Tight Credit Squeezing First Time Home Buyers

Posted in Real Estate by Jake on April 19, 2014 2 Comments

Writing about how tight credit is squeezing out first-time home buyers, Dr. Kenneth T. Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, penned an illuminating article for the Foreclosure News Report, on why some would-be home buyers are being forced to rent because lenders don’t want to make 30-year loans at such low interest rates.  “Prior to the economic downturn, a 620 FICO with 5% down was an insurable prime loan,” writes Rosen. “In today’s conventional market, 680 is the new 620.  That line of demarcation is simply too high and squeezes too many families into higher-cost loans or out of the housing market completely. We are concerned that many low and moderate-income families will be forced to remain renters not by their own choice, but as a result of the cumulative impact of regulatory rules seeking to create a limited risk environment.”

Peter Francese, founder of American Demographics magazine, interviewed for an article titled “The Tenant Trap: Rising Rents,  Falling Incomes, Tight Inventory,” declared that the American Dream of home ownership is still alive and well in the United States, even if home ownership rates took a hit during the Great Recession.  “We are not becoming a nation of renters,” said Francese. “The past six years have been the worst years for real estate since the Great Depression.  The recession is slowly coming to an end and homeownership is creeping up. The American Dream is to buy a house and send your kids to college. That cultural icon is still operative today.”

 

Investors Take A Pause As Home Price Price Gains Stall…

Posted in Real Estate by Jake on October 4, 2013 No Comments yet

A potential stall in home price gains and a large drop in the number of distressed properties have some big investors pulling out of the single-family rental market.  They are getting out at the same time that billions of investor dollars continue to pour in.  “I think the investor market is largely past us,” Doug Lebda, chief executive of Lending Tree told CNBC.  “People were buying investment properties three, four, five years ago.  What I hear is that’s slowing now.”

Recent reports that Oaktree Capital Group is selling about 500 of its homes added fuel to other reports that Och-Ziff Capital management is selling its homes as well.  Both declined to comment on the reports.

Carrington Mortgage Services stopped buying distressed homes late last year, claiming the market was “a bit too frothy.”  Home prices are up over 12% from a year ago, according to CoreLogic, but still down 18% from their peak in 2006. Investors certainly played a role in putting a floor on home prices and then pushing them higher than many predicted.  Now, faced with higher mortgage rates and weak wage and employment growth, even usually bullish brokers predict home prices will stay flat through 2014.  Critics say without rising prices, the rental trade is a low-to-mid single-digit return proposition.  Management of the homes can be as tricky as it is costly, and that alone lowers profit dramatically.  “Investors who were buying REO [bank-owned homes] four and five years ago have the added cushion of home price appreciation to augment returns.  But if you’ve been buying REO or even new homes for rent in the past year or so, the embedded home price appreciation is limited,” said a mortgage industry insider who did not want to be identified.  “It is going to be very hard for investors to make money on rental fees alone.  Looking at the dismal data for household formation,  jobs and consumer income, it seems pretty obvious that 2013 may be the peak.”

Institutional investors have poured a collective $20 billion into as many as 200,000 properties, or up to 12% of distressed home sales over the past 18 months, according to a report from KBW.  It is a tiny slice of the housing stock, to be sure, but investors who remain in the game say it will get larger and the potential for long-term profit is big.  “We don’t see it as a trade; we see it as a business,” said Justin Chang of California-based Colony Capital. Colony owns over 15,000 homes and is buying at a rate of about 1,000 homes per month.  “There is plenty to buy,” added Chang.

The number of homes in the foreclosure process was down 34% in August year-over-year, according to Lender Processing Services. That still represents more than 1 million homes, while more than 2 million homeowners are behind on their mortgages.  “We’re looking at the multiple listing services, we’re still looking at REO from the banks, we’re looking at short sales, we’re even buying some traditional houses now where people are just putting them on the market,” said Laurie Hawkes, president and COO of Arizona-based American Residential Properties, a publicly traded real estate investment trust.  “We think that if you get a reasonable cost of capital, both debt and equity, you can actually not only create a very attractive return on a current basis, but in today’s market, the house price appreciation that we think is still in the market is extraordinary.”  American Residential has already bought 80 portfolios of rental homes from smaller aggregators, according to Hawkes, who said that while Arizona is “fully invested,” the company is now setting its sights on Georgia, the Carolinas, Indianapolis and Chicago.  “I think soon there will be consolidation from potentially other players who might have had private equity, who can’t make it work, whether it’s the Carringtons or others in the universe who have decided this isn’t for them because they aren’t going to make the commitment to the operations or they couldn’t make it work,” said Hawkes.

 

The Real Estate Market Is Changing … Again!

Posted in Real Estate by Jake on June 25, 2013 No Comments yet

Since mid-2012, the real estate market nationally and here in Sacramento has been marked by very low inventory of homes for sale. Statistics from local Boards of Realtors indicate that there has been only a three week supply of available homes for sale.  These are being chased by a far larger pool of prospective buyers ranging from individual first time buyers seeking a loan up to huge money-backed investors paying cash for everything they can get.

It’s a simple rule of economics that when the demand exceeds the supply, prices rise and that has certainly been the case in real estate.  Last year, the price of residential homes in Sacramento skyrocketed up 18%.   Year over year increases from May to May are over 27%.   Many people, including a great many in the media, have applauded this as evidence of an economic recovery.  But, if the increased prices are the result of a supply-demand imbalance, the question is what will happen to prices if balance is restored.  We may soon find out.

Prior to 2012, the real estate market was very scattered.  Prices were uncertain, jobs were still falling, and owners were struggling to get elusive loan modifications to keep their homes. Those that couldn’t – millions of them – were losing their homes either through short sales or, even worse, foreclosure.  Two events in 2012 changed the market:

1. National Mortgage Settlement. In February 2012, California and most states reached a Settlement of the “Robo-signer Scandal” concerning lenders’ fraudulent foreclosure practices. This Settlement was called the “National Mortgage Settlement”. In that Settlement, the big banks – BofA, Wells Fargo, Chase, Citi, and GMAC/Ally – agreed to pay $27.5 Billion in reparations, primarily through principal reductions on owner-occupied home loans.  This created two effects: 1) people who might have otherwise put their homes on the market for a short sale held off hoping that they might get some of the Settlement money; and 2) Lenders cut back on foreclosures fearing further legal actions against them.  This shrunk the homes for sale market with reduced short sale and REO listings leading to today’s severe inventory shortage.

2. Home Owners Bill of Rights.  In July 2012, California passed a series of laws which took effect January 1, 2013 and were collectively called the “Home Owners Bill of Rights”  HBOR for short.  The two major components of HBOR were: 1) a ban on “Dual Tracking” stopping the lender practice of foreclosing while loan modification was being negotiated; and 2) Borrower recourse against the lenders if they improperly handled the loan modification process.  HBOR’s provisions very likely also apply to stop foreclosure while short sales and equity sales are progressing. The results of HBOR was very similar:  Potential sellers held off while they attempted Modification under HBOR and lenders dropped foreclosures by 72%.

The result of these two issues was today’s extremely low sale inventory and upward push on prices.

But forces are underway that may bring change in the months to come.

 A.  Increase in Supply of Homes for Sale.  Despite the hopes of the National Mortgage Settlement and the Home Owners Bill of Rights, most people are still not getting loan modifications.  Recent statistics indicate that Lender willingness to modify loans is less than 25%. Further,  increasing prices have made it more attractive for lenders to push short sales and foreclosures seeking a higher and faster recovery. In May, for the first time in over a year, foreclosure starts increased.  Nationally, over 13 million properties are underwater and 1.7 million are in default or foreclosure. 700,000 more homes have already been foreclosed but are being held by lenders as REO’s.  We expect that, due to likely changes on the buyer side (see below), we’ll see 1) more people give-up on loan mods and list their homes as short sales; 2) more lender foreclosures; and 3) lenders selling their REO inventory. In addition, rising prices have enabled many people to be able to sell their homes for above break-even. These “Conventional Sales” are up 64% from a year ago.  Altogether, these will substantially increase the supply of homes for sale and decrease upward price pressure.

B.  Decrease in Available Buyers.  For every sale, there must be a seller and a buyer.  We expect, as stated above, that there will be many more sellers.  But will they find buyers… not all of them?   Interest Rates are increasing.  For several years, Buyers have enjoyed historically low interest rates.  Recently however, interest rates have started to rise as the Feds start backing off their market support (“quantitative easing”). While they’re still low, every fractional increase knocks some buyers out of qualifying.  Investor competition is weakening.  The big investors are finding it much harder to get good deals that make financial sense.

C.  Effects of Sequestration.  We’re not feeling it yet but most analysts expect the economy to start feeling the effects of the Sequestration program that took effect to push for a balancing of the Federal Budget.  $87 Billion dollars is coming out of the economy this year through a reduction in Federal spending.  Federal spending is scheduled to get slashed by another $110 Billion dollars each year for the next 9 years!  While these cuts are arguably necessary for the economic salvation of our nation, they will no doubt result in job losses and possibly higher costs as these cuts are absorbed.  That means more upside down owners putting their homes on the market as short sales and less available buyers with the resources or loan qualifying ability to buy those homes.

To summarize, while none of us has a crystal ball to be able to say with absolute certainty that these effects will come to pass, the indicators are out there that changes are coming.  Time will tell what that will mean for real estate owners, buyers, and the agents who serve them.  Stay tuned!

CHDAP Suspension Will Affect California RE Agents Homebuyers

Posted in Real Estate by Jake on January 28, 2013 No Comments yet

CHDAP Down Payment Assistance is temporarily suspended by CalHFA due to discrepancy by HUD.

 

“This temporary measure is a result of the Department of Housing and Urban Development’s (HUD) recent interpretive rule governing a provision of the Housing and Economic Recovery Act of 2008, that affects how all Housing Finance Agencies (HFAs) provide down payment assistance on FHA-insured loans. HUD’s interpretive rule requires HFAs to provide such assistance directly at closing. Under this interpretive rule, it is not permissible for HFAs to purchase down payment assistance loans from lenders after the loan is closed, which is the way CalHFA currently conducts business with all its approved lenders under state law. First mortgage loans combined with subordinate loans not complying with HUD’s recent interpretive rule may be uninsurable by FHA. HUD’s interpretive rule is effective for loans closed on or after November 29, 2012. Again, this only applies to CHDAP loans combined with FHA-insured first mortgages.

 

CalHFA is aggressively pursuing several solutions to again offer CHDAP loans, which we expect to release in the near future. For questions about this bulletin, contact the CalHFA Single Family Division by phone 916-326-8000; fax 916.327.8452; or email sflending@calhfa.ca.gov. In addition you can always visit CalHFA’s web site at: www.calhfa.ca.gov or Single Family Lending at www.calhfa.ca.gov/homeownership.”

 

PAY CLOSE ATTENTION TO YOUR BUYER’S PRE-APPROVAL. IF THEY ARE USING CHDAP WITH AN FHA LOAN THEY WILL NOT BE ABLE TO MOVE FORWARD AT THIS TIME.

Housing Shortage Being Felt…Especially In The West

Posted in Foreclosures, Real Estate by Jake on October 22, 2012 No Comments yet

“It’s hard to imagine, given that the nation’s housing market is still digging itself out of an epic foreclosure crisis, that there just are not enough homes available to buy.  But that, apparently,  is the case, according to the National Association of Realtors, who blame a drop in home sales on an ‘acute lack of supply’ in certain formerly hot markets.  ‘Recent price increases are not deterring buyer interest,’ notes Lawrence Yun, NAR’s chief economist.  ‘Rather, inventory shortages are limiting sales,  notably in parts of the West.’  A little perspective is called for here.  The housing recovery has largely been driven by investors on the low end of the market.  Cities like Phoenix,  Las Vegas and Sacramento, CA, where the foreclosure crisis hit hardest and where home prices fell the most, were swarmed by these investors, who were looking to take advantage of the situation and convert this distress into long-term rental rewards and shorter term resale profits.  Witness, sales of homes priced under $100,000 in the West are down 47 percent from a year ago, according to the NAR,  after investors drove prices notably higher.  Distressed sales made up just 24 percent of total home sales in September, while they had been making up over one third of sales for the past two years.

Where’s The Beef?

So where is all this distressed supply, given that there are still 5.45 million homes with mortgages that are either delinquent or in the foreclosure process (per LPS Applied Analytics)?  Banks are doing more foreclosure alternatives, like short sales, but they are also making more aggressive loans.  Bank of America this week announced that in the past five months it has reduced principal on 30,000 troubled loans, with an average reduction of $145,000.  This as part of the mortgage servicing settlement signed early this year.  However, banks have also finally come around to the fact that loan modifications with reduced principal have a much lower re-default rate.  Yun suggests that builders need to really ramp up production in order for home sales to recover more.  Housing starts for single family homes in September were up 43 percent from a year ago and building permits were up 27%, but the real volumes are still about half the normal level.  New homes are popular with first-time home buyers, who are only making up 32 percent of the market, whereas they normally represent about 45 percent. That is due to still tight credit conditions. The biggest problem affecting inventories is that regular home sellers are not putting their homes on the market at a high enough rate to offset the drop in distressed volumes.  Why?  Part of it is still a lack of confidence in the market, but most of it is that, as of August, about 15 million homeowners still owed more on their mortgages than their homes were worth, according to Zillow.  That’s 31 percent of homes with a mortgage.  Negative equity and near negative equity is largely what is holding the market back now, even as distressed homes slowly move out of the system.  Given the huge drops in sales and inventory out West, which had been driving much of the gains in the overall market,  some analysts predict deeper sales drops in the coming months.  While sales of higher priced homes are up considerably from a year ago, they still make up a very small share of the total market.  About 65 percent of the market is made up of homes priced lower than $250,000.  These are a lot of numbers to digest, but they add up to a still bumpy recovery ahead for housing.”

Excerpts contributed by Diana Olick

Short Sale, Loan Modification Or Just Walking Away?

Posted in Short Sales by Jake on August 31, 2012 No Comments yet

A long time client called me the other day and asked me the following question…  Should I do a short sale, a loan modification or just walk away?  Pretty sobering realization, to say the least….

I understood the gravity of his question as this is a man that has taken great pride in his financial stability.  He spends within his means and doesn’t take chances with his family’s stability.  I also know that in the last 4 years he has seen a cut in his wages with the State… his wife has lost her job… they have a child in college and he thinks their home has dropped in value by about 45%.  All in all,  not a pretty situation!

As I told him, walking away or deed in lieu is a horrible option.  Successful modifications are rare and time consuming to say the least, so a short sale is the most viable option.  He has since concluded that he wants to do the short sale.  After doing some research I learned that he is only about 15% underwater and I am going to be able to help him short sell the home and in the process free up a fairly large amount of money each month.  The change in him is palpable and he can see light at the end of the tunnel. 

So What About You?

Where is the value of your home and what are your options?  Sacramento County short sales can be easy or hard depending on who you work with.  I started working with underwater homeowners in 1989 when no one knew what a short sale was!  I have more experience with short sale lenders than the vast majority of agents who took a course or two,  completed a short sale or two and now refer to themselves as “experts”.  When you need help it is seldom worthwhile to go to the new kid on the block.  I have the kind of experience with short sales in the Sacramento County area that you can put to use and take advantage of.

Even if you are on the fence you need someone with a huge volume of experience in real estate in this beautiful American River Canyon and Parkway Area that we live in.   I have that level of experience and can produce results quickly.  Call my office at 916-967-1000 or visit my website at www.americanriverproperties.com and lets have a conversation so you can sleep peacefully again.

New Short Sale Guidelines Announced By FHFA

Posted in Short Sales by Jake on August 27, 2012 No Comments yet

Acting Director of the Federal Housing Finance Agency (FHFA) Edward J. DeMarco announced new, clear guidelines for short sales yesterday. Among the new guidelines is one that will allow homeowners with a Fannie Mae or Freddie Mac mortgage to do a short sale even if they are current on their mortgage if they have an eligible hardship.

Up until now, the FHFA would only allow short sales for homeowners at risk of “imminent default,” (what they consider death of a borrower, divorce, or sudden disability) or had to be delinquent in their payments. As long as a homeowner can document a legitimate hardship, as shown in the list of requirements below, they can be eligible for a short sale even if they have been paying their mortgage on time.

One eligibility requirement that’s been added allows underwater borrowers to do a short sale if they need to relocate more than 50 miles for a job. Another significant change is that they will now include increased home expenses as an eligibility requirement. This is important for homeowners who have to pay more each month because of day care costs, medical expenses, or unexpected home repairs.

Updated Short Sale Eligibility Requirements

  • Death of a borrower or death of the primary or secondary wage earner in the household
  • Unemployment
  • Divorce
  • Long-term disability
  • Distant employment transfer/relocation (more than 50 miles one way)
  • Increased housing expenses
  • Disaster (natural or man-made)
  • Business failure
  • Borrowers that need to relocate more than 50 miles one way for a job, including service members with Permanent Change of Station Orders, can be current or delinquent on their mortgage to apply for a short sale.

One new guideline may cause some confusion. It states that Fannie Mae and Freddie Mac “will waive the right to pursue deficiency judgments in exchange for a financial contribution when a borrower has sufficient income or assets to make cash contributions or sign promissory notes.”

This does not mean you have to bring cash in order to do a short sale. Most distressed homeowners who need to do a short sale can usually have their deficiency balance waived without having to provide money up front. This guideline is only for borrowers who have the financial capacity to contribute something.

We applaud the FHFA decision to clarify and streamline short sale eligibility requirements. So many homeowners are struggling to pay their mortgage, and many can no longer afford to stay in their home. But up until now, borrowers had to be delinquent in order for them to be considered for a short sale if they didn’t fall under the imminent default rules. This meant these homeowners had to stop paying their mortgage just to be able to sell their home!

With these updated guidelines many more homeowners can now be proactive and do a short sale and avoid foreclosure, as long as they can prove that they cannot afford the home.

Since around March of this year, Fannie Mae and Freddie Mac had tightened their short sale qualification rules, and insisted that borrowers had to either stop paying their mortgages (and become delinquent) or had to be in imminent default in order to be considered for a short sale. But now that has changed.

Short Sale Process Showing Improvement

In June, the FHFA announced shorter timelines for short sales to help expedite the short sale process. Under the new guidelines loan servicers are required to review and respond to requests for short sales within 30 calendar days from receipt of a short sale. They must also communicate final decisions to the borrower within 60 days of the offer. In cases where they can’t offer a decision within 30 days following receipt of a complete borrower response package, they must notify the borrower within the 30 day time limit that it’s still under review.

In June, DeMarco announced a change to short sale policies for military homeowners whose mortgages are owned by either Fannie Mae or Freddie Mac. Under the new guidelines for military homeowners, an order to transfer bases, known as a Permanent Change of Station (PCS), would now be considered a hardship that qualifies for a short-sale approval.

Then in July, DeMarco announced his decision that he would not allow mortgage principal reduction on homes whose values are less than the amount owed. Principal reduction would not be considered, in part, because DeMarco said principal forgiveness is already available through doing short sales and greater efforts were being made to streamline the short sale process, making it an option that respects as he said, “the interests of borrowers, neighbors, and lenders alike.”

This latest announcement is a welcome update to the short sale guidelines and will allow more struggling homeowners avoid foreclosure.

If you are having trouble paying your mortgage, or have been paying your mortgage but find it increasingly difficult to make the payments, thanks to these new guidelines to streamline the short sale process, doing a short sale will be easier than it has ever been.

The guidelines will go into effect November 1, 2012.

article courtesy of:  Short Sale Specialist Network

Short Sale Timeframes… Help On The Horizon

Posted in Short Sales by Jake on August 12, 2012 No Comments yet

Stockton Representative, Jerry McNerney, has introduced a bill to speed up the short sale process by requiring junior lien holders (2nds, HELOCS, etc.) to make a decision on a short sale within 45 days.  The bill, titled Fast Help For Homeowners (FHFH) Act, received strong support from the National Association of Realtors(NAR).   “Second mortgage lien holders frequently hold up and cancel the short sale transaction while trying to collect the largest possible payout in exchange for releasing the homeowner’s lien, even though the secondary lien holder often gets nothing if the home ends up going into foreclosure,” said NAR President Moe Veissi, in a statement.  “While efforts have been made to improve primary lien holders’ response times, issues still abound with second and subsequent lien holders, and this legislation is a step in the right direction. “ If the lender does not make a decision within that 45 day time frame, the short sale will be deemed approved on the 46th day.  California Association of Realtors, which is urging fast passage, conducted a recent survey that found that nearly half of all properties sold as short sales in California had subordinate liens.

This would be welcome legislation if it makes it into law.  One of the biggest problems we are facing as Realtors in this market is keeping those buyers who are in contract from pulling out of their deals.  Excessive time only leads to impatience and “wandering eye syndrome”.  When there is a solid offer in place that has been agreed to by the principals, there is absolutely no good reason why lenders should be taking 3 to 6 months to approve or counter the offer and complete the short sale transaction.  The proposed legislation would force any junior lien holders to engage immediately and accept the fact that the lien they hold has a higher risk and they are not in a position to dictate terms.  They knew it when they made the loan, and the fact that the market made a mockery of the mortgage industry just goes with the territory.  I’m glad to see FHFH and look forward to it’s implementation.

Housing Market Picking Up Steam…

Posted in Real Estate, Short Sales by Jake on July 31, 2012 No Comments yet

 The housing market recovery is picking up speed with builders expressing more confidence about construction demand and falling gas prices, albeit still high, providing consumers with more disposable income.  The report from Goldman Sachs arrives at a time when forecasts for housing are somewhat improved, but worries remain over the potential global impact of the euro zone crisis and stagnant unemployment numbers.  In fact, the national debate over whether another round of quantitative easing is warranted remains in the news as the Federal Reserve grapples with an unemployment rate stuck well above 8%.  The latest Goldman Report comes from the firm’s global economics, commodities and strategy research team.  The team forecasts roughly 10% growth in residential investment but recognizes that risks remain in the sector.  Still, the report is generally positive with Goldman saying, “prices are now edging up, and the trough is probably behind us.”  Goldman had stated in March it was more pessimistic about housing because of stagnation in disposable personal income, but real disposable income growth has evidently picked up from zero in early 2012 to 2.7% in the three months leading up to May.

Short sales with seconds taking 19 + months

Roadblocks involving second liens are standing in the way of more short sales, which reached the highest number in three years in the first quarter — 133,192 total transactions — said Daren Blomquist, vice president at RealtyTrac Inc., a real estate information service in Irvine, California.  While about 39% of homes that have entered the foreclosure process have more than one lien,  just 4.2% of short sales — 5,658 transactions — completed in the first quarter were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg.  In June, short sales of homes with multiple loans were completed an average of 19.75 months after the borrower’s last payment, according to an analysis by J.P. Morgan Securities, a unit of JPMorgan Chase & Co. (JPM)  That’s about two months, or 12%, longer than short sales of homes with single mortgages. Homes with second mortgages were twice as likely to be underwater, according to a July 12 report by real estate information provider CoreLogic Inc. (CLGX).  That makes them candidates for short sales, even if they don’t have delinquent loans, because their mortgage debt is greater than their resale value. The average negative equity for homes with second liens was $82,000, compared with $47, 000 for single-mortgage homes, Santa Ana, California-based CoreLogic said.

Short Sales Up…Foreclosure Prices Up And Down…More Foreclosures On The Way!

Posted in Real Estate by Jake on July 16, 2012 No Comments yet

Foreclosure-related sales have picked up, particularly pre-foreclosure sales. So says Brandon Moore, chief executive officer of RealtyTrac. “Pre-foreclosure sales hit a three-year high in the first quarter even as the average pre-foreclosure sales price dropped to a record low for our report,” he says.

Aggressive Short Sale Pricing..

According to Moore, lenders are approving more aggressively priced short sales, which in turn is resulting in more successful short sale transactions. Meanwhile, he says, “the average price of a bank-owned home is stabilizing and even increasing in some areas where a slowdown in REO activity over the past year has resulted in a restricted supply of REO homes available.” Still, he says, REO sales did increase on a quarterly basis in 21 states, “indicating that lenders are still working through a bottleneck of unsold REO inventory in many areas.”  The firm’s recent foreclosure sales report further details Moore’s comments, pointing out that sales of homes that were in some stage of foreclosure or bank owned accounted for 26% of all US residential sales during the first quarter—up from 22% of all sales in the fourth quarter and up from 25% of all sales in the first quarter of 2011. And according to the firm, third parties purchased a total of 233,299 residential properties in some stage of pre-foreclosure—defaults and scheduled foreclosure auctions—or bank-owned during the first quarter, an increase of 8% from the previous quarter and virtually unchanged from the first quarter of 2011.

 Foreclosure Prices Still 33% Below Market

First quarter pre-foreclosure sales were at their highest quarterly level since the first quarter of 2009 and pre-foreclosure sales accounted for 12% of all sales during the first quarter, up from 10% of all sales in the previous quarter and 9% of all sales in the first quarter of 2011, says the RealtyTrac report.  Third parties purchased a total of 123,778 bank-owned homes in the first quarter, up 2% from the previous quarter but down 15% from the first quarter of 2011, says the RealtyTrac report. REO sales accounted for 14% of all sales in the first quarter, up from 13% of all sales in the previous quarter but down from 15% of all sales in the first quarter of 2011. The report also points out that the average sales price of a bank-owned home in the first quarter was 33% below the average sales price of a non-foreclosure home, down from a 34% discount in the fourth quarter and a 37% discount in the first quarter of 2011. 

Home Price Index Climbing… 

The latest MarketPulse report from CoreLogic says the Home Price Index, including distressed sales posted two consecutive months of year-over-year increases in April 2012, the first such increase since the summer of 2010 when the housing market was benefitting from tax credits. According to chief economist Mark Fleming and senior economist Sam Khater, who authored the report, “While Arizona had one of the largest declines in the HPI since the peak (falling 47% from June 2006), that state had the highest year-over-year appreciation in house prices, posting a 9% increase in April.”  According to CoreLogic, listing information suggests price appreciation will last in the short term. “The asking price of new listings, a leading indicator of HPI, showed strong month-over-month increases through March,” according to the report. “In addition, the price of sold listings shows both year-over-year and month-over-month increases since February 2012.”

California Homeowner Bill Of Rights Now Law

Posted in Real Estate by Jake on July 12, 2012 No Comments yet

All eyes in the nation now turn to California as Governor Jerry Brown signed into law the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible in order to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.

Applicability of the Law:

This law will generally come into effect on January 1, 2013. It only pertains to first trust deeds secured by owner-occupied properties with one-to-four residential units, unless otherwise indicated below. “Owner-occupied” means the property is the principal residence of the borrower and secured by a loan made for personal, family, or household purposes (CC 2924.15). A “borrower” under this law must generally be a natural person and potentially eligible for a foreclosure prevention alternative program offered by the mortgage servicer, but not someone who has filed bankruptcy, surrendered the secured property, or contracted with an organization primarily engaged in the business of advising people how to extend the foreclosure process and avoid their contractual obligations (CC 2920.5(c)). A “foreclosure prevention alternative” is defined as a first lien loan modification or another available loss mitigation option, including short sales (CC 2920.5(b)). Some of the requirements of this law do not apply to “smaller banks” that, during the preceding annual reporting period, foreclosed on 175 or fewer properties with one-to-four residential units (CC 2924.18(b)).

For a complete breakdown of the law and it’s specific application to the various issues of the distressed homeowner please visit:     http://www.leginfo.ca.gov/

 

Still More Legal Recourse For California Homeowners In Foreclosure?

Posted in Foreclosures, Real Estate by Jake on July 2, 2012 No Comments yet

The Foreclosure Reduction Act and the Due Process Rights Act were approved by the Joint Conference Committee in a 4-1 vote, sending them up to an expected vote in both the Assembly and Senate next week. The Foreclosure Reduction Act restricts the process of “dual-tracked foreclosures,” in which lenders work with homeowners on trial loan modifications while at the same time continuing the foreclosure process.  Over 900,000 foreclosures occurred in California between 2007 and 2011 and last year, 38 of the top 100 ZIP codes hit hardest by foreclosures were in California.  California’s foreclosure crisis has hurt property values throughout the state and resulted in less revenue for schools, public safety, and other vital public services.  The Due Process Rights Act guarantees a reliable contact for struggling homeowners to discuss their loans with and imposes civil penalties on robosigning.   The legislation also includes enforcement for borrowers whose rights are violated.  The committee responsible for the bill, the Joint Conference Committee, has passed historic legislation that codifies the protections eligible homeowners deserve while helping to stabilize the foreclosure crisis that has thwarted California’s economic recovery.  The Homeowner Bill of Rights was introduced in February and has been the subject of much debate from various state groups ever since.

Meanwhile in a galaxy not far away…

Economists continued to predict home prices will decline only slightly in 2012, falling 0.4 percent for the entire year, and will increase thereafter, according to the June 2012 Zillow Home Price Expectations Survey, compiled from 114 responses by a diverse group of economists, real estate experts, and investment and market strategists. 
For the first time, the individual economists surveyed were largely in agreement on the trajectory of home prices nationally, signaling that a true bottom may be imminent.

However, a majority (56 percent) of respondents also believe that, in five years, the U.S. homeownership rate will be below 65.4 percent, the rate recorded in the first quarter of 2012. One in five believe the homeownership rate will be at or below 63 percent, testing or breaking the 62.9 percent rate established in 1965, the lowest on record.
While the stronger signals of an imminent market bottom and turn are encouraging, the expected pace of housing recovery over the coming three years is significantly weaker now than it was two years ago.

Home Price Bottom In 2013?

Posted in Real Estate by Jake on June 19, 2012 No Comments yet

Fannie Mae’s Take

A new report from Fannie Mae’s economic research team projects home prices will reach bottom in 2013 while the nation’s overall macroeconomic situation hinges on a set of risky outliers. While consumers started 2012 with a dose of cautious optimism, market conditions have worsened.  The research report outlining these conclusions was released by Fannie’s Economic & Strategic Research Group on Tuesday.

Doug Duncan, chief economist for Fannie Mae, released a report saying growth for all of 2012 is expected to come in at roughly 2.2%. And before Americans finish off the year, they will continue dealing with a reduction in hiring, potential issues stemming from the fiscal crisis in Europe and a potential drag on the U.S. economy during the remainder of the year. “Our view is that the underlying resilience of the economy and of consumers in particular that has been demonstrated during the past couple of years will persist,” Duncan said. “However, the magnitude of the uncertainties surrounding the European debt crisis and our fiscal condition here in the U.S. implies that the risks to the outlook are clearly tilted to the downside.”

Housing Starts Plunge, but Permits Surge in Mixed Market

Housing starts fell in May from a 3-1/2 year high although permits to build new homes rose sharply, suggesting a nascent housing recovery remains on track. The Commerce Department said on Tuesday that groundbreaking on new homes dropped 4.8 percent to a seasonally adjusted annual rate of 708,000 units.  The reading, which is prone to significant revisions, was below the median forecast in a Reuters poll of a 720,000-unit rate. Revisions to data from prior months were more upbeat. April’s starts were revised up to a 744,000-unit pace from a previously reported 717,000 unit rate. That was the highest reading since October 2008. New permits for building homes jumped 7.9 percent to a 780,000-unit pace. That was the highest since September 2008 and well above analysts’ forecasts. Recent data has suggested the U.S. economy is losing steam, which has raised expectations the Federal Reserve could ease monetary policy as soon as Wednesday, when it concludes a two-day policy review. Hiring has slowed every month since February, while manufacturing output contracted last month. Europe’s debt crisis and planned belt-tightening by the U.S. government loom heavily over the economy. A downturn would imperil President Barack Obama’s hopes of reelection in November.

Builders Getting Bullish

The U.S. housing market has shown some signs of life after collapsing six years ago although it remains hobbled by a glut of unsold homes. Sentiment among home builders touched a five-year high in June, a survey showed on Monday. Builders appear to be getting more bullish on residential real estate: in May, they applied for permits to build new homes at the highest rate since September 2008, according to a government report issued Tuesday. The increase in permits to an annual rate of 780,000 in the Census Bureau report mirrors a recent survey of builder confidence, which rose to its highest level since 2007, according to the National Association of Home Builders. Actual housing starts, however, dropped 4.8% compared with April, although they did gain 28.5% compared with a year earlier. The housing market has been sending out mixed messages, with home prices still very weak and foreclosures showing signs of picking up after months of decline.

San Francisco Bay Area Sales Up!

Posted in Foreclosures, Real Estate, Short Sales by Jake on April 25, 2012 No Comments yet

March home sales in California’s Bay Area reached their highest level for the month in five years, the result of lower prices, low interest rates and an improving economy.  About 7,700 new and resale houses and condos sold in the nine-county Bay Area in March, up 34.9% from 5,702 in February, and up 9.1% from 7,051 a year earlier, according to San Diego-based DataQuick.  The February to March sales jump is normal for the season, but the latter’s sales count was the highest for the month since 8,317 homes were sold in 2007. Since 1988, March sales have ranged from 4,898 in 2008 to 12,645 in 2004, with an average of 8,812.

Median Price Is Up

“This is the time of year when buying patterns usually start to normalize,” said DataQuick President John Walsh. “And while the changes we’re seeing are incremental, they’re incremental in a positive direction. That said, there’s a long way to go.”  The median price paid for all new and resale houses and condos sold in the Bay Area in March totaled $358,000, a 10.2% increase from $325,000 in February, but down 0.6% from $360,000 in March 2011. 

 What’s The Take Away?

To put these figures in perspective, the low point of the current real estate cycle fell to $290,000 in March 2009, while the peak rose to $665,000 in June/July 2007.  Statewide median home prices posted their first year-over-year increase in 16 months. The California Association of Realtors members said tight inventory (4.1 months) throughout the state and particularly robust sales in the San Francisco Bay area helped fuel the price increase.

“Two of the big issues to watch closely are how fast distressed properties are being put on the market, and the availability of, or lack of availability of, mortgage financing,” DataQuick’s Walsh said.  Distressed property sales, according to the firm, made up 44.3% of the resale market, down from 48.8% in February and 48.2% a year earlier.  Foreclosure resales accounted for 24.9% of resales in March, falling from 26.4% in February, and down from 31.5% in the year-ago period. Foreclosure resales averaged about 10% over the past 17 years.  Short sales made up 19.4% of Bay Area resales in the month, down from 22.4% in the previous month and up from 16.7% a year earlier.

Short Sale Are Up…But Prices Are Down?

Posted in Short Sales by Jake on April 25, 2012 No Comments yet

“Buyer traffic is strong, supply of homes for sale is low, and yet home prices continue to defy the usual formula, falling again in March. Prices usually rise as supply shrinks, but demand is still too low to make those historical ‘norms’ compute, not to mention that the type of supply available is largely distressed.  Foreclosures and short sales accounted for 47.7% of sales, in a three month running average measured by Campbell/Inside Mortgage Finance. That’s the 25th month in a row that distressed sales have topped 40% of the market.  ‘With nearly half of the market being distressed, we’re a long way from a return to a normal market,’ said Thomas Popik, research director at Campbell Surveys. ‘Agents responding to our survey say that homeowners with well-maintained properties in good locations are very reluctant to list at today’s prices. That’s why inventory is low–and also why forced REO and short sales are such a big proportion of the remaining market.’  Home prices for non-distressed properties fell 5.7% in March year-over-year, according to the survey. Prices for ‘damaged’ REO (bank-owned properties) fell 5.7% and for move-in ready REO fell 2.5% during the same period. The real sticker shock is in short sales. Prices of those homes fell 14.3% from March of 2011.

 Robo Signing Impetus

Short sales have been ramping up of late, as banks attempt to comply with the so-called ‘robo-signing’ mortgage settlement. Those are part of the losses the banks are required to take in the $25 billion deal. Over the past six months, short sales have moved from 17.8% of all sales to 19.9%, according to the Campbell/IMF survey. They now represent the number one segment for distressed properties.

That share is likely to grow, as the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), last week announced it was directing the two mortgage giants to ‘develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure.’ It includes a requirement that mortgage servicers review and respond to short sale requests within thirty days.  Lengthy timelines have long been the biggest complaint in the short sale sector.

Quicker  Short Sale Decisions

Fannie Mae and Freddie Mac hold hundreds of thousands of distressed loans, and accelerating the process will surely move the numbers up quickly, although the rules don’t go into effect until June 1. The FHFA is requiring the two make final decisions on these sales within 60 days. Previously, short sales could take up to a year and even beyond, with buyers often dropping out in frustration.  ‘This could put short-term downward pressure on home prices, as short sales by their nature occur more quickly than foreclosures,’

writes Jaret Seiberg, analyst at Guggenheim Partners. ‘That could raise questions about the status of the housing recovery, which could be negative for those with housing exposure. That would include homebuilders, mortgage lenders and mortgage insurers.’  On the plus side, short sales tend to sell at higher prices than foreclosures. It appears, however, that regardless of the FHFA edict, banks are already ramping up the short sales. Some began doing so in the aftermath of the robo-signing scandal, as foreclosures stalled. Even now, foreclosures falling as short sales rise.

The good news is that sales of distressed properties are rising, but the headlines will likely focus more on the falling prices, than the much-needed clearing of these homes.”

courtesy: Diana Olick

Fannie & Freddie Bulk Sales Begin Soon!

Posted in Foreclosures, Real Estate by Jake on February 10, 2012 No Comments yet

The government is starting to shed foreclosed, single-family homes it owns — by selling them in bulk to investors, who would turn them into rental properties.  Officials, however, are saying  that only “test” sales will occur “in the near-term” with a focus on the areas hardest hit by foreclosures. They declined to comment beyond a news release they issued.  The test comes after the government in summer 2011 asked for proposals on what to do with more than 90,000 foreclosed properties it then held. The government typically sells foreclosed properties one at a time, but officials specifically asked for ways to move homes in bulk because of the size of the backlog.  About 4,000 groups or individuals submitted ideas on how the government could unload the properties. After The Enquirer filed a Freedom of Information Act request, the government released a list of 423 companies, groups and individuals that submitted responsive proposals, but no details on their proposals.

Another Government Agency To Supervise The Test Sale

The test sale of the foreclosures and conversion of them into rental housing is being supervised by the Federal Housing Finance Agency (FHFA). The agency has acted since 2008 as the federal conservator for Fannie and Freddie, which are public companies although they were created by Congress.  In a news release Wednesday, the finance agency said “Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans” under the test. It also asked investors to pre-qualify to participate in the test.  The investors will be required “to rent the purchased properties for a specified number of years.” FHFA officials hope the rental period will “provide relief for local housing markets that continue to be depressed by the volume of foreclosed properties, and provide additional rental options to certain markets.” 

Limit The Loss To Taxpayers?

 To qualify, investors will have to show the financial wherewithal to buy the assets, sufficient experience and knowledge to bear the risks and manage of the investment and agree to “keep certain information about the REO (real estate) and related matters confidential.”  Nationwide, the 83,000 homes currently up for sale and potential conversion into rental units are among more than 200,000 foreclosures of all kinds that the government holds, apparently making it the nation’s largest owner of foreclosed properties. The 200,000 is almost a third of foreclosed properties across the nation.  Moving the backlog would get them off the books of the Federal Housing Administration. It also would clear the books of Fannie Mae and Freddie Mac, which buy mortgages, bundle them and then sell mortgage-backed securities to investors.  The FHA, Fannie and Freddie became owners of the properties as hundreds of thousands of owners defaulted on their mortgages during the real estate meltdown.  Clearing the backlog would limit the loss to taxpayers, who already have bailed out Fannie and Freddie at a cost of $169 billion and counting. The losses are expected to total $220 billion to $311 billion by the end of 2014, according to latest projections in December by the Federal Housing Finance Agency.

States With Highest Foreclosure Rates Are Still Holding Out…

Posted in Real Estate by Jake on February 8, 2012 No Comments yet

California, New York, Nevada, and Massachusetts are among the states that haven’t signed off on a settlement with banks over foreclosure abuses, according to state officials and two people familiar with the talks.  The holdouts include some with the highest rates of foreclosures. More than 6% of Nevada housing units had at least one foreclosure filing in 2011, the nation’s highest rate, according to RealtyTrac. California was third-highest with more than 3%, said the firm, which tracks foreclosures.  California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been among the most outspoken in pushing for changes to the accord, were among those who hadn’t joined as of a Feb. 6 deadline.

More than 40 states originally signed on, said Iowa Attorney General Tom Miller, who is helping to lead talks with the banks.

“Adding more numbers probably improves the political dimension of the settlement from the standpoint of the attorneys general,” said Ken Scott, a Stanford University law professor.

“If you can say there were only a handful of diehards that didn’t sign on, that gives you some political protection.”  All

50 states announced almost 16 months ago they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes. Officials from states and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with five banks that is said to be worth as much as $25 billion.  At the time of this posting, Arizona, Michigan and Florida have also joined the other 40 states in the deal, for a total of 43.

Mismanagement of the $1B Housing Program

Posted in Real Estate, Wholesale And Rehabs by mrdublin on November 22, 2011 No Comments yet

Where has all the money gone?

It should be understandable that you have forgotten about the $1B federal housing program called “Emergency Homeowners’ Loan Program” which the government allotted to help distressed homeowners work through their mortgage situations.   The program gave up to $50,000 of no-interest loans which will be forgiven if their recipients stay in their homes for five years.

Only a little more than half of the $1B was used and the other remaining money was sent back to the U.S. treasury. Meanwhile,  government data showed that three states got the majority of shares in the program.  The fund, which the government based on population and unemployment rate, was supposed to be used by 32 states and Puerto Rico.

However,  another failed government attempt occurred as mismanagement of funds and misappropriations resulted in Pennsylvania, Maryland and Connecticut receiving the lions share– according to the figures released by the Department of Housing and Urban Development.

In addition, the program, targeting 30,000 homeowners,  expired on September 30, with merely 12,000 applicants approved.

Loop holes, come one, come all!

Loop hole # 1: Why did the government leave half of the $1B unspent? Don’t tell me you only have 12,000 applications approved. If you were really targeting 30,000 homeowners, why would you set a stupid deadline?  It’s either you have a target date or a target number.  Besides, if you really wanted to help, you don’t have to be so strict.  After all,  you do want to help people and not punish them, don’t you?

Loop hole #2: Why were there misappropriations on the budget?  The amount spent exceeded the target budget in some states while in other states the budget was below the line.  For instance, Pennsylvania, Maryland and Connecticut were budgeted at $179 million each but because they used up their initial funds,  HUD decided to give them $46 million more.

Places with the most homeowners receiving preliminary loan approval under the Emergency Homeowners’ Loan Program:
State

Homeowners

Pennsylvania

3,053

Maryland

1,444

Connnecticut

1,070

Texas

876

Massachusetts

568

Puerto Rico

468

Source: USAToday.Com and Department of Housing and Urban Development

 

More Details from USAToday.Com:

  • HUD initially expected almost 22,000 homeowners to get help in the other 27 states and Puerto Rico. Only 27% of that goal was reached, preliminary numbers show.
  • Puerto Rico fared best. With funds to help 652 homeowners, it got 468 preliminary approvals, or 72%. South Dakota hit 52% of its maximum allocation.
  • In five states — Utah, Iowa, Arkansas, Missouri and North Dakota— less than 10% of the expected number of homeowners received preliminary approvals. North Dakota’s allocation allowed for 43 borrowers to get help; just four got preliminary approvals.
  • New York state has 458 preliminary approvals — 17% of its maximum allocation for 2,633 loans. Its total will likely go up because a data transmission problem delayed some applications there, Sullivan says.

What Happens if FHA Continues to Lose Money?

Posted in Real Estate, Wholesale And Rehabs by mrdublin on November 18, 2011 No Comments yet

Congress raises FHA loan limits amidst the latter continuously running out of cash.

The Federal Housing Administration is the governing body that insures mortgage loans thus as an insurance, it needs to maintain a certain amount of money called cash reserves, that will keep it operating. The cash reserve also guarantees that if ever an unfortunate even happens to FHA (it got closed down or something) it can still pay off all insured. The government’s mandated FHA reserve must at least be 2% of its total insurance in force.

According to CNBC.Com’s Diana Olick, But the FHA is right inside the danger zone now. An actual independent actuarial report found that FHA’s loan loss reserves is already 0.24% of its $1.1 trillion dollars insured mortgages.

From 5% in the market share, FHA has gone up to 30% now – obviously an indication that there are much more mortgage loans now (spell: debts) that FHA is insuring. This will continue to grow big, according to the auditor, as home prices fall and mortgage delinquencies grow high.

FHA’s reserves is at $2.6 billion as of end of September which means it is down by a whopping 45% from last year’s $4.7 billion. This is hardly 2% of the required reserves (which the Congress has set) yet now that the loan mortgages are raised, there could be more loaners running after FHA.

Well in that case, the government must prepare itself for a bailout program, unless it wants FHA to continue going down the drain, which seem to be the case when the Congress approved for higher loan limits.

Bob Nielsen, chairman of the National Association of Home Builders (NAHB) was caught saying, “The FHA program is fully self-supporting, and a great example of a public-private partnership with lending institutions. Restoring the loan limits will provide millions of potential consumers in markets throughout the nation access to safe, affordable mortgage financing.”

Good intentions, wrong execution. It’s still a fail for the government.

Foreclosure Mess Is Getting Very Costly!

Posted in Foreclosures, Real Estate by Jake on November 7, 2011 No Comments yet

The price tag to settle the state and federal investigation of bank foreclosure practices has increased by at least $5 billion in recent weeks, people familiar with the negotiations say.  The proposal on the table now puts a $25 billion value on a settlement by the nation’s five largest mortgage servicing companies—Ally Financial Inc., Bank of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. In exchange for picking up a bigger tab, banks would be released from certain legal claims tied to mortgage originations. Representatives of the five banks declined to comment.

The price tag could go as high as $29 billion if the agreement includes a longer list of servicers, sources familiar with the discussions said. Earlier discussions had revolved around $20 billion in cash penalties and homeowner assistance programs, sources familiar with the discussions said. There was confusion in those talks as to whether that figure applied only to the five big banks or to as many as 14 large mortgage servicers that agreed with regulators this past spring to fix their foreclosure practices.  Banks and government officials have been negotiating for months over a pact in which the banks would pay to settle some legal claims, but it’s still not clear that a deal will be reached. Reaching an agreement with the $25 billion price tag for the five biggest banks depends on the participation of California Attorney General Kamala D. Harris, who bolted from the talks in early October. At the time, Ms. Harris called the terms on the table “inadequate.” A spokesman for Ms. Harris declined to comment.

Other key issues also remain in flux. Negotiators must still finalize how the cost of the settlement will be allocated among the banks. The two sides must also agree on the selection of a monitor charged with overseeing the agreement.  The selection of a monitor is considered a critical part of the deal because it provides a way to ensure that banks comply with the terms of the settlement. The agreement would require banks to pay a substantial financial penalty if they fall short of the settlement’s requirements, these sources added.  Administration officials have viewed the broader foreclosure settlement as a chance to break the foreclosure log jam, increase the number of financially troubled borrowers who receive principal reductions and provide other assistance to homeowners.

The deal would include $5 billion in cash penalties. In addition, banks would be required to do refinancings worth $3 billion. The refinance program is considered particularly costly for the banks because they would be forced to give up expected interest income on loans for which borrowers are current on their loan payments and deemed unlikely to default.  The rest of the settlement’s value would come from principal reductions and other aid to homeowners. Banks would get credit for various types of assistance based on a set of formulas being finalized by negotiators.  After Ms. Harris left the talks, negotiators came up with a plan to help certain “underwater” borrowers get refinancing assistance. The plan would apply only to mortgages owned by the banks; it would allow borrowers whose houses are worth less than their loans but are current on their mortgage payments to refinance into a loan with a lower interest rate, people familiar with the discussions said. Allowing more underwater borrowers to refinance could have an outsize impact on California, which has more than 2 million underwater borrowers, more than any other state, according to CoreLogic.

In exchange for the refinancing piece, banks would be released from certain claims related to loan servicing and origination, sources familiar with the discussions say. Banks wouldn’t be released from claims related to the securitization of mortgage loans, these sources add. The exact details of any release are still under discussion.  Ms. Harris has a limited ability to bring legal claims related to originations and servicing practices if she decides not to agree to a settlement, sources familiar with the negotiations say. The statute for filing cases related to loan originations is four years in her state, meaning any legal action could only cover mortgages originated in 2007 and after. California allows foreclosures to proceed through a non-judicial process, limiting the state’s ability to argue that banks lied to the courts, these sources add.

Housing Market Bottom But No Near Term Appreciation

Posted in Real Estate by Jake on October 4, 2011 No Comments yet

The US housing market hit bottom this year and will remain flat until 2014, when it will start to slowly recover, said Rick Sharga, an executive vice president with Carrington Mortgage Holdings.  “We’re looking at a catfish recovery,” he told attendees at the Asian Real Estate Association of America conference in San Francisco Friday, saying the market will bump along the bottom for some time before starting to revive.  More than a million foreclosure actions that should have taken place this year have not yet moved forward, and that delay pushes a resolution of the housing market’s problems into next year and beyond, he said, citing data from RealtyTrac, where Sharga served as a senior vice president until this week.  “We can’t expect to see home price appreciation until we work through these distressed assets,” he said.  Since 2005, there’s only been one quarter in which US banks have sold more properties than they’ve taken back through foreclosure, leaving a huge overhang of real estate-owned assets that need to be cleared out.

Shadow inventory still a big problem

Banks hold about 800,000 REOs, and three-quarters of those are not listed for sale, said Sharga. Another 800,000 homes are in foreclosure and 1.5 million loans are delinquent.  This “shadow inventory” will slow down a housing market recovery, he said, as monthly foreclosure numbers will remain elevated through 2012 and REO inventories will stay high through 2013.  Even with the continuing distress in the housing market, the country is not likely to enter a double-dip recession, said Eugenio Aleman, a director and senior economist at Wells Fargo & Co.  Although US workers have suffered as the nation has lost 9 million jobs over a two-year period, the manufacturing and service sectors are expanding, he noted.  “The rest of the economy is not booming, but it’s doing fine,” said Aleman. Wells Fargo is projecting that the US economy will expand over the next few years, but at anemic rates: 1.6% this year, 1.4% in 2012 and 1.9% in 2013.  “We are standing firm,” said Aleman of Wells Fargo’s economic forecast. “We are not going to go into a recession.”

New Short Sale Law In California…SB458

Posted in Short Sales by Jake on July 24, 2011 No Comments yet

Under a new state law in California, any lender who agrees to a short sale, which by definition will yield insufficient funds to cover the outstanding loans on a property, must accept the short amount as payment in full for all loan balances.  That is a good thing for upside-down homeowners who need to sell, says the California Association of Realtors.   “The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said association President Beth L. Peerce.   “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lien holders — those in first position and in junior positions — will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property,” she added.

While the incidences of lenders pursuing homeowners has not been pandemic, there have been and would, undoubtedly continue to be scenarios where senior and/or junior lien holders harass homeowners for short pay subsidies through the use of in-house or third party collection agencies.  SB458 will put the issue to bed permanently and allow for the homeowner(s) to move on with their lives unharrassed while they rebuild their credit and sense of self worth.

What is not clear and probably not affected is the ability of the lien holder(s) to report the transaction as “settled for less than amount owed” or something to that effect.  It would be great if  SB458 required all lenders to report to the credit bureaus as “paid in full” as well, but that is wishful thinking.  To read the bill, click here!

Pay People To Pay Mortgages?

Posted in Real Estate by Jake on July 14, 2011 No Comments yet

“At what point is moral hazard trumped by corporate survival and the cold hard need to get people to pay their mortgages? The answer is: Now.  As home values continue to fall and more borrowers fall into a negative equity position on their home loans, those who stand to lose, banks and investors, are working to keep borrowers current.  To date, they have focused on delinquent borrowers, offering loan modifications and foreclosure alternatives, like short sales and deeds in lieu of foreclosure.

Last fall, New Jersey-based Loan Value Group launched a new business model, offering lenders and mortgage investors a way to keep their current, but underwater, borrowers current through cash incentives.  It’s called Responsible Homeowner Reward, and today, one of the nation’s largest mortgage insurers, PMI Mortgage Insurance, joined in.  Here’s how it works. Borrowers pay nothing. They sign up with the program, promising to keep current on their mortgages for a certain period, generally 36 to 60 months (LVG has worked out the contract with the participating lender/investor).  After that period, the borrower will be paid anywhere from 10 to 30% of the loan principal, depending on the contract, in cash. The lenders/investors pay LVG, which receives a servicing fee, and LVG pays the borrowers. Again, the borrowers pay nothing for this bonus.

Even PMI is getting into the act

The PMI deal works the same, with PMI paying a scaled reward for select borrowers over a five-year period. If the borrowers stay current, they earn the payoff over the five years and receive the cash at the end. PMI created its own subsidiary, Homeowner Reward, but that subsidiary will work with LVG, and PMI will pay LVG an administration fee. To date, 38 states have borrowers enrolled in the LVG program, totaling approximately 10,000, according to LVG. The largest number of borrowers are from the hardest hit states, California, Florida, Arizona, Nevada and Michigan.  So far, RH Rewards has offered, but not paid out, $107,393,922, according to the company’s website.  ‘All of those states have achieved greater than 50% reduction in default rates than respective control group,’ said an LVG spokesperson.

Okay, so now that we get it, we have to ask what exactly are we getting here? From a purely business perspective, it makes sense.
By targeting borrowers with the most negative equity and therefore at the greatest risk of strategic default, lenders and investors are cutting their losses by keeping the borrowers current. They stand to lose more in a foreclosure.  But does it sound slightly ironic to anyone else that a mortgage insurance company, whose business is to insure loans by charging borrowers premium fees, is now paying those very same borrowers back to stay current on the loans they’re insuring?  ‘For borrowers in our pilot program, Responsible Homeowner Reward (SM) provides an incentive to stay current on their mortgage by helping them earn an offset to the decline in home values. Such programs, if successful, could reduce the incidence of foreclosure, which could help stabilize house prices and stabilize communities,’ said Chris Hovey, PMI’s SVP of Servicing Operations and Loss Management.

Strategic default is the only card left

Like I said, it’s business, a numbers game where companies have now figured out how much they need to pay to avert a larger loss.
Apparently we have hit that tipping point where strategic default is now so pervasive and so acceptable that companies are forced to pay borrowers to stop.  So what exactly is the difference between that and principal write-down, which the big lenders seem to abhor as a bigger moral hazard even for borrowers facing foreclosure?  In an interview with HousingWire back in April of this year, the managing partner of LVG, Frank Palotta, said, ‘There is little focus on loss-mitigation efforts for current loans, as these homeowners typically pay. As a result, the vast majority of these homeowners are left with no other option than to become ‘the squeaky wheel’ by becoming delinquent in order to receive a call from their servicer.’

courtesy:  Diana Olick

Foreclosures Fall?..

Posted in Real Estate by Jake on June 20, 2011 No Comments yet

According to RealtyTrac, the online marketplace of foreclosed properties, foreclosure filings fell 33% In May from a year earlier and 2% month-over-month. The number of homes repossessed (referred to as REOs or real estate-owned properties) in May also declined to 66,879, down 3.8% from April and 29% year-over-year.
The huge year-over-year drop in foreclosures doesn’t necessarily mean the housing market is staging a recovery, however.

James Saccacio, the CEO of RealtyTrac, says the declines are likely due to lingering effects of the “robo-signing” scandal, which broke last September, when it was discovered that banks were playing fast and loose with foreclosure documents.  There’s another factor at play, as well. The banks can’t sell the homes they’ve already seized so they aren’t as incentivized to repossess more homes.  “There’s weak demand from buyers, making it tough for lenders to unload their REO inventory,” said Saccacio. “Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.”
The banks don’t want to take on the expense of maintaining the homes — property taxes, heating costs, repairs and insurance — if they can’t sell them quickly.  Selling off the inventory of repossessed homes is crucial to the housing market.

The steepest drops in filings have come from judicial states, ones in which the courts are involved in repossessions. In these states, where foreclosure proceedings are subject to the scrutiny of the courts, it appears banks are taking special care to make sure they’ve stamped out the last vestiges of the robo-signing issues.  Nevada, where most cases are handled outside of court, continued to be foreclosure central. One of every 103 households received a notice of some kind in May. However, that was an improvement of 23% compared with May 2010. Arizona, with one filing for every 210 households, and California, one for every 259, were second and third.  The judicial state of Florida, where the housing market is no better, has seen a much greater drop-off in filings over the past year, down 62%. It now has the eighth highest foreclosure rate, of one filing for every 461 households.
A year ago, it was in the top four, along with the other “Sand States.”

Surge In Short Sales…No Thanks To The Government

Posted in Short Sales by Jake on June 20, 2011 No Comments yet

This from Diana Olick:

“Any time I see a 74% jump in anything, I hear alarm bells, so when the Treasury Department reported just that big a jump in its Home Affordable Foreclosure Alternatives (HAFA) program, I figured there had to be something really big behind it.  And I was wrong.  There’s nothing big behind it, in fact there’s something very small behind it: Small numbers.

HAFA provides financial incentives for servicers and borrowers to do short sales (selling the property for less than the value of the mortgage) and deeds in lieu of foreclosure (basically just giving the property back to the bank). The program launched in April of 2010 and was later streamlined in December, 2010, based on feedback from mortgage servicers, real estate agents and homeowners.  So far, HAFA has completed 7,113 short sales or DIL’s. In April, however, HAFA saw 1,666 completed, up 74% from the 959 done in March.  Why the jump?’  It’s too early to draw broad conclusions,’ says Treasury spokesman Andrea Risotto, noting that Treasury just began reporting the numbers two months ago. She also points to a long reporting lag because the short sale process still takes so long. But none of this is the story.
The 74% jump exists because the numbers are just so small, and that’s the story. HAFA is doing a relatively miniscule number of short sales, when you compare the program to what the big banks are doing on their own.

JP Morgan Chase has done over 110,000 short sales since 2009, now processing about 5000 a month, according to recent reports to Congress, and they are the number three servicer behind Bank of America and Wells Fargo. If you extrapolate that out, the top three banks are probably doing more than 20,000 a month, and they’re ramping up the sales as we speak.  ‘Short sales shot up in the Spring as banks wrestled with foreclosure problems and delays,’ says Guy Cecala of Inside Mortgage Finance. In fact, the Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey reported short sales hit a record high of 19.6% of all home purchase transactions in March. ‘Banks have discovered that short sales are often the fastest and most cost effective way to resolve a severely delinquent mortgage, and they have greatly improved their processing systems (any turnaround times) for handling these transactions.’

Compared to a foreclosure, other sources say, short sales result in smaller losses. There is more financial certainty than from an REO (bank owned) sale many months down the road when the property has likely deteriorated. The banks are currently looking at so many potential REO’s from so many delinquent loans in the pipeline, they’d be ridiculous not to try to short sell as many as they possibly could.  Some servicers are aggressively seeking out borrowers for short sales.  ‘Chase reaches out to borrowers who have already listed their homes or were recently denied a modification to initiate the short sale evaluation process. The goal is to have as much paperwork completed as possible prior to receiving the offer, thereby reducing the time from offer receipt to approval,’ a Chase spokesman explains.

But why, if HAFA actually pays borrowers and servicers to do short sales and DIL’s, would banks be doing so many outside of the program?  ‘HAFA is a taxpayer funded program, so it has eligibility requirements targeted at a certain segment of the population,’ says Risotto, noting that the program is for owner occupants who can demonstrate financial hardship and whose first mortgage is less than $729,750. ‘HAFA is not meant to be for every person looking to do a short sale,’ she adds.  That knocks out investors, jumbo loans and borrowers who don’t meet the ‘hardship’ requirements of the Treasury. The big banks are likely more lenient on that last one, again knowing that a short sales will be cheaper in the end than a foreclosure.”

Is Housing As Bad As It Seems?

Posted in Real Estate by Jake on June 20, 2011 No Comments yet

As the housing market started to weaken earlier this year, analysts feared that the seasonal bump would not materialize at all – a sure sign of deepening problems that could tip the economy back into recession.  From January through to March, home prices fell so far that they are now back to levels not seen since the middle of 2002, according to the widely watched S&P/Case-Shiller Index.  Slowing job growth and declining consumer confidence added to the perception that the market was worsening.

What do the Realtors Say?

And yet interviews with realtors in half a dozen cities around the country paint a different picture. They say that the volume of sales and prices started to strengthen in April and have continued to gain momentum through the first weeks of June.  The housing market in many US cities is performing better than recently released national data would suggest.  List prices rose in 24 of 26 cities tracked by Altos Research in May, with San Francisco, Washington and San Jose, California, showing the biggest gains.  New York and Las Vegas were the only two cities in the index where prices declined.  A separate index compiled by CoreLogic that tracks prices in 6,507 postal codes rose slightly in April compared with March – the first such increase since a homebuyer tax credit that helped prop up the market expired in April 2010.  It may well be the beginning of a reversal,” said Mark Flemming, CoreLogic’s chief economist.

No one is suggesting there is a boom under way, only that the market may not be as bad as some recent analysis has suggested.
Most predictions call for at least a 5% price decline this year and no bottom until 2012. Despite the hand-wringing, there are encouraging signs.  California, hard hit by the housing crisis, has seen a notable pick-up. “People are still unsure, because there are a lot of mixed signals,” said Jim Hamilton, the former head of the California Realtors Association. “But, overall, more buyers are coming into the market.”

Luxury housing leading the recovery

The housing market is showing “signs of improvement” with help from luxury home sales, Toll Brothers Chief Executive Douglas Yearley said yesterday.  “There are some signs luxury is leading us out of this a little bit,” he said. “We’re clearly off the bottom.”  But while Toll is a builder of those luxury homes, the CEO expects sales the rest of the year to be relatively flat.
That’s despite 60% of Toll sales coming from the northeast corridor of Boston to Washington, D.C., which was not hit with the same housing problems as Las Vegas and Florida, among others.
“I think in pockets we’ll see some success,” Yearley said.
“The good news is pricing has definitely stabilized. We’re not seeing price reductions. In some isolated cases, we have some pricing power, we’re able to raise prices.”  He added that after five or six years of waiting, buyers want “to move on with their lives and I think they’re done trying to time the perfect point to get in the market. They’re taking advantage of great interest rates. Affordability’s at an all-time high…It’s helping us but we have a long ways to go.”

Existing Home Sales Down…Are Credit Rules Killing Recovery?

Posted in Real Estate by Jake on May 21, 2011 No Comments yet

Existing-home sales slipped in April, although the market has managed six gains in the past nine months, according to the National Association of Realtors (NAR).  A parallel NAR practitioner survey shows 11% of Realtors report a contract was cancelled in April from an appraisal coming in below the price negotiated between a buyer and seller, 10% had a contract delayed, and 14% said a contract was renegotiated to a lower sales price as a result of a low appraisal.  According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 4.84% in April, unchanged from March; the rate was 5.10% in April 2010.  All-cash transactions stood at 31% in April, down from a record level of 35% in March; they were 26% in March 2010; investors account for the bulk of cash purchases.

The national median existing-home price for all housing types was $163,700 in April, which is 5.0% below April 2010. Distressed homes – typically sold at a discount of about 20% – accounted for 37% of sales in April, down from 40% in March; they were 33% in April 2010.  First-time buyers purchased 36% of homes in April, up from 33% in March; they were 49% in April 2010 when the tax credit was in place. Investors slipped to 20% in April from 22% of purchase activity in March; they were 15% in April 2010. The balance of sales was to repeat buyers, which were 44% in April.

Single-family home sales slipped 0.5% to a seasonally adjusted annual rate of 4.42 million in April from 4.44 million in March, and are 12.6% below the 5.06 million pace in April 2010. The median existing single-family home price was $163,200 in April, which is 5.4% below a year ago.
Existing condominium and co-op sales fell 3.1% to a seasonally adjusted annual rate of 630,000 in April from 650,000 in March, and are 15.0% below the 741,000-unit level one year ago. The median existing condo price was $167,300 in April, down 2.3% from April 2010.

Regionally, existing-home sales in the Northeast fell 7.5% to an annual pace of 740,000 in April and are 32.1% below a year-ago surge. The median price in the Northeast was $225,400, which is 7.3% below April 2010.  Existing-home sales in the Midwest rose 5.7% in April to a level of 1.12 million but are 16.4% below a cyclical peak in April 2010. The median price in the Midwest was $133,200, down 5.1% from a year ago.  In the South, existing-home sales declined 1.0% to an annual pace of 1.95 million in April and are 9.3% below a year ago. The median price in the South was $142,800, which is 4.1% lower than April 2010.
Existing-home sales in the West slipped 1.6% to an annual level of 1.24 million in April and are 0.8% below April 2010. The median price in the West was $203,400, down 6.1% from a year ago.

According to Diana Olick:

“Existing home sales were basically flat in April, down close to one% month-to-month and down nearly 13% year-over-year, but you have to remember last year we were heavily under the influence of the home buyer tax credit.  Now we are heavily under the influence of the mortgage market, or lack thereof.

It’s all in the numbers.  Let’s start with all-cash.  Thirty-one% of buyers in April used all-cash, and that’s down from 35% the previous month. It’s likely because the number of investors buying in April also fell. Investors have been the only real fuel in this market, buying distressed properties at distressed prices.  Just look at the share of what’s selling at what price point:  The low end [low-priced homes] is moving (your investors), and the high end is moving because higher-end folks don’t always need a mortgage; neither investors nor high-end buyers were affected by the home buyer tax credit last year.
The trouble is, the middle of the market makes up the lions share of home sales, over 60%, and it’s not moving.  What’s also juicing the lower end is the fact that the FHA raised insurance premiums on April 18th, so mortgage applications for FHA loans surged 20% in the four weeks before and then fell nearly 27% the week after. With that surge, you would have thought we’d see a lot more sales, but that wasn’t the case.

Realtors are blaming appraisals.  In a survey of their people, 11% said they had to cancel a contract because of a low appraisal.  Appraisals, which during the housing boom were laughable, have now swung the opposite direction, towards levels so conservative that they themselves are actually pushing some asking prices lower. And that all goes back to the lenders, to Fannie Mae and to Freddie Mac. As house prices fall, lenders have to be even more careful because risk rises.

The remaining question, though, is why did investors fall out of the market in April, even just a bit? Is it because the homes on the market tend to be higher-priced? Inventories rose by 350,000 in April, which is usually the case in the heart of the spring season. The realtors claim there are fewer foreclosed properties to buy because banks are trying to do more short sales, which take longer. That may be as well. Short sales generally don’t lower prices as much as bank-owned (REO) sales.  Whatever the answer, the fact is that we are not seeing any kind of spring surge.  A tweet from a follower named ‘Kentucky loan’: says business has slowed to a crawl out here on the front lines.”

West Is Now In Double Dip..Prices Sliding

Posted in Real Estate by Jake on April 10, 2011 No Comments yet

According to DSNews.com,  new data released by Clear Capital shows that home prices in the western part of the country are sliding again, down 4.3% over the first three months of this year.  Granted housing is inherently local, but the company says, taken on the whole, the West region has now officially entered double-dip territory, with home values hitting lows not seen since 2001.  Across the rest of the United States, though, the valuation firm argues that negative forecasts have been “overstated,” as prices in the South and Midwest have remained flat since the beginning of the year and prices in the Northeast have slipped just 0.5%.

According to Clear Capital, data through March 2011 in the Midwest, South, and Northeast regions is “encouraging” as home prices have managed to find a bottom in the midst of ongoing foreclosure pressures and the traditionally slow winter season.  “The latest data through March supports our view that many markets are continuing to see relief from the significant price declines we observed through January,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital.  “Looking deeper at the disparity between the West and the other regions, we find that the rate of change in REO (bank foreclosures) saturation continues to serve as a leading indicator of home prices.

For example, out of all the regions, only the West showed acceleration in its REO saturation from the previous quarter,” Villacorta explained.  Clear Capital says the region’s underperformance in home prices reflects the extent distressed activity plays in western markets.  Recently, distressed activity as a proportion of total sales has climbed nearly 10% since the second quarter of 2010, and now stands at 40.8% of sales, according to the company’s study.  The poor showing in the West pulled home prices at the national level down 1.3% during the first quarter of this year, Clear Capital reports.  But looking ahead, the company says should the traditional spring and summer buying seasons prove substantial, national home prices could reach positive quarterly gains before the end of 2011. However, Clear Capital was quick to add that distressed activity remains high and will likely void any gains in the West.

Short Sales And The Effects On Home Prices

Posted in Real Estate, Short Sales by Jake on April 9, 2011 No Comments yet

This from Diana Olick:

“Home prices fell 6.7% in February year over year, according to a new report from CoreLogic. That numbers includes distressed sales, that is, sales of foreclosed properties or short sales, where the bank agrees to let the homeowner sell for less than the value of the mortgage. If you take those sales out, however, home prices were basically flat.  ‘When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,’ notes CoreLogic’s chief economist Mark Flemming. ‘Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.’  Distressed sales, though, still make up more than a third of all home sales, according to the National Association of  Realtors, and that number is likely to rise at least in the near future. The banks have slowed the process of foreclosure, and that has reduced the num  ber of bank owned properties hitting the market lately, but it’s a whole different story with short sales.

‘Absolutely we can see on the ground, it’s just happening,’ says Robert Cruz, a real estate broker just south of San Francisco who deals primarily in short sales. ‘The banks are asking us to go out and engage the borrower, find the borrowers who have defaulted or re-defaulted and list the properties before they have to foreclose.’  Short sales used to be a long, tedious process with a very low success rate. ‘Short sales used to be a waste of time,’ Cruz remembers. ‘Now it’s totally changed.’  Much of that is due to banks streamlining the process and a new government incentive program, but much of it is coming from the banks themselves.

Cruz says in the first quarter of this year his firm’s short sale closings were up at least 60%, thanks to the banks and servicers being far more aggressive in pursuing them; not only are they pursuing them, but they are paying for them. While the government’s Home Affordable Foreclosure Alternative Program offers borrowers $3000 in ‘relocation assistance’ after successful short sales, Cruz says some of the banks are paying borrowers up to $25,000. He says the banks know the sellers are more savvy today and know they can live rent free for at least a year before a bank takes possession of the home in foreclosure. $3000 isn’t much incentive to move quickly; $25,000 is.  ‘It’s a sea change,’ adds Cruz.  So why am I telling you all this? Because if short sales continue to increase at this rate, even just this year, that’s going to push the home price numbers down even further. Sure, if you take out the short sales, the numbers will look better, but those big headline numbers generally include short sales, and that will further erode confidence. More short sales will also force organic sellers and home builders to try to compete with lower prices. Short sales may be better for the banks and better for borrowers’ credit scores, but they will take their toll on the greater market.”

First-Time Homebuyer Tax Credit Comes Due!

Posted in Real Estate by Jake on April 9, 2011 No Comments yet

Although today it might seem like much to do about nothing, the original 2008-2009 first-time homebuyer tax credit seemed like big news; originally designed to help address the faltering real estate industry, new home buyers got what amounted to an interest free loan up to $7,500 in order to purchase a property.

Time to pay the piper…

Wondering why this is newsworthy? Well, it’s time to start making payments on that tax credit. Unlike the later tax credits which did not have to be refunded, those unfortunate homeowners that jumped on the bandwagon early on, are forced to repay the entire “credit” in 15 equal annual installments. Homeowners that took advantage of the later $8,000 tax credit are under no such requirement. If you are thinking this was a raw deal…well, just join the millions of average Americans that actually bought a house they could afford and made their mortgage payments.  They are cringing at the sight of 4.5% fixed interest rate loans and $75,000 principal reductions being handed out to people that couldn’t qualify to rent a home. In short – there is the “that isn’t fair” attitude going on right now, and rightfully so… but don’t expect the repayment requirement to go away any time soon.  In fact, when you pay taxes this year it will be necessary to make the first installment toward the credit recapture.

Well how much is it?

Not sure how much you owe? Take the amount of the original credit and divided by 15.
For someone that took the entire tax credit of $7,500, that equates into an additional $500 on the federal tax bill for the next 15 years straight….assuming you are still living in the house as your primary residency.

Smart homeowners still made out great with the credit; for example, it was possible to take the amount and apply it to the principle of the home savings tens of thousands of dollars over the life of the loan. Others may have found the credit to make the difference between purchasing a property or not given higher down payments and more stringent lending requirements. Either way, win or lose, it’s now time to pay the piper.

How does it work if the home is now an investment property?

If you convert the home to a rental or vacation property then be prepared to cough up the entire amount on your next income tax return. Would you rather sell? You owe Uncle Sam any profits made on the property up until the full amount of the original credit. Even if your house is destroyed but you rebuild or buy a new home within two years, plan on repaying the tax credit. Even foreclosure or short sales may be subject to repayment terms contingent upon the amount of profit (if any) derived from the sale and the terms of the contract. In fact, it appears the only way out of paying back the tax credit is to die or get divorced and force your ex to take on the full amount of the repayment.

Real estate investors and agents need to be aware of the repayment requirements in order to best inform current homeowners of all costs associated with selling either via short sale or traditional. In many instances, given the declining values in cities across the nation, even slim profits will be reduced by the need to repay the tax credit making short sale deals even more desirable than ever.

Obama Tries To Force Mortgage Deal…May Lose HAMP

Posted in Real Estate by Jake on February 24, 2011 No Comments yet

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America’s largest banks to pay for reductions in loan principal worth billions of dollars. Terms of the administration’s proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won’t be borne by investors who purchased mortgage-backed securities, these people said.  If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers, these people said.  But forging a comprehensive settlement may be difficult. A deal would have to win approval from federal regulators and state attorneys general, as well as some of the nation’s largest mortgage servicers, including Bank of America Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co. Those banks declined to comment.

So far, most loan modifications have focused on shrinking monthly payments by lowering interest rates and extending loan terms. Banks, as well as mortgage giants Fannie Mae and Freddie Mac, have been shy to embrace principal reductions, in part due to concerns that many borrowers who can afford their loans will stop paying in the hope of being rewarded with a smaller loan.  Several federal agencies have been scrutinizing the nation’s largest banks over breakdowns in foreclosure procedures that erupted last fall. Last week, the Office of the Comptroller of the Currency said only a small number of borrowers had been improperly foreclosed upon. But the regulator raised concerns over inadequate staffing and weak controls over certain foreclosure processes.

A settlement must satisfy an unwieldy mix of authorities, including state attorneys general and regulators such as the newly formed Bureau of Consumer Financial Protection, who support heftier fines. They must also appease banking regulators, such as the OCC, that are concerned penalties could be too stiff.  “Nothing has been finalized among the states, and it’s our understanding that the federal agencies we are in discussions with have not finalized their positions,” said a spokesman for Iowa Attorney General Tom Miller, who is spearheading a 50-state investigation of mortgage-servicing practices.

House May Kill Obama’s Rescue Plan

The House of Financial Services Committee has scheduled a vote next week on legislation that would shut down the Obama administration’s key housing rescue programs.  The panel’s Republican leadership said it will consider a bill to terminate the Home Affordable Modification Program, which it said has failed to help a sufficient number of distressed homeowners to justify its cost.  It also will vote on bills to shut down a Federal Housing Administration refinancing program and a program to stabilize neighborhoods suffering from heavy foreclosures.  “In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners,”  Financial Services Committee Chairman Spencer Bachus said in a statement.

Shadow Inventory Will Force Foreclosures

Posted in Real Estate by Jake on February 3, 2011 No Comments yet

Two reports from separate credit rating agencies are drawing the same conclusion: Foreclosures will reach new heights this year, even after setting records in 2010.  “DBRS expects foreclosure filings and completed foreclosures to reach record levels in 2011 as alternatives such as modifications for seriously delinquent borrowers are exhausted,” said Kathleen Tillwitz, an operational risk strategist at the rating agency. “Consequently, losses to residential mortgage-backed securities will likely increase as REO inventories are sold at deep discounts causing writedowns in transactions — particularly the subordinate tranches.”

450 Billion

Standard & Poor’s ratings currently estimates that the principal balance of distressed homes amounts to about $450 billion, representing nearly one-third of the nonagency RMBS market currently outstanding, according to the firm’s fourth quarter 2010 report on foreclosure timelines, also released this week.  S&P expects that it will take 49 months to clear the supply of distressed homes on the market in the U.S. — an 11% increase over the previous quarter and a considerable 40% increase from 4Q 2009.  S&P reports that the volume of distressed residential mortgage properties that are not associated with Fannie Mae or Freddie Mac continues to fall, but at an ever-slowing pace.  And in some markets, clearing the shadow inventory will take a very long time.  “The shadow inventory in the New York MSA will take the longest to clear — 130 months as of fourth-quarter 2010. That is at least twice as long as it will take in any of the other top 20 MSAs and 2.7 times the average time to clear for the U.S. as a whole,” the S&P report states. “This is primarily due to very low liquidation rates in New York.”

Home Prices Showing Signs Of Rebounding?

Posted in Real Estate by Jake on February 3, 2011 No Comments yet

According to the Clear Capital home price index, home prices stopped declining in early January and even increased for the first time since August.  Over the last three months, home prices did decline 1.6% from the previous period. But at the start of 2011, Clear Capital said prices began “showing life.” The company’s senior statistician Alex Villacorta said it is the first uptick since the homebuyer tax credit was in force. It expired in April 2010, and prices have dropped off since.  Villacorta warned however that any conclusions of a recovery would be premature, but he did say it was a positive sign.  “This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery,” Villacorta said.

The changes in prices, especially during a point in the year when sales are slow, is a sign that demand may be returning. Even more encouraging, Clear Capital said the main driver of the price increase was the slowing rate of sale of REO properties, those repossessed through foreclosure.  Every spike in REO saturation, or the percentage of REO sales of all activity, has coincided with a drop in prices. But over the past three months, that saturation increased 1.4%, a drop from recent gains of 3.2%. If this deceleration continues, Clear Capital said, home prices could be poised for future gains “ahead of a seasonal spring lift.”  But RealtyTrac’s Senior Vice President Rick Sharga said from what his company is looking at, major banks currently hold 1 million REO and have kept 70% of that off of the market so far.

Still, Clear Capital reported that thirteen of the highest performing markets posted gains over the last three months. The largest gains came in Cleveland (12.6%) and Dayton, Ohio (9.6%). However, Cleveland prices remain 55% below its peak in 2006.  “Although many markets still remain under significant downward pressure in light of increased distressed sale activities, it is clear that the severity of the downturns observed in October and November have subsided,” Villacorta said.

Federal regulators are still working on the definition of a ‘Qualified Residential Mortgage,’ (QRM), which will determine for which loans banks will have to hold some risk on the books and which they will be able to sell off in securities entirely. That’s a pretty big deal, given that Fannie, Freddie and the FHA are still the only mortgage games in town, and a return of private capital to the mortgage world is essential for the future health of housing.  Next week all kinds of banking types will convene at the annual conference of the American Securitization Forum. QRM will be the hot topic, no doubt. It will be interesting to see what the financers of this still-crawling housing recovery think will happen to all that blossoming buyer interest, with a still-uncertain mortgage market.  No doubt there is a cautious optimism in the air, but there is still a very large fence running through today’s housing market, with a whole lot of buyers lodged on it indefinitely.”

California Short Sale Deficiencies – SB931

Posted in Short Sales by Jake on February 1, 2011 No Comments yet

The California Legislature recently enacted Senate Bill 931 generally prohibiting a deficiency judgment after a short sale for first trust deed lenders of one-to-four residential units.  The following charts are easy-to-use reference guides for REALTORS® and their clients to determine the general applicability of anti-deficiency rules for short sales and foreclosures.  These charts do not cover all aspects of any individual case or situation.

Short Sale Deficiencies Fact Sheet
General Rule Unless otherwise exempt, no judgment shall be rendered for a deficiency for a first trust deed lender of one-to-four residential units if the borrower sells for less than the amount owed with the lender’s written consent. A first trust deed lender’s written consent shall obligate the lender to accept the sale proceeds as full payment and to fully discharge the remaining debt on the first trust deed.
Effective Date January 1, 2011
Applicability First deed of trust for a dwelling of not more than four units.
Exceptions Exceptions include:

  • Junior liens
  • Lender seeking damages for fraud or waste;
  • Borrower is a corporation; or
  • Borrower is a political subdivision of the state.
C.A.R. Standard Form C.A.R.’s Short Sale Information and Advisory (Form SSIA) paragraph 4A2 discloses this law to sellers and buyers.
Practice Tip Regardless of the law, it would be prudent for a borrower to obtain the lender’s agreement to release the borrower from liability for the balance due on the note in writing and signed by the lender.
Legal Authority The full text of SB 931, which adds section 580e to the California Code of Civil Procedure, is available at http://www.car.org/legal/2011-new-laws/.
Short Sale v. Judicial Foreclosure
Homeowner (1 to 4 units) Generally Protected Against Deficiency
Type of Loan After Short Sale After Judicial Foreclosure*
First Trust Deed Yes Yes, if purchase-money and owner-occupied
Second Trust Deed No Yes, if purchase-money and owner- occupied
Purchase Money Loan Yes Yes, if owner-occupied
Rate-and-Term Refinance Yes No
Cash-Out Refinance Yes No
Owner-Occupied Home Yes Yes, if purchase money
Nonowner-Occupied Home Yes No

*Note: Certain exceptions may apply, including wiped-out junior liens, fraud, and bad faith waste. Also no deficiency judgment shall be rendered if a lender forecloses by trustee’s sale (CCP § 580d) or if a loan is seller-financed (CCP § 580b). See C.A.R.’s legal article entitled Deficiency Judgments and California Law, available for C.A.R. members at http://qa.car.org.


This chart is just one of the many legal publications and services offered by C.A.R. to its members.  For a complete listing of C.A.R.’s legal products and services, please visit www.car.org.

Readers who require specific advice should consult an attorney.  C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at (213) 739 8282, Monday through Friday, 9:00 a.m. to 6:00 p.m. and Saturday, from 10 a.m. to 2 p.m.  C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at (213) 739 8350 to receive expedited service.  Members may also submit online requests to speak with an attorney on the Member Legal Hotline by going to http://www.car.org/legal/legal-hotline-access/.  Written correspondence should be addressed to:

CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020


Copyright© 2011, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved. Written by Stella H. Ling, Esq.

The information contained herein is believed accurate as of January 26, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.

White House’s TARP Is A Failure For Foreclosure Program HAMP

Posted in Real Estate by Jake on January 28, 2011 No Comments yet

In a quarterly report released to Congress, Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), said the program has been a success financially, but that programs “designed to help Main Street rather than Wall Street” have been failures. Barofsky focused part of his criticism on the Home Affordable Modification Program, known as HAMP, which is intended to help eligible homeowners avoid foreclosure by facilitating mortgage modifications with loan servicers. As of Dec. 31, there have been just over 500,000 ongoing permanent modifications under HAMP out of a pool of an estimated 6 million plus applicants, with about 238,000 of those funded by and attributable to TARP — figures Barofsky called “anemic.” The report also blasts the Treasury Department, which oversees the program, for refusing to adopt “meaningful goals and benchmarks” for HAMP.

In addition, Barofsky says the billions of dollars that were used to bailout faltering financial institutions, such as Citibank, AIG and Bank of America, during the crisis set a dangerous precedent. “By effectively guaranteeing these institutions against failure, they encouraged future high-risk behavior by insulating the risk-takers who had profited so greatly in the run-up to the crisis from the consequences of failure,” he wrote. “In many ways, TARP has thus helped mix the same toxic cocktail of implicit guarantees and distorted incentives that led to disastrous consequences.” Barofsky also faults the Dodd-Frank bill, a law passed last year that enacted sweeping reforms of the nation’s financial regulatory framework, for not being forceful enough to deal with too-big-to-fail banks. “Unless and until institutions currently viewed as ‘too big to fail’ are either broken up so that they are no longer perceived to be a threat to the financial system, or a structure is put in place that gives adequate assurance to the market that they will be left to suffer the full consequences of their own recklessness, the prospect of more bailouts will continue to fuel more bad behavior with potentially disastrous results,” he wrote. 

On a more personal note, I think it’s pathetic that the large institutional banks that benefitted from billions of dollars in taxpayer-funded bailouts, haven’t been more forthcoming in their efforts to assist homeowners facing foreclosure by modifying their mortgages through principal write-downs.  The underlying cause of the “strategic default” issue this country is facing is lender greed and their unwillingness to acknowledge a need for reevaluation of the mortgage security that makes up the majority of the consumer wealth in this country….their principal residences!   More defaults only lend to further declines in neighborhood value and destabilization of entire communities.   Truly pathetic!! 

Consumer Confidence Up…Home Prices Down!

Posted in Real Estate by Jake on January 25, 2011 No Comments yet

The Consumer Confidence Index rose to 60.6 in January, up from an upwardly revised 53.3 in December, the Conference Board, a New York-based research group that compiles the index, said Tuesday.  Economists surveyed by Briefing.com were expecting the index to increase to 53.5. “Consumers have begun the year in better spirits,” said Lynn Franco, director of The Conference Board Consumer Research Center. “Consumers rated business and labor market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead.”  The figure, which is based on a survey of 5,000 U.S. households, is closely watched because consumer spending makes up two-thirds of the nation’s economic activity.

How “distressed home” sales are fudging the numbers

“A new report today from Campbell/Inside Mortgage Finance shows distressed sales, that is bank-owned properties (REO’s) and short sales, where the home is sold for less than the value of the mortgage, made up 47% of all home sales in December. That’s up from 44.5% in November.  The National Association of Realtors put out a lower number last week (36%), but after speaking with the number crunchers at Campbell, I’m thinking the higher share is more accurate. We also just got numbers from DataQuick out West, showing 38% of California sales in December were REOs, and that doesn’t include short sales, so you see the evidence.  Where am I going with this? After talking with Thomas Popik over at Campbell, I was struck by how much the sales volume in December was skewed by this surge in distressed sales. The normal seasonal pattern should have home sales flat between November and December, but that certainly wasn’t the case, with sales up 12.3% seasonally adjusted and up nearly 14%  not seasonally adjusted, according to the National Association of Realtors.

What explains it?  Well for one, it may have been some first time buyers jumping off the fence as they saw mortgage rates rising, but those would have had to be contracts signed in October, when the interest rate rise wasn’t as big as it was in December (the existing homes numbers represent closings). I don’t think that was it.  ‘There were signed purchase and sale agreements, and those closings were delayed until the paperwork was reviewed,’ notes Popik, describing the effects of the ‘robo-signing’ scandal.

‘The major servicers pulled from the market houses that had been listed, and buyers were found. Once those transactions went back on, then they closed, and that’s what bumped up these December statistics so much.’  Popik doesn’t believe the sales surge will last. Yes, banks are ramping up the foreclosure sales again, but slowly, and measurably. I continue to believe the recovery in housing will rest entirely on the shoulders of financing. Changes are brewing on several regulatory fronts, and the mortgage market is ground zero.”

Meanwhile..declines back on the home front

The S&P/Case-Shiller index of home values in 20 cities fell 1.6% from November 2009, the biggest 12-month decrease since December 2009, according to the median forecast of 26 economists surveyed by Bloomberg News. Another report may show consumer confidence rose in January, extending a see-saw pattern of gains and losses since the recession ended in June 2009.   Mounting foreclosures will probably throw more properties on the market this year, further depressing prices, homeowners’ equity and construction. The lack of a sustained housing rebound and unemployment above 9% are among reasons the Federal Reserve may announce this week it’ll complete a second round of stimulus that will pump $600 billion into the economy by June.  “The large overhang of unsold houses will weigh on prices,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “Housing is lagging the economic recovery. It is one factor encouraging the Fed to remain on the sidelines.”

The S&P/Case-Shiller index, based on a three-month average, is due at 9 a.m. New York time. Survey estimates ranged from declines of 2.1% to 0.1%, after a 0.8% drop in October.  The New York-based Conference Board’s consumer confidence gauge, due at 10 a.m., rose to 54 from 52.5 in December, according to the survey median. Estimates ranged from 50 to 57.3

WSJ – GOP feeling heat from housing industry

A push by Republican lawmakers to scale back government backing for home mortgages is meeting resistance from the housing industry, a longtime ally of the party.  In recent months, banking executives and mortgage investors from groups including the Financial Services Roundtable, the Mortgage Bankers Association and the National Association of Real Estate Investment Trusts have met with Republican lawmakers and their staffs to press them on the need for a permanent government role in guaranteeing mortgages.  But many Republicans blame government-controlled mortgage giants Fannie Mae and Freddie Mac for fueling the housing bubble that helped spark the financial crisis, and some new members of Congress want government to take a smaller role in the economy. That has some lawmakers pledging to resist any effort to revamp the U.S.’s system of housing finance that would leave taxpayers exposed to losses.

“I know the industry is here, and they are saying we need a government guarantee,” said Rep. Spencer Bachus (R., Ala.), now chairman of the House Financial Services Committee, at a September hearing.  “If I were the industry, I would be doing the same thing because I would love to make loans and if they failed, let the taxpayers make up the loss,” Mr. Bachus said. “That’s a pretty sweet deal.”  Since the 1930s, the federal government has backed the housing market through Fannie Mae and, later, Freddie Mac. The two firms bundle mortgages into securities that are sold to investors, who are then protected against any losses if borrowers default.  That support, the housing industry argues, is key to lenders’ willingness to offer the traditional 30-year, fixed-rate mortgage at low rates.

The Obama administration is due by mid-February to issue a proposal to overhaul Fannie and Freddie, which have been under government control since 2008. Officials are likely to present two or more approaches, including one with a limited but explicit government guarantee of securities backed by certain types of mortgages, and another with no such guarantees. Democrats generally support the guarantees to preserve wide availability of the 30-year mortgage.  Many investors and the housing industry argue that guarantees are needed to ensure the availability of home loans during downturns, when private lenders retreat. Under several proposals, the mortgage industry would pay the government fees for support, much as the Federal Deposit Insurance Corp. collects fees from banks to handle failures.

The idea of any kind of government guarantee raises the hackles of many in the GOP, especially members sympathetic to the tea-party movement, which made a mantra of opposing bailouts.  “You’re going to be setting the housing industry, who have traditionally had a tremendous influence on the Republican Party, against the tea party,” said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute.  Last week, Rep. Jeb Hensarling of Texas, the House’s fourth-ranking Republican, said he would introduce legislation to transfer Fannie and Freddie’s role to the private sector within five years with no future guarantees. “My goal is to get the taxpayer off the dime,” he said.

Existing Home Sales Surge

Posted in Real Estate by Jake on January 21, 2011 No Comments yet

(Reuters) – Home resales jumped more than expected in December despite bad weather as sellers cut prices, offering some hope for a sector that has been struggling to recover from its worst slump in modern history.

Factory activity growth in the U.S. Mid-Atlantic region fell in January from December’s level, a survey showed.

The economic recovery is broadening and could strengthen slightly in the near term, according to a private industry group’s index of economic indicators released on Thursday.

COMMENTS:

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES, CHARLOTTE, NORTH CAROLINA:

“It is a little surprising we saw such a big increase in existing home sales, but it is quite possible this reflects foreclosed properties and short sales. Banks likely wanted them off their books toward the end of year. There does not seem to be a whole lot of momentum in housing sector and we will not see much improvement until we move past this mountain of foreclosures. High level of sales look good on surface, but these properties are mostly being bought by investors and not true demand.”

“The Philly Fed is still a relatively high level. The big story is the prices paid index and this mostly reflects higher energy prices. It has recently been driven by exports, so this does not create jobs. This leaves the economy vulnerable to events overseas, but overall it is a good thing it is export driven and should result in surprisingly robust fourth quarter GDP, possibly adding 1.5 percent.”

“People should get a good idea what the recovery is going to look like from today’s data. Conditions will likely be the same over next couple of years with a modest 3 percent GDP. Improvement in the labor market will be painfully slow.”

PAUL LARSON, EQUITIES STRATEGIST, MORNINGSTAR, CHICAGO:

“You have to take the home sales number with a grain of salt. We have a lot of foreclosures moving through the pipeline, and since those don’t play by rules of seasonality they can skew numbers. I don’t want to read too much into it.

“The most important data point out today is the claims number. We had a blip up last week but now we’ve gained all that back and then some. It looks like the blip was caused by temporary seasonal workers.”

KATHY LIEN, DIRECTOR OF RESEARCH, GFT FOREX, NEW YORK:

“Most of the reports today were fairly good. For anyone skeptical about the U.S. recovery, these should ease concern. The Philly Fed manufacturing data was slightly weaker but it’s been doing well in recent months. Existing home sales was very solid and leading indicators increased more than the market expected. It suggests the U.S. economy is moving in the right direction and investors are buying the dollar, as there are concerns outside U.S. borders. The combination of strong U.S. and Chinese data today is something to be optimistic about.”

ZACH PANDL, U.S. ECONOMIST, NOMURA SECURITIES, NEW YORK:

“I think the improvement in the existing home sales obviously contrasts with the weak homebuilding report yesterday and suggests that the housing market recovery is ongoing.

“The housing recovery is proceeding in fits and starts, but still a reasonable volume of sales activity in the market. You’ve fully recovered from the post-tax credit bust and now these numbers suggest you are in a more expansion path.

“With regard to the Philly Fed number, the manufacturing indicators are suggesting, overall, that these sectors are continuing to see strong growth into 2011 and you should see a very strong ISM number in February.”

Real Estate Trends To Watch In 2011

Posted in Real Estate by Jake on December 24, 2010 No Comments yet

Two thousand and ten was full of mixed economic news, glacial growth, and most of all, financial uncertainty. So where are we headed from here? What are the trends that need to be watched? What lessons can we take away from 2010, to improve profitability in 2011?

Unemployment

The unemployment rate, and particularly private-sector jobs, can’t be overstated as the most critical predictor of recovery, both generally and for the real estate sector. Unemployment is what’s fueling the foreclosure spike (and subsequent value drain), it’s what’s causing people to default on their lease agreements (and subsequent vacancy problems), and is generally what’s preventing people from participating in the overall economy. Once job growth is back on track, the foreclosure boom will turn around, and the rental industry will stabilize.

Supply: Shadow Inventory

On the supply side, prices are further driven down by foreclosures, in the form of a massive shadow inventory (properties scheduled for foreclosure or taken back by the lender, but not yet listed for sale, and therefore not included in the normal real estate inventory statistics). Currently, there are 2.1 million residential properties in shadow inventory, or an eight month supply, which has to be tacked onto the normal supply of housing available for sale (which is 4.2 million homes, or a fifteen month supply). Real estate markets nationwide (including lease markets) aren’t going to see substantial value growth until this shadow inventory dissipates, and that will take several years, especially given the current long wait times for foreclosures caused by lender documentation issues. As a final note, it’s worth mentioning that Fitch Ratings currently places the number of vacant residential dwellings in the United States at 14.4 million, and that does not include the shadow inventory described above.

Demand: From Deeds to Leases

Without the artificial boost in real estate demand caused by the tax credit (R.I.P. June, 2010), demand has dropped off, causing real estate sales and prices to languish. But even taking a long-term view, homeownership rates are dropping, for reasons ranging from the high unemployment and foreclosure rates, to household consolidations, to the tightened credit market. The all-time peak for homeownership in America was reached in 2004, at a rate of 69.2%. This number is now down to 66.9% and still dropping, which means tens of millions of Americans who were in owner-occupied dwellings are now signing a lease agreement instead. In a study by Trulia a few months ago, over 27% of Americans report that they have no interest in buying a home in their lifetime, and fewer Americans believe that homeownership has any relation to the American dream (72%, down from 77% only six months earlier). This is actually good news for landlords and real estate investors in a position to buy, as it will create a more stable tenant population, and a survey by Fannie Mae in late 2010 showed that the average predicted change in lease pricing over the next year is a 2.8% increase.

Conclusions

A year ago, there was simultaneously more hope for a healthy recovery, and more fear that we might slip into a double dip recession. It’s now far more likely that neither will occur, and that we’re in for a long, painstakingly slow recovery, which will lurch and splutter along over the next three to five years. Home prices are still dropping in most cities, and while the decline is leveling off, we are still down by over 25% from 2006 prices (comparable to the home value loss in the Great Depression, which was 25.9% from peak to valley). Here are a few take-home points from the trends in 2010, which are expected to continue through 2011:

  • Now is a good time to buy real estate investment properties, but only if you can profitably hold the property as a rental unit for several years to come.
  • Most real estate markets will continue to be soft through 2011. Exceptions will be cities with job growth.
  • Real estate investors should be careful not to over-improve rental properties in lower-income areas, as tightened lending guidelines and diminishing demand for homeownership will prevent investors from being able to “retail” these homes to first-time homebuyers.
  • Beware of rising bed bug infestations and litigation, and be pro-active in establishing a bed bugs policy.
  • Protect your cash cushion: stay liquid, as lease default rates are up and vacancies are prevalent, and selling properties for quick cash may not be an option.

Stay profitable, stay liquid, and stay in business for another year!

Mortgage Delinquencies Declining….Other Signs Of Life

Posted in Real Estate by Jake on December 9, 2010 1 Comment

TransUnion expects the national mortgage delinquency rate to fall by about one-fifth to 4.98% by the end of 2011. The company projects the rate at 6.21% at the end of 2010, representing a nearly 10% decrease from the prior year. The national delinquency rate fell 3.5% from the second quarter to third quarter, which was the largest quarterly drop in four years, TransUnion said in late November. The number of delinquent mortgages peaked in July 2009.  Slowly improving employment figures and continued stabilization in housing prices will fuel the declining delinquency rates, according to Steve Chaouki, group vice president in TransUnion’s financial services unit.

“While there is continued price pressure in many markets, we expect a growing number of areas of the country to experience a rise in property values along with some stabilization of values in those states and markets hardest hit by the recession,” he said.  TransUnion said the national delinquency rate rose more 50% between 2008 and 2009, which was on top of a 53% gain the previous year and a 54% increase in 2006.  The company expects Arizona, Florida and Nevada to see the largest declines in mortgage delinquencies next year, but those three states will also have the highest rate of loans 60-days past due, as well.

Tax cuts extended?

President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that will also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.  “It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”  The package will reduce the 6.2% Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers.

For a family earning $50,000 a year, it will amount to a savings of $1,000. For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut will mean a savings of $2,136.  That will replace the central tax break for middle-and low-income Americans in last year’s economic stimulus measure, White House officials said.  The deal will also continue a college-tuition tax credit for some families, expand the earned-income tax credit and allow businesses to write off the cost of certain equipment purchases.  The top rate of 15% on capital gains and dividends will remain in place for two years, and the alternative minimum tax will be adjusted so that as many as 21 million households will not be hit by it.  In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed.

Everyone hit in the foreclosure crisis

The foreclosure crisis has hit lower-income communities the hardest, but it has touched every slice of the market, and resolving it may well be harder in places where homes are too expensive to attract investors with ready cash.  Naperville, a high-end Chicago suburb, has more than 230 homes valued at over $300,000 in danger of seizure, according to RealtyTrac, a foreclosure data provider. Monmouth County, a New Jersey Shore area that boomed in the early 2000s, has 462 over $400,000.  Ladera, an unincorporated community of about 25,000, is conspicuously affluent — it’s home to Tamra of The Real Housewives of Orange County. The schools are strong, the surrounding chaparral foothills pretty.  Now defaulters may live for a year or more with a giant mortgage they can’t fully pay. Not counting homes already in the foreclosure process, about one in 10 Ladera mortgages is at least 30 days late, according to LPS Applied Analytics. And houses in the foreclosure process have been deli  nquent an average of 16 months, up from seven in 2008.

The national figures are almost as ugly. And what they show is that our collective real estate hangover is far from over. And limbo will start to last even longer as the “robo-signing” scandal raises questions about the integrity of the foreclosure process.  To judge from recent stories about poorly (if not fraudulently) documented seizures, you would think servicers are snatching up houses quickly. In fact, rushed doc signings and long delinquencies are two sides of the same problem: During the boom, lenders tripped over themselves to create millions more ultimately unsustainable mortgages than they can now unwind.  Yet for the housing market to return to health, there needs to be resolution for these zombie loans that won’t ever be paid in full and won’t quite die either. Until they can be eliminated through short sales, foreclosures, and permanent modifications, the zombies will keep home values from recovering and suck momentum from the economy. They’re not departing soon  .  As Christopher Thornberg of Beacon Economics in Los Angeles puts it, “This is going to bleed on for years. People will wander in and out of trouble.”

Auto credit market thawing

The percentage of loans going to subprime buyers rose 8 percent in the third quarter, their first year-over-year increase since 2007, according to a report issued Tuesday by Experian, a credit reporting agency. For new cars, the percentage of loans going to subprime buyers rose 13 percent over the July-September period in 2009. The increase for used cars was 3 percent.  The majority of loans—63 percent—still going to buyers with prime credit scores, which is defined as a 680 or above. But even that is settling into a more normal pattern. Before the recession, when credit was very loose, just 51 percent of loans were going to prime buyers, according to Melinda Zabritski, director of automotive credit at Experian. Last fall, when credit was tight, 66 percent of loans went to prime buyers.  Another sign that the credit market is thawing: The loans people are getting are covering larger amounts and have longer terms. The average amount financed for new cars rose $2,530, to $2  5,273, over the third quarter of last year, while the average amount financed for used cars grew $977 to $16,706. The average terms rose by about a month, although the lowest tier buyers—those with scores of 550 or less—saw their terms rise by nearly four months.  Zabritski said the loosening in auto lending is likely to continue to grow in the near term.

Mortgage rates are in your head!

“It’s like home buyers today are suffering from post-traumatic stress disorder.  The housing crash, foreclosure crisis and banking scandals have all combined to make buyers more sensitive than ever before.  That’s why the slightest fluctuation in mortgage interest rates have huge emotional power today.  ‘I think some people get a little fearful of what the higher payment might mean to them but they don’t’ realize how minimal the difference might be,’ notes Eric Gates, President of Apex Home Loans in Rockville, MD.  In fact, Gates did a little math for me on the change in your monthly payment at different interest rates, if you buy a $200,000 home (just above the national median) with 20% down.

–  4.25%: $787.10
–  4.5%: $810.70
–  4.75%: $834.64
–  5.0%: $858.91

‘Keep in mind that difference is mainly interest which is tax deductible. So, someone paying an extra $24 a month in interest who is in a 25% tax bracket is really only paying an extra $18 a month after the tax write off of the extra interest,’ Gates adds. Yes, cutting the mortgage interest deduction is currently being debated as a deficit-reducer, but the proposal is to reduce the cap from $1 million to $500,000, so it’s not going to affect the buyers I’m using as an example here.  The fact is that we’re talking less than $100 a month, for a full percentage point increase.  Obviously big cities or in-demand housing markets, where home prices are far higher than the national average, will see bigger jumps in their monthly payments, but if they’re able to afford the higher priced home, the change in monthly payment would likely be comparable in its impact on their overall budget.

So why, then, do mortgage purchase applications fall every time rates go up slightly and the opposite when they go down?  The answer is that it is largely emotional. Home buyers seem to ignore what they can afford and focus instead on what they think they somehow deserve in today’s badly beaten market.  ‘Instead of focusing on what’s my payment going to be, they see that their friend got 4.25 and they want that same rate and 4.5 isn’t 4.25 and they think ‘that’s not good enough’,’ says Gates, who has seen that happen more than once. Fear of unemployment also looms large, so buyers are much more careful with monthly payment calculations, even trying to make sure that if they are out of work temporarily they can still make the payments and not go into default.”

7 Million Mortgages Past Due

Posted in Real Estate by Jake on October 18, 2010 No Comments yet

There are 7,018,000 mortgages in the United States that are 30 or more days delinquent or in the process of foreclosure, according to new data from Lender Processing Services (LPS).  The Florida-based analytics and technology firm offered the media a preview Friday of its September month-end mortgage performance figures, derived from the company’s loan-level database of nearly 40 million mortgage loans.

Of the more than 7 million home loans in the country currently going unpaid, 2,055,000 have already commenced foreclosure proceedings. LPS reports that 4,963,000 are in the pre-foreclosure default stages, with nearly half of these falling into the 90-plus-days delinquent bucket.

LPS’ measurement of the U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure) rose to 9.27 percent as of the end of September. That’s a 0.6 percent increase over the previous month, but down 7.8 percent compared to last September.  The nation’s pre-sale foreclosure inventory rate stands at 3.84 percent, according to LPS’ market data – up 1.1 percent from the August reading and 3.6 percent above a year earlier.

LPS says the states with the highest percentage of non-current loans (defined as the total number of foreclosures and delinquencies as a percent of all active loans in that state) include: Florida, Nevada, Mississippi, Georgia, and Louisiana.

The lowest percentage of non-current loans can be found in: Montana, Wyoming, Arkansas, South Dakota, and North Dakota.

LPS will provide a more in-depth review of this data in its September Mortgage Monitor report, is scheduled for release on October 29, 2010.

Home Sales Up But Home Prices Down

Posted in Real Estate by Jake on October 5, 2010 No Comments yet

The Pending Home Sales Index rose 4.3% to 82.3 based on contracts signed in August from a downwardly revised 78.9 in July, but is 20.1% below August 2009 when it was 103.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months, short sales notwithstanding.  Lawrence Yun,  NAR chief economist, cautioned any sudden rise in mortgage rates could slow the recovery. “Current low consumer price inflation has helped keep mortgage interest rates very attractive this year. However, recent rising trends in producer prices at the intermediate and early stages of production, along with very high commodity prices, are raising concerns about future inflation and future mortgage interest rates,” he said. “Higher inflation would mean higher mortgage interest rates. In the meantime, housing affordability is hovering near record highs.”  The PHSI in the Northeast declined 2.9% to 60.6 in August and remains 28.8% below August 2009. In the Midwest the index rose 2.1% i  n August to 68.0 but is 26.5% below a year ago. Pending home sales in the South increased 6.7% to an index of 90.8 but are 13.1% below August 2009. In the West the index rose 6.4% to 101.1 but remains 19.6% below a year ago.

Prices Down

Home prices in the Altos Research 10-city composite index dropped 1.5% to an average median price of $465,968 in September after a 1% drop the month before.  In the last 14 months, prices only increased month-over-month once. In May, prices improved 0.2%. Further price declines are expected.  “As the market continues to correct, continued price decreases can be expected, likely until the early part of 2011, when the boost of the ‘Spring market’ is felt,” according to Altos.  Just as in August, home prices fell in 25 of the 26 markets covered by Altos, an analytics firm.  Prices dropped the most in Phoenix, down 4.55%, San Francisco by 2.96% and a 2.53% drop in Dallas.  But nationally, inventory was down 2.24%, which, according to Altos, will soften the impact of weakening homebuyer demand in many markets.  “While home prices are still falling, it is significant that there are fewer and fewer homes listed for sale. In fact, in only nine of the 26 markets that Altos follows in its monthly report were increases noted,” according to the report.

http://www.ProfessionalHouseBuyers.com

courtesy: smartrealestatenews.com

Montana Set To Permanently Ban Real Estate Tax

Posted in Real Estate by Jake on September 27, 2010 No Comments yet

Montana state Constitutional Initiative 105 would prohibit state and local governments from passing new taxes on real estate sales and trades – ever.  While Montana does not currently have such a tax, the Montana Association of Realtors is concerned that growing economic problems throughout the country could ultimately induce their state legislature to try to raise funds by initiating these types of taxes, and they want to put a stop to that before it ever gets started. It has taken a lot of work for the MAR to get this initiative on November’s ballot and, if it passes, it will be extremely difficult (worst case) and virtually impossible (best case) for the state legislature or local governments to ever be able to levy real estate transfer taxes, which come into play when property is bought and sold.

Since 2001, eight bills in the Montana legislature that attempted to levy real estate taxes have been introduced and defeated.  MAR believes this amendment is necessary so that the legislature does not keep trying to slip these taxes through until one day it succeeds. MEA-MFT, a union of government workers, opposes the ban on the real estate tax because “I don’t think we should erase any potential [revenue] stream ever,” according to their leader, Eric Feaver.  Leave it to the Unions to keep entitlement alive and well!

Read more: http://realestate.bryanellis.com/2414/montana-set-to-ban-real-estate-taxes-permanently/#xry5uEOIvGck#ixzz10mdBs7JT

“Foreclosure Real Estate Agents” Love Investors Who Keep The Market Moving!

Posted in Real Estate by Jake on September 24, 2010 No Comments yet

In Savannah, Georgia,  11 community banks keep roughly 97.5 million dollars  in repossessed property and local real estate agents specializing in foreclosure are rather busy.  While it is likely that the expectation of this article is about how that market is just dragging by, the REO Properties  statistics are in reality quite surprising.  In contrast to the campaign that tells us that as soon as a property actually traverses the foreclosure process, it disappears in the slag tsunami of the housing market pool of foreclosures,  some of the numbers are not so bad. For example, most of these properties on the market – from listing to closing – for an average of 100 days.  In addition, 15 percent of sales are cash sales and another 5 percent are financed by alternative methods of financing.  Landlords and wholesalers are very active in the area.

Local Realtors report that the action is fast, with two or three offers  coming in pretty quickly in most cases.  That seems to me to bolster the argument further  that the real estate market should be left alone and allowed to tank on it’s own if necessary.  The market will always restore itself at some point and those people in danger of losing their home and possibly having to enter the rental market should not be thought of as “helpless victims” that need to be rescued at any cost.  Low interest rates and failed government modification programs have not stemmed the tide of foreclosure so far and will not going forward.  Investors and resellers will keep the market stable, healthy and viable…leading ultimately to a rebound in property appreciation.