Posted on June 11th, 2008 in Mr Mortgage's Personal Opinions/Research
It is that time of the month again folks! The May monthly CA foreclosure report is ready, data courtesy of Foreclosure Radar. It was a ‘record-breaking’ month, which when speaking of foreclosures, is not a good thing.
This report confirms what I have said for months, that the REO market is now ‘the real estate market’ and the banks are the ‘market makers’. For the first time in history, the seller controls the price and not the buyer, which is responsible for pile-driving prices throughout the state and nation.
California broke a major foreclosure record in May with $10.4 BILLION in loans going back to lender’s balance sheets. This was a near 9% increase month-over-month. Last month $9.237 Billion went back to the bank. See my April CA Foreclosure Report. It is obvious that the foreclosure crisis is continuing to worsen. If the banks are lucky and sell the homes for 60% of the new appraised value or BPO, this represents another $6 Billion+ in losses for the nations largest banks in one state for one month!
Just think how many second mortgages were completely wiped out. It’s no wonder why mortgage bonds have began tanking again. They never should have rallied off of the lows in March in the first place.
Please see the YouTube version here. http://www.youtube.com/watch?v=kJOJYUJi4n8 Please note, this is the MAY report, not the June report, as I stated in the video…DOH!
Let’s break it down.
1. Notices of Default (NOD), the first step in the CA foreclosure process when borrowers go down 90-days in payments, were down 2.5% to 43,011 new filings. However, the average daily filings were actually up 2.4% to 2,009 per day. Last month the total was 44,100 or 1961 per day. These are from people who began missing payments in Jan and Feb. If you remember, in Jan and Feb, there was a mini refi-boom, as rates fell sharply. If not for that, the NOD count could have been much worse. Since then, rates are up sharply and mortgage application volume has been consistently falling. This means more people maybe missing payments due to the lack of financing options, which will lead to an increase in NOD’s over the next few months from these already historic levels.
The vast majority of NOD’s are first mortgages because second mortgage holders quit filing NOD’s months ago, due to values falling to levels that make it futile. If you are a second mortage holder and there is no value in the property, there is no reason to foreclose because the first mortgage holder gets it all. For this reason, second mortgage loan defaults are soaring and the loans are essentially worthless. People know that lenders have to use more tradional means of collection and are not paying their second mortgage payment. A second mortgage lender is usually completely wiped out when a home goes into foreclosure. This problem will not go away.
Roughly 75% of NOD’s make it all the way through the foreclosure auction stage and end up on banks balance sheets. About 25% of NOD’s are cured by various means by the time auction hits. If you combine last months NOD’s of 44,100 and this month’s you get a total of 87,111 meaning banks will take back 65k homes 4-5 monnth out, because that’s how long it takes to get through the auction phase. This means October and November will have record REO coming back to the banks. 65k homes going back to banks is more than the total homes sold in CA in the past two months and will likely be much more than sold in Oct and Nov, which are historically poor sales months.
2. Notice of Trustee Sale (NTS ) were at a record 34, 564 new filings. This is a 15.6% increase over last month’s 28,992. This is huge. This means much fewer people are curing their NOD’s than in the past. These are from Notice of Default’s 3-4 months prior, as by law the NTS can be filed 90-days after the NOD. However, the average time it took a lender last month to file the NTS was 105-days due to the volume. Lenders can take a home to auction 21-days following the NTS. Jan NOD’s were 38,500 so the percentage that made it from NOD to NTS was 89.77%. This is a new record.
3. Total homes that went to auction increased 11.8% to a total of 25,523 properties. This was also a record. Of those, 24,831 or 97% received no bid higher than the lenders opening bid and became lender REO. This is where the $10.4 BILLION figure going back to banks comes from.
One thing to note, 3% of the 25,523 properties were bought by 3rd parties vs. 2.3% last month. Hey, I had to give Bubblevision something to be bullish about.
4. Discounts at auction were at a record.86% of all homes were discounted at an average of 28%. The largest subprime areas such as Sacramento, San Joaquin, Stanislaus and Merced saw larger discounts from 31-37%.
For those of you who live and die by the monthly existing and new home sales report, remember that in most cases, bank REO sales are counted in the existing sales number. As a matter of fact, Data Quick reported that 38% of last month’s total CA Existing Home Sales had foreclosure action within the past 12 months, meaning much was bank REO shadow inventory. The foreclosure market has very quickly become ‘the real estate market’.
With so much new foreclosure inventory entering the system and discounts getting deeper each month, there should continue to be more bank REO sales of existing homes in the future, making it seem as the housing crisis is ending. This is the primary problem with so many ‘analysts’ positive housing predictions.
But, how can you truly judge sales and inventory numbers when the banks are taking back as many homes at auction as sell each month? Remember, the ‘months supply’ number is calculated using ‘listed’ inventory and a very small percentage of bank REO inventory is listed. The amount of ‘non-listed’ bank REO, shadow inventory, is staggering. I recently did a research report on this that showed over 4.25-years supply in CA.
What is most frightening is how quickly values are dropping as a result of this. With as much bank REO inventory selling for as deep of discounts as we are seeing, it is forcing an immediate and swift mark-to-market change in values of entire neighborhoods all over the state. We have never seen a real estate market in which one seller (banks) controlled so much inventory and has the ability to sell it for whatever it takes to move it quickly.
If a few of these REO homes sell at 20%-30% below the most recent comparable sales within a mile radius of your home, your value will be negatively impacted. Very quickly, America’s real estate is being marked-to-market by the bank’s shadow inventory, accelerating a natural process that should take years. This causes even greater numbers of home owners to go into a negative equity position, causing even more loan defaults. It is a vicious cycle that has never been seen before. -Best, Mr Mortgage
Before you go, please be sure to subscribe my blog email or RSS feed on the home page. Then, you will be updated quickly and I promise you that I will continue to have data nobody else does. Make sure you go to Foreclosure Radar for your FREE CA monthly foreclosure report.
Financial Institions – for those looking for more detailed foreclosure, REO and loss estimate information by bank, please email me at firstname.lastname@example.org
Home owners/buyers and Realtors stay tuned!In the next month a new service will be launched called ForeclosureRisk.com. It will enable you to see the real foreclosure risks surrounding a particular subject property, perhaps your home. It is now apparent that the foreclosure market is quickly becoming ‘the real estate market’. With foreclosure inventory carrying such deep discounts, heavy foreclosure or bank REO inventory in your neighborhood presents the biggest threat to your home’s value. Finally, you will be able to easily identify those threats and act according.
OTHER MR MORTGAGE RELATED STORIES
Breaking CA April Foreclosure Stats – Very revealing
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