Are Foreclosures On The Decline In California?

We were recently asked this question while being interviewed by the local ABC TV news station.  What prompted the interview was an article and statistical survey published by RealtyTrac: “Forelcosure Sales Account for 31 Percent Of All Residential Sales In First Quarter.”

According to RealtyTrac, “California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009.”  Wow!  Over half of all sales were foreclosures, and that’s an improvement from the previous year.  The highest percentages were in the San Joaquin Valley, San Bernardino and Riverside areas.  Santa Clara County was relatively low by comparison.

So, are foreclosures on the decline in California? Hardly.  According to the LA Timesbanks foreclosed on almost 200,000 homes in California last year, and this year’s toll is expected to be even higher”.

Sometimes the news is confusing, which is to be expected because the media seems to be generally confused.  It’s easy to misunderstand the facts.  On one hand, foreclosure activity was down in May, but bank repossessions hit a record high (CNBC, June 10).  What . . . foreclosures down, repossessions up?  Aren’t foreclosures and repos the same thing?  It depends on how the terms are used.

Foreclosure activity” generally refers to the beginning of the process, and “bank repossessions” refers to homes that have already been foreclosed, or REO (see our earlier post).

Why did the percentage of foreclosure sales decline since a year ago?  It’s not because there were fewer foreclosed properties, it’s because fewer of them were for sale.  Doesn’t make sense, does it?   If there are more bank-owned properties, there should more of them for sale.  But according to Rick Sharga, senior VP of RealtyTrac:  “they’re managing inventory to prevent a free fall in home prices.”  See our earlier post: The Shadow Inventory.

We still have a long way to go.

Enhanced by Zemanta

Is There Really A Shadow REO Inventory? Part Two

No doubt there is a shadow inventory.  In fact, our sources indicate a substantial, almost incredible number of foreclosed homes in the national bottleneck.  Our original post on this topic was “Shadow Inventory, yes.  Banks holding back, not likely”. As indicated, this was posted in rebuttal to the referenced WSJ article, last July.

Of course a lot can change in 6 months.  Since then we have come to believe that Fannie Mae is, in fact, deliberately holding back inventory, a probable attempt to stabilize or stimulate values, another ill-fated artificial manipulation of the marketplace.  Only government-sponsored enterprises (GSE) can get away with holding non-performing debt rather than having to liquidate it.  Apparently the recent near collapse of Fannie and Freddie did little to cure their attitude.  How can you hold onto to non-performing debt and survive?  Obviously you can’t.

The fallout of this strategy of the GSEs is that the major banks like Wells and BofA now have to follow suit, whether they want to, or whether it makes good business sense, or not.

It’s amazing how resilient and patient these guys are.  First they absorb all the bankrupt competition and all the non-performing debt.  Then, the government traps then into partnership through TARP and forces them to take bailout money they don’t want.  Then, moratoriums and intervention handcuff them and prevent them from doing any sensible business at all.  In the meantime, the media vilifies them and the public hates them.

But these guys are the only hope.  They are the only survivors amongst dozens of bankrupt banks.  They survive through fiscal responsibility and good management, two concepts that seem to elude all federal agencies.

Fannie Mae and Freddie Mac were saved from bankruptcy by bailout from the federal government, the largest debtor in the world. The only reason the federal government isn’t not bankrupt already is because they can print money (see our blog “What Is The FED?, Part Two” 10/3/09).  These are proven fiscally irresponsible agencies.  They maintain the illusion of being in control of our economy.  They are manipulating national housing, foreclosure and lending laws, with no consistent vision or policy.  This is a disaster.

The irony in San Jose and Silicon Valley is that Fannie and Freddie haven’t been much of a player here.  For the past 10-12 years our average values were above FNMA limits.  All these ’05 loans that are foreclosed are from non-GSEs, yet our marketplace is captive to their manipulations.

So, we wait.  In the meantime it’s a warzone: lots of buyers, no inventory.  It’s all in the bottle.  Heck of a recovery strategy.  Let it out!  We can sell it! NOW!

If the federal government, the Federal Reserve, Fannie Mae and Freddie Mac would get out of the way, maybe we can get out of this mess. Maybe we wouldn’t have gotten into it in the first place.  Let the banks do their job.

Reblog this post [with Zemanta]

What Is The FED?, Part Two, or The Wolf Is In The Henhouse

The Federal Reserve Board controls the Federal Reserve system: an elaborate depository chain which guarantees the value of money, determines the cost of money, and controls the flow of money.  Natural economy is based on supply and demand of goods and services.  Contrarily, the American economy is based on the supply and demand of money, controlled entirely by the FED.  Basically, the FED, a private organization; autonomous and accountable to no one, controls and manipulates the American economy.

Why?  Profit.  Private profit.  As long as money is moving, or changing hands, bankers make a profit. When the money stops moving, they get busy and reverse the flow.  The money starts moving the other way, and the FED still makes a profit.

This sequence is known as inflation.  Inflation is not natural, rather it is a result of manipulation.  There was no real, sustained inflation in US history until the FED was established in the early 20th century, but it has been out of control ever since.

Inflation, deflation, it doesn’t matter, as long as the money keeps moving.  That’s the whole point of the Federal Reserve System. Our government doesn’t determine economic policy; it only reacts to it.

To review our earlier post from July 09, the FED loans money to the Federal Government, at an interest rate that the FED controls, paid by your income tax.  This is a debt that will never be paid. You, the taxpayer are hopelessly trapped.  The government keeps borrowing more money, and the national debt just spreads out and expands, and the dollar grows ever weaker.

The Federal Reserve can print money when they need it, simply declare to it have value, then charge interest on it, and it works because we believe them.  It’s basically endorsed counterfeiting.

The Federal Reserve is the faceless puppet master behind the default crisis.   Now they have maneuvered themselves into control of some of the larger private banks, too. More on that later, in the meantime, keep an eye on your credit card statements and read them carefully.

For more information about the history of US Banking and the Federal Reserve, check out this informative website: End the FED!

Is There Really A Shadow REO Inventory?

A response to the recent WSJ Blog: Are Banks Holding a Shadow Inventory of Homes?

We don’t believe it.  Shadow Inventory, yesBanks holding back, not likely.  Basic market research, and our own experience as an REO brokerage tell us otherwise.

Let’s start with the series of foreclosure moratoriums between October ’08 and April ‘09.  First, major lenders and GSE’s stopped filing notices of default, then the federal government mandated it.  REO processing basically came to a halt for 6 months.  Standing inventory that was previously stagnant started to sell off quickly.  Agents used to complain about REO inventory; now we started complaining and speculating about the lack of it.  Multiple offers, buyer competition, number of listings down, number of sales up.  The market shifted for a moment and we all started theorizing: were these signs of a market recovery, were the banks holding back, etc.?

In April the wheel started to turn again as mortgage companies resumed foreclosure activity (see WSJ: Banks Ramp Up Foreclosures), hence the spike in notices of default.  The notices of trustee’s sale won’t follow for another 3-6 months.  We can’t compare these data in real time; we need to account for lag.

REO is a long process, and requires momentum.  You can’t grind to a halt and expect to restart at full speed.  It will take time to get the inventory to market: 5- 9 months to the trustee’s sale (foreclosure), another 2 to 12 months before the occupants vacate and the bank can take possession, and another month to trash out, clean up, etc.  A current notice of default might not become an REO listing for 18 months or more.  Inventory that was in process during the moratorium season is only now coming to market, and slowly.

One of our most reliable forecasting indicators is the amount of BPO activity, which mostly escapes attention.  Lenders order BPO to get a first glimpse of a property value and evaluate market strategy.  When BPO activity increases, REO activity increases.  Not coincidentally, our BPO activity was slow during the moratoriums, but has increased dramatically in the last 45 days.  We believe that there is a lot of REO inventory in process, and it will make it to market in due time.

In Silicon Valley, the current foreclosure cycle has been waxing and waning for over 24 months.  Our client lenders have been continuously adjusting, however slowly, to better accommodate the overwhelming volume of defaults.  They are increasing staff and focusing their resources on cutting loses through more efficient default servicing, and more successful loan mods and short sales.  In our opinion and from our perspective, deliberately holding back inventory so as to manipulate values would be counter-productive to cutting loses.

Lenders make loans.  They need to make a lot of loans to recover some of their enormous losses.  You can’t make loans on Shadow Inventory.