I thought foreclosure problem was over!! Maybe not

[Rich Weese]

http://www.sltrib.com/business/ci_14649910?source=rss

I realize this article is from a Utah paper and has a Utah slant, BUT read through the article. Actual # of homes in foreclosure jeopardy is expected to go from 2.8 million last year to 3 million in 2010, a 7% increase. It also lists worst 10 states and NV continues to lead the bunch.
I really hope that the commercial fallout doesn't hit at the same time. That would cause further problems, and dominos start falling, imo. Rich

[Emilio Ramirez]

The mortgage mod program is a joke. The homebuyer credit seemed to be working a little better, but the amount of homeowners underwater is so overwhelming that I don't see this getting better any time soon. As long as people continue to lose jobs foreclosures will continue. At first it was easy to say that the foreclosures were not typically valued properties and they could not be looked at to establish FMV, but they seem to be the norm now and anyone buying or selling retail is buying or selling at a premium. I think there is also a group out there that many have referred to as the shawdow inventory or homes that would be on the market if the owners could get out at a break even price. I think as this economy continues to deteriorate these people are going to become more and more disillusioned and find it easier to just walk away.

[Kathryn K.]

Doesn't the primary residence tax exclusion run out Dec 2012? If so, this is going to cause lots of new shortsales and foreclosures as homeowners who are currently hanging on and paying their upside down mortgages think about dumping before they have to suffer tax consequences. Some people's homes are so far upside down that it may take longer than five years to recover. So you're either in it for the long haul or you better get out before the end of 2012.

[Matt Mathews]

You might want to check out my blog site. I have been writing about this Looming Double Bubble for months. While you there check out all the Investor/buyer resources available. Invest with the best!!!

[Ted Akers]

Realty Trac quoted in the article is a reputable source, but others have estimated as many as an additional million foreclosures versus last year. There are a couple of issues that make foreclosure estimates a challenge. One is how many "strategic defaults" will occur will occur from the 25% of all mortgages, or 11.3 million households, that are underwater. A second, IMHO, is that some estimates do not seem to account as heavily for Option ARM recasts and ALT-A ARM resets. Option ARM's recasts are about to double to around $5 Billion/month and climb to around $12 Billion/month by October 2012. Not to be the pessimist, but these have potential to be a large domino.

[Rich Weese]

One domino after another if they start falling. We need to keep our fingers crossed, imo. Rich

[Matt Eilers]

I went to an economist's (Dr. Ted Jones) presentation a day or 2 ago. He was basically saying that it has been bad for the past 2 years and he expects it to be another difficult 18-24 months due to
-Alt A
-Commercial Market blowing up
-he believes interest rates will start rising by 1-2% over the next 2 years
-weakening dollar will cause oil to be more expensive (as it is bought in US $, so he expects a return to HIGHER gas prices as well.
-job losses still occuring
*was a somewhat bleak picture, but it was hard to argue with what he was presenting statistically

He was positive in the fact that he believes now is a great time to buy as he thinks it will be the best buying opportunity we will have see in a really really long time. Just have to be able to survive it though.

He does a blog which you can follow if you google his name. Type in "housing market" to the search for a few interesting reads.

[Jeffrey K.]

I know a lot of people on here flip and wholesale, but alt-a really does not have much to do with multi-family buy and hold investment property. I shop two zip codes (53202 and 53211) and have really not seen much for sale at a decent price. I hope more REOs are being held back as i am not dont buying!

[Rich Weese]

Matt- thanks for listing a lot of the dominos that could begin falling. I still think we're on the edge. Rich

[Peter Giardini]

Rich... thanx for posting the article.

I have written about this subject over on the Bigger Pockets News Blog for months... and the general consensus I have found is that we are headed to a double-dip and it will stay that way until unemployment stablizes.

That coupled with all of the anticipated changes in Governement policy and we are in for one hell of a ride.

For real estate investors... stay limber... don't be afraid to adapt to the changing conditions and keep the communications open, right here on BP, to what each of us is experiencing.

[Rich Weese]

I'm also very concerned about what the corrupt administration will continue trying to push through. Doing away with the interest write off on personal residences, possible rent control, elimination of R.E. benefits through owning real estate, and more financing changes.
Dems have to try and get more taxes every way they can to forestall the Bankruptcy U.S. is headed for, imo. As Peter said, scary ride ahead. NO ONE knows if this ride takes us off the tracks and down the cliff!! Rich.

[Bill Gulley]

Good Morning All! Last Oct. I sent out some e-mails and made some calls and got an affirmative response to an option for mortgage workouts (To FDIC and the Treasury) A couple weeks ago I spoke to a Regional Bank Pres and the subject came up and he indicated that they had already done a few loan mods in this manner and expect to do more. What was it? To take the FMV of a property, place the overage of the balance and place it in a non-accrual status and reset the loan with payments at cureent rates that the borrower can pay. The loan is reviewed periodically and as the FMV rises, the principal is added back with a new payment. That's the very short of it. This was not my brain child as it was done in the 80s, but has some new twists for securitization which we don't need to go into. Now this is not going to help those losing jobs, so those will still be brought to the steps. My point is, that there are alternative workouts that have not been done in the recent past that are starting to show up and such alternatives will probably have an impact on the big picture. As banks began dealing with foreclosures, they were less likely to attempt to save a deal for many reasons, as the risks rise, they become open to more options and the government will be less likely to do bailouts. The delima to doing such a workout is carrying the amounts deferred under GAAP (generally accepted accounting principals) on the books as a non-earning asset and what percentage of that amount effects loan and lease loss reserves? The non-accrual is basically an unsecured loan, but has the potential over time to become secured and an earning asset. Also, this allows a repricing opportunity for the lender. A 30yr fixed is then reset at current rates periodically until the entire loan amount is secured and re-amortized. This type of "cram down" will likely be introduced (again) for bankruptcies. So, how many bankruptcies are there or will there be? As attorneys and the general public catch on to this type of "cram down" how many will opt for it? That's a hard question to answer for any economist! But it is a positive alternative, time will cure many issues, IMO. Bill

[Ted Akers]

Hey Matt,
We must have been at the same presentation by Ted Jones, chief economist for Stewart Title. It was a great presentation, and yes still a bleak outlook until we reverse the employment situation. A few interesting statistics included: 1.25-1.5 "new" jobs to justify additional housing units, the same number employed now as we had in 1990, anticipated +2% to mortgage rates over the next two years, and the possibility of $5 gas within the next couple of years. He also predicted little chance of extension of the housing tax credit, saying that 1 out of 5 recent buyers purchased solely based on the credit. So, economists are looking at it as paying a total of 5 buyers $8,000, or $40,000 in credits, for a true net of only 1 new buyer strictly as a result of the credit. He was not specific on numbers but clearly expects increasing numbers of foreclosures and buying opportunities.

[Rich Weese]

Ted and others,
Couple qustions
1. What % of the original buyers using the aid are ALREADY behind in their payments?
2. What was his "crystal ball" MOST concerned about? Length of recession? Inflation? Continuance of high unemployment? Etc.? Rich

[Ted Akers]

Rich,
Numbers are all over the board and delinquencies do not seem to be getting reported. One indication - 1.09M Trial Mods started, only 170k have reached permanent status so most are still in the process, and 10.6% of both trial and perm have been cancelled. I presume cancelled due to failure to make payments. I have heard substantially higher numbers expected to not make it out of the trial modification, but cannot put my finger on those right now.

Ted Jones crystal ball shows a very protracted recession. He did not outright predict it but seemed to be leaning toward a double dip, without changes in unemployment numbers. Unemployment is a substantial concern for him and he did not reveal any light at the end of the tunnel. He is convinced of increasing foreclosures based on current delinquencies, unemployment, and I appreciated him referencing Option ARM's as a major part of that equation. He is clearly predicting increasing mortgage rates with Treasury stopping its purchase of treasuries and MBS. He estimates +2% within two years. He is also very concerned about inflation further dampening consumption and extending the recession, estimating gas prices possibly as high as $5 within two years. Not a rosey picture, but as he put it "substantial buying opportunities".

So - MOST concerned about length of recession, and possibility of double dip, due to bleak employment outlook.

[Joseph M.]

It is in the interest of realtors/brokers to make it seem like the market is heating up even if it's not. The problem for investors is there is still a pent up demand from retail/owner occupants that it makes it difficult to buy anything through an agent at an 'investor price' even if the property needs some work.

[Rich Weese]

Thanks Ted.
Seems to coincide with most other economists. Some are saying they expect up to FIFTY per cernt of assisted loans to be in default within 12 months. Another wasted program and more deficit for future generations. Lousy deal. Rich

[Ted Akers]

Thanks Rich,
With the front end debt ratio on this program of only 31% I would hope defaults would not be that high, but would not be surprised. Yes, our great grand children are going to be thanking us and figuring out how to get this time period paid off.

[Matt Eilers]

I think that his (jones) concerns were
1) job gains, lead to real estate moving. Real estate moving leads us out of economic downturn
2) he is worried about the HUGE debt but shows historically that we are adding to the debt just about the norm for other downturns. He is worried about how we will pay for the debt as the numbers on the interest payment of our sized national debt are mind boggling.
3) devalued dollar= Big uptick in oil prices. $3-5 gas impacts everyone on a daily basis.
He wasn't on board with our no drill policy (or whatever our policy is, that part I kind of missed). I know that is affecting the western slope of Colorado
4) how commerical will pull thru. Do not remember the stat but the money is not there for commercial loans. They will either be called (and who has the money to pay?) or they will be done on new terms, problem is, most requirements still need 30% down and if you bought 05-07, you are probably underwater and will have to come up with 30% cash in order to get the new loan
5) interest rates moving higher.
He said interest rates were easy to predict because all you had to do was follow the price of a barrel of oil. This all changed roughly 5-6 years ago when Greenspan kept the rates VERY low as oil moved higher. He actually thinks Bernake is doing ok by bumping up rates as he believes it needs to be done.
6) predicts more banks will close (i believe more than what have already closed) due to the commercial market going to heck
7) listed some "unforseen" items such as another pandemic that would halt travel which would further crush resort destinations.

While he said we were in for a tough 18-24 months, it really seemed like this would last longer as IMO everything he presented (minus the pandemic or terrorism) seemed to show that we have a lot of forces htat were converging to form (maybe not the perfect storm) but at least a fairly nasty one.

Ted A- caught his presentation in Breckenridge on Friday. Sounds like he presented in Vail earlier in the day and was on his way to Denver after us.

[Ted Akers]

Hey Matt,
Yes, I caught him in Denver. Jobs number was 8.6M lost since 1/1/08. Without jobs we stay where we are, or get worse. He is clearly worried about commercial - $400B coming due and an estimated $50-80B available to loan. Also an estimate that if commercial decreases 35% then 40+ more banks to fail. The oil commentary was he does not like that we still import 63% of consumption. Also our total budget of $380B is less than the $400B we are paying on debt at 3.5%. As rates increase that $400B increases with them. It was a very informative presentation.

[Matt Eilers]

I really liked the presentation. I caught his presentation about 5-6 months ago in Frisco.
Stewart Title is e-mailing out this slide show presentation, i just wish they would record and post the audio as well as a lot of his information is not contained in the slide show which is what they will be e-mailing out to attendees.

[Adrian G.]

Originally posted by Rich Weese:

http://www.sltrib.com/business/ci_14649910?source=rss

I realize this article is from a Utah paper and has a Utah slant, BUT read through the article. Actual # of homes in foreclosure jeopardy is expected to go from 2.8 million last year to 3 million in 2010, a 7% increase. It also lists worst 10 states and NV continues to lead the bunch.
I really hope that the commercial fallout doesn't hit at the same time. That would cause further problems, and dominos start falling, imo. Rich

So whats the prediction for the next 2 years...anyone?

[Ted Akers]

Hey Adrian,
I hate to be the bearer of bad news, but most all sources are predicting more foreclosures this year versus last (good or bad news depending on which side you are on). Mortgage delinquency numbers bear out that prediction as all sectors except FHA have continued to increase. FHA has moved down form 10% to 9%, but 9% is still a very large number. The delinquency numbers really cannot change without increased employment. The latest employment numbers did show fairly strong hiring and the administration is reporting we are on our way out of the recession (of course they are). The unemployment rate however increased as a result of some re-entering the "looking for work" status (those that had previously given up). But, we also have a very long way to go - we have lost over 8 million jobs since 2006. Increases in the stock market indicate that many are buying in to future increases in corporate profits. The commercial sector is in the early stages of a crash which I think will take down many more banks. We are starting to see the early impacts of inflation at the grocery store and some are predicting noticeable increases in gas prices. It will be very difficult to avoid inflation with the amount of money the U.S. has printed for bailouts. As for 2011, many are not accounting for what I think will be another round of massive foreclosures as Option ARM's hit recast dates. While harder to predict, I think 2011 foreclosures will be very close to 2010 levels. So....., not good news for housing but continued opportunity for investors.

[Steve Babiak]

Ted - good post. One thing that was missed is "strategic defaults" are on the rise too - and this has nothing to do with employment as these are people who can afford the payment but choose not to pay due to being underwater. That related thread is here:
http://www.biggerpockets.com/forums/105/topics/50015-foreclosures-walking-away-6-minutes-eyes-an-epidemic-

[Ted Akers]

Steve, very good point. I have posted and blogged on strategic defaults after seeing 2-3 analysis on it. Both articles I focused on said that as the value goes 25% underwater the rate of strategic defaults increases dramatically. Even though some areas are starting to see price appreciation the number of homes underwater increased this month from earlier estimates of 11.3 million to 13 million. I believe that Option ARM recasts that are just now gearing up and will reach huge numbers in the third quarter of 2011 will result in massive numbers of strategic defaults. An estimated 93% of them are likely underwater already. It is likely to become a business decision for many that can afford to pay.

[Ted Akers]

This guy called the housing bubble prior to the bust and is saying here that those calling for a housing recovery are not paying attention to what is in front of their eyes.
http://finance.yahoo.com/tech-ticker/housing-bulls-are-%22not-paying-attention%22-to-the-facts-says-dean-baker-483703.html?tickers=xhb,^dji,^gspc,xlf,tlt,tbt