Want To See Where The Delinquencies Are?

I must say that the Wall Street Journal has done a great job in allowing us spectators (and participants, whatever the case may be) to visually see the progression of the subprime delinquencies around the country. The interactive map allows you to scroll over a county and see the delinquency rate for that quarter. The map will go back in time to Q1 2005 until Q2 2007.

One interesting note is the "light" shaded areas on the West Coast (delinquencies from 0% - 1%) in 2005 will then turn more shaded thru 2007, while the Central Valley turns to a bright shade of crimson (I'll let you figure out what that one means - affectionately coined as "blood alley") during the same time period.

The map really shows the extent of the problem as it permeates across the nation.

CLTA Debuts California Title Website

Sacramento Business Journal reports that the CLTA and the California Insurance Commissioner's office has debuted a Title insurance website, TitleWizard, to allow consumers to compare title insurance rates. My first run was a residential refinance on my home and Old Republic Title was about $500 cheaper than 1st American. Then I ran a purchase of my house and the rates were $700 cheaper across the board than for a refinance (assuming that I was the Seller, of course).

Too bad for commercial brokers and agents, the website doesn't factor in rates on commercial deals (I thought I was on to something).

Anyway, worth the look..

Google Basewide? One Step Away in California

This is one of those "outlandish and inconceivable" notions that occurred to me as I was scanning a few news sites this weekend. Hey, if Jim Cramer can speak in generalities and sound bites on CNBC and induce the Fed to drop rates, then here's my two cents as I see a couple of dots that could be connected some time soon.

Question: If Jason McCarthy, who is the Development Manager of Real Estate for Google (Google Base), were to make a Redfin-type deal with Countrywide in California, what would be the impact?

Scenario: Google Base is attempting to deliver relevant real estate content to the consumer in a format most potential buyers are familiar with and aiming to be the prominent provider of property information aggregation; a new MLS system, if you will, with inventory provided by the agents and owners themselves at no charge.

Redfin is a new brokerage concept that hires in-house (employee) agents to oversee the listing transaction of an owners' home for a one (1%) percent fee, which effectively saves the owner between 2% and 5% of the purchase price in terms of a sales commission represented through traditional real estate brokerage. Redfin is VC funded and attempting to turn a profit through volume, which means that the jury is still out as to whether this type of brokerage business model will be profitable in the long run.

Countrywide is the largest lender in the country and quickly becoming the largest residential land owner in California. Using the chart, the amount of REO properties owned by Countrywide as of Sept. 1, 2007 is $995M in aggregate value, which is most likely going to grow month-to-month another 20% in October.

In the 1990's, the government established a quasi-public institution (Resolution Trust Corporation) to inventory, rehab and sell those REO properties taken back as a result of the Savings and Loan bailout. This time around, is that entity going to be the likes of a Google or Redfin. Is it inconceivable that Basewide or RedfinRTC would be established at a .5% listing commission rate on a Countrywide portfolio that is going to exceed $1B by the end of the year (if not the end of this month)?

I remember those days in the late '80s and early '90s in Houston when entire neighborhoods of 4,000 SF homes were abandoned, with the keys still stuck in the front doors for the RTC officials to pick up when they had time. But, this time around with the Google Van roaming the neighborhoods creating the little "Street View" guy for our viewing pleasure on Google Maps, it might not be that must of a stretch to contract with Google Base to inventory the entire Countrywide portfolio for a transaction fee and reduced listing commission.

Once Google Basewide has its California Broker's license, such a scenario would put Google on the Real Estate map in a hurry. Such a move would certainly get NAR's attention in Chicago (as well as CAR's in Sacramento). The 800 lbs. real estate gorilla (NAR, that is) will be forced to wake up and confront a growing threat to this industry; technology and its endless bank accounts.

"Qui Tam" Suits - Interesting discussion

Interesting topic from the Housing Bubble Blog in one of the comments from Thomas:

On this topic, anyone who likes to read absurdly long posts can check out the following, which I recently submitted as a prospective column to a SoCal newspaper:

Yo ho, yo ho, a pirate’s life for me.

As financial markets reel from the biggest credit contraction in at least a decade, the world is getting a good look at just how buccaneering a business the mortgage industry got to be during the late boom. Amid the general fingerpointing, a basic truth is emerging: The real estate market can handle stated-income loans, or teaser-rate mortgages — but not both.

Stated-income loans, in which the borrower’s income isn’t verified, aren’t called “liar’s loans” for nothing. Until recently, though, financial reality placed a limit on how shameless cheaters could get. Since mortgages generally had to be fully serviced from the beginning, if a borrower’s ability to make the payments was overstated, he tended to default quickly. However, when stated-income loans are married to low initial “teaser” rates, a monster is born. Because only a minimal payment must be made at first, deceptions are masked, and the dishonest borrower can coast along for a year or so before his inability to fully service the loan comes into play. In that time, the originator of the mortgage can sell the loan into investment markets, offloading much of the default risk. The borrower, for his part, expects his property to appreciate rapidly, allowing him to refinance or sell at a profit before the payment adjusts beyond his ability to pay. Everybody’s happy — until appreciation stops. Then things get ugly.

Studies and anecdotal evidence suggest that this kind of activity was widespread during the past boom. Fraud ranged from simple exaggeration of income, either by the borrower or an unscrupulous mortgage broker, to sophisticated collusions between borrowers, brokers, agents, appraisers, and sellers to secretly kick excessive cash back to the buyer upon closing. The result is innumerable loans obtained on false premises, where the expiration of teaser-rate periods is exposing the disparity between what borrowers stated as their income and reality. Real economic destruction looms, as a result of this vast misallocation of credit resources.

Mortgage fraud is a federal crime, punishable by imprisonment. Unfortunately, law enforcement resources are limited, and the authorities can’t investigate a fraction of the offenders. General civil remedies may also be inadequate, since the parties most directly injured may have incentives to avert their eyes from fraud in loans sold to investors, lest contractual duties to buy back tainted loans or mark down their value be triggered.

Interestingly, the government sometimes enlists the help of private citizens to combat some kinds of fraud. The federal False Claims Act provides a procedure for private citizens to bring so-called “qui tam” suits (in which the citizen sues on behalf of the government) against perpetrators of fraud in government contracting. If they prevail, they share in the government’s recovery.

Many states, including California, have enacted similar laws. Intriguingly, California law also allows “qui tam” suits against perpetrators of insurance fraud. Thus, “qui tam” suits are not always limited to cases in which the government is a direct victim. They have also been authorized when private frauds have such a damaging effect on the general economy that the government is willing to essentially “deputize” citizens — and provide them with healthy financial incentives — to assist with enforcement that the government cannot handle alone.

In the golden age of piracy, governments often resorted to issuing Letters of Marque and Reprisal, authorizing privately-owned vessels to cruise as “privateers” against hostile shipping. The recent golden age of mortgage buccaneers calls out for a new birth of privateering. The federal and state governments ought to seriously consider authorizing qui tam suits against participants in mortgage fraud. Downsized employees of mortgage boiler-rooms, honest brokers, Realtors, and appraisers who lost business to corrupt competitors, and sharp-eyed amateur analysts would make excellent qui tam plaintiffs. Turn these citizen privateers loose upon the mortgage pirates, and watch how fast the bad actors shape up.

Why California housing matters?

One of my news alerts had an interesting article from Steven Levy, senior economist based in Palo Alto. Levy's reasoning is deceptively simple, "there's a limit to what people can afford". But why should the rest of the nation be concerned with housing in California:

Even multiple cuts in the Federal Reserve's target federal-funds rate, he argues, won't necessarily help until prices become more rational. With 10.7 months of unsold inventory, not counting homes that would be on the market if sellers thought there would be buyers, he believes Californians can expect another few years of difficulty, depending on the speed of this housing correction.

Why should non-Californians care about the California housing market, especially when the S&P/Case-Shiller Home Price Index shows year-over-year increases in such cities as Charlotte, N.C., Portland, Ore., and Seattle? Because the Golden State accounts for 13% of the country's gross domestic product or the total value of all goods and services produced nearly double the No. 2 contributor, New York. That means that what happens in California, home to such growth industries as high-tech, biotech, venture capital and film, doesn't necessarily stay in California. The impact of slow economic growth, or even recession, in the state will ripple through the rest of the country.

Californians more likely to bite off more than they can chew

The University of the Pacific in Stockton has a great website, in which the Center produces quarterly economic forecasts of the United States, California and 11 Metropolitan areas from Sacramento to Fresno and San Francisco Bay Area. The Eberhardt School of Business is one of a handful of Business schools producing comprehensive quarterly forecasts of the U.S. economy. In addition, the quarterly metropolitan forecasts cover several regions in California's Central Valley not covered by other forecasts.

This week's Graph of the Week discusses two fundamental factors which determine a household's ability to own a house...

There are two fundamental factors which determine a household’s ability to own a house: the price of the house and income. The price of houses in California has always been among the highest in the nation. Data from the California Association of Realtors (CAR) shows that in 2006, the median price of a single family home in the state was over $556K - more than twice the national average of $221K.

In general, the difference between housing affordability index and home-ownership rate represents the gap between the number of households who can afford a house and the number who actually buy a house. The larger the gap suggests that relatively more households, knowingly or unknowingly, are willing to live beyond their normal means. The larger the gap also suggests the higher likelihood that more households are involved in riskier mortgage loans.

Such large gaps in California and San Joaquin County represent the occurrence of excessive demand for housing in the two regions, which tend to make housing highly over-priced. When the market cools down to get back to normal, more market correction is needed in the regions. This partly explains why in the summer 2007 the state of California and San Joaquin County are among those with the largest proportion of sub-prime mortgage loans and the highest number of foreclosures in the nation.

Need House values sent to your mobile?

One of the 1st American Title agents in Northern California that provides great information on his blog, sent this one about Housefront.com. All you have to do is text your property address, city, and state to (house) 46873 on your cell phone, and 30 seconds later, you have the property info, owner, price paid, and estimated value of the property. (In most cases) Find Real Estate Valuations for over 100 million homes!

Rumor: Is the City of Stockton looking to take advantage of the banks?

I spoke with a lender rep this morning (responsible for meeting with defaulted homeowners and trying to work-out a feasible solution with the lender and homeowner - instead of putting the home thru the foreclosure process) and he heard that the City of Stockton is looking to fine defaulted homeowners and bank-owned properties $500/day for the lack of attention to the appearance of blighted homes in city neighborhoods (remember that San Joaquin leads the nation in foreclosure activiy in the US).

This could potentially put the banks in a more tenuous situation (as if they don't need more bad news) that would find a superior lien placed on their assets prior to foreclosure and the potential for the city to take possession of the property.

On another note, this ad in craigslist in Dallas is worth passing along..

Why is Countrywide going after brokers?

A friend of mine in the mortgage business told me that Countrywide is aggressively going after brokers around the country. Why?.. to get some of their money back that they provided brokers with during the last few years in terms of rebates and broker kick-backs. In the event that the brokers can't come up with the funds, they are "requesting" that they sign over their companies to Countrywide or face litigation. It seems to be a cheap way to grow the company's footprint "under the radar" and in light of its "unprecented disruptions" in future profits, as reported from the Mortgage Insider blog at the OCRegister:

Countrywide Financial Corp. today said the market for debt it needs to fund itself is experiencing “unprecedented disruptions” that could impact its future profits and financial condition.

In its second-quarter filing with the SEC, the lender said there is less liquidity in the debt market and greater “risk premiums.” I imagine Countrywide means it may have to pay higher yields on its own debt or produce more collateral, or both. Anyway, the lender said it needs to maintain investment-grade ratings on its debt, and that is not a sure thing.

It also said the market to sell home loans on Wall Street is experiencing “unprecedented disruptions” caused by a drop in investor demand.

To be sure, official quarterly reports with the SEC often contain a lot of ominous-sounding boiler plate language. But using the term “unprecedented disruptions” twice in one filing stands out.

Here’s more from the company:

“While our capital and liquidity positions are currently strong and we believe we have sufficient capacity to hold additional mortgage loans and mortgage backed securities until investor demand improves and yield requirements moderate, our capacity to retain mortgage loans and mortgage backed securities is not unlimited. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have an adverse impact on our future earnings and financial condition.”

Quicksand

The Boston Herald reported today that a bill has recently passed the Mass. State Senate and is awaiting State House approval to protect renters that would otherwise be thrown out of a foreclosed home that they were renting. Under the measure, anyone who acquires property through foreclosure would have to let tenants stay until the renter's existing leases run out.

The problem arises when the savvy "subprime" borrower (speculator) leases the property to his children/relatives at below market rents for extended terms allowing the banks (hedge funds) to foreclose the property. Now, the banks would be saddled with foreclosed property years later waiting for these "sweatheart" leases to expire.

Yet another fallout from the foreclosure crisis has been large numbers of renters who lose their housing through no fault of their own, said State Sen. Sue Tucker, an Andover Democrat who sponsored the bill. The Senate felt very strongly that tenants deserve some protection.

The speculator's children sublease the property for market rent and make more money off the banks. Under this bill, the State Government's intervention will only prolong the agony of this down cycle and create more quicksand for the market to wade through.

RPX - Residential Property Index

If the residential market hasn't seen it's share of inflated values from the flow of easy money lately, now investors can trade in the RPX ("Residential Property Index"). The RPX will enable users to trade residential property prices in 25 MSA's nationwide in addition to a composite index based on those 25 cities. The trades are based upon an initiation of trading in derivative instruments and financial products based on the RPX from Radar Logic.

Radar Logic uses a proprietary modeling technique to create Daily Prices derived from the actual prices paid for US Residential real estate, which the Federal Reserve reports in total aggregated value of assets held to be $22.9 trillion as of 3/31/07.

I wonder if the lenders will short their positions on the RPX in order to hedge their bets against the underlying foreclosures that will result as ARM's readjust. This tactic is used by managers of oil & gas assets to limit their downside on future price fluctuations, and now the largest lenders in the country could short RPX positions, knowing that they have an influx of NOD's potentially coming in 4Q '07. Perhaps the Kramer meltdown video gave Wall Street an idea on how to feed off itself.

Foreclosures, Tax consequences & bankruptcies

Business bankruptcies are up 66% nationwide from the 1Q of 2007 to 1Q of 2006..

"Part of it certainly is a rebound from changes in bankruptcy law," said Daniel North, chief economist with Euler Hermes ACI, a credit insurance company in Owings Mills, Md. The changes attempt to shift filers away from liquidation into repayment plans.

"The other part is a deteriorating economy due to high energy prices, a tightened monetary policy and the housing meltdown," he said. "We're seeing pressure, particularly on suppliers of building materials and anybody who relies on the housing industry."

Locally, the crunch is most obvious in real estate deals and transactions, said Dale Ginter, a bankruptcy attorney with Downey Brand LLP, Sacramento's largest law firm.

"People who were able to refinance or sell their way out can't do it now," he said. "And my guess is it will continue for another year or so."

The other problem that foreclosed subprime borrowers will feel is the tax consequences of cash received from defaulted equity lines of credit.. forcing more bankruptcies..

There's another downside to the housing meltdown that's driving people toward bankruptcy court: Owners with second mortgages who owe more than their home is worth might face income tax consequences from foreclosure. Bankruptcy can wipe out the tax debt.

"People are filing bankruptcy to avoid this nasty, horrible tax," Gibbs said.

Northwest: Smaller Cities Buck Housing Slump

In an attempt to find some promising news about the housing market and the indicators that I've found over the last month to give us exactly what we all knew would happen (especially here in California - having seen the developers over the past four years fall all over themselves to option up anything that could be entitled quickly at astronomical prices per acre), I wanted to find areas that still had a retail market for Bay area developer clients. It will be these smaller markets that provide retail buyers for those modest developments (so long to the 1,000 acre master planned communities wanting entitlements in this market when the inventory of foreclosures show-up through these delinquencies. Below is the AP article from 7/19..

"SALEM, Ore. (AP) -- Aside from being Oregon's capital city, Salem doesn't have much to boast about. Most downtown restaurants close by 7:00 p.m. and Lefty's -- the only cool bar in town, according to local college students -- is known for its karaoke fundraisers.

But the real estate market here is buzzing. For-sale signs litter front yards and the local paper is fat with ads for homes.

The community of 150,000 or so souls is a prime example of an overlooked phenomenon in the country's overheated housing market: While demand for homes has nose-dived from Florida to California, some smaller metropolitan pockets continue to thrive.

Sleepy towns like Salem, Ore.; Wenatchee, Wash.; and Provo-Orem, Utah may lack glamor but they are among the few places in the country where housing prices are growing at double-digit rates, according to a recent federal study...

..Between the first quarters of 2006 and 2007 homes in Salem appreciated 13.4 percent, 14.5 in Boise City-Nampa, Idaho, and 16.8 percent in Grand Junction, Colo."

View article..

National: Mortgage Delinquency Map

Mortgage delinquencies continued to climb in the second quarter, new data show.

The map below shows how delinquency rates have increased in those metro areas as the housing market has slowed. The pickup in delinquencies has been particularly notable in parts of Florida and California. Nationwide, delinquency rates climbed to 3.15% in the second quarter, compared with 2.87% in the first quarter.

The map below shows the two counties in Northern California, San Joaquin and Merced, that lead the way in delinquencies over the period.

View article..

National: When the housing rebound comes

(Money Magazine) -- If you're the sensitive type of homeowner, you may want to skip the rest of this paragraph, which recounts the unrelentingly grim news about home prices.

At least 42 percent of major housing markets are in decline, with some projected to fall by double digits over the next five years.

One alarming sign: The National Association of Realtors has reversed its usually sunny outlook and is now predicting a 1 percent drop nationwide in existing home prices in 2007, the first such prediction in the four decades since NAR started tracking prices.

Still, no bear market lasts forever, and indeed, predictor NAR, quickly recovering from its unusual flash of pessimism, is forecasting that prices will bottom out this quarter.

How will you know?

Because housing markets are intensely local, it won't do much good to check national figures. Instead, stay alert to leading indicators of recovery in your local market, such as:

Inventory is declining

A local broker should be able to tell you the months' worth of inventory - that is, the estimated amount of time, given the current pace of sales, that it would take to sell all the homes currently up for sale.

In markets with fewer than 6.5 months of inventory, homes tend to be appreciating faster than inflation, says Mark Dotzour, chief economist at the Real Estate Center at Texas A&M; above 6.5, prices are lagging inflation.

Above nine or 10 months, prices start to drop, creating an ice-cold market for sellers. Compare the current data with that of the previous few quarters to see whether the trend is downward or upward.

View article..

Online: New Online Maps for Real Estate Users

Since Google made its maps available for customization last year, savvy programmers have created thriving businesses by adding layers of information.

So in May, Washington-based startup FortiusOne launched GeoCommons, a cartographic portal where users can easily create their own mashups.

The site has 2 billion pieces of localized data -- from census figures and school district budgets to water-contamination and traffic-congestion hot spots -- and it is rapidly adding more. Two examples are below offered by users that collected data through business and government sites:

1. Foreclosure Filing and the Subprime Collapse: Foreclosure filings are starting to hit hard. People all over the country are having trouble paying off their ARMs (Adjustable rate Mortgages) and houses are being foreclosed. This is having a ripple effect in the economy, Home Depot and Lowe's have already cut their earnings estimates and it looks likely that more trouble is on the way. Our map will show you the locations of foreclosures, auction notifications, and other housing indicators. this map shows the Top 500 Zipcodes ranked by number of foreclosures.

2. House Hunting Made Easy: I wanted to demonstrate how to speed up a home search by using Intersection Heat Maps. In my scenario, we are looking for a home in neighborhoods that have large numbers of kids, large numbers of tech workers, newer homes, low crime rates, and large number of parks. This data includes information on subsidized housing in the lower 48 states. The source of the data is HUD. A full description of the variables and coding used in the dataset is provided on the HUD website: http://www.huduser.org/picture2000/dictionary.pdf

Single-family starts to decline again in 2008, Realtors say

WASHINGTON (MarketWatch) -- Construction of single-family homes will probably decline for a third straight year in 2008, according to the latest monthly forecast from the National Association of Realtors.

The group's July forecast, released Wednesday, is more pessimistic than its June forecast in nearly every aspect.

"With profit margins coming under pressure, homebuilders will limit new construction well into 2008," said Lawrence Yun, senior economist for the NAR, in a press release. "This should help the overall inventory level to move steadily into a more balanced state."

Click here for article..

Mortgage resets: Record bill coming due

NEW YORK (CNNMoney.com) -- More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.

Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.

Current Home Equity Rates

Type	Overall avgs

$30K HELOC	7.20%
$50K HELOC	7.09%
$30K Home Eq	8.14%
$50K Home Eq	8.07%
$75K Home Eq	7.96%
Find personalized rates:

Video More video Money Magazine's Walter Updegrave gives a reader advice on the best way to get her retired parents a reverse mortgage. Play video

Consumer groups and politicians worry that hundreds of thousands of subprime ARM borrowers will be unable to keep up with their mortgage payments and will lose their homes.

"In October alone more than $50 billion in ARMs will reset," according to Mark Zandi, chief economist and co-founder of Moody's Economy.com. That's a record, according to Zandi.

Foreclosures: Hardest hit zip codes

A buyer in 2005 with poor credit and limited means might have signed on for a $200,000 2/28 hybrid ARM, locking in a fixed rate of 4 percent for two years. After paying $955 a month, his bill would now be set to spike to $1,331, a 39 percent increase.

Until recently, rising home prices bailed out many ARM borrowers in trouble. They could raise cash with cash-out refinancings or home equity lines of credit. If worse came to worse, they could sell the house and get some money back.

But prices have stabilized or slipped in many markets. (Latest home prices.)

Click here for article..

Florida pre-foreclosures spike for first half of '07

Florida took the No. 2 spot among the states with the highest preforeclosure filings from January through June, foreclosures.com reported Monday.

Florida posted 90,145 pre-foreclosure filings -- homeowners who have defaulted on their mortgages but have not yet lost their homes -- or 1.42 percent per capita. That compared with 39,037 filings, or .62 percent per capita, for the same period in 2006.

Nationwide, three out of every 1,000 homeowners lost their homes to foreclosure in the first half of the year, which represents a 41 percent increase compared to the same period last year. There also were more than 507,000 preforeclosure filings in the United States, or nearly seven of every 1,000 households, for the first six months of the year.

Click here for link..

Top 10 foreclosure markets

Where the action is: Here are the top 10 markets for foreclosed homes as of September 2006, according to data from Realty Trac. Click here for link..