[DaCounselor]

Now I’m confused. I thought the argument was that “the percentage tends to stay the same”. The Zillow stats posted indicate that in 5 of the 7 zip code comparisons, the percentage most certainly does not stay the same, or anywhere near it. Where’s the support for the argument?

The Zillow data also relates to a bull market run, when what we really need to see is a bear market run (1990-1997) comparison.

Bugs – what say you?

[DaCounselor]

“I totally agree with Bugs on the fact the desire and developed area will be hit just like others. They always commend a premium compare to less desirable areas, but the percentage tend to stay the same.”
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I would be interested to see the historical data that supports the conclusion that “the percentage tends to stay the same”.

[DaCounselor]

“I see very little, if any erosion in Tierrasanta SFR asking prices from 2005/6 …I think having such low inventory gives a floor support for prices.
Anyone else seeing this phenom in other SD areas? Will downturn be limited to overbuilt South Bay/Eastlake area?”
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Only a few homes in my Bay Ho neighborhood sold at peak prices in mid 2005 – the recent sales have been comparable to sales prior to that final ’05 spike. Inventory is currently low. I agree with all who believe that there has been and will continue to be significant differences between neighborhoods insofar as the degree of price erosion. Those who are waiting for a significant reduction in prices in quality, sought-after and established neighborhoods may never see a price they like.

[DaCounselor]

Had to weigh in on this one. Looking at this scenario in a vacuum, it is a clear loss for the homeowner on this deal. Of course, it’s the big picture that really counts. Did this person own property prior to this purchase? How many parcels, where, and for how long? How much money did this person make on real estate over the years?

I find it very short-sighted to conclude this homeowner is -as someone so eloquently stated – f’ed – because it looks like they may take a $150K loss on this particular deal. For all we know, this homeowner may have profited handsomely from prior deals to the extent they still have an excellent net gain.

Jumping to conclusions and viewing these types of situations in a vacuum are two rookie mistakes when it comes to analyzing a particular investor’s level of success.

[DaCounselor]

mrquoi’s gleeful original post and the ensuing fallout is a prime example of what happens when folks jump to conclusions and don’t perform due diligence.

thanks to both resident realtors for setting the record straight.

[DaCounselor]

During the last housing downturn in the early/mid 90’s, I don’t recall a massive anti-real estate sentiment here in SD. The issue confronting most folks was the local economy/job market. Of course this issue dove-tails into real estate, but I do not recall folks bashing real estate as a bad investment and therefore to be avoided. I think the general sentiment on real estate has always been to buy as soon as one can afford to do so. And there is a huge difference between not being able to afford a home versus not buying one even if it is affordable because you think the market is going down.

There is an incredible conditioned emotion of Americans to own their home. It is going to be interesting to if and how this powerful emotion will be increasingly subdued as the market evolves.

[DaCounselor]

Nice update sdr.
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ocrenter’s call in ’06:
“San Marcos currently has a 1 year supply of homes for sale, now we got 4 foreclosures in one single community. I’m now looking at these properties going down into low $400,000’s mid to late next year.”
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There is certainly still time for ocrenter’s prediction to be realized. If this neighborhood completely tanks and prices plunge 25-30% over the next 2-6 months, he/she will be right. Certainly not a bet I would make.

[DaCounselor]

“Mr. Clemens (Twain) was not known as a successful investor so I’m somewhat amused by your use that quote in the context of this conversation.”
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Warren Buffett, Peter Lynch, George Soros and….Mark Twain???!!!

You certainly don’t need an investor with the credentials of the first three to tell you that putting all your eggs in one basket is generally a very, very bad idea.

[DaCounselor]

The writing is on the wall regarding loss mitigation as far as I am concerned. I believe it will be a massive, sweeping, combined effort by the government, public interest groups, lenders, servicers, and yes indeed, Wall Street. I’m done talking about it – naysayers can simply read about it in the news over the next few years.
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Capitol Hill and Mortgage Industry Working on Foreclosure-Prevention Fixes
by Kenneth R. Harney

Congress and private lenders are looking to create new tools to help prevent mass foreclosures in the ailing subprime sector nationwide. Tomorrow on Capitol Hill, a House financial services subcommittee will discuss alternative programs to assist home owners who bought more than they could afford at the height of the housing boom, and who are now facing sharp payment increases they cannot afford.

Last week in the Senate, the Joint Economic Committee issued a report suggesting that the Federal Housing Administration (FHA) might play an important role in transitioning subprime borrowers out of high-cost, adjustable rate loans and into fixed rate government insured mortgages.

Private mortgage firms are also ratcheting up their own “loss-mitigation” efforts, reaching out to borrowers heading for-but not yet in-serious delinquency. EMC Mortgage Corp., a subsidiary of Wall Street bank Bear Stearns, announced creation of a roving 50-person “Mod Squad” team of loss-mitigation and workout specialists. Named after a popular TV program from the late 1960s-early 1970s, EMC’s Mod Squad plans to work in dozens of cities with borrowers individually, and to reach out through community and credit counseling groups.

The squad’s goal will be to modify the terms of mortgages to better fit borrowers’ actual economic situations today. Among the optional forms of modification will be lowering interest rates, switching from floating-rate to fixed rate, restructuring payment schedules and deferring repayment of arrears. EMC is not offering the program solely out of the goodness of its heart, however. Foreclosures cost bond investors around $80,000 per case, whereas a loan modification may cost just a small fraction of that.

Tom Morano, global head of mortgages for Bear Stearns, said “proactively avoiding foreclosures can reduce the severity of losses, benefiting both homeowners and bondholders. (It’s) a win-win proposition.”

Meanwhile, attention is being focused on new foreclosure prevention concepts that go beyond loan modifications and do not require “short sales” of properties or deeds in lieu of foreclosure to satisfy the owner’s debt. One idea is being discussed on Capitol Hill was proposed by a Virginia-based loss-mitigation firm, Lyons McCloskey LLC. The program is a variation of FHA’s “partial claim” option, where money is advanced to bring a borrower’s loan account current. The advance is structured as a second lien against the property, but carries no interest rate and must be paid from the proceeds of any future sale of the house.

In the Lyons McCloskey plan, seriously delinquent borrowers would be refinanced into fixed-rate mortgages insured or provided by FHA, the VA, Freddie Mac or Fannie Mae. The refi costs and any arrears on the previous mortgage would be treated as a “soft second” lien with no interest payments due. FHA would partially guarantee the second lien, and the bondholders or investors would assume the risks on the uninsured portion.

Full payment of the lien would not be due until the house sold or the homeowners had the financial wherewithal to pay off the debt.

The key to this program, according to Bob Lyons and Joe McCloskey of the loss-mitigation firm, is that it has the capacity to handle situations where borrowers are able to make mortgage payments at a lower interest rate, but are shackled with arrears that they can’t afford to repay and mortgage balances in excess of the current home value.

Some legislation would likely be required for any FHA role in this or other new programs, but housing leaders in both the House and Senate appear ready to consider foreclosure-prevention remedies as part of pending FHA reform legislation.

[DaCounselor]

“Think it through.”
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It really doesn’t require much thinking – it only requires listening to what mortgage professionals are saying about what is going to happen. Even Rich’s inside man Ramsay reports that loss mitigation is going to take the form of loan modifications with fixed interest rates lower than the exploding Prime/LIBOR + margin recasts that are coming down the pike. The impending recasts are not going to be addressed by a one or two month forebearance, the likes of which we typically see offered due to illness or job loss. Mitigating losses will require longer-term and more sweeping modification programs. It is these types of modifications that we will begin to see more and more of. No one on the inside of the industry is saying anything different on this subject. Of course there will be many borrowers who enter foreclosure – no one is debating that fact – but we are talking about minimizing the carnage by way of loan reworks (not forebearance/short term fixes). I believe we will be seeing extensive loss mitigation and loan reworks for years to come.

[DaCounselor]

A tremendous increase in loss mitigation/loan workout efforts is coming. In line with the historical number of borrowers who are likely to find themselves in jeopardy due to loan recasts, I expect an equally historical effort to minimize as best possible a foreclosure epidemic. Much as many feel that the housing downturn is just getting started, I say with equal confidence that the loss mitigation machine is just getting warmed up.

[DaCounselor]

SD Realtor has it right regarding wide variations in foreclosures and valuations. Of course no area is absolutely immune, but we can already see how certain areas are holding up much, much better than others. My current neighborhood is holding up very well, with the most recent sale (March ’07) only about 5% down from the mid ’05 peak sales.

[DaCounselor]

“He never called an end to it in 00, calm down. If anything he was off by 2 years, which still would be damn close, and anyone who sold in 05 is doing just fine.”
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I’m calm as calm can be. As for The Oracle – I think the last few posts indicate his track record for predictions.

[DaCounselor]

“Can you really blame anyone who thought the correction was gonna start earlier?”
____________________________

It’s not about blame – it’s about the timing of the call. If, as Chris suggests, this guy was calling for a end to the RE run-up in the early 00’s and someone who was ready, willing and able to buy sat out because they believed in this guy’s call….oh boy. They missed out on what may end up being a once in a lifetime explosion in value. Following this guy’s call cost them hundreds of thousands of dollars. What a disaster. Timing is not everything, but it’s damn important. Being off by 5-6 yrs and hundreds of thousands of dollars is a major, major error no matter how you slice it.

[DaCounselor]

“Isn’t this similar to the Resolution Trust Corporation bailout of the S&L industry in the late 1980’s? Can anyone comment on the similarities of that to the current situation. My recollection is that the RTC was primarily set up to liquidate non-performing commecial real estate assets. But the timing was very close to the collapse of the residential bubble. Were they at all related?”
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The S&L bailout was precipitated by the deregulation of the industry in the 70’s and especially the 80’s. S&L’s expanded massively as a result and risk management was terrible. Poor/incompetent decision making and outright fraud was rampant. The problems were exacerbated by local and regional economic factors in the farm-belt and on both coasts, including coastal real estate speculation.

I think the S&L crisis was more about deregulation and resultant management of expansion more than anything else. I think the lesson learned was that slow government reaction to the unfolding crisis exacerbated the disaster to the tune of tens of billions of dollars, driving the total cost of the bailout to something like $200 billion.

It’s my thinking that the government will not sit on its hands too long on a housing/lending collapse due to subprime/Alt-A defaults – assuming a catastrophic event begins in earnest. I have opined earlier in time that it may not even get to a govt. bailout situation if lenders/servicers modify re-cast terms to avoid blowing borrowers out of the game when their ARM re-casts. There is already evidence that some servicers plan to do just that. Should be interesting to see how it all plays out.

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