The Second Foreclosure Tsunami Is Coming, And Is About To Kill Any Hopes Of A "Housing Bottom"

Tyler Durden's picture

In what appears to be surprising news for some, Reuters has an article titled "Americans brace for next foreclosure wave" whose key premise is that "a painful part two of the [housing] slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures." Thank the robosettlement, where in exchange for a few wrist slaps, contract law was thoroughly trampled by America's attorneys general, but far more importantly to the country's crony capitalist system, the foreclosure pipeline was once again unclogged, and whether one does or does not have a legal title on a given house, the banks are now fully in their right to foreclose on it. What this means also is that America's record shadow housing inventory, which is far greater than any fabricated number the NAR reports on a monthly basis, is about to get unleashed on buyers, shifting the supply curve much further to the right, as up to 9 million new properties slowly but surely appear on the market. And while many will no longer be able to live mortgage free, forcing them to go out and rent (and no longer be able to afford incremental iGizmos), it also means that the prevalent price of homes is about to take another major tumble, making buffoons out of all those who, once again, called for a housing bottom in early 2012. Here's the simply math: there will be no housing bottom until the 9 million excess homes clear. Period. Until then it is a buyer's market, even if said buyer is unable to obtain bank financing, as ultimately it will be the seller who is forced to monetize (or vacate if underwater) their home in a world of ever diminishing cashflows. The fear of the supply onslaught will only make the dumpage that much faster.

As a reminder, this is what America's recover shadow inventory looked like recently (read more here):

For those curious how much more foreclosed properties are about to hit the market, we have the answer. Courtesy of RealtyTrac we know how many homes were foreclosed upon in the period until November 2010, when robosigning became a prevalent, if short-lived issue, or roughly 330,000 a month. In the aftermath, this average has dropped to 227,000 a month: a roughly 100,000 difference in less foreclosures each month! Which means that in the deferred amount of foreclosures, over and above the already endogenous deterioration in home prices and declining household income, means that there is at least 1.6 million in homes that are just waiting for a green light to be foreclosed upon, sending shadow inventory in the double digit millions, and unleashing a selling wave unlike any seen before. Behold the deffered foreclosures in all their glory:

Translation: Just like John Paulson lost billions on his massively wrong way bets that housing would soar (ironically, after getting the move lower correct), so Goldman's recent bet that properties will rebound is about to cost the firm dearly.

Because at the end of the day, it is all about supply and demand, or, said otherwise, money.

Reuters explains further:

"We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010," said Mark Seifert, executive director of Empowering & Strengthening Ohio's People (ESOP), a counseling group with 10 offices in Ohio.


"Last year was an anomaly, and not in a good way," he said.


In 2011, the "robo-signing" scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.


Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.


Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January.

Well, no. LPS which is going through legal troubles of its own, unfortunately, is very much, less than credible. For the only real source on foreclosure data, we go to RealtyTrac, where we find that February foreclosures hit 206,900, the second lowest in many years, and higher only than December 2011's period low 205,000 (see chart above). But while there is no need to fabricate data, foreclosures will eventually come, as banks, first slowly, then very, very fast, start sending out foreclosure notices. What happens next will be entire neighborhoods with "Foreclosure" signs in front of the houses, doing miracles to prevailing home prices.

A January report by the Neighborhood Economic Development Advocacy Project in New York found that in the first half of 2011 the number of 90-day pre-foreclosure notices in New York City outnumbered court foreclosure actions by a ratio of 14 to one, indicating that while proceedings were initiated against many homeowners, they were left incomplete.


"Now the banks have a settlement, foreclosure numbers for 2012 are going to be high," said NEDAP co-director Josh Zinner.


A recent survey by the California Reinvestment Coalition, an umbrella group of nearly 300 non-profit groups in the state, of member agencies found 75 percent of respondents expected increased demand for their foreclosure prevention services in 2012 but more than a third had to scale back services because of funding cuts.


"Funding is a major concern given what our members expect for this year," said associate director Kevin Stein.

Needless to say, the return of reality, i.e., when one actually has to pay for living somewhere, instead of living 5 years without making a mortgage payment like the Ritters, means a return of ever louder calls for socialist debt principal reduction. What is odd is that nobody seems to care: certainly not the millions of other hard working Americans who would end up footing the bill.

All this has non-profits intensifying calls for the Federal Housing Finance Agency to drop its opposition to allowing the government-backed mortgage giants Fannie Mae and Freddie Mac it regulates to reduce principal for underwater homeowners.


Principal reduction involves reducing the amount borrowers owe in order to make a loan modification affordable for struggling homeowners. Republicans and the FHFA oppose principal reduction because of the risk of "moral hazard"- that homeowners who do not need help will seek to abuse largesse and have their mortgages reduced too.


"Until banks engage in meaningful principal reduction as a matter of course," ESOP's Seifert said after a recent protest at a Chase branch in Cleveland, "this crisis will not end."

Well then it won't. Because since every bank asset is another bank's liability, unless the government pulls a GSE, and funds the wholesale mortgage reduction (call it the "final solution" of ubiquitous and unquestioned socialism), banks will not do this. And while this next bank bailout is only years (at most) away, in the meantime we will see banks do just what they always do: foreclose once again, and release the pent up vacant homes into the market. Which for anyone who has taken Econ 101 means prices are about to take yet another dive lower, and the entire housing recovery plan can be scrapped. As to what it means for the Fed's plans for future easing, well... we believe our readers are smart enough to figure this out on their own.

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Mercury's picture

Oh boy, and here comes a dragon for Obama to slay on the way to November 2nd.

Makeup!  Ready on the set!

tarsubil's picture

What will he call it? Cash for Jewish Lightning? 15 million burned out houses later and we got a housing shortage.

Mercury's picture the Clinton era church arson "epidemic". Excellent. Many ways for a savy politician to win there.

It's actually November 6th BTW.

wisefool's picture

Wow. What a blast fromthe past! Let me see if I remember that story right. Rickety old churches, often deep in debt, little to no attendance. burn in hate crimes. News coverage, insurance payouts, donations from around the country to right the wrongs.

Troll Magnet's picture

I'm not advocating anything here but...
If you own a home that's underwater and you have an insurance on it, wouldn't it make more sense to burn it the fuck down and get your claims on? Again, i'm not advocating anything. Just, you know, shootin' the shit as they say.

economics9698's picture

Oh fuck now new car sales will drop when these freeloaders have to pay rent.

FEDbuster's picture

For some the car payment will be their rent payment, too. 

Oh regional Indian's picture

Some big lie is coming, so no one will notice.

I mean, robo-signing? Linda Green? Where did all that go? The housing bubble was (ongoing) the biggest ever next to the Bond bubble (very much ongoing).

These guys are brilliant at perception management, you have to give them that. Just plain brilliant.



The Navigator's picture

BRING IT ON - the sooner it hits, the sooner we get outta this shit hole.

We've been postponing this since before Obama got elected - forget the blame, all in government were co-consirators - if we're ever going to get out of this hole, the truth got to be admitted and we build from ground zero.

Nobody's going to buy or build real estate with prices and mortgages based on BS.

Red Raspberry's picture

I say so too.  My tax assessment will go down.  In three years that is.  And the taxes will go up to accomidate.


Another plan foiled......

csmith's picture

For the banksters, the Robo signing "scandal" was a Godsend, because it permitted a 15 month break in the foreclosure grind, extended the pretending, and ended with a minor slap on the wrist! Now they have to get back to the real work of writing down assets and can no longer hide the crap on their balance sheets. And if the FHA permits FNM and FRE to take losses on principal on first mortgages, that means $1 trillion in HELOCs (which happen to be the BEST performing assets the banks have) need to be ZEROED OUT! Bad stuff coming...

gloogle's picture


Michael's picture

"The Second Foreclosure Tsunami Is Coming", authors now using my terminology to describe the situation, as I have said it in this way a hundred times in the past, I'm flattered.

vast-dom's picture

yeah but did you engrave it in your swastika? 

Michael's picture

They just opened up the second tsunami wave on the Mc Mansions, The Garage Mahals, Faux Chateaus, Starter Castles, Hummer Homes, jumbos, prime, the nice stuff. They want it all. 

The Big Ching-aso's picture




This second tsunami will hit us like our first title wave.

Oh regional Indian's picture

Gots to love a good wit. Classic!


wisefool's picture

The only thing I can advocate is non-violence. If a person thinks through all contingencies to ensure no harm to anyone else I would not judge, but remember there are alot of people who are clinically retarded and you must make sure they can not possibly get hurt.

any/all sarc aside. nobody should get hurt, ever. over a house or other financial matter.

rocker's picture

Don't Cops go after bank robbers with pure force.  I remember driving through Hershey Pa down the main street looking down the barrel of a shotgun which all drivers before and after I did.  He stood in the middle of the road with back-up on the sides.  When I asked what the hell that was about, I was told somebody robbed a savings and loan bank in Hershey. That was NOT sweet. So, who draws the line?  Surely, not you.   Just sayin'.

wisefool's picture

Right. I try to do the "judge not less you be judged" thing. I don't draw the line, except at violence. not enough time for nonsense like that, even if it wasn't repugnant to me.

Real Money Wins's picture

"If you will not fight for the right when you can easily win without bloodshed; if you will not fight when your victory will be sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a small chance of survival. There may even be a worse case: you may have to fight when there is no hope of victory, because it is better to perish than to live as slaves."
  --  Winston Churchill


If you are reading this YOU are the Resistance!!!

zebrasquid's picture

Burning down your house doesn't relieve you from your mortgage debt.   

Lots of trouble and risk for no good purpose...if you're underwater and your house has a purchase money first mortgage on it (in many states, including CA) - just walk away.  They can't come after you for the deficiency (the difference between what it sells for at auction and what you owed).  You take a credit ding, and all is forgotten in a couple years -- after all, you had to walk away due to the nationwide housing crash causing your situation, not something you created. You're not a deadbeat, you were one of tens of millions of victims.

Trouble is, many places it's getting so it cost more to rent a replacement house than to continue your mortgage payments on your old one...even if your equity is all gone.

ViewfromUndertheBridge's picture

Trouble is, many places it's getting so it cost more to rent a replacement house than to continue your mortgage payments on your old one...even if your equity is all gone.

That is called a housing recovery...

sessinpo's picture


tarsubil       2318141

What will he call it? Cash for Jewish Lightning? 15 million burned out houses later and we got a housing shortage.



Naw, they like to use nifty acronyms that turn into words you can say. For example they used HARP=Home Affordability Refinance Program.

I suggest FARCE = Free Asset Refinancing Created Earmark.

mr. mirbach's picture

He'd better have a double edged sword!!!  Analysts expect 2012 to be a record-setting year for commercial real estate defaults

PC Load Letter's picture

Don't forget the student loan time bomb.....two dragons to kill before November 2nd. He can't lose the support of all those college kids too

And can ZH take the Joker....err......I mean Michelle Obama's face off the site? Makes it tough to read

wisefool's picture

It is targeted advertizing. Kinda like the scene in ghost busters "Chose your destroyer" I actually dropped cable and cnbc over a year ago, but Jim Cramer and his tax free charity trurst in gold are back on both my ZH and OTA channels. Also some ads for this timmay guy on a cartoon called southpark.

Woodyg's picture

Don't worry - the only dragon Obummer will kill is We the Peole.

The Oilybomber doesn't give a shit about anything but his bankster buddies and his after office $250,000 speeches.

And in my small town - there are a few hundred foreclosed houses sitting vacant - NOtpT coming on the market.

And what of the news the banksters are setting up property mgmt corps - and buying the houses En Masse - of course for a nickle on the dollar -

These SOB banksters won't even sell the damn vacant houses.

They'll pawn them off to their buddies on the cheap - take a loss - get bailed out - and use the illicit funds to buy up the vacant homes - then raise the rent on us!

Where's my guy? The Rents Too Damn High?

Shazam342's picture

If one's recent degree is not helping said student get a job, he/she should be allowed to default on it. Professors and academic departments in universities/coleges do lie/exaggerate about the job opportunities available to students who put up with the student loan.  They should be treated just like a fly-by-night tech schools that promise placement for students, but come up short deliberately after the students go through 'training'

Element's picture

Use Mozila Firefox plus the "NoScript" add-on for it = no more arseholes in adds.

I recommend getting the freeware version of Ad-Aware as well, it has a real-time pluggin module for Firefox which seems to cull almost all adds.


CheapBastard's picture

I'm pretty cheap but I'm thinking Barry will cough up $500 Billion of OPM to bail this pile. It could be more...but I'm a Cheap Bastard.

TheSilverJournal's picture

He'll cough up a lot more than that. Whatever it takes to keep the music going will do. Once the music stops, the entire fiat ponzi collapses and Barry doesn't get to drive the candy truck any more because there won't be any candy to hand out.

vast-dom's picture

this is good theatre...let's just hope it snowballs with rising gas prices and SP at 800 in next week or so. Europe tanks tonight.

One World Mafia's picture

I guess it's no accident the establishment is letting the candidate who is billed as an economic genius (more like stock scammer by what Ted Kennedy dug up in the '90s while Mitt was still at Bain) win the GOP primary.

UnderDeGun's picture

Using Ted Kennedy as a source on moral wrongdoing is like using an arsonist as a source for intentionally set fires data.

j0nx's picture

Indeed. But even a broken clock is right twice a day.

Madrid2020's picture

A wait to all those "free loaders" who have not been paying their mortgages and thus "stimulating" the economy have to go and find places to rent.And  instead of stimulating have to return to the real world.

The anti-stimulus is about to begin!


wisefool's picture

No point in spending any money on a home worth less than $1,000,000. Lots of old people like me are going to be giving them away soon. forclosure or otherwise.

francis_the_wonder_hamster's picture

And no chance of getting financed on anything over the "conforming" level......


navy62802's picture

People are acting like this is some sort of new revelation. It isn't. Another shoe that is going to eventually drop is interest rates which must rise again at some point.

kridkrid's picture

Interest rates can't rise... that's "Game Over".  It's game over anyway in our Schrodinger's Cat existence... but interest rates rising forces the issue. 

vast-dom's picture

negative interest rates and negative bond yeilds forever until forever crashes in the near future.

hyper-critical's picture

There are a number of things that Tyler and zhedge have just been shockingly ahead of the curve on and right about.

This is one of them.

Been waiting for this moment for months now...put on your August hats, because it's time to extract some serious fiat from the system.


Harbanger's picture

Tyler/ZH  have been spot on, sometimes too ahead of the curve.  Perfect timing to pull the trggr is up to the individual in the trenches.  Extracting some fiat from the system sounds good to me, especially during the election cycle hype.