"4 weeks and then all hell breaks loose"

[CapitalismWorks_IHB]

Shadow inventory. HAHAHAHAHAHAHAHAHAHAHAHA.

I am ignoring AI. I assume I am the last person to this...

 

[NewportSkipper_IHB]

How much was the loan balance and the approximate value of the home?

In one of them the value is $1.3m and the loan is like $950k. Another one has a value of $550k and a loan of around $700k. So one is upside down and the other one not.

Was the principle written down or just backloaded?

The principal was not written down on the one that is underwater. The other one has equity.

What type of tems is it now (interest rate, length, etc)?

I only know the payment is $1,300 on the $700k, but I don't know whether the property tax is included. The bigger one: I don't know the payment, but the rate starts at 2% (ish) and rises 1% per year after that. I don't know if the 2% is for 5 years or just the first year.

What kind of loan was the original?

The $700k one is an option arm and I don't know what the other one was.

 

[NewportSkipper_IHB]

There are thousands upon thousands of loans being paid today under these exact circumstances. People know value will return in time.

I think you are sweeping with a broad brush there. While some people may be motivated by the future possibility of the Ben Billfolds Five reinflating the bubble, there are others who, among other possibilities, (1) like their house, can afford the mortgage (if any), and will stay, or (2) will beg, borrow, steal, work multiple jobs and/or take on renters because (a) they like the house / neighborhood and don't want to move, (b) they don't want to face the embarrassment of foreclosure, or (c) they don't want to ruin their credit, or (d) believe they need to perform their part of the contract.

I'm just not ready to say I know the thinking of thousands of people, and in part that is because I know people in all of the categories I listed.

I know we have all been talking about AV as a sample, but I would really like to see some numbers for Ladera. The Foreclosure Radar map has shown that place with a bad case of measles for something like two years now, plus with all the people who bought "extra" properties for flipping, I think you would find a fair amount of shadow inventory. <---- I don't have any numbers on this and it is based on observation and anecdotes (the plural of which is, of course, not data), but I think that is one of the where you will find it.

I agree completely. I meant in addtition to what you mentioned, they also believe value will return. In Awgee's example, a $100,000 loss is offset by around 13% appreciation. The only way to recover is to stay leveraged. Bailing and starting over is not an option.

 

[trrenter_IHB]

If the lenders and/or servicers can make money modifying loans vs. foreclosures, they will be motivated to modify loans.

And there will be many borrowers/owners who will decline the loan mods, IMO. Put yourself in the shoes of someone who owes $800,000 on a home that would sell for $700,000, and no one is offering to write off any of the principal. Is there really any reasonable payment amount on an $800,000 loan that will make the payment attractive enough that the owners will not find renting more palatable? Maybe, but I doubt it. Especially as the owners see the value of their home continue to decrease.

Now, if the modifications start including principal write down, everything changes.

But, ya gotta wonder, or at least I wonder, if principal is written down, someone still has to pay. Either the lenders or the government, (us), or a combination. As as long as someone is paying for debt, they will not be spending, on real estate or other stuff. and if the gubamint prints money to pay for the debt, which it seems to be doing at a phenomenal rate, we all pay in increased prices for everything. There is no free lunch. Loan mods will only prolong and increase the agony.

The other issue is the type of loans.

If I am a first mortgage lender under the above scenario. The home is now worth 700k and depreciating.

The FB Owes 800k but only owes me 80% of that which is 640k. They owe the other 20% to someone else. I could care less about the other lender.

I can take the house back and still almost be whole or I can wait and hope the FB does stay and the home doesn't depreciate any more if they don't.

 

[NewportSkipper_IHB]

These loss mitigation and foreclosure prevention efforts taken in Q109 and Q209 so far outperform the efforts taken in all of last year. Modifications made in the first two quarters of 2009 experienced lower redefault rates in their initial three months than those modifications made in every quarter of 2008.

The national rate for all non-current loans — both delinquencies and foreclosures — edged up to 11.6% in July, a 50% year-on-year increase.

The deterioration ratio of loans worsening in status versus improving now sits at 2.2 to 1. Jumbo prime, option adjustable-rate mortgages (ARMs) and non-agency conforming prime loans experienced the highest deterioration rates. Jumbo prime foreclosure rates, for example, are up 634% from January 2008.

Based on reading about the housing market, both national and local, for the last 3-4 years and actually having read IR's book, I interpret this as such:

Instead of being able to help a laughable trickle of people stay in their homes, it's now more like a stream. And they are mostly those folks in the flyover states where back in the day you could actually still buy a house for less than $417K. Awesome for those few in the stream who aren't in the 11.6% anymore. We'll see how it continues to work out for you folks.

For those in the areas where you needed a fat-ass loan to buy a house, it is finally your turn and it sucks to be you. I will wait patiently to see what the numbers are in 6 months to see if the foreclosure prevention programs help people who paid [insert ridiculous multiplier here]X income for a house. I haven't seen much sympathy from the government for these folks yet, so I'll just get my popcorn and watch. I might still throw some at the TV, but hopefully not.

You will be proven wrong. I know of people with very large loans that have had them modified.

I thought you eschewed anecdotal evidence. We are the data?

I specifically said these are cases I know of personally. They do not constitute data.

 

[NewportSkipper_IHB]

If the lenders and/or servicers can make money modifying loans vs. foreclosures, they will be motivated to modify loans.

And there will be many borrowers/owners who will decline the loan mods, IMO. Put yourself in the shoes of someone who owes $800,000 on a home that would sell for $700,000, and no one is offering to write off any of the principal. Is there really any reasonable payment amount on an $800,000 loan that will make the payment attractive enough that the owners will not find renting more palatable? Maybe, but I doubt it. Especially as the owners see the value of their home continue to decrease.

Now, if the modifications start including principal write down, everything changes.

But, ya gotta wonder, or at least I wonder, if principal is written down, someone still has to pay. Either the lenders or the government, (us), or a combination. As as long as someone is paying for debt, they will not be spending, on real estate or other stuff. and if the gubamint prints money to pay for the debt, which it seems to be doing at a phenomenal rate, we all pay in increased prices for everything. There is no free lunch. Loan mods will only prolong and increase the agony.

The other issue is the type of loans.

If I am a first mortgage lender under the above scenario. The home is now worth 700k and depreciating.

The FB Owes 800k but only owes me 80% of that which is 640k. They owe the other 20% to someone else. I could care less about the other lender.

I can take the house back and still almost be whole or I can wait and hope the FB does stay and the home doesn't depreciate any more if they don't.

There are many instances where the lender holds both loans, albeit in different pools.

 

[no_vaseline_IHB]

The cure rate is going up.

Is it now? Got data to back that up, Skippy?

 

[NewportSkipper_IHB]

If the lenders and/or servicers can make money modifying loans vs. foreclosures, they will be motivated to modify loans.

And there will be many borrowers/owners who will decline the loan mods, IMO. Put yourself in the shoes of someone who owes $800,000 on a home that would sell for $700,000, and no one is offering to write off any of the principal. Is there really any reasonable payment amount on an $800,000 loan that will make the payment attractive enough that the owners will not find renting more palatable? Maybe, but I doubt it. Especially as the owners see the value of their home continue to decrease.

Now, if the modifications start including principal write down, everything changes.

But, ya gotta wonder, or at least I wonder, if principal is written down, someone still has to pay. Either the lenders or the government, (us), or a combination. As as long as someone is paying for debt, they will not be spending, on real estate or other stuff. and if the gubamint prints money to pay for the debt, which it seems to be doing at a phenomenal rate, we all pay in increased prices for everything. There is no free lunch. Loan mods will only prolong and increase the agony.

The other issue is the type of loans.

If I am a first mortgage lender under the above scenario. The home is now worth 700k and depreciating.

The FB Owes 800k but only owes me 80% of that which is 640k. They owe the other 20% to someone else. I could care less about the other lender.

I can take the house back and still almost be whole or I can wait and hope the FB does stay and the home doesn't depreciate any more if they don't.

'

Foreclosure takes away 30% or more of current value. You would have a big loss even if your loan was 80%.

 

[NewportSkipper_IHB]

The cure rate is going up.

Is it now? Got data to back that up, Skippy?

See Graphrix' post in this thread.

 

[NewportSkipper_IHB]

Damn, I feel like a one-armed....no.....paperhanger.

 

[awgee_IHB]

There are thousands upon thousands of loans being paid today under these exact circumstances. People know value will return in time.

I think you are sweeping with a broad brush there. While some people may be motivated by the future possibility of the Ben Billfolds Five reinflating the bubble, there are others who, among other possibilities, (1) like their house, can afford the mortgage (if any), and will stay, or (2) will beg, borrow, steal, work multiple jobs and/or take on renters because (a) they like the house / neighborhood and don't want to move, (b) they don't want to face the embarrassment of foreclosure, or (c) they don't want to ruin their credit, or (d) believe they need to perform their part of the contract.

I'm just not ready to say I know the thinking of thousands of people, and in part that is because I know people in all of the categories I listed.

I know we have all been talking about AV as a sample, but I would really like to see some numbers for Ladera. The Foreclosure Radar map has shown that place with a bad case of measles for something like two years now, plus with all the people who bought "extra" properties for flipping, I think you would find a fair amount of shadow inventory. <---- I don't have any numbers on this and it is based on observation and anecdotes (the plural of which is, of course, not data), but I think that is one of the where you will find it.

I agree completely. I meant in addtition to what you mentioned, they also believe value will return. In Awgee's example, a $100,000 loss is offset by around 13% appreciation. The only way to recover is to stay leveraged. Bailing and starting over is not an option.

I am sure there are folks who will hold on. In investing, it is called "throwing good money after bad" and it is what the majority will do in that situation, so you may be very right.

 

[NewportSkipper_IHB]

There are thousands upon thousands of loans being paid today under these exact circumstances. People know value will return in time.

I think you are sweeping with a broad brush there. While some people may be motivated by the future possibility of the Ben Billfolds Five reinflating the bubble, there are others who, among other possibilities, (1) like their house, can afford the mortgage (if any), and will stay, or (2) will beg, borrow, steal, work multiple jobs and/or take on renters because (a) they like the house / neighborhood and don't want to move, (b) they don't want to face the embarrassment of foreclosure, or (c) they don't want to ruin their credit, or (d) believe they need to perform their part of the contract.

I'm just not ready to say I know the thinking of thousands of people, and in part that is because I know people in all of the categories I listed.

I know we have all been talking about AV as a sample, but I would really like to see some numbers for Ladera. The Foreclosure Radar map has shown that place with a bad case of measles for something like two years now, plus with all the people who bought "extra" properties for flipping, I think you would find a fair amount of shadow inventory. <---- I don't have any numbers on this and it is based on observation and anecdotes (the plural of which is, of course, not data), but I think that is one of the where you will find it.

I agree completely. I meant in addtition to what you mentioned, they also believe value will return. In Awgee's example, a $100,000 loss is offset by around 13% appreciation. The only way to recover is to stay leveraged. Bailing and starting over is not an option.

I am sure there are folks who will hold on. In investing, it is called "throwing good money after bad" and it is what the majority will do in that situation, so you may be very right.

What do you suppose the damage is in the alternative? It is steep and longlasting and far exceeds a paper loss of $100,000. Now, being upside down $300k on $600k is another matter altogether.

 

[awgee_IHB]

There are thousands upon thousands of loans being paid today under these exact circumstances. People know value will return in time.

I think you are sweeping with a broad brush there. While some people may be motivated by the future possibility of the Ben Billfolds Five reinflating the bubble, there are others who, among other possibilities, (1) like their house, can afford the mortgage (if any), and will stay, or (2) will beg, borrow, steal, work multiple jobs and/or take on renters because (a) they like the house / neighborhood and don't want to move, (b) they don't want to face the embarrassment of foreclosure, or (c) they don't want to ruin their credit, or (d) believe they need to perform their part of the contract.

I'm just not ready to say I know the thinking of thousands of people, and in part that is because I know people in all of the categories I listed.

I know we have all been talking about AV as a sample, but I would really like to see some numbers for Ladera. The Foreclosure Radar map has shown that place with a bad case of measles for something like two years now, plus with all the people who bought "extra" properties for flipping, I think you would find a fair amount of shadow inventory. <---- I don't have any numbers on this and it is based on observation and anecdotes (the plural of which is, of course, not data), but I think that is one of the where you will find it.

I agree completely. I meant in addtition to what you mentioned, they also believe value will return. In Awgee's example, a $100,000 loss is offset by around 13% appreciation. The only way to recover is to stay leveraged. Bailing and starting over is not an option.

I am sure there are folks who will hold on. In investing, it is called "throwing good money after bad" and it is what the majority will do in that situation, so you may be very right.

What do you suppose the damage is in the alternative? It is steep and longlasting and far exceeds a paper loss of $100,000. Now, being upside down $300k on $600k is another matter altogether.

Cut your losses short, let your winnings ride.

If I go long a stock, and it moves in the opposite direction from what I think it will do, I have a predetermined price at which I sell, even before I buy the stock. If it hits that price, I sell. Never hold a stock trying to make up for losses. Make money, winnings, by riding a winning hand. You can not make money by holding onto a losing hand or riding a losing investment.

People holding on to real estate in order to mitigate their current loss, will IMO be waiting until the bottom, and they will capitulate at the bottom. The majority always do. The majority hold on, and hold on, and hold on to avoid the pain of the loss and then they finally sell at the bottom. The maority will ride the loss until the pain is just too great. And then they wil sell. That is why the minority make money. And it will always be this way.

It is human nature to be a part of a community. It is human nature to go with the crowd. In most of life, there is safety in numbers. Investing is the exact opposite.

You may think I am a bit crazy.

Many of the folks here know my history.

We levered up in 2000 on a home.

The price of our home doubled by 2005. We made 400% or 500% on our equity.

We sold in the summer of 2005.

I have since more than doubled our net worth in investments.

This in minorly a brag and mostly a history in order to establish credibility that I know of what I speak when it comes to investing.

Holding on in order to recoup losses is for losers. That is ok. At least they will be in the same boat as many other, which is what makes most people feel secure anyhows.

This real estate cycle will be no different.

 

[NewportSkipper_IHB]

"Cut your losses short, let your winnings ride."

That works better when you have something to take back (other than pain) and leverage is not being lost.

"People holding on to real estate in order to mitigate their current loss, will IMO be waiting until the bottom, and they will capitulate at the bottom. The majority always do."

The majority of people do not have to move just because there is a paper loss. Irvine has barely budged in 2009 and there is no capitulation.

 

[NewportSkipper_IHB]

Didn't you (Awgee) do exactly what you said others will not do, that is, you held when you were upside-down?

 

[graphrix_IHB]

Irvine has barely budged in 2009 and there is no capitulation.

ROFLMAO! :lol: That is so not true. Foreclosure stats keep increasing for Irvine every single month. 912 are in some stage of foreclosure right now. Just a month ago I was shocked Irvine broke the 800 mark, a few months before that it was the 700 mark, just a few months before that is was the 600 mark. And, yes, the REOs have increased significantly in Irvine. Maybe Cayci was right, loan mods mostly apply to the flyover states, and Irvine with its above conforming loan amounts is getting shafted.

 

[no_vaseline_IHB]

Damn, I feel like a one-armed....no.....paperhanger.

Graph's article says nothing of the sort. You're making things up again.

 

[NewportSkipper_IHB]

Irvine has barely budged in 2009 and there is no capitulation.

ROFLMAO! :lol: That is so not true. Foreclosure stats keep increasing for Irvine every single month. 912 are in some stage of foreclosure right now. Just a month ago I was shocked Irvine broke the 800 mark, a few months before that it was the 700 mark, just a few months before that is was the 600 mark. And, yes, the REOs have increased significantly in Irvine. Maybe Cayci was right, loan mods mostly apply to the flyover states, and Irvine with its above conforming loan amounts is getting shafted.

Price capitulation. Places like Westpark are trading at 10%-15% off peak. That's the only capitulation that matters.

 

[NewportSkipper_IHB]

Damn, I feel like a one-armed....no.....paperhanger.

Graph's article says nothing of the sort. You're making things up again.

It says exactly that. Go read it again.

 

[awgee_IHB]

Didn't you (Awgee) do exactly what you said others will not do, that is, you held when you were upside-down?

Sorry, I should have been more clear. We traded up in 2000, into a home and mortgage that was a huge stretch for us. We were never upside-down on the mortgage. We put down about 25%, but our mortgage was difficult for us.

The property before that, we did indeed hold while upside-down and underwater, and I hopefully learned a lesson from that. We did exactly what everyone else does, and I still remember the paid and what it felt like.