The Future of Foreclosures

Submitted by Rich Toscano on July 25, 2008 - 9:39pm

Earlier this year I wrote about Joseph Galascione, a San Diego real estate broker who does some serious digging into the local mortgage pool to try to ascertain the prevalence of future foreclosures. Below are some conclusions from Galascione's recently released study of mortgages due to reset in the third quarter of this year. The study, incidentally, is freely available at the website of Galascione's firm, ERA® Metro Realty.

To review the premise, a resetting loan is considered to be at "high risk for foreclosure" if the borrower made a down payment of less than 20 percent and the monthly payment is expected to increase by at least $500 upon reset.

continue reading at voiceofsandiego.org

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Submitted by temeculaguy on July 25, 2008 - 11:02pm.

Since declines hit most of San Diego just recently and the amount of high risk resets are increasing, one would think that foreclosures wont just be with us, they will be ramping up. Current foreclosures on the market started having trouble a year ago, in a much more favorable scenario.

Looking forward to Monday's post about the beloved and wise city attorney. If some guy was sitting next to me at in a bar spouting off about the need to make San Diego a "foreclosure sanctuary city" I would whisper to the bartender to cut the guy off, he's had tooo much. To hear it from an elected official is just high comedy.

Submitted by urbanrealtor on July 25, 2008 - 11:39pm.

I am curious as to anyone (like Joe) who can give some insight on the asset managers (or their supevisors) and what their vision for dealing with this glut of coming inventory looks like.

Anyone have insight on where to get this kind of info?

Mr. Rob?

Ms. Kelly?

Jim Kinge?

Sound off.

Submitted by sdrealtor on July 26, 2008 - 2:56am.

A quick read of the report shows the only properties worth considering are located in the author's primary service area. Not that it was intentional, but I wonder if there is any onfirmation bias in this research.

Submitted by Mayer on July 26, 2008 - 7:33am.

I found this funny and interesting, CV leading the pack:

The City of San Diego has the most HRFF loans. Within the City of San Diego the submarkets with the most HRFF loans are:
Carmel Valley with 82 (zip code 92130);

• East San Diego with 75 (zip code 92114);
• Mira Mesa with 72 (zip code 92126);
• Rancho Penasquitos with 66 (zip code 92129);
• Rancho Bernardo with 56 (zip code 92128);
• Rancho Bernardo with 53 (zip code 92127);
• Otay Mesa with 53 (zip code 92154);
• Paradise Hills with 41 (zip code 92139); and
• Scripps Ranch with 41 (zip code 92131).

Submitted by jimklinge on July 26, 2008 - 9:12am.

Countrywide has 45,000 properties in their pipeline currently, with 60 asset managers handling them in Simi Valley (they also have an office in Chandler now).

Their best people handle 300-450 files at a time, which probably means that half those in the pipeline haven't been assigned yet.

However they handle them, it will be less than efficient. If they were to out-source them in bulk, those entities would still have to go through them one-by-one.

Until they are ready to sell them in bulk and at steep discounts, it looks like we'll see them sputter along. They claim to have no want or need to discount, and because C-wide is just the servicer, what do they care?

The actual investors have to be thinking Uncle Sam will save them , either with enough stimulus plans to save the market, or an outright bailout.

Submitted by Rich Toscano on July 26, 2008 - 9:48am.

FWIW guys I am going to write up some more area-specific conclusions, but first Joseph is putting together the number of foreclosures per zip adjusted by the number of housing units, to give a better indication of hrff prevalence (as opposed to just the raw number of hrffs).

rich

Submitted by CAwireman on July 26, 2008 - 5:57pm.

Rich, that report will definitely be something I'll be interested in seeing. Would love to see a report of the number of loan types per zipcode, for the last 5 years. (30 year fixed, ARM, Alt-A, etc) Perhaps I'm dreaming....

Submitted by gosox on July 26, 2008 - 8:50pm.

Do you think that plotting NOD & NOT vs sales offset by 3,5,7 years holds any value. NOD & NOT vs current sales shows how the market is responding to current forclosers. It does not show how many more are to come and for how long.

What would be even more interesting is number of variable rate + interest only loans offset by the reset date when the rate changes and principle is due. Starting back to 2001 and showing the term date on the same plot as the NOD & NOT.

Thanks.

Submitted by equalizer on July 26, 2008 - 11:50pm.

Just being very conservative, how is estimation for $500 reset being done? The Libor has dropped from 5 range to 3 range in the last few years. If new rate is Libor + 2%, then many resets may only be in 5-6% range.

http://www.moneycafe.com/library/libor.htm

Submitted by Rich Toscano on July 27, 2008 - 11:03am.

@gosox, I don't have the data to do that... Joe's study is the only San Diego-specific look I've seen at what resets when.

@equalizer, I imagine these are primarily IO loans where borrowers have to start paying principal upon reset.

Rich

Submitted by DaCounselor on July 29, 2008 - 7:49pm.

"Just being very conservative, how is estimation for $500 reset being done? The Libor has dropped from 5 range to 3 range in the last few years. If new rate is Libor + 2%, then many resets may only be in 5-6% range."
___________________________

That was my first thought as well, equalizer. Without reviewing the loan docs I'm not sure how this figure is determined or even estimated. I'm willing to assume (although it may be against the piggington mandate of "bring data") that the author has support for the figure, but it's not included in his report. I'm curious, particularly in light of the reduction of the typical ARM indices.

Rich makes a good first stab at a potential explanation involving principle payback, but my two mortgage industry pros assure me that there are plenty of ARMS resetting this year that are 10 year IO, so on those we are back to square one.

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