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.”

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.”

Second-Mortgage Standoffs Blocking Short Sales

Posted in Short Sales by Jake on December 5, 2010 No Comments yet

Sergio Trujillo thought he could avoid foreclosure when an investor made an all-cash offer last month to buy his one-bedroom condominium in La Jolla, Calif., for less than the amount he owes on his mortgage.

But a standoff between Mr. Trujillo’s lenders over a few thousand dollars threatens to derail the deal, known as a short sale.

Like many heavily indebted borrowers, Mr. Trujillo has two mortgages: a first mortgage in the amount of $260,000, which is held by Freddie Mac; and a $50,000 second mortgage, handled by Specialized Loan Servicing LLC. Freddie Mac will allow no more than $3,000 in sale proceeds to go toward the second mortgage. But SLS says it will scotch any deal if it doesn’t get at least $7,000.

“This is an all-parties-lose scenario,” said Brian Flock, Mr. Trujillo’s real-estate agent. “There is no housing recovery when this happens.”

Over the past year, real-estate agents, lenders and federal policy makers have pointed to short sales as one way to revive moribund housing markets while helping troubled borrowers avoid foreclosure. But for homeowners that took out second mortgages during the boom, getting a short sale approved is proving to be a nightmare.

Most first mortgages, like Mr. Trujillo’s, are guaranteed by government-controlled mortgage giants Fannie Mae and Freddie Mac or held by other investors in mortgage securities. Second mortgages and other junior liens are typically owned by banks and credit unions.

Banks are reluctant to write down second mortgages because many are still current, even if the borrowers owe more than the value of their homes. They may also be able to pursue borrowers’ assets after foreclosure.

“If I’m the second-lien holder, I may say, ‘You know what, I want to see if I can hold out for a better deal,’ ” said Greg Hebner, president of MOS Group Inc., an Irvine, Calif., company that contacts troubled borrowers on behalf of lenders and servicers.

The result is a “chicken game” between investors that leads to unnecessary foreclosures, said Jon Goodman, a real-estate lawyer and investor in Boulder, Colo.

As of June 30, 11 million homeowners owe more than their homes are worth and an additional 2.5 million have just 5% equity, according to real-estate research firm CoreLogic. To sell, those homeowners must cover the shortfall or, more commonly, ask the bank to take a loss via a short sale. The short-sale process remains full of land mines. Loan servicers were never designed to handle large volumes of customized workouts and it can take months to bring loan servicers, investors and mortgage insurers to agree on a price. Softening home prices create greater potential for disputes over values. And lenders are wary of fraud.

Second mortgages, however, have become one of the biggest roadblocks. More than a third of about 1.33 million properties in some stage of the foreclosure process have at least one junior lien, according to publicly available data tracked by CoreLogic.

Many seconds and home-equity lines are worth little in a foreclosure because home prices have fallen so sharply. That gives the second-lien holder “nothing-left-to-lose leverage,” said Mr. Goodman. Banks say they are approving deals where they can, but borrowers must agree to some form of debt repayment.

About three-quarters of the $1 trillion in seconds outstanding as of June 30 were held by commercial banks, and of those, more than $430 billion belong to the nation’s four largest banks—Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co, and Citigroup Inc. Forcing write-downs on large numbers of those loans could significantly erode their capital.

Real-estate agents say some banks are getting better at cutting deals. Wells Fargo & Co. now dispatches employees in some markets to appraise homes even before a short-sale offer has been received to help speed potential sales. Bank of America doubled its staff dedicated to handling short sales to around 2,700 over the past year and began using an online platform to allow for paperless applications and approvals. The bank says it has approved 70,000 short sales through September, double the year-earlier total.

In Mr. Trujillo’s case, SLS requested far more than the lien was worth on the secondary market, said Mark Johnson, who oversees short sales for Freddie Mac. “That’s always been our challenge—participation from second-lien holders,” he said. “It’s ultimately their decision about whether they want to help us save borrowers in foreclosure.” Freddie says it hopes to negotiate a deal for Mr. Trujillo. SLS declined to comment.

Jeff Gray waited months to complete the purchase of a home in Litchfield Park, Ariz., as part of a short sale, only to see it fall apart days before closing. Chase, which serviced the first mortgage for Freddie Mac, approved the sale but wouldn’t forgive the second mortgage, which it owned. Chase says it has completed 83,000 short sales since 2009.

Mr. Gray eventually bought another home in the same neighborhood; meanwhile, the short sale was listed for sale by Freddie Mac earlier this month for $30,000 less than what Mr. Gray had offered.

“It’s sad,” he said. “The grapefruit tree in front is dead, the grass has turned brown, and the shutters are starting to fall.”

article courtesy of Nick Timiraos
Wall Street Journal

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.

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.