Anna Child Group
Source: Esther Cho – DSNews.com
People have been asking me: “Why aren’t there more Short Sales and Bank Owned Homes For Sale in Huntington Beach and Coastal Orange County?” I do not have as much time as I would like to research an answer (it would take hundreds of hours to research the loan pool), but I recently saw the results of a study which I believe goes a long way to answer the question.
San Bernardino County was hit much harder by the Sub-Prime Meltdown than Huntington Beach and Coastal Orange County. Home prices skyrocketed to unsustainable levels as buyers used No Downpayment – No Documentation “liar loans” to finance their purchases. With deficiency judgements on purchase loans not allowed in California, there seemed to be lots of upside, and no down side to purchasing until the bubble burst. Huntington Beach and Coastal Orange County had their fair share of Toxic Mortgages but much fewer as a percentage of the overall market (mainly because larger down payments were more plentiful). San Bernardino County represents the “worse case scenario” for the Toxic Mortgage mess. Although San Bernardino is not an exact picture of what has happened/is happening in Huntington Beach and Coastal Orange County, we can say conditions here were better to begin with and are very likely better now.
Let’s talk about San Bernardino, and the state of the toxic loans which were originated. In August 2012, authors—Andreas Fuster, Caitlin Gorback, and Paul Willen—used loan data from CoreLogic containing loan-level information on nearly all privately issued mortgage securitizations to write an analysis of the current state of the loans originated in San Bernardino during the “boom times”:
- In San Bernardino County, the researchers located about 456,000 first-lien mortgages, of which about 280,000 would be considered subprime loans, 142,000 Alt-A loans, and 34,000 prime jumbo loans. The overwhelming majority—70 percent—were adjustable-rate mortgages (ARMs).
- As of August 2012, about 68,000 (15 percent) were still open, 275,000 (60 percent) were prepaid voluntarily, and 112,000 (25 percent) were foreclosed on or are currently in foreclosure proceedings.
- Out of the loans that were still open, 51,500 (76 percent) were current, 5,000 (7 percent) were thirty days delinquent (an early-stage delinquency often reversed in the subsequent month), and 11,500 (17 percent) were sixty or more days delinquent.
- The researchers just focused on the loans that were still open and found only 11 percent of the open loans were not underwater. Despite the depressing state of the loans, the researchers found the first lien payments on the mortgages have fallen “dramatically,” with about one-third of ARM borrowers seeing a 40 percent reduction compared to five years ago.
So, 85% of the loan originated having already been paid off, short-sale completed, or foreclosed/in foreclosure… there are just 15% of the “toxic” loans left. Of these 68,000 loans, 89% are still “underwater”, they owe more than the house is worth. However, since most of these loans were adjustable, about 1/3 of these borrowers have seen their payment fall 40% compared to when their loan was originated.
And, in the last year these homeowners are seeing appreciation in their home value. So, there are still a large number of underwater homeowners… approximately 60,520. But, this represents only 13.27% of the original pool of buyers, and many who are left are apparently happy with their new lower mortgage payment (and no doubt optimistically watching as home prices rise). It appears that the worst of the Toxic Mortgage Mess is past in San Bernardino County.
So what does this say about Huntington Beach and Coastal Orange County?
I believe it says the worst is likely past for us too. Potential buyers who are thinking that a “big wave” of foreclosures is coming are likely incorrect. Of course, I will be watching for a similar study of Orange County and will report it if I see it.