by Jim the Realtor | Mar 1, 2010 | Bailout, Market Conditions, Thinking of Buying? |
Worm brought up some valid concerns about our future, and how certain events could impact the real estate market. Anyone considering a move should seriously consider any and all potential hazards, so let’s examine. My comments are in italics:
1. The Fed quits buying mortgages at the end of March. Interest rates go up a half percent.
Buyers should tolerate up to 6%, with home pricing likely to reflect impact of rates over 6%, but not dollar-for-dollar (sellers slow to react).
2. Option Arm begin to hit the market. That will do wonder for comps.
Very few neg-ams in area (less than 10%), and we could use the extra inventory.
3. We go into a double dip recession this fall.
Local market weathered the first dip pretty well, and buyers are impatient.
4. China economy burst. That will take down all of Asia. Tall office building still being built in Shanghai with a current 50% vacancy.
The Chinese will have to learn to adjust all previous assumptions, just like in USA.
5. A blow up the the 60 trillion derivative market.
Will make for sexy headlines, but as long as there are mortgages, buyers will shrug it off. Fed to rescue.
6. Banks this time don’t get a bailout because the American people are mad about their conduct in the past year.
After all we’ve been through, we’re numb. Will the masses riot? Support a renegade politician? Not likely that a renegade could get traction due to media collusion with mainstream politicians.
7. Home prices continue to decline like they did in Japan for fifteen years.
I could name several areas that already have houses selling for more than what they were selling for 12-18 months ago.
8. Buyers go back to buying houses 3 to 4 times their yearly income.
Already there, due to more stringent underwriting guidelines and big down payments being utilized.
9. Banks acquired too much shadow inventory and have to put more houses on the market than the market can handle.
Very few REO properties currently, and gov’t programs stretching out timeline nicely.
10. Asteroid hitting earth.
Highly concentrated disasters will have big impact on that area only, hopefully not here!
This list is a start, but for every concern there are several possibilities of how it could turn out. Take a look at all options, and decide for yourself what course of action is within your comfort zone.
The general complaint/argument that the government is propping up the market will apply to the MBS-purchasing, and as they turn off the spigot over the next six months we’ll see the impact, if any. CR expects a mortgage rate increase of 3/8 to 1/2%, and I think buyers will live with mortgages under 6%. The loan-mod madness is here to stay, and will prolong the insanity, and while that may be infuriating, there’s not much you can do about it except not participate.
by Jim the Realtor | Feb 28, 2010 | Bailout, Loan Mods, Thinking of Buying? |
From NMN:
A Rumson, N.J., company is giving underwater borrowers a reason not to walk away from their homes, a move that could help prevent further deterioration in the value of a sizable chunk of the problem loans and properties still bogging down the market.
The company, Loan Value Group, has an incentive-based patent-pending concept and automation that could help address a problem posed by what studies show are roughly more than 10 million homes in the United States that have substantial negative equity. This affects almost $2 trillion of mortgage debt, according to LVG.
Data on the percentage of all defaults overall that have been “strategic” vary from about 18% to 25%, depending on the study. However, “this number changes amount according to the LTV of the loan,” said Alex Edmans, an assistant professor of finance at Wharton and an academic advisor to Loan Value Group. He cites one study by European University Institute professor Luigi Guiso, Northwestern University professor Paola Sapienza and University of Chicago professor Luigi Zingales that indicates mortgages with loan-to-value ratios around 120% start to become more prone to strategic default. Mr. Edmans also noted that a Federal Reserve study found a 50% likelihood of default when LTVs were as high as 150%.
LVG may have a “snapshot” of data on how effective its program is within a month, according to Frank Pallotta, executive vice president and managing partner at LVG. It may also release the name of the client testing it, which is said to be a major multibillion-dollar mortgage market participant.
Customers can private-label the program, which would be used in situations where high LTVs made it compelling for certain borrowers to stop making payments and walk away from their homes even though those borrowers might have the funds available to pay. The Responsible Homeowner Reward program is designed to realign borrower incentives so that such borrowers will be encouraged to pay off their loans instead.
Through RHR, a certain amount of incentive funds are set aside separate from the unchanged existing loan. These funds accumulate every month a borrower makes a scheduled payment for a period such as five years, regardless of home price direction. The borrowers would lose all funds and accrued value if they were 30 days late on a payment in any 12-month period. Homeowners that meet the program’s requirements for timely payments receive the funds when the loan is paid off. Some other options for the incentive funds have been discussed such as using them to pay down the outstanding balance of a refinance loan.
Mortgage risk holders ultimately decide the size of the payment to the borrower but can base it on a behavioral model LVG offers. The model provides a range based on factors that include negative equity, income and geography, Mr. Pallotta said. The company offers as part of the service other additional information about borrowers on a regular basis that may be helpful to clients, Mr. Pallotta said. Servicers, who are already largely overburdened and have their roles constrained by contracts, don’t have to take on responsibility for the RHR program, which LVG and its operational partner take care of. They may benefit from it, though, Mr. Pallotta said.
RHR also can be used in conjunction with other programs that address “affordability” default, where the borrower does not have the funds to pay an existing loan and may need a modification.
The distinction between affordability and strategic defaults is key when sizing up how big the “strategic default” issue is, according to Alan Paylor, president and chief executive officer of REO Leasing Solutions LLC, Houston. When default is strategic, or “voluntary,” then “incentives start to matter,” Mr. Edmans said.
Mr. Pallotta said he believes mortgage risk holders need to focus more on default that is “strategic” rather than due to affordability concerns, something Mr. Edmans indicates represents a departure from traditional thinking for the industry.
“They’re using an affordability platform to address a negative equity crisis,” Mr. Pallotta said. “If there’s too much negative equity borrowers are going to default, regardless of income and mortgage assets. I don’t think the owners of mortgage risk have their eye enough on the ball as far as negative equity.”
RHR may allow lenders and other parties to avoid other types of more costly loan remediation efforts such as reduction of principal in cases where strategic default is the real concern, he said.
Because RHR offers incentive payments to the borrower that are totally separate from the loan, it does not affect, for example, second liens or accounting for the mortgages. It aims to better align the incentives for the parties with a stake in the loans. Owners of mortgage risk can split what Mr. Pallotta said is a relatively low cost for the service. He said the ongoing cost for administering RHR is roughly less than 5 basis points of coupon annually. The present value cost to the provider for the incentive itself could be as little as 3-6 points of principal on a $200,000 mortgage with a 135%-145% LTV.
by Jim the Realtor | Feb 26, 2010 | Bailout |
A reader wanted an opinion on this quote from the latest CNN survey:
“Foreclosure sales will pick up this spring as mortgage servicers figure out who can qualify for a modification and who can’t,” said Zandi.
The bank reps on Monday’s conference call both talked about the “retention waterfall”, where they are going to try each and every step available to rescue borrowers. First they’ll try a regular refinance, then a loan modification, then offer a short sale, then consider foreclosure.
Foreclosure sales WON’T pick up this spring, like Zandi says. Why? Because the HAFA program will allow defaulters to consider short-selling their house for a few months – with only a trickle actually coming out of the retention waterfall. Then there will probably be another government program devised to try to save the day.
How about this article? (hat tip to Rick for sending it in)
Feb. 25 (Bloomberg) — The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.
The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
As long as the government thinks foreclosure is a dreaded last-resort, the can will be kicked further down the road.
by Jim the Realtor | Feb 25, 2010 | Bailout, Market Conditions, Short Sales, Thinking of Buying?, Thinking of Selling? |
On Monday, CR had this SS post and graph on the increase in short sales. The information used was part of a package that included a national audio conference held that day about short sales, and the upcoming HAFA, which begins April 5th.
There were three speakers, from Bank of America, Wells Fargo Bank, and Freddie Mac, who discussed what they are doing about making short sales more palatable.
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Bank of America rolled out their new short sale phone number, 866-880-1232, and mentioned that agents can now use their REO-processing website for short sales. The presentation was a little light on details, but I can report a recent success.
We submitted a short sale on behalf of our seller that only took six weeks to get an approval (and the notice came over on a Sunday, from Plano, Texas).
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Wells Fargo Bank announced that they are placing short-sale managers in the field. They will be interviewing the sellers on-site, going to their houses to determine their eligibility, and collecting the necessary financial documents. Once in process they’ll order an appraisal, and have a response in 7-10 business days.
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I think the banks are too optimistic about the sellers’ willingness to cooperate, after training them to crave the free cheese. WFB is giving $5,000 cash-for-keys to the sellers, but they need to threaten them with foreclosure if we’re going to see any real movement.
Both banks promised to pick up the pace – if they could close short sales within 60 days, it would be a big improvement. To keep the sales urgency higher, the banks have to move quicker to determine the acceptable price of the properties – buyers would be more willing to wait out the process if they knew their price was approved.
It’s hard to believe that the servicers will push to pre-approve any short-sale prices, or especially in the volumes necessary to make a difference. Pre-approvals are, in effect, a voluntary principal reduction, and servicers aren’t going to be rushing those out. Will they approve a fully-packaged short sale in 2-6 weeks? It’s possible, and getting an accurate valuation quickly is the key.
Other hurdles:
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The junior lienholders have to agree to lose money too.
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In the Q&A, it was asked if there are going to be deficiency judgments, or are the sellers off the hook. Freddie Mac confirmed that sellers in HAFA are released from liability, but the representatives from Bank of America and WFB were conspicuously silent.
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Sellers are still subject to deficiency judgements from junior lienholders, and liable for income tax on capital gains.
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For possession and occupancy to be delivered to the buyers, the sellers have to get out of the house. But they are addicted to the free rent, plus their credit report will reflect 6 to 18 months of late payments on their mortgages.
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Once the short sale is approved, the buyers then conduct their physical inspection. Any required repairs fall on the realtor to resolve – expect many potential short sales to fail at this juncture due to inexperience/ineffectiveness.
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The rampant fraud being committed by realtors is a turn-off.
The housing bailouts have a history of not benefiting the masses. For short sales to increase significantly, the lenders would have to commit to losing big money, and lately there has been reluctance and feet-dragging.
by Jim the Realtor | Feb 24, 2010 | Bailout, Buying at Trustee Sale, Foreclosure Count, Foreclosures/REOs, Loan Mods, Market Conditions, North County Coastal, Thinking of Buying? |
Kelly at the Voice of SD reviews the current market conditions in the San Diego real estate market at this link, here’s an excerpt:
There were 9,243 active homes and condos for sale on the Multiple Listing Service on Tuesday, according to Klinge. That number pales next to the number of distressed properties that have yet to be repossessed: 7,260 homes that have received at least one default notice and 10,221 that are headed for auction, according to Klinge. None of those nearly 17,500 properties have gone back to the bank yet.
But the threat of a flood of distressed properties hitting the market and driving prices down in one fell swoop has been just that — a threat — for years now. Klinge’s been monitoring the homes that hit the courthouse steps, and nearly as many auctions have been cancelled as have actually gone forward.
Here is Rich Toscano’s take on it, link here.
Bottom line? We’ve been knocking on a lot of doors, and it appears that the servicers are keeping the loan modders on the foreclosure rolls for now, and cancelling the trustee sale once the borrowers are well into permanent-mod status.
by Jim the Realtor | Feb 16, 2010 | Bailout |
The guys who made the video that aired on February 8th describing the IndyMac/FDIC/One West deal have responded to the FDIC’s press release, and are standing by their story:
http://www.thinkbigworksmall.com/mypage/player/tbws/23622/1580248
Apparently the FDIC doesn’t pay a penny to One West unless losses exceed $2.5 billion, but who knows if that’s possible, or how close they are to hitting that number. There isn’t a smoking gun yet, and until CR lends some credibility to this story, it going to sound like a nothing-burger to me.
The worst thing that is going to happen is that one day it’ll slip out that the FDIC passed a few billion dollars to One West to honor the agreement, and there will be outrage for a day or two.
By then, we’ll be numb to it (if we’re not already?).
by Jim the Realtor | Feb 10, 2010 | Bailout, Loan Mods, Market Conditions, Shadow Inventory, Thinking of Buying? |
Julie brought up the mark-to-market accounting requirement for banks.
I don’t think the banks worry much about marking to market. Of the 43 Countrywide/B of A listings I’ve sold, I can’t think of one of the foreclosed mortgages that was actually owned by them. CFC was selling their paper on Wall Street as private-label MBS, and those owners may have some requirement – but B of A is just the servicer on the majority of CFC paper.
Without the accounting requirements, the servicers might keep kicking down the road forever the 17,247 San Diego County properties in default.
Here is another example of can-kicking. The FDIC just agreed to sell two portfolios of loans with a combined unpaid balance of $3.05 billion to Lennar Corporation.
MIAMI, Feb. 10 /PRNewswire-FirstCall/ — Lennar Corporation, one of the nation’s largest homebuilders, today announced the closing of two structured transactions with the Federal Deposit Insurance Corporation (“FDIC”).
The transactions represent the purchase of two portfolios of loans with a combined unpaid balance of $3.05 billion. A subsidiary of Lennar, Rialto Capital Advisors, will conduct the day-to-day management and workout of the portfolios. Lennar acquired indirectly 40% managing member interests in the limited liability companies created to hold the loans for approximately $243 million (net of working capital and transaction costs), including up to $5 million to be contributed by the Rialto management team. The FDIC is retaining the remaining 60% equity interest and is providing $627 million of non-recourse financing at 0% interest for 7 years. The transactions include approximately 5,500 distressed residential and commercial real estate loans from 22 failed bank receiverships.
My point is that here are another 5,500 loans that should be foreclosed on, but instead they are being shuffled off for additional processing.
For those of us who are seeking more REO inventory, it appears that we may be in for a long wait.
by Jim the Realtor | Dec 27, 2009 | Bailout, Market Conditions, Thinking of Buying? |
Hat tip to W.C. for including this article – I wanted to check this format too, where the author allows for embedding, is this readable on handhelds? I can opt for a skinnier format too:
by Jim the Realtor | Dec 6, 2009 | Bailout, Loan Mods, Mortgage News, Short Sales |
Seen on CR, this summary on Bloomberg discusses the recent developments with short sales, DILs, and loan modifications.
The article’s ending:
Short sales benefit a neighborhood because they clear out stagnant properties that may have an adverse effect on values, said Sean Shallis, a senior real estate strategist (ed. note: he’s a realtor) with Weichert Realtors in Hoboken, New Jersey. Shallis has one home with bank approval for a short sale and three others waiting approval on the same street in Jersey City with views of the Manhattan skyline.
“In every case we had multiple offers from people who had plenty of money to put down,” Shallis said. “Americans are out there still buying homes and trying to move it along.”
Short sales also help the bank, because foreclosed properties lose more value when they are vacant or a homeowner vandalizes a house on the way out, Sunlin said.
“We typically expect a 10 to 15 percent decrease of loss severity with a short sale,” Sunlin said.
Losses on prime loans going through the foreclosure process averaged 49 percent versus 34 percent for a short sale as of Oct. 1, according to a Nov. 10 report by Laurie S. Goodman, senior managing director of Amherst Securities Group LP. For subprime loans, losses averaged 73 percent for a foreclosure compared with 59 percent for a short sale.
“The loss severity of short sales is lower but it’s not low,” Goodman said.
For a borrower’s credit history, a short sale is typically reported as “settled” and considered as severe as a foreclosure, said Maxine Sweet, vice president of public education for Experian PLC, the world’s largest credit-reporting company. The impact of a short sale on a credit score is similar to that of a foreclosure. It may drop a credit score of 780 to 620, according to Minneapolis-based FICO Corp.
For sellers like Drew Schlosser, who bought 10 properties in Florida as investments during the housing bubble, getting a short sale was a relief even if the process was difficult.
Schlosser said he had to provide Wells Fargo a hardship letter, demonstrating that his financial situation merited a short sale. He also had to provide pay stubs, bank account information and past tax returns. To avoid fraud, the bank also required evidence that the transaction was an arms-length sale and not to one of his relatives, he said.
“They don’t agree to do it because you’re upside down,” Schlosser said. “If they think you can pay for it they’re not going to let you out of it.”
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The article also has a link to the government’s assistance package, which includes $1,500 moving incentive to the borrower, $1,000 to the servicer, and $1,000 to the lender for every short sale or deed-in-lieu processed successfully.
The most shocking requirement? The government is hoping to get borrowers off the hook:
With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
Will lenders/servicers agree to forfeit deficiency judgements for a measy $1,000 per loan?
by Jim the Realtor | Nov 27, 2009 | Bailout, Mortgage News, Thinking of Buying? |
At least here people have to contribute to others to help themselves – from latimes.com:
http://www.latimes.com/business/la-fi-habitat27-2009nov27,0,6797289.story
Unfortunately, for low-income families, even deeply discounted foreclosures are out of reach because of competition from more prosperous first-time buyers and investors. “If it wasn’t for this program, they wouldn’t qualify for something like this,” Quezada said. “Someone like them wouldn’t stand a chance to an all-cash offer.”
The home, which was bought out of foreclosure by Habitat, will cost the couple $208,000. In order to afford the property, Habitat arranged for the couple to receive a $65,000 silent loan through the city of Lynwood. (A silent loan, repaid only when the property is sold or refinanced, is often offered by cities and other local governments to facilitate affordable housing.) They will get a traditional loan for the rest.
The couple put in 125 hours working construction sites and other jobs for Habitat to qualify to buy the home.
Habitat for Humanity, Greater Los Angeles, aims to buy and renovate 20 properties during the fiscal year ending June 30. Rank said she sees the new availability of bank-owned properties as a way to preserve the group’s mission despite sagging donations from traditional donors, including banks, builders and the entertainment industry.
“We have a heavy investment in these communities, and we don’t want to see the families fall down again because of a high number of foreclosed homes sitting boarded up and vacant in their neighborhoods,” Rank said. “Right now it is really hard for low-income buyers to get a loan on properties, so Habitat is the builder and the lender, and we lend at zero interest.”
