Fresh, Freightening Foreclosure Facts From MBA – They Nailed It!

Posted on October 5th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The MBA just put out a new foreclosure study with results that match exactly what I have been seeing for months and mirrors where I think it is going.  This is in-line with my long-term predictions made in 2006 about the fall-out.

As a matter of fact, when a good friend Herb Greenberg (rest his journalistic soul) published my time-line in Nov 2007 the story was one of the most ‘read and responded-to’ blog posts in MarketWatch history.  If you read through the comments section, the number of mortgage and real estate professional comments and confirmations is staggering.  How could so many have known exactly how this would play out, yet each development always catches everyone off-guard.  Link: Straight-Talk From a Mortgage Insider

This newly released MBA research is solid. It is some of the only solid research I have read as of yet. When reading, pay special attention to the underlined portion below.  It is especially concerning and what many still don’t fully appreciate…home owners looking at the home as an investment and not a place to live with the negative equity effect being a driver in foreclosures.  This is also what many fear the most.

This is what has led to the jump in paper-grade defaults from Subprime to Alt-A to Jumbo Prime then Prime that I have been watching occur now for six months, about which others are just beginning to speculate.

For those die-hard Mr Mortgage readers, you already knew this was happening…but it is great to get public confirmation from a source that has every reason to hide it. Hat-tip to the MBA.

There is no doubt that the ooze is spreading from Subprime to Pay Options, Alt-A, Jumbo Prime and A paper. It is what it is.  It is kind of funny that we have all of these names differentiating the paper grades at this stage anyway.  It is all nonsense because after so many rounds of downgrades from the raters, values being off so much and between 2003 and 2007 the line between all paper grades becoming so blurred due to all sensibility and risk management leaving the mortgage sector, everything is likely several paper grades lower than its initial ratings anyway. At this point in time, they are all just ‘mortgages’.

My data showed me in real-time that subprime defaults were at a plateau (at least temporarily) five months ago and Alt-A defaults, led by the Pay Option ARMs spiking around the same time.  Just remember the implosion order: Subprime, Pay Option, Alt-A, Jumbo Prime and then Prime.  The HELOC Implosion has been ongoing and will accelerate into the Pay Option, Jumbo Prime and Prime implosions because the universes are larger than Subprime and more piggy-back financing was used in these paper grades.

The Pay Option Implosion will kick start the Alt-A and Jumbo Prime implosions as it will bring down values considerably in higher-priced, Pay Option heavy regions. All three will be happening simultaneously putting an even greater strain in values.

Prime Conforming will be the last to blow but will blow, as those 20% down 30-year fixed buyers from 2003-2007 find themselves 30% upside down and it being cheaper to rent.  Remember, a large number of the 20% down crowd went out and stuck 90% to 100% HELOC’s on their homes, making them less than prime now as well. All of these things are happening right now but to nowhere near the degree they will as housing prices continue to fall and we move closer to peak resets for higher grades of ARM paper. -Best Mr Mortgage

Homes in foreclosure process set another record. California, Florida continue to drive national numbers in MBA survey – By Amy Hoak.  MarketWatch reporter based in Chicago.

-The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday.

-The survey covers 45 million loans on one- to four- unit residential properties, representing between 80 to 85% of all first-lien residential mortgage loans outstanding in the country.

-The delinquency rate was the highest ever recorded in the 39-year history of the MBA‘s quarterly survey.

-Altogether, more than 9% of mortgage loans are either delinquent or somewhere in the foreclosure process, Brinkmann said.

-States hit hard by the foreclosure crisis continue to drive the national numbers.

Increases in foreclosures seen in California and Florida overshadow improvements seen in states including Texas, Massachusetts and Maryland.

-Only eight states — Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio had rates of foreclosure starts that were above the national average.

-Together, the two states (CA & FL) made up 73% of the increase in foreclosures between the first and second quarters, according to the MBA.

-“The worst states are getting worse,” Brinkmann said, noting that overbuilding occurred in California and Florida, and their numbers will continue to drive the national ones.

-The delinquency breakdown supports the argument that the foreclosures are being driven by housing fundamentals as opposed to economic issues such as job losses, he said. Drops in home prices seem to be driving the transition between a loan that is delinquent and one that goes into the foreclosure process.

-Subprime ARM loans accounted for 36% of all foreclosures started.

-Prime ARMs, which include option ARMs, represented 23%.

-The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans.

-In future quarters, foreclosure start numbers will probably be increasingly dominated by problems with prime ARMs.

Where’s the bottom?

-Brinkmann called the idea of a national bottom “meaningless.”

-“Because of the sheer size of California and Florida, an improvement in the national numbers, whether delinquencies, home prices or any other measure, is unlikely until we see some turnaround in those two states,” Brinkmann said.

Amy Hoak is a MarketWatch reporter based in Chicago.

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29 Responses to “Fresh, Freightening Foreclosure Facts From MBA – They Nailed It!”

  1. With due respect, we are already in 4Q09 and that is an article about 2Q09. No doubt that foreclosures were still increasing during that time frame, but I think most people are trying to figure out if foreclosures are still getting worse or starting to get better.

    I’m curious what the prognostications are going forward.

    Personally, I have to admit I’m starting to get a little skeptical about the extent of the problem, especially in desirable coastal areas. I’m just not seeing it. Maybe I’m out of touch.

  2. I am a Las Vegas Broker (30 yrs. licensed). I oversee 200+ agents. I am constantly hearing that bank reo’s have 20+ offers on them. It is frustrating buyers but also a trend that banks offer the properties way below market value and then ask for ‘highest and best’ offer and these properties frequently sell 10-15% above the posted MLS asking price. We are at about 9 months absorption rate and because there are real buyers for homes at our current median sales price – it looks to me Vegas has hit bottom. Now, if I only had some money…

  3. No question… the bailout will solve all of these problems… I am expecting next month that we will have one the most robust real estate and loan origination months ever!

    Right? Hopefully I will be out of rehab in time to see it.

    (a parody of those that think things have turned around)

  4. Mr. Mortgage – I’m a die-hard reader. I find it very difficult to cut through the crap that you get from the MBA, NAR, government stats, NAHB, etc. I do not understand why these organizations have to lie about the current situation, and need to come up with fraudulent stats – it’s rediculous and hurtful to the economy in the longrun. It’s refreshing to have somebody that is an ‘insider’ in the business of mortgage banking and able to cut through the junk thrown at at us from all angles and give us the truth about the financial condition of banks and the housing industry. The least we deserve is truth! Thanks!

  5. Just wait OldTimer – its coming. I see the defaults in the higher priced areas picking up in the past 5 months in real time. It all started in the subprime epicenters but its all coming out to the coast. Guaranteed. Remember, higher paper grades are just structered better with 5-10 years before adjustments for example. I know of several people who have already walked from $900 IO 5/1 loans where the value is $750k and falling. They are stuck, cant sell and cant refi. Therefore, life circumstances are incurable. Also, it is just the easiest way for a consumer to delever when 50% of their gross is going out for a home worth so much less. You should pick 10 homes at random and pull a prooperty profile in the areas in question. I bet half have exotic loans like Pay Options or Interest Only Jumbos attained in the past 5 years. Thats trouble.

  6. MM, oustanding as usual. There’s no one more worthwhile reading in the real estate arena. I’m really surprised at the number of people that still dont get it. The next wave of foresclosures is going to dwarf the subprime foreclosures. When the MBA says it’s the worst in 39 years and someone compares this to the early 1990’s I have to wonder about their analytical skills. This is a whole new ball game and nothing like it has happened since the 1930’s. 2009 is going to be an amazing thing to behold.

  7. I’m rooting for it, MM. I want to pick up a larger home in Seal Beach or HB. I’m just not seeing any decent foreclosures in these areas.

  8. It’s going to be interesting as we enter a severe recession how job loss will exacerbate foreclosures.

  9. Hey old Timer

    I just checked on one website for foreclosures in Huntington
    Beach – there are 534 listed just in that city. I’m sure
    its not catching all of them. All in various stages of the
    process. So There are plenty happening right there. Seal Beach was a bit less at 35. You should have no problem finding something priced well. Keep an eye out on ones that are going to auction and pick one up there – some of those are discounted pretty well.

    We are definitely not at the bottom yet. I’ve been doing mortgages for 20 plus years and its NEVER been close to what
    its like right now. At least 70% of my clients in Southern Calif are upside down. A lot of those have 5 and 7 year fixed rates and cant do anything about it. Clean A paper clients with good income and good credit and they know they’ll be in for a change when it goes adjustable, so they are just waiting to see if the market turns around before their loan adjusts.

    Almost anyone that has a first and second are out of luck as none of the 2nds like to cooperate with a refinance. Thats one of the biggest challenges. So the values being down and the 2nds not cooperating are the two biggest issues i’m seeing with my clients who are all A plus paper clients. First time buyers are strong right now though, so thats good.

  10. Long time lurker here.

    Can you comment more on how each grade (Subprime, Alt-A, Jumbo Prime then Prime) is doing in California? I’ve read your reports and they seem to be based on cumulative statistics. Are you seeing clear increasing trends of foreclosure in prime as well?

  11. Brant Gaede said

    “It’s going to be interesting as we enter a severe recession how job loss will exacerbate foreclosures.”

    BINGO! We have been in a jobs recession for 9 months straight. That is only going to continue for several months more. You can not pay off a house at any given rate if you do not have a job. Just as a huge oceanliner can not turn on a dime when the steering inputs are given, the 3/4 of a million jobs lost and counting presage the coming severe recession and further job losses. Just in time for all the new ARMS to reset in 2009. And the Credit Default Swaps to turn over and explode. And more asset devaluation on Wall Street. And more companies cutting back on expenses (like employees) to stem the flow of their stock price. And more unemployment which causes less consumption of goods. And more deflation of prices because no one is buying crap from China. And China buying less of our debt. And the USA going deeper into debt. And more foreclosures because of all of the above.

    Rinse and Repeat…for the next 5 years.

  12. The $700B bailout just opens the gate of hell, wait to see housing price falls more and more.

    Government should encourage domestic manufacturing and local brand consumption instead of pumping money into the system.

    Liquidity for a system already full of money? That is insane.

  13. pick 10 homes at random and pull a prooperty profile in the areas in question

    What is this property profile of which you speak? Do you mean going to the county records to see what kind of loan they have?

    (I assume you meant “property” anyway, lol.)

  14. In West coast, San Diego’s best school area, Carmel Valley, housing price substantially down within few weeks. In East coast, Navy crib, Virginia Beach, housing price start free fall this summer after 2years resistance.

    What does that mean? This nation, does not deserve its living standard anymore.

    I heared a rumor that Chinese government is going to purchase $200B out of $700B. Not sure if it is true.

    However, $700B is nothing. It is not even a bandaid.

    The date when foreign government stops purchasing our bonds, the date mother of all depression begins.

    I wish our Senators would pass a bill to promote production not just injecting money.

  15. I am happy to see others here are talking about the rapid growth in unemployment, and the fallout from that. Small firms are now being hit hard by credit crunch, and from anecdotal reports are laying off people pretty fast here in SoCal. I liked the comment from Las Vegas realtor – “housing prices may have hit bottom, I only wish I had money to buy.” THAT hit the nail on the head – lots of bargains out there, but people have lost “trillions” colletively in the stock market (me too), are worried about their bank and money market safety. Not a lot of cash around these day.

  16. qiuzude88 Said:”I wish our Senators would pass a bill to promote production not just injecting money.”

    Not likely to happen as they are to busy feathering their own nest and protecting the people that donate to their graft chest (Reelection)
    yes a cynical observation yet it seems to be more reality based than what they say in public

  17. 1st quote of Oldtimer “With due respect, we are already in 4Q09 and that is an article about 2Q09.”

    2nd quote “Maybe I’m out of touch.”

    I hope you are out of touch with the calendar year. If not, this old timer just lost 365 days and MM is also a tad behind 🙁

    Beach front stuff is way down in price here in South Florida except for the sellers who don’t realize the bubble popped. But they aren’t selling. Neither are the people who knows the bubble has popped and lowered their prices.

  18. Mark F,

    What website are you looking at to find foreclosures? I’m using Redfin.

    Thanks in advance

  19. The rumor Chinese government might buy $200B bonds could become true. Right now, there is a big debate going on in China, majority saying that it is nonsonese for Chinese to buy US bonds anymore. Yet others believe if $200B can make US not protecting Taiwan anymore, they will support it.

    Folks, it is ridiculous.

    It was Demat’s Cliniton and Greenspan set us into this trouble. Their globalization policy, directly deleted US middle class jobs, and gave our jobs generously to other countries.

    Then what? They made other countries to buy bunch of worthless US bonds.

    Now, the FED is keep debasing our currency, make both US people and global people miserable.

    It is said that due to the debase of huge US Dollar reserve, China is losing 4nuclear carrier montly.

    What their globalization policy, is basically global brankrupt policy.

    What a shame.

    Now the FED pretended $700B will alter our way out of recession. What is that?

    We are already in recession, the world is also.

    $700B is nothing comparing their strategic mistake.

    They will come up with another $800, maybe 1trillion bailout until foreign governments dump all US currency.

    Then what? Start printing US currency domestically.

    At this moment, I am thinking about move to Canada or Australia, maybe even North Korea. At least they are less soclialized.

  20. Let those set to fail to go broke.

    Let us strip wall steet, malls and malls down to build factories for our living.

    Let us live within our means.

    We do not want this fake bailout!!!

  21. Unemployment will be the real killer. In the last couple of real estate cycles in CA, unemployment over 6% shuts down the market. CA just hit 7.7% and it’s rising without any good news in sight. Oh, and there’s an absolute pant-load of upside down properties coming in 2009. Talk about a perfect storm. Job loss coupled with house values under the loan amount…2009 will be something hardly anyone’s witnessed in their lives.

  22. When the bailout fails to stem the housing crisis, do the banks go back for more Federal aid to plug the capital hole or do they try to jam down some backdated recourse-type provisions into reworked mortgages to stem the tide of folks walking?

    Rationally, if you are underwater by 100K plus and have no equity in the home otherwise, you see no chance to get equity recovery in the next 3-5 years and can probably delay the eviction for 10-14 months (between some new laws that push it out plus the banks not foreclosing so they don’t have to take the writedown on the loan) and pocket the cash and be able to rent a halfway decent place for following year or two while you rebuild your credit. Why would you stay unless you really loved the home and the lifestyle so much as to put yourself in financial purgatory for the next 10 years?

  23. ‘Brinkmann called the idea of a national bottom “meaningless.” ‘

    Dear MM and everyone else. This is common sense now, so let’s not hear anyone talking about the national averages. It is no longer good analysis since in the few bad states there is a downward price spiral whilst in some other states falls have been replaced by price rises.

  24. thats why covering CA is so important – CA and FL made up 73% of the gains in foreclosure activity. CA is the largest state with respect to GDP and the US and will lead the US in a major recession as well as out. So goes CA so does the rest of the nation.

  25. […] Stink This YearMike Tyson on Foreclosure Funny – Haloween’s Going to Stink This Yearadmin on Fresh, Freightening Foreclosure Facts From MBA – They Nailed It!SISA on Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc Recent […]

  26. Here’s another one for ya…CALIFORNIA IS BANKRUPT!

  27. JJ – you nailed it. Lotsa folks ready to take a walk for those exact reasons.

    I prefer the fancy term: CFD, common folk deleveraging.

    Mr. M – looks like you were right on about “The Quickening”.

  28. I know that you like to talk about the Option ARMS..MM..any comments for this quarter since we are looking at libor soar once again…where does this put people who have these loans at today as far as interest rate are concerned on Subprime, Alt A, Prime, and Jumbos?…What are payment amounts rising to based on loan balances of $300K, $500K, $700K, $900K?

  29. […] Minutes’ Brought it Home Last NightForeclosure Funny – Haloween’s Going to Stink This YearFresh, Freightening Foreclosure Facts From MBA – They Nailed It!Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio […]

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