If I have been in your living room in the past 3 years, this slide from Credit Suisse below is not news to you as  I’ve shared this slide with everyone I can as often as I can.   Last month we talked about Shadow Inventory and this month we’re again talking about the foreclosure boom that is about to hit.    Three weeks ago I had the opportunity to meet with on of Harry Dent’s (The Great Depression Ahead) analysts in Orlando.   He reminded me of that our near and present danger with regards to not only our aging demographics, but the looming threat of the Red Dragon coming up the path.  More on this later; however, I seriously urge you to read the above referenced book by Dent.

Brace for impact - foreclosure crisis coming to a head soon.  The next wave of foreclosures will include the ALT-A and Option Adjustable loans that were for the “good” borrowers.  Now (fast forward 3-5 years) those “good” borrowers aren’t so good anymore and are just as likely to walk from a current loan to realize and capture a “great deal” right down the street or across town.  The rational is, if I can buy a million dollar house for 650k, and my current 450k house is now worth 300k, it might make sense to trade up to capture this great buying opportunity.  Websites like http://youwalkaway.com/ are helping borrowers navigate the waters of foreclosure.

Back to the topic of today….. More foreclosures on the horizon.

On that front, the nation’s employers have stopped eliminating jobs en mass. The unemployment rate dipped to 10% in November. Many forecasters – and forecasting is a perilous endeavor, to be sure – believe hiring will hit stride late in the first quarter of 2010. If they are right, the employment recovery will come quicker compared to the previous two recessions (1991 and 2001) despite the greater severity of the current downturn.

More jobs, in turn, will help reduce the number of homeowners on the brink of foreclosure, which, by the way, has dropped for a fourth-straight month. One in every 417 homes received a foreclosure-related notice in November, but that is down 8% from October, according to numbers released by RealtyTrac.

We are not out of the woods yet. RealtyTrac expects foreclosure filings will post a second-consecutive record in 2009, with 3.9 million notices sent to homeowners in default, compared to 2008’s 3.2 million. However, if employment continues to improve, chances are good we will see a substantial reversal of that trend in 2010.

The drop in home values is another trend we expect to see reversed in 2010. According to real estate Web site Zillow, total home values in the U.S. declined by $489 billion in the first 11 months of 2009. That sounds like an astronomical figure, but it is actually an 87% improvement over the $3.6 trillion in lost homeowner value suffered in 2008.

More jobs could also reverse the trend in mortgage rates, pressuring rates to rise as loan demand increases. Though not showing signs of rising yet, mortgage rates have been at a plateau. Bankrate.com’s recent lender surveys suggest the downtrend is abating, with its most recent survey posting marginally higher rates than the previous week’s survey.

http://mandelman.ml-implode.com/2009/11/how-banks-view-loan-modification/

Month 1

Day 1 – Mortgage payment is late

Day 15 – Late fee charged if not yet paid

Month 2

Day 30 – Collection calls begin, loan is now in default status

Day 45 – Late charges accrue

Month 3

Day 60 – Lender gives deadline to bring all months current

Day 61 – If you have a conventional mortgage, the loan is sent to attorneys for foreclosure to begin

Month 4

Day 90 – Mortgage payments 1-4 are due

Day 91 – If you have a FHA mortgage, the loan is sent to attorneys for foreclosure to begin

Day 100 – Borrower receives acceleration letter from attorneys. ‘30 day intent foreclose’

Month 5

Day 130 – Acceleration letter expires. Foreclosure by advertisement runs in the paper for six weeks. The borrower now has that period to pay back all late payments. Attorney fees are added to the arrear of loan

Day 144 – Occupant of the property will be served with notice of foreclosure

Month 6

Day 174 – Final day to pay back arrears

Day 175 – Sheriff’s sale occurs at the courthouse in county where property is located

Redemption Period

The redemption period usually is 6 months long, there may be exceptions. During this period the owner has a couple of options, they can either sell the house or refinance to try and remain in the property.

Day 355 – If the loan is not paid off in full or possession is not kept, the owner must surrender the property

As you can see the process takes close to a year. If you are behind on payments, the best thing to do and do it right away is contact your lender. They will work with you to restructure or modify the loan. The longer you wait, the less and less chance you have of the lender doing so.

(thanks to by Jason Sandquist)

Notice a pattern? That’s the number of signed purchase agreements each of the last six weeks in the Twin Cities housing market, growing most weeks at the spring buyer market heats up. The 1,185 pending sales during the week of May 9 were a robust 26.6 percent higher than the same week in 2008. Over the last three months, there have been 2,228 more pending sales than the same time period last year!

There are some caveats to this good news.

1.) Traditional home sales (excluding foreclosures and short sales) over those last three months are down 17.6 percent from a year ago.

2.) Sales above $190,000 are down. 19.2 percent from a year ago.

3.) Sales of new construction homes are down 16.8 percent from a year ago.

Looking through a sharper lens is sometimes the best way to fully understand market dynamics.

Active Listings Current Inventory One Year Ago One Year Change
Inventory as of: 5/18/2009 26,419 33,193 -20.4%
New Listings Current Activity One Year Ago One Year Change
For the Week Ending: 5/9/2009 2,058 2,257 -8.8%
Pending Sales Current Activity One Year Ago One Year Change
For the Week Ending: 5/9/2009 1,185 936 +26.6%
Month Supply of Inventory May 2009 May 2008 Percent Change
7.7 10.2 -24.5%
Supply-Demand Ratio: May 2009 - 5.23 houses for sale per buyer
*Data collected from the Regional Multiple Listings Service, for residential properties in the 13 county region exclusively

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Did this guy panic?  No.  Why?  How was he able to take what he knows and put it to practice so easily and smoothly?  It’s almost as if he anticipated this situation.    Do you think there was time for conscious thought?  How long do you think it would take to process the fact that both engines failed and he doesn’t have time to return to LaGuardia Airport?

The inner game concept here is visualization.  This guy programed in to himself (through the military, through flight simulators, through visualization) ahead of the emergency.  He anticipated ahead the right techniques the right recovery patterns, there’s no time for conscious thought.  So that through his perception, power is out - or whatever, he knows how to handle it.

He knew what to do to keep that nose down.  deliberate preparation of a predetermined outcome, makes you very classy.  It isn’t luck. what will the next plateau bring for me. You need to anticipate, and what will that level demand of me?   will that look like?   You’ll use affirmations.

There’s an inner game concept called Lock On/Lock Out.  The principle is if you lock on to something, you lock out all else.  You lock out the possibilities.  It helps you achieve goals, but it also limits you to what you can see.

Over time, you build blind spots or scotomas to things that are right in front of you.  You can only consciously think of one thing at a time.     I want you to become open minded.  I want you to become skeptical, but see all the possibilities.

Mike Jacka, the host of the meeting showed this video below and I thought it was very thought provoking. My comments are below after you watch the video.

Charles Dickens’ “A Tale of of Two Cities” compared the fortunes of two protagonists who lived in Paris and London during the French Revolution. Paris was in a mob rule - full of chaos. Much like our foreclosure market. Then, there is London, repressed and quiet somewhat oblivious of what is going on in the other city.

In first housing marketing, many buyers/sellers find themselves in a deflationary reality where their home values, their neighbors home prices, and interest rates are dropping almost daily. REOs, short sale, foreclosures are all pulling the market down at a steady pace. This video talks about the affordability index. When affordability is at it’s lowest, it marks the peak in house prices, with a decline sure to follow. We’re now approaching unprecedented affordability index. The video stated the median income is 202% of what’s necessary to qualify for the median priced home. That means on average Minnesota’s make twice as much to qualify for our housing stock. Now is the time to upgrade and move up. If your thinking about buying, now is the time.

However, as an investment group, we are still seeing prices in a deflationary cycle. Therefore, we are trying to unload everything new we buy. We are not holding, unless it’s a can’t loose situation. The mobsters are the lenders and the government. However, things are soon to change.

The second market is one of inflationary price values. Inflation is bad - right? We’ve all learned that. How about hyper-inflation? This new “second” market will drive up prices once the built-in inflationary machine from the government begins gaining momentum. You think $4 gas was bad? Wait until you see $8 gas. Once we perceive prices going up, we will stop selling and spend as much of that cash that we’ve still got on more houses. We’ll let inflation drive up the prices while we rent them watching the prices go up and our rents increase.

stay tuned for more tips.