Housing Investors In A Holding Pattern – Values Trending Sideways?

Posted in Real Estate by Jake on May 21, 2014 No Comments yet

After a buying binge that helped drive the housing recovery, big investors are being forced to rethink the home-rental business.  With bargains less plentiful, executives are slowing property purchases and turning their focus to generating steady income from tenants.  A spike in home prices over the past two years was quicker and more striking than many expected, squeezing returns and raising concerns about the industry’s growth prospects.  Small investors long have bought and sold homes.  But two years ago when companies such as private-equity giant Blackstone Group got into the business, backers said it could emerge as an asset class rivaling publicly owned apartment-rental companies, which own over 600,000 units and have a stock-market value of $88 billion.  The companies jumped into distressed markets, buying foreclosed properties and other homes at depressed prices with plans to fix them up, rent them and eventually sell at a profit.  But buyers have slowed their pace after acquiring roughly 140,000 homes worth about $20 billion.  The reason: the unexpectedly sharp recovery in the price of homes over the past two years. In housing markets hardest hit by the bust—places like Phoenix, Las Vegas and much of Southern California—prices have risen as much as 55% off their post crash lows.  Nationally, prices are up 11.4% in the past two years, according to Zillow Inc.   

Most sought-after homes still underwater…

Buyers looking for affordable homes aren’t finding much in today’s housing market. While investors snatched up
most foreclosures, another after effect of the crash is keeping supply short: negative equity. Nearly 10 million borrowers still owe more on mortgages than their homes are currently worth, according to Zillow.  That has kept them stuck in place.  As home prices rise, the nation’s negative equity or “underwater” rate is falling overall, but affordable homes are still drowning disproportionately. They are three times more likely to be underwater than expensive homes, according to Zillow. Thirty% of mortgaged homes in the bottom price tier ($98,400 and below) are in negative equity, compared with 18% in middle tier ($98,400 to $306,700) and 10.7% in top tier ($306,700-plus).  “The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,”
said Zillow Chief Economist Stan Humphries. “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers.  Negative equity constrains inventory, which helps drive home values higher, which in turn makes those homes that are available that much less affordable.”  

Values Out of  Whack With Buyer Expectations?

Thousands of borrowers have resorted to short sales over the past several years, negotiating with banks to let them sell their homes for less than the value of the mortgage; that option is no longer attractive because Congress allowed the Mortgage Forgiveness Debt Relief Act, passed in 2007, to expire. Short sellers are now liable for taxes on the forgiven debt.  While negative equity continues to fall, it fell at its slowest pace in the first quarter of this year, as home value growth slowed. On top of that, “effective” negative equity, when a borrower has less than 20% equity in the home, is far higher, now at nearly 37% of all homeowners with a mortgage. Most homeowners need that much in order to meet the costs of selling their current home and putting a down payment on another home.  That may be why sellers are overpricing their homes today, because they have to. Forty% of sellers recently surveyed by Redfin said they are planning to price their homes above market value when they list in the second quarter of this year; that’s up from 33% at the beginning of this year. While confidence is a big part of that, necessity is another.  High price expectations may actually be keeping inventories low, as the market is “bedeviled by an apparent gap between the price expectations of potential buyers and sellers,” noted economist Mark Zandi in a May report. “Despite recent gains, many sellers do not think prices reflect their properties’ value. Recalling the pre-crisis peak, they are not even listing their homes.  The inventory of houses for sale has risen recently but remains low.”    For the housing recovery to get moving again, first-time home buyers need to step in where investors are stepping out. In order for them to get in, they need to find affordable homes, and that is where supply is sorely lacking.  Home builders are focusing on larger, higher-priced homes, because that is currently where the buyers are.  While the nation’s largest home builder, DR Horton, recently announced a new entry-level product, it is not enough to juice the market nationally. Demand needs to improve on the low end, and supply needs to meet it. Prices are only rising because supply is so low, not because demand is surging. In a healthy market, prices rise as a result of rising demand, not the other way around.

Investors Take A Pause As Home Price Price Gains Stall…

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

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

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

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

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

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

 

The Real Estate Market Is Changing … Again!

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

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

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

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

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

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

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

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

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

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

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

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

CHDAP Suspension Will Affect California RE Agents Homebuyers

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

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

 

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

 

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

 

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

Housing Shortage Being Felt…Especially In The West

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

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

Where’s The Beef?

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

Excerpts contributed by Diana Olick

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.”

Short Sale, Loan Modification Or Just Walking Away?

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

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

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

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

So What About You?

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

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

New Short Sale Guidelines Announced By FHFA

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

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

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

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

Updated Short Sale Eligibility Requirements

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

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

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

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

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

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

Short Sale Process Showing Improvement

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

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

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

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

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

The guidelines will go into effect November 1, 2012.

article courtesy of:  Short Sale Specialist Network

Short Sale Timeframes… Help On The Horizon

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

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

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

Housing Market Picking Up Steam…

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

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

Short sales with seconds taking 19 + months

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

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

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

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

Aggressive Short Sale Pricing..

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

 Foreclosure Prices Still 33% Below Market

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

Home Price Index Climbing… 

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

San Francisco Bay Area Sales Up!

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

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

Median Price Is Up

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

 What’s The Take Away?

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

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

Short Sale Are Up…But Prices Are Down?

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

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

 Robo Signing Impetus

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

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

Quicker  Short Sale Decisions

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

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

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

courtesy: Diana Olick

Fannie & Freddie Bulk Sales Begin Soon!

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

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

Another Government Agency To Supervise The Test Sale

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

Limit The Loss To Taxpayers?

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

States With Highest Foreclosure Rates Are Still Holding Out…

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

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

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

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

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

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

Short Sale Transparency Act…Will It Work?

Posted in Short Sales by Jake on November 7, 2011 No Comments yet

The Short Sale Transparency Act, introduced by Congresswoman Susan Davis (D-San Diego),  will (if enacted) require Fannie Mae and Freddie Mac to disclose the minimum asking price they are willing to accept for a short sale if the first offer is rejected.  “People deserve a real chance to avoid foreclosure.  It is unfair to expect someone to complete a short sale instead of abandoning their home to foreclosure, if the banks don’t meet them half way,” said Davis. “So many homeowners are willing, even eager, to work with banks to get out from under the mortgage and protect their credit rating. But far too often, they find themselves in a guessing game as to what dollar amount will complete the sale.”  For many Americans a short sale, the sale of a home below its value, is a last chance to avoid foreclosure.

However, when the asking price is unknown, short sales become less viable because homeowners are essentially shooting in the dark when submitting bids to a bank. As a result, loan servicers can repeatedly deny short sale offers without giving homeowners guidance on the price the bank is asking. Ultimately, this back and forth ends in foreclosure.  On the other hand, if an offer is, for example, $2,000 short and the homeowner knows this, they could find a way to make up the difference in order to complete the short sale.  Disclosure is essential to ensuring fair transactions between investors and borrowers. Fairness to consumers is critical to boosting the economy and ending the cycle of foreclosures.

Cities with the Most Short Sales

Posted in Real Estate, Short Sales by mrdublin on November 6, 2011 No Comments yet

RealtyTrac has just released the results of a study that allows Foreclosure News Report to identify the Top 9 metropolitan statistical areas (MSAs) that has the most short sales. The report was based on the average sales price, average discount, percent of all sales and the average days to sell a short sale. Here is the list, courtesy of Smart Real Estate News.

  1. LOS ANGELES, CA: This city, famed for Hollywood, is the epicenter of short sales activity in the U.S.
  2. PHOENIX, AZ: This desert city, a favorite of retirees who love golf and warm weather, is another short sale mecca. With property values down by as much as 70 percent in the Phoenix-Mesa-Scottsdale metro area, some borrowers who bought at the height of the real estate boom are finding themselves underwater and are being forced to sell via short sale.
  3. CAPE CORAL-FORT MYERS, FL:  Cape Coral clocked in with 1,358 short sales in the second quarter of 2011, with an average price of $111,029. Buyers in Cape Coral paid 33 percent less for pre-foreclosure (short) sales than the average price for properties not in foreclosure.
  4. OXNARD-THOUSAND OAKS-VENTURA, CA: The Oxnard-Thousand Oaks-Ventura, Calif. metro had 681 short sales in the second quarter of 2011. Prices were slashed 24 percent on short sales, with the average price at $352,994 according to RealtyTrac. Short sales accounted for 26 percent of all real estate transactions.
  5. RENO-SPARKS, NV: About 60 percent of homeowners in Reno owe more on their house than the house is worth, making the short sale market in Reno huge.  Prices have fallen so sharply in the Reno-Sparks metro area that distressed sales – pre-foreclosure short sales and bank owned REOs – dominated the Reno real estate landscape in July, representing 57 percent of all sales.
  6. SAN FRANCISCO, CA:  Short sales in the San Francisco metro area rose 47 percent from the first quarter to the second quarter to a total of 3,237 sales. Buyers snagged an average discount of 41 percent on pre-foreclosures, although the average price for a short sale was still a lofty $364,766.
  7. PORTLAND, OR:  Portland, a metropolitan area of some 2.2 million people, is a spring board to the drizzly Pacific Northwest. The area reported a total of 756 pre-foreclosure (short) sales in the second quarter, up 39 percent from the previous quarter and accounting for 11 percent of all sales.
  8. ATLANTA, GA:  Atlanta was another metro at the top of the short sale list for the second quarter, with a 21 percent bump in pre-foreclosure sales from the prior quarter. In the Atlanta metro area, 2,595 short sales were sold to third party buyers in the second quarter, accounting for 14 percent of all sales.
  9. MILWAUKEE, WI:  Rounding out the Top 9 was the Milwaukee-Waukesha-West Allis metro area, where 324 short sales took place between April and the end of June 2011 – up 20 percent from the previous quarter. The average price for a short sale was $107,980, 41 percent below the average price of a property not in foreclosure.

HARP Revealed: Thoughts for the Home Buyers and Home Sellers

Posted in Real Estate by mrdublin on October 28, 2011 No Comments yet

Thousands of Americans will find mortgage relief in what the Obama Administration claims is an attempt to prevent economic and political fallout in housing crisis. This move is in direct correlation to Obama’s new rules on federally guaranteed loans, as part of his efforts to address economic troubles and various challenges faced by homeowners and investors.

The Obama’s Administration made the efforts despite the Republicans’  block on a majority of his proposals. But critics said it’s finally time that the President make a move to improve (or technically, save) housing in the country. In fact, his lack of action with respect to the home foreclosures and other housing crisis has resulted in demands from his own allies to do something!

These new bailout plans known as the Home Affordable Refinance Program (HARP 2.0), however, are questionable in terms of scope of benefits. Under this proposal, homeowners who are still current on their mortgages are still able to refinance even if the value of their home has dropped lower than what they still owe. But what percent of the population can benefit from it? Will it really be that beneficial to majority of people suffering from mortgage debt?

An explanation of the things one should consider before thinking they could benefit from the mortgage bailout plan was revealed in an interesting feature article:

Will you qualify for the revised HARP (HARP 2.0) program…will this program really work to ‘save housing’?

…few things to consider:

  1. There are 11,000,000 underwater owners in the US. (and growing). Estimates are that HARP 2.0 can only ‘help’ 10% of those underwater owners…big reason, the owner must be current on their mortgage. If you are late, don’t apply. Of the estimated 11 million underwater owners nearly half are already behind on their payments, in default.
  2. HARP 2.0 has nothing to do with homes already foreclosed. There are millions of homes readying to become REO listings over the next 12-24 months. Millions of homes that will be put for sale and discount prices. What effect will this have on property values?
  3. 3) Did HARP 1.0 work? The HARP program in its current form has fallen well short of its intended target of 4-5 million homeowners, helping just 894,000 of which only 70,000 were significantly underwater.
    4) THE BANKS have to agree to participate in HARP 2.0. Its estimated that the banks will ‘lose’ 15,000,000,000 (15 BILLION) if they participate with this new program. Do you think banks will be eager to participate in 2.0?
    5) AND THE BIG QUESTION….how many owners does the Obama Administration think HARP 2.0 will help? Their answer…’Time will tell’. In other words, they have no idea.

So, I ask you….does the new HARP 2.0 offering any real substance and hope or will this program follow the same path as HAMP and all the other failed efforts?”

Courtesy: Real Estate Insider News

BofA Offers Large Cash Incentives In Florida

Posted in Short Sales by Jake on October 8, 2011 No Comments yet

Bank of America (BOA), the nation’s largest mortgage servicer, is offering Florida homeowners up to $20,000 to short sale their homes rather than letting them linger in foreclosure.  The limited time offer has received little promotion from the Charlotte, N.C.-based bank, which sent emails to select Florida Realtors earlier this week outlining basic details of the plan.
Only homeowners whose short sales are submitted for approval to BOA before Nov. 30 will qualify. The homes must have no offers on them already and the closing must occur before Aug. 31, 2012.
Realtors say the BOA plan, which has a minimum payout amount of $5,000, is a genuine incentive to struggling homeowners who may otherwise fall into Florida’s foreclosure abyss.  The current timeline to foreclosure in Florida is an average of 676 days – nearly two years – according to real estate analysis company RealtyTrac. The national average foreclosure timeline is 318 days.  Guy Cecala, chief executive officer and publisher of Inside Mortgage Finance, called the short sale payout a “bribe.”
“You can call it a relocation fee, but it’s basically a bribe to make sure the borrower leaves the house in good condition and in an orderly fashion,” Cecala said. “It makes good business sense considering you may have to put $20,000 into a foreclosed home to fix it up.”  Homeowners, especially ones who feel cheated by the bank, have been known to steal appliances and other fixtures, or damage the home.

A spokesman for BOA said the program is being tested in Florida, and if successful, could be expanded to other states.  Wells Fargo and J.P. Morgan Chase have similar short sale programs, sometimes called “cash for keys.”  Wells Fargo spokesman Jason Menke said his company offers up to $20,000 on eligible short sales that are left in “broom swept” condition. Although the program is not advertised, deals are mostly made on homes in states with lengthy foreclosure timelines, he said.  And caveats exist. The Wells Fargo short sale incentive is only good on first lien loans that it owns, which is about 20% of its total portfolio.  BOA’s plan excludes Ginnie Mae, Federal Housing Administration and VA loans.  Similar to the federal Home Affordable Foreclosure Alternatives program, or HAFA, which offers $3,000 in relocation assistance, the BOA program may also waive a homeowner’s deficiency judgment at closing.  A deficiency judgment in a short sale is basically the difference between what the house sells for and what is still owed on the loan.  HAFA, which began in April 2010, has seen limited success with just
15,531 short sales completed nationwide through August.

Courtesy: smart real estate news

10,000 HAFA Short Sales And Banks Still Don’t Get It!!

Posted in Short Sales by Jake on August 9, 2011 No Comments yet

Servicers completed 10,438 short sales through the government’s Home Affordable Foreclosure Alternatives program since it launched in April 2010, according to the Treasury Department.
HAFA was designed to provide an incentive to servicers for completing short sales and deeds-in-lieu of foreclosure for loans that fail out of the larger Home Affordable Modification Program.
Through June, servicers started 21,412 short sales and DILs, up 20% from the month before. A total of 10,754 were completed, up 25%.  JPMorgan Chase is the programs leading performer, completing nearly 3,600 through the program, including nearly 1,000 in June alone.  Wells Fargo was second, completing more than 3,100 since the program launched and roughly 700 in June.
Bank of America completed 1,873 HAFA transactions, an increase of roughly 200 in the month.

 

Pam Marron, a senior loan officer with Gold Start Mortgage Financial Group in Tampa Bay, Fla., said more and more homeowners in negative equity view a short sale as their only way out. Many, she said, are defaulting because banks require them to do so in order to qualify for a short sale.  “The growing problem in Florida is the alarming increase in the number of short sale listings that are coming onto the market. These people are still employed but severely underwater and are having to short sale because they are not able to pay the vast difference owed between the mortgage amount and the value of these homes,” Marron said.
“Banks are requiring homeowners to default in order to qualify for the short sale.”  In 22% of the HAFA agreements started — equal to roughly 4,700 mortgages — the homeowner began a HAMP trial but later requested a HAFA agreement or was disqualified from HAMP.

New Short Sale Law In California…SB458

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

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

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

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

Pay People To Pay Mortgages?

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

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

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

Even PMI is getting into the act

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

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

Strategic default is the only card left

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

courtesy:  Diana Olick

Foreclosures Fall?..

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

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

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

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

Surge In Short Sales…No Thanks To The Government

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

This from Diana Olick:

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

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

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

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

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

Is Housing As Bad As It Seems?

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

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

What do the Realtors Say?

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

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

Luxury housing leading the recovery

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

Existing Home Sales Down…Are Credit Rules Killing Recovery?

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

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

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

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

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

According to Diana Olick:

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

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

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

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

Short Sales And The Effects On Home Prices

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

This from Diana Olick:

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

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

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

First-Time Homebuyer Tax Credit Comes Due!

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

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

Time to pay the piper…

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

Well how much is it?

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

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

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

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

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

DOJ Meeting Over Modifications And Foreclosure Practices Gets Off Slowly

Posted in Real Estate, Short Sales by Jake on April 1, 2011 No Comments yet

This from CNBC’s Diana Olick:

“At the end of a day-long negotiation session over the foreclosure paperwork mess at the Department of Justice, Iowa Attorney General Tom Miller and Associate Attorney General Thomas Perrelli came out for a brief chat with reporters.  They essentially said nothing.  Miller: ‘We had a good first meeting with the banking and servicer industry- emphasis on good and first. It was a first meeting, it was a breaking of the ice, and that takes some time and is part of the process. The discussion was good—I think it was on a good level, given the exchange of ideas and rationale and principles. I think we have a long way to go—again emphasis on first meeting.’  Perrelli: ‘Tom Miller is a fantastic partner, we’re lucky to be working together. I’ll echo what Tom said, I think it was a very productive first meeting, with serious discussion of a wide range of challenges and problems in the mortgage servicing industry.’

The banks weren’t talking, at least the representatives in the meeting weren’t talking, nor were their spokespeople. But big bank executives have been commenting on the biggest sticking point in a potential settlement over foreclosure practices: Principal reduction.  Some of the State AGs, including the lead on the investigation, Miller, as well as federal regulators and administration officials appear to be looking toward principal forgiveness as the punishment the banks should pay. But as recently as last night, JP Morgan Chase’s Jamie Dimon told reporters, ‘Yeah, that’s off the table.’  This morning the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) put out their quarterly ‘Mortgage Metrics Report’ for Q4.

It showed just 2.7 percent of modifications made in the quarter by national banks and federal thrifts (that includes Fannie and Freddie) included any principal reduction. The banks did the vast majority of the reduction with Fannie and Freddie doing none. But principal reduction fell dramatically, over 60 percent from year ago as a modification tool, meaning banks are less and less inclined to do it.  I’m not exactly sure what will come out of these endless ‘negotiations’ over the so-called ‘robo-signing’ scandal, other than the banks trying to push foreclosures through and out of the system before any penalties come down the pike. The longer the negotiations drag on, the better for the banks and the worse for consumers. Federal regulators may come out with something sooner, given that they are less worried about the political ramifications of what they do than the state attorneys general.”

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 4, 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.

Modifications Aren’t Working Out..

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 solutions:

  • 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.
  • 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.” says Diana Olick of CNBC.

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.

Mark 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.”

California Short Sale Deficiencies – SB931

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

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

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

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

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


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

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

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


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

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

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.”

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

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.