[quote=temeculaguy]What happens after this wave? There’s no talk about another wave beyond this one. .[/quote]
“What that chart shows is that the foreclosure problem is about to get a lot worse. Two more huge waves of “resets” are coming. Many, many, many more homes are about to reach a point of unaffordability for a lot of their owners, one way or another those homes will also be for sale, on top of the huge inventory that already sits unsold, and this will drive prices down even further, which will trigger even more problems.” http://www.huffingtonpost.com/dave-johnson/todays-housing-bubble-pos_b_195217.html?ref=patrick.net
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Second wave of foreclosures coming to Inland SoCal region
By BizPresson April 6, 2009 9:31 AM | Permalink | Comments (0)
From The Californian. Another wave of house foreclosures is poised to rumble through Southwest County, further disrupting an economy already trying to absorb the first wave of foreclosures and deal with a growing jobless rate.
‘We have unsustainable debt taken out during the housing bubble and it hasn’t popped yet,’ said Chris Sorensen, a Temecula-based mortgage and real estate expert retained by the county to lead a series of classes on avoiding foreclosure http://blogs.pe.com/bizpress/2009/04/crush-of-foreclosures-coming-t.html
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As did the first wave of foreclosures, the next wave will reverberate through the economy —- but the impact likely will be greater.
“The jobless rate will be a big factor,” said Bruce Norris, founder of the Norris Group in Riverside, a real estate investment and training company.
The unemployment rate is almost 12 percent in the Riverside-San Bernardino county area.
Nationally, a banking and mortgage system already choking on hundreds of thousands of foreclosures soon will be forced to take in more. Figures compiled by the group show that some 700,000 homes across the country stand in what’s called a “shadow inventory,” dwellings that have been taken back by banks but not yet given to an agent.
A Second Mortgage Disaster On The Horizon
“It was data we’d never seen before and that’s what made us realize, ‘Holy cow, things are gonna be much worse than anyone anticipates,'” Tilson says.
The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.” The option ARMs, in particular, lured borrowers in with low initial interest rates – so-called teaser rates – sometimes as low as one percent. But after two, three or five years those rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
“The defaults right now are incredibly high. At unprecedented levels. And there’s no evidence that the default rate is tapering off. Those defaults almost inevitably are leading to foreclosures, and homes being auctioned, and home prices continuing to fall,” Tilson explains.
“What you seem to be saying is that there is a very predictable time bomb effect here?” Pelley asks.
“Exactly. I mean, you can look back at what was written in ’05 and ’07. You can look at the reset dates. You can look at the current default rates, and it’s really very clear and predictable what’s gonna happen here,” Tilson says.
Just look at a projection from the investment bank of Credit Suisse: there are the billions of dollars in sub-prime mortgages that reset last year and this year. But what hasn’t hit yet are Alt-A and option ARM resets, when homeowners will pay higher interest rates in the next three years. We’re at the beginning of a second wave.
“How big is the potential damage from the Alt As compared to what we just saw in the sub-primes?” Pelley asks.
“Well, the sub-prime is, was approaching $1 trillion, the Alt-A is about $1 trillion. And then you have option ARMs on top of that. That’s probably another $500 billion to $600 billion on top of that,” Tilson says.
Asked how many of these option ARMs he imagines are going to fail, Tilson says, “Well north of 50 percent. My gut would be 70 percent of these option ARMs will default.”
“How do you know that?” Pelley asks.
“Well we know it based on current default rates. And this is before the reset. So people are defaulting even on the little three percent teaser interest-only rates they’re being asked to pay today,” Tilson says. http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml
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By LESLIE BERKMAN
The Press-Enterprise
Lenders for months have been holding back a high volume of homes in the foreclosure pipeline that could further depress home values if they are released at once into the market, industry experts say.
The artificially created shortage of foreclosed homes for sale comes when there is a strong resurgence of home buying, with consumers finding, often to their surprise, that they must make multiple offers to compete for a diminished supply of bargain homes.
Meanwhile, financial institutions have been encouraged by federal and state lawmakers to slow the foreclosure process to provide more time to work with borrowers on mortgage modifications in an effort to reduce foreclosures.
Scott Anderson, vice president and senior economist with Wells Fargo, said also by withholding a portion of foreclosed properties from the market, lenders may deliberately be preventing home prices from falling as fast as they otherwise would.
A tally by one company that closely monitors foreclosures showed only about a third of repossessed houses are being actively marketed. If this “phantom supply” of bank-owned houses is put up for sale at once, Anderson said, it would probably prompt another steep plunge in property values.
