Prices continued to drop in CA this year – with about an average 1-% year-to-year decline. More in some regions, it’s even worse.

Will ‘it’ ever end? Best to stop thinking that way. “It” is the new normal. Let’s all get used to it.

68,239 Notices of Default (NODs) were recorded in California in the first quarter of 2011, down from 81,054 in the first quarter of 2010. By percentage, the most notable drops in NODs took place in Imperial (-41%), Merced (-28%), San Benito (-28%), and Monterey (-27%) counties.

This is the lowest number of NODs issued in any quarter since the second quarter of 2007. NOD volume peaked in the first quarter of 2009 with 135,431 NODs recorded. 2010’s peak was the third quarter, with 83,261 NODs recorded.

Also in the first quarter of 2011, a total of 43,052 homes were foreclosed upon. This is up from the recent low of 35,431 in the fourth quarter of 2010, and slightly higher than the 42,857 homes forclosed on one year earlier.

Statewide, high-tier regions (zip codes with median home prices higher than $800,000) saw an 8% increase in foreclosures from the fourth quarter of 2010, and a 2% drop over the preceding year. Foreclosures in low-tier areas (zip codes with prices lower than $200,000) rose 23% from the fourth quarter of 2010, dropping 2% from one year earlier. Low-tier neighborhoods continue to see the highest concentration of both NODs and foreclosures.

The most recent data indicates that it takes an average of nine months to complete a trustee’s sale following the recording of the NOD. One year earlier, foreclosure proceedings generally elapsed over an average period of seven and a half months. MDA Dataquick, a real estate information service, sees the extended processing time as a product of legal complications and lender backlogs combined with the pursuit of loan modifications and short sales to circumvent foreclosure.

It is estimated that 24% of homes sold at trustee’s sales were bought by individuals other than the lender or government groups — almost unchanged from 25% last year, indicating that speculators are not yet gone from the real estate market.”

I’d bet that the drop in the overall number of foreclosures is becasuse the “sub-prime” folks are already far into the foreclosure system – thus new” foreclosures aren’t impacted by them. So where are the numbers coming from? STRATEGIC defaulters. That’s my bet. It’s the folks that have homes so far underwater that it makes no sense to continue to pay the mortgages – even if they can afford to do so. And many can. Many could have – but used up all their savings doing so. If only they had let it go to default sooner?

The mess continues.

Much of this article is reprinted from the first tuesday Journal Online — firsttuesdayjournal.com P.O. Box 20069, Riverside, CA 92516

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.

The current administration proposes that Fannie Mae and Freddie Mac be gradually dissolved within ten years by one of three methods:

1.Government-guaranteed mortgages will be available only to finance home purchases by low- and moderate-income families, a task to remain the duty of a much-downsized Federal Housing Administration (FHA). This method will reduce the percentage of mortgages guaranteed by Fannie, Freddie and the FHA — currently around 90% of all mortgages.

2.Mortgage default insurance premiums (MIPs) for government-guaranteed mortgages will be set at a high enough level so private mortgage insurers (PMIs) will be able to compete, thus eliminating the need for a government guarantee.

3.The government will act as a reinsurer of PMIs in case of their failure, for which the government will receive a premium paid by the PMIs.

It is now up to Congress to decide which of the three methods, or which combination of the three, will be implemented. On the mortgage guarantee issue, the “no on everything” contingent now seems to agree that change is needed.

first tuesday take: The administration properly presumes the private sector will step up and fill the void created in the government’s absence. In the past 30 years, Wall Street has shown time and again it can put mortgages on the street at any size and in any volume we need. The private mortgage market was responsible for producing the majority of bad loans during the housing bubble, which is proof they can find plenty of money without the help of Fannie and Freddie.

Hanson’s take: We all saw how well the Wall Street types handled the volume of real estate mortgages. On can only wonder what will happen if they are allowed to take over the entire “secondary market.” Will they become “too big to fail” – again?

More important to the discussion of replacing Fannie and Freddie, the PMI industry is fully capable of guaranteeing mortgage performance on a level equal to that of the government guarantee. PMIs understand the reserves that must be set up as they have done so before (unlike Fannie and Freddie), and they will certainly step up to the plate if they have the chance to make more money.

Hanson’s take: Hmmm. PMI, kinda like AIG?

In order to facilitate a smooth transition, however, the housing market must first recover some normalcy before implementation of the changes to phase-out the government guarantee. Fannie and Freddie’s participation will inevitably dissolve as PMIs take over the mortgage market, but now is just not the time to put that process into practice. We must first clean out the bad, nonperforming mortgages through foreclosure.

Hanson’s take: Foreclosure is the neutron bomb of real estate. The people are gone, but the buildings remain. Short Sales are (in my opinion) a joke. But nobody’s laughing anymore.

In the interim, the federal government is fulfilling its purpose during a financial crisis by providing credit to the mortgage-backed bond (MBB) market by guaranteeing, thus reducing the interest rate on mortgages that would otherwise be charged without the guarantee — whether government or private. The private market cannot stay afloat on its own until home sales volume and prices stabilize for at least two years and private MBB investors regain their confidence and recapitalize, probably by 2014.

“All the news you have heard this last month does not bode well for those trying to foreclose on poor home owners. Foreclosure levels have dropped tremendously. And the housing market reacts.

“Seller listed home as a short sale for 240k  and buyer offered 240k cash second lien of 30k was in agreement of short sale, first lien holder was not.   Home was foreclosed.   Listed for 240k sold for 232k. seller is now in collection from 2^nd lien.   Shouldn’t the foreclosure wipe out 2^nd lien?”

Sound familiar?  It should.  At least, it sounds familiar to us.

The banking industry is still in complete disaray.  One hand often doesn’t know what the opther is doing.  We’ve seen Banks foreclose on themselves – or on an REO buyer of a 2nd DT, when the Bank foreclosed on an undisclosed 1st DT.  It truly is the Wild Wild West out there.

What do you think?

The highest point ever recorded by the company was just two months ago, in May, when there were 93,777 properties that went back to banks as REO. In July, that number was only one percent less, at 92,858.

However, RealtyTrac said that foreclosure filings categorized as a notice of default through REO dropped almost 10 percent in July from the same month one year ago. It also dropped in June, making July the second consecutive month for yearly declines.

In July, Nevada continued to hold the #1 position as the state with the highest foreclosure rate at one in every 82 houses. Arizona was second, with one in every 167 houses and California was fourth, where one in every 200 houses received a foreclosure filing in July.

For prime lenders, the winner is GMAC, with an average transaction time of six months. CitiMortgage was in second place at 7.5 months.

Countrywide, now owned by BofA, sucks wind in the prime category, coming in last with an average transaction time of 13 months.

The report ranked mortgage servicers in four categories: Prime, Subprime, Option-ARM and Alt-A. Of all the servicers in every category, Equicredit had the lowest possible score, taking an average of 29 months to complete a short sale.

Read the article at REOInsider.

The National Auctioneers Association notes that real estate auctions have increased by 14 percent in the first three months of 2010. One of the biggest attractions for sellers is speed: the entire process can take less than 10 weeks.

From the CNNMoney.com report:

There is such a huge volume of REOs on the market — 92,000 homes were seized in April alone — that banks are anxious to turn the properties over quickly. Rather than waiting for the local housing market, they turn to auctioneers.

Another boost to the auction market has come from new developments gone bust. Big tracts of single-family homes and, especially, condominium projects planned during the boom didn’t get finished until after markets nose-dived. That left developers with huge loans on properties they could no longer move.

Price declines have added urgency for ordinary people, too. Today, sellers are resorting to auctions after watching their homes languish on the market for months.

Often, they’re disillusioned by brokers who have been over enthusiastic about the prices their homes can fetch. When markets were bubbling, even badly overpriced homes were selling, and buyers were rescued by soaring market values. It’s a different story in the downturn. As overpriced homes languish on the market, the gap between asking prices and market values only balloons.

Plus, sellers have little leverage these days. Buyers are filling contracts with contingencies that enable them to seize on any shortcoming to renegotiate, or back out of, deals.

Selling through an auction avoids that. Sales are quick and clean. “People appreciate the purity,” said one auctioneer.