Sins of Years Ago Come to Haunt the Housing Market: Foreclosure is a Slow Process in California.

Even though things appear to be deteriorating rapidly and are shocking the public and officials, this castle made of mortgage sand was built over a decade of frankly irresponsible greed and corruption. There really is no way of sugar coating it. In the middle of it all, there was ethical behavior and those who acted as agents of financial responsibility but an incredibly large number of folks inflated the market. The power bestowed on this large number of people simply created a market that has no way of being supported try as the government may. The philosophy is inherently wrong. There are a small handful of politicians that have the backbone to flat out say that this was a decade long spending spree built on debt and now the edifice is crumbling like the walls of Jericho. If you really cut to the core of all bail outs and crutches being placed on the market, you will find that many still somehow believe that peak prices were warranted and the only reason prices are going down is because of lack of credit. In fact, I would argue that even if we were to bring back all the no income, no documentation, and no pulse products the market would still be collapsing because the wizard has been exposed. This is like revealing to the public a convincing argument that the world is round. People did not accept this truth for sometime but eventually they did. This psychological stage in any mania has been seen time and time again. Think about the technology bust and how we had a few precursors before the actual market tanking yet people preferred to ignore these cues. Think of the case of a person making $14,000 being able to get a loan for $720,000 and which was publicly announced in May of 2007, way before the credit crunch. Or what about the man that was given a few more decades on his mortgage and he was 100 years old? Apparently, this housing golden era was also going to be the fountain of youth. These upcoming weeks will , in my opinion via earnings, show the sins of housing past. This week we have 65 S&P 500 companies reporting mostly financials and big hitters such as JP Morgan, Merrill Lynch, and Washington Mutual. General Electric, the third largest company in the world just showed us how deep and pervasive this housing bust is going to be. What was disturbing about the earnings miss is that General Electric is an extremely diversified company and is a microcosm of the entire economy. This wasn’t your typical investment bank coming out and telling us that as it turns out, their triple-AAA rated bonds are as valuable as Monopoly money. A suggestion for fixing these ills has been to create a market where these lenders and note holders can bring their paper and trade in a transparent market such as the New York Stock Exchange except for asset backed paper. Of course, the institutions and Wall Street balk at this idea because they fully understand the extent of junk they have on their books and would be forced to mark these things down or at least take whatever the open market would offer. You have a better option by going over to the Federal Reserve and exchanging absolute garbage for U.S. Treasury securities nearly on par. Frankly, this is insanity and as such, I’ll be leaving up the button to contact your local representative up on this site permanently on the right sidebar because I’m sure that I am not the only one that feels they are taking crazy pills. Housing has many Skeletons Looming in the Closet As we keep hearing about the growing amount of foreclosures, we need to pause and realize that foreclosure is a long and lengthy process. Tanta over at Calculated Risk has an excellent post that talks about changes to Maryland’s foreclosure law and the length of time it takes for a home to go from one missed payment to REO. However you want to slice it, foreclosure can take anywhere from 250 days to nearly a year. The homes that are hitting the market were already having problems many months ago. First, many homeowners that actually want to stay in their home (I would venture the majority) fought to stay current by drawing down emergency funds, credit lines, and retirement accounts to stay current on their home. The first missed payment was possibly a capitulation that they were simply having a quixotic fight. The onslaught of foreclosures hitting the market is simply a realization of what has occurred over the past decade especially during the peak years of 2005 through 2007. Take a look at nationwide filings of foreclosures I have put together: The numbers have been steadily increasing for the past few years. Instead of putting restraint and applying a little pressure to the brakes, the industry decided to step on the gas and run this market into the wall we are currently hitting. Now they want a miraculous cure to fix the wreck but this car is unsalvageable. We are going to need new policy, new enforcement of regulations, and a government that is willing to stop this eternal boom and bust cycle. The current leadership has proven utterly incapable of doing this. We need leaders that are willing to look us squarely in the eyes and be honest about the magnitude of this mess we now have infecting our nation. I’ve noticed that a few people in the discussion forum were talking about buying in the current market. I’ll go ahead and show you a highlight of current market preforeclosures and show you how the creepy past is now being exposed and maybe, this will make you look deeper before you buy: *Source: Foreclosureradar.com Here is a brief look at some homes that are in some form of distress in Lakewood California, a middle class area of Southern California. I’ll use this city for the moment because one of the readers in the discussion board was looking to buy here. As you can see from the above chart, the loan amounts on many of these homes are through the roof. In a market that is deflating, debt is public enemy number one. The reason for this is that as the price of the underlying asset goes down, your debt stays the same thus forcing you to pay more for a depreciating asset. Basically you are stuck paying for something that has lost value. Now take a look at some of these estimates above. These are insanely optimistic because looking at sales data and price, from DataQuick we get the following: City Sales Median Price Lakewood - 90712 23 $430,000 (down 19.9% YoY) Lakewood - 90713 11 $450,000 (down 15.9% YoY) Lakewood - 90715 5 $394,000 (-22.1%) The data above is accurate up until February of 2008. Now how many homes are available for sale in Lakewood? How about 348. At the current sales rate from the latest month of data we have 11.2 months of inventory. 38 of these homes are distressed sales. So you can do the math and figure out that prices still have a way to go on the downside but what happens when you are already locked in to a high price mortgage? Welcome to the endgame. This is happening in the majority of the 88 cities in Los Angeles County. The only option for those that are facing trouble is to either do a short-sale or let the long drawn out process of foreclosure take place. Many lenders for whatever reason are holding out thinking this spring and summer will once again bring back the seasonal bounce. The mess is so deep that any seasonal benefit will be negated by the onslaught of foreclosures and REOs. The sins of the past are coming up and showing up on a daily basis. Everyone knows that the nature of a bubble is to burst, this one included. Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information Share This Related Posts: ■ Foreclosures? Housing Bubble? In Southern California? Impossible! ■ Foreclosure Shrugged: The Issue with Finding an Exact Foreclosure Number. ■ The Foreclosure Story: What does the Process Look Like? ■ Real Homes of Genius Flashback: Looking back at Lakewood California. $105,000 Loss. ■ Superstars of Housing Love: The Sheriff Deputy Evicting People who Default.