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Irvine Housing Blog

Irvine Housing Blog

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Foreclosures rising as banks move to process shadow inventory

Posted: 11 Jan 2011 02:30 AM PST

Banks are giving up on alternate delinquency remedies and processing foreclosures in earnest.

Irvine Home Address ... 17 BRILLANTEZ Irvine, CA 92620  
Resale Home Price ...... $798,800

Take me out tonight
Where there's music and there's people
Who are young and alive
Driving in your car
I never never want to go home
Because I haven't got one anymore

Oh please don't drop me home
Because it's not my home, it's their home
And I'm welcome no more

The Smiths -- There Is a Light That Never Goes Out  

Foreclosure is a painful but necessary part of the real estate cycle. Lenders have tried to delay this process as long as possible, but it is now going forward with renewed vigor.

US mortgage foreclosures rise sharply

By Suzanne Kapner in New York

Published: December 29 2010 20:33

US mortgage foreclosures jumped in the third quarter as fewer borrowers qualified for loan modifications that would have reduced their monthly payments, bank regulators have said.

The rise in repossessions and decline in loan modifications are further signs that problems in the US housing market are persisting, in spite of forecasts by some analysts of a recovery before the year-end.

The number of homes entering foreclosure rose 31 per cent compared with the second quarter and 3.7 per cent compared with the year-earlier period, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

2011: The Year of Foreclosure? Loan modifications failed. Short sale programs are proving ineffective, and cure rates are near zero. Foreclosure is the only remaining option to clean up this mess.   

These newly foreclosed homes will add to a growing backlog of 1.2m properties in some stage of repossession, a 4.5 per cent increase over the second quarter and 10 per cent more than the previous year.

As of the end of the third quarter, 187,000 homes completed the foreclosure process, a 14.7 per cent increase on the second quarter and a 57.5 per cent jump from the same period a year ago.

As these properties come on the market, they are expected to depress home prices by between 5 per cent and 10 per cent during the next year.

That is a widely held position among real estate market watchers.

The regulators also found that home retention actions, such as interest and principal reductions, had fallen 17 per cent from the year earlier, mainly because of a sharp drop in modifications run by the government’s home affordable modification programme (Hamp).

Hamp modifications totalled 504,648 as of November, well short of the government’s 3m target.

Failure. Unqualified, unmitigated failure. Loan modification programs were a bad idea from the start. The only served to give false hope to people for a while and get a few more payments from zombie borrowers.

Even when borrowers receive loan modifications, they are redefaulting at high rates. According to a report by the Congressional Oversight Panel, 40 per cent of borrowers who receive a Hamp modification are expected to redefault over the next five years.

Bruce Krueger, the OCC’s head mortgage expert, said the decline in Hamp modifications was partially caused by the smaller pool of loans eligible for change.

The real problem is that so many people simply don't qualify because they aren't willing to cut back on their entitlements to make a mortgage payment. Remember, for 5 years, the house paid you to live in it. Paid handsomely. People became adjusted to that level of spending and now they must adjust. No fun.

But Mark Zandi, chief economist of Moody’s Analytics, said that explanation told only part of the story. The problem, he said, was the “inadequacy of loan modification programmes”.

Hamp must compete with private modification programmes offered by banks, which tend to provide borrowers with smaller reductions in interest and principal, thus making them more attractive to lenders and less helpful to distressed homeowners.

Competing with private loan mods? Is he kidding? Banks don't want to modify loans. Banks want to get all their money back plus interest. They need to make enough on the good customers to pay off the bad debts of the others. The created many Ponzis who are by definition, bad customers.

Banks want the government to take responsibilty for these bad loans under the HAMP program. The entire program was developed to take the garbage off the lender's books. Lenders are not offering better deals than HAMP except perhaps for a few choice customers. The riff-raff in the MBS pools can fend for themselves.

Another problem, said Mr Zandi, were second-lien holders. Many first mortgage lenders will write down the loan principal only if the balance on the second mortgage is also reduced.

But borrowers continue to make payments on second mortgages, which tend to be smaller and therefore more affordable, even when they fall behind on the first. As a result, second-lien holders had been unwilling to take part in modifications, creating a “big impediment”, Mr Zandi said.

The Treasury Department recently increased cash payments to mortgage servicers and lenders to encourage them to complete more modifications. But analysts said the government had so far done little to address the problems presented by second liens.

So why are the banks finally starting to foreclose? Higher loss severities will force lenders to resolve bad loans and liquidate REO.

Foreclosures jump 31% in third quarter: OCC

by JON PRIOR -- Wednesday, December 29th, 2010, 3:34 pm

Large banks and thrifts foreclosed on 382,000 homes in the third quarter, a 31.2% spike from the previous quarter, according to the Office of the Comptroller of the Currency.

Foreclosures increased 3.7% from a year ago, and more are coming. There are 1.2 million homes in the foreclosure process as of the end of the third quarter, up 4.5% from the previous quarter and an increase of 10.1% from a year ago.

The OCC, which oversees the largest banks and absorbs the Office of Thrift Supervision in 2011, said lenders have picked up the pace of foreclosures to get through their backlogs.

The banks are finally picking up the pace to clear their books via foreclosure. Two thousand eleven will be the year of the foreclosure.

Still, 87.4% of the 33.3 million loans in the banks' portfolios were current and performing at the end of the quarter, which held unchanged from the previous quarter. While the amount of borrowers in 60-plus day delinquency dropped 6.4% from the previous quarter, mortgages between 30- and 60-days delinquent increased 4.3%.

The 60-day plus delinquency rate can go down as properties enter foreclosure. This is the backlog. The increase and new 30-day and 6-day delinquencies is troubling. The pipeline is getting larger.

But servicers reported more home retention actions than foreclosures in the third quarter. More than 470,000 borrowers received either a trial modification, permanent modification or shorter-term payment plans.

Of the modifications completed in the third quarter, 88% included a principal reduction to go with the interest-rate decrease, and more than 54% reduced monthly payments by at least 20%.

More recent modifications are performing better than earlier ones, too. For those completed in the fourth quarter of 2009, 20.2% were seriously delinquent after six months. For those made in the second quarter of 2009, 33.5% were seriously delinquent after the same amount of time.

Hurry! Sign up for your loan modification while they are giving away free money! Does is seem plausible to you that 88% of loan modifications had principal reductions?

Appreciation provides mobility

Housing markets participants will endure long-term mobility problems as a direct result of the policies enacted in Washington to save the housing market. Rather than letting prices fall to their natural level and then begin to rise, government policy has engineered a false bottom that will delay sustained appreciation for 1 to 3 years trapping every debtor in their properties for an additional one to three years.

Today's featured property was purchased at the false bottom in early 2009. This owner has marked up the property to cover the commissions and pay for a renovation. Do you think they will get it?

Irvine Home Address ... 17 BRILLANTEZ Irvine, CA 92620  

Resale Home Price ... $798,800

Home Purchase Price … $685,000
Home Purchase Date .... 2/13/2009

Net Gain (Loss) .......... $65,872
Percent Change .......... 9.6%
Annual Appreciation … 8.0%

Cost of Ownership
$798,800 .......... Asking Price
$159,760 .......... 20% Down Conventional
4.86% ............... Mortgage Interest Rate
$639,040 .......... 30-Year Mortgage
$162,773 .......... Income Requirement

$3,376 .......... Monthly Mortgage Payment

$692 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$133 .......... Homeowners Insurance
$97 .......... Homeowners Association Fees
$4,298 .......... Monthly Cash Outlays

-$820 .......... Tax Savings (% of Interest and Property Tax)
-$788 .......... Equity Hidden in Payment
$298 .......... Lost Income to Down Payment (net of taxes)
$100 .......... Maintenance and Replacement Reserves
$3,089 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$7,988 .......... Furnishing and Move In @1%
$7,988 .......... Closing Costs @1%
$6,390 ............ Interest Points @1% of Loan
$159,760 .......... Down Payment
$182,126 .......... Total Cash Costs
$47,300 ............ Emergency Cash Reserves
$229,426 .......... Total Savings Needed

Property Details for 17 BRILLANTEZ Irvine, CA 92620
Beds: 4
Baths: 3 baths
Home size: 2,178 sq ft
($367 / sq ft)
Lot Size: 5,000 sq ft
Year Built: 1978
Days on Market: 5
Listing Updated: 40549
MLS Number: S642876
Property Type: Single Family, Residential
Community: Northwood
Tract: Ws1
Opportunity knocks, better than a brand new model home. Owners just spent $160,000.00 upgrading this gorgeous home and have to relocate. Cul-de-sac location with four bedrooms and 3 bathrooms. Main floor bedroom and bathroom. Private backyard next to the greenbelt. Brand new kitchen with thermador stainless steel appliances, Ceasarstone countertops, custom cabinetry. Brand new millwork windows and sliding doors with custom plantation shutters. New tile roof. Gorgeous hardwood floors. Crown moldings and built in office closet on the main floor bedroom. Brand new custom bathrooms. New Drywalls with bull nosed corners. Brand new water heater. And the list goes on. Just a short walk to shopping and restaurants, close to Northwood high school. No mello roos tax and low monthly association fee.

real estate home sales


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