San Diego Housing Bubble News and Analysis

Be patient Ox and they will come.

ummm. I know that. And the effect will be...? And when?

ox
...is that a light, or another train?

It's not mass collusion -- it's just that putting all of those foreclosures on the market would be financial suicide for them. They know that if the market is flooded with foreclosures, that will push home prices down which will in turn devalue all of their mortgage "assets" which will then mean that they've got a lot less money than they think they do. It's a bad situation.

My guess is that they are waiting to get bailed out; they will battle to see who can become the biggest before they eventually implode because they will all want to be "too big to fail". When they get bailed out for their losses then they might start unloading them. Or not -- perhaps they'll open new property management wings and just turn them into rentals and enjoy the rental income.

My bottom line take on this situation is that as long as bailout money is being thrown at this situation and as long as the government is involved, it is impossible to determine the real value of these assets. Would you want to buy something that you don't know the real value of? I wouldn't...

Did fannie /freddie start renting yet? I know in my area they converted many of the multi-units to rentals.

Here is one forclosure prevented by Bank/Govt:

One of my colleague bought a house for half a million 4 years back and his monthly payment was $4K. With the recent divorce, he was unable to make mortgage payments and for the last 6/7 months he was not making payments hoping to do short sale.
He is a very nice/easy going simple guy but financially irresponsible who likes to drive $40k car with toy like $8K in his driveway.
Last week he told me that, bank did some deal with him taking advantage of bailout, now he is able to keep his house paying just $2k/month for next 30 years which is what he can afford.
I am very happy for my colleague since I like him personally though I know that we all are footing the bill for this bailout.
At the same time, I think I have missed an opportunity to get bail out from govt.
Sometimes, I think I should have bought a million dollar house in 2006 though I cant afford it but anyway I would have been bailed out by bank/govt.
Being over analytical/financial responsible kind of kicked me back.

All I can say is the other day I went through my 10 ZIP codes (92109, 92027, 92110, 92106, 92107, 92103, 92104, 92116, 92122, 92130) of NODs/foreclosures and marked them on SDL.

I didn't mark condos in all the ZIPs. I didn't write how many NODs/foreclosures they were, but I'll say comfortably that 9 out of 10 NODs/foreclosures were not listed for sale, not even attempting to sell, not trying to do a short sale. Nothing.

I've been marking NODs/foreclosures on SDL for over a year. Last year about 9 out of 10 were for sale and the one that holding out would eventually list and/or just be taken back by the bank and immediately go to sale.

I am perplexed by the low inventory w/the high NODs. I do not know what to make of it. I wonder if it is intentional. I wonder if the banks just unloaded it M2M and now we will have to wait to see what the private investors do. I wonder if all of them are in the process of loan mods. It's quite voluminous.

The inventory is 13k something and even if half the NODs in the past three months were listed, we'd be looking at over 15k of listings.

JP what you are seeing is the DIRECT result of the several policies that are in place. We have always seen posts saying that these policies will have no effect, that they will just amount to being seperate drops in the bucket.

We can only hope that these properties do make it to the market. However if they can dribble out, and be spread out over several years then the government will have been successful in controlling the inventory within the housing market. Another big question is what will the GSEs do. Arraya made a very good point.

Yes this may also mean that people who overextended themselves will get rewarded.

The problem is and has always been an egregious underestimation of what the forces of Wall St can do. All we can do is hope that they are overwhelmed with inventory and that the private entities that take all of the assetts off the banks books will dump them.

I guess we will see. I am hoping for that to happen.

SDR: Wouldn't you also say that logistics is playing a part, too? Meaning, the banks aren't really staffed to handle the REOs portfolios they have.

Combine that with the fact that, when the banks auction properties off, they rarely sell and the banks wind up buying them right back. If they were to release the bulk of their inventories, the impact on pricing would be horrific.

There's been some recent articles in the news about shadow inventory and looks pretty convincing. But the banks have two strong reasons to hold back. The first is that actually selling the property forces it's being marked to market...bad thing for their balance sheet. The second is that they would flood the market and force the price down to the floor in weeks.

And then there's the banking apologists who explain that they're just overwhelmed with NOD's and it's like the snake eating the elephant.....

But I have a sneaking feeling the all the derivatives attached to mortgages are so incredibly leveraged out that carnage will ensue if this all happens too quickly.

CONCHO - if rents are declining and/or expected to decline, how will it benefit any investor to flood the market w/rentals? Is that already happening and maybe explaining why rents have declined some?

I understand that banks don't want the loss on their books and are waiting for the bailout. But didn't/isn't the government already giving them money. When will they release their inventory? Or are they re-working all the loans already, reducing principle and interest rates. dd123 posted of a colleague that got a good deal. Is that going to happen/is happening w/all these NODs?

dd123 - I can't speak for anyone else, but I personally can relate to your post.

SDR - I can see that all these different band-aids may have an impact on what we have in our lap right now. BUT are we forgetting the Alt-As and Option ARMs? That is a whole other can of worms that has yet to be opened.

I'm of the school the banks don't have the staff to manage these.
and they are terrified of taking the hit to the books.
When they foreclose they foreclose at the Mortgage price,
so no write down, they try and avoid paying any taxes insurance, fees,
maintenance, and they are hoping to sell the paper to TARP/PPIP/Geithner,
and avoid the hit.

So it's all drifting sideways, expect their earnings to blow
once the spring selling rush is over.

Allan-You are pretty much correct, IMO. The back end (processing) and the front end (releasing to market) are all being metered by a cumulative effect. Logistic hold ups on the back end and a purposeful effort not to flood the market on front end. Even the condo-turned-rentals in my neighborhood are only being advertised one or two at a time when there are 8-30 units that are available. Some are even renting some units and trying to sell others in the same building. Otherwise known as a clusterfuck when looking at it in total and trying discern value.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures.
"California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

http://www.nuwireinvestor.com/blogs/inve...

4plex: So it becomes simple supply and demand. By restricting supply, the banks in essence create a price support for the existing housing stock that is for sale.

Expanding supply by releasing a flood of foreclosures would wreck that support and drive prices back down. Then the true effects of overleveraging would become immediately apparent.

My uncle, who was in investment banking with Merrill Lynch, used to say, "Leverage in reverse is a female dog".

delay seems like the best strategy for the banks to employ at this point for any number of reasons

I posted the link because it was the first place I saw the 600K and 80K numbers

as to your question, I'd say, does it really matter whether the 'hidden inventory' is 'on the market' or not? once the consumer has the perception that the 'hidden inventory' exists it might as well be on the market anyway - right back to supply and demand, only now the previously hidden inventory has to be included in the supply column and what happens to prices as a result?

4plex - I think it does matter only b/c many bulls are cheering at the low inventory and if you get a naieve buyer wanting to tax advantage of the big tax break (18K), it wouldn't be too hard to convince them. Inventory is down. Rates are low. Tax break. Then all you need to do is say the government/banks are going to re-work all those NODs. (ignore the man behind the curtain - pay no mind to the NODs in the background)

Personally, I think to ignore the NODs is putting your head in the sand. I do not think they are magically going away. Even more bullish would be to ignore the Alt-A/Option ARMs. We have yet to really contend w/that.

I know th invenotry is coming...but when?

I think I am going to buy now since I can lock in my housing costs at a price I am comfortable with. I will stay 10 years.

I also have a corporate relo (worth 10-15K) that expires in July.

My house may go down 10-20%, but who knows what my monthly cost will do by then.

Ox,

I did not get to read this thread yet, and I quickly looked and did not see this link posted here on this thread. It is posted on both SDL and another thread on Piggs. Plenty of foreclosures are coming. This is an article by Mr. Mortgage.

http://www.fieldcheckgroup.com/2009/04/0...

Allan and others yes I do believe that it is IN PART a logistical problem however there is no motivation by the banks to resolve the logistics. Moreover I am now more convinced then ever that the banks have simply won.

Look, I think we will all agree that at some point, (my guess is 2004 sometime) the banks all pretty much knew that they had all passed the point of no return. At that point there was a concious decision to move forward with the fairly logical conclusion that the government would bail everyone out. That is pretty much what has happened right? I mean it is not like the default rates were not already high in 2007 nor were they unpredicted.

So to me the simple plan was that they will churn out REO properties at a very slow rate. I think they also knew, and rightfully so, that there PALS Barney Frank and his henchmen would put in place legislation to slow down the process even more. In my opinion banks may hem and haw about this but in reality it plays right into the plan doesn't it? The longer it takes to mark each individual asset to true market value the better. The more this plays out the more orchestrated it all looks to me. Wall Street and the government are dancing a perfect waltz. As long as they do it right, they get out of this mess without crippling the country. Hey if it takes 10 years then honestly it doesn't seem like it really matters does it?

Guys like Mr Mortgage and others see the facts for what they are but they are not acknowledging the rulemakers own the game right? Didn't Mr Mortgage have a similar prediction last year guys? I am not saying he is not dead on, I am saying that the game is rigged.

Part of me says it has to change. To many homes being held by the GSEs, to many homes held by the banks or the private entities who will pull them from the banks books (thanks mr taxpayer). Yet... the other more cynical part of me thinks that the game is damn far from over. I am starting to compare this to winning in Vegas. Instead of trying to beat the house in Vegas though, we are dealing with Barney Frank and Wall Street...

Odds are not in my favor.

SD R has it exactly right. The big boys could see this might be coming, and are now (a) seeing if they can re-inflate, or (b) if they can't get re-inflation going, draw the downturn out as long as possible, to make it easier to bail out the bankers and others who play ball (play ball with Barney = ask "how much do you want?" when he says "lend!")

I don't think all the top people were 100% sure that the market would collapse, SD R. I think they realized it could, but many also believed it could be averted with the "right" actions. They are a little surprised at the speed and extent of the downturn. If they had seen this coming, Ben would have flooded the markets with cheap and easy money earlier.

CONCHO - if rents are declining and/or expected to decline, how will it benefit any investor to flood the market w/rentals? Is that already happening and maybe explaining why rents have declined some?

I think they will do it slowly like they are handling their sales, they won't flood the market. Also if they get enough bailout money then the rents are just gravy; they might not like it if oversupply pushed rents down temporarily because they keep those assets until it makes sense to sell them later. The bailout money will give the holders of these toxic doo-doo mortgage assets heavily discounted properties to do with as they wish. They might sell some, they might rent some, who knows what they'll do. One thing is certain -- bailout money will remove the pressure on them, at least temporarily, so that they can avoid taking drastic measures. Of course little guys like you and me are hoping that they'll be forced to, but then again, the laws are not made for little guys.

Concho I couldn't agree more with your post. PR the only "miscalculation" if there were any by the big boys was the pick and choose attitude of the government at the end of the Bush days. The sacrificial lambs that were thrown to the wolves certainly did not anticipate they would be tossed but it is an odds game right? Certainly you are correct that there were miscalculations with the speed of how fast some things happened.

Yet, in the end it is playing out how they wanted right? The only question that really needed to be answered was how the programs would be rolled out. As we know the money being rolled out behind the scenes dwarfs the public programs we are familiar with.

I tell you what though, I am not saying they are out of the woods yet, but the government has done exactly what they wanted. Now what they need to pray for is that the unemployment picture will not continue to push people into default.

For us Piggs hoping for more drops, this is what we really need.

You really think logistics is the problem? I think its all the foreclosure moratoriums. In summer 2008 they were cranking out REOs at a fairly brisk pace or at least MUCH faster than they're doing it now. This makes me think:

1) They did not have a premeditated plan before the bust to hold back foreclosures. They may have come up with this plan in the last 6 months, but not before last summer.

2) Logistics are not playing a part in getting the REOs on the market. They were able to do it logistically in summer 2008, they should be able to logistically do it now.

danthedart - it took them a long time to get it on the market in the summer of 2008. I remember seeing places w/NODs from the end of 2007 that didn't get foreclosed upon until the summer of 2008. They have dragged this out for a very long time.

The only properties I've seen go from NOD to foreclosure in 3 months are the for certain investor properties, NODs getting mailed to a different address than the property receiving the NOD. The property does not get listed. They don't attempt a short sale. W/in 3 months, the bank just takes it back.

Those were not very many. Most were trying to do short sales and the process was dragged out. Then the moratoriums, then the holidays. And here we are.

I call bullshit on any CV REOs not going to market. I have been watching them like a hawk. Every time they pop into reo they are put onto the market...generally it takes 2-3 months to be listed.

If you have any addresses as proof, list them out, I would love to research them.

Sure. I've got a quick one that comes to mind. 13104 Chambord way. Let me know what you find out. I'm interested. I have posted many NODs in 10 zip codes and I see it first hand. I keep waiting wondering when the heck they are going to foreclose and they get postponed for a very long time. Just inordinate.

Here are some numbers from the FDIC...

Assets past due 30 - 89 days - Secured by 1-4 family residential properties
2005 $24.4B
2006 $32.2B
2007 $51.5B
2008 $78.8B @$250k/home = 315,200 homes

Assets past due 90 days or more - Secured by 1-4 family residential properties
2005 $10.3B
2006 $10.0B
2007 $14.3B
2008 $46.1B @$250k/home = 184,400 homes

http://www2.fdic.gov/SDI/SOB/
Criteria: all FDIC insured institutions; Loans and Leases;

Keep in mind, these are for FDIC insured institutions. Other mortgage companies and Credit Unions may not be included. The estimated number of homes is mine.

Notice how relatively flat are the 90+ numbers until 2008. What gives?

EDIT:

Some more numbers:

Loan Charge-Offs and Recoveries - Secured by 1-4 family residential properties
2005 $2.0B
2006 $3.1B
2007 $8.4B
2008 $27.0B

Think they may have realized they have a problem in 2008?

Lucky In OC

Agree with this, dan.

What I think the PTB is missing is how human psychology is going to intersect with their plans.

I fully believe the foreclosures are being held off because of the moratoriums and because the lenders (and govt) are trying to work out the loans. Once it becomes obvious that the govt is writing down principal amounts (hearing anecdotal rumors this is becoming more common???) or refinancing for 30 years at a very low fixed rate (not available on the open market)...well, everyone is going to want in on the action.

When your neighbor is getting a principal write-down and/or below-market interest rate, you'd be a chump to keep paying your mortgage. Lenders are telling people to stop making payments so they can rework the loans. Someone here posted about a HUD counselor suggesting he short-sell the house back to himself through a third party!

Once the govt started painting FBs as "victims" worthy of bailouts, they opened the floodgates.

IMHO, we will begin to see record-breaking delinquencies and defaults in the next couple of years by those who CAN afford to pay, but refuse to be chumps while deadbeats get all the goodies.

jp I think that one is a good example of bad record keeping by the entities that perform all of the NOD records. That home was the one that sold last August. It was purchased at trustee sale by a private party and then put on the MLS and sold.

Remember, these companies simply track public recordings of NODs and NOTs but it seems as if they are not to diligent tracking what happens to the properties after that.

dan you bring up good points. I am trying to think of a better way to state what I am trying to say without calling it a premeditated plan.

Let me state it this way... without calling it a premeditated plan. I think that the lenders knew they had passed the point of no return and they knew that the government would have to bail them out. Also I am not so sure that they were able to do anything logistically faster in 2008 at all. I think that is a subjective point. In fact if they were able to do so, at least in San Diego county our inventory would have been substantially higher then it was in 2008 and it was not.

So I guess I should not as sound so black helicopter like in my post. However I do still believe even if it is not all orchestrated, it certainly is playing out in a very favorable way to the lenders. Wouldn't you say?