“California’s WARN law requires certain companies with more than 75 employees to provide 60 days advance notice of a plant closing or mass layoff involving 50 or more employees.”

Go to the link above and type in your company’s name and city to see if there is a planned layoff.  I think it is better to have a bit of advance notice rather than be  taken by surprise.

Unfortunately, foreclosures are no longer reserved for the sub prime borrowers.  Now it has spread to the mainstream.  All too often, it takes a few of bad months before the borrower falls so far behind, they are unable to catch up.

Besides job loss, catastrophic medical expenses is another common reason why homeowners are unable to make their mortgage payments.  This is a why we should have health care overhaul to make sure people are not forced into foreclosures or bankruptcies because of medical expenses.  The saga this family is living is being repeated by many other families here in Silicon Valley.

From Jeff Geoghan MBA – Lancaster PA Real Estate Expert (The Jeff Geoghan Realty Group, Coldwell Banker Lancaster PA):

This is one of those posts where I wish I didn’t have to write it, but felt it was so important to my readers that I would be remiss not to at least talk about it.

Everyone out there probably knows somebody who is behind on their mortgage payments, looking for alternatives and likely also just finding out that their home’s value has dipped below what their loan amount is.  I know some within my own personal circles.  It’s a tough situation for me to advise them as a professional because it’s such a personal challenge to their pride and self-worth, not to mention their plans and dreams for the family. The question we’re asking is “when is this going to stop and where are we heading?”

I’m going to put up a few graphs that show the trends nationally with regards to mortgage delinquincies:

This chart is by quarter – Single-family mortgages set a new record delinquency rate in the second quarter of 2009, according to a quarterly survey by the Mortgage Bankers Association. Those of us in the real estate business see the foreclosure process (just visit the local Sheriff Sale docket to see the current numbers) but the looming delinqency-to-foreclosure issue is far, far larger.

The Wall Street Journal on 8/3/09 reported the following quote: “While subprime mortgages sparked the first round of housing problems two years ago, now “troubles are lurking further up the food chain,” says Joshua Shapiro, chief U.S. economist at MFR Inc. White-collar job losses have accelerated while more adjustable-rate loans to prime borrowers are resetting to higher payments. ‘You put all that together, it leads me to believe that the next leg down on home prices is going to come from the top,’ he says.”

The first objection someone may have would be to say “yes, but historically those who are delinqent usually get their act together and come current on the mortgage after a while”.  That WAS true, but not anymore!  We call that the “Cure Rate”, that is the rate of delinquencies that go back to current.  The Wall Street Journal reported on 8/24/09 about a Fitch analysis that found that the Cure Rate from 2000-2006 was 45% (which means about half of people fix their delinquency).  However, as of July 2009 the rate had dropped to just 6.6%!  That means that over 90% of delinquent customers are going to foreclosure.  Take a look again at the above chart…

The next thing someone will say is “well, that’s the ‘sand states’ and not my area”.  Here’s the chart for all 50 states showing the same breakdown of delinquencies and foreclosures.  Guess what – most states have a significant problem, especially compared to historical figures.

Now the next thing someone may say is “aren’t those loans going to get ‘fixed’ by a loan modification?” I know several people right now who are applying for a Lancaster County loan modification but are waiting and waiting.  I hope it works out for them…

In reality, loan modifications are hardly making a dent. To me, that’s a burning question.  Why arent banks being more aggressive in giving customers the option to extend their loan and/or reset to a lower rate?  Why are they being SO difficult? The people I know don’t want to be foreclosed.  They CAN make payments.  They just need the terms redrawn to allow them to catch & keep up.  Loan modifications are not helping us get this crisis under control.

What are the causes of all these delinquencies?  Here’s a chart that is enlightening:

We hear a lot about adjustable rate mortgages being the culprit, but the reality is that it’s the loss of jobs and the tanking real estate market that’s the perfect storm.  See my previous post on unemployment in the nation, the state and Lancaster County.

Keep in mind, this post is not intended to give us “good news”.  You may be experiencing good things in your market and that’s great.  My intent is to get us thinking about the challenges that aren’t going away and how we’re going to address them as homeowners, agents and professionals.  I’d love to hear your ideas!

I first pulled all of the particular types of property (either Single Family Residences or Condo/Townhomes) which were in active status  today in Santa Clara County.  Then I pulled from all of the same properties the ones that were identified by the listing agents as Short Sale and as REO (bank owned properties) to get the results.

The numbers were significant, but a bit less than I had anticipated.

Single Family Residences – Total Distressed Properties represented 26% of the properties for sale.

Condo/Townhomes - total distressed  properties represented 33% of the properties for sale.

Given the high rate of unemployment in California and the current status of the Alt-A and Option ARM loans resetting in the coming months, I believe, unfortunately,  this number will steadily increase.

Here are some fantastic data from the CDPE organization which closely tracks national industry numbers.

As of Q2 2009, here are some numbers for you to digest

Type of  Mortgage            In Foreclosure                      In Default (30+ Days late) Total

All Mortgages                               4.3%                                                      8.86%                                                             13.16%

Sub Prime Mortgages               15.05%                                                25.35%                                                           40.40%

Prime                                                 3.00%                                                  6.41%                                                                 9.41%

It’s not surprising to see that sub-prime loans represents over 40% of distressed properties out there.  As of the end of Q2  2009, however, distress in prime mortgages (or the Mercedes of mortgages) represent roughly 1/4 of the volume of sub-primes mortgages. This may surprise some people, as we have been repeatedly told by the media, that sub-prime market is what brought our economy down.   However, with National Unemployment at 9.4% (as of July 09 when these stats were released) , it is no longer those who gambled on high risk mortgages, but the regular people who were doing the responsible things, who are being forced into default.

I believe the sector of mortgages to look out for in the coming months is the prime market.  I argue they will rise dramatically in numbers, relative to sub-prime mortgages.

Additional statistic I want to point out are marked in red above.  4,760,000 represents the total volume of home sales NAR predicted for 2009.  9,550,000 represents the total distressed properties in the nation as of Q2.  This means if these distressed properties have to be sold to get homeowners out of their situation (either as a short sale or foreclosure), it will take over two years to  unload the current inventory of distressed properties!

Some food for thought………

Article

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.

Just like cash for clunkers, any Realtor will tell you that the first time homeowner credit has been wildly successful in getting fence sitters to come down and buy homes.  It’s a simple fact: the $8,000 tax credit is sufficient incentive here in California.  With nearly 12% unemployment here in Silicon Valley, the additional sales of homes will have a trickle down effect and give employment opportunities to Realtors, loan brokers, lenders,  property inspectors, termite inspectors, title company employees, contractors, gardeners, Home Depot employees, etc……. who, in turn, will spend money and give other industries opportunities at employment.  We need to get the housing sector back on its feet as it is the one which initiated the fall of our mighty economy.

Article

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.

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.

http://www.latimes.com/business/la-fi-economy5-2009sep05,0,3045652.story

The interesting part of the article for me was not about unemployment rising from 9.4% to 9.7% in July, but the part about the new  face of the laid off employee.

“During the previous two recessions, in 1990-91 and 2001, people in their mid-40s to mid-50s continued to show employment gains as younger workers felt the brunt of the cutbacks. But since the current downturn began in December 2007, employment in the 45-to-54 age group has fallen by more than 1.2 million, according to the Labor Department.”

The trend is troubling because that prime earning age group of 45-54 are will represent a high number of homeowners who will be unable to make their mortgage payments and will quickly fall into default status.   A study I read revealed most American households are unable to survive longer than 2 months if there is disruption in the income.

Unemployed workers have a difficult time getting another well paying job in 2 months……