"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

24 January 2007

Housing Crisis Deepens on the Coasts

More Californians at risk of losing homes
David Streitfeld of the LA Times details the ongoing disconnect between mortgage loan defaults and household financial crises. Now jump to the bottom and read the CRL study which projects $164B in mortgage losses and 22m homeowners foreclosed.
The number of Californians defaulting on their mortgage loans is rising rapidly, according to figures released Tuesday, providing striking evidence that more people are at risk of losing their homes. Default notices jumped 145% in the last three months of 2006, accelerating a trend that began in late 2005 as home sales started to cool. It was the largest number of default notices in any three-month period since 1998.

"Analysts" don't consider a 8 year record for defaults significant?? How can that be?
Analysts said the increase was not worrisome — yet. But if the number continues to escalate, it could drag down home values in certain communities, they warned. "So far, this isn't alarming," said John Karevoll, chief analyst at DataQuick Information Systems, which compiled the data. But if default notices "keep going up at this rate, it could get nasty fast," he added.

And, amazingly enough, it's first time home buyers who are vulnerable. The mortgage industry abandoned decades' old lending standards to provide "exotic" no-doc loans to people for more they could afford to service. Default notices more than doubled to nearly 40K in Q406 while foreclosures SOARED sevenfold. Analysts???
Home markets that are most vulnerable include the Inland Empire and the Central Valley, both of which drew throngs of first-time buyers even as the housing boom was ending. Such homeowners are the most at risk of losing their homes because they have relatively little equity in their properties, making it harder to refinance their mortgages. Default notices are the initial step in the foreclosure process. In the fourth quarter of last year, lenders issued such notices to 37,273 borrowers across the state, warning them that they were at risk of foreclosure, compared with 15,196 during the same period a year earlier, DataQuick said. But foreclosures also are on the rise. There were 6,078 in the last quarter of 2006, up from 874 a year earlier.

Analysts are unmoved... plenty o'jobs out there...
Today, the economy is healthy and unemployment has rarely been lower. "I really don't see any distress out there," said Chris Comer, a mortgage broker at Pacific Capital in San Marcos, Calif. "Most people getting notices of default are figuring out ways to get those mortgages current by any means possible so they're not kicked out in the street." Most people, but not everyone. James Brown, a 66-year-old retired insurance agent in Salinas, Calif., has a history of heart trouble. When he had an operation in 2005, he said, "the doctor gave me a 50-50 chance I'd die on the table. So I did a stupid thing: I refinanced the house." Brown's goal in tapping his equity was to give his wife, Monica, a $100,000 cushion after his death. But he didn't read the paperwork carefully, and didn't realize that his monthly loan payment would skyrocket. There was also a problem with the operation: It worked. A year or two earlier, that would have been nothing but good news. In the early part of the decade, Brown recalled, "property values went crazy." "People pulled up in Silicon Valley and went to Salinas, and paid here what they had been paying there," he said. But Brown awoke to a different world. With the new loan, his payments went to $4,500 a month from $2,900. The $100,000 in equity he pulled out of the house went to his medical expenses and other bills. The property has dropped in value to $750,000 from $899,000, leaving him without enough equity to refinance. He arranged to sell the place, but the prospective buyers couldn't qualify for a mortgage. In September he gave up and stopped paying the mortgage. He's now in default, speeding toward foreclosure. "Three times a week, they call and say, 'Where's my money?' " he said. "If I hadn't survived, everything would have been fine."

Brown's situation illustrates a potential wild card in the housing market that barely existed a decade ago. Lenders have invented all sorts of newfangled loans, many of which are reset to higher interest rates after a fixed period. The ability of borrowers to repay such loans, particularly in a weak market, is untested.

"People are living on the edge, and they can't help it with the price of houses," said Barbara Swist, a Costa Mesa mortgage broker who is helping Brown sort through his options. "They have good jobs but they bought over their heads, buying into the American dream."

South FL Condo Inventory Soars 111% Watch out for Corus Bankshares !

South Florida home sales up?, prices down-Inventory rises 95% from a year earlier
Home sales in South Florida's Broward County edged up in December, as a massive selection of inventory and lower prices lured buyers into the market, according to statistics provided by the Realtor Association of Greater Fort Lauderdale. Single-family home sales totaled 599 last month, up 1 percent from 593 sales a year earlier. The median home price slid 7.9 percent during the period -- from $379,900 to $350,000. Overall the market appears to be returning to reality," said RAGFL President Christine Hansen. "Home prices are stabilizing and resemble figures from what we would consider 'typical' markets, which is a positive sign." The 10,679 single-family homes listed for-sale last month represented a 95.4 percent increase from the 5,465 listings in December 2005, indicating a strong buyer's market. In the condo-townhome market, total available inventory rose to 14,704 listings last month from 6,968 a year earlier -- a 111 percent increase. The median condo price, however, actually gained 2.5 percent during the period to $199,750.

The downside from the "lure of the American dream" is also the opinion of the Center for Responsible Lending, a nonprofit advocacy group based in Durham, N.C. Last month, the center issued a lengthy analysis explaining how millions of so-called sub-prime loans would soon turn bad. Sub-prime loans are made at higher rates — and include more onerous terms — to borrowers who don't qualify for lower-cost "prime" mortgages. Sub-prime foreclosures would increase the most, the authors concluded, in states that had seen strong price appreciation during the boom. That would include New York, Virginia, Maryland and particularly California. The borrowers most at risk are naturally those who bought most recently
The Center estimates that a quarter of the sub-prime loans made in the Central Valley city of Merced last year will result in foreclosure. That would be the highest rate in the country, based on the center's calculations. Eight other California cities, including Vallejo, Bakersfield, Fresno and Stockton, were among the top 15 projected foreclosure rates. That geographic focus is consistent with Tuesday's DataQuick numbers. The Central Valley, with about 6.5 million people, had 8,531 defaults and 1,646 foreclosures in the last three months of 2006. Los Angeles County, with 10 million people, had fewer of each. For the state as a whole, the Center for Responsible Lending projects a failure rate of 21.4% for 2006 sub-prime loans, a level exceeded only by Nevada and Washington, D.C. Foreclosed homes are typically sold at a discount, which can hurt property values of nearby houses.

Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans; Homeowners to lose at least $164 Billion in Sub-Prime Loans
A new CRL study reveals that millions of American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market. The “Losing Ground” study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006. CRL finds that despite low interest rates and a favorable economic environment during the past several years, the subprime market has experienced high foreclosure rates, and we project that one out of five (19.4%) subprime loans issued during 2005-2006 will fail.


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