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.

 

Housing Market Analysis For August 2013

Posted in Real Estate by Jake on September 27, 2013 No Comments yet

What caught my eye last month is both August sales and median prices fell simultaneously for the first time since January. After a 12.0 percent pop in July, August sales fell 1.8 percent as the California real estate market digested a 100 basis point increase in mortgage interest rates in mid-June. The decline in August sales caused the nearly uninterrupted 20-month increase in median home prices to finally take a breather.

This will be an interesting trend to watch. The combination of the rapid increase in mortgage interest rates and decline in sales, primarily due to the decline in distressed property sales, cash sales and investor purchases, will likely result in decreased demand. The decrease in demand, in turn, will likely depress prices and cause an increase in inventory. Actually, as of this writing, inventories have increased and days on market have increased, creating a clear shift in market forces.

Assuming interest rates don’t rise much further, the increase in inventory will be welcome news for the California real estate market, which has been challenged by an acute shortage of inventory for much of the past year. Many potential homebuyers with solid incomes and good credit looking to finance their home purchases who have been shut out of the market due to lopsided bidding wars against cash buyers should now have a better shot at getting into contract, albeit, at slightly higher rates than three months ago. While mortgage interest rates have jumped in recent weeks, we doubt they will rise much further because the Federal Reserve is keenly aware of the importance of the housing market to an ongoing economic recovery. I believe the Fed is not likely to remove its support from the housing market anytime soon and mortgage interest rates are still low by historic standards.

Quantitative Easing To Remain For Awhile- What Does It Mean For RE?

The Federal Reserve’s decision to maintain current levels of stimulus is, of course, great news for the housing market. Within seconds of the Fed’s announcement, yields on the 10-year Treasury note fell 10 basis points to 2.75% and will likely trend lower.  Mortgage interest rates are sure to follow.

With the cloud of uncertainty concerning the Fed’s decision gone, we believe the recent volatility in the mortgage interest rate market will likely retreat until sometime next year when talk of tapering will likely return. In our opinion, the Fed’s are keenly aware of the importance of the housing market to the economic recovery. For that reason, we doubt the Fed’s will consider reducing support anytime soon.

The recent interest rate hikes should result in price declines.   Home buyers have always bought as much home as their banker told them they could afford – and they can now afford 10 percent less than they could before the rate increases. But price declines won’t happen quickly.  Sellers, unlike buyers, tend not to believe that such a correction is necessary, and therefore do not drop prices to reflect what buyers can now afford.  They are buoyed by mistaken analysis that because both interest rates and prices rose in the 80′s, rising rates don’t mean lower prices.  But those were different times.  Then we had high inflation, which included wage inflation, allowing buyers to digest both the rise in rates and price.  That simply isn’t true today. The next few months will be fascinating to watch.  Will prices correct to reflect the new rates, I doubt it.  More likely we will see slower sales and more inventory.

Americans Are Giving Up On Obama’s Economy… Is It Any Wonder?

Posted in Politics by Jake on September 27, 2013 No Comments yet

On the eve of another potentially bruising political battle over the nation’s debt, American sentiment dipped back into its post-crisis financial funk, according to the CNBC All-America Economic Survey. The third quarter survey of 812 Americans across the country found 61% saying they are downbeat on the current state of the economy and pessimistic for the economic future, a 5-point increase from the prior quarter and the highest level in almost two years… and Obama plays golf and spends 110 million dollars on a trip to Africa!

Smaller expected gains in Americans’ paycheck and housing values cast a pall on sentiment in the quarter and reversed a brief blip of optimism measured three months ago. The survey found that middle class attitudes registered some of the biggest declines. The percentage of white collar workers who believe the economy will improve in the next year declined 18 points compared to the second quarter, three times the decline for all adults. Only one in three college grads expect their wages to rise in the next year, down from one in two in the last quarter. Americans said they expect their home values to rise just 0.8% on average in the next year, down from 3.1% in the second quarter… and Obama pushes his massive healthcare bill to increase the tax burden and expense ratio for all working Americans, (except for those that he has exempted including Congress) so that free-loading, welfare grabbing societal leaches can have free coverage! (If you think they are going to contribute to the cost, you’re out’a your f_ _ _ mind!)

Although higher than in the depths of the recession, expectations for wage gains in the next year averaged 3.1%, down from 3.9% in the second quarter. More significantly, just 34% of respondents expect any increase at all in their paychecks, compared with 41% a quarter ago. When it comes to comparing the current job market to last year, 29% say it’s improved, 41% say it’s worsened and 28% call it unchanged. After deep military cuts and the embarrassing shellacking Obama took from Russian leader Vladimir Putin over Syria, more than half of respondents say America’s standing in the world has deteriorated in the past year, and almost 40% say America’s national security has worsened… and Obama the pussy just keeps talking out of both sides of his mouth. (He’s by far the biggest liar ever to hold the office of President. He and his worthless, lying AG, Eric Holder, have degraded our country to the lowest point in history, morally and socially!

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

Home Sales Will Hit A 5 Year High…Maybe!

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

“Sales of existing single family homes and condominiums beat expectations for August, rising to the highest level since May of 2010, when the government’s home buyer tax credit juiced sales temporarily. This time it could be argued that the government stimulus behind sales is record low mortgage rates, but that may not be all of it. Close to one third of the homes that sold in August went to buyers using all cash, despite average rates on the 30-year fixed sitting around 3.6%. Rates appear to have less of an impact than hoped. Witness mortgage applications to purchase a home fell 4% last week, even as rates fell to record lows on the Mortgage Bankers Association’s weekly survey. ‘The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,’ said the National Association of Realtors’ chief e conomist Lawrence Yun. With the August jump of 7.8% from July, Realtors now say they are confident that home sales for all of 2012 will hit their highest level in five years. They do warn that there are still ‘frictions’ in the market, not the least of which are about 12 million borrowers who owe more on their mortgages than their homes are worth. These so-called ‘underwater’ borrowers are largely stuck in place, unable to cover their debt and unable to move up. ‘Bottom line, housing continues to recover, but the bounce still has to be put into the perspective of how much damage was done,’ notes Peter Boockvar at Miller Tabak. ‘Looking specifically at single family homes, at a sales level of 4.30mm, it’s back to where it was in 1998 and of course still well below the bubble high of 6.34mm in Sept ’05.’

Still More Distressed Property On The Horizon

As positive data begin to outnumber negative, analysts warn of a large pipeline of distressed properties that are still weighing down a potentially more robust recovery. Foreclosure activity increased in August, and states that had all but halted the process on thousands of properties, due to judicial challenges to paperwork, are now ramping up again. This will add lower-priced properties to an already low volume of homes for sale. The question is, will that distress be absorbed quickly by investors and cease to have the negative impact on surrounding properties and consumer sentiment that foreclosures have had in years past? Investors, big and small, continue to move into this market, unafraid that rent prices will fall any time soon. ‘The demand for rental housing is incredible,’ said former GE CEO and author Jack Welch on CNBC Wednesday. ‘The home rental idea is moving strongly.’ As for the latest news on housing starts? ‘We’re going nowhere in housing,’ Welch replied. Home sales usually get a slight boost in early fall before tapering off to the slowest season around the holidays. Regardless of seasonality, the numbers are improving, while the barriers to entry, like credit and nega tive equity, remain. The two will duke it out slowly in these next few months, until a stronger improvement in jobs and more certainty over regulatory changes in the mortgage market finally let the bulls run free.”

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

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.

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.

Principal Reduction Modifications – To Reduce Or Not To Reduce..That Is The Question!

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

Well, we’ve had about two and half years now of government intervention in the mortgage and banking industry and I’ve got to tell you, things are still terrible!  HAMP was/is a dismal failure with a 2 to 4% success rate in helping homeowners keep their homes, depending on which source you get your information from.  Conversions form trial to permanent are right at 50% +/-.   What is more disturbing is the default rate.  The number of people that are right back in arrears after a HAMP workout…is upwards of 21% and projected to go above 40% over the next few years.  Remember TARP?  Well the homeowner assistance portion was supposed to be 75 billion.  The government has spent less than 5 billion on the HAMP program so far!  Where is the money??  Typical government waste, fraud and abuse…!  Not that throwing more money at it would help, mind you…it’s just the principal of it. (no pun intended)

HAMP…More questions than answers..

HAMP was supposed to provide relief for people who had been impacted by the economy and/or the sup-prime meltdown that occurred in this country.  However, the only thing that banks would talk about were rate reductions or term extensions or both…with little or no consideration given to mark-to-market, (better known as principal reduction) of existing mortgages,  most of which were and are grossly under water.   This stalwart attitude on the part of banks has spurred a tremendous amount of controversy on all sides of the moral and political spectrum raising questions about recovery, capitalism, our free market system, fairness, responsibility, honor and so on!   I have my views on the issue and I can definitely understand both sides of the argument.

All for one or all for all…

But what is right to get this housing market off it’s ass and moving again?  What is more important than our nation getting back it’s footing and once again revving up our massive economic engine?  It’s not going to happen until housing stabilizes and begins to, once again, become the cornerstone for family wealth building in this country.  When people begin to sense that their single biggest investment is again, in fact, an investment…they will buy stuff!!  Like cars and durable goods and clothes and, well you get the picture!  So…should the banks reduce principal as part of  HAMP or their own private workout programs?  Should it be across the board to include strategic defaulters who just don’t like the fact that they are underwater, but are not financially distressed?  Should it be tied to a certain percentage of the underwater difference or should it be marked-to-market as determined by full appraisal?  Please comment…

The HAFA Alternative

Now we have HAFA, another government backed program designed to complicate the short sale process!  Well, not really…but it sure seems to get in the way of doing a quick and easy short sale.  Homeowners have to write a letter opting out of the HAFA alternative so that they don’t have to go through the same ridiculous paperwork fiasco as a HAMP workout to be given “permission” to short sell their home and receive move out assistance (a bribe).   The move out assistance is really so that pissed of homeowners don’t trash their home out of anger when they leave.  The irony in all of this is simply this:  The banks have to agree to reduce (short) the loan balances in a short sell to make the property go away.  In other words, they have to reduce the principal balance in order to sell the home!  Go figure!!

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.”

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.

Where Is Housing Headed? Strategic Defaults Or Foreclosures

Posted in Real Estate by Jake on February 11, 2011 No Comments yet

I can’t help but be touched, shocked really,  by the sheer numbers of people I come into contact with on a daily basis who have lost their home recently…or who haven’t made a payment in many, many months (somtimes years) or who have been totally and completely frustrated in their attempts to cut through the bank BS and modify their home mortgage!  The numbers are staggering and I think, somewhat under-reported.  Just yesterday, in my normal day to day running my business life, I connected with four such people.

Waiting Or Ignoring The Problem Will Not Make It Go Away!

Two called me for help…unfortunately, a day late and a dollar short.  In both cases, their homes were foreclosed went back to FNMA in late January and they weren’t even aware the sale date had come and gone!  The other two were months behind in payments, in denial about the effects on their credit and life, but yet coming to the point of realization that they had to do something.  These folks are indicative of the thousands, probably millions, of people all over the country who have to get it together, come to grips with their situation and decide whether to let the bank foreclose with no fight or short sale attempt or… strategically default and move on!  Tough stuff to deal with and not getting any easier….and certainly, no fun in the long run!

Moving On…So Where Are We?

“First came the surge in negative home equity, now a surge in mortgage interest rates. Add it up, and it throws a big pail of underwater on the hope for a big spring housing surge. At face value on their own, two reports out today shouldn’t cause too much concern, but the effect they have on consumer confidence is bigger than both of them.  The average rate on the 30 year fixed rate mortgage is now over 5%, which when you think historically is really a great rate, but that was then, and this is now. Consumer confidence and jobs are the two biggest drivers in the housing market.  ‘Because we had rates as low as 4.25% last year, any increase — particularly to above 5% — is likely to reduce loan applications as borrowers adjust to a higher interest rate environment,’ says Guy Cecala of Inside Mortgage Finance.

The biggest effect of course is in refis, which dropped over 7% last week, according to the Mortgage Bankers Association’s weekly survey. Last year refis accounted for two thirds of all mortgage originations, so that will clearly change with the new rates. The question is how the rates affect home purchases. Purchase applications also dropped last week, but just by 1.4%.  ‘We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis,’ says the MBA’s Michael Fratantoni.  Higher rates will make loans a little bit more expensive, but not all that much. The bigger driver of mortgage cost will be the new regulatory rules on the horizon and potential changes to Fannie Mae and Freddie Mac loan limits and fee structures.  But rising rates also put a bigger burden on those trying to modify or refinance troubled loans, especially those underwater. The new report from Zillow notes that the foreclosure freeze from the ‘robo-signing’ scandal put an artificially high number of borrowers in the underwater pool because many were supposed to be foreclosed and weren’t.

No Equity = More Strategic Defaults

Still, as was tweeted yesterday from Laurie Goodman of Amherst Mortgage Securities, ‘Home equity is the single most important determinant of mortgage default, not unemployment.’  Zillow’s chief economist, Stan Humphries, agrees: ‘Once you get above 125-130% loan-to-value ratios, that means that you’re 25 to 30% underwater on your house, at that point really you start to see a higher rate of strategic default, that’s people actually feeling a sense of futility about making their mortgage payments and they walk away from the mortgage.’  And how high will rates go? ‘I think if the 10-year Treasury yield remains at around 3.70%, mortgage rates will head to 5.25% over the next two weeks,’ opines Peter Boockvar of Miller Tabak. Again, that’s still historically low.  ‘Realistically, long-term mortgage rates in the 5-6% range over the next few years would be affordable enough to support a ‘normal’ housing market all things being equal,’ claims Cecala.  Unfortunately nothing in today’s  housing market is normal or even approaching equal.”

A Flood Of Foreclosures Coming…

Posted in Real Estate by Jake on February 11, 2011 No Comments yet

“You can talk all you want of renewed interest in housing, slowly increasing sales and supposed stabilization in prices, but the elephant in the room is slowly growing, and banks, Fannie, Freddie and the government know it. I’m talking about foreclosures.  Economist Mark Zandi, often quoted by lawmakers on both sides of the aisle, told the Senate Budget Committee this morning that while he’s ‘optimistic’ with regard to the economy’s prospects, ‘At the top of my list of concerns, at least in the near term (6 to 12 months), is the ongoing problem in the housing market and the foreclosure crisis.’  REO inventory is rising, he proved through some slides. Four million seriously delinquent loans, out of 50 million first mortgage loans, ‘so that’s a lot.’ And while he noted that the problems appear to have peaked, there are still over 600,000 properties in REO, which will only put more pressure on prices when they come to market.

Loan Mods Not Doing The Job!!

Zandi called modification efforts ‘inadequate,’ despite the 1.5 to 2 million modifications a year.  ‘In the context of all the problems that we’ve got, it’s still quite small,’ he noted.  Zandi’s biggest concern is that 14 million homeowners, according to his calculations, are underwater (owe more on their mortgages than their homes are worth), and 4 million of those are underwater by more than 50%. ‘That’s deeply underwater,’ he elaborated.  Observe the following banking proposals:

  • Chase announced yesterday that it has plans to add 25 new Chase Homeownership Centers in 19 states this year. ‘The best way to help borrowers find ways to stay in their homes is to sit down face-to-face and discuss their individual circumstances,’ writes Chase Home Lending CEO David Lowman in the press release.
  • Wells Fargo  is holding 20 mediation events across the country this year, inviting more than 150,000 borrowers who are behind on payments. These will be held at hotels and convention centers, much like the non-profit Boston  -based NACA has been doing for years.”
  • Fannie Mae is expanding its loss mitigation efforts, trying to modify more borrowers, and if not, trying to find foreclosure alternatives, like short sales or deeds in lieu. They are also testing a program in Florida to negotiate modifications before going to court.  4. Earlier this week, the Hope Now coalition of servicers and investors reported it had done well more than twice the number of loan mods in 2010 than the government’s Home Affordable Modification Program.”

“This testimony just happened to coincide with a few blurbs of information I’ve noted over the past few days.  Bottom line: banks, Fannie, Freddie…they really get it now. Foreclosures are ramping up again and are endangering today’s fragile housing recovery. Rick Sharga at RealtyTrac claims we have yet to see the foreclosure peak. Regardless, even if 2011’s number is slightly lower than the peak, it is more critical now than ever before to stem the tide because housing is struggling to recover on it’s own without government intervention (other than incredibly low mortgage rates, which don’t appear to help much).  Last year various government incentives helped mitigate the foreclosure losses to the overall market; the market doesn’t have that benefit now.  Zandi says one answer is for Fannie and Freddie to stop charging higher refi rates for borrowers with low credit scores and higher LTV’s (loan to value ratios) in order to facilitate more refinancing, even when borrowers are underwater. These are loans the GSE’s likely already own or back. ‘It will cost Fannie and Freddie in interest income, but they will benefit in the form of fewer foreclosures,’ argues Zandi.”

Article courtesy Diana Olick – CNBC

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.”

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.”

Short Sales And REO’s Causing Double Dip In Housing?

Posted in Short Sales by Jake on January 3, 2011 No Comments yet
Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of — if it’s not already in — a double-dip slumpPrices in 20 key cities fell 1.3% in October from a month earlier, an annualized decline of 15%.

According to the S&P/Case-Shiller index released last Tuesday. Prices were down 0.8% from 12 months earlier.

Month-over-month prices dropped in all 20 metro areas covered by the index. Six markets reached their lowest levels since the housing bust first began in 2006 and 2007. They were Atlanta, Charlotte, N.C., Miami, Portland, Ore., Seattle and Tampa, FL.

“The double-dip is almost here,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s. “There is no good news in October’s report. Home prices across the country continue to fall.”

The report was far more dire than anticipated by industry experts, who had forecast an almost flat market in October. It followed weak September numbers. “It was a bit of a surprise,” said real estate analyst Pat Newport of IHS Global Research. “I wasn’t expecting it to lag so badly in all 20 cities.”

He, along with many other experts, has been forecasting further price erosion over the next few months of 5% to 7%, but didn’t expect the price drop to hit so fast and so hard. It’s mostly attributable to the end of the tax credit for homebuyers, the effects of which started to vanish beginning in June.

“The trends we have seen over the past few months have not changed,” said Blitzer. “The tax incentives are over and the national economy remained lackluster in October, the month covered by these data.”

Sales volume continues to lag, off 25% even from last October, when markets could hardly be described as robust.

Why the housing bulls are wrongThe inventory of homes on the market is up about 50% compared with last year at this time, and there are millions of potential homes for sale waiting on the sideline for markets to improve.

Much of that “shadow inventory” is held as repossessed properties by banks, who will eventually have to release them back on the market.

Most (and least) affordable citiesPrices in Atlanta, down 2.9%, and Detroit, off 2.5%, took a particular beating in October. Las Vegas and Washington came out of the month only slightly bruised, down just 0.2%. The report ran counter to what have been generally positive signs of economic recovery.

According to Richard DeKaser, an independent housing market analyst and founder of Woodley Park Research. “The market is not showing much improvement after the summer slump,” he said. “Housing is acting as a drag on recovery.”

The coming of the second of the double dip is icing on the cake for homebuyers, who already have benefited from prices not seen in years in most markets.

“Prices have already adjusted, and are probably undervalued in most cities,” said Newport. “This will make them even more undervalued.”

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!

Short Sales About To Get A Big Boost

Posted in Short Sales by Jake on December 20, 2010 No Comments yet

“Despite a government program designed to streamline and incentivize the process, short sales have not even come close to keeping up with foreclosure sales.  That may be about to change.  If banks see higher losses from foreclosures than from short sales, they may put more resources into approving these deals, where the borrower is allowed to sell the home for less than the value of the loan.  ‘Loss severities on distressed U.S. residential mortgage loans are likely to increase an additional 5-10 percent from current levels due to higher loss mitigation and foreclosure expenses and weakening home values,’ according to a report from Fitch Ratings.  Fitch: The anticipated increases for each sector’s average loss severities are expected to be as follows:

–  Prime loans: currently 44%, increasing to 49%-54%
–  Alt-A loans: currently 59%, increasing to 64%-69%
–  Subprime loans: currently 75%, increasing to 80%-85%.

We are already seeing home prices double dip in many markets, and that is expected to continue at least through the first half of 2011. One way to mitigate the losses is through short sales. ‘Short sales generally experience recovery rates about 10 percent higher than foreclosure sales,’ according to Fitch.  Will this be enough to push the banks? Unclear.  Servicers actually rake in a lot of money from fees surrounding foreclosures, and so far the government’s ‘Home Affordable Foreclosure Alternative,’ program, which pays servicers cash incentives for doing short sales, has had pretty poor results, really still in the hundreds of loans. Second liens pose a big problem, but many big bank servicers also hold the second liens.  It’s all about where the math comes out. If home prices fall far enough, the equation may tip from foreclosure to short sale.”

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.

Pressure Increases To Halt More Foreclosures

Posted in Real Estate by Jake on October 7, 2010 No Comments yet

Members of Congress from California wrote to the heads of the Justice Department, the Federal Reserve, and the Comptroller of the Currency on Tuesday, requesting that they investigate the foreclosure processes of banks under their purview for “possible violations of law or regulations.”  In Texas, the Attorney General’s office sent “suspension notices” to 30 loan servicers in the state, asking them to halt foreclosures until they have completed a review of their procedures. The Attorney General in Massachusetts also urged financial institutions in the state to put a hold on all foreclosures.  Sen. Robert Menendez, D-N.J., wrote Tuesday to the chief executives of Ally, JPMorgan, and Bank of America, along with officials at 117 mortgage servicing companies, requesting details on their internal investigations and what is being done to fix the problem.  Menendez, along with Sen. Al Franken, D-Minn., has also asked the Government Accountability Office to open an investigation into whether “shortcomings” in federal oversight contributed to “false affidavits” in foreclosure proceedings.

Lenders resist loss mitigation..

In their letter to the regulatory agencies, California lawmakers, including House Speaker Nancy Pelosi, said lenders in the state have routinely resisted working with borrowers hurt by the weak economy. They argued that banks are slowing the economic recovery by worsening the foreclosure crisis.  The recent revelations “only amplify our concerns that systemic problems exist in the ways many financial institutions have dealt with homeowners who are seeking to avoid foreclosures,” the letter said. “It is time that banks are held accountable for their practices that have left too many homeowners without real help.”

Let the markets work!

There you have it, folks.  Legislatures interfering yet again with the vetting process of this real estate mess that was created by LEGISLATION!!  I’m not suggesting for a moment that the banks don’t bear a large portion of responsibility for their actions (or lack of) towards homeowners trying to short sell or modify their homes.  But for government to mandate further delays in what should be a healthy capital market correction, by forcing the delay of foreclosures for two or three additional months on top of the already bloated time line for the process is just ridiculous!  I am currently working with a client who hasn’t made a payment for 23 months, still lives in the home and expects additional delays while he seeks a solution to his living situation?!  Where does it end? So the banks screwed up, but Congress complaining about accountability and attempting to push the resolution to this problem out into the future with political gerrymandering really takes the cake for hypocrisy.

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

New Wells Fargo Short Sale Rules

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

As agents and investors involved in short sales, we need to be aware of our business  environment and how it is constantly changing.  If you are on the listing side of a short sale or negotiating directly with the banks, there are changes underfoot.  I recently received a copy of a Wells Fargo policy change that will severly impact those who are unprepared.

The Only Thing Certain About Change Is Change Itself

Effective  9/15/2010 and going forward, Wells Fargo will not issue any foreclosure sale date postponements or closing deadline extensions for the following investors–FHA, Freddie Mac, and Fannie Mae.  There will be other investors adopting this policy–most likely VA and Ginnie Mae.  By the end of October, Wells Fargo will issue a definitive policy listing of all the investors involved and the particulars regarding each one.  Wells Fargo’s own bank-held mortgages are not currently affected.

For all of us, it means that we need to change how we do business with this lender.  Please consider now the things within your own business model that you can implement or tweak to avoid a foreclosure sale date or miss a closing deadline!

I offer the following suggestions:

  • Get the buyer’s agent and buyers on board and inform them about these policies
  • Ask the buyer’s agent to request the buyers to have the home inspection performed within 10-15 days of the execution of the purchase contract with the seller(s), not the bank.
  • Ask the buyer’s agent and buyers to have their loan secured–not just a pre-approval letter.
  • Alert the buyer’s agent and buyers when the short sale file is being sent to management review and/or the investors for approval.  This will allow for fine tuning the financing and insuring that items for the closing that take longer than 5 business days to order can be completed.
  • Any BDF (1% Fee Agreements) or buyer closing issues should be resolved
  • The title company should do a thorough search–confirm taxes and other pro-rated costs/fees and all costs/fees that should be on the HUD
  • Choose a buyer carefully–one with staying power, who understands the length a short sale takes.   Wells Fargo doesn’t substitute buyers.  A BUYER THAT WALKS MEANS A FORECLOSURE!
  • Second liens can complicate an approval and interfere with closing deadlines.  Start those negotiations at the same time as you start the first.
  • You need to get accurate/timely documents quickly so you can initiate a short sale and move it forward.  When you request additional information/documents from the seller(s), the faster you get  what the bank needs, the faster your file moves to an approval.  Owners, buyers and buyer’s agents need to understand their role in responding to document requests in a timely manner.

Fed Says No “One-Size-Fits-All” Solution For Housing Crisis

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

At a recent meeting on the housing crisis in Washington, D.C., Sandra Pianalto, President of the Federal Reserve Bank of Cleveland, said something, investors have been saying for literally years now and that the Federal Government certainly did not want to hear:  “no one size fits all short-term remedies [for the housing crisis] would work.”  Pianalto went on to say that the nation housing market collapse was the result of a destructive cycle with many different facets, some pointing to the government itself.  Those facets include mortgage delinquencies, foreclosures, a housing GLUT, depreciation, dropping home prices and large losses on the parts of the borrowers and institutions.

It’s Our Neighborhoods And Communities

Pianalto said that the only way to break the vicious circle  is with a “coordinated set of policies aimed at multiple points on the Divisions in the housing market, ” … in particular through better ways to implement the neighborhood stabilization – programs and the Community Reinvestment Act.  She believes that at this point it is the responsibility of whomever actually still owns properties – be they homeowners, lenders or community organizations – to maintain houses in such a way as to improve resale values and enhance communities.

Too Little Too Late?

It seems to me that this representation is a perfect example of too little, too late.  Now that the Federal Government is irrevocably tied up in the housing recovery – and largely involved in the case of delaying it  – finally someone has spoken up and said that massive social programs have not been an effective response to the problem.   I personally would have been much happier if Pianalto had said that the Government should “butt out” all together from the recovery and let market forces run their course,  although I think of that to be a highly unlikely scenario and perhaps, even impossible,  given the ego-maniac we have in the office of the Presidency!

http://blogs.wsj.com/economics/2010/09/02/feds-pianalto-multiple-solutions-needed-for-housing-crisis/