Monday, July 2, 2007

Downey Foreclosures Surge in Second Quarter 2007

Today I updated my Downey Real Estate Owned survey for Q2 2007. It's based on a sample of Alameda, Contra Costa, Kern, San Diego, San Joaquin, Solano, and Orange counties [last update: June 6, 2007]. See the footnote for more on how this data is collected.

Those 7 counties are only a fraction of the counties where DSL makes loans - DSL has at least one REO in over 40 different counties. However, the 7 counties did account for 40% of the REOs listed on DSL's website on June 6, 2007.

Downey REOs exploded in the second quarter, while NODs were down from the Q1 pace but still up substantially year over year.

Based on the historical contribution of 40% of REOs by these 7 counties, we can guess that Downey total REOs will increase by approximately 29/.4 = 72 for Q2 2007. That should be a dollar amount somewhere in the low eight figures.

From the Q: "Of the total non-performing assets, real estate acquired in settlement of loans represented $17 million at March 31, 2007, up from $9 million at December 31, 2006 and less than $1 million at March 31, 2006." An eight figure increase in Q2 2007 would more than double the dollar amount of REOs.

Grove Nichols, Communications Director at Indymac Bank, wrote an interesting response to the negative coverage they have been getting. I know that people from Downey, Corus, SPF, and BKUNA read this blog. If any of them wants to write a rebuttal, I would be glad to post and debate it here.

Make sure you see the Standard Pacific post. The inventory and foreclosure data in the Downey/SPF California markets is terrible. Downey's borrowers seem to be treading water, but for how long?

Not all counties make this data easily available online (especially in California). Los Angeles does not provide online access, and many of the counties that do have extremely cumbersome interfaces. My surveying method is to count all of the default notices and all of the notices of trustee's sale/trustee deeds during the time period. I do not make any adjustments for notices of rescission of default. Also, several of the counties do not show NODs on the county recorder website.


Anonymous said...

Thanks again. Those clowns at Downey are going down.

jmf said...

Thanks also from Germany for the update.

With 35,3% short interest we are not alone with the opinion that DSL is toast.

Anonymous said...

Just the tip of the iceberg. The real trouble comes from the MTA loans that don't have modification options because they have been sold.

Downey finally started offering modifications on the COFI loans in their portfolio, but they can't touch the MTA paper. The borrowers that are unable to refinance due to the increase in their loan balances and decrease to their values are facing payment increases of 130-150%. The sad part is some of their prepayment penalties aren't even up yet.

While Downey can begin to mitigate losses on the loans within their portfolio, they do not have the either the power or inclination to mitigate the losses on the loans they have sold. These borrowers are sitting ducks unless something happens to open up mitigation options to displaced borrowers. They know the loan product is defective, and that the underwriting guidelines at best were irresponsible.

What I can't understand is why they are still offering a 1% start rate and why they increased compensation to 3.75%?. Throw in doing away with their approved appraiser list while relaxing appraisal review procedures and I'd almost say they are doing it on purpose. I mean, you gotta think that these guys know how to do basic math and can grasp basic economic concepts.

Is Downey a rat in a trap or are they just a common rat?

The interesting thing about Downey is because of their 110% limit on Neg Am, they get to lead the industry in defaults. However, Countrywide holds the crown for putting equity lines behind their neg am stated product. Brilliant.