Rebel Traders – Analysis Without The Hype

The San Jose Mercury News is reporting that foreclosures in California rose 17% in January from December, and up 14% from January 2009.

The article focuses on Santa Clara and San Mateo counties, but these two counties track the general trend of foreclosures in California.

[…] Despite efforts by the federal government and lenders to help people stay in their homes, foreclosures rose 37 percent in Santa Clara County last month from December, and 71 percent in San Mateo County, according to a report Tuesday from ForeclosureRadar.

In another sign that housing woes are far from over, more homes are lingering in the foreclosure process: Homes that were repossessed by lenders in Santa Clara County in January had been in foreclosure for an average of 221 days, or more than seven months. In August 2008, banks took an average of 143 days to foreclose, less than five months.

Sean O’Toole, chief executive of ForeclosureRadar, a Discovery Bay firm that tracks foreclosure activity statewide, says it is a sign that foreclosure alternatives are failing.

"I think this problem is going to be with us for years to come," O’Toole said.

But Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, said more homeowners are staying in the foreclosure pipeline longer because lenders are working to find loan modification solutions. They are also ensuring that a massive wave of post-foreclosure properties doesn’t hit the market, driving real estate prices down severely, he said.[…] Mercury News

They have to hit at some point Mr. Hobbs. Dragging it out for a year or two will only make it worse.

Oh, and from the same newspaper we also have this:

San Jose officials Tuesday said they want taxpayers to pony up — again — and bail City Hall out of red ink as a $100 million deficit threatens hundreds of jobs, from police to librarians.

Just two years after voters agreed to a pair of phone taxes, San Jose officials are eyeing two new measures. One would be targeted at the June ballot and squeeze $5 million more from the city’s two card rooms. The other, planned for November, would add a new quarter-cent sales tax intended to raise an additional $30 million.[…]

In the just released December Mortgage Monitor report, issued by Lender Processing Services, one in every 7.5 properties are behind on payments or are now in foreclosure.

Total delinquencies, excluding foreclosures, increased to a record high 9.97 percent, representing a month-over-month increase of 5.46 percent and a year-over-year increase of 21.29 percent. Loans rolling to a more delinquent status totaled 5.01 percent compared to 1.52 percent of loans that improved. Of loans that were current in December 2008, 4.37 percent were either 60 or more days delinquent or in foreclosure by the end of November 2009, a rate higher than any other year for the same period.

Foreclosure inventories also continued to climb to new highs with November’s foreclosure rate at 3.19% – a month-over-month increase of 1.46 percent and a year-over-year increase of 81.41 percent. Compared to 2005 levels, foreclosure inventories across all loans are now nearly seven times higher, while jumbo loan foreclosure inventories are nearly 100 times more than levels four years ago.[…] (Source: LPS)

August and September went straight to hell according to Dick Henry, president of Greater McAllen Association of Realtors.

[...] The foreclosure plague rocked McAllen, Texas, during the third quarter. In fact, it showed the fastest growth rate of any city compared to the second quarter.

Located in one of the poorest sections of the country — the Rio Grande Valley, five hours south of San Antonio — it is a classic border town. It relies heavily on trade with Mexico, with 35% of its retail market derived from Mexican nationals coming to shop and dine.

Plus, the unemployment is high. The area’s rate now stands at 11.4%, compared with Texas’ overall 8.2%.

Still, until this quarter, it had counted a low foreclosure rate among its assets. In fact, that helped propel the city to No. 26 on CNNMoney’s Best Places to Launch list in 2009.[...]

[...] “People get sucked into the lower money down, and then they can’t afford their homes once rates are jacked up,” Henry said. “I now see 110 pages of foreclosure listings per month, compared to 45 pages in the first quarter. I don’t see that slowing down anytime soon. [...] (source: CNN – H/T Butch)

RealtyTrac reports that foreclosures on homes jumped significantly in the recent reporting period up 11%, and up 20% from one year ago.

In June 336,000 properties went into foreclosure. June was the 4th consecutive month to see monthly foreclosures above 300,000.

In the state of Nevada 1 of every 16 homes have either been foreclosed or have received notification of pending foreclosure. Other states leading the foreclosure numbers are Arizona, Florida, and California.

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Some reports you hear in the media would have you believe that the housing market is making a slight improvement. Ahhh, but what about all the foreclosed homes that the banks have not put on the market?

This is called the ’shadow inventory’.

An excellent article by Carolyn Said of the SF Chronicle:

A vast “shadow inventory” of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity – only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as “shadow inventory.”

“There is a real danger that there is much more (foreclosure) inventory than we are measuring,” said Celia Chen, director of housing economics at Moody’s Economy.com in Pennsylvania. “Eventually those homes will have to be dealt with. If they’re all put on the market, that will add more inventory to an already bloated market and drive down home prices even more.”[...]

So why aren’t banks selling off their foreclosures?

Observers say several factors are at work.

– The “pig in the python”: Digesting all those foreclosures takes awhile. It’s time-consuming to get a home vacant, clean and ready for sale. “The system is overwhelmed by the volume,” Sharga said. “In a normal market, there are 160,000 (foreclosures for sale nationwide) over the course of a year. Right now, there are about 80,000 every month.”

– Accounting sleight-of-hand: Lenders could be deferring sales to put off having to acknowledge the actual extent of their loss. “With banks in the stress they’re in, I don’t think they’re anxious to show losses in assets on their balance sheets,” [...] (emphasis added)

– Slowing the free-fall: Banks might be strategically holding back some foreclosures so prices don’t fall as fast. “They want to be careful about not releasing them too quickly so they don’t drive prices down and hurt the values,” [...]

Just more ‘gaming’ of the system by the banks and mortgage companies.

This story just goes to show how messed up the entire mortgage industry is. Even after being bailed out by the tax payers (through Bank of America), this slimy and very irresponsible mortgage company just does not know when to just stop their crap.

From MSNBC News:

Defending lawsuit, mortgage company mocks loan modification assurances…

In marketing, advertising and testimony before Congress, Countrywide Home Loans has said repeatedly that it is working hard to modify the mortgages of financially strapped borrowers caught up in the subprime meltdown. But in a New Hampshire court, attorneys for the lending giant are singing a different tune, describing such assurances as “mere commercial puffery.”

Saying the modification offers are “only Countrywide’s vague advertisements,” attorneys for the lender are asking the court to throw out a lawsuit alleging breach of good faith, fraud, negligence and misrepresentation, which was filed on behalf of a family that was refused a loan modification by the California-based company.

(read more…)

Financial stocks turned back down on renewed concerns on more problems with banks and other financial institutions. The rise in the financial stocks from July 15th till now appears to be in jeopardy as liquidity and additional losses are once again front and center.

While others were calling buys on the financial’s back on July 15th we remained very cautious on any financial sector stock. All bank and financial institution stocks remain dangerous. They are great for day traders, but for anything else at this time is out of the question. Just too much risk.

Some examples:

  

  

   

The individual stocks shown above say to me that their short term pattern has been broken and the path of least resistance is down. The financial sector ETF (XLF) tells a different story.

 (XLF)

The XLF chart says that a possible bounce up from support may be in the cards. But, with many stocks in this sector taken a beating today and having broken to the down side I am cautious on any long positions in the XLF. If I see the XLF fall below $21.00 I will short this index.

Investors keep thinking that the financial crisis is in the rear view mirror. But remember what it says on those mirrors… “objects may be closer than they appear“. And investors are still getting whacked in the side by the continuing crisis unfolding in the banks and other institutions.

“Mr. Mortgage” reported today that foreclosures in California have reached another ominous figure. Banks have taken back $12.5 billion in loans and that figure is an increase of 25% from the month before. Also today we got news from Bloomberg that one third of homes purchased in the last five years are now worth less than their mortgages.

[...]Second-quarter home prices fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity, said Zillow, the Seattle-based service that offers values for more than 80 million homes.

For those who bought at the 2006 peak of the housing market, 45 percent are now underwater, Zillow said.

Negative equity and declining prices are making it difficult for homeowners to sell property for a profit. Almost one-quarter of U.S. homes sold in the past year were for a loss, Zillow said. That contributes to the foreclosure rate because some homeowners can’t absorb the loss and end up surrendering their homes to the bank that holds the mortgage, said Stan Humphries, Zillow’s vice president of data and analytics.[...]

The outlook for Goldman Sachs (GS) was lowered today by Deutsche Bank and the famous bank analyst Meredith Whitney of Oppenheimer (famous for she was one of the first Wall Street analysts calling for the problems in the financial sector). The analysts have lowered Goldman Sachs earnings expectations.

So the stimulus checks are just about all spent and the Government (taxpayer) handout of money to every American has come and now gone. In its wake we had a spike in retail sales (that is what they call it, we say it was nothing more than a bump in road), a temporary euphoria on part of the media (even more euphoric than normal), and now we have an even bigger federal deficit…

WASHINGTON (MarketWatch) – Boosted by payments for failed banks and stimulus checks for individuals, the federal budget deficit widened to $102.8 billion in July from $36.4 billion a year ago, the Treasury Department reported Tuesday. The deficit was close to the $102 billion expected by the nonpartisan Congressional Budget Office. Through the first 10 months of the fiscal year, the budget deficit rose to $371.4 billion, more than twice as big as the deficit last year. For the first 10 months, receipts are down 1% and outlays are up 8.5%.[...]

Bloomberg also ran a story today that losses at banks will top $500 Billion. We still hold the view that the losses will be at least double that by time this is all over. And some other trustworthy economists have the total losses near $3 Trillion when this is all over with. See the article here on Bloomberg.

And today Citigroup (C) raised $3 Billion by selling 5 year notes at a yield of 337.5 Basis Points over Treasuries. This shows that risk is increasing with respect to these bond offerings. The financial crisis continues to grow regardless of what the media will tell you.

And on the Crude Oil situation I direct you to an excellent article my friend Frank Barbera wrote tonight on Financial Sense. See article HERE.

Good night and see you in the morning.