Foreclosures Increase, Defaults Down
Friday, April 23, 2010
It's hard to understand what's happening in the local housing market. Bank of America reported a surge in local foreclosures last month. While a different report released this week, said default notices in the first quarter were down 40 percent from one year ago.
GLORIA PENNER (Host): I’m Gloria Penner. I’m joined by the editors at the roundtable These Days in San Diego. Today we analyze the numbers that are framing the current local housing market from home prices to defaults to inventory and foreclosures. We’ll also interpret the unemployment and job situation here, and figure out whether San Diego is really emerging from the great recession or preparing to hit bottom. And we’ll look into why the City of San Diego is not yet ready to commit to a downtown homeless center. The editors with me today are Scott Lewis, CEO of voiceofsandiego.org. Scott, it’s a pleasure to have you in the studio.
SCOTT LEWIS (CEO, voiceofsandiego.org): Always a pleasure to be here. Thank you.
PENNER: Thank you. Barbara Bry, co-publisher and Opinion editor for SDNN.com. Barbara, it’s good to see you again, too.
BARBARA BRY (Co-Publisher/Opinion Editor, SDNN.com): Thank you, Gloria.
PENNER: And JW August, managing editor for 10News. JW, welcome back to KPBS.
JW AUGUST (Managing Editor, KGTV 10News): Top o’ the morning to you, Gloria.
PENNER: And our call-in number is 1-888-895-5727, that’s 895-KPBS. The fluctuations in San Diego’s housing market are frequently used as a barometer for San Diego’s economic health, and during the last two years there have been increasing defaults and foreclosures, dropping home prices, a glut of houses on the market, and static construction activity as the economy slumped. And now the March numbers are in, and is that barometer signaling stormy skies or sunny weather? So, Scott, let’s start with defaults. I’ve seen some disparate numbers. MDA DataQuick says default notices were down 39% in the county from a year ago but the North County Times reports hundreds of letters from Bank of America to local delinquent borrowers warning of auctioning their homes. It’s up almost 70% in north county alone. So what does all this mean?
LEWIS: Well, nobody knows. I think that’s what so interesting about it. We’re all wondering if this so-called shadow inventory is somehow going to come out. What’s the shadow inventory? This is the worry that there’s a whole bunch of homes out there where people have either stopped making their payments or have made it clear that they won’t make their payments or have otherwise started the foreclosure process but haven’t actually formally been given foreclosure notices or gone through the actual steps that that process entails. And so there’s a worry that all of those homes then will somehow come flooding onto the market and that’s part of why that North County Times article was sort of breathless is because it was the worry that this is perhaps the signal that that has finally happened, that all of these homes are sitting there that are now going to come onto the market and they’re going to be lower priced and they’re going to drive down and tamper this rally that has been going on in the market. And so the question is, is it real? Now we found a guy the other day or heard about a guy the other day who hadn’t been making payments on his home since December of 2008 and here’s a situation where if he hadn’t been making payments but yet they hadn’t gone through the process to foreclose so how many people like that actually exist? I would ask your callers, do they know somebody or are they in that situation where they haven’t been paying but yet that foreclosure process hasn’t begun.
PENNER: Did you hear that? Scott Lewis just posed a question for our callers. Usually, I do that. Scott, that’s a…
PENNER: That’s a wonderful question. I like that. Do you know of somebody who has not been making payments on their house and they’re just sitting there and waiting and nothing has happened and they’re still in the house? Our number is 1-888-895-5727, 895-KPBS. But, Barbara, I understand that some borrowers were trying for modifications of their mortgages to a lower weight – rate under a federal program and that some of the banks were trying to help them come in with lower monthly payments. How successful is that program and maybe that’s why they haven’t been making payments, waiting for the lower rate.
BRY: Well, apparently, Gloria, that program has not been successful both because apparently many borrowers couldn’t even – couldn’t afford even lower monthly payments or the value of the home didn’t warrant it. But I think it’s important to step back and look at the timeline and what happens when you stop making your mortgage payments. And Scott noted that someone who’d stopped making their payments, you know, in December, 2008, was still in their house. So first, you know, what happens is you fall behind in your payments and then the lender doesn’t necessarily react right away. You know, they can wait six months, a year, before even sending you a notice of default. They could be trying to work it out with you, you could be making phone calls, talking to people. So then they send you what’s called a notice of default. Then there still may be time to try and negotiate things, and then they send you what’s called the notice of auction, and that’s what the recent North County Times story is about. And then they have to put a notice in the newspaper and allow at least three weeks before your home can finally be auctioned off. So a lot of these people who’ve been in trouble apparently, you know, now their homes are finally going to get auctioned off and so there are going to be more homes on the market. In addition, since it looks like, you know, the inventories are at, you know, very low levels compared with what they’ve been in good economic times, there could be other people on the sidelines who’ve been making their mortgage payments whose homes may be worth, you know, more than the value of the mortgage but who’ve just been waiting to try to sell their home until market conditions look better.
PENNER: All right, well, let’s – before we turn to all the callers who are responding to Scott’s question – Scott, I think I’m going to let you ask the questions from now on whenever you’re on the show.
LEWIS: No. No, no, please. Please.
PENNER: Okay. Let me turn to JW on this. So here we’ve been talking about foreclosures which always means something kind of a little sad. You know, people…
PENNER: …can’t afford to stay in the house that…
AUGUST: Each number is a person, a family.
PENNER: That’s right. So where are the signs that the housing market is actually strengthening?
AUGUST: I – I don’t know if it’s strengthening or not. You’re asking – I don’t think it is strengthening, to tell you the truth. The only thing I saw was a little bit of data that was kind of interesting in that what I think is going on is the banks are finally coming to grasp the issue, get their hands around it. Bank of America, which is the major loaner, mortgage holder, in the United States, they took over Countrywide, the government put a moratorium on foreclosures. There was a lot of chaos in the marketplace. The big banks are kind of finally getting around to getting a grasp of the problem. The one interesting fact, what I saw is, last year it would be – it would average, across the country, 6.8 months from notice of default to sale. This year it’s 7.5.
PENNER: It’s lengthening, I think Barbara was saying.
AUGUST: Right. Yeah, and that, I think, shows that the marketplace itself is adjusting to what happened. So that’s the good news. But is there clear signs? No, it’s muddy waters.
PENNER: Well, I want to talk about home sales because now the reports are that new home sales were up 27%...
AUGUST: Yeah, that…
PENNER: …last month from a record low number in February.
LEWIS: Well, and…
AUGUST: That’s the federal – that’s that – I think that’s that $8,000 tax credit. What’s going to happen after April’s when we’re going to see what’s really happening.
LEWIS: Well, and I think…
LEWIS: …that’s an interesting point. In February, we saw in San Diego, we saw 38% increase in housing sales activity. Now that may seem like a big number but that March is always bigger than, you know, it’s always an uptick. But it was also still more than the average February to March jump. The average February to March jump is usually 31%. This is now at 38%. That’s a much higher rate of sales activity and, yes, I think it’s due to this fact that the federal government has done all it can, literally, to bribe people to purchase homes…
PENNER: Including that $8,000 tax credit for first time homebuyers.
LEWIS: Right. If you think about that, that’s them actually borrowing from the future demand. That’s them, as Rich Toscano, our analyst on the site, always says, it’s the federal government saying, look, there’s probably a bunch of people who might consider buying a home in the next two or three years, let’s get them to do it now to try to buttress and get the – what do they call it, the speed, the velocity of the economy going so that they can fire it up and then – and get this activity going. But what happens over time is the big question. And I think, as JW points out, they can’t keep doing that forever and the interest rates can’t stay as low as they are.
PENNER: So are you saying that’s an artificial device?
LEWIS: Well, yeah. The federal government is the primary purchaser of home loans right now and it’s incentivizing it and now it’s part of a program, as Barbara noted, that they tried to help people lower their payments but they realized that doesn’t do any good because the house is still worth far less than what it could be sold for – I mean, far – Yeah, that’s right. And so the question now is, is can the federal government continue that? And what they are also doing is considering actually adjusting home values or the loan’s value to the actual rate of what the home is worth and that would be a huge deal. That’s called the nuclear option, our analyst calls it.
PENNER: I wanted to get to all those people who are calling in and answering your question, Scott, but Barbara wants to say something briefly.
BRY: Well, I just wanted to say people aren’t stupid. They’re not going to continue making mortgage payments on a house that’s worth less than the mortgage.
BRY: And while the volume of home sales may be increasing—and I believe it will increase—the issue is what is going to happen to prices? And I don’t see price – I mean, anecdotally, you know, prices may go up a little bit here and there by zip code, you know. You know, but overall I think prices are going to remain relatively stable in San Diego over the next year or so.
PENNER: All right, let’s hear from William in San Diego. William, you’re on with the editors.
WILLIAM (Caller, San Diego): Oh, hi. So I’m calling for Scott’s question. I have a friend of mine that’s been unemployed since 2008 and has also not made any mortgage payments since 2008 and is still living – he’s actually in a condo and he’s still there and hasn’t been foreclosed on.
PENNER: Yeah, so you’re attesting to what Scott had to say. Thanks, William. Let’s hear what Chris in Mission Hills has to say.
CHRIS (Caller, Mission Hills): Hello. Thank you for taking my call.
PENNER: Sure, Chris.
CHRIS: Yeah, my landlord actually hasn’t made payments on their house for I think it’s been over a year now.
PENNER: And he’s still…
CHRIS: So I know that my rent has – being, you know, just basically going into their pockets versus paying the mortgage, which I’m not sure if that’s legal or not but, you know, that’s the situation.
PENNER: Oh, that’s interesting. So…
BRY: Well, that’s scary for you because you might, you know, have to move out on short notice.
PENNER: Right, that’s…
AUGUST: Hope you don’t have a big security deposit.
LEWIS: Well, that’s what’s interesting. If the landlord then does get foreclosed, then the bank has to come in, take over the property, and then they have to help the tenants relocate or give, you know, substantial notice. It’s a – there’s a ton of people out there in this situation, not just – not just owners of homes but then – I mean, a lot of people bought homes, rented them out, used the equity to buy more homes, and to get more leverage and – and here they were with six properties, yet they had no equity in any of them and now they’re – there’s a complex process underway that’s going to take several years of unraveling the excesses of the last decade. It’s going to be very interesting and very difficult and awkward but, again, some of the problem is that it really only affects their credit rating in many ways. It’s not that these people are getting kicked out onto the street. It’s a readjustment of their situation in the world, and their standing in the world.
PENNER: Thank you, Scott. Larry in San Diego is with us now, and thank you, Chris, for calling in. Larry, go ahead. You’re on with the editors.
LARRY (Caller, San Diego): Oh, thank you for taking my phone call as well. Well, I actually am a real estate agent and I do doorknocking and I go to clients’ houses and I’ve been going to three different zip codes and I’m seeing at least 67 properties that are going into foreclosure within my zip codes and this is on a weekly basis. And these people are defaulting. I’m actually helping them with loan modifications but 67 on average every week that I’m seeing.
LEWIS: What zip codes?
PENNER: What – Can you tell us the zip codes?
LARRY: Yes, the 91910 area, 92154 area, and the 91911 areas.
AUGUST: That’s Chula…
LARRY: And all these…
PENNER: Chula Vista.
AUGUST: Chula Vista.
PENNER: Yeah, South Bay.
LARRY: Yeah, Chula Vista, all the South Bay, correct.
LARRY: And these people haven’t made mortgage payments in over a year. I’ve also met renters who are telling me, oh, I wasn’t aware that my landlord wasn’t paying the mortgage on the property, and I’ve met about – at least three on a weekly basis.
PENNER: Well, it’s – it certainly is a whole new world, isn’t it? And just think, it started, oh, about six or seven years ago when, well, I’m not going to go back to that at this point but it is a whole new world of dealing with life, and I guess we’re all going to be learning from this. We’re going to come back and talk some more about the housing market and some of the issues that our callers have called in, right after the break. This is the Editors Roundtable. I’m Gloria Penner.
PENNER: I’m Gloria Penner. This is the Editors Roundtable. We’re talking about the housing market in San Diego. And joining me to talk about the market we have JW August from 10News, Scott Lewis from voiceofsandiego.org, Barbara Bry from SDNN.com, and we have you. Lots of calls coming in but before we go into the calls, I want to mention that the San Diego Business Journal reports concern from the San Diego building industry that another wave of home foreclosures would dampen new home constructions. So are there signs that we’re going to see another wave coming, Barbara, and that whatever construction is starting up is going to go bye-bye.
BRY: Well, I think new, you know, anecdotally, you know, new – there is new housing construction in San Diego. I think most of it’s probably in North County. I think what builders are doing now is they’re building fewer at a time and they’re selling those few before they start the next few. So they’re being much more cautious about building. I think the South Bay, it was interesting to hear the real estate agent, you know, talk about the South Bay, has been the hardest hit by the foreclosure issue because there was so much new construction in the South Bay.
PENNER: So they’d overbuilt the market.
BRY: They’d overbuilt the market.
PENNER: Okay. Richard in San Diego is with us now. Richard, you’re on with the editors.
RICHARD (Caller, San Diego): Hi. Two points, both personal situations that I know of. One, north county situation, homeowner purchased high-nines. At the crash of this whole thing it was reevaluated at mid-sevens. They made a business decision not to pay the mortgage because they were not going to be able to get their money back over the term. Number two, another deal down in the South Bay. Homeowner was in a loan modification program. I looked at their paperwork and essentially what the bank had done was rolled the adjustment onto a twenty-year note…
RICHARD: …with a balloon on it, so it really wasn’t an adjustment to begin with anyway.
AUGUST: Yeah, right.
PENNER: But it meant they could pay less each month, right? But it…
RICHARD: That’s right.
BRY: But at the end they’d still owe more…
LEWIS: But it’s – Yeah, it’s like a…
PENNER: If they kept the house. If they kept the house.
LEWIS: It’d be like having, you know, some kind of payment on a big screen TV and then they say, well, don’t worry about it, you can pay it $10.00 a month for the rest of your life. It’s going to be, you know, 40 years before you even – you even own the TV or something. This is the situation. They didn’t change – They didn’t address the root of the problem, which is what was happening was that homes were – you could not sell a home for what you owed on it. And now they’re finally addressing that but then what does that teach our market? It says that if you make a very poor investment decision and you over-leverage yourself, then as long as you’re in the politically powerful realm known as homeownership, we will come to your rescue. But that does ignore the personal responsibility that others showed when they either didn’t leverage themselves or were in a different situation. But there’s no question, if you look at the balance of your home right now and it’s worth so much less than what you owe, you need to make a decision about whether it’s at all worth it to keep sending those payments to the bank or to sit back and decide whether you should work something out or a short sale or simply just walk away.
PENNER: But doesn’t that mean actually, JW, that you have to have faith that home values are going to go up? I mean, I think some of the figures that I saw that were just released was that the higher-end homes, we saw a blip up in the numbers that were being sold.
AUGUST: And that’s what’s driving up the median price of them, too. I mean, the up-market is still doing all right and – But I think the bottom line, it is about faith. It is that the hope that the market’s going to turn, the economy’s going to turn, housing prices will go up and all of this’ll catch up. But I – The problem with us as a society is our memory is very short…
AUGUST: …and I can see us repeating this same thing in 10 years, we go through this same foolishness all over again.
LEWIS: It’s still…
AUGUST: We need some permanent – we need some sort of a better way to – this market needs some adjustment to it.
LEWIS: It still needs to go back to reality. It still needs to conform to income levels and rent revenues.
LEWIS: If you – San Diego – The New York Times just did a short analysis that said that San Diego is one of three or four cities in the country where for many new people who might buy a home, it’s still a better deal for them to rent. They can still rent a home and it’s so much less than what they would pay in a mortgage that they can invest the difference and come out better than the equity they might earn in the mortgage.
LEWIS: And that’s the situation so many people – these – This has to conform to reality of incomes and rents before it’ll ever bottom out completely.
PENNER: Hang onto that thought about incomes because we’re going to go into that in a minute but, Barbara, you wanted to say something.
BRY: I just wanted to say something. What Scott said earlier about personal responsibility is very important. Well, there are – you know, was, you know, some lender abuse in terms of lending people, you know, you know, money that they never should have, you know, borrowed. You know, people also knowingly took out loans thinking they were going to ride, you know, a housing market that would never go down. So there is an issue of personal responsibility. There are not – you know, not everybody out there is an innocent person, you know, who is losing their home.
PENNER: Okay, and let’s now turn to Steven in – on the road. Hi, Steven, you’re on with the editors.
STEVEN (Caller, Mobile): Hi. We have some friends who owned a home in North County. I believe they got their financing through Countrywide Mortgage, which went belly up and then the loan got assumed by Bank of America. They recently left town to return to a notice of auction on their door, and they subsequently lost the home and joined the renter class. My question is, how does Bank of America, what’s the legal standard for them to decide who gets kicked out of their home and who gets forbearance? And is there a potential class action lawsuit against them for arbitrary decisions about who gets kicked out and who gets to stay in their home rent free? How does that work?
AUGUST: I don’t know.
PENNER: We’ll have to get opinion on this because I don’t think any of our editors are attorneys and probably…
LEWIS: I think…
LEWIS: …that’s a great question. It would be a great inquiry as to what is the process, what is the formula that they use to decide which people they’re going to kick out. If there’s several people – You know, if they’re leaving people in condos because they know they can’t sell the condos but they’re kicking people out of nicer homes that they could perhaps sell for a better value, then is that really ethical? Is there – should there be more formulaic (sic)? Then again, do you want the government to intrude even more to decide how they should run their operations? It’s a very interesting question. I would love an inquiry on it.
PENNER: Well, it’d be interesting to do some enterprise reporting on something like that. Maybe one of our…
PENNER: …journalists would be interested in that.
AUGUST: …that or if you’ve got a subpoena. If we could have some subpoena power as journalists, which I wish we had, we might be able to find out.
PENNER: All right. But let me just ask one final question on this and we’ll go around the table quickly. Have we bottomed out? Are we emerging from the recession in terms of the housing market is concerned? What do you believe on this, JW?
AUGUST: I think we have but it’s a slow grind. We’ve just hit this flat. It’s going to be flat, flat, flat, bumps up and down for a while. We’ve got a slow grind we’re going to have to go through. I think we’ve got like three more – at least three more years of this, you know, not too much in either direction.
AUGUST: And I’ll take it, tell you the truth. It’s better than what we were going through before.
PENNER: Scott, what would be an indication to you that the housing market has improved?
LEWIS: Well, I think there are certain sectors that have bottomed out and that’s based on the idea that you could probably purchase the home and get a better deal than if you just rented it. And – But there are other areas that you could still rent a home, again, for far cheaper than you would be to buy it or pay the mortgage payment on and that that difference is so great that you could invest that and cancel out all the tax benefits and such. And in those areas, it still has not corrected down to what it needs to. And I believe that overall then, you’d have to conclude that it still is not in harmony with local incomes, it’s still not in harmony with local – with the local economy. And I don’t think until that dynamic is changed, have we hit what you would call the bottom of the housing market.
PENNER: Barbara, I’m going to hold off on you because you probably can comment on all this as part of the next segment…
PENNER: …on unemployment. But I do want to alert our callers who are – have been waiting that you can go to our website, KPBS.org/editors, and register your comment that you were going to make on the air because we do read them and we do respond. KPBS.org/editors.