REOs will rise 50% in the next 4 months.

NEW -> Contingent Buyer Assistance Program
[quote author="stepping_up" date=1214537504] I know unemployment has risen, but this looks more like people throwing in the towel.</blockquote>


I don't think we're there yet.



The banks haven't gotten uber agressive yet. Yet. And I'm not talking about that joke of an auction the REIC puts on. I'm talking agressive market clearing prices from the banks reported by the media.



When that happens, then the holdouts who were waiting will toss in the towel. We aren't quite there yet. Somewhere this fall I figure. We might be off another 15-20% by then, but I'm just guessing.



This is what happens when you cannabalize your potential market pool to blow up a bubble. Look at the auto industry. They've been doing it for years. Now fuel prices and product mix has slapped them silly.
 
[quote author="stepping_up" date=1214537504]I guess this means that people aren't in denial that they are in deep trouble... I can only assume that this means the people who bought in 2005-2007 see the writing on the wall and have just stopped paying. I know unemployment has risen, but this looks more like people throwing in the towel.</blockquote>




I suspect that there is a huge pool of upper-middle class people who bought $900k houses on $125k incomes with zero down using an alt-a option arm. They were all going to "make their fortune" by selling after 3 or 4 years. They could barely make the payments (at 40%+ DTI) with the teaser rate, or maybe even the low ARM rate.



But now they see that they are not going to be able to sell for $1.5M. In fact, they are going to take a loss.



They don't know what to do. How could the house not go up 10%/year?



But they aren't stupid. Since they aren't going to come out rich, they decide to stop paying the note, and save up the $4k/month for the rental deposit. Then they realize that nothing is happening to them for not paying. They still have their leased mercedes, no one is knocking on their door, hell, no one is even telephoning them. They decide to live rent free until the pink note is tacked to their door.
 
RealtyTrac.com has this feature that you can monitor ZIP codes for NODs, NTS and they send you an email when that happens with the information of the property in trouble.



Well, in the last 6 weeks the emails with NODs for properties in the 92602 and 92782 ZIP codes have been increasing, in my more than 3 years history of using this service, I have not seen this before for this specific area. The properties here are in the 500K-1500K range, I guess the next wave of REOs is just around the corner depressing prices even more.



Graphrix when are you going to have your Orange County Foreclosures report for June 08?
 
[quote author="Rocker" date=1214546138]RealtyTrac.com has this feature that you can monitor ZIP codes for NODs, NTS and they send you an email when that happens with the information of the property in trouble.



Well, in the last 6 weeks the emails with NODs for properties in the 92602 and 92782 ZIP codes have been increasing, in my more than 3 years history of using this service, I have not seen this before for this specific area. The properties here are in the 500K-1500K range, I guess the next wave of REOs is just around the corner depressing prices even more.



Graphrix when are you going to have your Orange County Foreclosures report for June 08?</blockquote>


I should have them in by the 7th of June, but I did give an update of what has happened so far for June in the foreclosure thread for you. I think Q4 is going to be nasty for foreclosures, and when it is... I will make sure I bring it up on Padilla's blog to call out Mark Boud's peak in Q2 comment. How he is regarded as an economist is beyond me. More NODs = more foreclosures, and I know three year olds who would understand that.
 
I'd be curious to know how close the percentage of NODs turning into REOs is to 100%...90%?, 95%?, or higher? Also, I'm curious seeing what the average velocity of how long an NOD turns into a NTS and how long before an NTS turns into an REO given the higer and higer volume and either constant or declining bank staff to handle it all.
 
[quote author="freedomCM" date=1214622540]graph,



do you have recent figures on the % of NODs that are converting?</blockquote>


The last six months of REOs converted at a 67% ratio. Six months prior to that, they were converting at a 48% ratio. The 67% ratio would give us another 9400 foreclosures in the next six months, and roughly 15k total for 2008. That would be worse than 1995 and 1996 totals combined. Keep in mind I have underestimated the foreclosures in the past, so it is likely to be a lot worse.
 
Also another question is the composition of the NODs, NTS and REOs: Which neighborhoods are being affected?



For ZIP 92602 in May I have NODs in West Irvine, North Park, etc. some of them look suspicious for first payment default fraud or walk aways.

For ZIP 92782 in June some of them are in Tustin Ranch.
 
Mr. mortgage says the NOD cure rate has stabilized around 75% failure.



This month's great quote:



<blockquote>If you combine the past 3 months NOD?s the total is 128.654. At a 25% cure rate, 96,491 homes will be auctioned and most taken back by banks from Oct through Dec, which are historically poor sales months. </blockquote>




100k REOs coming to the market during the dead selling zone!



<strong>Will that be ONLY 1000 new REOs/month in The OC for the winter?</strong>



<a href="http://mrmortgage.ml-implode.com/2008/07/15/mr-mortgage-june-ca-foreclosure-reportconditions-arguably-worsen/">http://mrmortgage.ml-implode.com/2008/07/15/mr-mortgage-june-ca-foreclosure-reportconditions-arguably-worsen/</a>
 
Oops, I didn't read far enough:



<blockquote>the percentage that made it from NOD to NTS was 93.22%</blockquote>






<strong>ONLY 7% are saving their houses from foreclosure!!!</strong>
 
<strong>So where have all the REOs gone, since the inventory numbers are static?</strong>



Max at Sac RE stats has assembled the answer, thanks to an analyst with Deutsche Bank:



<a href="http://sacrealstats.blogspot.com/2008/08/insight-into-shadow-inventory.html">http://sacrealstats.blogspot.com/2008/08/insight-into-shadow-inventory.html</a>





Here is the highlight: The banks are holding REOs amounting to 100-200% of various market's MLS inventory in "reserve"



For instance, Sacramento has 14,913 MLS listings but 31,219 REOs not yet listed, 209%



(SF=190%, IE=181%, SD= 166%, LA=142%--go to the website for the table)





Is this true in Irvine too? Are there another 1000 houses in "reserve" in addition to the 828 listed on the MLS?
 
Mmmm... this makes me want to try to figure out a way to find the shadow inventory. I do know that I am tracking 10 homes from late June, that went through the foreclosure auction, and only one, yes 1, is on the market. Funny how Deutsche Bank comes out with this report since they are the largest trustee of New Century. I guess they speak from personal experience.



Isn't it ironic/funny that in 1995 the guberment forced lenders to accelerate the foreclosure process, but now they our encouraging the delay. As a free market capitalist, I think the faster the better, but it seems compassion wins and this is coming from both sides of the parties.
 
[quote author="graphrix" date=1218639845]Mmmm... this makes me want to try to figure out a way to find the shadow inventory. I do know that I am tracking 10 homes from late June, that went through the foreclosure auction, and only one, yes 1, is on the market. Funny how Deutsche Bank comes out with this report since they are the largest trustee of New Century. I guess they speak from personal experience.



Isn't it ironic/funny that in 1995 the guberment forced lenders to accelerate the foreclosure process, but now they our encouraging the delay. As a free market capitalist, I think the faster the better, but it seems compassion wins and this is coming from both sides of the parties.</blockquote>


Do you remember 1995? The operative word was blight.



Right now, the foreclosees are still living in the homes and relatively maintaining, i.e. the yard isn't completely dead and the pool isn't a green west nile breeding ground. Both of which nearly immediately happen upon serious foreclosure proceedings.
 
So graph, you too think that there is a huge shadow inventory in Irvine?



Imagine what would happen to prices if there were suddenly another 1000 listings on the MLS?



Would that be an immediate 50% price drop?
 
It?s my understanding that there will be quite a few IndyMac REOs hitting the market soon.

Looks like they?ve thrown in the towel on working out short sales.
 
<strong>And now: The Deluge</strong>





<blockquote>BULK ASSET SALES - THE ?QUICKENING?



This leads me full circle to the beginning of this story. With IndyMac, Merrill, Fannie and now Lehman all in bulk ?asset? dump mode, other entities with less will want to get out ahead of them. Especially those banks holding vacant REO (real estate foreclosures) wanting to get ahead Fannie Mae?s 54k units. There is so much ?shadow? inventory on bank?s shelves, an asset dump across banks holding large amounts of property such as WaMu, Countrywide, GMAC, Chase and IndyMac could seriously depress prices for a long time. This is a variable nobody is considering.



Bulk ?assets? go for pennies on the dollar as you saw with Merrill?s CDO dump. Therefore, the vacant REO and non-performing notes in these bulk asset sales will be sold so cheaply that vulture funds can swoop this up and get this product back into the market fast at deeply discounted prices. This brings values down immediately. The result is an immediate and swift mark-to-market in that neighborhood?as one family gets a ?great deal? 100 have more equity stripped away, 50 are thrown into an incurable negative-equity situation and 25 default as a result. This leads to even more inventory. It is a vicious cycle; a feedback loop from which there is no escape</blockquote>


from Mr. Mortgage:http://mrmortgage.ml-implode.com/





So:



1. Bulk sales @ 10-20c/dollar of REOs

2. Fannie dumps 54k REOs nationwide

3. Other banks try to sell their REOs first.

<strong>

Will there be a huge increase in MLS listings (from the "shadow inventory") in the next three months?</strong>
 
[quote author="freedomCM" date=1219208209]

So:



1. Bulk sales @ 10-20c/dollar of REOs

2. Fannie dumps 54k REOs nationwide

3. Other banks try to sell their REOs first.

<strong>

Will there be a huge increase in MLS listings (from the "shadow inventory") in the next three months?</strong></blockquote>


1. I wish they would bulk sale in OC for that price, but not likely.



2. Fannie has hardly any bad loans in OC. Of that 54k, maybe 50-100 would be in OC, and they would be low priced areas since Fannie has always had loan amount restrictions.



3. Maybe, but where are they going to find the staff with the knowledge to suddenly organize this?



IMO there is shadow inventory, and there will be an increase in inventory, but nothing as dramatic as Mr. Mortgage claims. I like him, and I find him entertaining, kinda like Cramer, but he tends to be a bit over the top. And, hell... I could be wrong too. I have not been pessimistic enough in the past about foreclosures, so anything can happen.
 
3. more outsourcing. rely more on guys like JimtheRealtor to move units. Instead of giving him 20 at a time, give him 200.



2. I agree for OC, but it should further slam the IE and central valley.



1. What is the ratio now? At the auctions, they are offering at what? 70c/dollar of the first and getting no bids? So they REO, then they have to pay back taxes (and maybe HOA), fix-up costs, and realtor costs. That has got to bring their return down. And with prices still falling a few% per month...
 
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