[Buzz123]

I'm wondering why Citibank is beefing up their mortgage arm. What do they know that we don't?

[jpk]

Originally Posted by las vegas drunk

LOL, this is totally wrong. There is a second round of option ARM mortgages that are set to default towards the end of the year. This is expected to be severe and bring the market down even more. Will it come back? Yes, but not in the near future. It is going to get MUCH worse before it gets better.

I fear you are correct. But let's wait two months and we'll see.

[Daddys///M3]

Originally Posted by Buzz123

I'm wondering why Citibank is beefing up their mortgage arm. What do they know that we don't?

They're actually running behind by a few months IMO. Purchase and refinance volume has been pretty substantial since last June or so. Turn times have suffered in the interim (hence why most majors will not or at least were not locking less than 60 days). Mortgage brokers and loan officers have been waiting for wholesale lenders (I realize that you're likely talking retail, I'll get to that) to increase staff to handle the intake volume. Lack of operations employees are is one of the reasons why the spread between mortgage bonds and street level rates have been 4 times historical spreads. A few wholesalers had started beefing up operations by December.

As to why they are ramping up their retail (assuming that you are talking about their retail origination division), likely because they have seen the intake volume in the last 11 months, seen the amount of market share that the big banks have taken back from the small broker, and have seen signs of more volume to come. I know I have. I am actually starting to see the Making Home Affordable refinance program actually help people, so at least one of the steps the government has taken has been or has started to work (still not to the extent that .gov anticipated, I don't think it will). Not to mention the FHA mortgagee letter I spoke of in my earlier post. Whether you agree with it or not, as long as the borrower has not owned a home in the last 3 years, 100% financing is back via a lender advance of the FTHB tax credit. Granted this is likely a very temporary scenario (unless the tax credit is extended) but I imagine that volume should go up significantly and I am preparing for it.

Are we at the bottom? I don't know. In all likelihood I won't know until it has passed. Granted, REO inventory is down and voume is up. Granted, .gov is doing everything in it's power to get people buying again. However, I still can't shake the feeling that higher unemployment numbers and the possibility of large amounts of foreclosures in the near future will have an impact. You're guess is as good as mine.

[spike42]

Originally Posted by olecapt

Won't it be fun to arguue about how long until we get back to 2004?

I'll take the under on that. Bubbles don't usually reinflate. Prices will go up, but the hyper-emotional insanity is done in real estate.

[yasudab]

i wonder what everyone thinks of the next wave of foreclosures is going to do to the sagging market? and won't inflation and rising interest rates put on damper on any perceived recovery?

[gulfer]

I would think that it has to. A good article today on msn.com talks about exactly this. Not to mention they are calling a 3rd wave (prime real estate), followed by a forth, and a fifth for commercial property. It quotes Shiller all over it. But I would think that since we have not seen this in the short history of our country, anything could happen. I would like to see the .gov (props to Daddy) butt out for a little while and let this pan out. Someone will have to pay the tab and I hate to think at 43 years old, I'll be paying for 20 years on these mistakes.

[airics]

i think that the whole thing is messed up... forget the bailouts, should've given the money to the people, if you had a mortgage, require it to go towards it..

[olecapt]

Does not compute. I continue to hear of the 25,000 wave coming. Does not compute. Emperor's clothing type numbers.

There is no indication in the tax data base of an increase in foreclosures. Mostly a decrease in supply if anything. The data is good up to about May 21.
The inventory of REOs continues to drop. It is dropping more slowly but that is at least partially due to a decrease in the sale of REOs. The percentage of REOs is down about 4% from January and is dropping at a percent or more a month. That is likely to accelerate if the supply continues to tighten.

Soprano observes that he has been able to get REOs below list. The data to a large degree supports him. Particularly at the bottom current sales are well below list price. However these sales entered contract in March and April. I think in a month or so we will see a consistent sale at above list. My personal experience is anectdotal...but I do know that at least the last ten or so low end REOs we have chased have gone well over list. One nice example had 35 bidders. I don't know yet what it sold for but I expect 25% or more over list.

We are even running into the phenomena where sellers will not take FHA mortgages on perfectly reasonable houses. (There are good reasons for declining FHA on a house with damage) In my mind this is simply the agents taking the easy way. It is more effort and more risk to an FHA than a cash deal. But any time RE listing agent start barring a significant source of sales you know times are good.

Overall median and average will be up in May in all liklihood. And they will be up again in June. A combination of a slowing in the decline of REO pricing combined with a fall in the percentage that is REO will drive this. And it may get reasonably strong if some increase in available foreclosures does not occur.

Note again this is a local situaton. I have no idea how the supply flows nationally or in areas only recently hit. But Vegas shows no sign of another onslaught.

We certainly have not seen the end of the foreclosure mess. They are still flowing on to the market at 1500 to 2000 per month. I do not believe a falling price can exist as we run out of inventory. Even now I think it is pinching off...there is insufficent good stuff to satisfy demand and it is driving the price upward. Not enough perhaps to see an actual increase in REO pricing but getting close. As the blog chart shows we are increasing stable at $72 psf. I don't think we will see anything below $70.

Now maybe a huge chunk will roll onto the market in the next month or two. But I think that a very bad bet. But we will know pretty quick.

I think this is the bottom guys. And 2004 pricing within five years. Or less.

Now 2006 pricing? Don't hold your breath.

[Daddys///M3]

Originally Posted by gulfer

I would think that it has to. A good article today on msn.com talks about exactly this. Not to mention they are calling a 3rd wave (prime real estate), followed by a forth, and a fifth for commercial property. It quotes Shiller all over it. But I would think that since we have not seen this in the short history of our country, anything could happen. I would like to see the .gov (props to Daddy) butt out for a little while and let this pan out. Someone will have to pay the tab and I hate to think at 43 years old, I'll be paying for 20 years on these mistakes.

The commercial bubble has already started to burst. Did you hear about one of CA's largest commercial property owners declaring BK a little while ago? Apparently it was the largest mall operator in the state. I have heard about the supposed 3rd foreclosure wave, but I have been talking to quite a few prime borrowers lately that bought in the last 2 years and based on their stories and attitudes I don't believe that is the case. However, being that the U6 unemployment numbers are around the 15% mark, and being that loss of income has always been the number one cause of defaults, the stats certainly point to that possibility. That being said, the person that wrote that particular analysis (and I can't remember where I read it offhand) got the first two waves wrong, as firstly there were not two waves and secondly the parties the analyst claims were responsible for wave one and two were essentially one and the same. What I mean is, in Vegas at least and as olecapt has pointed out before, the successful speculators had cashed out and left town by the time the bust hit. This massive wave of foreclosures started with subprime borrowers, both out of state speculator late to the party and essentially unqualified to buy a primary residence as well as the local subprime owner occupant, and already has moved on to Alt-A borrowers and even some prime borrowers that are doing the "rational foreclosure" thing. Basically my point is that I don't necessarily see a third wave of foreclosures from a different pool of borrowers, just one large wave encompassing many different types of borrowers. Multiple waves implies rest between those waves. We have had none.

Originally Posted by olecapt

Does not compute. I continue to hear of the 25,000 wave coming. Does not compute. Emperor's clothing type numbers.

There is no indication in the tax data base of an increase in foreclosures. Mostly a decrease in supply if anything. The data is good up to about May 21.
The inventory of REOs continues to drop. It is dropping more slowly but that is at least partially due to a decrease in the sale of REOs. The percentage of REOs is down about 4% from January and is dropping at a percent or more a month. That is likely to accelerate if the supply continues to tighten.

Soprano observes that he has been able to get REOs below list. The data to a large degree supports him. Particularly at the bottom current sales are well below list price. However these sales entered contract in March and April. I think in a month or so we will see a consistent sale at above list. My personal experience is anectdotal...but I do know that at least the last ten or so low end REOs we have chased have gone well over list. One nice example had 35 bidders. I don't know yet what it sold for but I expect 25% or more over list.

We are even running into the phenomena where sellers will not take FHA mortgages on perfectly reasonable houses. (There are good reasons for declining FHA on a house with damage) In my mind this is simply the agents taking the easy way. It is more effort and more risk to an FHA than a cash deal. But any time RE listing agent start barring a significant source of sales you know times are good.

Overall median and average will be up in May in all liklihood. And they will be up again in June. A combination of a slowing in the decline of REO pricing combined with a fall in the percentage that is REO will drive this. And it may get reasonably strong if some increase in available foreclosures does not occur.

Note again this is a local situaton. I have no idea how the supply flows nationally or in areas only recently hit. But Vegas shows no sign of another onslaught.

We certainly have not seen the end of the foreclosure mess. They are still flowing on to the market at 1500 to 2000 per month. I do not believe a falling price can exist as we run out of inventory. Even now I think it is pinching off...there is insufficent good stuff to satisfy demand and it is driving the price upward. Not enough perhaps to see an actual increase in REO pricing but getting close. As the blog chart shows we are increasing stable at $72 psf. I don't think we will see anything below $70.

Now maybe a huge chunk will roll onto the market in the next month or two. But I think that a very bad bet. But we will know pretty quick.

I think this is the bottom guys. And 2004 pricing within five years. Or less.

Now 2006 pricing? Don't hold your breath.

Although I agree with you that the banks holding foreclosures on their books and leaking them slowly to the tune of 25,000 is quite ridiculous (one only has to look at bank capitalization requirements to see how massively unprofitable that would be), and I hope you are correct in your call of 2004 pricing within 5 years, I simply don't see anything in the broader economic picture (locally or nationally) that would indicate that this is the case. For one thing, although rates are still relatively low last Tuesday-Wednesday was a sign of things to come in fixed incomes, in my opinion. Between Moody's saying (incorrectly of course at least for now) that the nation was on the verge of losing it's credit rating and China moving portions of it's US debt holdings to shorter term fixed incomes (amidst other concerns as it always is lately) the fixed income markets took a massive nose dive. The benchmark mortgage bond at the time, the FNMA 4.0 30 year, lost over 270 bps from it's high of the day in less than 10 hours. I saw 5 reprices for the worse on Wednesday, my lock desk was open all of about 3 hours. I saw rates go from 4.875% for my government borrowers to 5.375% within a day. Things don't look good for the bond market, and QE is only delaying the inevitable in my opinion. You don't get out of a hole by digging it deeper.

That said there are definitely more foreclosures on the horizon, whether it be Alt-A mortgages (of all kinds, not just neg-ams, plenty of 5/1 IO 80/15 piggybacks originated in 2005 and 2006), the prime borrower who has experienced a 50% loss of income, or the "rational foreclosure".

[rpachigo]

Originally Posted by Daddys///M3

The commercial bubble has already started to burst. Did you hear about one of CA's largest commercial property owners declaring BK a little while ago? Apparently it was the largest mall operator in the state. I have heard about the supposed 3rd foreclosure wave, but I have been talking to quite a few prime borrowers lately that bought in the last 2 years and based on their stories and attitudes I don't believe that is the case. However, being that the U6 unemployment numbers are around the 15% mark, and being that loss of income has always been the number one cause of defaults, the stats certainly point to that possibility. That being said, the person that wrote that particular analysis (and I can't remember where I read it offhand) got the first two waves wrong, as firstly there were not two waves and secondly the parties the analyst claims were responsible for wave one and two were essentially one and the same. What I mean is, in Vegas at least and as olecapt has pointed out before, the successful speculators had cashed out and left town by the time the bust hit. This massive wave of foreclosures started with subprime borrowers, both out of state speculator late to the party and essentially unqualified to buy a primary residence as well as the local subprime owner occupant, and already has moved on to Alt-A borrowers and even some prime borrowers that are doing the "rational foreclosure" thing. Basically my point is that I don't necessarily see a third wave of foreclosures from a different pool of borrowers, just one large wave encompassing many different types of borrowers. Multiple waves implies rest between those waves. We have had none.



Although I agree with you that the banks holding foreclosures on their books and leaking them slowly to the tune of 25,000 is quite ridiculous (one only has to look at bank capitalization requirements to see how massively unprofitable that would be), and I hope you are correct in your call of 2004 pricing within 5 years, I simply don't see anything in the broader economic picture (locally or nationally) that would indicate that this is the case. For one thing, although rates are still relatively low last Tuesday-Wednesday was a sign of things to come in fixed incomes, in my opinion. Between Moody's saying (incorrectly of course at least for now) that the nation was on the verge of losing it's credit rating and China moving portions of it's US debt holdings to shorter term fixed incomes (amidst other concerns as it always is lately) the fixed income markets took a massive nose dive. The benchmark mortgage bond at the time, the FNMA 4.0 30 year, lost over 270 bps from it's high of the day in less than 10 hours. I saw 5 reprices for the worse on Wednesday, my lock desk was open all of about 3 hours. I saw rates go from 4.875% for my government borrowers to 5.375% within a day. Things don't look good for the bond market, and QE is only delaying the inevitable in my opinion. You don't get out of a hole by digging it deeper.

That said there are definitely more foreclosures on the horizon, whether it be Alt-A mortgages (of all kinds, not just neg-ams, plenty of 5/1 IO 80/15 piggybacks originated in 2005 and 2006), the prime borrower who has experienced a 50% loss of income, or the "rational foreclosure".

Very well said. Rational foreclosure sounds so much more rational than walkaways or jingle mail.