by Calculated Risk on 6/28/2009 10:29:00 AM

From the LA Times: Personal bankruptcies surge in Southern California

Going legally broke has made a big comeback -- especially in the Los Angeles area -- despite a mid-decade revision to the U.S. Bankruptcy Code intended to curb filings.

The number of Southern Californians seeking bankruptcy protection nearly doubled in 2008 from 2007 in the U.S. Bankruptcy Court's seven-county California Central District, by far the biggest increase in the nation.

Bankruptcy is still booming. Personal filings from January through April, the most recent month available, rose 75% in the Central District compared with the year-earlier period.

Bankruptcy experts attribute the growth mainly to the mortgage meltdown, which hit the region's adventuresome borrowers particularly hard.

Ahhh ... "adventuresome borrowers" ... sounds better than gamblers or speculators.

Click on cartoon for larger image in new window. Repeat: Cartoon from Eric G. Lewis, a freelance cartoonist living in Orange County, CA.

by Calculated Risk on 6/28/2009 01:31:00 AM

First from Matt Padilla: Frenzied bidding on discounted foreclosures

Whenever I attended auctions in 2007 and 2008, investors generally passed on properties. But on June 26 they jumped on houses and condos with discounts of greater than $100,000 on the debt and fees owed on each property.

For example, at least four people bid on a two-bedroom house in Anaheim on Zeyn Street. Winning bid: $206,000. Amount owed before foreclosure: $565,000. Discount: $359,000. ...

The discount is what the bank is willing to accept; it’s not directly related to the current market value, though I am sure the bank has a ballpark value in mind when it decides how much to accept.
...
A few other examples:
•Another property in Anaheim, a condominium on South Walnut, sold for $154,000, 57% off the debt owed of $358,000. At least three investors bid on it.
...
•A property on West Sunflower in Santa Ana went for $110,500, close to a third of $319,663 owed. ...

Normally lenders just bid what they are owed at auction, but I've been hearing for several months about some lenders bidding substantial under the amount owed. Jillayne discussed this a couple of months ago for an auction in Bellevue, WA.

On a slightly different topic - many REOs are receiving multiple bids (because some lenders are trying to price them to start bidding wars). Here is a video from Jim the Realtor (after the ice cream truck bit) of an REO with 18 offers:

by Calculated Risk on 6/27/2009 09:37:00 PM

Yesterday I posted a graph of the Freddie Mac delinquency rate by month since 2005. I was asked if I could add the unemployment rate ... so by request ...

Click on graph for large image.

This graph shows the Freddie Mac single family delinquency rate and the unemployment rate since 2005.

Note that the unemployment rate y-axis starts at 4% to match up the curves.

Here is the Freddie Mac portfolio data.

There are many reasons for the rising delinquency rate. Earlier today we discussed some new research suggesting a number of homeowners with negative equity are walking away from their homes ("ruthless default"). There are also negative events that can lead to delinquencies - like death, disease, and divorce - but one of the main drivers is probably loss of income.

by Calculated Risk on 6/27/2009 07:58:00 PM

From the WSJ: GM to Take on Future Product-Liability Claims (ht sportsfan, Basel Too)

General Motors Corp ... has agreed to assume legal responsibility for injuries drivers suffer from vehicle defects after the auto maker emerges from bankruptcy protection.
...
Under GM's original bankruptcy plan, the auto maker planned to leave such liabilities behind after selling its "good" assets to a "New GM" owned by the government. That meant future GM car-accident victims who believed faulty manufacturing caused their injuries would be unable to sue the New GM. Instead, they would have been treated as unsecured creditors, fighting over the remains of GM's old bankruptcy estate.

GM's move to take responsibility for future product-liability claims, outlined in a court filing late Friday evening, represents a partial victory for more than a dozen state attorneys general and several consumer advocacy groups.
...
Car-accident victims with pending lawsuits and those who had won damages against GM before it filed for bankruptcy would still be unable to bring claims against the new GM. They would remain with other unsecured creditors making claims against the "old GM." As GM's old estate winds down, those victims are likely to recover little or nothing.

This agreement doesn't cover current product liability plaintiffs - this just appears to cover future car-accident victims.

by Calculated Risk on 6/27/2009 05:51:00 PM

From HotelNewsNow.com: California to see record number of hotel foreclosures

The number of California hotels in default or foreclosed on jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default, according to California-based Atlas Hospitality.

With 19.6% of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County follows with 16.1% and San Diego County has 12.9%. Los Angeles County, with 12% of the total, has the most hotels in default. San Bernardino County is next with 9.7% and San Diego County follows with 8.0%.
...
No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing. Unfortunately, based on today’s market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenues (California is down 21.5% year-to-date) combined with the jump in cap rates has resulted in a massive loss in values. We estimate that values are currently 50-80% lower than at the market’s peak in 2006-2007.
emphasis added

Moody’s/REAL Commercial Property Price Indices showed CRE prices off almost 30% from the peak, but that was for office, industrial, apartments and retail. Hotels are even worse off, and a decline of 50% or more in appraised value from the peak seems possible with RevPAR off 20% and rising cap rates.

Once again the California's Inland Empire is getting crushed. (San Bernardino and Riverside counties in the article above)