Foreclosures up, defaults down
ForeclosureRadar.com estimates that California homes are foreclosing at a rate of 1,300 per business day. And the drop in defaults is not very promising.
August 17, 2008
Banks and lenders have now foreclosed on $100 billion worth of California homes over the last two years and are foreclosing at the rate of 1,300 houses every business day, according to a new report from ForeclosureRadar.com.
The report, which covers foreclosure activity in California in July, says that new mortgage defaults are declining but foreclosures are continuing to rise sharply. "It is clear that far fewer homeowners are finding a way out of foreclosure," the company reports.
The pace of foreclosures in California has more than tripled from the year-ago rate of 415 per day, ForeclosureRadar estimates. Overall, the level of foreclosures in the state increased 22.5% from June to July, while the level of defaults dropped by 4.6% in the same period. The vast majority of foreclosed homes are taken over by banks -- 96.6% in July, the company reports, although it notes that banks are increasingly offering discounts to investors in hopes of avoiding taking possession of foreclosed houses in the first place.
"Although the declines in notices of defaults seem promising, much of this can be explained by the actions of just one lender," said Sean O'Toole, founder of ForeclosureRadar. "Ninety-one percent of the decline in notices of default since April can be attributed to Countrywide Financial. Unfortunately, this is more likely due to the challenges of integrating two companies the size of Countrywide Financial and Bank of America than it is a fundamental shift in foreclosure activity."
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Peter Viles
Checking the status of ARMs
One lingering question in the discussion about when the housing bubble will fully deflate is the status of numerous adjustable-rate mortgages yet to reset. The magnitude of defaults in this subset of loans is expected to weigh heavily on the timing of the market bottom.
How many of these loans will default remains to be seen, but I recently came across one property that seems like an apt case study of the problem.
The house is now on the market for $875,000. The current owner bought it in 2006 for $898,000.
The agent said the owners had yet to miss a mortgage payment but were soon facing a rate reset that they could not afford. The house has been on the market seven months.
If no one steps forward to buy the house at a price high enough to bail out the owners, default and foreclosure are the next steps. Since they haven't missed payments yet, the foreclosure process won't conclude until sometime next year. If there are many more cases like this one, we'll see more foreclosures piling up in the inventory next year.
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Peter Y. Hong
Can immigrants ease the surplus?
Former Federal Reserve Chairman Alan Greenspan is arguing that the most effective solution to the housing downturn is for the United States to admit more "skilled immigrants" who would earn enough to buy houses and stabilize the housing market.
In an interview with the Wall Street Journal published Wednesday, the 82-year-old economist estimates there are 800,000 units of "excess supply" housing for sale in the United States.
From the Journal: "He did offer one suggestion: 'The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants,' he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.
"He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one-third are immigrants. 'Perhaps 150,000 of those are loosely classified as skilled,' he said. 'A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices.' "
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Peter Viles
A trend in homes underwater
The latest home value estimates from Zillow.com contain an interesting set of numbers on Los Angeles-area homes that are underwater -- that is, more is owed on the mortgages than the houses are worth.
Only about 1% of L.A-area homes purchased in 2003 have negative equity, Zillow reports. But a bell curve emerges, with 24% of homes purchased in 2004 now underwater. The peak year for home purchases that are now in negative equity was 2006 -- 71% of homes purchased then are now upside-down. About 56% of homes purchased in 2007 have negative equity.
The negative-equity percentage falls to 13% in 2008, tied to the sharp drop in home prices. Buyers are now making median down payments of 20% of the purchase price, Zillow reports, up from a 10% median down payment in 2007 and a 5% median in 2006.
