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Delinquent mortgage squatting time sets new record

Posted: 08 Dec 2011 02:30 AM PST

Some lenders may be increasing the rate of foreclosures, but overall, the time it's taking banks to foreclose is increasing. The foreclosure time now stands at a record 631 days.

Home Address ... 1114 SCHOLARSHIP Irvine, CA 92612
Asking Price .......  $243,000

It's forever, this time I know
and there's no doubt in my mind
Forever, until my life is thru,
house I'll be livin' in you forever

Kiss -- Forever

Foreclosures don't take forever, but they certainly do take a very long time. Foreclosure used to be a deterrent to prevent borrowers from becoming delinquent on their loans. Now that the process takes so long, the prospect of two years of free housing is actually becoming an inducement for strategic default.

Average Foreclosure Time Sets New Record

Published: Thursday, 1 Dec 2011 -- 9:30 AM ET
By: Diana Olick
CNBC Real Estate Reporter

Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.

631 days. That is quickly approaching two years. The process is supposed to take about six months, not two years. How many people have been induced to strategically default because the know they can get two years of free housing? Why would anyone struggle if they know the rewards for not paying?

The after effects of the so-called "robo-signing" foreclosure paperwork scandal, now more than a year old, continue to plague states which require these cases to go before a judge.

The differences in processing times are blatant when you compare judicial versus non-judicial states. Non-judicial state foreclosures inventories are less than half those of judicial states, and foreclosure sale rates in non-judicial states are four to five times that of judicial states.

Judges are starting to ramp up the process.

That's good to hear. If the paperwork is in order, the process should go forward unimpeded.

Bank repossessions actually surged in October in many judicial states, up 48 percent in New Jersey and up 73 percent in Indiana month-to-month, according to RealtyTrac. Still the backlog is still enormous. Overall foreclosure inventory is at an all-time high, 4.29 percent of all active loans, according to LPS.

"The discrepancy will go on in perpetuity, as there always has been a difference between judicial and non-judicial timelines," said Kyle Lundstedt, managing director of LPS Applied Analytics. "Even prior to the worst of the crisis, loans were 4-5 months more delinquent in judicial states at time of foreclosure sale. The number today is more like 8 months, but will return to the 4-5 month difference depending on when and how fast foreclosure sales occur.

A record-high inventory of foreclosures in process does not bode well for the near future of the housing recovery. All those distressed properties will sell at a deep discount, likely bringing down the prices of surrounding homes.

Remember how real estate bulls used to claim the shadow inventory predictions were doom and gloom? Well, we are about to find out because this inventory is working its way out of the shadows and on to the MLS. All the predictions of the housing bears will come true.

They will also add to already historically high existing home inventories, while demand is still weak. While there is considerable investor demand for distressed properties, new foreclosures are still outnumbering foreclosure sales by over 3:1. In addition to the "robo-signing" delays, we are now beginning to see the effects of ineffective loan modifications.

Loan modifications were always a delaying tactic. Banks kicked the can down the road, but now we are back at the can again. Will banks try to kick it again and permit more squatting?

Repeat foreclosures made up nearly 45 percent of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10 percent were in foreclosure with another 27.4 percent delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.

I don't see how loan modification programs can be viewed as anything other than a complete and total failure.

Lundstedt said foreclosure moratoria, process/documentation reviews, evaluation for loss mitigation and bankruptcies make up the rest of the repeat foreclosures.

As the mortgage market continues to work through the backlog of troubled loans, looking forward, loans originated in 2010 and 2011 are now the best performers on record, thanks to tighter credit requirements.

Of course that begs the question: Did the pendulum swing farther than necessary to the conservative side? Is underwriting now unnecessarily restrictive?

No, it hasn't. Loan standards haven't gotten strict enough until new loans stop going bad. Loan standards are designed to weed out those people who will default and fail to pay back their loans. Until loan standards accomplish their primary function, they have not become strict enough.

45% off the peak and more to go

Sometimes when I see what people paid at the peak, it really takes my breath away. This tiny one bedroom one bath condo sold for $417,000 at a time of 6.5% interest rates. The cost of ownership would have been nearly $3,500 per month for a shoebox.

Even at today's prices, this unit still isn't a bargain. The $1,480 cost of ownership is still above rental parity, and condos like this one should carry a significant discount to rental parity to attract an owner. Why else would you live here if not to save significantly over rent? To capture that rapid appreciation, right? Well, we all know that isn't going to happen.

I expect prices on these units to fall further. Perhaps in the sub $200,000 range, they may find some willing owners, assuming interest rates stay near 4%.

This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707 

Home Address ... 1114 SCHOLARSHIP Irvine, CA 92612
Asking Price .......  $243,000

Beds:  1
Baths:  1
Sq. Ft.:  725
Property Type: Residential, Condominium
Style: One Level, Other
Year Built:  2006
Community:  Airport Area
County:  Orange
MLS#:  P804669
Source:  CRMLS
Status:  Active
On Redfin:  2 days
Subject is a lower unit condominium featuring new interior paint, new carpet, granite counters and a private patio. HOA offers a community pool, spa, fitness center, meeting rooms, clubhouse and media room. Located near the 405 Freeway and John Wayne Airport. 
Proprietary commentary and analysis 

Asking Price .......  $243,000
Purchase Price … $417,000
Purchase Date .... 7/17/2006

Net Gain (Loss) .......... ($188,580)
Percent Change .......... -45.2%
Annual Appreciation … -9.7%

Cost of Home Ownership
$243,000 .......... Asking Price
$8,505 .......... 3.5% Down FHA Financing
4.02% ............... Mortgage Interest Rate
$234,495 .......... 30-Year Mortgage
$74,675 .......... Income Requirement 

$1,122 .......... Monthly Mortgage Payment 
$211 .......... Property Tax (@1.04%)
$0 .......... Special Taxes and Levies (Mello Roos)
$51 .......... Homeowners Insurance (@ 0.25%)
$270 .......... Private Mortgage Insurance
$276 .......... Homeowners Association Fees
$1,929 .......... Monthly Cash Outlays

-$174 .......... Tax Savings (% of Interest and Property Tax)
-$337 .......... Equity Hidden in Payment (Amortization)
$12 .......... Lost Income to Down Payment (net of taxes)
$50 .......... Maintenance and Replacement Reserves
$1,480 .......... Monthly Cost of Ownership 

Cash Acquisition Demands
$2,430 .......... Furnishing and Move In @1%
$2,430 .......... Closing Costs @1%
$2,345 .......... Interest Points
$8,505 .......... Down Payment
$15,710 .......... Total Cash Costs
$22,600 ............ Emergency Cash Reserves
$38,310 .......... Total Savings Needed

real estate home sales


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