Monday, April 02, 2007

Countrywide Financial REOs in Sacramento

A fellow by the name of Dimitris has started up a blog tracking Countrywide Financial's REO inventory, and I thought it would be interesting to see how CFC is doing here in Sacramento.

(For those of you who are interested, CFC currently posts a list of all the property they have repossessed due to foreclosures (REO). The list can be found here. Beware, the list takes a long time to load.)

Once I was aware of these data, I became very interested to discover what CFCs approach was for ridding itself of these houses. Boy, was I surprised.

According to Dimitris, CFC has 177 REOs in the Sacramento area. Running the addresses against my database yielded some startling results:

- Only 42 of the 177 were listed in the MLS as of March 31. (38 on March 24)
- 68 appear to be purchase defaults (purchased within the last four years)
- 109 appear to be refi defaults (purchased more than four years ago)
- On 29 of the 68, CFC is asking for a profit based on REO book value

Here is a typical example:



8032 GOLDEN RING WAY
ANTELOPE, CA 95843
Total Gain: $42,037Percent Gain: 13.4%
Asking Price: $354,900
Bedrooms:3 Baths: 2 Sq. feet:1622

Listing History:
Down 15.5% from $419,900 On 2006-04-09
Down 4.1% from $369,900 On 2006-12-30
Down 2.5% from $363,900 On 2007-02-24

Previous Sales:
Sold on 2004-04-13 for $294,500
Sold on 2006-12-01 for $312,863

MLS# 60134688 Google Maps
Assessed Value Property Tax Bill




Although this is a relatively small data set, it does betray an undercurrent in this market that has remained pretty well-hidden until recently. How many other REO holders are keeping back inventory? How long can they hold out before they're forced to sell? One thing's for sure: A third player is about to enter the Sacramento market in a big way.

As a companion piece to this post, I put together a bonus Countrywide Edition over on the Flippers In Trouble blog. Enjoy.

23 comments :

Dr Housing Bubble said...

This is common. I'm sure many folks are waiting until spring and summer to unload their properties. Many agents are telling their clients that summer will pick up. But what do you think will happen if this advice is multiplied thousands of time over?

Yes, we've had a drought in SoCal this year but it will pour homes in the summer.

Dr. Housing Bubble

Anonymous said...

The gains are deceiving for Countrywide on the houses for sale at the bottom. A lot of those sales were second mortgages that were forelcosed on. They are still on the hook for the 1st which was issued by them as well.

Also, many of the 1st mortgages that defaulted had second's (that were Countrywide's) that got wiped out.

Sippn said...

Really, CW might have this under control. Was reading about a real estate investor in the WSJ a week or 2 ago who buys repos and resells as subprimes ($750 down, $500/month) and repos 30%+ of those. Makes over $1mil/year working the problem. Uses money from a small group of investors, no banks. Also a friend tells me that there are operations like this in mobile homes ("trailers", honey) with similar repo rates.

Used cars have got to be like this.

CW and the likes of them have brought it mainstream.

Somewhere between Bank of America(used to be) and Tony Soprano....

Max said...

The gains are deceiving for Countrywide on the houses for sale at the bottom.

I realize that. The point is, if the previous owner couldn't sell the place at a break-even price, what makes CFC think it can?

CW and the likes of them have brought it mainstream.

I seriously doubt CFC intended to become a real estate holding company. Each of these houses represents a bad underwriting decision that cost CFC thousands of dollars.

Perfect Storm said...

OREO's take time and money, we are going to be flooded with foreclosures in a matter of months. Making a loan is all roses, oh here's the money now go buy your house.

OREO's pay me you loser, NOD filed, auction sale, countless phone calls, very emotional for both the borrower and the lender and expensive. This market is going end very badly.

We got a fire sale in Sacramento, good deals for all by 2009. If you have 20% for the down, most do not.

Max said...

For those who are curious about the nuts and bolts of mortgage servicing, please refer to the excellent post by Tanta over on Calculated Risk:

Mortgage Servicing for UberNerds

My question to those in the know, is how many of these REOs are for loans held by CFC, and how many are on loans serviced by them? Do you think it's fair to say they're working harder to liquidate their held portfolio rather than the one they're merely "servicing."

More importantly, is there an easy way to tell the difference?

Anonymous said...

Countrywide owns very few of the loans in it's servicing portfolio. The loans they do own are much lower risk in general than the overall pool. They service the loans for investors. The servicing income (paid by the investor) is constant. Their cost to service may go up with more REOs, but they aren't on the hook for the loan amount--the investor is.

Patient Renter said...

anon: That all sounds right enough.

Max: Do you really think Countrywide is holding out inventory? If so, considering what anon just posted, they could probably hold out as long as they want.

Max said...

Max: Do you really think Countrywide is holding out inventory?

I know for a fact they are, based on what they have in the MLS vs what's on their REO site. I'm just trying to understand the rational.

To me, it makes no sense to hold listings out at this point, so there must be another explanation. So far, I've heard:

- There isn't enough rehab capacity to bring the houses up to repair
- They're worried about self-competition
- They don't care since they're not taking the loss (not doing more than they have to per their servicing contracts)
- They're waiting for the prime selling season

The only one that makes sense to me is that they simply don't care. If they're not taking the loss, they have no incentive to work harder than they're required to by their servicing contract.

Anonymous said...

OREO's are pain they do not have the capacity, plus good OREO people are hard to find, this process actually involves knowledge unlike selling loans, anybody can con people into a liar loan.

Anonymous said...

Max: Do you really think Countrywide is holding out inventory?

If they start pricing homes to sell then their stock would be worth less. All this inventory is priced into their stock. The question is *when* do they re-evaluate their inventory and tell their stockholders the grim reality of what the inventory is really worth? Maybe when Mozilo gets done selling his shares first?

Darth Toll said...

Holy Crap! Great post Max!

Self-competition is certainly a reason. I guess it would be possible to coorelate current CFC MLS listings to those still hidden to determine if they are in the same neighborhoods, etc. This might shed some light on it.

Another thing to consider is pressure from the REIC (local Realtor groups, etc.) The last thing the Sac REIC needs right now is a bunch more inventory clogging things up and putting a real damper on the Spring season. I have no doubt that the REIC is leaning on CFC to not list too many REO's. How long this will continue in a depreciating market is anyone's guess, but Mozilo and Co. won't hold out forever and somebody has to blink.

Anonymous said...

With the quick upturn in REO inventory, Countrywide is probably just working on increasing staff and taking care of existing REO properties. It will take a while to ramp up their operations. I don't think the holding back on MLS listings is intentional. They are just slow/overwhelmed.

wannabuy said...

anon said:
"They are just slow/overwhelmed."

Maybe... maybe they're actually fixing a few up? Most likely they're still in denial or have a broken REO process.

As to the theory of holding off the market about 120 homes to prevent self compitition... I really doubt it. Come on, would 120 homes pulled from the Sacramento market impact the makret in the slightest? Would we even notice that addition of inventory if it was added over 14 days versus the normal addition?

I'm of the theory that the soft stuff has hit the fan and Countrywide is still trying to understand that they *could* get splattered.

Got popcorn?
Neil

Tanta said...

Hey, Max. Nice post.

How long does it take to do an eviction in CA?

I don't know--never been a CA lender. But there are certainly parts of the country where you can own the house in 120 days and spend the next 120 trying to get it vacated. Then you get to send in the rehab crew.

Just a thought about those timelines.

Anonymous said...

In CA it can take upwards of 3 YEARS to evict if the former owner refuses to leave, files BK, and then exercises all of his legal rights.

Max said...

Just a thought about those timelines.

I think Anon1020 is correct, depending on how vigorously the foreclose-ee fights back.

Would CFC publicly list houses as REO if there wasn't a clear title? If so, that would muddy the waters considerably...

Anonymous said...

CFC, or any other lender, could indeed have "clear title" to the property and still be faced with the above entanglement with the former owner.

Welcome to the REAL world of REO!

Caveat emptor dudes!

Max said...

CFC, or any other lender, could indeed have "clear title" to the property and still be faced with the above entanglement with the former owner.

So what you guys are saying is that the eviction/repossession process takes place separately from the REO/title process?

Wow, what a mess.

Anonymous said...

Max, Of COURSE it's separate. Think about it. Taking paper title from a non-paying debtor is unrelated to getting that debtor physically off the premises.

However, it is highly UNLIKELY that any of the REO's you see on the MLS have recalcitrant squatter / former owner issues. But if you are a rookie buying at the courthouse auction, you are entering a HOUSE OF PAIN.

Anonymous said...

They are probably waiting to see if the govt is going to bail all these people out or bail them out!

Max said...

Taking paper title from a non-paying debtor is unrelated to getting that debtor physically off the premises.

I would think that once the title has been transferred (either through auction or reversion if no one bids), anyone living in the house without the title holders consent is trespassing, and could be forcefully removed (the famous sheriff at the door).

When I used the word "mess", I was talking about it from a data perspective. If there's recourse for a former owner after a property goes REO, then the CFC data becomes more difficult to parse. If there isn't, (the former owner is merely trespassing and has no right to occupancy), then I would consider that part of the rehab issue.

Patient Renter said...

"They are probably waiting to see if the govt is going to bail all these people out or bail them out! "

That, or they're simply waiting to be physically removed. Put yourself in their place, why leave?