The effect of the credit crunch begins in December

graphrix_IHB

graphrix_IHB

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I mentioned the huge increase in the December foreclosure numbers in the <a href="http://forums.irvinehousingblog.com/discussion/346/10/foreclosure-and-distressed-property-topics/">foreclosure thread</a>. But, I am hoping that this thread will create more of a discussion on the true ugliness that is about to happen.





It takes at least 90 days before an NOD is filed, and it is usually longer. So, any borrower who skipped their August payment, because they thought they could refi but couldn't, started to receive the NOD this last month. So far, in the first 15 business days of December, there has been an estimated 1346 NODs filed. That is 89.7 per business day, and as long as it continues for the next 5 business days, then December will have a record for most NODs at 1794. The record was in March 1996, at 1620. This would equate to 1 NOD for every 454 homes, and 96's peak was 1 NOD for every 432 homes. (Homes are adjusted at 80% of the housing stock per the <a href="http://www.dof.ca.gov/">DOF</a>. This adjustment is based on an OCR article on delinquent property taxes.) Not as bad, but it is not getting any better. This is really ugly. I dug up some articles from 96, and the increase from the year before wasn't that bad. What they did was compare it to 92, and it still wasn't as bad as this percentage increase of today. We are currently seeing triple digit YOY increases, but they had to look back 4 years in 96 to get the same increase today.





Foreclosures will be up as well. Already there has been 503, and if the per day pace continues, then they will hit 670. I do not know what the record is, but this month will either be one or damn close.





Notice of trustee sales are increasing like crazy. This will mean more foreclosures.





While last month the numbers decreased, this month is going to make it look like a one month anomaly. And, to think that December is just the first month to see the pain of the credit crunch.





I am not a pessimist, but I am a realist. These are the numbers, and they are going to be very real.
 
According to the OCR the number of transactions in December is around 1000. Soon there will be more foreclosures per month than home purchases. They are saying that about 25% of the homes on the MLS are distressed properties(REO/Shorts).





I agree, these numbers are staggering.
 
<p>Come on awgee. . . you can get a great deal on a REO. . . you just have to do your research... there are so great bargains out there! But no numbers. Numbers are our enemies.</p>
 
What do you expect from realtors? NAR adjust its numbers every month...I believe it's done that the last 11 straight months.
 
No. . .just a lot alcohol. Remember numbers are not our friends. . .they are a ploy created by the media to scare people into not buying housing. Heck, numbers are tools by the devil to try and stop all the great realtors from selling houses. Numbers are evil.
 
What always amazes me about foreclosure numbers is when you think about what might be underneath them - for every foreclosure how many people are barely still paying thier mortgage, looking at a mortgage re-set - or are in a regular 30 year mortgage that they are barely affording. The numbers become staggering. Sometimes I wonder why we aren't hearing people talking about this more than they are - I think there is a lot going on privately.
 
<p>movingaround. </p>

<p>Foreclosures are like bankruptcy.. . more people should do it (economically speaking) but many do not because they feel morally obligate to pay off their debts. Bankruptcy actually takes a tremendous psychological toll on the people for many years. </p>
 
<p>I assume there are figures that come out indicating how many people have filed bankruptcy? Are those up - or are we still ahead of those statistics showing up? I really have no concept as to how bankruptcy works except the little I have read on calculated risk about the whole idea of cram downs which I am still trying to figure out exactly. So, if you file bankruptcy you can still stay in your house? Meaning that behind all the foreclosures are a lot of bankruptcies that we don't even see or know about?</p>
 
<p>Here is a thought for why there may be less forclosures than one would expect. I have been watching a few homes in my less immediate neighborhood which have had NODs filed, and it seems without fail that the borrower becomes current just before the property goes to the courthouse steps. I thought this strange ... until hs_teacher wrote a post on another thread. Hs_teacher tells of some difficulty selling his present property, but he does not care because he has taken out a HELOC and he uses the HELOC to make the payments on his home, and he considers this to be living "rent free".</p>

<p>Hs_teacher - If I mischaracterized your post, please feel free to correct me.</p>

<p>I wonder how many folks can not make their mortgage payments with their current income and budget, and are doing as hs_teacher is doing and using the equity in their property to forestall selling their homes for less than they want or avoiding foreclosure for a bit longer.</p>

<p>It has been my contention that lack of equity or negative equity will be just as much, if not more than a contributing factor than payment distress in the foreclosure trends.</p>
 
<p>Awgee, don't you only get deeper underwater doing this? Well being bankrupt by $10k or $200k is being bankrupt anyway, so you might as well live rent-free as long as you can.</p>

<p>Does it mean you are giving up if you start using HELOC to pay for your monthly payments?</p>
 
<p>although I don't do that (moral reasons and such), paying your mortgage out of your HELOC makes economical sense if you are planning to file for bankruptcy in the future or will be selling your home soon. Consider this hypo based on my own home's financing figures: </p>

<p>mortgage, taxes, HOA: $2,500 monthly</p>

<p>HELOC available: 100K, none currently used. Current interest rate: 4.5%. If I start borrowing 2.5K each month to pay my mortgage & HOA, I would only have to pay 4.5% on that. 1st month: I only need to pay: $112.5! 2d month: $225, and so on...</p>

<p>Beats shedding 2.5K monthly and/or a foreclosure, doesn't it? </p>
 
<p>Roo - To each their own, but it is fictional to think of it as living "rent free". The borrower is using the equity, (recognized yet unrealized gains), to make their payments. If you used capital gains from stock to pay your mortgage, would you think of it as living rent free, or would you think of it as paying with your capital gains?</p>

<p>I wonder how many folks are doing this and what effect it will have on the housing market when the "free rent through HELOC" runs out.</p>
 
Ok, here comes a stupid question: Could the bank cancel your HELOC or it is valid for a certain amount of time? Why don't you open up a CD with ING at 5%? That 0.5% free money...
 
Ok awgee, I don't own a home. But i was just telling you what people can do to stay in a home. I know a couple who cashed out 200k from their home. I think they are also trying to sell it. So... even if the home doesn't sell in a year or two, they still have plenty of cash to make the mortgage payments until it does. Thus, it will be two years from now until they will feel "distressed".
 
<p>I believe that if you make your interest payments on time, the bank won't cancel it (they would be nuts to kill their cash cow :)</p>

<p> On my HELOC, I have to repay all of the principal at the end of the 10th year. Until then, interest payments are sufficient. </p>

<p>Plus, to open a CD, you need to have the money saved, right? So, if you don't, then HELOC again becomes a very attractive option. </p>
 
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