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Monday, April 27, 2009
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46 comments:
Can someone help me understand something?
There seems to be a lot of mortgages resetting in 2010 and 2011 nationally.
Page 12 of this PDF shows rests of Option ARM, Alt-A, Prime and Agency to reset higher than the Subprime problem of 2007 and 2008.
http://www.cra-gmu.org/forecastreports/09Forecasts/Economy-Housing_Market_Outlook-2009-WRAG-Feb-10-09.pdf
Page 13 shows Alt-A resets being red-hot for Arlington.
Is 201-1000 loan resets for Alt-A an excessively large number for Arlington or is it something that can be absorbed easily?
Doesn't this mean there is still a major price reduction coming?
Where can I get the numbers for all the other loan resets for Arlington?
This is the video that initially raised the question.
http://www.youtube.com/watch?v=shYJ_KkbzWg
According to the guy in the video Subprime was approaching a trillion dollar problem.
Alt-A is about a trillion and Option ARM 600 billion on top of that.
His prediction is 50-70% will default, but that's nationally. What's going to happen to Arlington/Alexandria?
Does anybody else agree with this guys predictions or is this just a video trying to scare us?
I think it's important to remember that these are resets of the mortgage rate itself. The current rates are lower than when people purchased the properties in the first place.
As an example, I have a friend that bought an Option ARM and chose to make the full payment each month. If his loan were to reset today, he would have a lower interest rate than when the loan was first started. Since he made the full payment each month, his loan was never recast with more principle added in.
I don't pretend to know the number of people with various ARMS that will default but I think it's safe to say that not all of them will. I have no idea if 50% will default or not but I would say the chances of large scale defaults increases significantly if the FED raises interest rates due to inflationary concerns. If rates stay where they are now, I'm not so sure how much of a problem this will be in the next two years.
Also, keep in mind that Arlington is always going to be more expensive than PWC. Don't expect to buy a nice house on a bunch of land in Arlington for the price of the same property in Manassas. If you think you're going to wait for that to happen, you're going to wait forever.
I didn't see this covered in any previous days, but its the First American CoreLogic report from 4/23:
http://www.facorelogic.com/newsroom/pressreleasedetails.jsp?id=1006010 markets with double digit YOY declines:
-26.65% Nevada
-26.53% California
-21.11% Arizona
-19.68% Florida
-19.46% Rhode Island
-12.66% Washington
-11.90% Illinois
-11.62% Maryland-11.15% Oregon
-10.26% Massachusetts
-10.24% VirginiaAnd on accelerating declines:
"Although price declines are beginning to stabilize for the very high depreciation markets, the price trends among a next tier of states that are experiencing double digit declines is worsening. These states include Washington, Illinois, Maryland, Oregon, Massachusetts and Virginia. Of these six states, Washington and Oregon stand out as having experienced the largest acceleration in price declines during the last year."
(emphasis added)
Basically, in a normal world, the resets would matter somewhat. But with the Fed printing money, that's not going to happen right away.
JWild, Jeff,
It's recasts not resets that are the big problem. A recast is when your loan changes to becoming a fully amoritizing loan and you must begin paying principle at a rate that will retire the loan in the prescribed period. If people were underpaying principle then any recast will be a problem, regardless of the low current interest rates. On the other hand, as Jeff pointed out, most people do repay the principle whenever possible and do get themselves back to fully amoritizing principle payments as quickly as possible if they skip a month. Furthermore, many of these folks will have already refinanced to fixed rate loans this year while the fixed rates are so low. So, it's unlikely that more than 10-20% of these resets will mean anything at all.
This is basically old news. The new news on foreclosures is that, the usual suspects of death, divorce, job loss, are causing the bulk of prime foreclosures now. Not high origination DTIs, not recasts, not resets, just the fact that any income shock means you need to sell your house and you can't sell it for the amount of the mortgage note, so will need a short-sale or else get foreclosed on.
Now, for the ludicrous prices that were reached in CA, and the proliferation of teaser rates as low as 2% that added negative amoritization, more foreclosures from recasts can be expected, as high as maybe the 50% level, who knows? But that level of insanity was not so widespread here.
So my answer is, sure, the recasts may have some additional impact in the DC area, but it's hard to say at this point, how much. Job losses are likely to be a much bigger factor if our local economy deteriorates.
Randy,
That's interesting. No, we haven't talked about that specific data set. The states with just over double digit price declines are seeing accelerating declines. That's definitely news. Did you find any further specifics on the acceleration for Maryland or Virginia?
It actually contrary to the figures we've seen from other sources here showing that the prices in NOVA have essentially flat-lined in recent months.
contrarion
That's a very interesting chart, because it definitely means "recast". It specifies, "based on current rates of neg-am", i.e. literally based on how much principle people are choosing to pay now. Too bad they got a writer for the article who's grasp on the difference seems tenuous at best. Also, too bad that this more specificly meaningful data isn't broken down by region.
No other data here. I first read about it on The Real Estate Wonk in this postShe forgot to link to the source article, or it could be she receives updates via email and thus didn't have the article to link to, but google turned it up pretty easily.
I was hoping someone on here might have a little more insight into the CoreLogic data. The data that went into this report seems to have come from their LoanPerformance HPI product for analytics. An interesting additional data point nonetheless (especially for the selfish reason of additional Maryland coverage).
OT - Sorry about the lack of line breaks in my comments, the preview mode LIES, showing line breaks where I'd like them but missing in the final comment. Looks like I'll have to add them manually with the br or p tag when links or emphasis are used at the end of a paragraph.
Randy -- the line break issue is happening to everyone on blogger.
The "br" tag works -- 2 of them might work better.
Fascinating discussion here today, but I had to share this find:
http://tinyurl.com/dk3kh2
Could not be more appropriate on our family's moving day!
PS Cara--
I almost fell out of my chair when Lance came out of lurking to say congrats on our new home...
--thank you for the well-wishes, Lance!
Went to a a couple of open houses this weekend. One overpriced house in south Arlington where there must have been a 15 degree difference between the main level, and the bedrooms upstairs. A house in Falls Church that needed to be badly updated, but had one of the more interesting lots I'd ever seen.
But the one that made me shake my head was the yellow house in Falls Church 22043 (http://franklymls.com/FX7038359). It has been up for a long time, and we finally broke down and went to see it (plus, it was 87 in our apartment). They call it a "modern open floor plan", but what they did was remove any sort of barrier between the kitchen and family/living room. Which is fine, whatever, but the kicker is that they built out the kitchen "island" to allow for a place to sit, but that covered up the fireplace!! You can see it in the second picture, but it is really striking when you check out the floorplan. You generally want to emphasize the fireplace, right?
"JWild said...
Is 201-1000 loan resets for Alt-A an excessively large number for Arlington or is it something that can be absorbed easily?"
JWild - The problem with the "red hot" view of Alt A in Arlington is that the graphic is based on mortgages per zip code.
The problem with that view is there are simply many many more homes per zip the closer you get to the city. For example,
Loudoun zip 20148 has 1,235 homes
Arlington zip 22204 has 20,119 homes
The better way to look at these is to judge by the number of Alt As by county. This list is over a year old but this is what we know:
Adjustable Alt A loans made (thru Jan 2008)
Arl - 1300 (1.4% of residences)
Alex - 1000 (1.6% of residences)
Ffx - 8100 (2.3% of residences)
Lou - 2200 (3.5% of residences)
PWC - 4,000 (4.1% of residences)
OF these, the option ARMs (with the problematic recast feature were)
Arl - 400 (0.4% of residences)
Alex - 300 (0.5% of residences)
Ffx - 2900 (0.8% or residences)
Lou - 800 (1.3% of residences)
PWC - 1400 (1.4% or residences)
As of Jan 08, about 35-40% of Alt As had already reset/recast. Since then, another 5-10% have done so.
Add in the number that have refinanced, sold, or already gone into foreclosure well before reset/recast, and I dont think you are looking at a big problem, especially in Arlington.
Bigger issues are the ones that Cara raised - job loss and the defaults therefrom. That is by far the bigger threat to Arlington than anything the Alt A loans can do.
On the job loss note, there's a fabulous new graphic in Slate which shows the progress from continual hefty job growth through mid 2008 here, to substantial current job losses:
Slate Interactive Job Map
I guess the owners liked having a warm backside while they ate.
So the kitchen was originally small and walled off in that corner? I have trouble picturing how that fireplace was positioned as part of a room before the renovations.
I suspect you will see continued "cooperation" from banks regarding the Alt As and Option Arms. The reality is that either directly or indirectly, the banks will suffer greatly if these resets are done in such a way to significantly increase payments - causing more loan defaults. I suspect they will "cooperate" either out of their own self-interest or due to pressure from the Government or both.
CR: the scarier version of FDIC takeover, when there is no buyer Calculated Risk seems to think that payout transactions are going to be a lot more work and mess for the FDIC than when there's a buyer for the troubled bank's assets... More pain to come in the financial sector?
Jeff,
It must have been, right? But was the window next to the fireplace in the kitchen or not? The fact that we are even wondering this is probably not a good sign for the seller. :)
contrarian,
Sorry, but I think COF is probably in decent shape to survive for a long while. Yes, they focused very heavily on low-credit score consumers pumping out the cards like crazy, but their business model was smarter than most people give them credit for. And with the credit crunch they moved swiftly enough to prevent most of the pain. Their stock price is way down because there's no more expectation of huge growth, and still some pain to come.
I could be wrong, and they could go under. But there are other financials that are higher on my watch list.
While WSJ stress test rumors aren't as dire as contrarion's source, they don't sound great either:
WASHINGTON -- Federal officials are pushing several of the country's largest banks to bolster capital reserves, people familiar with the matter said, as regulators try to repair bank balance sheets and the public image of the U.S. banking sector.
The identities of the banks, among the 19 institutions that were subjected to federal "stress tests," couldn't be learned. Analysts believe they likely include regional banks with large exposures to commercial real estate in the Midwest and Southeast. Three people familiar with the matter said at least three banks are in this position.
...
this implies at least 3 of the 19.
Fed officials met Friday with top management at the country's biggest banks, from Citigroup Inc. in New York to Wells Fargo & Co. in San Francisco, to go over the results.
Fed officials and some of the banks wrapped up in less than 60 minutes; others dragged on for several hours, according to people familiar with the matter. Participants were told to keep mum on what was discussed.
Or some of the banks's exec's are just chattier than others. Take your pick.
Are WSJ's unnamed inside sources more reliable than contrarion's link? Possibly. Is that enough for us to start worrying about it? Perhaps, but the prediction herein is sufficiently vague to make it difficult to decide.
Does anyone have any thoughts/comments on the neighborhood "Covington" located in Fairfax (near the Vienna metro/Pan Am shoping center)??
I'm thinking of purchasing a property in the neighborhood.
Thanks!
-Pacman
Countrywide brand is finally deep-sixed.
I've been a follower of countrywide-foreclosures.blogspot.com for a while. I think this caps it off. His chart indicates that a large number of the on-book REOs at least have been sold off or transferred (possibly to a BofA balance sheet somewhere).
contrarian
On Cap One, I'd suspect most of their folks commute in from Vienna/Reston/Herndon rather than out from inside the beltway. Even a reverse commute on 7/50/123/495 is a pain in the Tyson's area. Also, looking at Glassdoor and looking at who shows up for conferences looking for jobs, I don't think they're on the highe end of the pay scale. From folks I know in this area, I'd say keep your eye on how much contracting Obama pulls back into civil service. That seems to be one of the key sources of high paying jobs in this area.
I don't know about their Richmond offices.
Cara, the Slate chart is cool. Come on Arlington, still a little blue dot now in a sea of red...
Hey Ace,
There are contempory homes in Burke! This one's not the greatest, but it's within spitting distance of our price range 3 years from now...
http://franklymls.com/FX7041310
The bedrooms look tiny, and I'm not sure I'd want a greenhouse room (I'd rather have a screened in porch), and the architecture is mostly just odd rather than charming, but I think it might have potential. And they've done an okay job of the major renovation expenses, i.e. the kitchen and bathrooms. (although I would say some of it is a bit at odds with the style of the home) And if you look at the google bird's eye view it's clear that there are others in this neighborhood. (There are some off Zion road too).
Contemporary SFH, 0.25 acre lot (backs to a main artery but looks forward to a lake). $479k current list price. Maybe there's hope for me yet.
"Tabitha said...
I almost fell out of my chair when Lance came out of lurking to say congrats on our new home..."
A very strange occurrence indeed. Perhaps the reappearance of lance is some bizarre counterindicator. Hmmm...
Hey, Cara, I agree with you about that house in all ways. I know, you want it for the daisy floors (and daisies on the wall of one room)! Hmmm, what you need is a non-updated one so you can put in the right updates, for less $$$!
Cara,
That's a neat neighborhood. My husband and I went through an open house there 4-5 years ago, or so. There were a whole cluster of contemporaries, some overlooking the lake. We liked it. Our big issue was with the open staircases and imagining our kids sliding right through the stair slats! (Of course, I grew up in such a house and managed to survive ;-).
Anyway, I also remember at the time the Post ran an article about that neighborhood, which is referenced on the Lake Braddock association website, but that I can't for the life of me find on the Post! If you're a better searcher than I, perhaps you can find it as it was an interesting article.
Cara, MM (are you still here?), NoVAWatcher and other part-time modern fans,
Waaaah. That groovy house in Bethesda is under contract. Latest asking price was $1250000. It will be interesting to see the final sales price.
http://franklymls.com/MC6861605
About the house Cara pointed out--who tries to sell a house using pix taken on a cell phone?
Here's an option for those of thinking of just buying land...
Farmhouse for saleI say just pick it up with one of those heavy-lifting helicopters and drop it into a slice of land in North Arlington.
Wow!
What amazed me more was this:
"When Loudoun Country Day School moves this summer to a new $32 million, 70-acre campus near Evergreen Mills Road" . . .
Cara: neat place, but the vinyl flooring pattern has it's own special kind of ugly.
Yep, open staircases suck. We have a young one who is too young to be mobile, but we have those staircases in our townhouse and have been wondering how to child-proof them. And to reinforce your nervousness: growing up, our neighbors had staircase like that. We use to squirm between the stairs, crawling from in front of the staircase through to the back. We stopped when we got so big that our heads were getting stuck. Now that I look back at it, I'm surprised we didn't accidently hang ourselves.
There's these things, they're called baby gates...
The open staircases are excellent for cats, and I actually really like the aesthetic.
And the vinyl? You know what the great thing about vinyl floors is right? They're cheap to replace every 10-15 years. I'm guessing this one had a carpet laid over it and was rediscovered by recent owners when they were renovating and they just loved it so didn't change it out.
But seriously, Ace is right, I don't want this house, I want one like it that hasn't been messed with.
(and the lot sucks, it's actually on the corner, which is good because it's not on the Burke Road side, but bad because it's tiny and the house is almost hidden by those trees that are about to fall on it.)
contrarion,
I love that the title the editors put on that article on the real estate section web page is "local housing market improves"
Spin, baby, spin, for the fat lot of good that will do them.
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