Just another month of numbers that don’t make any sense.
NODs rose over 50% from July’s 711 to 1068, shattering the record of 950 set in May and June. July was unexpectedly low, so August may be just a case of averaging out. The number of properties receiving a NOD that were at least 6 months behind on payments was strikingly high.
NOSs reached a record high of 756, up from 674 in July and the former record of 690 in June. I used to trust the NOS numbers as the best indicator of future TDs, but the sales are being called off or postponed in record numbers.
Given the recent acceleration in NODs and NOSs, the expected increase in TDs did not appear. August saw 325 TDs, down from 409 in July and 358 in June.
Loans ARE NOT being modified in any quantity, unless they are being recorded as new loans. It is my understanding that the modification process is required on loans that have been sliced and diced into securities. There were only 13 "Modification Deed of Trust" recordings in August, and the majority were for commercial properties. It is my belief that the shadow inventory of homes that are in default and have not been foreclosed on is now over 4000 in Washoe County, about equal to all the homes currently listed on the MLS.
I’ve read some interesting blog posts recently about it being cheaper for the banks to foreclose and collect PMI payouts than to actually go through with short sales. I am a complete rookie at all things PMI, and would welcome your sage comments and insights.
Guy is off to Gypsum Flats, so it will be up to me to keep you entertained, amused, and engaged this week. Anything in particularly you want to discuss, are interested in, or have questions about? I’m working up a post on REO resales at the Belvedere and GSR with JoAnn’s help, and maybe another on a couple of multi-million dollar defaults on lakeshore development homes up in Incline, if I lose my fear of Guido the Killer Pimp paying me a visit. It’s your week – let me know how you want to spend it.
Reno Ignoramus
Somebody last week pinted out that the number of TDs recorded is only about 30% of the number of NODs that are recorded. This has been holding pretty steady now for the past 18 months. So it really is not accurate to say that the number of NODs recorded is predictive of future TDs. The number of recorded cancellations of default is about 20% of the number of NODs recorded. So about 20% of all NODs are eventually cancelled, about 30% of them go on to be TDs, and about 50% of them fall into limbo.
Going back to 1/1/08, there have been about 13,750 NODs recorded. About 20% of them have been cancelled, which leaves about 11,000. There have about 5,000 TDs. Which leaves about 6,000 NODs missing in action. That’s rather astounding to me, but then I am just an ignoramus. What possibly is going on with 6,000 properties in limbo? That is more than all the properties listed on the MLS today.
Carl
Some percentage of NODs are for HOA dues defaults. Maybe 10% or so?
Even taking that into account, it is still a HUGE number of properties that have gone MIA after the bank NOD ( or NOS) is recorded. What is happening to them has become the Number One Question of the Day.
FutureRenoHomebuyer
Stats can lie, but so far most of the data re-enforce my continuing bearishness on Nevada real estate. The buyers out there can still afford to be very patient.
That said, reading the data over the months, and learning a ton from this very blog, I’ve cycled occasionally between a bit of anxiety that the bottom is possibly near and an underlying secular philosophy that the housing market will be flat for at least the next 5 years.
My price point is ~$350k – $550K (might go after higher “offers” with a low ball counter — well, it’ll be a low ball counter no matter what). And I would like to see a buying opportunity some time in the next year or two.
What would scare me into buying?
– A big government incentive for prospective buyers (like an increase in credit, or an extension to more than just first timers).
– Higher interest rates (would want to lock in a lower rate)
What do I think will cause prices to rise?
– runaway inflation (which I think is inevitable).
– government incentives (rebates, credits, etc….. costing the taxpayer billions)
Inflation, interest rates, and govt incentives are the only things that would get me anxious to buy. But none of those factors have anything to do with real fundamentals for a healthy real estate market. The have everything to do with “Bailout Nation.”
Real price appreciation will take new jobs, and an end to the foreclosure cataclysm. I see neither on the near term horizon. That said, even the foreclosure crisis will dry up eventually. Fires extinguish themselves when the fuel to feed them is burned away. When that happens, there might be a “generational” buying opportunity.
Still, with all this considered, I continue to be in disbelief at the great numbers of houses on the market, that have been on the market for over 6 months, for over $500k (and well over $200/sq. ft.) And, many are not half million dollar homes. Many are chinese drywall and stucco doll houses with gravel backyards, built at the top of the bubble.
When these homes crack, that’ll be a sign that the time to buy is approaching. Perhaps those homes won’t get nudged over until the shadow inventory cascades down on the market, drastically lowering any reasonable comparison prices (for these still-bubble-priced homes).
Looking forward to a long, long winter, and the possibility of realistic prices in the springtime (barring intervention from Uncle Ben, which must never be ruled out in these times. It is the world we live in).
John Newell
Like FutureRenoHomebuyer, I plan to buy a house in Reno/Sparks at some point in the future. Right now I am not overly worried about missing the $8,000 tax credit if I wait. But again like FutureRenoHomebuyer, if the tax credit is extended and/or changed significantly, I might be forced to buy sooner rather than later, for the same reasons given above.
Changing topics slightly, I ran across something yesterday on the MLS that I found interesting. For the past couple of years, I have regularly (usually daily) reviewed four-bedroom SFRs in Reno/Sparks that are either reduced or newly listed. For much of that time, I only searched in my target price range, but lately I have been including both high and low end properties to get a better feel for the overall market.
Yesterday I came across MLS# 90013047, which is a 2128 sq foot, 30 year old home in Sparks. It is an REO listed for $99,000 ($46.52/sq foot). The house is old, the neighborhood is solidly blue collar, and the lot is small. However, as most of you know, during the bubble this little gem might have sold for $300k+. In fact, the most recent owner (before the bank) appears to have purchased the house for $171,000 in 2002, and then refinanced in 2005 for $280,000 (if I am reading all the docs right). The bank bought it back for $185,900 at auction in early July, and has put it on the market now at just over half of that.
I suspect that the bank is hoping for a bidding war. Yes, the house is old, and the one picture in the listing is not encouraging, but it is zoned for some of the more desirable schools in Sparks, and it is significantly less than any other four-bedroom SFRs in the same area. I suspect the final sale will be in the $140k+ range, but I plan on watching it to see how it turns out. I may even go and have a look, although I hate to waste an agent’s time as I have no plans to do anything but look (although, I find myself tempted to look into buying it as a rental property – rent in the area for similarly sized four-bedroom houses is running $1200 – $1400 – but I don’t really want to be a landlord, and my wife might kill me if we bought a house to rent out before we bought a home for ourselves, no matter how much financial sense it might make).
E.Ardent
OK, The summer hype is coming to a close, Now back to reality, Flooded inventory more on the way and Not enough buyers, Unemployment rising? {Come oct/nov. should be interesting?} All this will = Thats right! More housing price redutions…
Now aren’t you glad you were patient?…Besides Washoe county medium home prices are still way out of wack with medium wages? And sooner or later this will work it-self out in the wash?.. If Inflation is coming, I would think that would really cause prices to drop? Since people would certainly be spending less and saving more?…Accept for necessity items..Food, Fuel, etc..
WorriedGuy
Actually…I am seeing a bunch of price reductions just in the last week on MLS. It seems to be picking up here as the desperation builds.
John Newell
Speaking of desperation, I ran across another interesting nugget today:
MLS: 90011360, built 2006 by Centex homes, sold in 12/2006 for $325,991. Purchaser has 1st for $260,750 (24/6 ARM w/interest only option, if I am reading it right), and 2nd for $65,200 (25 year fixed I believe), both from 12/2006. House was listed for $330,000, but dropped today to $165,000. There is not an NOD filed, and the change date is not until 2012 (unless I am missing something in the deed of trust), but the price cut sure seems to indicate a desperate situation.
A lot of the price reductions I have seen over the last couple years have been of the $5k to $10k variety, but larger reductions do show up, often on properties listed over $500k. But to date, I do not recall seeing a list price cut in half in one fell swoop.
By the way, prusierra.com (which I believe Mike has mentioned before) will allow searches to filter for properties that are newly reduced/listed. I don’t believe the MLS search on RRB has this function.
John Newell
I don’t know what I was thinking — “purchaser” in above post should be “owner”.
John Newell
The 1st on the house mentioned above (MLS: 90011360) is a 25/5 ARM, not 24/6. I think I may need to stop typing for today.
GrayGeekNV
Hello Mike,
Can you please give us an update on the Montage in downtown Reno?
Thanks
bondstevenbond
Yes Mike, I also would appreciate to hear the full current low-down on the Montage. In deference to Guido and in fairness to others on this blog who may own units there, maybe you can just frame the discussion and then let to our anonymous blog sharks gnash away. My friend who is currently renting at the Palladio asked me today if he should consider buying at the Palladio. After all, he said, it is a nice building and at least half full. In my view all downtown condos including the Palladio are absolutely unbuyable until after the FDIC finally sells the Montage to some private equity firm and that firm finally puts the Montage units on the market in whichever form and at what price the market requires to fill the building as condos, rentals, dormitories, or whatever. That’s just one opinion. Would like to hear many others. Thanks!
Martin
You might as well just go back and read the existing threads on the Montage for all the possible speculations. This blog worked over every possible hypothesis and speculation involving the Montage in the days following the deed in leiu late last year. Yes, those threads are several months old now, but the speculation has not changed. Because basically the situation has not changed with Corus. All that’s happening with the Montage now is the Great Corus Death Vigil. I think about 22-23 or so units have sold, which is only about 7-8% of all units. The building is dark at night. Maybe 4 people are living there.
MikeZ
I walked by the Montage this weekend: yup, dark.
The Maytag Reparimen is busiser than the Montage lobby guard.
On the plus side, they were far fewer drunks spilling out from the bar across the street this past weekend than the last time I was there.
billddrummer
Re Montage, Tanamera and Corus Bank:
It’s only a matter of time before Corus goes down. The big problem seems to be a lack of insurance coverage for depositors, caused by the failure of Colonial Bank in August. The FDIC is exploring another special assessment to replenish the insurance fund, because the agency doesn’t want to dip into the credit line that was approved last year.
In the meantime, nearly all of Corus’s constructio portfolio is on nonaccrual, which includes both projects in Reno. Recall that the bank took a deed in lieu back in December when it was clear that sales weren’t close to projections. Tanamera is suffering the same fate; the only good news about that one is that the loan is smaller, and there were tenants prior to the conversion.
Corus has dead projects in Reno and Las Vegas, Florida, Southern CA, and AZ. The bank lost a senior executive in mid-August and still hasn’t published its 2nd quarter reports. Nasdaq issued a letter citing a violation of its listing rules because of the late filing. Not uncommon, but not a good sign.
In the June quarter, Corus reported $3.1 billion in nonperforming assets. At 3/31/09 the company reported $4.1 billion in total outstanding loans. The June quarter marked the third consecutive quarter where the bank paid more out in interest than it earned. (Loans on nonaccrual can’t earn interest, but high-yielding deposits cost interest expense.)
And to add insult to injury, the First Accounting Officer announced her resignation effective Thursday.
I’m surprised the bank is still in business.
bob c
1705 blue spruce road (galena forest)
4 2 1/2 mls 90012001
ask 454,900
hypothetically what would you offer?
(assuming no unforeseen defects)
DownButNotOut
You can always count on the Montage for a good discussion, eh Mike? Something concerning new ownership should be happening soon – if not by the end of the week then I believe at the latest next week.Sept6 was one deadline mentioned.
Hopefully the new owners price the units according to the current market and get sales moving. At a $150K or so they could be a heck of a deal and fill up within a year or two.
What I’m still wondering if the original developer is in on the bidding of the building.It would really come full circle if Fernando becomes the new owner (again).
smarten
Mike –
You asked for some info on PMI. I’ll share what I know.
First, PMI all but does not exist on 80% or lower LTV mortgages.
For higher LTVs, it’s up to the lender but generally at 90% or higher, PMI IS required.
PMI is similar to the insurance required on FHA loans. Without getting into the borrower’s costs, generally it compensates the lender for any mortgage loss but only after the lender has proceeded with foreclosure and title has reverted to it. So yes you may be seeing a spike in foreclosures on mortgages with PMI.
An interesting side-note. Years ago I had a loan on an investment property with 80% LTV and the lender required PMI. Eventually it went into foreclosure and my argument was that because of PMI, there could be no loss nor deficiency against me. Trying to get a copy of the policy was like pulling teeth but eventually I did. Turns out the policy provided that if the property subject to PMI was owner-occupied by the borrower and single family, the PMI company waived the ability to take over the lender’s position in seeking a deficiency.
After the lender disclosed the PMI policy, it stopped threatening me with a deficiency. But if it hadn’t, I knew others in the complex similar to myself who had deficiency judgments actually entered against them.
Hope this helps.
CommercialLender
Smarten,
Fabulous story. Not that I’m taking position one side or the other, but a savvy borrower knows he’s paying for PMI to benefit the lender, so he might as well ask for / call the lender on the fact the PMI is to cover a deficiency if such event arises. Sadly, I’ll bet very few borrowers who pay for this policy know it might benefit them. HMMMM, would this change short sale scenarios as often the shorted borrorower is then 1099’d for the deficient amount?
smarten
Thanks CL –
Not that I’m proud of it but my foreclosure occurred because of Hurricane Iniki or Eva [can’t remember which] in Kauai. First the lender represented it would offer “relief” to mortgagors. Its idea of “relief” was a couple of month holiday after which it demanded the “holiday” be paid for in full. We were dependent upon rental income to cover a good portion of the mortgage payment and because of the Hurricane, tourism dried up over night. So did our rental income.
Interestingly we didn’t get 1099’d. Probably because the lender bid in the full amount of its claim at the foreclosure sale leaving no deficiency and I guess, no “relief from indebtedness.”
One final interesting side note I’ll never forget. When FEMA came into town with stories re low interest rate SBA loans to help out, we didn’t qualify because the property was NOT owner-occupied. So much FEMA relief.