The end of the foreclosure death grip?

"Hopefully these are signs that foreclosures are on the wane, and not just the calm before the next storm."

Sorry, but this is just the calm before the next storm. The first wave of foreclosures was primarily due to subprime. Subprime mortgage resets peaked mid 2008 and have dropped off dramatically. We are currently in a trough for mortage resets. Alt-A, Option Adjustable and Prime mortgages (which on a dollar value basis are 1.5 times larger than subprime) see a blip of increase in the second half of this year, with another dip at the beginning of next year, before the next rise to their peak reset levels in 2010 and 2011.

It is all but inevitable, that with the bond market heading over the cliff and rapid currency debasement around the world, these resets will occur at significantly higher interest rates. Higher interest rates coupled with additional loss of home value (home prices are not rebounding anytime in the next couple of years), will likely result in a foreclosure crisis that dwarfs the crisis of the past 18 months.

April of 2008 was the last month before the state's moratorium on foreclosures, so lenders rushed to file before the deadline and pushed up last April's numbers. More importantly, Fannie and Freddie just quietly lifted their moratorium on foreclosures on March 31; no lender has had time to go through the hoops to foreclose since. In any case, lenders are in no hurry to add to their massive inventory of REO properties and now delay taking ownership as long as possible.

That said, we have burned through a lot of the foreclosures in subprime areas on both coasts. Sales are fairly brisk in the areas that were hit first. Meanwhile, sales have come to a virtual halt in more affluent areas like Rancho Santa Fe. That will change as foreclosures move more forcefully into "prime" areas and prices drop.

Marcus is right. This has been discussed and updated at Calculated Risk for a year now. Also consider that many prime ARMs with 5 year fixed rates were taken out in 2003-2004, where the subprime ARMs, with a 2 year fixed teaser rate, spiked in 2005. The spike in earlier prime ARMs have been coming up for recast just in the last 10 months, mostly during the moratorium.

Bobby said: "It is all but inevitable, that with the bond market heading over the cliff and rapid currency debasement around the world, these resets will occur at significantly higher interest rates. "

Bobby, It is not inevitable because the Obama Administration would rush in and rescue these homeowners from those ARM resets. Be either subsidizing, or renegotiating the terms with the lender.

We in our 20's and 30's and already loaded down with debt from college, have seen our wages pressured ever downward as our elders have offshored our jobs and imported third world workers into the US; we already know how this is going to turn out. When the only 'growth sector' is in health care (= taking care of aging boomers), you know this is going to get even uglier.

After their pensions and investments are looted for good, and the Social Security Ponzi scheme collapses as the math dictates, the 'well-to-do' are going to finally understand how a banana republic, to which they've converted the U.S., treats the aged.

I doubt there will be enough workers in the next decades able to afford just the utilities and taxes on these huge McMansions, even if the houses were given away for free.

Several factors are at work, industry experts say. The housing industry downturn began as rising interest rates on subprime home loans left more and more moderate-income owners unable to meet their monthly payments. But by the late summer of last year, the mortgage virus had spread throughout the economy, seizing up credit markets, pummeling stocks and toppling corporate giants.

In the last few months, the well-to-do have watched their businesses unravel, jobs disappear and net worth shrink, said Andrew Jeffery, principal with Cirios Real Estate, a brokerage and research firm in San Francisco. They're "working through their cushions and you're seeing more distress in the higher-end market You're starting to see the beginnings of price deterioration," he said.

These trends are pushing more expensive homes onto the market precisely at a time when there is little appetite for them, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. Many would-be buyers at another point in the market cycle are grappling with the same issues. Likewise, the type of person who might have been looking to buy a more expensive house in the past today often doesn't have the necessary equity appreciation to consider a million-dollar home.

Even when someone is interested and qualified, they may not be able to secure or afford a jumbo loan, the lofty mortgages that Fannie Mae and Freddie Mac refuse to buy or back. Many banks either no longer offer the loans or charge much higher rates for them than in recent years.

"When you look and see supply has increased, you ask, 'Who are the potential buyers?' " Adibi said. "That's where the problem kicks in."

"In any case, lenders are in no hurry to add to their massive inventory of REO properties and now delay taking ownership as long as possible."

Man, why am I paying my mortgage? It sounds like if I just stopped the bank wouldn't even start dealing with me for many months. Why not bank the money instead? Crazy times.

Hello! Here from the coast of California!
I don't know where this info came from. No changes over here. Just increase bus tours with big Disneyland signs reading "The Home Repo" or "Foreclosure Tours"

There has'nt been any articles stating this information. Just one celeberity recently bought a 11 million dollar home down from 23 million.

A picture is worth a thousand words. Do a Google image search for "mortgage resets". The peak in 2007, that's the lower end of the market. Those two peaks in 2010 and 2011, that's the higher end of the market.

#3: "Also consider that many prime ARMs with 5 year fixed rates were taken out in 2003-2004, where the subprime ARMs, with a 2 year fixed teaser rate, spiked in 2005. The spike in earlier prime ARMs have been coming up for recast just in the last 10 months, mostly during the moratorium."

I have a prime 5/1 ARM taken out in 2003. It reset last year for the first time and will reset every year, maxing at 2% increase per year. It's tied to the 1-year CMT+ 2.75. The 1-year CMT right now is like .5. And I've done the math: even if everything changed and the rate increased by 2% every year for the next four years (total of 8 percentage point increase) I'd be able to make payments. The bottom line here is that prime borrowers are in better positions than subprime. Not saying it's good, not saying everyone has a cushion. And it's possible I'll be underwater by then. But I can survive bad times, and I suspect many others can as well.

I can't speak for Alt A and Option ARM borrowers.

lower rate of foreclosures is most likely an artifact of the recent foreclosure moratoriums. Nothing has actually changed for the better in the real estate market, so now that those moratoriums are gone for the most part, foreclosures will begin again.

10% unemployment would drive up the foreclosure rate under any circumstances, even ex a bubble. And we are well on our way to that

It's tied to the 1-year CMT+ 2.75. The 1-year CMT right now is like .5.

Again, confusing resets and recasts. Recasts have nothing to do with interest rates.

#4. You mean such as the Hope for Homeowner program that was supposed to help 400,000 homeowners and to date has not even helped 0.1% of those people?

accidental landlord,
I can't speak for Alt A and Option ARM borrowers either. I can only speak for myself and I don't extrapolate my situation to any population.
I'm more concerned with the national debt than people being underwater on a house.

As usual the "experts" are on here with their 2 cents worth. The same people that spent the last 10 years complaining about prices going up and how they were going to "wait it out" and now that the market is on the downside, they are still going "wait it out" until it hits bottom.

The simple fact is NOBODY has a clue where this thing is going.

Least of all the experts on here.

Quimby - No, some of us do know where this is going. That's because we have a basic understanding of economics, mass psychology and a whole lot of common sense. There are plenty of "experts" that predicted the housing and economic collapse - Peter Schiff, Jim Rogers, Nouriel Roubini, Marc Faber to name a few. And we understand that things are going from bad to worse. But you go ahead and keep your head buried in the sand. I wish you the best of luck. You are going to need it.

Fred raises an interesting observation. I might have waited five years (to buy or sell), while the market was going up, and perhaps another five years while it is going down. That kind of disciplined approach makes perfect sense for professional real estate investors.

This particular cycle is troublesome for the everyday buyer or seller who simply wants to move across town or across country. I've seen sellers cling to a property they don't currently need simply because, in their opinion, they wouldn't be making enough money on the sale - nothing to do with whether they owe money to the bank in order to move closer to family in their elder years.

I've seen buyers who have the financial capacity to purchase whatever they feel like, but worry about not timing the market to get the best deal possible. In the meantime, they're camped out in a house that is far too small for their needs.

On the bright side, I'm starting to see markets like Portland, Maine achieve balance in the affordable mid-range of prices ($190,000 to $240,000). The inventory level is 5.1 months. Above $240,000 there is a 12 month supply of homes on the market.

Expect more and more low-interest USG loan programs to save housing. The Fed will print reserves like mad, give them to banks, the banks will keep their 1% margins, the homeowners will keep their homes. Who knows if inflation will beat out deflation. Japan never beat its deflationary cycle, but Japan was never a reserve currency or a import nation.

If inflation wins, and the cost of gas goes up again, homes will go up. They always have, they always will. If deflation wins, the USG will fight it like mad and most people will keep their homes.

I love my home. I love my town. I dont how how long I will live. I am happy to be living the life I want, today. I am not going to let the randomness of economics and ffiscal policy determine when I own a home, and I am happy that way.

"On the bright side, I'm starting to see markets like Portland, Maine achieve balance in the affordable mid-range of prices ($190,000 to $240,000). The inventory level is 5.1 months. Above $240,000 there is a 12 month supply of homes on the market."

This line of thinking is so naive, what do you think will happen to your so called "affordable" range when the upper range finally capitulates and slashes their asking prices? Just think about it for two seconds. Oops there goes that "balance".

"On the bright side, I'm starting to see markets like Portland, Maine achieve balance in the affordable mid-range of prices ($190,000 to $240,000)."

Median household income in Portland is about $42K.
Those "affordable" price/income ratios are still in the 5 or 6 to 1 range.

Housing prices may be coming down, but so are household incomes.

#12 and #14:

lama apologies, it wasn't clear to me that you were talking about recasts on interest-only and Option ARMs. I can see there would be a problem with these recasting; the increases will be dramatic because you're suddenly adding principle into the mix. But I still don't see how resets on "conventional" prime ARMs (on which the borrower has been paying principle all along) will be a huge problem, at least over the next couple of years while interest rates are rock-bottom.

marcus, I just read Tanta's explanation of reset vs. recast. Due respect, interest rates are a component of recasts. To quote her: ""Recast" is really just a shorter word for "reamortize": you take the new interest rate, the current balance, and the remaining term of the loan, and recalculate a new payment that will fully amortize the loan over the remaining term." Even "conventional" ARMs recast, a month after the reset.

All that said, finance is not my profession, I could be misunderstanding things.

#21: Assuming that interest rates are going to remain rock bottom is a stretch.

"Traders will be keeping a close eye on Treasury bond prices this week. On Friday, bond yields broke out to the upside, a dangerous scenario for country that is admittedly broke. The yield on a 10-year note closed at 3.455 Friday, its highest level since November.

The Fed will not be able to set an absolute ceiling for Treasury bonds yields unless it wants to follow in the footsteps of Zimbabwe’s central bank. The Fed can still monetize long-term Treasuries, but it’ll have to pick its battles carefully, or risk quickly destroying confidence in the U.S. dollar. It’ll probably try to suppress yields in incremental fashion, with the goal of preventing Treasury bond yields from skyrocketing swiftly.

Every bond investor knows that trillions of dollars worth of Treasury bonds will need to be sold to finance deficits over the next two years alone. These bond investors will lower their bids at Treasury auctions in anticipation of the impending tsunami of new Treasury supply. Why buy now if you expect Treasury bond supply to overwhelm demand? This means that yields on Treasury bonds should trend upward over the next few years.

Nevertheless, the U.S. government still plans to auction a stunning $162 billion in debt this week. "

#22 Yeah, I know. While I don't understand the complexities of what affects yields, I realize things are...shall we say, unstable, and there are chickens out there that will come home to roost.

What homeowners with ARMs should be doing is assuming and planning for the worst. That means reading your documentation closely and knowing what the worst might be.

That said, if your annual change hits while rates are this low, and your increase is limited, that basically buys you a couple of years. Low this year, and if rates increase it's just back to a "normal" range the next. Granted housing will not recover in two years, but at least prices will probably have settled. You'll know where you stand and what your value is, and what your options are. And, obviously, you should be planning for the worst, which means saving money to bail your backside out of whatever situation you're in, or simply survive.