patrick.net

pkowen says

Leigh says

And from this site:

http://financemymoney.com/option-arms-wells-fargo-convert-interest-only/

…Wells Fargo, the fourth-largest U.S. bank by assets, holds more than $107 billion in debt tied to option-adjustable rate mortgages…

…To solve that conundrum, Wells Fargo is taking a gamble: The bank is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the country’s worst-hit regions, along with a rise in consumers’ income, will eventually combine to cover the bank’s billions in underwater Pick-A-Pay debt.

“We’re banking on the fact the economy will improve and recover over time,” Michael Heid, co-president of Wells Fargo Home Mortgage, said in an interview.”

How’s that for shadow inventory…

So, get the borrowers to pay for 6-10 years and never get any equity. I.e., rent, but have a huge loan hanging over your head that you may never get out from under. I guess I see the bank’s point of view, but why would an ‘owner’ want to do this? Given the size of some mortgages the interest alone could more than rent on a comp.

Why would the owner doe this, ie 'rent'? The excuse given was to stay in a particular school district for the kiddos.

And to delay the foreclosure process allows the banks to delay the write downs which don't look good on Wall Street.

1) Most realtors don't end up selling that much property. Apparently most of those people working out there only close on a couple of houses a year. A very small number actually make a killing at their jobs. So I'm guessing that the reason many don't know where these houses are going, is because they don't have enough contacts/influence to get answers, or simply don't understand what is going on. They're just pushing their companies lines, or what they've heard.

2) Home owners are probably hoping to get out of debt, keep their houses, and in doing so just paying off interest. In the end they're paying a 6 year gamble in hopes of being in a better position. eg the market takes off and they're way above water again. The banks probably realize this isn't going to happen, but by spreading the pain over 10+ years, they can spread their losses out and cover themselves. They might not get the best returns for these types of investments, but that is probably better than flooding the market with homes and selling for a huge loss today. 10 years of interest payments THEN selling is better than selling today, taking a huge loss and finding a better loan to invest into today. Laws might change in their favor over those next 10 years too.

Leigh says

And from this site:
http://financemymoney.com/option-arms-wells-fargo-convert-interest-only/
…Wells Fargo, the fourth-largest U.S. bank by assets, holds more than $107 billion in debt tied to option-adjustable rate mortgages…
…To solve that conundrum, Wells Fargo is taking a gamble: The bank is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the country’s worst-hit regions, along with a rise in consumers’ income, will eventually combine to cover the bank’s billions in underwater Pick-A-Pay debt.
“We’re banking on the fact the economy will improve and recover over time,” Michael Heid, co-president of Wells Fargo Home Mortgage, said in an interview.”
How’s that for shadow inventory…

Thanks for posting this. I'd say, it's all starting to make sense. Banks are paid (funded) by the government to delay the resets/recasts 5-10 years. Government generates inflation over the next few years to bring up the price of houses. People will no longer be underwater and will be able to sell their houses when it's time for the resets/recasts to occur. Will it work?

camping says

Leigh says

And from this site:

http://financemymoney.com/option-arms-wells-fargo-convert-interest-only/

…Wells Fargo, the fourth-largest U.S. bank by assets, holds more than $107 billion in debt tied to option-adjustable rate mortgages…

…To solve that conundrum, Wells Fargo is taking a gamble: The bank is issuing thousands of interest-only loans that will defer borrowers’ balances for as long as six to 10 years. Wells Fargo is wagering that an eventual rise in housing prices in the country’s worst-hit regions, along with a rise in consumers’ income, will eventually combine to cover the bank’s billions in underwater Pick-A-Pay debt.

“We’re banking on the fact the economy will improve and recover over time,” Michael Heid, co-president of Wells Fargo Home Mortgage, said in an interview.”

How’s that for shadow inventory…

Thanks for posting this. I’d say, it’s all starting to make sense. Banks are paid (funded) by the government to delay the resets/recasts 5-10 years. Government generates inflation over the next few years to bring up the price of houses. People will no longer be underwater and will be able to sell their houses when it’s time for the resets/recasts to occur. Will it work?

But they are paying interest only, not making a dent in the principle and some of these folks have lost 40+% of their home's value. How long will it take in this environment (ie another JOBLESS recovery, stagnant wages, rising healthcare costs...) for homes to appreciate to these levels again. Then subtract those pesky 6% realtor fees (sorry, but always got remember the cost of selling.)

The gamble is looking rather risky. And I believe values will drop some more in many areas when the $8Kcredit expires.

I don't know, the government has a lot of money to throw around. If they want to create inflation, I think they can (especially with the banks' help). And if the banks aren't foreclosing on people, it doesn't matter if they make $0. They are better off actually than renting, they are living rent free.

Love the thread -- thank you. Just a minor point...does anyone have an on point response to any of the questions posed in my post? Most importantly, does anyone have any insight into what the banks are doing with the growing shadow inventory (i.e., the inventory of homes that have been foreclosed on -- REOs)? The banks are foreclosing, perhaps at an increasing rate (I don't know for sure). Why is the housing inventory (in Santa Clara County) shrinking when the number of foreclosed homes is increasing? Any thoughts or all we all genuinely in the dark?

Um, in the dark:O(

Tenouncetrout says

This page might clear things up.
http://money.cnn.com/news/storysupplement/economy/bailouttracker/index.html#TARP
Consumer and Business Lending Initiative
* TALF investment * $20 billion actually spent 20 billion
* Small business loan program * $15 billion actually spent 0
* TALF loss provisions * $35 billion actually spent 0
Programs to support private lending purchases of toxic assets and backing SBA loans. Also sets aside funds to backstop potential losses to government from purchases of mortgage-backed securities and other securities backed by consumer loans.
Well the SBA never got squat, but all of the TALF money earmarked for the investment, i.e. the myriad of investors in the worst hit markets got every cent they needed to buy up these houses for pennies on the dollar.
Since the Government, the same agency, and act, didn’t actually spend one red cent of the funds designed to buy up the band loans, as that would have been counter productive for the investors.
Meaning if the Government was willing to give the banks the full nickle for those sour loans on the books, then why in the hell would they budge one damn penny and sell them at a greater loss to the investors?
These guys owns these houses out right now, and as long as there no hurry to pay it back, if they even have to. Then why would or should they sell. They are just waiting for Uncle Ben Bernakie to jump start this party now.

Remind me, what is Ben Bernanke going to do to jumpstart home sales?

hooch_raider says

Love the thread — thank you. Just a minor point…does anyone have an on point response to any of the questions posed in my post?

At this point no one knows since its not disclosed. You may wish to read their next earnings release or listen to the conference fall from Wells, BofA etc etc... They may mentions something about it.

E-man says

On top of loan modifications, some banks are currently doing PRINCIPLE REDUCTION. Let’s say you bought a home for $700k in 2006; now it’s worth $450k. The bank will issue a new loan for $450k and write-off $250k

Modification means modification but not forgiveness. It may mean extension of term from 30-40 years, or taking homeowner equity first before homeowner get any left over gains when they sell it down the road.
Its really called "debt restructuring',,, not forgiveness.

hooch_raider says

Love the thread — thank you. Just a minor point…does anyone have an on point response to any of the questions posed in my post? Most importantly, does anyone have any insight into what the banks are doing with the growing shadow inventory (i.e., the inventory of homes that have been foreclosed on — REOs)? The banks are foreclosing, perhaps at an increasing rate (I don’t know for sure). Why is the housing inventory (in Santa Clara County) shrinking when the number of foreclosed homes is increasing? Any thoughts or all we all genuinely in the dark?

Are the banks actually foreclosing? Just because there is a high number of NODs, if the banks just let people stay in their homes, then there's no foreclosure. Plus, with the push towards loan mods, there's no guarantee that the homes will ever be foreclosed on.

4X says

Remind me, what is Ben Bernanke going to do to jumpstart home sales?

Well he has Magical powers, he interviewed Congress and informed them, he will be having another term as Fed Chairman, and if they don't like then tough titties!

Tim Gunther called Obama Tuesdays address, poorly misguided ramblings, and there won't be no shit like stopping the TARP and recycling it into the SBA, and bailouts for Mainstreet. He is taking upon him self to extend the TARP act until Oct 2010, and if Obama and the other Clowns on the hill doesn't like it, he will command Kingons to destroy Washington and NYC.

e-man:

Your numbers look ok, but I'm wondering if many of those possible forclosures will roll over into reo's or short sales in the coming months. New ones will roll in of course, but the rolling effect might keep many of those off the market. The change in that number month or month is what would be interesting, as it would be a better indicator of short sales failing and reo's not absorbing potential homes.

camping says
Are the banks actually foreclosing? Just because there is a high number of NODs, if the banks just let people stay in their homes, then there’s no foreclosure. Plus, with the push towards loan mods, there’s no guarantee that the homes will ever be foreclosed on.

Camping,

From what I can tell, the banks are actually foreclosing, and I mean following through on foreclosure sales. I receive a local business paper every week which lists the foreclosure sales scheduled to take place the following week on the court house steps. The number of scheduled foreclosure sales has consistently been between 75 - 150 every week since I started counting (approximately 12 weeks or so).

Hence, I ask the question: Why is the inventory in Santa Clara County decreasing when the number of REO homes is increasing? The obvious answer appears to be that banks are hold the REO inventory back -- but why? One would think that banks would allow at least enough of a stream of REOs to come on the market to keep the overall inventory of homes for sale at a consistent level. Instead, we are seeing inventory drop to rediculous lows. What is going on?

I agree with other posters that banks (along with government assistance) have delayed the foreclosure process down significantly. However, that does not explain what banks are doing with those homes they have actually foreclosed on. Does anyone have some inside scoop?

The banks are holding back REO's to help out their pardnas in crime, the REwhores Brokers

Bap33, that doesn't make any sense. If there is nothing for people to buy/sell, they brokers/agents don't get a commission. Our agent, wants the banks to release more of the foreclosures and doesn't know why the banks are waiting.

I disagree ... while the lowly "agent" may want more homes, because they are going hungry ... the scuzzy assed RE-Brokers do not want or need more homes because they are sitting on fat bubble stacks of cash and could not care less about the hungry agents .... the RE Brokers are invested deeply in the value of the market, and they control the cash-to-politicos, so they CAN and DO have the banks hold back the market to create a false market. It's all a big pile of lies and greed and bullshit.

It is too easy for the REpukes to blame some face-less "bank" that can never be questioned -- aint it? Try to find a way for proof that "the bank" seen an offer that gets rejected on an REO. Good luck with that.

The problem is the currupt REpukes. Period.

Bap33 says

I disagree … while the lowly “agent” may want more homes, because they are going hungry … the scuzzy assed RE-Brokers do not want or need more homes because they are sitting on fat bubble stacks of cash and could not care less about the hungry agents …. the RE Brokers are invested deeply in the value of the market, and they control the cash-to-politicos, so they CAN and DO have the banks hold back the market to create a false market. It’s all a big pile of lies and greed and bullshit.
It is too easy for the REpukes to blame some face-less “bank” that can never be questioned — aint it? Try to find a way for proof that “the bank” seen an offer that gets rejected on an REO. Good luck with that.
The problem is the currupt REpukes. Period.

Your view sounds like the tail wagging the dog; however, maybe you have a point. Of course, I imagine when you refer to REbrokers you mean the HUGE REbrokers like Remax and Coldwell Banker, etc., right?

Well, yes. Mainly becasue they have been the ones getting the REO's through pre-exisiting national contracts with the "banks" to list REO's. I doubt Joe Smith, Broker - will get much action from Fanny.

The listing prices for REO's are pulled from the asses of a few REwhores. If the public property were sold legally through public auction then the actual values would be known and the price-fixing-process of BPOing would go away. I think there is a law that demands an open public aution of public property to ensure the top price is paid and no inside deals occure. Aint there?

Greed .... it's the new black for REbrokers.

E-man says

Look at these properties to name a few:
MLS#80947190, it went pending for $350k, and you can collect $3,000 rent/month.
MLS#80951386, it went pending for $390k, and you can collect $3,500 rent/month.
MLS#80956388, it is currently for sale $400k and must be all cash. Why not offer $300k to $350k for it; spent $150k to rehab the building and collect over $5000 rent/month.
MLS#80956456, currently for sale $595k, and you can collect over $5,000 rent/month.

Not that I disagree with your premise, but your numbers are WAY off. I know the south bay rental market extremely well, since I've been watching it daily for years.

MLS#80947190

2.2K at best, if you can find a tenant. I currently rent a comparable, but much nicer 3/2 in Campbell (a much better neighborhood) for 1800. Good luck getting 2.2k. 3K? Not a chance.

MLS#80951386

I mis-read the listing, the poster below has more accurate data

MLS#80956388

5K a month? You're dreaming. Please find me a comparable in the area that rents for anywhere near the same. 3K if you're lucky.

MLS#80956456

This one I almost agree with. 4 plexes rent for 1100-1300K a month depending on condition etc. Of course they usually attract the less than ideal tenant, but this one might actually turn cash flow neutral or positive. Your other examples, not a chance, not a chance at all.

Of course rents might be rising soon. Oh wait, no, no they won't be. Expect continued downward pressure on rents as well.

E-man says

80951386

Eman, your estimated rent payments are HIGHLY inflated. I went to the mls listing and they list the rents in some cases...

mls 80951386 lists the rents as 900 and 1400, that's $2300 in collected rent NOT $3500. That's a pretty big difference.

what happens when rent is not met?

A home being viewed as an financial investment only works in Cali ... land of the non-recourse liar-loan. Force the debtors to hang some meat on that loan, and *poof*, a house becomes a place to raise a family and have the kids visit at Christmas .. not a 401K on crank.

A pessimist is a an optimist with experience.

E-man, you are right there are opportunities out there in the Bay Area, but they are generally in the very low end. At least 2 of the properties you listed are in bad areas. Even if you get the numbers you are quoting, on a yearly basis you need to factor in higher than average damage and months not being paid considering the tenants you'll be having.

hooch_raider says

Love the thread — thank you. Just a minor point…does anyone have an on point response to any of the questions posed in my post? Most importantly, does anyone have any insight into what the banks are doing with the growing shadow inventory (i.e., the inventory of homes that have been foreclosed on — REOs)? The banks are foreclosing, perhaps at an increasing rate (I don’t know for sure). Why is the housing inventory (in Santa Clara County) shrinking when the number of foreclosed homes is increasing? Any thoughts or all we all genuinely in the dark?

It's quite simple. The banks have all of these non-performing (ie people can't/aren't paying) loans valued on their books at bubble levels. If they foreclose and then sell the home they have to write-down the difference between the original loan amount and the amount the home sold for. They would then have to show huge losses on their books for all these loans and the jig would be up. So for now they are either not foreclosing (letting the homeowner pay the taxes and maintain the home) or if they do foreclose they aren't putting the homes on the market and hoping that the market will "recover" and they can sell the loans for closer to what they loaned on it.

They will continue the above practices until they are forced to sell for cash-flow reasons (cities and counties I assume will be demanding that the banks keep up the homes and pay taxes on them).

I kind of agree with e-man. the only issue is, it's almost imposible to get a house at listing price now. minimum 20-30k increase is almost everywhere...
In bay area, even some 'not so decent zipcode', you would image no one wants those crappy houses. wrong. I've been hunting for an investiment house recently. I use listing agent. houses are sold as is. no contigence but still got outbid by all cash buyer several times. An agent told me there are 3 tiers. all cash, over 50% down and the rest (which includes me).

abc says

An agent told me

And you believe that. How the heck does any realtor know who is paying all cash or financing ?
It surprises me how stupid the public is when dealing with realtors.

abc says

it’s almost imposible to get a house at listing price now. minimum 20-30k increase is almost everywhere…

What is the definition of almost everywhere? Check this thread and please tell us if Burlingame is part of almost everywhere. Forget anything above listed price, some of properties are sitting in market for year after multiple price reductions.

Having said that, there places in Bay Area like East San Jose, East Palo Alto, Redwood City where some of REOs are selling with multiple offers. But I wouldn't say almost everywhere.

they aint making any more land .... better hurry ..... it only goes up ... the "abc's" of housing.

Sobering article from Patrick front page

Foreclosure filings in the U.S. will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said.

This year’s filings will surpass 2008’s total of 3.2 million as record unemployment and price erosion batter the housing market, the Irvine, California-based company said.

“We are a long way from a recovery,” John Quigley, economics professor at the University of California, Berkeley, said in an interview. “You can’t start to see improvement in the housing market until after unemployment peaks.”

P2D2 says

some of properties are sitting in market for year after multiple price reductions.

And AFTER ALL the so called 'multiple offers' were so called presented.

cash ... over asking ... that's all "the banks" are looking at .... better hurry ...

yep .... one's born each and every minute ...

E-man says

I just closed a deal with this RE agent for a SFH in South San Jose on 12/9/09 for $215k, 3beds/ 2baths/2car garage. A nearby home with the same floor plan just sold for $330k. It is currently leased back to the previous owner. The previous owner paid $425k for this home in 2002

Thats about what homes should be selling for, around mid $200Ks...

E-man says

@abc,
Which area are you looking for investment properties? Are you looking at multi-units or SFH? I have identified two duplexes and one triplex that I want to acquire in the coming months, but I might not have enough money to buy all three. If the area you’re looking for matches the identified units, I can refer you to the right RE agent.
I hate RE agents just like most people, but luckily just found a very decent one. He actually looks out for your interest.
I just closed a deal with this RE agent for a SFH in South San Jose on 12/9/09 for $215k, 3beds/ 2baths/2car garage. A nearby home with the same floor plan just sold for $330k. It is currently leased back to the previous owner. The previous owner paid $425k for this home in 2002.

Really??? You did this? Bravo. Was the SFH an REO? What ws the MLS #? I am interested to understand more about where properties like this are located. Also, I would like to understand the process you went through in making the purchase. Finds like this appear very few and far between...understanding (once again) that inventory in Santa Clara County is currently shrinking to ridiculous lows and shadow inventory is growing. Share the good news E-man.

abc says

I kind of agree with e-man. the only issue is, it’s almost imposible to get a house at listing price now. minimum 20-30k increase is almost everywhere…

In bay area, even some ‘not so decent zipcode’, you would image no one wants those crappy houses. wrong. I’ve been hunting for an investiment house recently. I use listing agent. houses are sold as is. no contigence but still got outbid by all cash buyer several times. An agent told me there are 3 tiers. all cash, over 50% down and the rest (which includes me).

...so ask yourself a question what will happen if and when do you think all these cash buyers thin out? If the economy does not get booming and credit does not start flowing in 2 years from now...I wonder how long will the investors keep holding the bag of tied money that does not bring profit..go figure..

E-Man,

Thanks for the information...genuinely appreciated. I am going to call Tomas.

Bap33 says

#1) RE pro’s are liars. They suck. Do not bother asking them anything, they are scum.
#2) The people that contact the bank to try to adjust their payemts are foreclosed on faster than they ones that just stop making payments and stay off the radar.
#3) The entire REO problem would be fixed if the laws about public property (FANNY held houses are public property) were used and the assetts were liquidated in a true public auction. The fact that we are allowing the RE pro’s to controll the REO market is absurd. These are public assetts and should be auctioned in public to the highest bidder … not “marketed” by the REwhores, with a price “fixed” by the fraudsters known as BPO agents. THis system is Fed up — FUBAR — and the REwhores are laughing all the way to the bank.

Can you provide any back-up for #2--that is a pretty big statement to represent as fact. I'm certainly interested as I'm debating what course I will take.

reason for #2 could be that once you contact the bank will actually "run the numbers" look at your finances and decide right then that doing the foreclosure is the better deal for them.

My thoughts on inventory situation is that banks realize that dumping properties on the market depressing prices so they're starting to hold back.
Also there are hardly any regular sales being listed since nobody wants to sell at todays prices unless it's a distressed situation.
Have you noticed that very few nice homes are being listed?
current RE market inventory and prices is controlled by the banks. We could be at a bottom that lasts until inventory of forced sales are worked through.

toothfairy says

Have you noticed that very few nice homes are being listed?

one the option arm's explode in 2010-2012, you'll see lots and lots of nice homes at much much lower prices, they'll all be distressed sales.. wonder why they're all just sitting ducks waiting- why not get rid of them now, instead of waiting til their option arm explodes and their payments double and they really can't afford them, and then the bank forecloses... remember, if you're in CA (or any other state that ate up option arm's) this WILL happen...