Sunday, March 25, 2007

ARM Resets and NODs

Below (warning: PDF; a lot of great info though) is the reset schedule for various flavors of ARMs for the next few years:

And the following is a graph of Notices of Default (NODs) issued for Marin and some other counties for comparison (I've normalized the data to the mean of the approximately linear part of the curve -- October, 2004 to February, 2006):

Consider that there is some delay between when an ARM resets and when a borrower is late in making a payment and thus when a NOD is issued. To the extent that the NODs in the second graph are due to ARM resets (and surely people default for other reasons than just ARM resets), the spike in NODs in the second graph result from the resets shown in the first bar or so of the first graph.

To me the first chart clearly indicates that we are at the earliest beginnings of the first wave of two resets. The second chart indicates that even though a small number of resets have taken place so far (according to the first chart), the rate-of-change in NODs is going exponential.

What will this chart of NODs look like around the times of the reset peaks? And what impact will the elimination of "toxic" loans (err, pardon me, of course I mean "affordability products") and other tightening of lending standards have on the selling of property? And why isn't Marin immune?

So let me get this straight: The subprime and Alt-A mortgage meltdown is decreasing demand. Inventory in Marin is about 28% above this time last year so supply is increasing. Now what did my Econ 101 professor have to say about the ratio of supply vs. demand?

And finally, these quotes are juicy in light of the above:
"You can educate them (borrowers) to do the right thing, but it’s up to them to make the right choice" [says Downard, a loan officer for 17 years].

“People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can’t assume that foreclosures will only affect people who bought their homes in the last couple of years,” said Schahrzad Berkland, who publishes the California Housing Forecast in San Diego. “And a lot of adjustable-rate mortgages were taken out by prime borrowers,
so we can’t assume that the more qualified borrowers will be immune to losing their homes.”

“For people to think that we could go back to traditional lending standards and have prices remain where they are now is just crazy," said Peter Schiff, head of Euro Pacific Capital in Newport Beach. "
Real estate will have to go back to 2000 levels. And a lot of people who just bought a home will find that instead of having an asset, they have a liability.”
Imagine that... a home as a liability. Who would have thought that?

Oh, and why not throw this one in while I'm at it: over time your primary residence is not that great of an investment.

Now they tell us. Sheesh!


Anonymous Anonymous said...

Hey Marinite,

Great post. The charts are a little small to see the details. When I click on them they don't open, nothing happens. Please keep up the great work. I hope the Marin POS gets an update sometime in the near future. Thanks!

Mar 26, 2007, 8:31:00 PM  
Blogger Marinite said...

I'm trying to figure out now why the pics are not clickable. I think blogger2 is having an issue. I'll keep fiddling.

Mar 26, 2007, 8:39:00 PM  
Blogger sf jack said...

Every picture tells a story.

And even if they don't open, those two are making it plain as day.

Thanks, marinite!

Mar 26, 2007, 11:11:00 PM  
Anonymous Anonymous said...


Bravo, bravo my good man (or woman).. this is some juicy stuff you have here.

A footnote to the NOD data should be the fact that unemployment (note, not "underemployment") is low and steady, which makes this graph all the more scary to me. Imagine what happens when that changes - watch out !!

The RE southbound train has long left the station. Some passengers will continue to be duped by the ticket salespersons about the train's destination as the train slows here and there, but southbound it will remain for a long while. Each reset spike will be like shoveling another pile of coal into the engine. Unemployment jumps and major layoffs (Citibank, New Century, Ford, GM etc etc) will be like putting another engine on line.

I'll watch this wreck from a safe distance thank you very much.

Mar 27, 2007, 5:25:00 AM  
Anonymous Anonymous said...

I could hardly imagine what the RE would be like if the long-term interest rate starts to pick up. The Chinese government has mentioned that it would diversify its US holdings (US Treasuries) to other investment asset classes.

Mar 27, 2007, 7:24:00 AM  
Anonymous Anonymous said...

New consumer confidence numbers may point to housing-led recession:

Mar 27, 2007, 8:09:00 AM  
Blogger sf jack said...

"'Tiburon neighbors sue city, synagogue'

Jim Staats

Article Launched: 03/27/2007 12:41:07 AM PDT

A Tiburon synagogue's contentious expansion project is moving from Town Council chambers to the Hall of Justice.
A neighborhood group opposed to the project to expand and renovate Congregation Kol Shofar filed a lawsuit in Marin Superior Court Monday against both the town of Tiburon and the synagogue on grounds of environmental impact and land use violations.

'Serious impacts on health, safety and quality of life caused by inadequate parking combined with increased traffic, noise and light remain unresolved and unmitigated,' said Stephan Volker, attorney for the Tiburon Neighborhood Coalition, in a press release.

In February, the Tiburon Town Council approved construction of a one-story..."




Marin - where NIMBYism is an art form, we see a three year approval process now headed to court.

In Tiburon it was already clear there's no desire to house some commoners (teachers? firefighters?)... now it appears they just can't approve of more worshipping.

Mar 27, 2007, 8:47:00 AM  
Anonymous Anonymous said...

Glad you're back! Thank you for injecting reality and common sense into the world of Marin County real estate.

Mar 27, 2007, 9:21:00 AM  
Blogger Lisa said...

I posted this on Athena's Sonoma blog, but one of the columnists on made the point that subprime is cracking first because those loans have shorter teaser periods - 1 or 2 years before the loan resets. AltA typically has a 3 or 5 year period before the first reset. So, it's not that those loans won't have problems, but most of them haven't hit the reset button yet. Ergo, the subprime debacle.

A story to friend who just did his taxes said his CPA was amazed at how many clients (white collar types) are mortgaged to the gills with adjustable loans and who had no clue how they will swing their payment once the loans reset. Apparently everyone is planning on refinancing or selling before that happens. And of course, lots of cash out on previous refi's, so the loan balances are staggering.

I think when this is all said and done, we're going to learn that everyone overstretched to buy in this market. Not just subprime, but AltA and Prime as well. Debt ratios went out the window for everyone.

Mar 27, 2007, 9:42:00 AM  
Anonymous Anonymous said...

I think when this is all said and done, we're going to learn that everyone overstretched to buy in this market.

Bingo! "Buy now or be priced out forever" should have been "buy now and default later". The RE industry provided the fear, then lenders provided the means, the dull and fearful people pulled the triggers.

Mar 27, 2007, 9:53:00 AM  
Anonymous Anonymous said...

jack -

And what about this long-standing feud between hikers and Mt. Bikers here in Marin? I mean Mt. Biking was INVENTED HERE in Marin! It's gotten so bad that hikers (presumably) are now stringing stringing BARBED WIRE at chest height accross trails. I can only assume that it is to take out bikers. Can you believe that shister?

What is wrong with Marin residents? Do they have a way over inflated sense of self-importance/self-worth? Do they feel that they are above normal human common decency? Are they so convinced of their imagined superiority that such acts of terror are justifiable?

And people still say they want to live here? Outsiders just don't have a clue.

If this blog were not focused on housing and real estate then I'd be blogging this for sure.

Mar 27, 2007, 10:24:00 AM  
Anonymous Anonymous said...

Here's the article:

I was mistaken: not residents per se but Marin Open Space District employees are accused.

So some bikers are riding on trails they are not supposed to (as a Mt. Biker of old myself I can say that way too few trails are open to bikers IMO). But does that merit being maimed and crippled by barbed wire booby traps and metal spikes that seem to be designed to impale bikers who don't see them well in advance?


Only in Marin.

Sheesh! I've threadjacked my own post!

Mar 27, 2007, 10:33:00 AM  
Anonymous Anonymous said...

"It's gotten so bad that hikers (presumably) are now stringing stringing BARBED WIRE at chest height accross trails."

Hmm, I wouldn't want to be "clothes-lined" while descending Mt Tam--thanks for the warning. As you note, there's a lot of petty feudalism in Marin that negates some of the value to living here. Possibly too much entitlement in Marin for its own good? Like Sartre's No Exit, the most fitting punishment is inflicted by people just like themselves.

Mar 27, 2007, 11:10:00 AM  
Anonymous Anonymous said...

Ah! Marin County! I grew up here and boy do I want to leave. The smugness,the entitlement, the me first attitudes aren't for me.

When I was a kid - we ran in packs (there were so many of us!) through the neighborhoods, and everyone looked out for us. Told our parents when we were over the top. Everyone in town knew my dog. It was a real community then. Not anymore.

I am saving my money and will buy a house out of the area in three years. I can hardly wait!

Mar 27, 2007, 12:10:00 PM  
Blogger Westside Bubble said...

(Getting away from mountain biking....)

Really appreciate this post! These are the kind of numbers I've been looking for.

Calculated Risk and Tanta blogged about it back on March 12 (worth reading for the replies), but yours made its points vivid and provided a link. It really deserves to be read in full.

Mar 27, 2007, 1:52:00 PM  
Anonymous Anonymous said...

Thank you Marinite! these graphs are very useful.One thing that throws a wrench into trying to predict defaults are mortgage "recasts" rather than arm "recasts" automatically into a full amortizing loan when a trigger amount is reached,usually 110% or 125% of the original loan a borrower always makes the lowest(neg-am) payment,one fine day comes the now have a 30 year arm,which will continue to reset,and it only allows the fully amortizing payment.did i say oops?oh and you owe 110%,are paying interest on interest,and all payments are first applied to interest.thank goodness you got one of them affordability products...and real estate always goes up.oops.

Mar 27, 2007, 5:54:00 PM  
Anonymous Anonymous said...

Yes...this is interesting data. I had no Idea that Marin had so many resetting ARMs.
Keep up the good work. People need to know.

Mar 27, 2007, 6:02:00 PM  
Anonymous Anonymous said...

Listened to NPR on the way home from work today and the news is getting worse by the day.. Lots of talk about spill over into the broader economy and the consumer based economy slowing much more quickly than anyone expected (yea right).. All the stuff that’s been predicted on this blog and other’s like Ben’s for the past 2 years.

Six months ago I might have cheered and felt validation by this news, but today, my reaction was really one of sadness and anger.. I’m just plain pissed off..

This whole damn thing, including all the negative news, incredible greed, pain, loss and fear (now with owners and before with buyers) that is looming heavily in this market and across this country bugs the hell out of me... I'm especially bugged by those in power who created this mess or were in the best position to prevent it, esp people like Sir Allen... what a frickin joke of an economist… but hey, he got his, which is the new American way.. now we’ve got to listen to him covering his tracks with his latest “observations” of the housing market rather than accepting responsibility for essentially indepting an entire generation… what a joke..

This whole friggin mess is a sad commentary on our country and our leadership.. and another thing while I’m rating, there is massive (MASSIVE) culpability on both sides of the political isle on this one..

When the hell did $750K or $1M stop becoming an absolute TON of money ? Can someone answer that for me ?

Mar 27, 2007, 8:00:00 PM  
Blogger Marinite said...

I hear ya anon. I seriously hope there is a major clean up campaign with rolling heads involving some tar and some feathers. And I hope this generation learns some history and learns what debt means and what personal responsibility is all about.

One can only hope.

Mar 27, 2007, 10:38:00 PM  
Anonymous Anonymous said...

Thank you for the wonderful post Marinite. I found the Zelman piece highly illuminating regarding the potential pitfalls in the new homes market.

Mar 28, 2007, 2:21:00 PM  
Anonymous Anonymous said...

Finally your back. I've had to slum it over at the Sacramento landing site for a few months to get my daily updates. Good for you Marinite!

So...why don't we all pool our cash and buy some bargins here in a few years?


Mar 28, 2007, 5:39:00 PM  
Anonymous Anonymous said...

caddis -

I would be all for it as long as we turn around and sell them on very easy terms to just minorities, the working class for $0 profit. That ought to shake up Marin.

Mar 28, 2007, 5:57:00 PM  

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