Hinky work-outs in LA?

[william the wie]

I'm hitting various articles with a purported claim that non-agency bubble workouts are coming due this year and it ain't pretty. Anybody follow the real estate market well enough to sort out fact from fiction in these echo bust stories?

 

[Dekster]

It is more theoretical at this point. That said, worse case scenario is big urban markets like LA, SF, etc take a big localizied hit. It is a little hard to zero in on for a number of reasons. Two of the big ones are 1) we don't have good data on how many people affected from these tail end boom loans just stopped making payments during the recession so they could put themselves in position to get better terms under the many government programs that were forced down lenders' throats and 2) we don't have good data on how many of that same pool got write-offs and write-downs as part of the settlements banks reached with the government just to make them go away. I personally know someone who took out a large HELOC and purposefully stopped paying it just because they didn't want to pay it that was then written off by the lender as part of their settlement to basically give back a few billions in relief to delinquent borrowers. Of course the person who was so chuffed they had gotten away with it about had a cow when the bank 1099'd them the write-off amount and they had to take it in as income for tax purposes. It was all done rather capriciously IMO. The government wanted to appear as if they cracked down and the banks just wanted to get the DOJ off their backs so they just handed out ransom money to borrowers without rhyme or reason as to whom benefited.

 

[william the wie]

It is more theoretical at this point. That said, worse case scenario is big urban markets like LA, SF, etc take a big localizied hit. It is a little hard to zero in on for a number of reasons. Two of the big ones are 1) we don't have good data on how many people affected from these tail end boom loans just stopped making payments during the recession so they could put themselves in position to get better terms under the many government programs that were forced down lenders' throats and 2) we don't have good data on how many of that same pool got write-offs and write-downs as part of the settlements banks reached with the government just to make them go away. I personally know someone who took out a large HELOC and purposefully stopped paying it just because they didn't want to pay it that was then written off by the lender as part of their settlement to basically give back a few billions in relief to delinquent borrowers. Of course the person who was so chuffed they had gotten away with it about had a cow when the bank 1099'd them the write-off amount and they had to take it in as income for tax purposes. It was all done rather capriciously IMO. The government wanted to appear as if they cracked down and the banks just wanted to get the DOJ off their backs so they just handed out ransom money to borrowers without rhyme or reason as to whom benefited.

Northeast FL didn't get hit that bad and as a 40th birthday to me Gail paid off the last of our debts in 1992. I do know that right now people are spending money from HELOCs like there is no tomorrow and houses are selling like hotcakes to an extent that was not seen in the bubble.

 

[Dekster]

It is more theoretical at this point. That said, worse case scenario is big urban markets like LA, SF, etc take a big localizied hit. It is a little hard to zero in on for a number of reasons. Two of the big ones are 1) we don't have good data on how many people affected from these tail end boom loans just stopped making payments during the recession so they could put themselves in position to get better terms under the many government programs that were forced down lenders' throats and 2) we don't have good data on how many of that same pool got write-offs and write-downs as part of the settlements banks reached with the government just to make them go away. I personally know someone who took out a large HELOC and purposefully stopped paying it just because they didn't want to pay it that was then written off by the lender as part of their settlement to basically give back a few billions in relief to delinquent borrowers. Of course the person who was so chuffed they had gotten away with it about had a cow when the bank 1099'd them the write-off amount and they had to take it in as income for tax purposes. It was all done rather capriciously IMO. The government wanted to appear as if they cracked down and the banks just wanted to get the DOJ off their backs so they just handed out ransom money to borrowers without rhyme or reason as to whom benefited.

Northeast FL didn't get hit that bad and as a 40th birthday to me Gail paid off the last of our debts in 1992. I do know that right now people are spending money from HELOCs like there is no tomorrow and houses are selling like hotcakes to an extent that was not seen in the bubble.

Maybe they can afford to do it though and loans taken out since the recession have full-doc underwriting so are not really part of the late-boom bubble. Delinquency rates in the South strongly correlate to natural disasters. As long as the area was not hit hard by one of the hurricanes, then it should be fine. The Carolinas got smacked around pretty good last year, especially by Michael, and the delinquency rates are up in those areas, but that is also highly localized. Just some free-floating information--half of all mortgages are held by the government and given the division in Washington, that will likely constrain unfettered loan growth. The next recession will also serve to put brakes on the sunny optimism. You have to be 6 months delinquent now to go into real foreclosure due to Elizabeth Warren's reform law a few years back so there is a fair cushion for borrowers to ride out a down turn.

 

[william the wie]

If they were talking about the SALT bubble I would understand these claims. My wife has family in NY and the situation there sounds like a bad comedy. High SALT is causing outmigration that cause revenue shortfalls. The answer to the shortfalls is to raise taxes even more. And that leads to even more changes in residency. Rinse & Repeat on steroids cannot be a solution.

 

[Issa]

I'm in west LA area and the market is slowing down, lot of developers are forecasting a slower market and are not optimistic.
I think the market reached its peak and it is time for a correction.

 

[william the wie]

With AG Barr's expected criminal prosecution of sanctuary status the correction could be rougher than you expect. there have been numerous catch and release murders in other states. I do not know if this is true of CA but aiding and abetting a murder in another state by breaking federal law is going to really hard defend against in the state where the murder occurred.