NEW YORK — The percentage of homeowners late with mortgage payments hit another record during the last three months of 2009, and the pace at which they fell behind took a turn for the worse, a new report says.

For the fourth quarter, 6.89 percent of mortgage payments were 60 or more days past due, according to credit reporting agency TransUnion. That’s up from 4.58 percent in the final three months of 2008. The previous record delinquency rate was 6.25 percent in the third quarter of 2009.

The latest report marked the 12th consecutive quarter — equal to three full years — that delinquency rates have risen from the previous year.

More worrisome was that the quarter-to-quarter trend swung higher after declining in each of the previous three quarters.

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More waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years, two new studies project.

The studies—by John Burns Real Estate Consulting Inc. and Standard & Poor’s Financial Services LLC—both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure.

The Treasury Department is expected to give its latest update this week on government efforts to avert foreclosures.

The John Burns study estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments.

More…

More than 1.7 million homeowners were verging on foreclosure this fall, making it likely that these houses will soon end up on the market one way or the other, driving down overall housing values.

“We’re going to be dealing with high levels of distressed (sales) in the marketplace for at least a couple of years,” says Mark Fleming, chief economist of researcher First American CoreLogic, which has been studying the problem.

Some real estate practitioners say they fear that this onslaught is coming.

“We’ve been in recovery mode for most of the year. How many foreclosures do they have to dump on the market to affect that? I don’t know,” says Deborah Farmer, owner of StarLight Realty in Tampa, Fla. “Any house priced under $225,000 will be affected by a large increase in foreclosures in this market.”

Source: Associated Press, Alan Zibel (12/17/2009)

Current data shows that 10% of borrowers in California are in default and that 73% of borrowers have negative equity. Ouch.

If you are a homeowner facing foreclosure, you have a number of options available to you. Of them, the first that most borrows try is for a loan modification. On the surface of it, a loan mod seems like a good deal, but the more I think about it, the more I wonder if that is truly the case.

Getting your loan modified is no easy task. The lender is going to be very difficult to deal with and this is going to add to the your already high level of stress. If you are successful, you can expect that the lender will likely reduce the interest rate and the payment. They may also set aside some of the principle on the “back end” and not charge you interest for this balance for some time.

Make no mistake about it though, you will still owe this (extra) money.

At first glance, getting a lower payment and being able to stay in your home (for now) may seem like a very good idea. The reality, however, is often much less appealing.

Why?

Well, there are a number of reasons.

First, you still likely owe far more than your house is worth. This is probably the biggest reason that most loan modifications eventually end up back in foreclosure. Initially, the borrower is very happy to have been able to stay in the home, however, as time passes, the reality of the size of the debt versus the value of the home sets in, and the motivation to keep making those payments eventually weakens.

Remember, in your neighborhood, the vast majority of homes in default do not get their loan modified (if you don’t have a job, you CANNOT get a loan mod). When a loan is not modified, the home is either sold via short sale, or sold at the trustee sale, or taken back by the bank and sold as an REO. In all cases, the sales price(s) of the houses that surround yours are going to be lower than a home that was not sold “in distress”.

What does this mean for you? In means that “comparable sales” are going to keep going down for a while yet, and each time that happens, your house is going to be worth less. The amount you owe, even after a loan mod, is still going to be the same. Bummer.

Making matters worse, in some neighborhoods, homeowners who are capable of making their payments simple stop doing so because they no longer see the point. Their house value is far less than the loan, none of the neighbors are making a payment, and no one has yet been evicted.

This is what we call a “strategic default”.

Regardless of what you call it, the result is still the same; foreclosure takes place and the house is eventually resold at a much lower price – which in turn results in much lower sales comparables.

Fannie-Mae is not ignorant to this problem and that is why they recently introduced their deed for lease program. In this program, the qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

For many homeowners, this will allow them to stay in their homes, get debt relief, and cut their monthly cost of shelter in half. Not a bad deal for most people.

What has not yet been announced, but what I think is highly likely, is that in a year or two after you deed your home to the lender, you will then be offered a option to buy it back. If that plays out, that is absolutely wonderful for the homeowner.

Think about it; you deed it back to the lender, you get to stay in your house, your debt is eliminated, and eventually you get to buy it back at its now current (lower) market value!

There’s just one problem with this. What about the other 90% of homeowners who aren’t in default but are under water? Don’t you think they are going to want their discount, too?

I’m guessing they will, and if I’m right, that is going to mean a whole lot more strategic defaults.

Very clearly, we are not out of the woods by any stretch of the imagination – despite what you may be reading in today’s news.

It’s no secret that there’s plenty of money to be made in the real estate investing arena. There is, however, a rather large learning curve to get through before you start cashing those checks. Following are six tips to help your journey through the learning curve be a little less bumpy.

Read full article…

For the last few months, I’ve been a regular reader of John Mauldin’s Weekly E-Letter and each week, John’s writing gets me thinking about important financial topics. This week is not different.

In this week’s letter, John wrote about some of the potential effects of a sustained low interest rate environment. As most folks are well aware, rates have been low for some time now, and when that happens, combined with the Fed’s stated desire to keep them low for some time yet, speculation can rum rampant.

For example, for many years investors have borrowed money in Japan and invested in the US. In Japan, where rates are low, they can borrow cheaply and then invest that money is risk assets (stocks, bonds, real estate securities) here in the US.

The net effect of this transaction, which is called a “carry trade” is that risk assets in the US rally strongly on the back of all the cheaply borrowed money. (A currency carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.)

The key aspect of a carry trade to understand is that when the currency of the country from which you’ve borrowed goes up, your profits, due to extensive use of leverage, can vaporize in a heartbeat. This is what happened in when the world hit the credit crisis last year. There was a huge demand for (safe) dollars, so all the money that was borrowed in yen was paid back and the yen was driven higher.

The same situation is now afoot in the US. It would appear that investors and funds are borrowing cheap dollars (see chart below) on a short-term basis and investing in all sorts of risk assets. Not only have stock markets risen, but so have high-yield bonds, commodities, and so on.

Look at this story from Bloomberg:

“Nov. 15 (Bloomberg) — The decline of the dollar and decisions in the U.S. not to raise interest rates have caused “huge” speculation in foreign exchange trading and seriously affected global asset prices, said Liu Mingkang, chairman of the China Banking Regulatory Commission.”

“The continuous depreciation in the dollar, and the U.S. government’s indication, that in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” he told reporters in Beijing today at the International Finance Forum.

“Liu said this has ’seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.’

“His view echoes that of Donald Tsang, the chief executive of Hong Kong, who said the Federal Reserve’s policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis.”

“‘I’m scared and leaders should look out,’ Tsang said in Singapore Nov. 13. ‘America is doing exactly what Japan did last time,’ he said, adding that Japan’s zero interest rate policy contributed to the 1997 Asian financial crisis and U.S. mortgage meltdown.”

What this all boils down to is this: If world trade picks up, as it appears to be doing, demand for dollars will increase. This could result in a very strong dollar rally, which would take equity markets down worldwide, along with other risk assets. Why? Because when the currency you are borrowing in goes rocketing up, the cost to repay your loan also goes rocketing up. This is what we call a short squeeze and it is usually very painful for those being squeezed.

For a more detailed analysis, I would suggest that you read the entire newsletter.

Broken Ankles, Holidays, and Family Visits

Those who read regularly know that on Sept 5th, I had the misfortune to break both of my ankles while riding, or should I say falling off of, my dirt bike. I’m happy to report that I’m now walking again and making steady progress with my physical therapy; albeit not as fast as I’d like. Your well-wishes have been much appreciated!

This week kicks off what I consider to be the end of the year holiday season and as such, I’ve been having friends and family come down to visit me from Canada. This week and old friend came down for some time as Disneyland and Universal studios. Setting aside the challenge of walking that far in a day with sore ankles, a great time was had. My dad and brother are coming for Christmas in a month, and as we haven’t seen each other since last year, we are all looking forward to that. Hopefully, you, dear reader, will have the same good fortune!

Your comments are always welcome,
TRD

According to a just-published report from the Urban Land Institute, the top 5 markets to invest in for 2010 are:

• Washington D.C. scores the highest marks during a recession. While hard-pressed lenders pull back in most cities, major insurers and big banks have taken a long term view and are actually providing financing for new deals. Bethesda, home to the National Institutes of Health, should benefit from increased bio-medical spending and Virginia markets, inside the Beltway, are expected to suffer only modest erosion relative to past downturns. Survey respondents expect suburban vacancies to advance well into the high teens further out.
• San Francisco: Despite its formidable barrier to entry attributes, this 24-hour gateway will take investors on a ride of volatile pricing, occupancies, and rents. An expanding regional tech industry, fed by nearby Silicon Valley, should help. The report ranks this city one of the top buys for apartments, warehouse, office and hotels.
• Austin, Texas: A growth bastion, Austin’s low state taxes and a pro business environment are expected to contribute to future growth and continuing corporate relocations. Austin fits the “brainpower” model with its state capital, large state university, and offshoot tech and software businesses.
• Boston is a solid market as compelling economic drivers—premier educational institutions, life science companies, and high tech business—reinforce investors’ long-term conviction. Downtown apartment vacancies remain well under 10 percent and condo/house pricing “remains stiff.”
• New York offers savvy investors opportunity and more affordable costs over the long term. Midtown availability rates are predicted to skyrocket from mid single digits into the mid-teens as office rents plummet 40 percent or more. Co-op pricing is expected to sink 25 percent and a shakeout continues among condo developers who built million dollar plus apartments in fringe districts— sales of those units likely won’t close without substantial markdowns. The pace of market recovery depends on the hammered banking industry, the report cites.

You can get a copy of the full report here.

In my travel recently, I had the opportunity to meet the man behind the increasingly infamous “Tech Savvy Agent”, and yes, I was inspired by his moniker (which he actually encouraged me to use).

The Tech Savvy Agent is focused on creating a network of Realtors around the US who are competent technologists as well as Realtors. I will be doing the same here in San Diego, so if you are a Tech Smart Realtor, be sure to look me up.

You can check out the Tech Savvy Agent here.

Not too much new here, but I’d thought I’d post it anyway. The only part that I’m not so sure about is whether the worst is over. If you’ve been reading older post, you’ll see that I believe we have further downside yet; primarily driven by all the foreclosures that have yet to work there way through the system.

Your comments are always welcome,
TRD

Daily Real Estate News  | November 20, 2009  |

Almost 10 percent of all mortgages on one- to four-unit properties are in some stage of foreclosure, up from 2.65 percent a year ago on a seasonally adjusted basis, according to the Mortgage Bankers Association’s National Delinquency Survey released Thursday.

The combined percentage of loans in foreclosure or at least one payment past due was 14.41 percent on a non-seasonally adjusted basis, the highest ever recorded in an MBA delinquency survey.

The bankers blamed the high foreclosure levels on unemployment. “Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent,” says Jay Brinkmann, MBA’s chief economist.

Full story…