On Friday afternoon, harbor seals were nibbling seaweed off floating home hulls, night herons rested on pilings and ducks squatted under the shade of lawn chairs. Neighbors said hello by name as they passed on the rickety docks and one invited Knox for a Sunday sail.
He paid about $75,000 for the two-bedroom, two-bath home 24 years ago.
Today, he estimates it's worth about $575,000. Most of his neighbors have enjoyed similar, if even faster, appreciation.
It's not very well known, but there is a small colony of houseboats in the very heart of San Francisco, about two blocks from AT&T Park, home of the Giants.
I don't think one of these has flipped in decades, and lord only knows what one of them might be worth today. I'd hazard a guess that these would be the most valuable boats in the Bay Area that aren't owned by the US Navy or some international cruise line or tanker outfit.
