Stick with me, this is going to be an ugly post. This is my first try on the WordPress platform, and getting the charts and graphics looking presentable has been a challenge. But mostly because what I see out there is pretty grizzly and I don’t have much good news for you today.
My Armageddon scenario became a reality in January - foreclosures in Washoe County outnumbered resales, 203 to 171. (TD numbers are from the County Recorder, resale figures are from Guy’s monthly reports).
A quick review of the foreclosure process. When your mortgage is delinquent 3 months, the lender files a Notice of Default NOD. If the default isn’t cleared up in another 3 months, a Notice of Sale NOS is recorded. The sale occurs 3 weeks later on the courthouse steps (literally) and is recorded as a Trustee’s Deed TD a week after that. So about a 7 month process, that you can track through public records for the last 4 months until foreclosure.
NOD’s from the Recorder’s office are a little dicey to track. Multiple NOD’s can be filed on a single property (1st loan, 2nd, HELOC, HOA lien), so the monthly total of NOD’s can exaggerate the extent of the problem. NOS’s are generally only filed by the first lien holder in line, and are a pretty good indicator. TD’s are factual occurrences. Here’s what I’m showing from the Recorder’s data:
NOD / NOS /TD
Month NOD NOS NOS/NOD TD TD/NOS
(3 M lag) (1 M lag)
2007
January 210 67 - 36 -
February 185 101 - 28 42%
March 199 89 - 45 45%
April 190 107 51% 56 63%
May 179 116 63% 56 52%
June 232 112 56% 67 58%
July 284 117 62% 78 70%
August 301 122 68% 72 62%
September 309 140 60% 72 59%
October 294 160 56% 87 62%
November 352 189 63% 80 50%
December 337 184 60% 100 53%
2008
January 404 218 74% 203 110%
So the huge jump in TD’s for January are a result of Aug / Sept NOD’s, right when the credit crunch hit big time. It is probably a bit of an aberration, as was the decline in resales that month, but it sure made the chart interesting. NOD and NOS filings tend to be a bit "chunky" - there is some seasonality involved, the conditions of the overall financial market seem to be reflected, and the banks are cheap and only send a rep to record when they have a bunch - it isn’t rare to see one of the major players file 20 or 30 at a time. It is probably wise to average out a 3 month or so period to get a better picture of the filing rates.
That said, we are currently up 30% from the NOD rates that resulted in January’s record number of TD’s. Play with the numbers, and make you own assessment of what the next few months have in store.
TD’s don’t go away, they come back on the market. The "average" TD had a 80/20 loan, the banks are taking back the property for the value of the 1st loan, and they are listing on the MLS right around the 80% loan value. And most of the banks are playing hardball now to clear this schmutz off their books ASAP.
So I think we are finally at Jericho, at the Stand.
46 comments
Many months ago I said we were heading for the day when foreclosures would outpace sales in Reno. I got called a hostile pessimist. (And you better be careful lest you too get labeled the same.)
Thanks for the vindication, GreenNV/Mike.
We may be at Jericho, but we are far, far from the worst that is yet to come. All these foreclosures are just the trash Voodoo loans that were made in the dying days of the bubble in a vain and deluded attempt to keep the nonsense going. These defaults/foreclosures are by people who defaulted before their ARM even reset. These people couldn’t even pay the teaser rate. We have not even begun to experience the wave of defaults/foreclosures that are coming from the people who have been able to keep even with the teaser rate, but are sitting on ARMs about to explode. The one’s who cannot refi because their house is worth less than they paid for it 3 years ago when they got their Voodoo Supreme. And then there are all the Alt-A folks. The Alt-A folks will prove to us that debtowners with better FICOs than the subprime crowd don’t have any more ability to refi their upside down houses than the subprimers.
We are now, finally, starting to see the results of the biggest bubble in history, not just here in Reno, but all across the country. How much worse can it get? Who really knows. But consider this: how many cities are there in America where the number of foreclosures has surpassed the number of sales in even one single month? Has this happened in even the so-called “worst” bubble markets in Florida, LV, and Phoenix?
Gee, maybe it really IS different here.
There is an article in the Sacramento Bee today that says that foreclosures almost topped sales in Sacramento in January. Sales barely eeked out a win over foreclosures. Sacramento gets national attention as one of the worst bubble markets in the country.
So, if Sacramento is regarded as one of the worst markets in the country for foreclosures, and Reno is actually worse than Sacramento, then that would mean…………..
I question your timing analysis, GreenNV. January’s TDs stopped paying their mortgages in June, well before the August crisis.
Thanks for the report GreenNV. I have a question:
You state “The “average” TD had a 80/20 loan, the banks are taking back the property for the value of the 1st loan, and they are listing on the MLS right around the 80% loan value.” Where are you getting this information?
Do I understand correctly that resale prices are pegged to roughly 60% of fmv at its peak? And if institutional lenders are listing these properties on the MLS, after costs of sale, am I correct in concluding we’re probably looking at about 50% of fmv at the peak, net, net?
If I’m reading your figures correctly, this represents a pretty substantial drop in pricing - something I’m just not seeing in the real world. And I would expect institutional lenders would be far more inclined to consider short and REO resales [womething more I’m not seeing in the real world]. So where am I wrong?
Smarten, wait until Apr/May, by then the real world should start to catch up to Reno, Vegas has already started selling REO’s for around $100 sq ft. Won’t be long…….
So when can I expect to be presented with the unique opportunity to sign up for the Reno-Sparks foreclosures bus tour? You know, when I, along with 45 other people, have the chance to be driven all around town to the insiders only secret passage to the truly great deal. You know, that once in a lifetime opportunity that only a foreclosures bus tour can provide.
Hmmm, maybe I should drive the bus!
Those are truly ugly numbers. There’s simply no way to put a positive spin on what’s happening in the market. The effects of the credit crunch are absolutely remarkable. It appears that prices are dropping like a rock.
After taking a few months off from looking at properties in the area, I’ve noticed large concessions in wishing prices. Lots of SFR’s now showing up in the less than $200k range, which was unheard of 6 months ago. I don’t see any signs of prices firming. I wouldn’t be surprised to see all bubble gains wiped out by this time next year. The economy is the wild card. If it tanks hard (I think it will) all bets are off. The great depression scenario doesn’t seem all that far fetched, after all. You can see the fear in both Bernanke’s and Paulson’s eyes.
.. I was wondering what any of you people thought about the montage.. I have been pondering the Idea of buying condo there.. possibly to rent out, or possibly to live in ..
comments welcome! Sarcasm, and assholes are not!
Who needs a bus? In most areas of town, you can do it as a walking tour!
@MikeZ - I agree with you on when the payments stopped on the foreclosures. My point is that before the credit lockup, there was at least a chance to restructure or refi the loans. Afterwards, virtually no chance.
@smarten - The loan information is available online from the County Recorder and ownership information is available from the Assessor. Although I don’t have access to the MLS, I do have access to new listings. It is pretty easy to see that recent REO’s are coming on the market for right around the amount of the TD, which is typically the balance on the 80% loan. Actually if there is a trend, more listings are coming on below (some well below) the amount of the TD.
Best guesses for February based on filings so far? NOD’s will be up about 25% to 500, NOS’s will stay pretty steady around 215, and TD’s drop to 130.
“Best guesses for February based on filings so far? NOD’s will be up about 25% to 500, NOS’s will stay pretty steady around 215, and TD’s drop to 130.”
Interesting,, but Based on what??
That bus tour sounds fun! I’ll bring the real WINE!
Montage? Lovely site. I don’t know. The prices there still seem to be unrealistic but I’m sure the debt needs to be paid so the prices won’t drop …
Montage. I was ready to pop for one of the loft units facing the trench (now the plaza!) but they kept changing the plans. They need to get a bit more real on their pricing. The last 5 units that have closed at the Palladio have averaged $350 PSF. The Montage MLS listings (excluding penthouse) average $420 PSF. That is about what Palladio was asking before they dropped trow (trowsers) to move product.
I know there are Montage folks reading the blog. Anyone want to pony up your $/SF?
when you compare the montage to the palladio..it’s not even close. the only thing the palladio has on the montage is its on the river. Otherwise the amenities are overwhelming at the montage. Also price/sqft is cheaper at the montage.
I’m looking at the 1bed/1bath 960sqft model on the 12th floor @ 340k. It would be nice to getit for cheaper, however I’m not exactly looking forward to negotiating prices with them, they seem pretty stubborn.
well the montage offers ALOT more amenities than the palladio. But from what I have seen, the palladio is the lesser value of the 2
Despite many Wall Street self-promoters claiming otherwise the global financial system has steadily come under and more stress since last summer. It might take much longer for what economist Paul McCulley at PIMCO calls “The shadow banking system” revert back to a real banking system like that which existed in this country before hedge funds, SIV’s, CDO’s, CLO’s, ARS and the rest of the alphetic soup of greed came into vogue in the mortgage industry. Now Wall Street has bond insurers failing, massive layoffs, 14 of the largest mortgage pipeline institutions under possible criminal charges by the FBI.
In other words, the top 50 banks in the world are in no mood to lend! It was a tremendous party while it lasted and next comes the hangover. We not in the 8th inning of this slowdown, we might not even be in the 5th inning yet. Sorry for the bad analogies, but the bottom line is that lenders will continue to tighten their lending standards and reduce their mortgage loan appetite. And if these banks’ balance sheets are already over burdened and if these banks are less willing to lend now than they were six months, then Reno TD’s will most certainly continue to rise during the next six months.
thanks Cleo
Bondstevenbond said, “the top 50 banks in the world are in no mood to lend! [Thus]…lenders will continue to tighten their lending standards and reduce their mortgage loan appetite.”
Interesting. And as an example of the principle stated,
I’ve been presented with another FIRST d/t [$250K, 11% interest rate, 5 year term] against a beautiful home in Las Vegas. The proposed borrower has negotiated a short sale with the lender[s] at $390K - the lender[s] are writing off $250K of mortgage debt; the borrower is putting $140K down; he has a 760 FICO score; and, he will be an owner occupant.
Yet notwithstanding, he can’t get a new $250K conforming purchase money mortgage [go figure?]. I guess institutional lenders are so spooked by what has been happening in Las Vegas, they’ve simply stopped making loans altogether.
So the question; can Reno be far behind?
Holy Cow, Smarten. Do I understand that an owner-occupant borrower with a 760 FICO who will put down 35% of the purchase price can’t get a loan for $250K? That’s incredible. If this guy cannot get a loan, who can?
Is there something more to the story? Does he not have a job or an otherwise reliable stream of income? Wow.
There has to be more to the story.. A good friend of mine just recently received a loan (15 year fixed rate) for 580k, in which he only had 15% down..
there must be something else to smarten’s story.
Someone needs to find new lenders..Lenders have tightened up the previous non existent guidelines but that loan should be done..
There has to be something else we are not hearing about..
How many homes does the borrower have? Is he a United States resident?
Also how many owner occupied houses has this borrower bought in the last couple years..
Don’t laugh people I know of people in Las Vegas who bought 10-12 properties all owner occupied
He may have a high credit score, but probably zero liquidable assets. Banks like to see liquidable assets. A Great credit score and good down payment aren’t always going to get you the Loan.
Derrick - borrowers DON’T need a lot of liquid assets when they have 30% cash to put as a down payment [see below], and the proven creditworthiness [via a high FICO score] to pay their obligations [which BTW, cannot be out of whack given their income] as they come due.
According to my mortgage broker, this borrower’s problem was he couldn’t prove his income [although obviously, he has enough to warrant a 747 FICO score (see below)]. And it turns out he must close by next week or lose the home to a higher back-up offer [obviously, he wasn’t the first one to realize the value this home offers].
Just to clear up any prior misstatements on my part [I hadn’t yet seen the paper work for this loan when I posted my comments, sorry]:
1. The borrower’s FICO score was only 747;
2. His sales price is $405K;
3. His requested loan amount is $265K [meaning the down payment is $140K];
4. The property was not a short sale but rather, an REO. However given the lender’s original mortgage was $629K, selling the property at $405K, for all intents and purposes it is equivalent to a short sale;
5. The home is 4BD/3BA, 3,082 square feet with 3 car garage on a 1/3 acre lot;
6. The current appraisal for the home is $450K;
7. The interest rate on the loan his loan will be 12%.
I understand it’s Las Vegas, but for $265K?
So I bit - gee, at $2,650/month, it nearly pays my rent!
12%…. All I can say is OUCH! Thats a rough interest rate to swallow LOL
Am I not understanding something here? You pay 2,650++ in rent every month smarten?
You understand correct Derrick. Is that too much?
My rent is about 25% of the cost to own [remember, Lake view Incline Village]. No income tax writes off but heck, it’s Nevada - so what good do state income tax deductions do me?
Personal federal income tax deductions you say [although I know you DON’T say because you don’t have a mortgage]? Don’t know about you but I’ve rarely found them to exceed the standard deduction so again, what good are they to me?
Besides, I might even qualify for a renter’s tax credit this year [don’t know yet - haven’t had my taxes prepared].
As long as SFR prices are flat or declining [as they are in Reno], why would I want to own more real estate?
Yes I think paying 31,800/year for only rent is rediculous. It may be better than buying right now, but you could also be saving that money instead of throwing it away…
That way you would have an even larger downpayment when real estate does look good to you.. Just a thought!..
While you may be losing money if you own right now.. you are also losing in your case 32,000/year.. but if thats the rental you desire then so be it.
Sorry you think renting is ridiculous Derrick.
If I didn’t spend money on rent, I’d have no place to live. So it seems to me I can’t “save” this money as you suggest.
And I would submit you should look at how much money you’re “throwing away” each year for the privilege of owning your home in Spanish Springs.
Don’t know what you paid for your home but for argument’s sake, let’s say $265K. Since you state you don’t have a mortgage and we know you could earn 12% if you had that equity [assuming arguendo your home were still worth what you initially paid for it], aren’t you “throwing away” - $31,600/annually?
Don’t know what your secured real property taxes total but for argument’s sake, let’s say $3K/annually. Aren’t you “throwing” that money away as well [I’m not paying my landlord’s real property taxes which BTW, are around $12K/annually]?
Then there’s real property insurance [I assume you’re carrying property insurance even though you don’t have a lender who requires it as a loan condition]. Let’s peg that cost at about $1K/annually. Aren’t you “throwing” that money away as well?
Then because you’ve so to speak “invested” in the equity in your home; and we’re in a declining market; haven’t you lost some of your equity you could have “saved” for an “even larger down payment” on something else?
And let’s assume you pay nothing in deferred maintenance, even though we both know you do.
Finally, if you decided to sell your home in order to “move up” [something you’ve suggested to Diane on this blog that you may very well be interested in doing], wouldn’t you lose even more of your home equity in costs of sale?
So when everything’s said and done, who between the two of us is really is paying more for housing [assuming arguendo the values and amenities of our two homes are comparable - which BTW, I’m sure they’re not]?
My suggestion to you [although you don’t value my opinion because I’m not “rich] for what it’s worth is to:
1. Take out a mortgage on your home now that interest rates are about to dip to all time lows;
2. Rent your home out to defer some of your carrying costs;
3. Benefit from depreciation tax write offs [which will probably defer most of the remainder of your home carrying costs];
4. Place your equity in a 12% d/t investment [if you need some help finding one, let me know and I’ll gladly refer you to the expert I use];
5. Rent a comparable Spanish Springs home for far, far less than you’re paying right now; and,
6. Save the money left over for an even larger downpayment on that new home Diane’s going to find for you when prices really start dropping in Reno within the next 6-12 months.
Just a thought Derrick.
Hello Derrick,
I would sure like to know more about where to go to earn that 12% you’re talking about?
Send me the scoop.
Frank
Ditto on the 12%, excluding India or China.
I don’t think Derrick said he is making 12%. I think he was refering to Smarten’s 11% return on the trust deed investment on the LV house. I wonder why a guy with a 750 FICO and a $140K down payment has to go get hard money and pay 5.5 percent above regular rates. Something is a bit strange there.
And I think Derrick said he is considering moving up to a Montage condo earlier in the thread. For me, it would be hard to see how moving from his supposedly delightful 2500 sq. ft (?)home in Spanish Springs to a 900 sq. ft. condo in the Montage would be moving up. Other than literally moving up into the sky, of course. But to each his own.
And if Derrick is thinking about buying the Montage as a rental, I’d just love to hear how that pencils out.
Umm People sorry to upset you, But I was not talking about a 12% return. I was talking about the 12% interest rate on the loan in which smarten mention.
I would love to know how to make an easy 12% as well!
I never Said I was going to live in the montage either, I was thinking more about buying a unit (if I could get my right price) and renting it out for a few years.
I love my house and have no plans of moving. I have enough capitol to pay for a montage unit with No Loan.. But I would prefer to have a small loan and use rent to help offset the payment I would have to make .
Re: the Montage
I was the first local to purchase in the Montage. I have a two bedroom on a very high floor facing the mountains. My price is approximately $440 a square foot. It would have been a lot cheaper on a lower floor or a different view.
The housing that is selling over $700,000 in Reno is ridiculous.
The infrastructure cannot support those prices hence all the foreclosures. I know most of the Californians who bought up there drove the housing prices very high. Out of reach for most people.
However, those people are now stuck with these over inflated homes, which are causing the pricing to drop like rocks. Now those people are trying to move back to the Bay Area only to find they are completely out priced in the real estate here in San Francisco.
San Francisco proper is still going up (for how long who knows), however, the suburbs are dropping fast. We have many communities within 30 miles that are sitting 48% empty. Whole towns empty. OMG!
Those people are now looking to foreclose and now rent. I know several who are doing this now. The rental market in the Bay Area is full. You can’t find an apartment anywhere. People are lining up 30 to 1 JUST to rent an apartment and paying three times/overbidding what the landlord is asking for rent. It’s insane.
I was in the market last year, so we went up to Reno and looked around. I saw a great home in Somerset and inquired more in detail. The real estate agent was smug, pretentious, and informed us that we would be lucky to get the home at $800,000 and shouldn’t delay. A rush, rush mentality. I encountered this same smugness over three times with different housing communities throughout Reno. Since when do Real Estate Agents (not all, just some) use tactics like a used cars salesman?
We would love to move to the Sierra Nevada area, but to pay over 700,000 and above? Lets get real here guys….
Derrick, I know sometimes it’s hard to remember what you said two days ago. But you said you were thinking about buying a Montage unit “possibly to live in”.
Scroll up, Derrick, scroll up.
What’s your point skrap-guy.. I never said I was going to buy a condo at the montage to live in .. I said “to rent out or POSSIBLY live in” none of which are a sure thing.
Nowhere did I say I intended on living there. It was merely A thought I was throwing around. . Possibly skrapguy.. Possibly!
So please explain to me once where I said I was going to live there?
For those of you looking to earn 12% on deed of trust investments, might I refer you to http://www.trustdeedinvestment.com/ .
Now if you do contact Amar, please tell him you were referred by smarten from Incline Village - he knows me.
Now 12% isn’t that unusual for hard money deeds of trust. Although I personally don’t believe in non-guaranteed mortgage pools, you could go closer to home with Equity Lending Partners - http://www.equitylendingpartners.com/Home/ . I don’t recommend the outfit but they offer similar returns and are closer to home.
Hope this helps.
A quick check of SFR listings for Reno-Sparks in the $700K to $800K range indicates that there are 114 listings in that price range.
2 have an offer.
That is a bit less than 2% of the listings with an offer.
That is 4.75 YEARS of inventory in this price range (assuming the 2 go on to close).
There are 19 listings between $799K and $800K. Yes, there are 19 listings within $1000 of each other. Quite the traffic jam.
I guess the reported “buyer activity” has not made it into this price range.
There are 171 SFR listings in Reno-Sparks between $500K and $600K.
11 have a pending offer.
That is about 6.5% with an offer.
That is 1.3 YEARS of inventory.
There are 29 listings between $599K and $600K. Yes, there are 29 listings within $1000 of each other. It’s quite interesting how the listings bunch up at the upper limits of the price range. Or, just under the next highest price range.
[…] information, as it seems relevant to the loan discussion that has been taking place in Mike’s Foreclosure City post. - […]
Ahhh.. but what if you bought a home now say at a respectable price and it appreciates back to those lofty levels of only last year. If you had a $720k house that goes up to $900 or its pre-decline asking price of $980k you made a pretty good chunk of change on the sale. Right? The mortgage crisis will end and you can get a good loan with 30% down at sub 6% with a FICO of 750.
what if you bought a home now say at a respectable price and it appreciates back to those lofty levels of only last year.
Try lottery tickets, the odds are better.
Yea, right. A house is going to go from $720K to $980K. Sure it is. A 27% increase in value when 4% of all listings are selling. When last month there were more foreclosures than sales. When there is FIVE YEARS of inventory in that price segment.
Maybe in an alternate reality where it is still 2004 and lenders are handing out the Fog Up a Mirror loans. Sure, maybe the quantum leap could happen all at once. A waitress at Denney’s gets a no doc, nothing down, neg am, with a 1.25% teaser rate. What the hell, because it’s Somebody Else’s Money, with none of her own skin involved, she offers $980K on the $720K asking price. If it does not concern her mortgage broker that she claims to earn $240,000 a year at Denney’s, because tips are great you know, why should it concern her to pay 27% over asking?
Because real estate always goes up in Reno. And she might get priced out forever if she doesn’t buy NOW.
Skrapguy do me a favor, shut your stupid mouth.
Smarten, I’d be really interested in your experiences in investing in deed trusts.
Could you email me at jim95120@yahoo.com