Real Homes of Genius: A Foreclosure Process Lasting over Two Years in Pasadena. What is the Estimated Value of Shadow Inventory in Pasadena?
The deterioration of the housing market in California is stunning. If we look at the amount of distress in the state it would be hard to believe that the market is doing well yet some think the next boom is just around the next subdivided lot. Loans that were made at the peak of the bubble are now coming back to haunt the state in 2010. People forget that the bulk of the option ARM loans were made from 2004 to 2007. The problem goes beyond option ARMs, Alt-A, and even subprime loans. Many prime loans are now defaulting because homeowners are dealing with a weak economy. Today we are going to look at a vintage WaMu loan that is now finally heading back to the bank after two years of distress in Pasadena.
Before we examine today’s Real Home of Genius, let us take the market pulse of Pasadena California:
Every zip code in Pasadena has a significant amount of shadow inventory. For example, a zip code like 91103 supposedly only has 2.2 months of inventory if we only look at the MLS but add in the shadow data and that number balloons to over 19 months. That is the difference between a hot market and a market in major distress. Today’s home is in the 91103 zip code.
Today we salute you Pasadena with our Real Home of Genius Award.
This above home is one example of thousands of why the housing down turn will be prolonged. The above home has an interesting history to it. This home is a 4 bedrooms and 2 baths home listed at over 1,500 square feet. The first sign of distress occurred back in March of 2008 when the notice of default was first filed. So what this means, is the first missed payment must have occurred sometime in December of 2007 or January of 2008. In other words, this home has been struggling for 24 to 25 months and who really knows how many payments were coming in (this home has essentially tracked the recession). The mortgage note history shows us a disturbing trend:
Washington Mutual in their wonderful pricing model, decided to jump into this home back in 2005 to the tune of $325,000. All was well until that notice of default was filed. It is interesting because this note is part of the WaMu Mortgage Series 2005-PR4 mortgage pass-through certificate. These were those toxic mortgage backed security pools Wall Street couldn’t get enough of. Query this pool in Google and watch the lawsuits pop up all over the country. So while Wall Street is paid out in full, here is this home now owned by the bank. Yet where is it listed? Surely after two years of distress it can be put on the MLS. It is nowhere to be found. And this was taken back on December 21 so that should be plenty of time to list it. Welcome to the shadow inventory world.
Now some people think that just because you don’t see the problem, then they don’t exist. They tend to believe in the windless theory of mortgage distress. They can’t see the wind but feel it and still refuse to acknowledge the problem or theorize the problem away as if the government can enforce higher home prices. They cannot. Now that FHA insured loans back 4 out of 10 loans in California you actually have to back up your purchase with actual income.   If you look at the above chart, the million dollar zip code in Pasadena sold 6 homes in the latest data but has over 27 months worth of total inventory. And who really knows how many homes are 90+ days late that aren’t even showing up in any data sets.
What people think is that somehow, once these homes hit the market that banks will recoup their losses. Let us look at a foreclosure that is viewable by the public in the same zip code:
The above home is a 2 bedrooms and 1 bath home. It is listed at 1,104 square feet and was originally built in 1903. Let us look at some sales history:
11/26/2003:Â Â Â Â Â Â Â $322,500
4/14/2006:Â Â Â Â Â Â Â Â Â $590,000
And what is the current list price? $406,500 or a drop of 31 percent. This home has been listed for 139 days and counting and interest is very low. So if waiting to list this home was a bank strategy it has not worked. The amount of inventory is large and the value is high now that we are seeing banks dealing with more commercial real estate defaults as well on failed condo projects or mulit-unit complexes.
Today I’ll run a new feature and show the “estimated†value for shadow inventory for Pasadena:
Notice of defaults:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $134,452,727
Properties scheduled for auction:Â Â Â Â Â Â Â Â Â Â Â $181,642,615
Bank owned:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $41,618,834
In total Pasadena has over $356 million in distress inventory. Keep in mind this estimated value is at the very high end so we are looking at 30, 40, or even 50 percent price cuts. In other words, hundreds of millions of dollars of losses for this city are just waiting to happen. Yet some believe this is the fuel that will ignite prices higher.
And let us go back to that foreclosure selling for $406,500. You know why it sitting without any interest?
The above is why. Incomes cannot support current prices even after collapsing from their peak:
Ultimately prices in many areas in California are still in bubbles. Some would like to believe that with hocus pocus and holding properties off the market that somehow some housing wizard is going to come by and suddenly turn toxic mortgages into wonderfully current notes. It is not happening and won’t happen. Over the last month I have seen numerous articles even in the mainstream media encouraging people to walk away from their mortgage. I see this happening for California and in many cases is the wise thing to do. For people in option ARMs here in the state, the choice is rather simple. Banks don’t want to admit this but from what I am seeing, you can virtually live payment free anywhere from 1 to 2 years.
Clearly delaying tactics are not helping the housing market. Today we salute you Pasadena with our Real Homes of Genius Award.
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23 Responses to “Real Homes of Genius: A Foreclosure Process Lasting over Two Years in Pasadena. What is the Estimated Value of Shadow Inventory in Pasadena?”
Foreclosureradar.com just released their December California Foreclosure Report yesterday and their “foreclosure geek, Sean” stated that he does not see a wave or shadow inventory. Is he blind? Why can’t they see the facts right in front of their face. Keep telling the truth and I will continue to spread your message….CJ
“Some would like to believe that with hocus pocus and holding properties off the market that somehow some housing wizard is going to come by and suddenly turn toxic mortgages into wonderfully current notes.”
Perhaps the housing wizard is related to the tooth fairy?
Thanks for reminding people that it does take income to make a loan payment Doc. And you are right – the real estate market is so huge that the government can not possibly stop the “reversion to mean” that is occurring.
When was the last time a govt run market did well? RE is now so heavily influenced by govt intervention that the best it can do is hold prices. But unemployment should be the fly in the ointment to their ambitions. They think that just because they can hold inventory at low levels, they can control the prices. But demand could shrink too.
they can hold houses off of the market all they want, but in the end, this will only make the crash that much worse. i don’t know why the banks can’t see this. In these upcoming years, the amount of inventory and forclosures will continue to surge. If they would put this shadow inventory on the market now, prices would drop, but they would also be selling houses at discounted prices. If they keep trying to play this game, one day they will be forced to put everything on the market and that could result in 3 times the current shadow inventory hitting the market all at once.
Dr. Bubble, could you please do a shadow inventory story on Laguna Niguel? Thanks
I understand the rationale behind walking away from an upside-down mortgage situation. The obvious and immediate benefit is living up to two years in a house without payments, as you state in the end of the article. But what about property taxes? How does that figure in? Maybe it’s not worth the banks’ time and expense to collect back payments, but won’t the IRS come looking for you if you owe two years of taxes?
And guess who will get the bill for all these loses? Yep, Joe Taxpayer. As the financial wizzards who created the bubble and huge profits originally, they will come back and buy it back for a song…with our mney as colateral. They’re busy now dividing up their bonuses that we gave them. Then they will harvest us again.
As I’ve stated previously you don’t even have to use any delay tactics as a homeowner and you will get at least 1 full year rent free. People who try to game it can go 2 years in many cases. I woudn’t surprised to hear of people living 3-4 years rent free by the time this thing is over.
Probably two years ago, when this housing mess was just starting to be recognized, I remember somone posting a subject, (it might have been you doc) talking about the “social stigma” of having your home foreclosed. Meaning that if you were at a party, you would not, under any circumstances, talk about it, for fear of being felt sorry for, ridiculed or even ostracized.
At that point, people were still not admitting it, but then there came a time, maybe a year of so ago, when it became socially acceptable to default on your loan and go into foreclosure. It was okay to talk about it at parties. Ha.
The arc of this housing bubble has been interesting to watch. And watching it from this blog has been extremely helpful and insightful.
“That so many are currently opting for ARMs reflects a level of real estate speculation unparalleled in American history. Homebuyers have been lured into this foolish choice by… a Fed chairman desperate to keep the real estate bubble inflating. Unfortunately, the longer the Fed remains “patient” with regard to raising short-term interest rates to appropriate levels, the more homeowners that will be lured into the ARM time bomb.
The real losers in this whole fiasco are likely to be those who did not even participate in the mania. As over-leveraged borrowers walk away from properties in which they have no equity, the Fed will most likely attempt to bail out both debtors and bank depositors (and the government sponsored enterprises that insured the loans) with the most inflationary monetary policy ever undertaken in the history of central banking. The savings of an entire generation will be wiped out, as it will have been squandered to perpetuate the biggest real estate and consumer debt bubbles of all time.”
– Peter Schiff, May 2004, Orange County Register
Truer words were never spoken. I can’t believe this was nearly 6 years ago! We are now living the nightmare. Be brave Comrades!
Once the house reverts to the bank the new owner (the bank) becomes responsible for the taxes.
I had a close friend who decided to buy a home in Pasadena, CA in 2008 because “prices were cheap” (the home was 30% lower from the peak price), “interest rates were low” and of course “now is the best time to buy a home”.
I gave all the reasons to not buy a home. His reply was “boy you make a lot of sense” but told me “even though you are right, I will buy a house anyways because I need to own something. I am a 41 year old lose if I rent. I would rather own”.
Now it’s the same with my nephew. He wants to buy a house in 2010 despite all of the facts presented to him.
A lot of people don’t care about money because if the bet turns against them, they will walk away. If they are right, they will keep all of the money.
There’s a big difference between walking away and just stopping payments. Walking away is responsible and admirable. Free rent for 2 years is abusing the system. Once everyone who is upside down stops paying and getting free rent we will have another catastrophe or another bailout. When is someone in the MSM going to do a story on this?
Comment by Greg
January 13th, 2010 at 12:21 pm
I understand the rationale behind walking away from an upside-down mortgage situation. The obvious and immediate benefit is living up to two years in a house without payments, as you state in the end of the article. But what about property taxes? How does that figure in? Maybe it’s not worth the banks’ time and expense to collect back payments, but won’t the IRS come looking for you if you owe two years of taxes?
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(1) The IRS does NOT have anything to do with property taxes. Doesn’t impose them. Doesn’t collect them.
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Property taxes are solely a matter for the state law and the county that sends the bill, collects the taxes and forecloses for non-payment of taxes.
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(2) Unpaid property taxes are a lien that runs with the land. If the bank forecloses on the mortgage, the taxes are still there and never go away (unless paid or the property sold at auction for delinquent taxes,)
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That means it is debt specific to the land and not to any person in particular – not like note promising to back back money used to buy anything from a house to a car to unspecified things (like an unsecured loan or a HELOC.) Lender has no claim against the borrower for the unpaid taxes after the lender has foreclosed. If, before forclosure, the lender pays the taxes to keep the property out of a tax sale, then the amount gets added to the loan balance – and is about as collectible as the amount of the mortgage in excess of the value of the property (and that generally means ‘not collectible” for all kinds of reasons under some state laws and often because the borrower is broke.)
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(3) If the property taxes are unpaid when the bank forecloses on the mortgage and gets the house back, the property taxes which are owed are the banks problem. And unpaid property taxes happens a lot these days since mortgage lenders stopped requring tax escrows. The lender can always pay the property taxes to keep the property from being sold for taxes but they have to know about it – and notice is published in the paper and not mailed to everybody who has a lien (mortgage, mechanics, judgement) agaainst the property.
Wow, Blutown, great quote. Go to YouTube and you can find him practically being insulted when he was the lone doomsayer on outlets like CNBC. He makes Ben Stein look like the comedian he is in one segment.
I googled his name, just to see what he was up to, and, lo and behold, he’s running for the senate just a few miles from me! (I’m in upper Westchester) http://schiffforsenate.com/ I don’t know if that’s good or bad. Maybe his talents will be wasted in that den of well dressed snakes with perfect haircuts.
Speaking of which, how does one know how many option arms are out there in your local area? I live in a VERY expensive housing market, and the fault lines just haven’t started to crack much, it seems. Still, I can’t believe that everyone who lives here makes as much money that is necessary to support this ridiculous market. I know the bankers and hedge fund guys won, and Greenwich is a short drive in the Porsche, but still……
Rock on Doctor. Speak the truth.
The latest data indicates that home ownership is decreasing as is rental occupancy. Could it be that main street is not recovering? People are now sharing housing much more than in the past, as well as not paying mortgages and not leaving the house they’re in . It’s a strange thing to see. Housing down and rentals down. Not a good sign.
I think strategically defaulting with no ramifications needs to be rectified. It is an unethical act. First, the moron gets into a loan he/she should have never been in which is half the bank’s fault and half their fault. Then when he/she can’t pay, they just sit in the property rent free for 1-2 years! Incredible. There is no shortage of the unethical behavior that started this mess and to which continues to run rapid today.
These Mofos get to save money for the next 1-2 years while the prudent responsible sideliners pay rent and increased taxes for Mofos mistake. I would hope that these people would not be allowed to buy a home for 10-15 years and have their credit severely ruined for the same time period.
Aha! The IRS was a lazy slip – if I’d have thought about it I would have used different wording, but thanks for clearing everything else up.
If the owner walks, the bank is on the hook for upkeep, securing the property from vandals, etc. Here in UT where it freezes, that means keeping vacant homes heated (at least enough to prevent pipes form bursting). Presumably, a non-paying former owner is keeping the home in a livable state. Much better than, say, squatters burning trash in a garbage can in the living room.
If the bank isn’t going to get paid, they are still better off with the defaulting residents in the home than having it vacated. (The neighborhood is better off too). As much as some people might be peeved by these “freeloaders”, would you rather have an abandoned house or a building infiltrated by vermin or squatters for a neighbor.
If they don’t have the money, they don’t have the money. If the bank hasn’t re-sold the house its because nobody else has the money, either. So what are you going to do? Maybe focus on the real problem (unemployment, inept government)?
Doc. Can you do a story for Orange County?
Doc. Can you do a story on Orange County? Perhaps Irvine?
You know, as a resident of the Atlanta area, you almost have to look at the picture twice and three times, as well as read those words several times to try to wrap your mind around it:
2 bedrooms and 1 bath home. 2, yes 2. 1 bath.
It is listed at 1,104 square feet Laughing too hard at 1100 square feet with 2 bedrooms. Reminds me of my college days.
Originally built in 1903. 1903! Yes, it says 1903! It is over 100 years old! OMG
4/14/2006: $590,000 Sucker!
And what is the current list price? $406,500 Ha-ha, very funny.
Tell me another joke, that last one was a knee slapper!
Median income = $43,743. Surely it must be only the retirees in this zip code and their social security income that reflects this absymal number.
$43,743 is a 1990 wage level. And in “low cost” California no less?
After – taxes, car, gasoline, insurance, groceries, and basic utilities, there is no way one could buy any home on that income – let alone the one pictured.
You could barely buy the essentials and pay the property taxes – forget any mortgage payment.
Perhaps a 2 income couple, a big perhaps.
Not only have the prices diconnected from incomes, they still are disconnected from reality.
$500/sq foot? For a 100 year old house with 2 bedrooms.
Think about that for one second. You have got to be kidding.
It would have to have have an address like 1400 Pennsylvania Ave for that to fly.
And in a high cost of living, bankrupt state with an economy alomst entirely dependant on real estate or consumption, unemployment pushing 20%, and overrun with millions of illegal aliens.
What can possibly justify this nonsense?
I know, there is an ocean and some mountains.
And it’s warm alot of days.
Dr. HB,
My husband and I are thinking about retiring in Prescott, Arizona. Is Arizona still in a bubble? Is there a large shadow inventory there as well?
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