“Over 40% of restructured subprime loans have proceeded (again) into foreclosure in Cali.”

It is not possible to make chicken soup out of chicken s*** no matter what the legislation intends.

Let me get this straight…

If the banks are holding back, then they are obviously waiting for the bailout.

So….. Both MikeZ & BB are saying that owners will walk and not take the deal?

Because, as I’ve voiced before it sounds very advantageous for the banks to take the deal at this point (everyone who says they won’t take a 15% hair cut at this point has got to be kidding!). Additionally I think that the math works to the advantage of the owner (as long as the appraisals are straight!) and they will take the deal if they can afford it.

So in summary the Subprime was going to default no matter what, however the Alt-A’s and prime’s will take the deal.

Here are the specifics.

http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions

DD,

I believe that when the Montage website first went up, it said that 50% of the units had been sold (and yes that just means a 10% downpayment). That figure was moved down to 40% a few months later and has been at 40% for well over a year now.

I noticed for August the TD’s issued to properties connected to Countrywide seem to be in an accelerated pace. NOD filed in April are closing out in August.

BofA most likely brought in the hired guns to clean up the mess, which is a common sense approach.

So, if any banks are still harboring those delusions of a money saving bailout, they are getting themselves behind the curve.

The percentage of mortgage holders who are making their payments has to be over 90%. At least, that was the range given by the cable business channels a few months ago.

Is Nevada a non-recourse state when it comes to walking away from a mortgage? I believe that CA is non-recourse, which I think means that the bank or mortgage holder cannot come after your other assets. Is that also true for NV (please excuse me if this was a past topic of discussion).

$300 Billion is a really large number. It equates to about $1000 for ever US resident - homeowners, renters, kids. And it will come out of the taxes we all pay. If I were a renter, I’d be pretty bitter right now.

Some interesting points on the HOPE for Homeowners Program, the official title of the bailout (and HoHo in my lexicon) that will significantly impact how much of the 300B gets used. First, no investors - you must document that you are the owner occupant and have no other ownership interest in other residential property. Second, you need to fully document your income through tax returns and show a “reasonable ability” to make the mortgage payments, based on “traditional” lending standards. The exact figures are still being worked out, but just call it home price = 3X income - how many of our $300,000+ homes will qualify? Third, you must document that you have not intentional defaulted - you can’t have other assets that could have liquidated to pay the old mortgage (RV, boat, stock, IRA). Finally, the program is voluntary for the lenders and I think many will balk. All secondary liens must be expunged, maximum loan value is 90% of current market value, and there is a 3% PMI figure and standard closing costs to work into the equation. And you have to come clean on the super-primary liens - HOA, property taxes, sewer, etc.

Say you bought a $500,000 a couple years ago with a $400,000 first loan and a $100,000 second (or 20% down payment, it really doesn’t matter, both are wiped out). The house now appraises at $350,000, a reduction of 30% (in large part to the comps the banks are setting when unloading their own REOs). The bank could only offer a $297,500 new first loan (90% of appraised value less back-loaded closing costs and PMI) and only if the borrower could PROVE the ability to repay it, no other debts or property, cars paid for, kids don’t need braces, and a $100,000+ income. And this new mortgage would be to a party who has already shown financial ineptitude. I think the banks will opt out in most cases, and try their luck in the foreclosure market.

A really long way of agreeing with DonC on this applying to 10% of distressed properties at best. My understanding is that Fannie Mae can start buying these loans 1 October, so September should be a really stressful month for homeowners looking at refinancing under HoHo, with lenders who haven’t figured out their strategies and are woefully understaffed to deal with inquiries.

Ollie, Ollie, Ox in Free! HoHo is political feel-good eye candy in an election year, but it won’t really help anyone but the politicians. Failed loans need to be allowed to fail. REOs will, and probably need, to set the market for a while until all the loser loans can be milked out of the system. You bet that the FDIC is going to have to intervene to salvage banks that when long on goofy real estate portfolios. We need to step up and take the hit (Diane doesn’t like me using terms like knee to the balls or sit on the fence post) and move on. This macro scale problem cannot be solved by treating it on the micro or meso level.

oil prices.. Timmbeeerr!!

bird calls are right as rain.

OK cash buyer, two hours later this listing is flagged for removal and is unavailable.

You posted something similar a few weeks ago.

What is this content, exactly?

O.k. bloggers…

R.I. along with others- thinks this blog is spent, all the points discussed… however he could never be more incorrect. Now is the time for this blog more than ever, at least for me. I need to buy a home. I think this market has two scenario’s to follow.

1.) The market will continue it’s downride for several years. The realtors and the home owners will continue to understimate the downside and always be behind the game. It will slide & slide, even below “true value.”

2.) The local Reno market will crash this Winter.
(a) We have record high inventory
(b) We have record # of unoccupied homes for sale
(c) We have record number of distressed sales
(d) Data supports continued # of distressed sales

Now from what I understand of the above… the banks are holding a certain amount trying for the “bailout”… however MikeZ & others feel that the “Bailout” is weak and won’t help. So if this is so.. come November or December on top of the above listed problems… the bank will have to unload another 600 to 800 homes?

If this is so… then the market will really crash.

Of course the easy thing is to say the bottom is years to come… but some times there is a crash. Can someone predict this Winter will be the crash?

MKchick, are you expecting wages to increase by 20% in the near future?

How else is the current inventory going to move faster? If it doesn’t move faster the banks are losing money - which doesn’t sit well with them.

Yes, the banks have been holding back. But, as I mentioned above, Countrywide connected properties are moving thru the pipeline faster. For the past year, I noticed a 6-7 month NOD to TD timeframe. Now Countrywide is moving them at 4-5 months.

This is not holding back, its getting ahead of the curve - which is the best place to be. I think #2 is more likely to be the scenario.

Like lemmings off the cliff, as one bank starts to off load properties at breakneck speed, the others will follow. Thus, making smartens prediction for a Jan bottom pretty close.

Sorry if this may have been addressed on this blog before, but since I hear so many of you wonder why banks are not wheeling and dealing….

There’s more to banks ‘holding back’ than you/we might all know. When banks, or generally lenders, originate loans they do so either as ‘held for investment’ or ‘for sale’. These carry very different meanings particularly as it relates to their balance sheets, and as it relates cash reserve requirements with loans held for investment carrying a greater burden. Here to date, we’ve seen many loans in both categories marked down to market value (a fuzzy at best datapoint). We’ve also seen many loans default with actual losses taken, if you’ll catch the difference between being marked down versus an actual loss taken.

Banks who saw this coming in 4Q last year thought this mess would last only a few months and therefore chose to mark down their portfolio or if they could, sell for nearly face value or move the loans from ‘for sale’ over to ‘held for investment’ until the market conditions improved, as long as they had cash for reserves. They thought this mess would last months not years.

A full year later and we’re worse, not better in just about all housing markets. The capital markets are worse not better too. Worse yet, many banks have already parked a lot of their liquidity in reserves for their de facto held for investment portfolios. Oh, and there are appreciably no buyers of the for-sale paper out there, certainly not at the prices they need to avoid further actual cash losses.

Thus the log jam. Vultures want to buy at cents on the dollar, but banks really can’t sell at those levels or the losses, either real or implied, will put them out of business. So, they are awaiting market conditions, which just about everyone on this blog suspects is years away from improvement.

BofA is smart to offload as much Countrywide garbage as soon as they can, because they are perhaps financially the most sound. However, smaller banks or those with heavier percentage concentrations of garbage loans literally can’t afford to follow suit. So, watch BofA go on a shopping spree of other banks after they digest CW??

Recall a few weeks ago Merrill sold one of its CDOs for 22 cents on the dollar? This effected everyone else’s balance sheet who carried CDOs marked at “market” which - surprise, surprise - were well in excess of 22 cents. Now, with this bailout, or with selling loans in bulk, there are bigger ramifications to the banks in offloading loans at ever lower prices than just bailing out Joe Taxpayer, which was probably Congress’ intention.

thank you sully………….so true. we have cash, but like you, not willing to take the risk. diane like many others, is watching the depreciation of her house on a weekly basis. there are no signs of legitimate upticks, only realtor baloney and hype about the past turn around seasonal spring summer market. we have been looking for at least a year, and all the houses are still on the market, but at substantially reduced prices. still have the flyer from 3463 nambe drive at 1,395,000. at the time, the realtor assured us that he had to convince the owner to sell the house at so low a price. now with arrowcreek so tenuous, the risk on any house there is just too great. we really want to buy, however risk just too big now. overall, really bad for families, reno and our country.

Cash Buyer–3432 Nambe is listed on Foreclosurepointe.com–I don’t know anything about that house, but I would guess the banks will be selling it soon for a really good deal if you are interested in the Nambe area…Of course it makes sense to wait and see what happens with ArrowCreek anyway.

Sully, where do you get that I think wages have to increase 20%, and what do wages have to do with minimizing a bank’s loss on foreclosed properties on their books?

Totally hypothetically speaking here: say you are a bank has 100 properties with at least 30% price decline and more than a year of supply currently in the market. Why would you foist those 100 properties on the market all at once and risk an additional 10% decline on all 100 properties? You shoot yourself in the foot, because increasing supply and lowered demand means the price will come down and the loss becomes bigger.

I don’t see how forcing a bottom just to get the poison off your books by flooding the market works, because then the next wave of poison hurts even more because you moved the bar lower when you could have slowly dribbled the existing poison out over time to minimize loss.

Yes, I agree there will be more price declines by December. But I think the banks are going to slowly unwind their horrible portfolios vs. dumping the market unless they are forced to. According to Guy’s last post, distressed sales haven’t even reached 50% of the total sales yet.

I don’t pick dates for the bottom because I feel it will take a few years to unwind and I don’t see a flattening out in pricing until 2015 at the minimum. There are too many factors still out there that can put downward pressure on the market, like potentially way higher mortgage interest rates (banks have to make up the loss somewhere).

This is just me and how I look at things: quality issues and fed up with 15 years of renting aside, I would rather pay a slightly higher price now at lower rates than if I bought 2 years from now at a lower price but higher interest. Call me stupid and naive for doing so, but y’all are wanting to buy all cash, but some of us still need traditional financing.

BB, come on… I’m more bearish than you… and I hope I don’t come off as sounding obnoxious, but why would you refi if the rate the lender is quoting you is higher than what you are currently paying? For me personally, it doesn’t make sense for me to refi my rate for at least five years. My crystal ball is broken and my Magic8Ball is wrong half the time.

Historically speaking, rates are still low right now, but they rose quite a bit since the beginning of the year, and I don’t see a catalyst on the horizon for rates to come down in the long term. Conventional mortgages are even more expensive than they were a year ago because of all these additional fees passed on to borrowers. Do you agree?

Reality is that the credit markets are pretty much at a halt, which is what CL said. Lenders are starting to cut HELOCs off. And I don’t think we’ve seen the proverbial brown stuff hit the fan yet when it comes to the banks.

And you can’t ignore the bubble; you agreed with me earlier: it takes time for the market to depreciate to a more sane level. I don’t agree with people saying the bottom is in a few months in this market; I’m saying it is more like a few years. This is a LOT of mess to unwind.

Sully, and correct me if I’m wrong in making this assumption, but I read your comments as if you think there is going to be some sort of specific time by the end of the year that the banks say “the heck with it,” issue all the NODs they can to as many troubled borrowers as possible, and then dump all their distressed properties on the market so you can stop renting.

I disagreed with you and said it wouldn’t make financial sense for the banks to do that. I hypothesized that the banks are delaying, cherry picking, and dribbling out their foreclosures so they can manage their losses because there is another huge wave of defaults coming in the next year. They can’t prematurely shoot themselves in the foot like that by flooding the market when the secondary market dried up so significantly. CommercialLender spelled out the technical explanation.

I still don’t understand where the wages came into this discussion of how banks are unloading their properties; the affordable houses for 2x median wage in Reno are under $200k. Houses in that price range are the majority of what is selling and inventory down to 11 months. It is getting there.

However, I’m in your boat with you. But the thought of renting for another 5 years on top of the 15 years I’ve already been a renter, waiting for a recovery that may not happen, frustrating myself with trying to bottom-fish while interest rates starting to climb… no. Life is too short, but I don’t recommend to anyone else to do what we are doing right now.

MKchick-

You must have misinterpreted my post, or perhaps I wasn’t clear. You can always refinance to a lower rate if one exists, in turn lowering monthly payments, but you will never be able to renegotiate the purchase price or principle. It’s that simple. I’m not insinuating you don’t understand this, just not sure where I went wrong earlier.

I never said anything about refinancing from a lower rate to a higher rate.

Commercial Lender // MKchick-

I don’t really think the banks have a choice if they can take the loss or not. As you said mortgages are either ‘held for investment’ or ‘for sale’. However when they default now they are on the balance as a fixed asset with fixed losses. Banks can only leverage their assests so much in order to invest and make money. They are not in the business of holding large amounts of fixed assets with fixed negative costs. They will have to unload or fold.

Isn’t this exactly what happened in Sacramento? The banks released all the Foreclosures, they took their 35% price cut and now have inventory somewhat under control?

I have seen some banks try to rent their Foreclosures… now that could be a strategy to stretch things out for some. As long as it’s an earning asset.

Here is a great article with Northern Trust with Case Shiller data on Price to Median and Price to Rent.

http://finance.yahoo.com/tech-ticker/article/52640/House-Prices-Still-Too-High-Despite-Collapse?tickers=fre,fnm

I’m thinking since things are becoming clearer to the banks they will cut and run. This is all they can do. It’s just a matter of understnding how efficiently and quickly they can do it. They have already lost several more % of their defunct loan values by being slow. The data says that unless they want to wait 5+ yrs for returning market the faster they dump and lock in the loss the better.

This is my point… if they are getting NOD’s in line better than ever, as Mike was originally pointing out… then they will unload them and a steep drop will accompany. We will be nowhere close to the “bottom” where things are going to start appreciating again (because of all the continued Alt-A faults) however we could see a dramatic fall in prices that makes things affordable, people buying, still high inventory, and 5 to 10% of true market bottom…. which we can all look back in 2015 and decide on when that actually occurred.

This is why I am extremely interested in the banks actions. Timing the major fall they have all tried to avoid… but in the end they have added to a possible market crash by fighting the price fall. Only making an easy landing more improbable in our local Reno market.

Great discussion, all.

If the banks sell, they take CASH losses (immediate). They can sell only until they run out of cash, which is very close in a lot of cases. If they hold, they pretend to adequately market the portfolio to market (a lagging metric at best, fraught with number-fudging). The first strategy leads to firing the upper managment and possibly disolving the bank, which looks pretty bad on their resumes. The second strategy however gives the CEO, et.al. job security for a few more months and buys them time to stick their head in the sand hoping for the credit market storm to blow over.

So, until the Board or the Govt or outside vulture investors tells the mgmt “Thou Shalt Offload”, don’t count on the mgmt to voluntarily do so in a meaningful way. Some will, but don’t count on it.

As for the house buy decision. If you plan to live there 10+ years, then buy for the peace of mind you desire. You can’t time the markets reliably forever. If you don’t plan to live there for the long haul, then wait a bit more. MKChick, you’ve already waited 15 yrs, what’s another 18 months? No one in their right mind thinks values are going up in 18 months. You are sitting on cash presumably in the best time in the last 20 years, so focus on a good buy versus good financing.

Finally, recall the proverbial car buying process. The oily salesman will sell the less sophisticated buyers the car they can’t afford. Why? Because he plays with the financing to get your “payments” low. If the purchase decision is that contingent on the financing offered, then by all means you are buying too much (and I’m a lender, no less!). This is EXACTLY why we are in this credit and housing mess; because car-salesmen types in both industries oversold their wares en masse all over this great land.

Good luck, though, MKChick.

My expertise is deminimus with the FDIC, so I can’t answer some of your questions directly. Perhaps someone reading this works for the FDIC?

However I know they are sniffing around some banks I’ve done business with and as a result or partially as a result, I’m seeing fewer banks offering commercial loans and the ones that are are doing so at tighter underwriting standards.

(Commercial lending is quite hard hit right at the moment, mostly as a result of fear and other credit factors in single family. Commercial defaults are something like 60 bps, still extremely low. But we are caught up in the same financial models/structures of valuation and securitization that the single family markets were based on, so it is the case the baby is being thrown out with the bathwater.)

That said, look at what happened to IndyMac. FDIC came in to IndyMac and apparently put a temporary moratorium on rate-resets until they figure out what they have on their books. But afterward, expect they’ll either sell the portfolios off at pennies or start dumping properties on the market.

Again, I’m not in single family, so my comments are educated opinions.

GNARLEY!! LOL.. Surfers just can’t spell.

To CommercialLender,

It’s true that commercial properties are taking big haircuts right now. We’ve seen it in our own portfolio as well. And if you’re looking to do an A & D loan, you probably need to pre-fund two years worth of interest reserve. True also, the default rate on commercial deals is only a fraction of the rate on residential mortgages, but the trend is weakening, and the numbers are larger. A big loan (or group of loans) that go into default at once can sink a bank. Some smaller banks (not this one) have made loans up to their capital limit to one borrower, so that the bank becomes an equity player in the borrower’s business without realizing it until the payments stop.

Commercial properties seem to be falling less rapidly than residential, but I think they will continue to drop in value until the broader economy recovers, which might not be until late 2009.

Define ‘big haircuts’. Commercial property values appear to be falling in that there is a lack of deals being consumated (lack of comps), therefore cap rates appear to be rising, though to date, really not that much. In some sectors, there are appreciably no comps, period. I see deals just sitting or being pulled or being done private-party. Not to say values won’t demonstrably plummet, just there’s really not that many distressed sellers in commercial at this writing, with the quite obvious exception of condos. The next wave will be 2005, 06 and 07 vintage assets bought with high leverage on a deep renovation play and with short-term debt.

Your comment regarding a pool of loans going into default, well, that would be an anomoly not the norm and to date I’ve seen no evidence. There are many, many reasons why, not the least of which is that the vast majority of commercial loans (institutional, $5M+, not small local bank ones) are to ’single asset entities’ underwritten independantly and designed to stand alone. The pools of securitizations you hear about not selling in the secondary market are due to the seizing up of the capital markets, NOT the underlying collateral. At least not yet.

But I think you’ll see stress and eventually rising defaults, but we’re not seeing them to any concerning degree at the moment.

No, what we are seeing is a lack of lenders willing to lend at all and a lack of lenders willing to lend at the aggressive terms of 12, 18, 24 and 36 months ago.

And BTW, my area is $5-$200M loans, not necessarily the smaller loans to smaller investors. In that sector, I would not doubt if defaults are up at a more rapid pace.

PS DonC-

Phinney Ridge is the area he bought in.

correction * 2,200 houses have sold this year.

BillD,
I do commercial property loans $5M and north, maybe down to $3M for a relatively clean deal. If you need to reach me for business reasons, I’m always happy to help (domestic USA only). Dianne or Guy could privately email you my contact information.

As for 20-30% value drops in the commercial sector, again, I’m not seeing it, not at this writing. Land and condos sure, but not retail, office, apartments, warehouse, self storage, etc. Generally speaking, there’s no ‘distress’ to speak of in my space with larger, more sophisticated owners. Those clients are sitting on a ton of cash and are opportunistic, but sellers refuse to sell at those levels, so not much is trading hands at the moment.

Smaller, less financially sound owners, maybe. Assets purchased in the past 36 months with ultra high leverage, soon to be.

To CommercialLender,

Thanks for the clarification, and your knowledge. The deals that are now sideways are the LIFO developers that didn’t have the sophistication to begin with, and didn’t need it before. Most of the value drops I’ve been seeing are in the A & D and land deals. Stabilized properties haven’t shown much of a drop in my area either. I have noticed that it’s taking longer to reach stabilization, and there are still some folks out there offering overly generous T/I credits.

On the residential side, I’m seeing big drops in value for 1+ acre custom lots. But the people who bought them appear to be holding them until the market improves, whenever that is.

DonC:

Perhaps you need to put down the bong, because you just pulled a bunch of BS out of you know where. If you’ll go back and read my post, I was talking about what a $200k per year income would purchase PRE BUBBLE. Your “most houses run” generalizations appear to be nothing more than unscientific observations of current wishing prices in each neighborhood. What do they have to do with affordability for any of these areas pre-bubble?

If you have been following the greater Seattle market prior to the bubble, as I have, you would understand that a nice home in Phinney Ridge would sell for between $250-$300k. A nice, livable home on Mercer could be had for $600k, easily affordable for someone pulling down $200k.

BB — I wasn’t trying to call you out at all. I just pointed out that your idea that a $200,000 income could get you into nice single family home on Mercer Island was wrong. Sorry if you interpreted this as a personal attack, it certainly wasn’t intended as one.

That said, the fact is that a $200,000 income can’t buy you a nice single family house on Mercer Island. The chart you cite proves that. It says that in 2001 the house was valued at $700K, which is considerably more than a $200,000 income can buy. So pre-bubble, post-bubble, whatever, buying in Mercer Island wasn’t really an option. (Of course if you go back far enough I’m sure you can find some point in time when a $200,000 income could have bought it, but at some point none of us had incomes).

Even more interesting is that you can use the Zillow charts to show that your friend made a wise decision buying in Phinney Ridge. Look on Zillow and compare housing prices in the 98117 Phinney Ridge zip code and the 98040 Mercer Island zip code. From 2001 to the present, houses in Phinney Ridge appreciated about 125%. Houses in Mercer Island appreciated about 50%. Obviously Phinney Ridge pre-bubble till now has been a hot area and therefore it was a good idea from a financial standpoint to buy there. (The neighborhoods are completely different and that’s another story altogether.

Very funny, Royal Flush. Point taken. I’m not here to talk about Seattle real estate anyhow, but I don’t like people spreading untruths, and calling into question facts and figures which they obviously know nothing about. In reality, there could be a reader out there who has considered a relocation to the PNW, and I want them armed with the truth, not someones deluded interpretation of it.

It seems DonC has a problem with facts, and reality in general. Had he actually looked at the 10 year value chart for not only the example house priveded, but for ALL of Mercer Island, he would have seen that in 2002 it was a hair north of $550k. EASILY affordable for a salary of $200k, especially with 20% down.

You have no argument DonC, and use baseless assertions instead of hard evidence. Come to think of it, weren’t you the one talking about the “freight train” of $200 per barrel oil? Bwahahahahaha! Perhaps you just enjoy exaggeration.

I’m just being honest, DonC. You don’t know what you’re talking about when it comes to PNW real estate. If you can’t stand the heat, don’t play with fire.

oh and whats that.. the dollar has improved 13% over the Euro since my call on that ?

$$bird call are right as rain$$

RE: “And I thought we were going to stop posters like this going off topic?”

Me too, It was all talk, apparently.

Can anyone help me understand how this Reno real estate blog is better or more informative or more worth reading with Derrick posting unrelated oil baloney every few days in every other topic?

It’s time to put an end to it.