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

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"I can pretty much guarantee I can find you $500B in outstanding option ARMs just at Countrywide."



I sincerely doubt that.
 
[quote author="trrenter" date=1252716572]

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

</blockquote>
How/why are these resets/recasts delayed?



Loan refis/mods? Just wondering.
 
I don't think the problem is the reset or recast got the delayed. The problem is that the foreclosure process has been delayed even though they haven't paid for quite some time.
 
[quote author="irvine_home_owner" date=1252723036][quote author="trrenter" date=1252716572]

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

</blockquote>
How/why are these resets/recasts delayed?



Loan refis/mods? Just wondering.</blockquote>


<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.



Recall that Option ARMs reset generally on the five year anniversary of the loan or when the deferred interest reaches 110% or 115% of the original balance of the loan. Due to extremely low interest rates, the deferred interest on many of the newer vintage loans has been accumulating at a slower rate. Hence, the can gets kicked down the road.



</blockquote>
 
"I can pretty much guarantee I can find you $500B in outstanding option ARMs just at Countrywide"



http://www.irvinehousingblog.com/bl...wall-st-caused-the-mortgage-and-credit-crisi/



"by graphrix in Short Sale"



"Countrywide also followed the crowd in originating another popular loan of the 2004 to 2007 period: payment option ARMs (adjustable-rate mortgages) (POAs), a product where the consumer was offered four different payment plans each month. One of these payments artificially low by delaying large interest payments each month, thus adding new debt onto the loan amount. It was what some lenders called an "I'll worry about it tomorrow" option. By 2006 Countrywide was the largest pay option ARM lender in the nation, originating $11 billion worth a quarter."



Four years x four quarters x $11b = $176b (original amount)



Support? Check.



I'm being generous with 2007, they were all but gone by then.
 
[quote author="NewportSkipper" date=1252722596]"I can pretty much guarantee I can find you $500B in outstanding option ARMs just at Countrywide."



I sincerely doubt that.</blockquote>


As someone who hears him crunching numbers all the freakin' time, as well as my knowledge that Graph uses actual numbers to find a trend before he predicts anything, you really shouldn't doubt him on a claim like that.



I'm always amazed that he actually does read the various required reports/disclosures put out by companies he's interested in.
 
<strong>Old Projection of resets</strong>



<img src="http://www.butthenwhat.com/wp-content/uploads/2009/04/option-arm-resets.jpg" alt="" />





<strong>New Projection of resets</strong>



<img src="http://www.butthenwhat.com/wp-content/uploads/2009/04/option-arms.jpg" alt="" />
 
Thanks, I should read better.



But what about the 5 year anniversary ones? It would seem that those would hit hard even with the current low rates because the majority of their payments resulted in deferred interest. With unemployment and strict credit, I just don't see these people refi'ing... are we back to the non-existent shadow foreclosures again?
 
I can only make assumptions I can't see where the account for the 5 year ones.



Assume the loans were made in 05-06 they wouldn't reset until 10 and 11. I am assuming Credit Suisse saw most were making the lowest payment acruing negative amororization that would cap sooner then the 5 year reset.



Those are only assumptions.
 
[quote author="NewportSkipper" date=1252723563]"I can pretty much guarantee I can find you $500B in outstanding option ARMs just at Countrywide"



http://www.irvinehousingblog.com/bl...wall-st-caused-the-mortgage-and-credit-crisi/



"by graphrix in Short Sale"



"Countrywide also followed the crowd in originating another popular loan of the 2004 to 2007 period: payment option ARMs (adjustable-rate mortgages) (POAs), a product where the consumer was offered four different payment plans each month. One of these payments artificially low by delaying large interest payments each month, thus adding new debt onto the loan amount. It was what some lenders called an "I'll worry about it tomorrow" option. By 2006 Countrywide was the largest pay option ARM lender in the nation, originating $11 billion worth a quarter."



Four years x four quarters x $11b = $176b (original amount)



Support? Check.



I'm being generous with 2007, they were all but gone by then.</blockquote>


I stand corrected. I got a little trigger happy with my 0's there. It is more like $50B not $500B. Keep in mind that the 2007 vintages were issued 90-120 days after the loans were originated, so there is a lot more in the 2007 vintages than were originated in 2007. As can be backed up by the prospectuses of the CW OA pools, 60% of the loans originated were in CA, and the average delinquency rate is 32%. That is a whole lot of shadow inventory coming our way.
 
<a href="http://www.bubbleinfo.com/2009/09/10/reo-tricklin/">Jim the Realtor is starting to see REOs pick up again</a>.



<em>REO Tricklin?



My second REO assigment in the last two weeks, after a couple of dry months - <strong>could this be the beginning? I think it is</strong>, but the quality isn?t great yet, at least of the ones they send me.</em>
 
[quote author="trrenter" date=1252723745]<strong>Old Projection of resets</strong>



<img src="http://www.butthenwhat.com/wp-content/uploads/2009/04/option-arm-resets.jpg" alt="" />





<strong>New Projection of resets</strong>



<img src="http://www.butthenwhat.com/wp-content/uploads/2009/04/option-arms.jpg" alt="" /></blockquote>


Also from the article:



"Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital (BCS). And about a third of the outstanding loans in these years are deeply delinquent.



In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays? head of residential credit strategy, who also expects resets to be delayed until next year. ?These things have been performing horrendously,? Bordia said. ?I don?t know how much of it will last into the recast.?
 
Another great post from <a href="http://www.doctorhousingbubble.com/shadow-inventory-revisited-silent-alt-a-mortgages-southern-california-reo-and-the-great-public-swindle/">Dr. Housing Bubble</a> on shadow inventory.



It covers REOs and delinquent mortgages, with a quick review of job growth in CA (or lack thereof).



<img src="http://www.doctorhousingbubble.com/wp-content/uploads/2009/09/nod-california.png" alt="" />



<img src="http://www.doctorhousingbubble.com/wp-content/uploads/2009/09/nationwide-foreclosures1.png" alt="" />



<img src="http://www.doctorhousingbubble.com/wp-content/uploads/2009/09/ca-employment-lost-decade.png" alt="" />
 
I see we are back to commingling simple lates, NODs and actual bank shadow inventory. We don't need national and state numbers when we know for a fact that our 90 day + delinquency number for Orange County is 6% and we don't need national and state numbers when we know for a fact that true bank shadow inventory in Orange County is somewhere between 4,000 and 6,000 units.
 
"Reset Chart from Credit Suisse has a Major Error"





"Versions of the Credit Suisse reset graph have been featured in the Financial Times, used by the International Monetary Fund, and are a staple of web sites like these that are dedicated to the housing bubble. It?s fairly shocking then to see what appears to be a major error in their calculations."



"In short, Wells expects $56 million in Option ARMs to recast due to the loan balance reaching 125% of the value of the original loan and another $269 million to recast based on the terms of the loan. <span style="color: red;">Given that we?re talking about a portfolio of over $100 BILLION of these loans, this means ESSENTIALLY NO LOANS WILL RECAST due to the negative amortization limits or contractual terms before 2012</span>."





http://healdsburgbubble.blogspot.com/2009/05/reset-chart-from-credit-suisse-has.html
 
From the same article:



"Also worrisome is that we?ve heard from readers that WaMu/JP Morgan is notifying Option-ARM borrowers that they are extending their minimum payments out another 5 years. Are they pushing off recasts into 2014/15 as well?"



This should come as no surprise.
 
Interesting article, thanks for the link.



"The bottom line something doens't add up when Wells Fargo predicts virtually no Option-ARM recasts before 2012, while Credit Suisse predicts no recasts after 2012. While I would guess Wells Fargo is underestimating recasts assuming a flat rate environment"



Perhaps Ben is a genius, by crushing the rate, he's pushed the envelope on recasts. Is that just extending it down the road?



I'd have to agree with the below...

"Of course, none of this is to say that Wells Fargo is out of the woods. They are essentially stashing away on their balance sheet tens of billions of neg-am loans that will recast into 20-year fixed rate mortgages in 2014 and 2015. Talk about a payment shock. "



Which is worse? A reset in 2014 at 115%+ of loan an original $500K balance and a payment that is <B>triple</B> the original minimum payment? Heck, it's 60% higher than the payment in 2013. Or just the projected death march of payment increases from $1600 in 2004 to $2300 today and increases $200 a month every year until recast. It's like rental with a built in price hike. Granted, $2300 on a $500K loan is pretty sweet.



The more I read the more it seems like the dysfunction in the RE market is going to last through much of the next decade.



And the Golden West 10-K statement.

"A 125% cap on the loan balance applies to loans with original loan-to-value ratios at or below 85%, which includes almost all of the loans we originate. Loans with original loan-to-values above 85% have a 110% cap. "
 
They very well may institute balloon payments on some of these. I'm just saying: expect the unexpected.
 
<blockquote>The more I read the more it seems like the dysfunction in the RE market is going to last through much of the next decade. </blockquote>


Thats the problem in a simple statement right there.



And until we regulate these snake-oil sleezebag "where is my commission" blowhards that just want to kick the

can and cash a check. NOTHING will change.



They provide NOTHING of intrinsic value to the consumer. They create nothing as far as wealth is concerned.

They are like a parasite that is no longer welcome.



I think all these loan mod people should pay the $ 100,000.00 Bond to hang a license.

Screw up. Adios to your $ 100K.
 
From the WSJ:



<a href="http://online.wsj.com/article/SB125366552480532521.html">Delayed Foreclosures Stalk Market</a>



<em>Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. <strong>Fifteen months later, the Scrivens are still in their home</strong> near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.



Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing "shadow" inventory of pent-up supply that will eventually hit the market.



The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market.



<strong>"There's going to be a flood [of bank-owned homes] listed for sale at some point," says John Burns, a real-estate consultant based in Irvine, Calif. When that happens, Mr. Burns believes, home prices will fall further, particularly in markets with large numbers of foreclosures. Overall, he expects home prices to decline 6% next year.



Ivy Zelman, chief executive of Zelman & Associates, a research firm based in Cleveland, believes three million to four million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble "a fire hose or a garden hose or a drip," she says.</strong>



Analysts who track the shadow market have focused primarily on the gap between the number of seriously delinquent loans and the number of foreclosed homes for sale by mortgage companies. A loan is considered seriously delinquent, which typically means it is headed to foreclosure, if it is 90 days or more past due.



As of July, mortgage companies hadn't begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn't yet acquired the property. The figures don't include home-equity loans and other second mortgages



Moreover, there were 217,000 loans in July where the borrower hadn't made a payment in at least a year but the lender hadn't begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren't in foreclosure, up from 8% a year earlier.



Some borrowers may be able to catch up on their payments or receive a loan modification that helps them keep their home. There has also been an increase in short-sales, transactions in which at-risk borrowers sell their homes for less than the loan amount, with the lender's approval. In some cases, lenders have decided not to foreclose because the home's value is so low. These factors could mean fewer foreclosures.



Foreclosed homes are partly responsible for the recent increase in home sales. But foreclosures also push down home values. According to Collateral Analytics, a housing research firm, homes that have been foreclosed on typically sell at a 10% to 50% discount.



For now, the delays have led to what is probably a temporary drop in the supply of bank-owned homes in California and other places where investors and first-time home buyers have been competing for bargains. In Orange County, Calif., the number of bank-owned homes listed for sale dropped to 322 in early September from 1,404 in November 2008, according to Altera Real Estate.



But the number of foreclosures is expected to increase in the fourth quarter as mortgage-servicing companies determine who is eligible for a loan modification and who isn't. "We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to "abnormally low" levels in response to government efforts to stem foreclosures, she adds.



For the Scrivens, legal battles have complicated the process. Ms. Scrivens says Citigroup recently offered to modify their loan, but she and her husband rejected the offer because they objected to some of the conditions. A hearing on the foreclosure case is scheduled for Wednesday in a Kershaw County, S.C., court.



Citing customer privacy, a Citigroup spokesman declined to comment specifically on the Scrivens situation. "Our priority goal is to keep distressed borrowers in their homes and out of foreclosure, when possible," he said.</em>



For those who do not know who Ivy Zelman is, she is, and has been the premier analyst on home builders.



For those in the local RE industry who do not know who John Burns is... please go play catch by yourself on the 55 immediately.
 
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