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Default notifications surge to record high
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More from County NewsBlighted by sinking home values and the risky loans that originated in 2005 and 2006, default notices soared to record levels last quarter, DataQuick Information Systems reported Tuesday.
There were 2,303 notices of default filed for homes and condos in Ventura County from April to June, up 117.5 percent from the 1,059 notices filed during the same period last year.
Notices of default, the first step in the complicated and long foreclosure process, are sent to defaulting borrowers and filed in the county Recorder's Office.
More notifications were delivered than ever last quarter in almost all of the state's 58 counties.
Lenders across the state recorded 121,341 default notices in the second quarter of this year, the highest since DataQuick began tracking the statistic in 1992. Default notices statewide edged up 6.6 percent from the first quarter of this year, and 124.9 percent from a year ago, the real estate information service reported.
"The small increase in defaults from the first to the second quarter may indicate that we're nearing a plateau," John Walsh, DataQuick president, said in a news release. "We won't know until the end of the year, but it may be that some lenders are starting to prioritize workouts with homeowners instead of grinding through the foreclosure process."
Or lenders simply might be swamped and can't handle processing any more paperwork, he said.
Lenders more willing to deal
As property values drop, it makes sense that lenders are working harder to keep distressed borrowers in their homes.
"We see (loan) note modifications everywhere right now," said Bill Dallas, chairman and owner of Dallas Capital in Westlake Village. "Most lenders are turning up the heat on servicing to do these."
Even though foreclosures and default notices are at a record high, there might be a silver lining. Defaults are "definitely slowing down," said Mark Schniepp, director of the California Forecast Project in Goleta. In Ventura County, notifications peaked in April with a total of 733, then dropped slightly in May and June.
"If, in fact, we hit a peak for (notices) in April and May — we have to watch it for a month or two before we can unequivocally say that — we should peak in (actual) foreclosures in the fall," Schniepp said.
This, in turn, would mean fewer foreclosure fire sales and more stability in prices, he said.
At the same time, distressed sales are luring first-time buyers and investors off the sidelines. Last quarter, foreclosure resales accounted for 40 percent of all sales activity statewide for existing homes, compared with only 5.4 percent a year ago, DataQuick reported.
In the next six months, Schniepp forecasted, transactions will start to rise as people realize the market is reaching the bottom, particularly as defaults "peter out."
"I don't think this is going to draw out forever," he said. "I think the bottom will be sometime in September in terms of values."
3 years of poor market
But the recovery won't be quick. The housing market has already experienced three sour years, and, Schniepp predicted, it will take two more years to return to "some semblance of a normal market."
Most of the loans that went into default last quarter were originated from September 2005 to November 2006, according to DataQuick. On primary mortgages, California homeowners were a median five months behind on their payments when the lenders filed a notice of default.
The borrowers owed a median $11,583 on a median $346,400 mortgage.
Trustee's deeds, representing the actual loss of a home to foreclosure, totaled a record 63,061 statewide in the second quarter, up 33.5 percent from the previous quarter.
According to DataQuick, an estimated 22 percent of defaulting homeowners emerged from the foreclosure process by bringing their payments current, refinancing or selling the home. A year ago, 52 percent were able to escape the foreclosure process.
DataQuick attributed this partly to the number of homes purchased with multiple-loan financing during the market's peak, making loan modifications more difficult.
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Posted by SmashyCrashy on July 23, 2008 at 12:52 a.m. (Suggest removal)
I do think we are close to the peak in defaults only because I can't imagine things getting much worse than the record levels we are at now. I think we will stay plateaued for some time as we have a large number of forces coinciding to keep defaults elevated. The economy (rising unemployment), tighter lending standards, resetting ARMS and Option ARMS hitting their caps, higher downpayment requirements and higher interest rates all mean housing will be facing significant head winds.
For anyone thinking housing will rebound quickly you would have to believe that either wages will surge to match prices or lenders will give away loans to anyone asking and people will be willing to take on enormous debt above their wage level. Quite simply neither of these things will happen. Normalcy has returned to lending standards, documenting income and have some downpayment. Prices have yet to adjust properly to this reality and that is why sales remain so low. Prices have gone down without a doubt but they are still way above levels support by local wages in any historic context.
For housing bulls I would really love to hear how things get better overnight and not be a long drawn out grind slowly working through inventory with the few brave sould both willing and able to buy homes in a depress market. I look at the MLS daily and see elevated numbers of BOM listings as escrow keep falling out. I read the mortgage insurers and lending guidelines changes on a weekly basis. I also look at the economic reports as they come out, bot local and national. I simply don't see the catalyst for a rebound. So maybe someone can sit down and help me out, using small words so my simple mind can process just how housing will rebound in a meaningful way.
Posted by getreal on July 23, 2008 at 8:14 a.m. (Suggest removal)
Its up to the borrower to READ what he/she is signing. I'm tired of people placing blame on the loan agents when the borrowrs need to read what they put their signature on and legally agree to.
Posted by sawyerfamily on July 23, 2008 at 8:49 a.m. (Suggest removal)
mmshoot - buyers only 1% responsible, are you kidding me?
Who's signature is on the documents? Were they forced to buy the houses? Were they forced to sign the documents?
No. The buyers went out looking for a home on their own. Found a home that they liked on their own. Went looking for a loan on their own. Found a loan on their own. Agreed to the terms of the loan on their own. Signed all of the loan papers on their own, no gun to the head involved. Had 72 hous after signing the paperwork in which to change their mind yet chose not to.
The buyers were greedy too (seeing real estate going up) and they had many, many opportunities to stop the process and they did not. If the lenders (not loan agents) are to blame in some way, it is by making available bad loan products, but again the buyers did agree to the terms.
I am sick of our society pointing fingers and trying to blame everyone else for their problems. What is wrong with people taking resbonsibilty for their own actions.
Posted by guy133 on July 23, 2008 at 8:52 a.m. (Suggest removal)
It's up to the borrower to do the math. A year ago I was pre-approved for a home loan. I looked at the prices of houses available. I went to a mortgage calculation website. I discovered the monthly payment on a house that I would be willing to live in was around $3000. The math told me that I can't afford that. No amount of lender persuasion would have gotten me to buy a house that I KNEW I couldn't afford.
Posted by CAPEDad on July 23, 2008 at 9:06 a.m. (Suggest removal)
Sawyerfamily - You're absolutely right. The lenders are very deservable of being the bag holders by granting such stupid loans.
I know someone who sold a rental to a buyer who used a Countrywide 80-20, zero-down loan. Countrywide carried both the 80% first AND the 20% second. As an added kicker, the buyer was actually PAID $8,000 to buy the house with refunds through escrow. That house is now worth 40% less and Countrywide is very properly eating all the loss.
Posted by Fred on July 23, 2008 at 10:15 a.m. (Suggest removal)
I agree its the lenders that are responsible. They are highly paid risk assessment professionals - and are untimately responsible for the $$ if the borrower walks.
They damn well knew better ("jingle mail" is not a new term) and had all of the resources to prevent this but instead made themselves rich on crazy lending and now want taxpayers to take the loss. It is crazy - no rescue for WaMu, Fannie, etc. - they should go out of business and be replaced by someone who can do simple math.
Fred
Posted by mauid2005 on July 23, 2008 at 10:55 a.m. (Suggest removal)
How many people actually read what they are signing? I worked in Escrow and I can tell you that none of the buyers were reading what they were signing. Yes, they are responsible for their loan because they are signing the documents but they are also being misled. It is VERY easy for your mortgage broker to tell you everything you want to hear for your loan but then have your loan docs say the complete opposite. Also, there was a HUGE language barrier. I saw this way too often. As per a previous poster, it used to be you had to have documentation to prove you qualified for a loan but then there was this "stated" income crap - there was no back up. So many fraudulent loans were being funded towards the end of my Escrow career. Some lenders would fund the loan just to make their numbers for the month.
It's a shame what has happened and I feel bad for the homeowners who are losing their homes - no one should have to go through that.
Posted by BabyzDaddy_01 on July 23, 2008 at 11:26 a.m. (Suggest removal)
I think the blame goes equally to each party involved. The buyer KNOWS they can't afford it. The stated-income number is "made up", otherwise, it's wouldn't be "stated".
The agents and mortgage companies are also to blame because they allowed for this to happen at the expense of the buyer and at the benefit of the agent (commission/fees) and the lender from thinking that the buyer will not be able to afford their Adjustable Rate Mortgage in a few years but the home value will still be increasing and they will be able to let the buyers lose their homes and still make a profit from re-selling the same home at a higher price. The problems arose when the lenders were not too keen on economics and found themselves left with a foreclosed home with depreciating value.
Losers: Buyer that was being overly ambitious and thought he/she was getting away with something, the Agent who turned a quick buck and is seen as irresponsible and the Lenders who are one by one going under.
Buy only what you can afford people, don't be idiots!
Posted by butterflygone on July 23, 2008 at 11:27 a.m. (Suggest removal)
I was a mortgage loan officer for a bit and closed a few loans. They were mostly sub-prime loans. I have a conscious, so I explained to each of the buyers how overstated their incomes were. I also in detail explained about adjustable rates, etc. They didn't care.
The bottom line is that the buyers were mostly to blame for their own problems because they didn't care to know what they were signing or agreeing to. All they saw was a booming housing market and a bigger and better house than they could otherwise afford.Most of these people, one of them being my brother, are now in forclosure. I never prayed on these people, they came to us.
I feel bad for the buyers because they all made stupid, stupid mistakes. But I feel no guilt. I informed them to the best of my ability and they chose to do what they wanted anyway. Had they not gone through me, there were plenty of other places willing to loan them money. I think buyers should be well informed, and not throw caution to the wind. If it sounds too good to be true, it probably is. I don't think it's right that the Fed lowers interest rates to help these people out. They'll just do it again when the market goes back up.
Everyone was hit by the housing market crash. I was out of a job as a loan officer, my cousin was out of a job as a loan underwriter for a lender, an my brother has a forclosure on his credit on his first home. Hopefully everyone has learned from the housing fiasco.
Posted by mauid2005 on July 23, 2008 at 2:22 p.m. (Suggest removal)
butterfly - I worked with very FEW like you. Glad to know there are still some out there.
Posted by Comments on July 23, 2008 at 2:46 p.m. (Suggest removal)
Er Gen... I'll answer your question, "How many people actually read what they are signing?" with a question. HOW MANY PEOPLE DON'T READ WHAT THEY ARE SIGNING? Seriously? How on earth could anyone buy a house and make a commitment like that and not read the papers? I pored over my docs in painstaking detail - much to the chagrin of the the loan officer I might add. I cannot imagine buying a house and taking a loan out for 30 years and not reading the docs. Yes, some agents and loan officers can be sleazy, but it's ultimately our responsibility to read what we sign. Geez.
Posted by Fred on July 23, 2008 at 7:37 p.m. (Suggest removal)
Fannie/Freddie rescued with your tax dollars.
Their CEO's were each paid in excess of 20 million dollars last year and over 20 execs made over 1 million. 20 million to run a company into the ground? How can our elected officials allow this? I am a long time democrat who votes in every election and I feel like my officials are wh*res of the banking industry. I will not vote for them again (cant quite bring myself to vote republican, but I will not support the democratic party again)
Posted by SmashyCrashy on July 23, 2008 at 8:24 p.m. (Suggest removal)
While borrowers should absolutely be reading every word of their mortgage documents and fully understanding just exactly what they are getting into.. Up until 7 or 8 years ago the bank actually cared about getting paid back.
Your standard borrower has this line of thinking... "I am going to go get qualified by the bank".. "The bank qualified me for this much" and then they go shopping for a home in that price range. It isn't anymore complicated than that. They trusted the bank to say what they could afford because no sane person would lend money unless they expected to get paid back.
But securitization changed everything, banks were no longer lending their money and so the bigger loans they made the more money they made. They just tried to give the biggest loans possible to as many people possible. So someone not financially savvy would get in way over their head. Ignorance isn't an excuse for their predicament, it is just an explanation how these things happen. Then as appreciation spiked you get greed piled on top where people are willing to risk financial ruin because they believe they are buying into a sure thing.
Now that banks have to lend their money (their depositers money) and can only sell a certain percentage of their paper they very much care again about loan and origination quality. Surprise, now down payments and documenting income are back, now the banks care about debt to income ratios and strong credit histories.
This is why prices will keep falling and defaults will keep rising. The lending bubble has popped and prices that were inflated by that bubble haven't adjusted to pre-bubble levels. I have yet to see an argument for why prices will stay high in the face of normal lending guidelines.
Posted by handsfull4 on July 23, 2008 at 10:42 p.m. (Suggest removal)
I worked as a mobile notary during the boom of 2005-2007. I can tell you from personal experience that 99% of the borrowers were not interested in reading loan documents. I would try to explain what each document meant, but they just wanted to sign. They had every opportunity to read what was put in front of them, but they chose not to. I always walked away with an uncomfortable feeling.
Posted by lawson_wayne on July 23, 2008 at 11:19 p.m. (Suggest removal)
Normal will be when people buy a house to live in and not to be their retirement fund. The kids growing up in SoCal will be able to stay in SoCal AND buy a house. SoCal will probably always be a little higher than other parts of the country due to the desirable climate.
Posted by CAPEDad on July 24, 2008 at 9:12 a.m. (Suggest removal)
Asset bubbles are always supported by credit bubbles. Homes are still highly overvalued. Assets will not rise until credit is readily available. If you're renting, continue to do so. This will take a while to unwind. I'm talking YEARS.
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