California Housing Forecast

Kathleen Hays at Bloomberg is a probing interviewer.  Here, she speaks with the CEO of Radarlogic about the rising foreclosures.  Video link

Affordability requires a further 15% national price drop, because based on debt-to-income ratios, Q1 of 2004 was the last affordable quarter.  However, the distress sales can cause overshooting on the downside. 

I've been waiting for this:  banks selling direct to buyers.  I thought it would be investors, but they are going after the most weak financially:  first time buyers and minorities.  Figures!

Countrywide teamed with New Vista Asset Management to set up a direct sales program. 

The two companies will work to ensure that homes are made available to qualified first-time and minority homebuyers. The companies will be hosting several community seminars for first-time buyers to teach them about buying real-estate owned homes and different financing options.

The seminars initially will be held in Los Angeles and Dallas. However, the companies are also working in the San Diego, Sacramento, Las Vegas, Fort Worth, Houston, San Antonio and Atlanta markets.

"By marketing and selling REO units directly to first-time and minority home buyers, New Vista and Countrywide are advancing our mutual commitment to increase affordable housing opportunities and act as responsible contributors to the local housing market," New Vista's Chairman Gary Acosta says.

I have to say that I was right.  Since late 2005, I predicted the housing downturn would affect the rich also.  Now, foreclosures are cropping up in the wealthy Greenwich, Connecticut, home to millionaires and billionaires, where the average home price sold this year was $3.1 mil

On Stanwich Road, for example, a house worth $2.6 million is close to going on the block. On Hettiefred Road, the owner of a 2,720-square-foot, four-bedroom colonial featuring a luxury kitchen, swimming pool and tennis court, has been threatened with foreclosure for months. Several dozen other owners in Greenwich have received foreclosure notices this year.

But there is a difference from most other communities. Auctioning off such homes is a far greater challenge here than elsewhere, as affluent but cash-squeezed owners often find ways to delay losing their homes, sometimes by coming up with just enough to make last-minute payments avoiding a final sale — for a while, anyway.

 Yet, other wealthy people are still buying.  However, the demand is low.   In San Diego, we have a 18 month supply of homes over $ 3 mil, and a 12 month supply of homes over $1.5 mil.  

 I know from just talking to people, that the $1-$3 mil loans were interest only and adjustable.  The same bad lending that was used in subprime, was used in prime.

It is only a matter of time, before Carmel Valley and coastal properties fall in value.  In my opinion. 

Even with an 800 FICO score and 50% down, buyers cannot get a Fannie/Freddie loan in some condos.  Lenders are taking a look at whether the building qualifies.  With less than 20% down, some mortgage insurance companies won't sell the insurance needed to get the loan.

This has ominous implications for San Diego, which is in a "declining market". 

The lender now wants to see a maximum number of investors, ample reserves in the HOA, and other factors.  This is another straw that could break the camel's back.  While buyer demand is still high, our sales are down due to tight lending.  Tighter lending is one of the two factors that is squeezing the housing market.  The other two are affordability, and employment.

...starting May 1, AIG United Guaranty, a major private mortgage insurer, no longer will write coverage on condominiums in hundreds of ZIP codes across the country that it designates as having "declining" market conditions. The ban is irrespective of applicants' credit scores, assets or equity stakes. Even in the healthiest real estate markets, United Guaranty will require buyers to put at least a 10 percent down payment into the deal, and will reject applications on units in condo projects where more than 30 percent of the owners are investors. ...

Under Fannie Mae's changes, most of the due-diligence research on condominium projects' key characteristics -- their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use, and percentage of units owned by investors -- must now be performed up front by loan officers....

when potential applicants inquire about getting a loan on a condo unit, "we really can't give them a definite answer" because it takes research to determine whether their building qualifies.

"Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan." It depends on whether the underlying project can pass the underwriting tests, is in a declining market, and has a lender "concentration" limit on it. Some lenders refuse to finance more than a set percentage of units in a single condo project to limit their risk.

 

Dynamic mortgage maps from the Federal Reserve show shocking statistics for California.   For Alt-A loans in CA, over 72% are ARMs, 6% are delinquent or bank owned, 20% had at least one late payment in the past year, and 83% are either no-doc or low-doc. 

More bad news for borrowers who have less than 20% to put down, and must therefore qualify for mortgage insurance. 

Three of the top mortgage insurers have been downgraded by Standard and Poor's below the ratings required by Fannie Mae and Freddie Mac, for whom they provide most of the private mortgage insurance, prompting the two government-sponsored enterprises (GSEs) to demand remediation plans in 90 days detailing how each will return an acceptable level.

California leads the nation in the $1 billion expected losses due to mortgage fraud.  This makes it very hard to feel sorry for people who are losing their homes.

  The agency broke down the suspected fraud cases as financial institutions suspected falsification of income, assets or debts in 43% of the cases and forged or fraudulent documents in 28% of cases.

 Mortgage brokers steer borrowers to subprime loans at higher rates than banks.

A new study found that subprime borrowers typically pay $5,222 more going through a mortgage broker instead of directly through a lender, according to research by a consumer advocacy group referred to by the National Association of Mortgage Brokers (NAMB) as “notorious.”

The Center for Responsible Lending (CRL) released a new study which found that subprime borrowers with brokered loans pay significantly more than their counterparts who deal directly with lenders.

A typical subprime borrower who has gone through a broker would pay $5,222 more on a $166,000 home in the first four years of a mortgage than if loan had been obtained directly from a lender, according to the study.

Over the 30-year span of a typical loan, the cost difference would expand to nearly $36,000.

“These findings confirm that mortgage brokers steer many of the most vulnerable borrowers to higher-priced loans than they deserve,” said CRL president Michael Calhoun. 

...

The study also fund that people with better credit usually receive comparable loan prices with brokers, while borrowers with very high credit scores actually tend to obtain even better rates when going through a mortgage broker.