The number of foreclosures will set new records this year, and rates are ten times historic norms. It will take at least three more years to clean up this debris.
LOS ANGELES — Rosalyn Dalebout rents out space in her home to three tenants, has cut off her phone service and canceled her earthquake and life insurance — all to pay her mortgage every month.
So far, she's one of the lucky ones.
Lucky? Stupid is more like it. Are we supposed to look at this woman as the modern Joan of Arc? Lenders would love for her to be role model. When she starts turning tricks, then we will know she is serious about keeping the property.
More than 1 million American households are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind on their loans.
Nearly 528,000 homes were taken over by lenders in the first six months of the year. If foreclosures continue at that rate, the yearly number would eclipse the more than 900,000 homes repossessed in 2009, RealtyTrac Inc., a foreclosure listing service, said Thursday.
"That would be unprecedented," said Rick Sharga, a senior vice president at RealtyTrac.
Lenders have historically taken over about 100,000 homes a year, he said.
realtors are celebrating "the bottom" yet we have double-digit unemployment and foreclosures occurring at ten times the historic average. Lenders may attempt to meter these properties out to the market, but they certainly have a great deal of inventory to absorb. And despite claims of booming sales, the actual sales rate in Orange County is still well below historic norms.
The surge in foreclosures reflects a crisis that has shown signs of leveling off in recent months but remains a crippling drag on the housing market and the economy.
Many homeowners struggling to make their monthly payments have had little success in negotiating more deals.
That is why many homeowners are walking away from their mortgages. The "deals" they are being offered aren't that great. What these borrowers really want is housing that doesn't cost them anything, and every now and again, they want to have the house give them some free cash. Unless they get that, they aren't going to be satisfied. The housing bubble has created a distorted sense of reality among loan owners.
Dalebout, a manager of a recreation center who lives in the Salt Lake City suburb of Holladay, said her lender has refused to refinance her loan with lower rates and payments.
The monthly payments on her $240,000 mortgage take more than half her salary.
"I'm just running into a lot of brick walls," Dalebout, 58 said.
A 31% DTI often does take more than half of a persons take-home salary because of the tax withholdings and social security. That is why the ridiculous DTIs we saw in the bubble were not sustainable. Once people actually have to start making those payments from their wage income, they can't do it.
Banks seem to be creating two classes of troubled homeowners. Those who are falling behind in their payments are being allowed to stay in their homes longer because lenders are reluctant to add to the glut of foreclosed homes on the market. At the same time, lenders are stepping up repossessions to clear out the backlog of bad loans.
Is that the politically correct way of saying "squatting?"
"The banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market," Sharga said.
Sort of controlling? Right now the banking cartel is totally controlling the flow of properties, but like any cartel, its power will wane as the members begin to cheat as they liquidate their holdings.
On average, it takes about 15 months for a home loan to go from being 30 days late to the property being foreclosed and sold, according to Lender Processing Services Inc., which tracks mortgages.
... Sherri Leu of Lino Lakes, a suburb of Minneapolis, is unemployed and stopped receiving unemployment benefits earlier this year.
"I burned up my savings," she said. "The best thing that's going to help me is a job."
This problem will not get any better until the jobs situation improves, and even then, it will only help a few on the fringes. The problem with the credit and housing bubble is that too many people have too much debt and not enough income to service it. Once they have some income when they find a new job doesn't mean they will have enough income to pay off the crushing debt.
The software engineer has been living on what's left of a $120,000 home equity line of credit she took out shortly after she bought her house in 2006.
Leu estimates she's got enough money for another five or six mortgage payments.
Borrowing money to pay the mortgage? Has anyone bothered to point out to this woman that she is living a Ponzi Scheme?
"I might try to put it up for sale," Leu said. "The other option is to let the bank have it, but then I'll end up walking away losing money I put down on the house."
Duh! She already lost the money she put down on the house. She been spending that with her home equity loan. Are people really that stupid?
Sometimes I get the impression that people think their down payment is held in a vault and that they get this money back when they sell the property. The average loan owner has no concept of sunk costs, nor do they understand that home equity has nothing to do with how much money they put into the property.
Assuming the economy doesn't worsen, RealtyTrac's Sharga projects lenders won't work through the backlog of distressed properties until the end of 2013. More than 7.3 million home loans are in some stage of delinquency, according to Lender Processing Services. The fastest-growing group of foreclosures is coming from people who took out conventional fixed-rate loans.
The prospect of lenders taking over more than a million homes this year is likely to push housing values down, experts say. Foreclosed homes are typically sold at steep discounts, lowering the value of surrounding properties.
"The downward pressure from foreclosures will persist and prices will be very weak well into 2012," said Celia Chen, senior director of Moody's Economy.com.
1 million households are on track to lose their homes this year as the nation continues to dig out of the decade's real estate boom and bust. RealtyTrac reported that while month-over-month and year-over-year foreclosure fillings are decreasing, the nation is on pace to set a record in foreclosure filings (including default notices, auction sales and bank repossessions) this year at 3.2 million. Last year, lenders foreclosed on more than 900,000 homes and the historic average is 100,000 annually.
In the first half of the year, lenders repossessed nearly 528,000 homes and about 1.7 million homeowners got a foreclosure-related warning -- that represents one in 78 American homes. The numbers are startling, but this process is necessary after the massive housing and credit booms. As is the case with manias, the aftermath is messy and painful.
Everyone seems to think we can avoid the pain. The common delusion I read in the mainstream media is that once the economy starts to improve that house prices will go back up. There is generally a multi-year gap between the bottom of the employment cycle and the bottom of the foreclosure cycle. It will likely be far worse this time around because so many people couldn't afford their houses even in the good times.
Unfortunately, due to the lengthy process involved in unwinding a bad home investment (versus, say a bad internet stock that takes 5 seconds to sell) the hangover period will persist for some time. RealtyTrac CEO James J. Saccacio said that while the foreclosure problem appears to be improving, we shouldn't be too confident, because "a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market."
Housing experts believe that it will take three more years to clear out the overhang of housing. There's a certain symmetry to that notion. From the years between 2000-2006, housing prices nationally doubled and it will likely take the seven years between 2007-2013 to rectify that aberration. Now who said that home prices never drop?
Every realtor in America said home prices never drop. That is what clueless shills do. When this mess is finally cleaned up, they will spin a narrative about how this housing bubble was not foreseeable (Alan Greenspan missed it so everyone did). It will be portrayed as an event that will never occur again. realtors will attempt to dupe the next generation into repeating the mistakes of the past so they can make a few extra dollars.
Another Option ARM implosion
This property was purchased by the previous owner on 7/12/2005 for $545,000. She used a $436,000 Option ARM first mortgage a $54,500 second mortgage and a $54,500 down payment. She imploded in late 2008 and squatted for about 15 months.
Foreclosure Record Recording Date: 03/05/2010 Document Type: Notice of Sale (aka Notice of Trustee's Sale) Click here to get Foreclosure Report.
Foreclosure Record Recording Date: 12/04/2009 Document Type: Notice of Default
The trustee sale flipper will do well
The property was purchased at auction on 4/1/2010 for $386,400. The flipper is looking at a profit in excess of 20%. Even after renovation costs and commissions, they will probably make 12% to 15% on this deal.
If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com. Someone has to clean up this mess.
Home Purchase Price … $386,400 Home Purchase Date .... 4/1/2010
Net Gain (Loss) .......... $81,720 Percent Change .......... 21.1% Annual Appreciation … 78.6%
Cost of Ownership ------------------------------------------------- $498,000 .......... Asking Price $17,430 .......... 3.5% Down FHA Financing 4.61% ............... Mortgage Interest Rate $480,570 .......... 30-Year Mortgage $98,586 .......... Income Requirement
$2,466 .......... Monthly Mortgage Payment
$432 .......... Property Tax $0 .......... Special Taxes and Levies (Mello Roos) $42 .......... Homeowners Insurance $209 .......... Homeowners Association Fees ============================================ $3,149 .......... Monthly Cash Outlays
-$399 .......... Tax Savings (% of Interest and Property Tax) -$620 .......... Equity Hidden in Payment $30 .......... Lost Income to Down Payment (net of taxes) $62 .......... Maintenance and Replacement Reserves ============================================ $2,222 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $4,980 .......... Furnishing and Move In @1% $4,980 .......... Closing Costs @1% $4,806 ............ Interest Points @1% of Loan $17,430 .......... Down Payment ============================================ $32,196 .......... Total Cash Costs $34,000 ............ Emergency Cash Reserves ============================================ $66,196 .......... Total Savings Needed
Property Details for 17255 CITRON Irvine, CA 92612 ------------------------------------------------------------------------------ Beds: 2 Baths: 2 baths Home size: 1,224 sq ft ($407 / sq ft) Lot Size: 1,500 sq ft Year Built: 1974 Days on Market: 29 Listing Updated: 40368 MLS Number: S620822 Property Type: Condominium, Residential Community: University Park Tract: Tr ------------------------------------------------------------------------------ According to the listing agent, this listing is a bank owned (foreclosed) property.
This property is in backup or contingent offer status.
INCREDIBLE OPPORTUNITY!! QUIET INNER TRACT LOCATION, SINGLE LEVEL TOWNHOME. This home just had a $50K remodel and is totally turnkey. It has never been lived in since the remodel. The complete kitchen remodel will be the pride of your at home gourmet with its new stainless steel appliances, breakfast bar, Italian tile floor, new sink, new fixtures, custom hard wood cabinets, and granite counters. The home has new raised panel doors, 6' base boards, new casings, cozy travertine fireplace, new light fixtures, and new carpet throughout. The bathrooms are completely remodeled including new sinks, granite counters, and new oil rubbed bronze fixtures. The ceilings have been scraped, new base boards, crown moulding, and new designer paint throughout. Alluring back yard is freshly landscaped. Large 2 car garage has epoxy coat floors and space for storage. STOP LOOKING THIS IS THE ONE!
INCREDIBLE OPPORTUNITY!! STOP LOOKING THIS IS THE ONE!
Beyond the fact that this is in ALL CAPS, does either one of these phrases convey any meaning? Why do realtors write this crap. It was a waste of a second of my life to read it. It will not influence my decision to see this property, nor will it influence anyone else. I wish they would just stop.
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
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