Category Archives: Mortgage Delinquencies

$30 Billion Time bomb ready to go off

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I have been of the opinion, that our next wave of problem mortgages will be the option ARMs.  Here is a situation where many homeowners took a chance at a gamble and failed; and the bill is coming due very soon with most being unable to meet their obligations.  If this is not a recipe for disaster, I don’t know what is……..  None of these homeowners will be eligible to re-finance these loans, so their future is laid out for them already.

Finally some hard data for the Bay Area has been revealed.  Between 47,000-57,000 loans with a value of $28 – $31 Billion in option ARMs are located here in the Bay Area.  The bulk of these are set to re-cast between 2010 – 2012.   Here are some additional details.

Metropolitan statistical area % of all home loans originated 2004-08 that were option ARMs % of 2004-08 option ARMs that are 60-plus days delinquent or in foreclosure
San Francisco-Oakland-Fremont (San Francisco, Alameda, Contra Costa, Marin, San Mateo counties) 19.52% 27.23%
San Jose-Sunnyvale-Santa Clara (Santa Clara and San Benito counties) 19.32% 28.36%
Santa Rosa-Petaluma (Sonoma County) 25.31% 24.94%
Vallejo-Fairfield (Solano County) 28.12% 36.91%

$584,000

Average option ARM loan in 5-county S.F. metro region

54,000

Number of option ARMs in Bay Area

$30.9 billion

Bay Area option ARM loan balance

Source: First American CoreLogic

94%

Borrowers who make minimum monthly payments

79%

Average loan-to-value ratio when loans were made

126%

Average loan-to-value ratio now

39.3%

Option ARM borrowers who are 60+ days delinquent

California unemployment rate hits 12.2% in August

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Talking heads on TV complain that the US will hit over 10% unemployment by the end of this year and are concerned about the negative impact that will have on the economy, blah, blah, blah…… Yes, it is rough for everyone out there and we should all be concerned.

But want to know how things are playing out in our own backyard?  California has hit 12.2% unemployment in August 2009! That’s the highest ever since such data was tracked.

“Only Michigan, Nevada and Rhode Island, at 15.2%, 13.2% and 12.8%, respectively, have higher unemployment rates than California. The national unemployment rate in August was 9.7%.”

As I have been saying repeatedly, until we can resolve this issue of unemployment, foreclosure will continue at records levels, unless we can address one of the root causes: unemployment .  People simply do have have sufficient cushion in their savings to allow for sustenance during their unemployment.  Luckily, the government is aware of this situation and have started talking about helping out the unemployed stay in their homes.

We will have to see how this effort turns out, but at least we are headed in the right direction.

Silicon Valley foreclosure on the way down?

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The above article boldly declares that foreclosure activities have dropped 18% reduction in Notices of Default being issued and 11.5 % reduction in Notices of Trustee Sales last month in Silicon Valley.  On its face, that seems like fantastic news, but we have to now consider something which happened today. How will the law which enacted a moratorium to stop foreclosures ending impact the activities in the coming months?  Of course only time and data will tell…….
However, the above question may be a moot point unless the two root  causes of foreclosure are addressed in California: unemployment and  the looming option ARMs problem.   Unless these powerful forces are somehow resolved or mitigated, we may be looking at years of foreclosures to come.

Fantastic data about Option ARMs recasting in the future

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Please read this Article

As a San Jose Short Sale Agent, I am a firm believer that the second wave of foreclosures will be triggered by multi billion dollars worth of Option ARMs recasting in the next few years. The problem has been brewing quietly and is the big secret in the industry today.   It is the pink elephant that no one has been speaking about, but with the passing of time, it continues to grow and becomes too difficult to ignore.   The above article actually put numbers behind the problem that the country and affected homeowners will be facing in the coming years.  Make no mistake about this, option ARM will be a huge problem affecting the mortgage market and the subsequent impact it will have on foreclosures. Homeowners who own these types of loans will have a huge wake-up call in the coming months and years.

Treasury trying to standardize short sale

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News Article

This is fantastic news and certainly the step in the right direction, in an effort to standardize the short sale process.   One of the most difficult and time consuming aspect of a short sale is the lack of a standardized process.  Bank of America’s process is different than Wells Fargo’s process which is different than JP Morgan Chase, etc…..  It is not uncommon for a short sale to be delayed or sometimes denied because procedures were not followed to the letter.
As with everything else, if the Treasury tries to give banks incentives to complete short sales, we will see a higher success rate with these transactions.    As a San Jose Short Sale Agent, I certainly believe this is the right step and many of us who specialize in this area would love to hear more details.

Economists says foreclosure situation seems to be better….. are they?

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News Article Here

So which group of economists is correct, are foreclosures truly decreasing or are they going to be increasing?  Depends on the data, I say.  As a San Jose Short Sale agent, what concerns me are the two items mentioned in the article.  First, I think everyone will agree that unemployment will be a driving force behind foreclosures in California. Unless we can find jobs for California’s 12% unemployed, even with loan modifications, it’s just a matter of time before these folks will face foreclosure.  The mortgage modifications for most people will simply delay the inevitable by a few more months, unfortunately.

Secondly, there is the issue of the wave of re-setting adjustable mortgages which are scheduled for the next couple of years, chief among them the deadly Option ARMs. Once  these start to re-set (and California has the most Options ARMs of all other states),  in conjunction with high unemployment rates, we are going to see some serious carnage.  I hate to sound so pessimistic, but those are the fact that I see driving foreclosure activity in the coming few  years.

Judge orders Wells Fargo VP to explain to homeowner why her loan modification was denied.

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http://www.nytimes.com/2009/09/04/business/economy/04wells.html?_r=3&ref=business

The frustrations expressed by Ms. Giguere is repeated  hundreds, if not thousands of time per day by individuals who have dealt with these large lending institutions, me included.    Whether it be out of lack of staffing, or simply  staff who don’t care about the plights of distressed homeowners, it is all too common to hear about lenders claiming not to have received documents and requesting them over and over and using such claims to deny loan modifications or short sales.

Hopefully, more reporting of and exposing of these types of under-handed practices will, like this instance with Wells Fargo, get these lenders to change their despicable behavior.    We just heard today that loan modification  approval rate is increasing with many of these large lenders, including Wells Fargo, so imagine how much better those number could be, if these practices were no longer utilized.

1 in 10 in California in mortgage payment default.

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New data released reveals that 9.5% of home loans in California are in default. Sub prime loans seem to be the concern of the past and now unemployment seems to be the number one reason why people default on their loans from my discussions with clients as a San Jose Short Sale Agent. The data is fairly consistent with California’s unemployment numbers.

Although we may already have by-passed the bottom of the housing market, in order for us to see dramatic improvement, we must address the unemployment issue.  Want to see more people buy homes?  Give people sense of security about their jobs.  People who feel secure about their employment buy homes.  People who are insecure about their employment status do not buy homes, even if they have the financial wherewithal.

Given that NUMMI is shutting its doors and laying off 4,300 employees and CISCO just having laid of 700 employees, it seems pretty certain that we in Silicon Valley will be seeing an increase of default activities in the coming months along with an increase of unsold inventory.

Option ARM – the new Sub-Prime disaster.

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This is the ridiculous mortgage that people were offered during the crazy heydays of “anyone can get a mortgage” era of a few years back.   Simply put, several payments options were given to the borrower, but the one that was selected most often was the low teaser rate option to pay less than the interest payments and have the deficiency tacked on the end mortgage; hence, the principal actually increases with time, rather than decrease!   This was also referred to as the negative equity loan: your equity was actually decreasing rather than increasing.  This was the Option Adjustable Rate Mortgage (ARM).

This was a pure gamble!   You were gambling that the housing prices would continue to increase and you would be able to re-finance your way out of the negative equity situation some time in the future.  Naturally, during 2006 or 2007, everyone was so drunk on the prospect of instant wealth, most of the borrowers who were presented this option took it, so they could buy a little more house than they would otherwise be able to afford. Unfortunately, the gamble did not pay off.

Throw 12% unemployment into the equation in California and see if this will not present itself as a serious crisis coming down the line.    As a San Jose Short Sale Agent and every Certified Short Sale Agent worth his/her designation knows that the re-setting of these option ARMs will be the next wave of foreclosures.

Mortgage delinquencies in California expected to rise through 2009.

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Los Angeles Times

California mortgage delinquencies expected to rise through 2009
Mortgage delinquencies will continue to rise and set records the rest of this year in California, according to projections to be released today by TransUnion, one of the three big U.S. credit-reporting companies.
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