Hi, John.  I have to respectively disagree with your post.  According to the Real Estate Economic Report, there won't be a 2nd waive.  Yes, there will be many more foreclosures to hit the market, but it's not going to be like it was in 2008.

John - I watch Realty Trac's numbers in the Sacramento area, and there are many more bank owned homes that are not on the market yet in our area; there seems to be a second waive coming in California anyway.  Just driving around in some areas and seeing the number of vacant homes that are not on the market or for rent, verifies this for me!

Good post, very discouragin but I do think there is a good bit of reality in it.  What shocks me is the variable condition that we can find a bank-owned home in.  Some are trashed, smelly, disgusting and others where the lawn and the pool are being maintained and it has recently been painted and very inviting.  I don't get it!

I would have to agree with Mary Yonkers...as a 26 year veteran of mortgages I have seen so many instances where the borrowers were given loans where they had no way to repay. The true culprit was Option Arms and the NINA and the 100$% loans. If you don't have any skin in the game what are you really losing? Unfortunately the industry cotinued to orignate these loans long after the crisis had started so the Option ARMS are coming due and it will have an impact. I was at our State Fair two weeks ago and inadvertenly heard a conversation that a lender was having with his processor over the phone..."...NO, the investor doesn't know about the the other loan, it's with a small bank...it'll be after the closing..." Until the closet is clean from all the folks that don't have a conscience in the industry this is going to continue to be a problem. Ther servicers can't modify loans for people who can't afford to live therre! It simply prolongs the inevitable.

John, Here in No. California were also seeing the lack of inventory, 10 offers submitted within 3 days of the listing being posted.  FHA borrowers being out-bidded by conventional & cash offers over the  appraisal price as well their offering to cover all closing costs.  How can the 'Average Joe & Mary' compete.

I am a new realtor in the market for about 3 months with 4 FHA buyers searching for homes competing as a ' David VS Goliath' against these cash investors.  A waive of millions of foreclosures around the corner.....   Bad for the economy and the home owners loosing their homes but more supply for the home seekers?  Your opinion?

The only way for many of the modifications to work and to stem the foreclosures is for the lender to recognize that they and the borrower made mistakes. The lender enabled the consumer by giving them the money and the financial industry and Freddie and Fannie threw too much money at too few goods drving up prices. Then they stopped lending and cut the legs out from under the potential buyers, ie prevented sales causing the price fall. A smart business person (not that lenders tend to be good business people - more bean counters and bureaucrats) would make the best of the situation, which in many cases is to keep the owner in the home. The lenders have written off billions already anyway. They now need to reduce principle to the borrower and reduce the cash outflow for the borrower (reduce the interest, increase amortiztion). Better to take a partial writedown than to push the eject button as is the lenders' usual modus operandi. Foreclosure just leads to the next foreclosure as the lenders continue to put downward pressure on the neighborhood. The poor quality negative amortization loans go down first. Eventually the documented loans go underwater as the one card tips the next and soon the whole neighborhood is in trouble, vacant homes, green pools, mold due to shut off air condtioning, homes stripped of cabinets/ applicances by evicted homeonwers, etc. The lenders acting in their individual short term interest in the aggregate destroy the market, their customers and their loan portfolios. As the old saying goes, the bankers will give you just enough rope to hang yourself. They sure did in this case to the detriment of the whole economy.

all anyne has to do is look at their court records everyday and see the number of LP's being recorded and served. Many many foreclosures to come. The banks are clueless about how to do much of anything. Common Sense they have never had. It cost 30,000 to foreclosure and maintain the property if they reduced the principal on all the mortgages in trouble the cost of foreclosure they might find that about 80% of them with payment and principal reductions they could stay in their homes but DUH that is not in the rule books so.............common sense. They would rather throw someone out of their home hav to foreclosure and spend more of our tax dollars then put the house on the market (maintain it too during this process)and then liquidate it for way less than the 30,000 they could have done...DUH to the banks and their stupidity.

First a mortgage has three parts: 1. origination - that's the person that gets the borrower from desire to closing. 2. servicer - that's the company that sends the bill and collects the payments and enforces the foreclosure. and 3. investor - that's the person that owns the mortgage.

Over 95% of all mortgages under $417K are owned by Fannie Mae and Freddie Mac. The banks do not own the mortgages and thus cannot modify nor approve a short sale without the investor's approval. Try to remember that you may be dealing with the bank but the bank is not making the decision. (unless it happens to be a portfolio loan on the bank's books)

This is akin to being an apartment renter and asking the grounds keeper to modify your lease.  All they can do is pass the request along.

Also, the waive of foreclosures is coming.  Make no mistake. And while the author points to many of the actual facts supporting this position - he misses one critical point.  All of the major banks and loan servicing companies (the one's that took the tarp funds) have a "moratorium" on any new foreclosures.  What we are dealing with are the foreclosures that already happened.  There is a whole pool of new foreclosures waiting to be released into the marketplace when the powers that be decides that the market can bear it.

Anybody know the date/location of the testimony? Where is the text of the testimony

Hi John;

    I can not agree more with all of you. I have many clients whom are getting these Modifications from the bank and these are unreal. Many of these clients are in the area of Oakland, CA. They show me what the bank is saying to them and they are afraid with these modifications.

    Many get loan reduction of 50K to 100K, the programs offered are a 6yr before the big payment hit. Payments starting in $500 for loans in the 175K to 280K, these keep growing yearly and the last year goes up for a very large difference, beside these are 40yrs loans, interest only and the client pays for taxes and insurance separately. The clients are afraid to take it because they think about what is going to happen when they can not pay the increased amount and they get foreclosed on and the grace period for them not to pay taxes on the difference of prices is gone. Although it looks attractive from the rental perspective as the amount offered is lower than rent but what will be the consequenses after that.??

OK..the impending doom report is getting worse. Yet in times of strife and trouble- like now -there have been more entrepreneurs in America than in any other times, creating opportunities for not only themselves but  jobs, incomes, and stimulating the economy.  Yes..the situation may be getting worse, and millions of American families may lose their homes, but there is opportunity for all  of us in the industry to prosper and by doing so, contribute to the economy, thereby increasing spending and in turn helping to improve the overall situation. Prepare. Those of you who do not have REO listings. Prepare. If this many foreclosures come down the pike, there will be plenty of listings. If there are this many foreclosures coming, the pricing will drop even further, creating additional opportunities for purchasing homes for first time home buyers that in the past could not afford, again creating opportunity for you and I.  

If the ship was sinking because it had a hole in the hull, would you wait until it sank, or find a way to plug the hole?  

Im a contractor. I build plugs. Look for my new sign- PLUGS FOR SAIL- think about, you'll get it.

Real estate is local but public perception seems to always be less than so.  Perception becomes reality with enough news coverage in one direction or another.  In my market, less than 4% of our inventory is REO business and this is almost exclusively in our low end of inventory.  The mortgage news affects, however, a big part of our business, no matter what, even for those who are buying $2M plus properties, with only the first $1M of mortgage interest being tax deductible.  Our sales are increasing, our REO inventory has multiple offers (my last one had 20 offers!) and those buyers who have been fence sitting for a while area realizing that while this may not be the "bottom of the market" for real estate value, it most likely is for interest rates!  This is the story we have to continue to tell - buy in a market that you "know" - today's market you know the value of the property, and  you know your interest rate  as well.  Mortgage rate timing is the most critical aspect of any transaction.

I saw on C-Span the other day, representatives from B of A, Wells Fargo, Citi Bank and other service companies answering questions before a Senate Sub-Committee....they indicated that they wanted foreclosures that had a great deal of equity, but not so if they were upside down....of course that makes sense for the banks. The banks seem to be holding off as long as they can but in the end they can always write off losses against their usurious credit card profits.

I always try to be optimistic but it sure is getting more and more difficult.....especially those of us that depend on the second home market!

Everybody's a liar. It's good business in America.

I am in Merced County and we have a high demand but are low on inventory. The banks are taking anywhere from two weeks plus to respond to offers submitting high and best multiple times. Asking for over the appraised value we are headed right back into the vicious cycle of GREED! Its ridiculous we have so many buyers and yet they are holding out on releasing inventory. The first time credit has helped to stimulate this market but yet they are not working w/buyers to move these homes. Honestly we realtors have zero control yet we must conform to what these bank/asset managers want.

Somethings got to give! These banks can not afford to double their inventory of vacant houses this coming year. We cannot afford to support the banks. Banks are paying millions to maintain these properties, paying asset managers big bucks to winterize, mow lawns and board up.

And yet, it appears they continue to hold onto these properties, allowing so many of them to fall victim to vandalism and general decline which in turn lowers the values in the entire neighborhood.

Homeowners may think they have given the house to the bank and walked away but they may still be on the hook.  These houses need to be taken care of for the owners who who need help during this difficult time, the banks, and our communities.

We continue to work toward educating these owners, asset managers and banks, letting them know they can have these houses occupied and cared for, thus lowering their costs, lowering their liability and maintaining the asset. Maybe some day the banks will get up to speed, I hope for us all they do it quick.

Have faith, the same greed that put us in this position will most likely lead us out of it. Just look at the former Countrywide exec who now owns Pennymac and is buying up the same loans he made at Countrywide at pennies on the dollor. Greed is a powerful motivator and will no doubt lead some creative individual to find a way to profit by keeping these potential foreclosures at bay.

This is the longest market correction I've seen in 25 years, but one I predicted, at least to some degree.  By 2nd quarter 2005, I was telling clients the prices were beyond sustainability & destined to go down in a correction.  I was predicting a possible 20% downturn, I guess I was a bit light. Many thought I was crazy. Some markets like in Texas & California had experienced similar bubbles & long corrections that took years, but no one was paying attention to the facts.  It was too much fun, deaming of becoming rich.

I agree there is probably much more of this to come.  And when you consider the massive amounts of money the government is spending & how that is very likely to create significant inflation that can't be stopped, how could the market be expected to recover quickly?  The answer, I think is, it's not going to.

One of the most significant questions for a current prospective buyer should be, is the price I'm looking at a price I can really live with, even if things get a bit tough?  In other words, maybe it's not a good time to stretch yourself too thin.  Be conservative & create a buffer for yourself in case you need it.

Craig Chapman - the value guy 

These is no doubting the statistics, and no problem understanding why banks and our government is not talking about all these foreclosures.  In my mind, I see a vastly different housing landscape over the next ten years.  It is my understanding that between 60% and 70% of the houses being purchased right now are first time home buyers.  This is no surprise since the incentives are there, but what does this mean for the overall housing market.  With tight lending markets, impossible modification hurdles, reluctant banks the regular housing market will remain stagnant for some time to come.  I think it is in the interest of every agent to understand these forces and begin to adjust their own business models to the new realities.

There is change happening.  It is a painful change for millions of homeowners.  It is depleting the numbers of active agents, I dare say those who are not adapting and understanding the changes.  I think we will see new kinds of affordable development going up.  I think we will see more environmentally homes being built.  I think there will be a market for contractors who are providing cost savings through making homes more energy efficient.  Let's begin to face realities and move towards what we can do rather than bemoan what was and is no longer.

My heart goes out to all these families who are loosing their homes not due to sub prime mortgages, or overspending, but by loosing their jobs or through health issues that have depleted their savings.  It is these people who will be moving back into more affordable housing when they right their situation.  There are many people to help out there and this is our job, I feel.

Yes, there will be many more foreclosures. The problem I seem to see is how can you properly comp a house with few houses sold in the local neighborhood and all of these run down houses that don't come close to the asking price.

Recent Case I have is that I am looking at a Split Ranch, 4/2 on 7405 sqft. Comps are $275K but the house has been damaged and would need a good amount of repairs. I have approached the reo realtor with an offer but he has told me my offer is to low. The client (Some Bank) wants $275K. There were other homes that sold in the area of greater value but they were newer, little or no damage, not the same style and were a lot bigger.

The comps don't support their price. I am not sure why they delay. They have to pay the taxes and whatever the maintenace to try to keep their asset in somewhat of a good condition. Add to that, it is a non-performing asset on their books that ties up to 7 times the outstanding mortgage amount that they can't loan back out.

What are they thinking?!?

This is the first in-depth, substantive, real discussion I have seen of this issue (and I've been eyeing media carefully for months for the answers) thanks to all of you!!!  Housing is THE central issue to saving our country, and our economy now. Healthcare reform must wait until this crisis is abated.

Everybody, please forward this discussion to your senators and representatives......... NOW!!!

Don't forget about the 700 Billion+ in commercial paper coming due with little to no sources of financing.  That may be the biggest hurdle in 2010 for our economy as a whole.

It is true and I've been saying it for the past year.  There are no solutions for the unsuspecting homeowner that purchased a home 4-6 years ago who did all the right all the things.... there's a huge percentage of homeowners who put 20% down and don't have debt...whether they got into an ARM or not - and it just financially makes sense to jump ship and cut their losses short.  Their neighbors who have over-bought are all foreclosing and short saleing and reselling the surrounding homes for 50-70% of the value.. and it just doesn't make financial sense to stay unless you planned on retiring in the home.  The value will not ever come back to what you owe in your lifetime.  This is what I see on a daily basis in the Phoenix metroplitan area. 

There are no solutions for the owner with good credit, no debt and a good paying job... the factors that use to make you the ideal homeowner.  They are the ones getting left holding the bill so to speak - and the only option is to walk.  Sorry, but when they did all the right things and they are not the ones who caused the debacle we're in - this percentage of people is going to add to the foreclosure rate simply because they don't want to take it anymore - "good bye good credit"?  What did it get them in the first place.  A swift kick in the butt...that's what.

It does not really matter what any of us think the fact are quite replete.

In order for this country to get out of the hole it is in three things have to happen:

1. A "Darwinian Flush" which is an occurance that necessitates that some people must lose there home and the quicker we embrace that and stop putting up road blocks with fruitless modifications the quicker the healing process can come. Right now it is like a wound where we keep ripping off the scab and it starts to bleed and not heal.

2. A lending product based on income and assets needs to be create and fast so that when the properties go back to Freddie, Fannie and banks and other investors they can put people in them who can afford them.

3. We will need a credit score amnesty period where there is some foregiveness during this period so that the millions who are afflicted can still buy a home if their income and assets suggest they can afford it.

Many people bought too much home and numerous people's incomes did not keep on pace with the appreciation of their home (e.g., California). Therefore, you had someone with an income that could support a $300,000 home and then their home was worth $500,000 and they foolishly took out the additional $200,000...usually not to invest in another asset but to blow and now they are in debt above their eyeballs and it is no wonder they'll lose their home and maybe they should.

I helped hundreds with loan modifications for today...but they still have the same habits that got them in the bind so i can gurantee you unless they truly seek change and education they'll be back in trouble and probably out of the home.

Great Post!  I agree with you 100%.  I was on a conference call with an asset management company and they are predicting that it will stay flat until the end of the year and then the wave will hit.

Whenever it is, everyone better strap themselves in, we are in for a roller coaster ride!

John,

Well. that was certainly cheerful news, and I agree with you. I predict 2015 until recovery.

John,

How right you are and so are so many people who are responding & commenting to your post. It is TRUE that there are millions & millions of foreclosures ahead, and for years to come.

What we have seen so FAR, is just the TIP of the iceberg, the rock is still ahead.....

Any one who purchased in 2004, 5, 6, 7 & 2008 is upside down by atleast 25-30%, no matter how much they put down or how credit worthy they were..... Except if it was all cash....... & those who are buying in 2009 will be upside down next year, if this trend continues........

Unfornunately we all, the industry professionals & the wall street & washinton, are playing the same old trumpett about lenders, brokers & orignators making those loans to those borrowers, what sould not have been done....

What's been done has been done, it done........ PAST TENSE.... wake up & think ahead..... Look at what's happening now...

Now, the real "A" paper, the 20-30 percent down pmt type of people, the mid to upper management & VP's etc, who are earning high six figures are starting to walk away. That is marking the begining a new trend in the  industry. Just wait a few months & we all will see so many million dollar homes, selling for 30 cent on the dollar.......

Now, this nuclear bomb (housing) exlplosion has or is about to reach it's critical mass, the real damage is about to begin.....

Question is WHAT is the solution..... Should we just accept that this is what it is, accept the condition &  DUCK & hide in a TRENCH.

Or should we all do what we AMERICAN have always done, FIGHT back.... use our talent, brainstorm to find &  work towards a solution...?????????

There is a solution..... if some one is listening; especially the LENDERS & WASHINTON

Housing may be a gamble or business for some or many, BUT housing is still & will always be a necessaity for a majority of us.... we all need to stay some where. CAN'T live in a tent or a pipe...!!!

We, Americans, will buy or rent houses on the moon, only if the PAYMENT was right.......

The same banks who created this problem are ones who are increasing it by making it difficult to modify loans, in an attempt to collect more FEDERAL help. If some could not prove his income when he got the loan in his best times, how will he/she prove his income in the worst times.

I am not here for the MORAL HAZZARD argument, but here to find a real solution to problem, whether it's moral or not, is least important. If our country, our economy & our communities are suffering, no mroal hazzard is big enough........

The criterea for loan modification should not be income but instead, what would it take for the borrower to rent the same or similar property, if the buyer chose to either walk away, foreclose or short sale & rented.

MAKE THE PAYMENT CLOSE TO or a little more than RENT of the same house & NO ONE & I REPEAT, no one will walk away.

There will be no stress or distress; no foreclosure.

Everyone is thinking of walking away, they are just waiting for an exit, & I can BET that half of the realtors contributing here have already done that or in the process of doing that or at least thinking of walking away, Everyone is just waiting for the right EXIT...........

The banks & investors will lose money on returns if they do these modifications, they will lose that money & even more anyway if they don't, if this thing reaches it's critcal mass.

Will it end some day, Of course, there will be an end to this ONE DAY, GOD WILLING.

 But can U all imagine the damage that will be done to our communities along the path, if not just look at HIROSHIMA & NAGASAKI......... and for those who don't know what it is, google it......

We, the industry people, are a very large community, we can make our voices heard, we can start the beginging, no matter how small it is.. we can make a start to STOP this......

It's over folks. Put away your cheerleader dresses and Tony Robbins mentality.

John,

I don't know if I would put too much into what corporate VP's and government official say anymore.  I sell foreclosures and most of the asset companies I work with are worried due to the lack of properties flowing through their doors.  One company that normally does between 100-150 properties in a month in our area informed me that they only had 4 assignments in July and as of 8/20 had only had 1 for August.  I have heard the same type of numbers from the others servicers as well.  Many of the assignment coordinators say it is due to the banks accepting more and more short sales and deferring processing the foreclosures and adding moratoriums in order to see if the economy will improve their bottom line enough and to keep the debts off the books for some time.  The banks are also worried big time about a possible storm coming related to credit card delinquency's.  I would not want to be in banking anytime soon.  Let's hope the government sees that the tax credit is spurring the recovery and makes the choice to extend it through next summer.  This will take the bureaucracy and waist out of plans like tarp and stimulus and keep it out of the hands of greedy bankers.  Best program for economic recovery is a program that assists in the housing recovery.

John - You are so right!  Working with only short sale listings in metro Atlanta area, I am getting calls from sellers who have interest-only loans are already worried.  Some area will be more hard hit than others but it will have an affect on all the markets. 

While I agree that many areas will see more foreclosures in the next 24 months I choose to see a silver lining. The first wave of foreclosures brought prices down to a reasonable and understandable level-except in the hardest hit states like Florida,Nevada,Michigan. Prices are way below real value that buyers in those states might be trying to leverage themselves to buy several properties-or at least should be!

Now that we have been at the current price level and discount  to the point some inventory is moving, I don't believe the next drop will be as dramatic. The solution will be to create and manage a lending program to get ready willing and able buyers back to the table. The lenders/government have stymied the recovery by overly restrictive/corrective guidelines and procedures. The bad apples are all but gone and the ones left have the ethics,resolve and integrity to protect the borrower better than ever before. 

For those who think the banks are 'holding' just because they're not listed on MLS.....I received the following email on Friday:

$11.016M CALIFORNIA, 54 SFR tape at $.59 Just got this tape and if youre interested let me know immediately, I'll get you the seller's BPO. Send LOI and POF asap. This won't last long!

Yep, that's $11M of CA real estate being sold for pennies on the dollar to investors who will later sell some without any repairs made, flip others after modest rehab, but most will become rentals for many many years of positive cash flow. As some others stated previously, there will be lots of homes to rent for those who get foreclosed on, and the rich (those with proof of funds for $11M) will get richer. For the rest of us, let's hope there are lots of those investors to keep buying up the REO inventory when it doubles or triples over the next year or two. This is all that is holding off the massive amounts of REO's from crushing real estate prices.

 We have been telling our buyers for months that the inventory of held-back foreclosures will be coming soon.  Someone somewhere knows the answer but it sure isn't circulating as a 'for sure' among the real estate community; it is all speculation.  This tends to make one very suspicious.  Are they holding them back to monitor the first time homebuyer tax credit?  Trying to control downward pricing spiral?  Lots of questions and I hear them daily from my anxious, ready and willing buyers as well as frustrated fellow agents.  I agree with Dennis Erickson above that it needs to be taken from the control of the Washington bureaucrats.