The WeBuyTucsonHomes Blog

Bloomberg reports Mortgage Delinquencies, Foreclosures, Rates Increase:

“If people don’t have a paycheck they can’t support a mortgage,” Jay Brinkmann, the MBA’s chief economist, said in an interview. “The longer the recession lasts the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures.” …
One in every eight Americans is now late on a payment or already in foreclosure as mounting job losses cause more homeowners to fall behind on loans, the MBA said.

The recession is taking its toll on housing, and the longer we are in a recession, the further housing prices are going to fall.

Measuring both old and new defaults, 11 percent of all mortgages in Florida were in foreclosure at the end of the first quarter, the highest in the U.S. In Nevada, it was 7.8 percent, in Arizona, it was 5.6 percent, and in California, it was 5.2 percent.

The question is how many of the 5.6% are going back to the banks? More foreclosures will lead to lower housing prices. The historical house price average is around 3.1 times the average annual household income. Look for a bottoming when this happens. Tucson family income for 2008 was roughly $44,000, household income was roughly $36,000. The Tucson Association of Realtors reported in April the median average home sold for $164,000 still above the historical average when using either the family or household income. I look for prices to continue to drop this coming year. The month of May will probably show an increase in sales and home price but I would look for the summer to continue to decline.

Apartment rents are falling around the country as reported by Calculated Risk via a Goldman Sachs REIT paper.  Falling apartment rents usually result in  downward pressure on the residential housing market as lower apartment rents will draw more renters away from resedential homes.  The lower apartment rents will force landlords to match or lower their rental prices to compete with the apartments. 

As noted by Calculated Risk lower rents will bring lower home prices as the house price to rent ratio will near the more historic level of 1.0-1.1.  So while home prices are falling and nearing a more even 1.o mortgage payment to rent payment, falling rents could cause home prices to drop even more.  If this happens look for even more foreclosures as landlords can’t afford the mortgage payments.

One week after allowing the new $8,000 tax credit to be used in helping with a down payment for first time home buyers, Federal officials reversed course and declared the tax credit could not be monetized.  The Arizona Republic reports

Federal officials on Monday reversed an earlier decision to allow first-time home buyers to use an $8,000 tax credit to borrow the down payment on a home.

A week earlier, U.S. Department of Housing and Urban Development Secretary Shaun Donovan had told the National Association of Home Builders that HUD would let banks and local governments offer short-term “bridge loans” to cover the down payment for first-time buyers eligible for the tax credit. The loans would have been available to applicants for federally insured mortgages such as Federal Housing Administration loans.

Lenders, home builders and real- estate agents had reacted favorably to the bridge-loan proposal, saying it would open up the housing market to more first-time buyers.

However, not everyone was in favor of using the tax credit as collateral on a down-payment loan.

“That tax credit should be savings, not debt,” said Patricia Garcia-Duarte, executive director of Neighborhood Housing Services in Phoenix.

Garcia-Duarte said the proposal too closely resembled a now-illegal practice known as seller-funded down-payment assistance, which allowed a home’s seller to “gift” the down payment to a specific buyer through a non-profit organization.

Phoenix loan originator Dean Wegner was among the housing-industry professionals who had expressed enthusiasm about the bridge-loan plan.

Wegner said the program would have boosted local home sales, but he added that the bridge loans likely would have come with a high interest rate.

The loans also could have created income-tax issues, according to the IRS officials who shot down HUD’s plan.

Still, Wegner remains optimistic that the government will seek other means to circumvent the FHA’s required 3.5 percent down payment.

“They will probably come out with a zero-down FHA loan starting January 1, once the $8,000 goes away,” he said.

The government should not allow this tax credit to be monetized in the form of a loan. From above - “the credit was to be monetized via a short term loan from the local banks and governments;” offering short term loans with the promise of repayment coming from next years tax return sounds like many of the “Pay Day Loan” centers business plans.  Banks are already struggling with loans that homeowners and consumers can not repay, allowing this credit to be monetized would only allow new homeowners to struggle with more debt with exhorbinant interest rates.  One can only imagine the surprise when expecting large tax returns(read vacations) for the next few years only to have it swiped away by the bank or local government as repayment for a loan.

Edit: The AZ republic has posted a note stating the credit can still be applied directly toward home purchase costs when using an FHA-insured mortgage. However the person will still have to come up with a 3.5% down payment.

This past week saw a low in the Notice of Default(NOD) filing in Pima County.  Only 116 notices were filed, however 85706 received 19 of those notices.  The Zillow estimate of those homes comes in around $19.9 million, while the 1st lien position comes over $20 million dollars.  Add in the usual 15% second and the total encumbrance adds up to $23 million.  Meaning this past weeks homes are very underwater and unlikely to sell unless a large short sale is negotiated with the lenders.

Here is the chart.

The holiday season is finally past and the retail numbers coming in look grim.  Already companies are planning to layoff 1 million workers in 2009.  If the economic numbers get worse the layoffs could rise even higher, leading to a higher foreclosure rate.  I have already seen investment banks predicting 8 million foreclosures through 2012.  Rest assured Pima County will have its share of that 8 million.

I suspect the higher number of defaults came from the previous weeks low filing number.  For the week of Dec 8-13 2008, 216 N.O.D were filed in Pima County.  The total sum of first mortgage liens came in around 39.3 million while the Zillow Estimates came in around 42.5 million.  If you add most of the mortgages contained 2nd or 3rd mortgages at 15% of the first the total liens came in around $45.2 million dollars.  This means most houses are ~13% underwater and have very little chance of selling on the market.

Continuing a trend 85746 and 85706 both lead the way with 22 filings for the week which is up from the previous weeks.  85710 followed with 12 notices for the week.  Here is the graphical break down, and the subdivision with the most filings was: Gladden Farms.

Pima County NOD filings

The past week saw little change in the number of foreclosures for the first week of December.  The past month large banks, Freddie and Fannie Mae released press statements announcing a hold on foreclosures until the end of January and sometimes later.  Here in Pima County the number of defaults filed hasn’t changed substantially, but it could be they are postponing all foreclosures that are already slated between now and the end of January.

To the chart!

195 notice of defaults were filed Dec. 1-7th.  The leading zip code was 85742 which happens to be because a luxury builder has struggled to make payments, and sell property.  If you are looking for some great luxury deals this might be for you.  If you would like to know the address or the builder just shoot me an email at caleb@webuytucsonhomes.com.  The properties in 85742 range low end $121,000 to $2,000,000.

The next zip code was 85746, and 85706 with 16 and 14 defaults respectively.  85746 has remained high on the notice of default list and I expect this will continue with the high number of homes for sale along with the bank sales in that zip code.  I have talked with many sellers in that area and it is still very tough to negotiate with the banks to have them accept a substantial short sale.  I remain pessimistic on the neighborhoods in the new communities and think it will take many years for them to recover.

If you wish to discuss anything from the graphs please post a comment or shoot me an email.

18 NODs in Pima County

The week of Nov 24-28 saw a low number of N.O.D.s filed in Pima county, but because a large “retirement home” missed a few payments, the total dollar amount of first mortgages ran over $74 million dollars.  The retirement home contributed over $45 million dollars in mortgages to the total, because of that the $45 million will be taken out in the calculations below.

The number of filings were down presumably to the short holiday week, but a surprising number of “luxury ($500,000 and up)” homes fell into default.  Usually one or two homes will fall into default every couple of weeks; the past week saw 8 home.  Following what many financial analysts have been lamenting, a couple of commercial buildings were found to be on the list.  The amounts were relatively small at only a few million dollars, but if the trend continues we could see discounts coming in commercial buildings and more cheap office space for rent.

A total of $29.1 million dollars were in default, not including the $45 million from the retirement home, with a Zillow value of $26 million dollars.  This was the first time in running this list that the values were more than the first mortgage.  This could have devastating effects on the banks holding the notes.  Usually in a short sale the banks will discount or remove the second mortgage to help facilitate the home sale.  However, if the home is now worth less than the first mortgage, banks may be even less inclined to negotiate and favor to take the home back(foreclose) rather than take a chance on a definitive short sale loss.  It will be interesting to see if this trend continues.

Further, this week I noticed more properties held 2nd mortgages in excess of 15% of the first mortgage.  The 15% standard 2nd mortgage will not be increased, but is of interest as the amount of 2nd mortgages could be much higher.  Also 85746 outpaced 85706 14 to 13 in NOD filings marking the first tim85706 has not lead the way in homes in default.

So here is the chart.(Upgraded to Office 2007 so the charts are “prettier”  :))

116 Notice of Defaults for Pima county

Sorry for being a little late, the holiday season seems to always come with a bang.

Pima county recieved 202 notices of default during the week of Nov 17-21.  This number has been steady with a variance of 10% give.  This number hasn’t been changing much even with all the press releases of banks suspending foreclosures, and many businesses popping up to help with the loan modifications.  It makes one wonder how successful the banks are in negotiating a loan restructuring.

To the numbers!  201 NOD’s were filed with a first lien position of roughly $39.5 million dollars in loans going bad.  Add a 15% average 2nd position($5.925 million) and the total balloons to $45.5 million dollars in bad loans.  According to Zillow,  the property totals are worth ~$41.3 million dollars.  A difference, if the houses were to sellat Zillow estimates, of $4.2 million dollars.  Not a large sum but if that figure added up over a year it would look at $200 million dollar shortfall for the banks.

201 NOD filed in Pima County Nov 17-21

The Tucson La Paloma Resort & Spa and Westin Hilton Head Island Resort & Spa in South Carolina, financed via a $209 million loan from JPMorgan & Chase, is near default according to Standard & Poor’s. The loans were based on rising revenue. The harsh economic times have reduced revenues and rising cancellations have pushed the two resorts on the brink of default.

La Paloma could be on the brink of default

BAD NEWS FIRST

30 Reasons for the Next Great Depression

Homebuilders Index is at an all time low.
Guess that is what happens when you overbuild, ask the telephone companies from the dot come bubble.

GOOD NEWS
HUD relaxes requirements for Hope for HomeOwners

Mortgage rates are going down

Freddie Mac and Fannie Mae suspend all foreclosures until after the holidays!

Nov 10-14 Pima County recorded 127 Notice of Sale documents against homeowners this past week. First mortgage loans totaled roughly $23.5 million vs $25.5 million in value(Zillow Estimates). Applying the same 20% average second mortgage against every home gives a total of $27.7 million owed vs $25.5 million in value. This means the average foreclosure home is 8% “underwater” this past week, better than last weeks average of 20% underwater.

Once again 85706 led the rankings with 12 filings, 85746 was second with 11, and 85629 was third with 9.