2012 Foreclosure Market Outlook for CMA

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RealtyTrac Vice President Daren Blomquist gave this presentation outlining where foreclosures have been over the past five years and where they are headed in the next two years as part of his keynote …

RealtyTrac Vice President Daren Blomquist gave this presentation outlining where foreclosures have been over the past five years and where they are headed in the next two years as part of his keynote speech at the California Mortgage Association Winter Seminar on Feb. 2 in Universal City, Calif.

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  • I’ve talked to many of these media outlets this week, including CNN, ABC, CBS, PBS and Fox News. Many of them were interested in how foreclosures might impact the Florida primary. Yesterday I talked to CNN radio about the president’s expanded refinancing program for underwater homeowners. I’d like to do a quick poll of the room and find out how many of you think this program is a good idea. Raise your hands if you do. Now how many think it’s a bad idea, raise your hands. And how many are indifferent, raise your hands.
  • Story about senior economist calling after we issued our third quarter foreclosure data in a rush to get more detailed historical data for a briefing with the president in 15 minutes. I had to tell him we usually charge for that type of data, but in this case my boss OKd giving it away in the interest of national security.
  • OK, for the next 20 minutes we’re going to take a fairly deep dive into some of RealtyTrac’s historical and current foreclosure data. So brace yourself for a lot of charts and graphs and numbers and percentages. And don’t worry about trying to memorize all these stats. We’ll make this slide deck available to all attendees. I’ll also try to keep this a bit interactive so your eyes don’t glaze over completely as we go through this. First thing I’d like to ask is by show of hands, how many of you think we’re past the worst of the foreclosure problem in California?
  • OK, let’s pause for a second and do another poll. Again, by show of hands how many of you find financing for a foreclosure property purchase is more difficult than a standard purchase? How many find it about the same as a standard purchase?
  • Lenders are more seriously considering pre-foreclosure sales, which would include short sales and sales on the courthouse steps. Take this request we received last week from a lender, who shall remain unnamed: “ I am looking for data to help evaluate whether it would pay for LENDER X to lower its minimum foreclosure auction bids. For that purpose I am looking for foreclosure auction data with the following characteristics: Winning auction bid, debt on the property foreclosed, some independent estimate of property value (distressed AVM, average value of properties with similar characteristics, etc.), and whether the lending institution won the bid. About half of our foreclosures are in California, Florida, Arizona, and Nevada, but we also have significant losses in Maryland, Louisiana, Texas, Virginia, and a scattering of other states. Would your company have any data like that for sale? Also I am looking for data on the average discounts on REO properties by zip code compared to non-REO properties by property type. Would your company have any data like that for sale? What would it cost?
  • It’s getting tougher for lenders to sell REOs because of title issues. In Arkansas, many title companies are refusing to issue title insurance on REOs because of a court ruling there that found a major lender was in violation of the state’s foreclosure statute. That may push more lenders to foreclose judicially there, whereas in the past the majority of foreclosures have been non-judicial.
  • Pre-foreclosure sales are outnumbering REO sales in many of the coastal California counties, while REO sales tend to outnumber pre-foreclosure sales in the inland areas. It could be that stronger demand in the coastal areas is giving the lenders the extra margin they need to justify a short sale.
  • OK, before I move on, here’s a quick pop quiz. Shout out what you think is the city in California with the highest foreclosure rate in 2011. First one with the correct answer gets a free 30-day trial subscription to RealtyTrac.
  • So we got through where we’ve been. Now let’s look at where we’re going. Before we dive in, I’ve got another quick poll: raise your hand if you’ve heard of the shadow inventory. Now raise your hand if you know what that shadow inventory is. The following six slides show our view of shadow inventory. And if you’ve been hoping to see some pie charts in this presentation, you’re in luck. OK, here we go.
  • Note the two big backlogs we have are foreclosed properties (REO) and seriously delinquent properties. REOs are being held off the market for various reasons, in part because lenders are concerned they can’t sell them with clear title. And seriously delinquent loans are being held back from entering the foreclosure process for various reasons, in part because lenders are concerned they don’t have the proper documentation to foreclose.
  • Quick quiz question before I move to the next slide: Shout out how long you think it takes to foreclose on a property in California. Closest answer gets a free 30-day trial subscription to RealtyTrac.
  • Lenders are getting pressure from Fannie and Freddie to not allow the foreclosure timelines to extend too far. But politically they are feeling pressure to make sure they don’t foreclose improperly on homeowners.
  • I talked to an investor in Orange county last week who owns about 25 investment properties, mostly buy and hold. He told me he was having trouble getting contractors to complete jobs because workers knew they didn’t need money for mortgage payments. So they would just not show up to work because they knew they could keep living in their homes without paying the mortgage. In his Orange County market, he said he sees a lot of hidden distress in the form of homeowners not making their mortgage payments but not yet in foreclosure.

Transcript

  • 1. FORECLOSURE MARKET OUTLOOK And a Path Forward for Mortgage Professionals
  • 2. What we’ll cover today
    • A brief introduction to RealtyTrac
    • Where we’ve been in the past five years
      • Foreclosure activity
      • Foreclosure sales
    • Where we are going in the next two years
      • Scope of the shadow inventory
      • 2012 foreclosure market outlook
    • A path forward for mortgage professionals
  • 3. A BRIEF INTRODUCTION TO REALTYTRAC
  • 4.
    • RealtyTrac publishes the country’s largest database of foreclosure and bank-owned properties
      • Data from over 2,200 counties, covering over 92% of U.S. housing units
    • #1 Foreclosure site – 1.5 million foreclosure and bank-owned properties nationwide
      • More coverage, more detailed information than any other national provider
    • Unmatched property evaluation and transactional tools
      • HomeScore, Equity & Loan Info, Property Analyzer, Online Offers, Foreclosure-MLS Match, and much more
    WHAT REALTYTRAC IS
  • 5.
    • The RealtyTrac foreclosure database is NOT an “MLS for foreclosure records”
    • Most of the properties in the RealtyTrac database are NOT on the MLS anywhere
      • Less than 20% of the homes in foreclosure are listed
      • Less than 30% of REOs are listed
      • Many MLS organizations prohibit including any REO or foreclosure information in the property listings
    • What does this mean for subscribers?
      • Competitive advantage
      • No free lunch
    WHAT REALTYTRAC IS NOT
  • 6. WHO RELIES ON REALTYTRAC DATA
  • 7. WHO RELIES ON REALTYTRAC DATA
  • 8. WHERE WE’VE BEEN IN THE PAST FIVE YEARS
  • 9. PAST THE PEAK NATIONWIDE March 2010 was absolute peak with rolling average of 336,909 total foreclosure filings
  • 10. 5 YEARS OF ELEVATED FORECLOSURES
    • From January 2007 to December 2011 nationwide
    • More than 8.2 million foreclosure starts
      • These can be NODs, foreclosure lawsuits or scheduled foreclosure auctions, depending on the state
    • More than 4 million completed foreclosures
      • These are REOs, or properties repossessed by the lender through foreclosure
  • 11. PAST THE PEAK IN CALIFORNIA November 2009 was absolute peak with rolling average of 90,900 total foreclosure filings
  • 12. 5 YEARS OF ELEVATED FORECLOSURES
    • From January 2007 to December 2011 in California
    • Nearly 1.9 million foreclosure starts
      • These are Notices of Default (NOD) in California
      • Represents 23 percent of national total
    • More than 800,000 completed foreclosures
      • These are REOs, or properties repossessed by the lender through foreclosure
      • Represents 20 percent of national total
  • 13. DISPOSING OF DISTRESS: SHORT SALES Trending higher after homebuyer tax credit hangover
  • 14. CALIFORNIA SHORT SALES More than 20 percent of all sales in CA compared to less than 10 percent of all sales nationwide
  • 15. SHORT SALE ACTIVITY SUMMARY
    • From Q1 2007 to Q3 2011
    • Nearly 1.7 million pre-foreclosure sales nationwide
    • Average pre-foreclosure sales price nationwide down 26 percent over that time period ($191,119)
    • Nearly 500,000 pre-foreclosure sales in California
    • Average pre-foreclosure sales price in California down 43 percent over that time period ($268,321)
  • 16. DISPOSING OF DISTRESS: REO SALES REO sales hit lowest level since Q2 2008 in Q3 2011
  • 17. CALIFORNIA REO SALES 22 percent of all sales in CA compared to 12 percent of all sales nationwide
  • 18. REO SALE ACTIVITY SUMMARY
    • From Q1 2007 to Q3 2011
    • Nearly 2.5 million REO sales nationwide
    • Average REO sales price nationwide up 7 percent over that time period, but down 26 percent from peak ($146,437)
    • Nearly 650,000 REO sales in California
    • Average REO sales price in California down 53 percent over that time period ($208,039)
  • 19. HARDEST HIT MARKETS
    • 10 out of 2011 top 20 metro foreclosure rates in California
    • But all 10 saw decreasing foreclosure activity from 2010
  • 20. HARDEST HIT MARKETS
    • 16 of top 20 metro areas for percent of foreclosure sales in CA
  • 21. WHERE WE’RE GOING IN NEXT TWO YEARS
  • 22. CHASING THE SHADOW INVENTORY 1.4 million U.S. properties in some stage of foreclosure
  • 23. CHASING THE SHADOW INVENTORY 3.6 million U.S. delinquent mortgages SOURCE: Mortgage Bankers Association Q3 2011 National Delinquency Survey
  • 24. CHASING THE SHADOW INVENTORY 12.5 million U.S. underwater mortgages
  • 25. CHASING THE SHADOW INVENTORY 281,000 California properties in some stage of foreclosure
  • 26. CHASING THE SHADOW INVENTORY 443,000 California delinquent mortgages SOURCE: Mortgage Bankers Association Q3 2011 National Delinquency Survey
  • 27. CHASING THE SHADOW INVENTORY 2.1 million California underwater mortgages
  • 28. CHASING THE SHADOW INVENTORY
    • Nationwide shadow distressed inventory of 5 million
      • Plus 12.5 million underwater loans at risk
      • 16-month supply of REOs (43K monthly REO sales)
    • California shadow distressed inventory of 724,000
      • Plus 2.1 million underwater loans at risk
      • 11-month supply of REOs (10,500 monthly REO sales)
  • 29. DELAYED FORECLOSURES COMING 24 Percent Jump in August
  • 30. DELAYED FORECLOSURES COMING NODs hit 15-month high in October
  • 31. TIMELINES START TO TURN A CORNER Average time to foreclose decreased in California in fourth quarter after 12 straight quarters where it increased
  • 32. DELAYED DELINQUENCIES FORECLOSED
  • 33. 2012 FORECLOSURE OUTLOOK
    • Foreclosure activity in 2012 will increase from artificially low 2011 levels caused by foreclosure processing delays.
    • Foreclosure activity in 2012 will not return to the peak of 2009 (depending on market), and foreclosure activity will resume its downward trend in 2013.
    • California is leading this trend among the states, so we expect to see the increase in available foreclosures here first. And also the return to the downward trend first.
  • 34. THANK YOU!