SCARY STUFF: About half of U.S. mortgages seen underwater by 2011

According to this Reuters article, About half of U.S. mortgages seen underwater by 2011, a Deutsche Bank report states that "the percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March (2009)." According to the Deutsche Bank report, home price declines will affect "conforming" or "prime" borrowers (i.e. those that put 20% down, had documentable income and good credit" the most. The report goes on to state that 41% of prime conforming loans will be underwater by the first quarter of 2011, up from 16% at the end of the first quarter 2009 and 46% percent of prime jumbo loans will be underwater, up from 29%. The report goes on to state that 69% of subprime loans, will be greater than the underlying property value in 2011 (up from 50%) and 89% of option adjustable-rate mortgages (option ARM's), which artificially reduced payments by allowing payments to be lower than the interest due resulting in increasing principal balances, will be underwater in 2011, up from 77%.
In June 2009 Deutsche Bank covered 100 U.S. metropolitan areas and forecast home prices would fall 14% through the 1st quarter of 2011 for a total drop of 41.7%.

The Deutsche Bank reports stated that the regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. The report added that Las Vegas and parts of Florida and California will see 90% or more of their loans underwater by 2011.
The Deutsche Bank analysts stated that "For many, the home has morphed from piggy bank to albatross."
The Reuters article states that "the drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough." (Translation: homeowners will walk away from their homes and give the keys back to the banks once they realize their homes will never be worth enough to pay off the debt.)

The above is more evidence that this housing market mess is far from over despite the nonsense you hear from the National Association of REALTORS (NAR) and the Obama Administration. There will be high numbers of foreclosures and short sales for years to come.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Fannie Mae Loses $14.8 Billion in 2nd Quarter of 2009

According to this Fannie Mae News Release, Fannie Mae Reports Second-Quarter 2009 Results, Fannie Mae lost $14.8 billion in the 2nd quarter of 2009. The news release states "Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment." Translation: loan defaults and foreclosures are killing them. Mark my words, this is only going to get worse.

Commercial Defaults Coming Fast and Furious

According to this Bloomberg.com article, Maguire to Surrender Buildings, No Bankruptcy Planned, Maguire Properties Inc., the largest office landlord in downtown Los Angeles, will give seven office buildings back to the lenders. The company has already given one of those buildings back to the lenders. They plan on giving the other six buildings back soon. According to the article the company told lenders "it will no longer continue to fund the cash shortfall" on the mortgages for the six buildings. Of the seven office buildings, two are already in default. The CEO of Maguire said that the company is not considering bankruptcy. According to the article, Maguire's decision is a sign that landlords in Southern California’s overleveraged office market can no longer make payments and may be forced to abandon properties.

In short, the real estate market is still in for a world of hurt in formerly fast growth areas such as CA, NV, AZ and FL. Rising commercial loan defaults will lead to large numbers of short sales and foreclosures. The coming ARM resets will cause even more problems. Together, they will wreak more havoc on the real estate markets across the US over the next 12-24 months. Only after these issues play out will we hit a true real estate bottom.

Great Blog Post: The Ridiculous Loan Modification Solution

According to this BrokerAgentSocial article, The Ridiculous Loan Modification Solution, Banks and Mortgage Lenders have no real incentive to offer struggling home owners a loan modification since a Barclay's study showed that "current loans receiving rate modifications will experience a 62% redefault rate and delinquent loans receiving rate modifications will experience an 83% redefault rate." The reasons that these loans will still go bad are simple:

1. The home owners were shaky from the beginning and so they are not the most financially responsible people to start with.
2. Their homes are worth far less than the their mortgage balances. Eventually these people realize that they will never "get even" and just give up by letting the go into foreclosure.

The result of all of this is that short sales are rely best solution for the lenders and the homeowners since it is statistically proven that loan modifications will not work. Regardless of what the all knowing Obama says, keeping people in their homes is not the answer to our real estate crisis. Letting the market hit bottom as soon as possible is.

98 of the Top 100 Metropolitan Areas Lost Jobs Over the Period of June 2008 to June 2009

According to this Nashville Business Journal article, 98 of top 100 metros suffer job losses, almost all major metropolitan areas lost jobs over the period of June 2008 to June 2009. New York City, Los Angeles and Chicago where the hardest hit with over 200,000 jobs lost. Atlanta, Detroit and Phoenix each lost over 100,000 jobs. The Nashville Metropolitan area (generally Nashville, Davidson County, Williamson County (Franklin and Brentwood) and Rutherford County (Murfreesboro and Smyrna) was in the middle of the pack with 32,800 jobs lost. All of this means more unemployed people with a result of more delinquencies, foreclosures (REO's) and short sales. the effect of this will be continued dampening of the real estate market.

Mortgage Servicers Have Incentives Not to Modify Loans, Not to Approve Short Sales and Not to Foreclose (At Least for Quite a While)

According to this New York Times article, Lucrative Fees May Deter Efforts to Alter Loans, mortgage servicers make more money by charging late fees, legal fees, insurance fees, etc. than they would by offering the home owner a loan modification (i.e such as Making Home Affordable), approving a short sale or even foreclosing. Therefore, many homes will sit in limbo for many months even when the current owner is several months behind in their mortgage payments, but could pay a lower payment, or even if there is a buyer willing to buy the home. Apparently, the longer the loan is delinquent the more the mortgage servicer stands to profit. Of course, during this time the home is likely being neglected, which will ultimately result in the home being worth less when it ultimately sells. Since the mortgage servicer does not own the loan they are not losing any money and do not really care. According to the article, in June 2009 nearly 3,000,000 homeowners were 90+ days delinquent on their home loans (up from 1,800,000 in June 2008), but the number of homes taken back by the banks decreased to 245,000 (from 333,000 in June 2008). This goes hand in hand with what I wrote in earlier blog posts, More Evidence Banks Are Holding Back Foreclosures and Government Meddling and Banks' Incompetence Will Cause More Home Price Declines, where I stated that banks are not openly selling anywhere near number of true foreclosures. The number of seriously delinquent loans continues to grow. These loans should be modified or the properties should be sold via short sale or foreclosure. Instead, the mortgage servicers are just letting them fester. Of course, they will eventually have to be dealt with on way or the other. Most likely this will be via foreclosure after the owners just give up and move on.

Middle Tennessee - Rutherford County TN - Residential Home Sales Market Statistics: A Comparison of Normal Sales versus Short Sales and Foreclosures in July 2009

According to the data I researched in the Middle Tennessee MLS (RealTracs) as of 7/29/2009, the following Market Statistics paint a troubling picture for the 3 main cities/towns in Rutherford County Tennessee:

Active Listings

• Murfreesboro TN -110 out of 1,324 Active Listings (or 8.31%) are shown as Short Sale or Foreclosure listings.
  
• Smyrna TN - 50 out of 406 Active Listings (or 12.32%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 61 out of 297 Active Listings (or 20.54%) are shown as Short Sale or Foreclosure listings.

Pending Sales

• Murfreesboro TN -31 out of 231 Pending Sales (or 13.42%) are shown as Short Sale or Foreclosure listings.
  
• Smyrna TN - 10 out of 52 Pending Sales (or 19.23%) are shown as Short Sale or Foreclosure listings.
• LaVergne (or La Vergne) TN - 17 out of 50 Pending Sales (or 34.00%) are shown as Short Sale or Foreclosure listings.

As you can see in all the towns above the % of Short Sales and Foreclosures is high for both Active Listings and Pending Sales. However, the worst part is that when looked at as a percentage of Pending Sales the Short Sale and Foreclosure share of Pending Sales is relatively high when compared to percentage of Active Listings to the tune of 50%+. This means that regular (i.e. non Short Sale and Foreclosure) listings will have a difficult time selling as a large share of Pending Sales are lower priced distressed properties.

Delinquencies on home-equity loans hit record

According to this Los Angeles Times article, Delinquencies on home-equity loans hit record, the number of delinquent home equity loans reached 3.52% in the 1st quarter of 2009. The article cites mounting job losses as the primary culprit. The article also mentions that credit card delinquencies reached a record of 6.06% during the same period.

Per my previous posts, it is "only going to get worse". If you cannot afford your home loan payments (mortgage(s) and/or home equity loan(s)), your best option is to request a loan modification in order get your monthly payments reduced. If that does not work and/or your home is worth less than the debt than a short sale is your next best solution. Simply defaulting is not a good answer. If you need assistance in stopping foreclosure proceedings feel free to contact HaltingForeclosures.com.

Lenders More Open to Short Sales

According to this New York Times article, Lenders More Open to Short Sales, mortgage lenders are trying to make the short sale approval process faster and easier. Short sales are real estate sales where the sale price of the property is less than the mortgage balance(s). According to the article, short sales became more difficult to get approved as the credit crisis deepened since the 2nd mortgage holders were typically unwilling to accept a large enough loss to make the sale go through. Now, it appears, that the 2nd lenders are willing to accept 5 to 10 cents on the dollar in order to satisfy their debt. According to a representative of Bank of America, they are willing to accept 5% for their 2nd mortgages and they expect 2nd mortgage holders to accept the same when Bank of America is the 1st mortgage holder. The Treasury Department has announced that it will increase incentives to mortgage lenders to work out short sales, but declined to comment on the details of those incentives.

All this means that short sales will become more common. However, this is not really new news since they were going to increase anyway due to the declining real estate values and worsening unemployment, which will increase the number of mortgage delinquencies.

More Evidence Banks are Holding Back Foreclosures

According to this Foreclosures.com blog article, More on Stress Tests, due to 10 of 19 big banks needing to raise funds as a result of the "stress tests" the big banks, and other banks, will start selling shares and begin to dump their increasing pool of foreclosures very soon. Foreclosures (non-performing assets/real estate owned/REO's) have been piling up since 70% are not showing up in MLS's as being for sale. That means there is a large pool of foreclosed homes coming on the market soon. I discussed this "hidden foreclosure" problem in a previous blog post. Clearly, this dump of foreclosed homes is going to hurt the real estate market. I see no reason to believe that foreclosures will decline any time soon as the jobless rate hits 10% by the end of the year combined with the fact that too many homeowners have no savings to get them through a period of unemployment (see my previous blog post on this topic).

Too Many Homeowers Have No Savings

According to a Wells Fargo survey mentioned in this Nashville Business Journal article, Survey: 25% of homeowners have no savings, 25% of homeowners have no savings to cover their living expenses if they were to lose their jobs. The article mentions the significant stress that this is causing and the drastic measures people are taking to reduce their expenses.

In my opinion this is going to cause more foreclosures and short sales, particularly in areas where the median home prices are still too high relative to the median incomes (think FL, CA, NV and AR). The foreclosure and short sale problems will only get worse as the economy weakens and unemployment increases.

Given that Middle Tennessee (in particular Murfreesboro TN, Smyrna TN and La Vergne TN in Rutherford County) has higher than average foreclosures and short sales I think it is reasonable to conclude that people here also have less than required savings. This financial stress will continue to hurt the Middle TN housing market.

When "Good News" Is Really Bad News

According to this RISMedia article, Single-Family Starts and Permits Edge Higher in April, the number of new home starts increased by 2.8% to a seasonally adjusted rate of 368,000 units and the the number of permits for future construction also increased. The article mentions that low mortgage rates, low prices, the federal $8,000 tax credit and additional state specific tax credits were partially responsible for the boost.

I will tell you right now that this is the terrible news. Overbuilding spurred by easy to get loans was a major contributor to the current real estate mess. We do not need more new homes being built, especially if they are fuled by artifically low rates, which will eventually increase significantly, and tax credits. Only rookie buyers or truly marginal buyers would make the decision to buy a home based on a measy $8,000 to $15,000 in tax credits, especially given the fact that taxes are going to increase in order to pay for the "stimulus plan". Therefore, these buyers will have less money than they think after their tax credit is factored in. I predict that these buyers will have a high foreclosure rate and the overall foreclosure rate will contnue to be high. All of this will continue to depress prices in the very areas that were most affected by the real estate decline.

Obama Administration Expands Housing "Rescue Plan"

According to this BusinessWeek article, Obama administration expands housing plan, the Obama Administration is expanding the coverage of its previous $50 billion housing rescue plan in order to cover more distressed homeowners. The previous plan has helped 55,000 homeowners avoid foreclosure via loan refinances and payment modifications. This new expansion will only aid homeowners by making it easier to give their homes back to the banks, or complete a short sale. While these add ons are certainly needed it still does not address the problem of the banks having too many REO's, or losing money and becoming insolvent. Of course, in my previous blog posts I beat up the initial plan since it omitted investors and homeowners whose homes were worth far less than the mortgage amount. These remain a source of a lot of foreclosures. In short, this new plan will do little to nothing to stop the decline of the housing market.

Fannie Mae and Freddie Mac Becoming Large Landlords

According to this Forbes article, Meet Your Landlords: Fannie And Freddie, collectively Fannie and Freddie own 1 out of every 9 foreclosed properties with Fannie owing 64,000 single family homes and Freddie 29,000. The article mentions that foreclosures are going to accelerate due to the moratorium on foreclosures being lifted. Both GSE's are working on greatly increasing loan modifications and programs that allow foreclosed former homeowners to remain in the properties as tenants. The article mentions that this landlord role may be difficult for Fannie and Freddie. Also, the article quotes Rick Sharga, Vice President of RealtyTrac, as saying that Fannie and Freddie will need to seize more properties as prime conforming loans start to default more. He goes on to say that the rental programs may help the housing market by preventing a flood of foreclosures from entering the market at the same time. While I agree that there will be more foreclosure, I disagree that holding back foreclosures is a good idea. Americans need this problem to end now. Fannie, Freddie and private banks need to just dump the properties now and push down prices to get the market to hit bottom ASAP so that people can feel confident that the worst is over. This continuous market meddling is dragging this nightmare out far too long.

Foreclosures Reach New High in April 2009

According to this Inman News article, Foreclosures plateau at new high, RealtyTrac data indicated that foreclosures in April 2009 increased by less than 1% from March 2009, which was the previous high. However, this represents a 32% increase over April 2008. According to the folks at RealtyTrac the recent March-April surge in foreclosures is due to the previous moratoria on foreclosures expiring. I believe that due to the declining economy foreclosures will continue to increase for the foreseeable future.

Birmingham Auction Ended Abruptly After Too Many "Low Bids"

According this article in The Birmingham News, City Federal auction ends abruptly due to low bids, the auction was originally scheduled to sell off 20 condo units, but was stopped after only 11 sold due to what the condo project owners, Synergy Realty Services LLC, called "low bids". Condos that once were listed for $239,000 to $935,000 ended up selling for only $80,000 to $320,000. The project owners said they were disappointed by the low prices, but would try to re-market the remaining condos at pre-auction prices.

My opinion is that these people are fools. There is no other market for these condos. $935,000 for a condo in Birmingham? Sorry, it makes no sense. That market is long gone and never coming back. It was a sham built upon a mountain of debt that is no longer available. The condo project owners should liquidate for whatever they can get as it is only going to get worse.

"Stress Tests a Sham"; Banks Have $2 Trillion Dollar Hole While Credit Card and Commercial Real Estate Loan Defaults Soar

According to this interview with William Black, a former bank regulator, author and current law and economics professor at the University of Missouri, the "Stress Tests" are a "sham"and US banks need $2 trillion dollars to remain solvent. Since he directly attributes this figure to Treasury Secretary Tim Geithner I am guessing that the real number is much higher since according to Mr. Black the "stress tests" do not factor in bank reserves or asset quality (i.e. the increasing defaults on all types of loans including credit cards and commercial real estate loans). Additionally, Mr. Black states that commercial real estate is in for a "world of hurt". As I stated previously, there is going to be a surge in the number of foreclosures hitting the market as banks fail and are forced to finally liquidate the foreclosures they have artifically been holding back and most of the large banks in the US are already insolvent and will need to be nationalized soon.

Don't Believe the "Good News Bulls"

According to this New York Times article, U.S. Says Ailing Banks Need $75 Billion, US Banks need $75 Billion in additional capital in order to pass the government stress tests and this is good news!?  First, it is not good news.  It means that US banks need a lot of additional capital.  Second, it is not even accurate.  According to Gary Shilling we should not be trusting the rosy government reports as they are really meant as a PR piece then they are a measure of the banks' financial condition.  I agree.  The government stress tests are a joke.  Regardless of these phony stress tests most large US Banks are insolvent.

Commercial Real Estate Loan Defaults Will Sink Big Banks

I have read many articles that are stating facts that the mainstream media is not covering.  The most important one is that commercial real estate loans are defaulting at an alarming rate.  While the mainstream media continues to debate whether or not the residential housing bust has reached it bottom they continue to ignore the greater problem of bad commercial real estate loans.  My prediction is that the commercial real estate loan defaults will finish the bank killing that the residential bubble bursting started.  I believe that most, if not all, of the major national banks (think Wachovia, Bank of America, Wells Fargo, etc.) will need to be nationalized within 12 months.

The expected massive bank failures will further curtail lending (including home mortgages) and result in further softening of home prices, particularly in over-built areas of the US.

Duplicating Disaster: A Lesson Not Learned

According to this New York Times article, Sweetening the Pot for Home Buyers, the $8,000 Federal Tax Credit for first time home buyers created by the Obama administration will not have much of an impact (I believe I told you this previously) due to most first time buyers not having enough money for a down payment and to cover closing costs.  The article trumpets a Missouri plan that allows home buyers to borrow that $8,000 to buy that home and then to repay it when they receive the tax credit.  In my opinion, this is a recipe for more disaster.  The problem was and is that TOO MANY FINANCIALLY UNQUALIFIED PEOPLE PURCHASED HOMES.  Offering this "loan" will only exacerbate the problem.  If a person cannot find a way to save $8,000 to buy a home then they should not be buying a home.  What happens when the roof leaks, or heating system needs replacement, etc.?  These "home buyers" do not save money, they spend.  That is why they could not even put together a measly sum like $8,000 to buy a home.  The problem is that we have turned owning a home from a privilege into an entitlement.  When will we learn!?

My prediction is that if this Missouri program gains traction we will see increased rates of foreclosures for these "home buyers".