Failed Short Sales Exacerbate Foreclosure Losses For All [Housing Tracker]

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

Foreclosure Data

Bank, Owner Both Lose In Failed Short Sale Of Palm City Home. Florida: “Reggie and Noelvis Capiro this summer petitioned their lender, Wells Fargo Home Mortgage (WFC)… to allow a short sale on their… house. They found a buyer who was willing to pay $400,000, about $40,000 less than they owed on the mortgage. The bank countered at $520,000, and the deal fell apart…The Capiros lost the home to foreclosure in June, and the bank this month sold the house to a new buyer. The sale price this time: $360,000, according to MLS data.” (Palm Beach Post, Oct. 12)

U.S. Foreclosures Index Shows More Than 107,500 Homes Lost in September.  “ForeclosureS.com's U.S. Foreclosures Index: Foreclosures have left nearly three-quarters of a million people out of their homes nationwide so far this year--including more than 107,500 in September alone… This year's foreclosures mean that 10.3 of every 1,000 households has been foreclosed this year. Foreclosures are up 6.6% from August to September, 25.8% from Q2 to Q3, and 82.6% year-to-date compared with the same time a year ago. Foreclosures remain on track to surpass 1 million by year-end. Pre-foreclosures--which include notices of default and/or foreclosure auction prior to actual foreclosure--should end up a record 2 million.” (MarketWatch, Oct. 9) 

Sheriff in Chicago Ends Evictions in Foreclosures. Illinois: “Law enforcement officers in Chicago will no longer evict residents from foreclosed properties, Sheriff Thomas J. Dart of Cook County announced Wednesday. The department was on pace to conduct 4,700 foreclosures this year, nearly triple the number from two years ago… Sheriff Dart: An increasing number of the residents being evicted were renters who might have been dutifully paying their rent, and might have had no knowledge that the owner was behind on the mortgage. Under a new Chicago law, renters are entitled to a 90-day grace period, starting at the time a foreclosure sale is confirmed, before they can be evicted.” (NY Times, Oct. 8)

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water'.  “One in six U.S. homeowners owes more on a mortgage than the home is worth… About 75.5 million U.S. households own the homes they live in. Moody’s Economy.com: Roughly 12 million households, or 16%, owe more than their homes are worth… The comparable figures were roughly 4% under water in 2006 and 6% last year. Zillow.com: Among people who bought within the past five years… 29% are under water on their mortgages. Mortgage Bankers Association: Among mortgages on one- to four-family homes, 9.16% were a month or more overdue or were in foreclosure in Q2 [vs.] 6.52% a year before.” (Wall St. Journal, Oct. 8)

                                                             

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Comments

[captmike:]

The Capiros' are, in a nutshell, the problem with America.

The purchase price on the house was $406,000 in 2003. In the not too distant past, that would have meant that Mr Capiro (ex- boat salesman and now motorcycle salesman) and Mrs. Capiro (no job) would have been required to put up $81,200 as a down payment. They would then get a mortgage for the difference, which is $324,800, as long as Mr. Capiro could prove that his income and job history, plus assets vs. debts, qualified them for the mortgage. In this scenario, even though the market had tanked, all they would stand to lose is $6,000 of their down payment, plus commission to the realtor (unless they sold the house themselves) of $12,000 to $24,000 because they've decided to move. No one likes to lose money, but they would have only lost a maximum of $30,000, and likely less and besides, they're the ones deciding to move.

That was in the good old days.

Instead, the Capiros' have a mortgage for $440,000, which is undoubtedly much more now because they are behind on payments! How could this be. Well they paid off credit card and other debt and went in with negative equity in a house that they couldn't afford the payments on in the first place. Now Mr. Capiro has tired of his commute (long but not unheard of) and decides he'd like to move. Surprise, because they had negative equity in the house from the start and are now even deeper because of missed payments, they can't sell the house for what they owe. So like any normal American with an over-sized expectation of entitlement, they expect the bank's shareholders (or at least the taxpayer) to bail them out because it might affect their credit worthiness otherwise!

They should be forced to file for bankruptcy and I'm starting to think that doing away with debtors prisons may have been a bad idea.

2008 Oct 13 09:04 AM

[User 278220:]

nope hoss, the real story is : the rear ends that approved his loans are the problem. end of story.
you quoted this in your blog about the old days.

2008 Oct 13 11:06 AM

[alivewweb:]

You are both 100% right.

I am so glad I have 80% of my life savings in my home and a 4 family apartment house and my ski chalet in the mountains of West Virginia and a small home in Michigan we just purchased. All bought and paid for in cash.

Our apartment building is generating record income and our ski chalet is having a near record year.

As I have said before after going through 1987 and 2008; houses don't really crash but stocks certainly do.

A

2008 Oct 13 11:48 AM

[billddrummer:]

Hi Judy,

Great compilation!!!

To alivewweb,

Good for you for paying cash for your real estate.

I had a conversation with a bank customer some years ago about why he owned all his property free and clear. He had substantial cash balances and positive cash flow from his rentals, and could easily qualify to refinance the properties if he wanted.

He said he didn't like the interest clock running against him. If you have debt, the interest clock runs against you. With cash, it runs for you.

Similar to headwinds and tailwinds. With a debt load, you have a headwind impeding whatever you want to accomplish. Without a debt load, you have a tailwind.

Sounds like you're coasting on a tailwind.

2008 Oct 13 11:59 AM

[MDman420:]

haven't you guys ever heard of oppourtunity cost?

free and clear can be a gurantee, sort of like a dividend to yourself. however, capital to an investor is a precious comodity.

2008 Oct 13 02:22 PM

[WAKEUP:]

Contemporary stories, with details, are a good way to keep up with trends. The bottom line, though, is that it just keeps getting worse. Same, through 2009, at least, bailout(s) or no bailout(s.)

2008 Oct 13 07:26 PM

[Spedog:]

I'd also be curious to see if the Capiros had a second trust. If so, that could explain why Wells would bypass the short sale. It is so easy to make the lenders the bad guys in all of this, but they just reacted to market forces in making these loans. I am a loan officer and I did several "no ratio" loans to borrowers like the Capiros'. Absolutely no loan fraud there. The loans met guidelines (although the guidelines were insane). But, these people had voluntarily contracted to buy a house they could not afford. My job was to find them a loan. They paid a premium for the terms, although the premium was not nearly high enough to offset the risk in retrospect.

The real culprit in all of this, in my opinion, is ACORN. I distinctly remember the pressure being put on us to expand our lending to minorities and moderate income buyers. Till that time, the only factor we used in making loan decisions was risk/ability to pay back the loan. But, if you threaten lenders with fair lending lawsuits if you do not lend to low income borrowers, then your only choice is to develop lending guidelines that allow these borrowers to get the loans. This led to rediculous lending guidelines which in turn, opened the door to some unscrupulous lenders who specialized in selling Option Arms to the poor and uneducated. It has now snowballed to the prime sector.

I, too am in trouble and will likely have to file chap 7 or 13, have depleted my 401k and will at a minimum lose my investment property. I won't lose my home, but I'm about 70k upside down on it. But, I have nobody to blame but myself for this situation. I planned for a downturn and a reduction in income when the market changed, but did not plan for this drastic a change. This is not my lender's fault, it is mine. But, guess who the big loser is going to be. Not me, my lenders and ultimately the taxpayers.

So, when you see all of these hard luck stories on the news about the borrowers who have been taken advantage of, remember, there are just as many people out there who just made dumb decisions and are paying for it.

2008 Oct 14 11:16 AM