Waiting to catch a wave? Surge of REO listings is unlikely.

[quote author="freedomCM" date=1251246296]hah, and I read on CR that the 6% "cure" rate includes those who have received "loan mods", over half of which will fail within a year.



so it is really 3%</blockquote>


With potential to fall to 0%. "Ruthless Defaults" will rule the day if they don't already.
 
It finally happened... Irvine broke the 900 mark with 905 (949 if you include properties sold to investors) properties that are in foreclosure or have been recently foreclosed on, according to Foreclosure Radar. It took just over a month from when Irvine broke the 800 mark to break the 900 mark. Not as scary as it could have been, but it is not a positive sign. With only a few thousand here and there in loan mods across the <strong>NATION</strong>, does anyone else want to call for a bottom in Irvine? I didn't then, nor will I now... this is only beginning.
 
To sync up with the periodic sale reports online, I've shifted my view to 22 business days ahead and behind instead of the next 30 calendar days.





Well, the bad news is, the next 22 business days, Irvine has 296 Auction scheduled. Maybe it's just the ebb and flow of the calendar, but we've gone from 240something to 296 in a month.



In the last 22 business days, Irvine actually foreclosed on 23. For the 22 days in July, it was 27. For the 22 days in June, it was 23 foreclosures. May, 20something. So Irvine seems stalled at closing 20 something foreclosures while the Auctions just build and build.



Pretend and extend.





Viva la Roja!
 
Not to worry; I am sure none of these are going to be in Irvine.



<a href="http://www.msnbc.msn.com/id/32756481/ns/business-real_estate/">Treasury: Millions more foreclosures coming </a>



WASHINGTON - <strong>Only 12 percent of U.S. homeowners eligible for loan modifications under the Obama administration's housing rescue plan have had their mortgages reworked</strong>, and millions more foreclosures are coming, the Treasury Department said on Wednesday.



A Treasury report showed 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.



Treasury has begun releasing monthly reports on the loan modification program, called the Home Affordable Modification Program or HAMP.



In July, it said that just 9 percent of the estimated number of homeowners eligible had had their loans modified, so Treasury's assistant secretary for financial institutions, Michael Barr, was able to claim modest progress in August.



He told a House Financial Services subcommittee that the program launched in February, which brings banks and loan servicers together with at-risk homeowners, was on target to help a half million Americans homeowners by November 1.



But that is a small start on a huge problem at the heart of U.S. economic woes.



<strong>Barr said that "even if HAMP is a total success, we should still expect millions of foreclosures"</strong> as administration and industry efforts continue to stabilize a crisis-stricken housing sector.



Barr said a strong housing market was "crucial" to a sustained U.S. economic recovery and described the slump in prices and demand in the housing sector as being "at the center of our financial crisis and economic downturn."



He noted that analysts anticipate more than six million Americans could lose their homes in the next three years.



"Much more remains to be done and we will continue to work with other agencies, regulators and the private sector to reach as many families as possible," Barr said.



The Treasury report showed that some lenders had not helped any of their borrowers who were eligible for loan modifications. Others had helped varying numbers of those who were 60 or more days delinquent on their mortgages, ranging up to 100 percent for one bank that only had one eligible borrower.
 
<a href="http://financemymoney.com/2009/09/option-arm-silent-bomb-189-billion-in-outstanding-option-arms-with-134-billion-recasting-in-2-years-94-percent-of-borrowers-made-minimum-payment/">Option ARM Silent Bomb: $189 Billion in Outstanding Option ARMs with $134 Billion Recasting in 2 Years. 94 Percent of Borrowers Made Minimum Payment.</a>



There is devastating news out this week regarding option ARM loans. Option ARMs are a unique kind of mortgage since they offered borrowers a variety of methods to pay their monthly mortgage. The problem with the data coming out this week is that 94 percent of borrowers elected to go with the most financially destructive option of making the minimum payment. With $189 billion in option ARMs still outstanding this will have an impact on states like California, Florida, Nevada, and Arizona that hold 75 percent of these loans.



The 94 percent figure of borrowers making minimum payments is disturbing. What this implies is that many elected to go with negative amortization in states that were hit with the biggest unwinding of the housing bubble. Contrary to recent articles, the data produced by Fitch Ratings offers us the following information:



http://financemymoney.com/wp-content/uploads/2009/09/option-arm-data1.png



Source: Fitch Ratings



On top of this data, we are told that <strong>only 12 percent of all option ARM loans have recast.</strong> So a tiny amount have hit recast dates or maximum loan caps but the fact that <strong>46 percent of option ARM loans are now 30+ days late</strong> is troubling. This category of mortgages are now facing default rates on par with those of subprime mortgages. The option ARM was simply a product of the housing bubble. It has no use in a normal market and in a declining market, it is completely toxic.



In the news we have heard that many option ARM loans have been modified. The data released this week once again puts that figure into doubt. <strong>Fitch Ratings shows that only 3.5 percent of option ARMS have been modified.</strong> Out of the 1 million or so option ARMs only 35,000 have been modified. This number is paltry and shows that little is being done. Of those loans that have been modified, default rates are at 24 percent after 90 days compared to 37 percent with non-modified loans. In other words, very little is accomplished with modifications.



And what would you expect? The current modifications with option ARMs include two primary tactics:



1. Interest rate reductions



2. Extending the length of the note



With 70 percent of loans recasting in the next 2 years, the notion that most of the option ARMs are modified is not correct. Using the small subset of 3.5 percent of those modified option ARMs, we already see that very little is being done in terms of keeping homeowners in their home. Assuming that is the goal of the modification, they are failing. Yet the real underlying goal of the modifications is to keep the bank balance sheet as clean as possible for as long as possible so they can claim that those option ARMs are worth face value.



This plays into the reasons that I see California being in a tough housing situation for 2010. California is the holder of the largest number of option ARMs. Given this data, we now know that the bulk will hit in the upcoming two years. Some have made the case with Wells Fargo and the 10 year Pay Option ARMs but looking at current data, this is the exception and not the rule. Most of the vintage 2004-07 option ARMs will start recasting in mass in 2010.



If we look at loan-to-value ratios when the loans were made, the option ARM was at 79 percent. Now they are at 126 percent. A far cry from the origination figure but that original number is misleading. Many of these loans piggy-backed with second mortgages as 80/20 or 80/10/10 combos. That is, to think people came in with 20 percent is false.

<strong>

So option ARMs are still here and the silent bomb is still with us.</strong> With default rates as high as they currently are, 2010 is going to add more additional losses to the balance sheet of banks.
 
[quote author="IrvineRenter" date=1252668555] The problem with the data coming out this week is that 94 percent of borrowers elected to go with the most financially destructive option of making the minimum payment. </blockquote>


Basically 94 percent make the minimum payment because they can only afford the minimum payment.
 
Why am I scared some gov/bank yahoo is going to get the bright idea of putting a moratorium on O-ARM recast/resets?



<em>"Give 'em 5 more years of minimum payments... the market should bounce back by then."</em>
 
[quote author="NewportSkipper" date=1252706169]Either the data are corrupt, or 63% of option arms have been foreclosed or refinanced.



http://www.businessweek.com/lifesty...5_526168.htm?chan=rss_topEmailedStories_ssi_5



"Today, outstanding option ARM loans in the U.S. total about $500 billion....."



This problem is 1/3rd of its former self.



Note: this is data from me, as usual. Don't pretend it doesn't exist.</blockquote>


That is a good, but old article:



<blockquote>According to Credit Suisse (CS), monthly option recasts are expected to accelerate starting in April, 2009, from $5 billion to a peak of about $10 billion in January, 2010. Some of these loans have already started to recast. About 13% of option ARMs that were issued in 2006 were delinquent by 60 days by the time they were 18 months old, Credit Suisse said. </blockquote>


<blockquote>Among the states expected to be worst-hit is already battered California. Today, outstanding option ARM loans in the U.S. total about $500 billion, about 60% of which were sold to California homeowners, according to Credit Suisse.</blockquote>


<blockquote>"Most of the public is thinking that the subprime thing is over, but this is another thing waiting," Bhattacharya said. "The problem for these borrowers is that once you go underwater, it's very hard to refinance, and if you cannot refinance there is very little option for you." </blockquote>


<blockquote>Many California homeowners, including some with $2 million homes, are simply making their minimum payment, waiting for the recast. Then they plan to walk away, even if it damages their credit, Bedard said.



"A lot of people are just walking," Bedard said. "It's just a business decision; they don't have a lot of skin in the game." But for many others it will be devastating. </blockquote>


Do you really think that this is not a problem?
 
[quote author="NewportSkipper" date=1252706169]Either the data are corrupt, or 63% of option arms have been foreclosed or refinanced.



http://www.businessweek.com/lifesty...5_526168.htm?chan=rss_topEmailedStories_ssi_5



"Today, outstanding option ARM loans in the U.S. total about $500 billion....."



This problem is 1/3rd of its former self.



Note: this is data from me, as usual. Don't pretend it doesn't exist.</blockquote>


There seem to be two sources of information about this outstanding ballance of option arms.



Credit Suisse which is where your $500 Billion comes from.



Fitch where the $189 Billion comes from.



Without any research it would apear that 2/3 of the loans just disappeared or were cured.



However the difference between the two numbers is that Credit Suisse seems to use the entire outstanding balance where as Fitch only uses the total securitized amount.



<blockquote>The Fitch Report covers only those mortgages that were securitized, meaning packaged into securities and resold. Fitch does not analyze that mortgage financiers Fannie Mae and Freddie Mac, or lenders, hold in their portfolios.</blockquote>


<a href="http://www.stopwiforeclosures.com/stop-wi-foreclosures-blog/">Cited Link</a>
 
[quote author="trrenter" date=1252712344][quote author="NewportSkipper" date=1252706169]Either the data are corrupt, or 63% of option arms have been foreclosed or refinanced.



http://www.businessweek.com/lifesty...5_526168.htm?chan=rss_topEmailedStories_ssi_5



"Today, outstanding option ARM loans in the U.S. total about $500 billion....."



This problem is 1/3rd of its former self.



Note: this is data from me, as usual. Don't pretend it doesn't exist.</blockquote>


There seem to be two sources of information about this outstanding ballance of option arms.



Credit Suisse which is where your $500 Billion comes from.



Fitch where the $189 Billion comes from.



Without any research it would apear that 2/3 of the loans just disappeared or were cured.



However the difference between the two numbers is that Credit Suisse seems to use the entire outstanding balance where as Fitch only uses the total securitized amount.



<blockquote>The Fitch Report covers only those mortgages that were securitized, meaning packaged into securities and resold. Fitch does not analyze that mortgage financiers Fannie Mae and Freddie Mac, or lenders, hold in their portfolios.</blockquote>


<a href="http://www.stopwiforeclosures.com/stop-wi-foreclosures-blog/">Cited Link</a></blockquote>


Thanks for clearing that up. Do you know what the unsecrutized number is now? As Graphrix has pointed out, these loans are defaulting before recast, probably due to negative equity. It's virtually certain that a lot of the damage is being front-loaded in time and the number remaining is getting smaller all the time.
 
<blockquote>Thanks for clearing that up. Do you know what the unsecrutized number is now? As Graphrix has pointed out, these loans are defaulting before recast, probably due to negative equity. It's virtually certain that a lot of the damage is being front-loaded in time and the number remaining is getting smaller all the time</blockquote>


No that is a bad assumption. The can is just getting kicked down the road.



<a href="http://www.butthenwhat.com/?p=3205">Option ARMs Get Some Breathing Room</a>

<blockquote>

Credit Suisse study that says the wave of resets for Option ARMs which had been forecast to begin this year and accelerate through 2010 has probably been delayed by about a year. The reason? Low interest rates.</blockquote>


<blockquote>Option ARMs are devilishly hard to refinance. The combination of falling home prices and negative amortization puts most of them significantly under water. Additionally, most Option ARM borrowers are heavily reliant on low interest only payments so attempting to move them to fixed rate amortizing loans often results in significant payment increases. Put simply, these borrowers bought homes that were seriously beyond their reach and no modification short of gifting them significant amounts of equity is going to solve their problem.</blockquote>
 
[quote author="irvine_home_owner" date=1252711642][quote author="NewportSkipper" date=1252706169]

This problem is 1/3rd of its former self.

</blockquote>
I disagree from the molecular level of my being.</blockquote>


I could not agree more. Its getting far far worse.



The number of Foreclosures is getting larger as there is more and more negative equity being created as prices erode.

Skippys brain is "hard wired" that Real Estate always appreciates.

Thats the fatal flaw in most of his opinions. He assumes a "V" shaped recovery in housing.

When its more than likely going to be more like the Japanese model. It may take 20 Years for the recovery to 2006 peak RE prices. Its not going to be pretty in the least. Especially for people trying to make a living in RE.
 
"No that is a bad assumption. The can is just getting kicked down the road."



If there are many in foreclosure and already foreclosed upon, then by definition the (future) problem is getting smaller.
 
[quote author="bltserv" date=1252715406][quote author="irvine_home_owner" date=1252711642][quote author="NewportSkipper" date=1252706169]

This problem is 1/3rd of its former self.

</blockquote>
I disagree from the molecular level of my being.</blockquote>


I could not agree more. Its getting far far worse.



The number of Foreclosures is getting larger as there is more and more negative equity being created as prices erode.

Skippys brain is "hard wired" that Real Estate always appreciates.

Thats the fatal flaw in most of his opinions. He assumes a "V" shaped recovery in housing.

When its more than likely going to be more like the Japanese model. It may take 20 Years for the recovery to 2006 peak RE prices. Its not going to be pretty in the least. Especially for people trying to make a living in RE.</blockquote>


The thing is, they aren't eroding either. It is completely undeniable.
 
[quote author="NewportSkipper" date=1252715881]"No that is a bad assumption. The can is just getting kicked down the road."



If there are many in foreclosure and already foreclosed upon, then by definition the (future) problem is getting smaller.</blockquote>


There is no arguing that some are already in process or have been foreclosed on. The tidal wave that was predicted in the very near future has been delayed.



Look at the two charts that are posted in my link.



The prediction was these loans would reset and recast in 2009 through 2010 now that has been delayed.



The general consensus is when these loans recast and reset is that in x amount of time a high percentage will be foreclosed on. The x amount of time is dependent on how long foreclosures take at that point.



I have seen no data that suggests a large amount of them have already washed through the system.



My analogy is that the ones that have already washed through the system are like the little pin hole leak in the damn. That will not cause much damage. When the damn bursts though.
 
I can tell you for a fact (and anyone with a Bloomberg terminal can confirm this) that Countrywide's 06 and 07 option ARM MBS pools are averaging 30% total delinquency rates. I can't tell you without manually adding up the outstanding balances what the $ number is, but just looking at what is outstanding in a few of the pools and roughly adding what the issuing balances were, I can pretty much guarantee I can find you $500B in outstanding option ARMs just at Countrywide.



And, if anyone wants to take the time, they could find 90%+ of the non-securitized option ARM numbers in the 10-Q's of JPM and WFC. IRCC last 10-Q they were almost as bad at just under 30% delinquency rates.
 
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