This is a little anecdotal, non-scientific snapshot of the returns 2nd lien lenders can expect in the San Diego Foreclosure market.
From a BoomBustBlogger:
"I manage a large real estate team in San Diego and we do a ton of foreclosures with almost 200 REO's either assigned, on the market or in escrow. We started charting the drop in prices on a webpage at www.foreclosure-hotlist.com The "previous value" includes previous sales, the foreclosure amount or the amount of the previous debt. You are right on the money with the call on the top-end HELOC's. They are getting killed right now, there is no equity to protect them and they are sacrificed by the Senior loan who still isn't getting their debt covered by the sale. Add to this the problem we face on short-sales. All of these securitzed debt products mean that in some cases there is no one who can negotiate to take a smaller payoff. All they can do is accept payments, accept payoffs or foreclosure... nothing in-between."
From the reader's site (red font is my annotation):
Here is the latest list of San Diego Foreclosures that already have a deep discount of 10% or more.
These are all bank-owned properties listed by the Gary Kent Team.
For more information on any these properties, call 858-457-5368 and a team member will be ready to help you.
Make sure to check out Gary Kent Seminars for our upcoming Foreclosure Seminar on July 12, 2008
| Address | City | Zip | List Price | Previous Value | $ Difference | % Diff | 2nd Lien Haircut @ 90 LTV | 2nd Lien Haircut @ 80 LTV | 2nd Lien Haircut @ 70 LTV | |
| 590 | Telegraph Cnyn #B | Chula Vista | 91910 | $144,900 | $410,000 | $ 265,100 | 65% | 100% | 100% | 100% |
| 9739 | Winter Gardens Blvd. #8 | Lakeside | 92040 | $ 79,000 | $183,000 | $ 104,000 | 57% | 100% | 100% | 100% |
| 1420 | Hilltop Dr #208 | Chula Vista | 91911 | $142,000 | $326,000 | $ 184,000 | 56% | 100% | 100% | 100% |
| 1434 | Hilltop Dr. #26 | Chula Vista | 91911 | $163,900 | $360,000 | $ 196,100 | 54% | 100% | 100% | 100% |
| 312 | J Ave. #53 | National City | 91950 | $ 94,900 | $203,900 | $ 109,000 | 53% | 100% | 100% | 100% |
| 475 | Redwood St. #406 | San Diego | 92103 | $299,999 | $625,254 | $ 325,255 | 52% | 100% | 100% | 100% |
| 2131 | B Ave | National City | 91950 | $199,500 | $405,040 | $ 205,540 | 51% | 100% | 100% | 100% |
| 2834 | Terrace Pine Dr #B | San Diego | 92173 | $154,900 | $300,000 | $ 145,100 | 48% | 100% | 100% | 100% |
| 1316 | Coronado Ave. | Spring Valley | 91977 | $237,500 | $458,639 | $ 221,139 | 48% | 100% | 100% | 100% |
| 1034 | Leland St #19 | Spring Valley | 91977 | $149,900 | $289,000 | $ 139,100 | 48% | 100% | 100% | 100% |
| 3247 | Roberta Lane | Oceanside | 92054 | $257,900 | $489,250 | $ 231,350 | 47% | 100% | 100% | 100% |
| 8832 | Greenridge Ave | Spring Valley | 91977 | $255,000 | $480,000 | $ 225,000 | 47% | 100% | 100% | 100% |
| 4610 | 51 St #2 | San Diego | 92115 | $162,900 | $306,000 | $ 143,100 | 47% | 100% | 100% | 100% |
| 732 | Lexington E. Ave #2 | El Cajon | 92020 | $139,900 | $259,200 | $ 119,300 | 46% | 100% | 100% | 100% |
| 1594 | Smythe Ave | San Diego | 92173 | $196,900 | $353,000 | $ 156,100 | 44% | 100% | 100% | 100% |
| 434 | Osage Street | Spring Valley | 91977 | $237,900 | $425,000 | $ 187,100 | 44% | 100% | 100% | 100% |
| 3422 | Palm Ave #10 | San Diego | 92154 | $179,900 | $318,250 | $ 138,350 | 43% | 100% | 100% | 100% |
| 1270 | Purdy St | Spring Valley | 91977 | $294,900 | $512,000 | $ 217,100 | 42% | 100% | 100% | 100% |
| 1213 | E. Ave #A-4 | National City | 91950 | $166,900 | $288,000 | $ 121,100 | 42% | 100% | 100% | 100% |
| 1531 | Monterey Pine Drive | San Ysidro | 92173 | $269,900 | $455,000 | $ 185,100 | 41% | 100% | 100% | 100% |
| 577 | Point Arena Ct | Chula Vista | 91911 | $349,900 | $575,000 | $ 225,100 | 39% | 100% | 100% | 100% |
| 3240 | Lakeview Dr. | Julian | 92036 | $209,900 | $343,900 | $ 134,000 | 39% | 100% | 100% | 100% |
| 9885 | Caspi Gardens Dr #8 | Santee | 92071 | $199,900 | $326,182 | $ 126,282 | 39% | 100% | 100% | 100% |
| 3897 | Settineri Lane | Spring Valley | 91977 | $279,900 | $455,000 | $ 175,100 | 38% | 100% | 100% | 100% |
| 4951 | Hilltop Dr | San Diego | 92102 | $285,000 | $460,750 | $ 175,750 | 38% | 100% | 100% | 100% |
| 523 | Stanley St. | Oceanside | 92054 | $435,000 | $700,000 | $ 265,000 | 38% | 100% | 100% | 100% |
| 6744 | Akins Ave | San Diego | 92114 | $241,900 | $381,867 | $ 139,967 | 37% | 100% | 100% | 100% |
| 1600 | White Hickory Pl | Chula Vista | 91915 | $224,500 | $351,000 | $ 126,500 | 36% | 100% | 100% | 100% |
| 24369 | Del Amo Rd. | Ramona | 92065 | $369,900 | $575,000 | $ 205,100 | 36% | 100% | 100% | 100% |
| 1206 | W 15th Ave | Escondido | 92025 | $350,000 | $543,000 | $ 193,000 | 36% | 100% | 100% | 100% |
| 3422-28 | Valle Ave. | San Diego | 92113 | $419,000 | $650,000 | $ 231,000 | 36% | 100% | 100% | 100% |
| 4852-56 | Jessie Ave | La Mesa | 91941 | $489,000 | $750,000 | $ 261,000 | 35% | 100% | 100% | 100% |
| 10327 | Strawberry Lane | Spring Valley | 91977 | $319,900 | $487,000 | $ 167,100 | 34% | 100% | 100% | 100% |
| 7485 | Goode St. | San Diego | 92139 | $399,000 | $600,000 | $ 201,000 | 34% | 100% | 100% | 100% |
| 3621 | Bancroft St | San Diego | 92116 | $499,900 | $750,000 | $ 250,100 | 33% | 100% | 100% | 100% |
| 2318 | Doubletree Rd. | Spring Valley | 91978 | $322,000 | $470,000 | $ 148,000 | 31% | 100% | 100% | 100% |
| 2497 | Dye Rd | Ramona | 92065 | $579,900 | $825,000 | $ 245,100 | 30% | 100% | 100% | 100% |
| 1971 | Caminito De La Cruz | Chula Vista | 91913 | $344,900 | $486,500 | $ 141,600 | 29% | 100% | 100% | 100% |
| 4151 | 33rd St #8 | San Diego | 92104 | $209,900 | $295,500 | $ 85,600 | 29% | 100% | 100% | 100% |
| 2127 | Greenwick Rd. | El Cajon | 92019 | $329,900 | $459,000 | $ 129,100 | 28% | 100% | 100% | 100% |
| 6926 | Park Mesa Way #6 | San Diego | 92111 | $299,900 | $410,000 | $ 110,100 | 27% | 100% | 100% | 100% |
| 1526 | Tarleton St | Spring Valley | 91977 | $341,000 | $459,000 | $ 118,000 | 26% | 100% | 100% | 100% |
| 1214 | Mariposa Ct. | Vista | 92084 | $149,900 | $194,097 | $ 44,197 | 23% | 100% | 100% | 100% |
| 13918 | Calle De Vista | Valley Center | 92082 | $459,900 | $595,000 | $ 135,100 | 23% | 100% | 100% | 100% |
| 6880 | Monte Verde Dr. | San Diego | 92119 | $441,900 | $565,000 | $ 123,100 | 22% | 100% | 100% | 100% |
| 3327 | Menard St. | National City | 91950 | $279,900 | $321,501 | $ 41,601 | 13% | 100% | 100% | 100% |
| 702 | Ash St. #206 | Downtown | 92101 | $428,450 | $485,000 | $ 56,550 | 12% | 100% | 100% | 100% |
| Previous value calculated on either: previous sales price, previous combined loan amount or amount that the bank foreclosed on. | ||||||||||
Now, let me include a snippet from the Wells Fargo Drill Down to put this into perspective:
Wells Fargo observations
Loan portfolio:
Sizeable Real Estate loans exposure in troubled markets: Wells Fargo had $148 bn loan in 1-4 Family Mortgages (WFC has a high correlation to industry-wide losses) which represented nearly 38% of the banks' total loan. Out of these loans nearly 51% comprised junior lien mortgage loans (much higher probability of total loss and no recovery). After C&D loans, real estate loans have highest NPAs as proportion of total loans. In 4Q2007, real estate 1-4 family first mortgage NPAs to total loans stood at nearly 1.91% of total loans with total NPAs of $1.4 bn. In terms of geographic exposure, real estate loans from California and Florida comprised 33% and 4% of total real estate loans (i.e 13% and 2% of WFC's total loan portfolio).
| WELLS FARGO | 1Q-2008 | 4Q-2007 | 3Q-2007 | 2Q-2007 |
| Loan Composition | ||||
| Commercial | 92,589 | 90,468 | 82,598 | 77,560 |
| Other real estate mortgage | 38,415 | 36,747 | 33,227 | 32,336 |
| Real estate construction | 18,885 | 18,854 | 17,301 | 16,552 |
| Lease financing | 6,885 | 6,772 | 6,089 | 5,979 |
| Total commercial and commercial real estate | 156,774 | 152,841 | 139,215 | 132,427 |
| Real estate 1-4 family first mortgage | 73,321 | 71,415 | 66,877 | 61,177 |
| Real estate 1-4 family junior lien mortgage | 74,840 | 75,565 | 74,632 | 72,398 |
| Credit card | 18,677 | 18,762 | 17,129 | 15,567 |
| Other revolving credit and installment | 55,505 | 56,171 | 57,180 | 53,701 |
| Total consumer | 222,343 | 221,913 | 215,818 | 202,843 |
| Foreign | 7,216 | 7,441 | 7,889 | 7,530 |
 | ||||
| Total Loans | 386,333 | 382,195 | 362,922 | 342,800 |
| ||||
Wells Fargo haa increased their loan assets every quarter for the past 4 quarters. Those past 4 quarters are just past the peak of the largest equity real asset and credit bubble of the century? Question: Why is Wells Fargo increasing the amount of these quickly depreciating assets on its books while the underlying properties are rapidly decreasing in price?
Large Second Lien Home Equity exposure with rising NPAs: As of 3Q2007, Wells Fargo had second highest home equity loans exposure among all US banks in absolute amount. In 1Q2008, Wells Fargo had $83 bn loans in home equity comprising nearly 19% of total loans and a staggering 174% of its shareholder's equity.
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Within its home equity exposure 37% of loans are in California comprising 7% of its total loan or 64% of its shareholders equity.
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In 1Q2008 Wells Fargo's annualized loss rate on home equity loan portfolio increased to 2.12% from 1.42% in December 31, 2007.
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As of December 31, 2007 nearly 29% of the bank's home equity exposure had LTV greater than 90%. With housing prices expected to continue to decline over the reminder of 2008, Wells Fargo's significant exposure in high LTV home equity loans with concentration towards California could pose a much harder time for the bank in the quarters to come.
A more granular view of Wells Fargo's loan portfolio shows us the following (I've highlighted areas to take notice of)...
| WELLS FARGO | 1Q-2008 | 4Q-2007 | 3Q-2007 | 2Q-2007 |
| % Change | ||||
| Commercial | 2.3% | 9.5% | 6.5% | 7.3% |
| Other real estate mortgage | 4.5% | 10.6% | 2.8% | 2.5% |
| Real estate construction | 0.2% | 9.0% | 4.5% | 4.3% |
| Lease financing | 1.7% | 11.2% | 1.8% | 8.8% |
| Total commercial and commercial real estate | 2.6% | 9.8% | 5.1% | 5.8% |
| Real estate 1-4 family first mortgage | 2.7% | 6.8% | 9.3% | 9.3% |
| Real estate 1-4 family junior lien mortgage | -1.0% | 1.3% | 3.1% | 4.2% |
| Credit card | -0.5% | 9.5% | 10.0% | 6.7% |
| Other revolving credit and installment | -1.2% | -1.8% | 6.5% | 0.5% |
| Total consumer | 0.2% | 2.8% | 6.4% | 4.8% |
| Foreign | -3.0% | -5.7% | 4.8% | 10.7% |
| ||||
| Total Loans | 1.1% | 5.3% | 5.9% | 5.3% |
| ||||
| Loans 90 Days or More Past Due and Still Accruing | ||||
| Commercial | 29 | 32 | ||
| Other real estate mortgage | 24 | 10 | 140% increase?? | |
| Real estate construction | 15 | 24 | ||
| Lease financing | 68 | 66 | ||
| Total commercial and commercial real estate | 314 | 286 | ||
| Real estate 1-4 family first mortgage | 228 | 201 | ||
| Real estate 1-4 family junior lien mortgage | 449 | 402 | ||
| Other revolving credit and installment | 532 | 552 | ||
| Total consumer | 1,523 | 1,441 | ||
| Foreign | 40 | 52 | ||
| ||||
| Total Non Accural Loans | 1,631 | 1,559 | ||
| ||||
Increasing provisions and chare-offs
In 1Q2008, WFC's NPAs increased from 1.16% of total loans over 1.01% in 4Q2007. Overall NPAs increased to $4.5 bn from $3.9 bn in 4Q2007. NPAs in real estate construction loans witnessed highest increase of 49% to $438 mn in 1Q2008. NPAs of C&D loans stood at 2.32% of total C&D loans, followed by real estate 1-4 family mortgage (1.91%) and lease financing (0.83%)
Wells Fargo's gross charge offs increased to 0.46% of total loans compared to 0.37% of total loans in 4Q2007. C&D loans witnessed the highest increase in charge-offs with an increase of nearly three-fold to $29 mn in 1Q2008, showing signs of increased stress in these loans. Real estate 1-4 family junior lien mortgage, credit card loans and Other revolving credit and installment had charge-offs of 0.61%, 1.68% and 0.98% to total loans, respectively.
However despite increase in NPAs and increase in charge offs, Wells Fargo provision for credit loss sequentially declined to $2.0 bn in 1Q2008 from $2.6 bn in 4Q2007. (0.52% of total loans in 1Q2008 from 0.68% of total loans in 4Q2007) raising concerns over possible inadequacy of provision amount.
From April 1, 2008 onwards, Wells Fargo has changed its home equity charge-off policy to 180 days from 120 days previously. Amid current deteriorating credit markets with residential sector showing no signs of recovery, it is quite understandable that the bank has changed the policy in a bid to defer recognition of provision and charge-offs.
| WELLS FARGO | 1Q-2008 | 4Q-2007 |
| Delinquency as a % of Loans | ||
| Commercial | 0.03% | 0.04% |
| Other real estate mortgage | 0.06% | 0.03% |
| Real estate construction | 0.08% | 0.13% |
| Lease financing | 0.99% | 0.97% |
| Total commercial and commercial real estate | 0.20% | 0.19% |
| Real estate 1-4 family first mortgage | 0.31% | 0.28% |
| Real estate 1-4 family junior lien mortgage | 0.60% | 0.53% |
| Other revolving credit and installment | 0.96% | 0.98% |
| Total consumer | 0.68% | 0.65% |
| Foreign | 0.55% | 0.70% |
| ||
| Total Non Accural Loans | 0.42% | 0.41% |
| ||
| NPA's | ||
| Commercial | 588 | 432 |
| Other real estate mortgage | 152 | 128 |
| Real estate construction | 438 | 293 |
| Lease financing | 57 | 45 |
| Total commercial and commercial real estate | 1,235 | 898 |
| Real estate 1-4 family first mortgage | 1,398 | 1,272 |
| Real estate 1-4 family junior lien mortgage | 381 | 280 |
| Other revolving credit and installment | 196 | 184 |
| Total consumer | 1,975 | 1,736 |
| Foreign | 49 | 45 |
| ||
| Total Non Accural Loans | 3,259 | 2,679 |
| ||
| GNMA loans | 578 | 535 |
| Other | 637 | 649 |
| Real estate and other nonaccrual investments | 21 | 5 |
| ||
| Foreclosed assets: | 1,236 | 1,189 |
| ||
| ||
| Total NPA's | 4,495 | 3,868 |
| ||
I'd like to repeat this so it is not wasted on anybody: From April 1, 2008 onwards, Wells Fargo has changed its home equity charge-off policy to 180 days from 120 days previously. Amid current deteriorating credit markets with residential sector showing no signs of recovery, it is quite understandable that the bank has changed the policy in a bid to defer recognition of provision and charge-offs.
So, have the implemented this policy in other areas after the last filing, or previously without disclosing it. Did I miss it in the footnotes somewhere? Now, all of thier Delinquencies and NPA numbers are suspect! See chart below...
| WELLS FARGO | 1Q-2008 | 4Q-2007 | ||
| Delinquency as a % of Loans | % increase | |||
| Commercial | 0.03% | 0.04% | -11% | <-- Questionable! |
| Other real estate mortgage | 0.06% | 0.03% | 130% | |
| Real estate construction | 0.08% | 0.13% | -38% | <-- Questionable! |
| Lease financing | 0.99% | 0.97% | 1% | |
| Total commercial and commercial real estate | 0.20% | 0.19% | 7% | |
| Real estate 1-4 family first mortgage | 0.31% | 0.28% | 10% | |
| Real estate 1-4 family junior lien mortgage | 0.60% | 0.53% | 13% | |
| Other revolving credit and installment | 0.96% | 0.98% | -2% | <-- Questionable! |
| Total consumer | 0.68% | 0.65% | 5% | |
| Foreign | 0.55% | 0.70% | -21% | <-- Questionable! |
| ||||
| Total Non Accural Loans | 0.42% | 0.41% | ||
| ||||
| WELLS FARGO | 1Q-2008 | 4Q-2007 | 3Q-2007 | 2Q-2007 | 1Q-2007 | ||
| Latest Quarter Growth | |||||||
| Provision as % of Loans | 0.52% | 0.68% | 0.25% | 0.21% | 0.22% | -23% | Loss cushions decreasing |
| Provision as % of NPA's | 45% | 68% | 28% | 27% | 27% | -33% | Loss cushions decreasing |
| Gross Charge off to Loans | 0.46% | 0.37% | 0.30% | 0.28% | 0.29% | 22% | Losses increasing |
| Gross Charge off to NPA's | 39% | 37% | 35% | 35% | 36% | 6% | Losses increasing |
| Allowances as % of Loans | 1.56% | 1.44% | 1.11% | 1.17% | 1.22% | 8% | Allowances for loans increase |
| Allowances as % of NPA's | 134% | 143% | 126% | 148% | 149% | -6% | But allowances as % of what's needed |
| NPA's to Loans | 1.16% | 1.01% | 0.88% | 0.79% | 0.82% | 15% | NPAs increasing substantially, this number is also in doubt |
| Shareholder's equity | 48,159 | 47,628 | 47,566 | 47,239 | 46,073 | 1% | |
| Goodwill | 13,148 | 13,106 | 12,018 | 11,983 | 11,275 | 0% | Goodwill is increasing along with Charge-offs/NPAs, HMMM!!! |
| Adjusted Equity | 35,011 | 34,522 | 35,548 | 35,256 | 34,798 | 1% | |
I expect recoveries in the red font below to drop precipitously. The yellow highlight shows where there is already weaknes in recoveries in earier quarters.
| WELLS FARGO | 1Q-2008 | 4Q-2007 | 3Q-2007 | 2Q-2007 | 1Q-2007 | ||
| Recoveries | % increase | % of total | |||||
| Commercial | 31 | 35 | 35 | 25 | 24 | -11% | 13% |
| Other real estate mortgage | 1 | 1 | 2 | 3 | 2 | 0% | 0% |
| Real estate construction | 1 | 0 | 1 | 0 | 1 | 100% | 0% |
| Lease financing | 3 | 5 | 3 | 4 | 5 | -40% | 1% |
| Total commercial and commercial real estate | 36 | 41 | 41 | 32 | 32 | -12% | 15% |
| Real estate 1-4 family first mortgage | 6 | 4 | 6 | 6 | 6 | 50% | 3% |
| Real estate 1-4 family junior lien mortgage | 17 | 14 | 14 | 16 | 9 | 21% | 7% |
| Credit Card | 38 | 30 | 29 | 30 | 31 | 27% | 16% |
| Other revolving credit and installment | 125 | 111 | 105 | 139 | 149 | 13% | 53% |
| Total consumer | 186 | 159 | 154 | 191 | 195 | 17% | 79% |
| Foreign | 14 | 15 | 15 | 17 | 18 | -7% | 6% |
| |||||||
| Total Recoveries | 236 | 215 | 210 | 240 | 245 | 10% | 100% |
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Despite all this, Wells Fargo seemed to have found a way to sell the MBS for their loans at a profit!
Extraordinary gains offsetting loan write-downs in 1Q2008
Out of net income of $ 1,999 mn in 1Q2008, Wells Fargo recorded an extraordinary gain of $323 mn and $94 mn on gain on sale of mortgage-backed securities and increase in mortgage servicing income, respectively. These gains were partially offset by $263 mn write-down of mortgage loans and $63 mn write-down on commercial mortgages held for sale. Additionally the bank also recorded unrealized loss on securities available for sale of $598 mn in 1Q2008 compared with unrealized gain of $680 mn in 4Q2007. Be aware of the margin for abuse in valuing MSRs (mortgage servicing rights, etc.). If the mortgage is likely to go into default and be foreclosed upon, it is unlikely the servicer will be able to monetize future revenue streams from servicing the mortgage. Also, be aware on non-descript mark ups and gains. The entire world had to eat sh1t due to plummeting MBS values for almost a year with literally no market for these securities. How did those genius at WFC manage to sell their MBS securities with little or no market, and sell them at a gain of $323 million on top of it. The guys at Countrywide, Lehman, Bear Stearns, Morgan Stanley, Merriill Lynch, UBS, HBOS, and a whole hell of a lotta other folk (including me) are dying to know!
