by Jim the Realtor | Dec 17, 2009 | Foreclosures/REOs, Loan Mods, Shadow Inventory, Short Sales, Thinking of Buying? |
From bloomberg.com, hat tip PH!
Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.
“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9 million property marketed as a short sale because the price is less than the mortgage, leaving the bank with a loss. “People have reached the point where they can’t afford the carrying expenses of a $2 million home.”
Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3% on loans less than $250,000 and 7.4% on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. The rate for mortgages above $1 million was 4.7% a year earlier.
As defaults on the biggest mortgages rise, borrowers such as Steve Holzknecht, 53, are turning to short sales to exit loans that now are larger than the market value of the house. Last month he cut the asking price for his 7,280-square-foot home in Kirkland, Washington, by $550,000 to $1.25 million, lower than the balances of his two mortgages. Holzknecht, the former owner of Four Suns Inc., a Seattle luxury homebuilder that went out of business two months ago, constructed the Craftsman-style home in 2000. He declined to identify his lenders or the amount he owes.
(more…)
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 13, 2009 | Loan Mods, Mortgage News, Neg-Am |
from NMN:
Residential servicers, a sector that is grappling with a potential tidal wave of loan modifications, are beginning to hire “like crazy” according to Mary Coffin, a senior servicing executive with Wells Fargo Home Mortgage. Ms. Coffin, speaking at SourceMedia’s Loan Modifications Conference in Dallas, noted that new servicing employees working on modifications are receiving four to five weeks of training in order to deal with the volumes they are facing.
“When you think about the number of people being added, and this is one of the most painful subjects for me, our history had always been to train early and often to make sure we were ahead of the default, delinquency and foreclosure forecast,” said the EVP in charge of loan servicing and post-closing for the nation’s second largest player in mortgages. “We would hire people, bring them in and maybe start them in collections, easier calls, and over tenure let them encounter workout situations. We no longer have that advantage in this environment. We are hiring people by the thousands and thousands. It is very painful. The borrower has high anxiety and a lot of fear, complex documents to sign and return to us, and you are hiring people that get four and five weeks of training.”
She said servicers are going much deeper in collecting financial information from the borrower. Ms. Coffin described a transformation of servicers and what has evolved as the foreclosure crisis began and where the company sits today.
“In the old way of doing business, when the borrower first went delinquent, we would start with a repayment program. They don’t work to the point to where we have almost tried to get rid of them. It is a circular process that ultimately ends up with a different solution that needs to be found,” she told conference attendees.
“Today, we’re underwriting the financial condition of the borrower in order to pick the right solution that is sustainable. That is the first big change that has happened for servicers.”
The Wells executive noted there has been confusion regarding documentation under the government’s Home Affordable Modification Program, including re-requesting documents from borrowers and instances of losing documents.
“We are still dealing with pulling documents. We have gone back to the administration and I’d like to thank them. They already streamlined the documentation requirements for the HAMP. If we receive what are called the ‘critical documents’ then we are able to do the underwriting and the decisioning that we don’t turn the customer down if every paper is not signed perfectly. That’s a real plus,” said Ms. Coffin.
“We still have work cut out for us. We have customers where the administration has extended it four to five payments. We have a few borrowers sitting in that situation. We have heavy, heavy lifting to do in the next couple months to pull these customers through.”
Wells is trying to be as innovative as possible, working with external third-party providers, using phone calls, mail, door-knockers, branches, its sales teams, everything possible to help these borrowers get these documents in and finalized.
Wells is seeing short-term modifications as another solution for people who are able to regain employment immediately or who require only a short-term mod. It is taking an aggressive approach to the option ARMs from Wachovia. It is the one area where Ms. Coffin says they are doing principal forgiveness.
“We have lower redefault rates. Our key to these pay-option ARMs, if a customer is able to make a payment, we have to find a way to continue to allow that payment to be able to be made. What we are doing is restructuring the loan looking at net present value. It’s been very effective. Many of these customers need to be bridged from a negative amortization to an interest only. If you took them to a fully amortized product, there’s no way they are going to be able to make it. Over time, they will from an IO, step up, so there’s no payment shock.”
Early on, after analyzing its portfolio, Wells quickly saw that yes, HAMP was going to be a great tool and valuable to use, but it was not going to save 100% of their problems.
“Thirty percent to 40% of our portfolio who would be eligible for HAMP was coming to us for solutions. The remainder did not meet the criteria for eligibility. The biggest one was they were coming to us with DTIs below 31%. So, we also went to work on our in-house modification programs.”
This included the payment-reduction mod and the implementation of a full-quality review so no loan can go to a foreclosure before it actually goes through a quality review test to make sure all opportunities have been reviewed.
“These loans are going through multiple looks before they ever go to the foreclosure sale,” she said.
After the creation of the HAMP program, the volume for Wells jumped to over 40% of borrowers who were current on their mortgage that tried to get modifications.
“I knew from talking to investors, their biggest concern was the moral hazard of this program and people going delinquent to get a mod. The guidelines were not provided on default definitions. We worked to provide consistency.”
Because of all the attention on modifications “we went from a day when borrowers who were truly in need called to say, ‘What can I do?’ and we know what to do. Now we are sorting through hundreds of calls from borrowers who have been educated to some extent. We are still educating them on what you truly have to look like before you can get a modification,” she said.
by Jim the Realtor | Aug 10, 2009 | CRE, Loan Mods, Psycho-babble |
From sddt.com:
A new report concludes the level of commercial loan defaults accelerating, but whether that means a surge of commercial foreclosures in San Diego depends on who is assessing the data. Nationally, the Deutsche Bank report noted more than $2 trillion worth of commercial paper is set to mature between now and 2013, and as much as $450 billion would not qualify for refinancing under current criteria.
“This downturn may well exceed 2001-2003 when cumulative default rates reached nearly 25 percent,” Deutsche Bank stated.
The bank said the national commercial delinquency rate reached 4.1 percent as of the end of June. While year-to-year figures weren’t immediately available, that rate was some 3.5 times higher than December.
The bank identified some 2,158 delinquent commercial mortgages representing $27.9 billion in instruments nationally as of the end of June.
The commercial foreclosure activity has been robust enough here that Del Mar Heights-based Trigild, a receiver and distressed property specialist, has expanded its headquarters to accommodate more project management and accounting personnel.
Bill Hoffman, Trigild president and CEO, said in a prepared statement that his company’s portfolio of properties has grown significantly over the last year, and now represents more than $2 billion in defaulted commercial loans. These include the hospitality, commercial office and retail, multifamily and unfinished development sectors.
Hoffman doesn’t expect the distressed commercial property business to slow down.
“Tight credit markets will continue to hinder investors’ ability to pay off loans, and as a result, the rate of commercial defaults is soon expected to top 5 percent,” he said. “With this in mind, we are anticipating a dramatic influx of business in the coming months, and are growing our firm and service to accommodate new clients and employees.”
Jamie Dick, a Newmark Realty Capital Inc. senior vice president, suggests that while commercial foreclosures, particularly when they involve payment defaults, are inevitable in many cases, commercial lenders who are faced with loan maturity defaults — a big balloon payment at the end _ are likely to be more accommodating.
“If the lender forecloses, what are they going to do with it?” Dick said. “There’s a saying going around. It’s called ‘extend and pretend.’ They extend hoping that things will be better when the loan matures again. We are seeing a lot of banks work with borrowers.”
However, Dick said there is a shrinking pool of lenders willing to refinance, meaning some will foreclose rather than attempt a workout. With the commercial mortgage backed securities market effectively dead, finding lenders who will loan at all has become increasingly problematic.
“I’d say that 2007 was the last normal year as far as the CMBS market goes. If you looked at a pie chart you’d see that up until then, CMBS was 65 percent of the market, so you can imagine all of that disappearing,” Dick said.
Dick said that CMBS was a $19 billion market in 1999, but reached $230 billion by 2007.
“And wait until 2017 when all the loans from 2007 will be coming due.”
Some loans are still available. Dick noted that lenders have shown a willingness to provide as much as $5 million, but with very few exceptions, getting access to more capital than that has been extremely difficult. When asked when capital will begin to flow more easily, Dick said it could be years from now.
“I think it’s like an icicle. It will melt, but it will be one drop at a time,” Dick said.
While there are pockets of overbuilding such as the Carlsbad and Interstate 15 office markets and the Otay Mesa industrial market, Dick said San Diego generally doesn’t have the surplus of space, currently the case in markets such as Phoenix and Las Vegas.
“Mainly, we just ran out of places to build. For example, we didn’t have all that land to build shopping centers,” he said. Dick said although some centers are hurting with the loss of some major tenants such as Circuit City, the retail vacancy is 6 percent at most – still a very healthy figure.
“San Diego will recover very quickly,” Dick said.
by Jim the Realtor | Jun 24, 2009 | Loan Mods |
Piggington has featured our friends at Effective Demand, and their recent post about loan mods:
http://effectivedemand.blogspot.com/2009/06/california-loan-modifications-update.html
It’s an update from the California DofC about who’s getting what when it comes to modifications, and it’s noted that virtually no one is getting their principal reduced.
by Jim the Realtor | Jun 15, 2009 | Bailout, Loan Mods |
Here we go again, more government intervention – the latest authored by Ted Lieu, from El Segundo (home of the World Champion Los Angeles Lakers).
Back in February the California state legislators passed the Lieu Foreclosure Prevention Act, and our governor signed it into law.
They should have called it the “In Lieu of Foreclosure Prevention”, because it gives MORE incentive to those who default – an extra 90 days for the lenders to offer loan advice and modifications before filing an NOD. Those who are thinking of defaulting will have close to a year of free rent guaranteed, counting the usual 60 days after the trustee sale.
The law only protects owner-occupied homes from foreclosure where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008. The time remains at 90 days for all other loans.
Lenders can avoid the 90-day moratorium if they have a loan modification program in place that is based on the FDIC’s program.
The law goes into effect today, so it’ll be interesting to see if the lenders sent out a bunch of NODs over the last couple of weeks.
by Jim the Realtor | Jun 10, 2009 | Loan Mods, Neg-Am |
Business Week had this article in April entitled “Good News: Option ARMs Resets Delayed”, which included the latest Credit Suisse chart on recasting neg-ams:
http://www.businessweek.com/lifestyle/content/apr2009/bw20090416_103126.htm
Dr. Housing Bubble added the extra text and graphics to help explain the chart (above), and included it on his post today. His point is that not only are there many homeowners sitting on neg-ams about to recast, but many specuvestors used them to purchase flips that are now unable to sell:
http://www.doctorhousingbubble.com/financing-the-flipping-dream-alt-a-mortgages-and-california-mortgage-equity-giants-number-one-alt-a-owner-occupied-state-is-california-say-what-alt-a-and-pay-option-arms-fueled-out-of-state-bu/#postcomment
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Let examine what happens when an option-arm recasts – DO TODAY’S LOWER RATES HELP?
Here’s an example using the terms that CHL used for non-owner occupied option-arm loans:
$500,000 loan
1.375% start rate (teaser rate)
9.95% life cap
115% of original loan = maximum limit of loan balance
3.025% margin over MTA (which in July, 2005 was 2.737 + 3.025 = 5.762%)
Recast every five years, or at 115%
An option-arm/neg-am borrower has the choice of paying the minimum payment, based on the teaser rate, or the “fully-indexed” rate, which is the index + margin:
1.375% payment = $1,689.84
5.762% payment = $2,921.68
Difference = $1,231.84
If the borrower only makes the minimum payment, the $1,231.84 is added to the loan balance.
I plotted the monthly payments in our example using the actual monthly MTA rates, and added the index to compute where the loan balance would be today. Coincidentially, the rising loan balance would be hitting the 115% mark, or $575,000, right about now – if the borrower only made the minimum payment.
What would today’s new payment be after recast? $2,823.61
May’s minimum payment? $2,106.65
The increase in monthly payment after recasting would be $716.96 per month.
Even with lower rates, that’s a hefty increase for a rental property, especially one with a long-term lease, – the difference will be coming out of the borrower’s pocket.
Owner-occupants might cough up the difference, in order to save the home they live in, but will tenants ante up more rent when their lease expires? Not likely, and the landlords aren’t going to enjoy the pain long-term, unless they are really committed to saving their credit score.
The $716.96 is the difference at recast on a beginning loan balance of $500,000, you can extrapolate to determine what this means for those at higher price points.
If lenders would waive the recasts, this problem could be averted. But I haven’t heard of any.
by Jim the Realtor | May 22, 2009 | Loan Mods |
Hat tip to Stephen for passing this along, from propublica:
The Hope for Homeowners program was created by Congress last summer to help an estimated 400,000 homeowners avoid foreclosure. But it could more aptly be called the Hope for A Homeowner program, given that just ONE has used it successfully since its October launch.
But silver linings are hard to come by these days, so we might as well point out that she is one satisfied customer.
“What a relief!” the lucky homeowner from Litchfield Park, Ariz., wrote to her mortgage bank, NationsChoice, in February. “An extra $542 in monthly savings and a $100,000+ principal reduction sure is a relief. Thank you!”
Hope for Homeowners was designed to give people who couldn’t afford their mortgage payments a chance to refinance into a 30-year, fixed-rate loan insured by the Federal Housing Administration, even if they owed more than their home was worth. But the lender would need to reduce the amount the borrower owed before the FHA, a division of the Department of Housing and Urban Development, would insure the loan.
The program has been a flop. But Congress and the administration are trying to rescue it, envisioning it as a key component of the government’s campaign to curb foreclosures. On Wednesday, President Obama signed a bill that includes improvements to the program.
Some think this is a mistake.
see the rest of the article here:
http://www.propublica.org/ion/bailout/item/analysts-tweaks-may-not-save-congress-failed-foreclosure-fix-522/#10778
by Jim the Realtor | May 21, 2009 | Loan Mods, Protest |
Bruce Marks doesn’t bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.
“I’m tired of borrowers being screwed!” Mr. Marks yelled into the phone. “You’re incompetent!” Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive.
Mr. Marks’s nonprofit organization, Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners — emblazoning “Predator” across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it’s called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.
In the 1990s, Mr. Marks leaked details of a banker’s divorce to the press and organized a protest at the school of another banker’s child. He says he would use such tactics again. “We have to terrorize these bankers,” Mr. Marks says.
Though some bankers privately deplore his tactics, Mr. Marks is a growing influence in the lending industry and the effort to curb foreclosures. NACA has signed agreements with the four largest U.S. mortgage lenders — Bank of America, Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. — in which they agree to work with his counselors on a regular basis to try to arrange lower payments for struggling borrowers. NACA has made powerful political friends, such as House majority whip James Clyburn of South Carolina, and it receives federal money to counsel homeowners.
Some 1.7 million U.S. households will lose their homes in foreclosure this year, according to a forecast by Moody’s Economy.com, versus under 500,000 a year early in the housing boom. Banks want to show they’re making every effort to keep people in their homes. That can mean working with housing-advocacy groups that routinely bash the industry, increasing the clout of such nonprofits. Less certain is whether these groups can translate their new leverage into long-term influence over how mortgage lenders treat customers.
“We have the opportunity to change how lending gets done in this country,” says Mr. Marks, whose group is itself a mortgage broker and has 40 offices staffed with housing counselors. He favors a return to more traditional standards, with full documentation of income and the same fixed interest rate for everyone.
Instead of relying on credit scores, he thinks lenders should look into the reasons for any late payments in prospective borrowers’ past and prepare renters for the responsibilities of home ownership. Then, if people are given a loan they can afford, they shouldn’t be required to make a down payment, he argues.
Critics doubt some of these changes would be helpful. Having to use a single interest rate for all would make banks less likely to lend to people with blemished credit records, says Richard Riese, an executive at the American Bankers Association.
A single rate also could lead to higher rates for everyone, adds John Courson, chief executive of another trade group, the Mortgage Bankers Association.
Mr. Courson declined to comment on Mr. Marks. “You’re not going to drag me in there,” he said.
NACA seeks to limit mortgage payments to whatever a borrower can afford, and doesn’t favor stretching out payment periods. That contrasts with a loan-modification plan pushed by the Obama administration, which aims to limit payments to 31% of income.
NACA says it arranged $367 million of mortgages last year. Those borrowers must become members of NACA, agreeing to participate in its protests or help out at its offices, and for several years must contribute to a fund for homeowners who fall behind because of sickness or job loss. All NACA members pay the same interest rate, currently 4.375%.
Mr. Marks says 3.67% of loans NACA originated were 90 days or more overdue as of March 31. The industry average was 3.49%, according to LPS Applied Analytics, a data firm. According to Mr. Marks, 0.68% of the NACA loans were in foreclosure. The industry average was 2.45%, says LPS.
Some lenders have refused to sign contracts to work with NACA, among them HSBC Holdings, Barclays and Credit Suisse Group. All declined to comment. Mr. Marks says some banks that won’t sign agreements do negotiate individual cases with NACA. Even so, NACA sometimes pictures their executives and the executives’ homes on its Web site.
It recently added a photo of William Gross of Pacific Investment Management Co., the big bond house known as Pimco, along with pictures of his home and other information. Mr. Marks says his contacts in banking and government tell him Pimco doesn’t support the administration’s push to modify mortgages. “We’re exposing them,” Mr. Marks says. A spokesman for Pimco said neither it nor Mr. Gross would comment.
Mr. Marks says financial executives should be held personally responsible for actions that affect people’s lives, and “if they interpret that as intimidation, so be it.” He says that “we’re not talking about violence. We don’t do violence.”
“I have a difference with Bank of America. I have a substantial amount of assets with them,” Mr. Frey says. “We take them to court. This is how we do it in this country….It’s a civilized society.” The response from NACA, he adds, “is a mob showing up at someone’s house to intimidate them to drop this suit. At what point do people say, ‘This is starting to be uncomfortable’?”
“It should be uncomfortable,” says Mr. Marks. “You win a campaign by being relentless. Everybody has a breaking point….At some point they say, ‘How do I get these crazies off my back?’ “
Bank of America says home loans originated by NACA “are equal to and in some cases are performing better than our prime book of business.” A bank spokesman added, “There are few organizations that can bring a buyer to the table who has been through such extensive pre-buying counseling.”
Despite receiving taxpayer money, NACA doesn’t provide public reports on either its loan-brokerage business or its campaign to modify mortgages. Jim Campen, an economics professor emeritus at the University of Massachusetts, Boston, says he tried in the 1990s to analyze the performance of loans arranged by NACA, but Mr. Marks refused to provide data.
Mr. Marks says he feared the data would be used by another nonprofit to discredit his group. NACA does provide information to lenders that work with it, he says, but sees no duty to disclose it to the public.
“He’s been very effective in shaking money out of the banks,” says Mr. Campen, but “he’s not one to open up his records to public scrutiny.”
by Jim the Realtor | May 1, 2009 | Bailout, Loan Mods |
From HopeNow’s press release:
Washington, D.C. (April 30, 2009) – HOPE NOW, the private sector alliance of mortgage servicers, non-profit counselors, and investors that has been working aggressively to prevent foreclosures and keep homeowners in their homes, today announced that its members and the larger mortgage lending industry modified 134,000 mortgages in March.
This was the second consecutive month the lending industry completed this many modifications. Since September 2008, the industry has been averaging 116,000 modifications per month.
The industry also completed 115,000 repayment plans in March, up slightly from February. The combination of 134,000 mortgage modifications and 115,000 repayment plans means that, in March 2009, HOPE NOW members and the larger mortgage lending industry provided 249,000 homeowner solutions through these two options.
The HOPE NOW March data does not specifically break out the impact of the Obama administration’s recently announced Homeowner Affordability and Stability Plan, which has just begun to be implemented. According to Faith Schwartz, HOPE NOW’s executive director, “The lending industry is steadily working out solutions for homeowners and keeping as many as possible in their homes,” she said. “I expect that these numbers will continue to increase as servicers work with the Obama Administration to implement its Homeowner Affordability and Stability Plan,” she added.
The HOPE NOW March data shows:
• Modifications were more than half of all solutions provided to homeowners.
• The number of completed foreclosure sales declined by 39 percent, from 87,000 to 53,000 in March, the lowest number since December 2007.
• Foreclosure starts, increased from 243,000 in February to 290,000 in March. This is the highest number of initiated foreclosure actions since HOPE NOW began tracking data in 2007 and is a 20 percent increase from February.
Michael Bright, HOPE NOW’s chief statistician, said the sharp reduction in completed foreclosure sales in March may have been because servicers allowed troubled loans to be run through the HASP program. “It’s too early to say this is a trend,” he said. “But anecdotal reports from servicers do indicate that they are taking this extra step to help homeowners who qualify stay in their homes.”
They tinkered with (at least temporarily) 249,000 loans, but the 290,000 new foreclosure starts will likely overwhelm the lenders and servicers. I heard yesterday that Chase has 60,000 short sale requests that they haven’t even inputted onto their system yet.
