An Open Letter to Mortgage Borrowers Waiting for a Bailout

I found the letter (quoted below) while searching for housing market related news. The statements are so timely and powerful, that I decided to repost it here:

This open letter is addressed to all of the struggling mortgage borrowers (and their lenders) who are sitting on their haunches waiting for the government to come to their rescue.

BY PAT SUMMERS

Dear Mortgage Borrower:

I understand that you have gotten yourself into some trouble. As someone who has made more than a few mistakes, I sympathize with you. I really do.

However, I am more than a little concerned by how eager our government is to intervene on your behalf. They want to bail you out with taxpayer-backed programs and loans. They also want to violate the sanctity of U.S. contracts by allowing courts to alter terms on mortgages. While this may seem like good news to you, it feels terribly unjust to me.

Unlike you, I didn't ride the wave of insanity and buy more house than I could reasonably afford with a loan that I couldn't feasibly pay back. Nor did I sign a legally binding contract to claim responsibility for your questionable real estate transaction. Nevertheless, there is a good chance that I will be forced to resign myself to the risk you wholeheartedly accepted not that long ago.

In fact, I am already paying for your mistakes. The Federal Reserve has made the unethical decision to weaken our dollar so that they could give discounted money to struggling banks, a.k.a. your partners in crime. If something isn't done soon, who knows how far they will take their unethical plan.

Now, you may be asking yourself: why doesn't this nutter just write to the government--the shady folks who are forming and allowing all of these diabolical plans. The truth is that like many people I have already wrote numerous letters to my representatives to let them know how I feel about mortgage bailouts. But until you do the same, I'm afraid that they will continue on with their destructive, election-year plans to intervene on your behalf.

You must know that it is morally irresponsible for you to expect other people to pay for your mistakes. Please do the right thing. It's not too late to take responsibility for your own actions.

Sincerely,

Pat Summers, Frustrated Taxpayer

Who can you trust for investment advice?

The embedded video demonstrates how successful you would been if you followed Jim Cramer's investment advice to the letter, starting before the current declining economy.

May Foreclosure Numbers

Below are the ten states that had the highest number of foreclosures for the month of May.  Our Foreclosure Report for the month of April can be found here.

State	# of Foreclosures	% +/- Apr '08	% +/- May '07	% of Total
United States	261,225	7.36	48.32	100.00
California	71,930	11.20	81.37	27.54
Florida	37,364	5.96	72.15	14.30
Arizona	12,959	11.52	118.98	4.96
Michigan	12,792	24.57	35.21	4.90
Ohio	12,295	5.27	-6.95	4.71
Georgia	10,241	11.45	23.47	3.92
Texas	10,063	-11.77	4.25	3.85
Illinois	9,670	15.35	41.71	3.70
Nevada	9,009	23.82	72.09	3.45
New Jersy	7,430	44.47	89.15	2.84

Click on the image below to enlarge


For those who have been activity reading the articles on this blog, May's foreclosure numbers should be no surprise.  We will follow up shortly with an analysis of the last 3 months of reported foreclosure activity.

See the complete foreclosure report here

REO Safari #2

This is the second episode of the REO Safari Series (see the previous episode here). The embedded video (2 min 21 sec) takes place in Valley Center (near Escondido). Jim the Realtor mentions the Cash for Keys program (he is offering the previous owners $2500 for their keys). The home previously sold for $927,500 in 2005.

REO Safari #1

Today's post is the first episode of a planned series of articles which endeavor to showcase the role of lender owned properties (REO) in the current housing crisis.

For months, I've been writing about the fact that REO's have overtaken the market, and are driving prices down. The embedded video follows Jim the Realtor, as he drives around Oceanside to survey the neighborhood where he has a new listing. Watch as he encounters REO after REO within only a two block radius.

Housing Market Watch #11

This is the 11th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is a newer home located in the city of Harbor City (Los Angeles County) .

The Specs:

Type: SFR Status: Active MLS#: Y803183

Sq. Ft.: 2,057 Lot Size: 3,000 sqft Year Built: 1992

Beds: 4 Baths: 3 Stories: 2 On RedFin: 23 days

Description

THIS IS A *SHORT SALE* SUBJECT TO LENDER'S APPROVAL This is a nice and well-mantained PUD. It does not have HOA! Huge master bathroom with nice jacuzzi tub. Walk in closet in master bedroom *****NO MORE SHOWINGS UNTIL FURTHER NOTICE*****

---

Sales History

---

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
03/30/94	$290,000	141	N/A	N/A	N/A
06/22/05	$549,000	267	+$259,000	+$259,000	89.31%
10/20/05	$580,000	282	+$290,000	+$31,000	5.65%

---

Pricing History

---

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
04/30/08	$380,000	185	-$200,000	-$200,000	34.48%

This episode's seller decided to be aggressive right out of the gate in listing their home. Unfortunately, given the current slow home sales market, and buyers' fear that they too could end up underwater, additional price cuts will likely be necessary to sell this home.

Housing Market Watch #10

This is the 10th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the prestigious community of Coto De Caza (Orange County) on the golf course with a private pool.

Description

A Beautiful home on the Golf Course the South Court #3 even with the Tee-Box located on a Quiet Single Loaded Street. Very bright and open floorplan with Plantation shutters thru-out. Perfect size Loft area for relaxing or entertaining. Office downstairs has custon built-ins. Stone flooring through out the downstairs. Entertaining backyard with Pool and Spa, Built in BBQ Island and Gas Firepit. Child proof pool gate is removable. A Must See and Priced to sell!

The Specs:

Type: SFR Status: Active MLS#: S523392

Sq. Ft.: 2,200 Lot Size: N/A Year Built: 1997

Beds: 4 Baths: 3 Stories: 2 On RedFin: 92 days

---

Sales History

---

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
04/03/97	$309,500	141	N/A	N/A	N/A
05/18/98	$399,500	182	+$90,000	+90,000	29.08%
09/21/99	$425,000	193	+$115,500	+25,500	6.38%
04/27/01	$479,000	218	+$169,500	+54,000	12.71%
03/02/07	$810,000	368	+$500,500	+331,000	69.10%
09/18/08	$660,000	300	+$350,500	-150,000	18.52%

---

Pricing History

---

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
02/29/08	$839,900	382	+$29,900	+29,900	3.69%
03/18/08	$819,000	372	+$9,000	-20,900	2.49%
04/12/08	$749,000	340	-$61,000	-70,000	8.55%
04/27/08	$709,000	322	-$101,000	-40,000	5.34%

This episode's home is currently listed for 12.47% less than it was purchased for in March 2007. If this home had increased naturally along the mean (4%/year) since it's sale in April 1997, it would be worth approximately $476,000 ($216/sqft), or 32.86% ($233,000) less than its current asking price. If an unwitting buyer were to have purchased this home for the asking price before April 27th, they would have lost $40,000 (5.34%) of real money. To put those savings into perspective, one could purchase a loaded Infiniti FX35! As I've said before, very few areas have remained unaffected by the Great Housing Crisis.

UPDATE 09/18: This property has been sold for $660,000.

California Housing Inventory... the Real Story

Highlights

1. The total loss, over the past 9-months, of most ‘affordable/exotic’ loan programs relied upon so heavily over the past five-years.
   
2. Out-of-control supply with Foreclosure and Bank REO inventory surging to levels that now make the foreclosure market, ‘the real estate market’. In CA in April, 2008 Total Sales equaled 31,250, banks took back 22,328 homes from foreclosure auctions, and Foreclosure Resale’s were 38% of Total Sales. In April 2007, they were 5% of Total Sales.
   
3. The ‘mortgage crisis’ moving up the credit spectrum from subprime to alt-a, and finally to a much larger percentage of the prime market than ever before thought…the latter primarly being due to the ‘negative equity effect’ and what was considered ‘Prime’ over the past five years, being far from it.
   
4. A catastrophic 27% fall in CA median housing prices in the past 11-months, pushing a massive amount of home owners into a negative-equity position and increasing their likelihood of loan default across all borrower types.
   
5. New home buyers not having a large enough down payment or income/credit level to be able to qualify for new-vintage fixed-rate, fully documented mortgages.
   
6. Potential, qualified buyers not being able to sell their present home to raise the down payment; not wanting to rent or yielding enough from renting their present home to buy a new home; or just not wanting to enter the market due to depressed confidence levels. Remember, most home buyers are existing home owners and not first-time home buyers or renters.
   
7. A large percentage of home owner who used second mortgages or high-LTV single-lien financing to avoid a down payment and existing home owners who leveraged-up their homes by pulling cash-out to maximum LTV/CLTV levels having no ‘skin in the game’, defaulting and moving to the rental pool.
   
8. Homes are still too expensive and it is still cheaper to rent in most cases. Buy vs rent ratios are still closer to peak levels than historic norms in many major metropolitan areas around the nation, especially in the bubble states.
   

Housing Crisis Over Seas

Believe it or not, the United States was not alone in the Housing Boom of the new millennium, nor is it alone in its Housing Crisis. Below are two videos (8 minutes in duration each) of news program in Northern Ireland, which is reporting the current housing market conditions there.

Video 1 of 2


Video 2 of 2

Ground Zero

USA Today has called Las Vegas 'mortgage fraud ground zero', and by briefly examining the percentage of total homes in foreclosure there, it's easy to see how they could come to this conclusion. Please read the following quote taken from their article on the subject:

In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.
Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."

Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.

Prosecutors have charged Eve Mazzarella, 30, and Steven Grimm, 45, with bank fraud, alleging the two caused banks to make more than $107 million in dubious loans and netted a profit of at least $15 million. Both defendants pleaded not guilty to the charges. A trial has been scheduled for October.

To the untrained eye, the size, scope and sophistication of the alleged scheme is noteworthy. But to the FBI in Las Vegas, the problem is the opposite: In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.

Read the full article here.

Homes: Buy One, Get One Free!

As the housing market continues to worsen we'll see more ads from builders and distressed sellers alike to unload their increasingly devalued properties.  The image below is from an actual ad by a builder in Escondido (San Diego County), and is a firm reminder that we are not at the bottom of the market yet.

Below is a direct quote from the advertisement:

Michael Crews Development is offering new, 2000-square foot cityscape row-homes worth $400,000 in Escondido for free -- if you buy one Royal View Estate home in San Pasqual Valley starting at $1.6 million.

March vs. April Foreclosure Comparison

Below is the comparison of the foreclosure report produced this month versus the previous report produced in April.

Top 10 States for Foreclosures for April 2008 (By Total)

Rank	State	# of Foreclosures	% +/- Mar '08	% +/- Apr '07	% of Total
	United States	243,353	4.40	64.75	100.00
1.	California	64,683	-0.04	112.04	26.58
2.	Florida	35,264	16.56	146.29	14.49
3.	Ohio	11,680	3.61	2.18	4.80
4.	Arizona	11,620	26.32	181.42	4.77
5.	Texas	11,406	6.60	-0.16	4.69
6.	Michigan	10,269	8.16	49.35	4.22
7.	Georgia	9,189	-16.82	28.50	3.78
8.	Illinois	8,383	-2.78	1.02	3.44
9.	Nevada	7,276	-5.00	94.70	2.99
10.	Maryland	6,052	41.57	479.14	2.49

Top 10 States for Foreclosures for March 2008 (By Percentage)

Rank	State	# of Foreclosures	%+/- Feb '08	%+/- Mar '07	% of Total
	United States	234,685	4.93	57.35	100.00
1.	Nevada	7,659	24.19	61.65	3.26
2.	California	64,711	20.66	105.86	27.57
3.	Florida	30,254	-6.76	111.52	12.89
4.	Arizona	9,199	-4.67	105.52	3.92
5.	Colorado	6,180	-8.27	-1.39	2.63
6.	Georgia	11,047	44.76	63.20	4.71
7.	Ohio	11,273	8.54	37.11	4.80
8.	Michigan	9,494	-13.35	10.27	4.05
9.	Massachusetts	5,573	42.68	59.37	2.37
10.	Maryland	4,275	6.45	343.01	1.82

NOTE: The two charts above report the foreclosures using different criteria.  The chart for April 2008 examines the states with the highest number of foreclosures nationally; whereas the chart for March 2008 examines the states with the highest percentage for foreclosures relative to the number of existing homes in the state.

April Foreclosure Numbers

Below are the ten states that had the highest number of foreclosures for the month of April. My Foreclosure Report for the month of March can be found here.

Top 10 States for Foreclosures

State	# Foreclosures	% +/- Mar '08	% +/- Apr '07	% Total
United States	243,353	4.40	64.75	100.00
California	64,683	-0.04	112.04	26.58
Florida	35,264	16.56	146.29	14.49
Ohio	11,680	3.61	2.18	4.80
Arizona	11,620	26.32	181.42	4.77
Texas	11,406	6.60	-0.16	4.69
Michigan	10,269	8.16	49.35	4.22
Georgia	9,189	-16.82	28.50	3.78
Illinois	8,383	-2.78	1.02	3.44
Nevada	7,276	-5.00	94.70	2.99
Maryland	6,052	41.57	479.14	2.49

Click image to enlarge


Additional Details

• Notice of Defaults (NOD = pre-foreclosures) were up 2.6% to a record high of 44,100 from 42,700 last month.
  
• Notice of Trustee Sales (NTS = Foreclosure Notices) were up 7.8% to a record high of 28,892.
  
• Foreclosure Sales at Auction jumped 44% for a total of approx $9.5 Billion from $6.87 Billion last month.
  
• Discounts were at a record pace. 84% were discounted by 25% or more off the original note amount. 47% were discounted by a whopping 30% or more.
  
• 97.75% of the homes failed to sell at auction so the banks bought the them back.

Because percentages don't always tell the full story, I decided to present the 10 states with the highest number of foreclosures, as opposed to highest percentage based on number of homes in the state. As you can see most of the usual suspects are there; California, Florida, Arizona, and Nevada. However, this time we also see states like Texas and Illinois.

RealtyTrac posted the foreclosure activity for April in mid-May; however, I decided to delay reporting on those numbers as I wanted to include additional relevant news articles in my posting. In retrospect, that decision seems rather foolish as the foreclosure numbers don't require any additional information for their impact to be realized.