Are long-time owners, mostly empty-nesters or elderly, finally moving on? Or is it more of the recent peak purchasers who are cutting loose?
Of those who are selling now, when did they buy?
A check of the August transactions in North San Diego Couty’s coastal region (Carlsbad to La Jolla):
Sellers’ Date of Purchase:
Prior to 1984: 10
1985 – 1994: 16
1995 – 2003: 54
2004 – Present: 66
I thought there would have been more long-timers based on how many estate sales I’ve seen lately, but sellers don’t have to be long-time owners to be old.
Those who bought prior to 2004 ended up selling for more than they paid, though that doesn’t mean that they walked with money. How did the sellers who bought since 2004 make out?
Gross Profit of Sellers who Purchased Since 2004 (commissions and closing costs not included):
Gained six figures: 11
Gained five figures: 15
Lost five figures: 13
Lost six figures: 27
There were some heavy losses too, fourteen sellers lost more than $300,000.
Here are the biggest losers:
The bank took a deed-in-lieu of foreclosure on their $2 million mortgage here, and sold for $1,200,000 less than the 2005 price:
It has been mind-blowing to find out that lenders and servicers have been offering defaulted borrowers up to $45,000 to work with them in a variation on the old Cash for Keys program.
But sessions at the recent SourceMedia Loss Mitigation Conference in Dallas made this development more understandable.
It used to be that lenders might pay a borrower to leave the property. This was called Cash for Keys and generally involved a payment of $2,000 or $2,500, something to allow the borrower to get a lease on an apartment to move into.
Nowadays, with people staying in homes for years after defaulting, it takes a lot more than $2,500 to get borrowers to leave. But the much higher payments aren’t wholly the result of calculation on the borrowers’ part.
Nowadays such programs are called Cash for Cooperation. The idea is to get the borrower’s cooperation in disposing of the property as quickly as possible, such as through a short sale. The borrower lists the property promptly and acts as a kind of property manager through the process. When the sale is made, she gets her check from the lender and moves on with her life (hopefully not using it as a downpayment on another mortgage!).
It’s good, though, that the lender and the borrower are cooperating to dispose of the property quickly and with the minimum amount of disruption. Lenders benefit by having their costs lowered. Attendees of the meeting heard that recoveries are at least $25,000 more on a short sale and in some cases over $50,000. Obviously these are properties that are still worth a fair amount despite their default status.
Attendees heard from Daren Blomquist, vice president at RealtyTrac, that short sales have nearly overtaken REO. In the first quarter of 2012, he said, there were 123,778 REO sales and 109,521 short sales, a boost of 25%. Short sales outnumbered REO sales in 12 states.
Prices, however, dropped 10% to the lowest since 2005. Short sales closed an average of 319 days after the foreclosure start, he said (that was as of the second quarter of this year).
Some of the states with the biggest percentage jumps in short sales include Kentucky, Delaware, Connecticut and Rhode Island.
Of the 8.5 million foreclosure starts since the beginning of the housing crisis, REO still commanded 49% of the market, to 20% for short sales, RealtyTrac data show.
It’s clear, though, that the preforeclosure solution is the one lenders and borrowers prefer.
Hat tip to T&W for sending this in fromdsnews.com:
Rep. Jerry McNerney (D-Stockton) recently introduced a bill to speed up the short sale process by requiring subordinate mortgage lien holders to make a decision on a short sale within 45 days.
McNerney’s bill proposes that if the lender does not make a decision within the given time period, the short sale will be approved on the 46th day.
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.”
The NAR also stated that its members continue to report delays in completing short sale transactions due to drawn out response times for whether or not an offer was accepted.
Do you have any recommendations for homeowners* who are under water?
*Homeowner current on payments, didn’t buy “too much” home, but neighborhood is collapsing around them”
It depends if you want to move or not.
1. If you don’t want to move. All you can really do is work on your own situation by paying down your loan(s) faster. Add an extra couple of bucks monthly to your regular payments, and knock out big chunks when possible. It has been suggested that the lenders holding second mortgages that are underwater should be happy to get anything, so they might be more negotiable about a payoff amount.
If you have ambition, you can volunteer to be the neighborhood cheerleader, and every time a house comes on the market you alert everyone you know who might want to buy it so at least they sell quick. You may end up being a realtor eventually, but that’s another conversation!
2. If you DO want to move, there are options.
a) Buy your next home in an area where you can qualify for both the new and old home – because they won’t allow the rent of the old house to be used as income yet. It means that the new home might not be as glamorous as you once hoped, but it is certainly possible. This is probably an option for those who are willing to leave town, and buy where it is cheaper.
b) You can go rent a new residence for one year, which might not be a bad idea if you were already thinking of trying a different area. Once your old house has been rented for 12 months, the mortgage guidelines will allow that rent to be used towards your qualifying income for the new house/mortgage.
c) The third and least-desirable option is to work the free-rent program. Once the Homeowners Bill of Rights goes into effect on 1/1/2013, lenders won’t be allowed to initiate foreclosure proceedings against you until the attempts to modify your loan are exhausted.
This will probably tack on an additional 12+ months to the existing free-rent programs, because you could stall and delay for months trying to provide enough data for them to come to a decision.
It will be interesting to see how diligent the lenders are in pursuing these loan modifications. They will also be required to have one contact person per file, but they can probably robo-clerk these files by committee. I wouldn’t be surprised if your contact person is Bill Smith, and he always sounds a little different every time you talk to him.
If you do work the free-rent program, it might be smart to take a shorter version just to re-start your ability to get a new loan sooner. Figure that it will only take 3-4 years before you can qualify for a new loan, but you’d have to re-establish credit and use at least a 20% down payment.
The public scorn about foreclosure is a lot less than it used to be, and you can do either that or a short sale with hardly anyone knowing anyway.
Do what you think is best for you and the family, and stay put if you can!
A Georgetown law professor is proposing that a Resolution Trust Corporation (RTC) like entity might be the key to getting the housing market back on track.
In Clearing the Mortgage Market through Principal Reduction: A Bad Bank for Housing (RTC 2.0) Adam J. Levitin considers ways in which negative equity problems might be addressed and assesses the feasibility of using a “bad bank” entity for pooling and standardized restructuring and resecuritization of underwater mortgages. This is the first of two MND articles summarizing the paper which Levitin wrote for The Big Picture, a Wall Street oriented blog.
Levitin says that the housing market is not clearing and has not since at least 2008 and possibly 2006. He defines “clearing” as a climate in which willing buyers and willing sellers are able to meet on a price. One reason for this failure is negative equity which currently affects 27.1 percent of all residential mortgages. The average negative equity is $65,000, considerably greater than the average household disposable income of $49,777.
“The depth of negative equity,” Levitin says, “is likely to increase as housing prices drop” due to foreclosures and lack of upkeep on properties where homeowners see no upside to further spending. Negative equity impedes clearing because even where buyer and seller are able to meet on a price they often cannot close the deal because the seller cannot pay the additional $65,000.
At the heart of the problem then is that mortgages, unlike houses, are not marked to market but are carried at book value. If they were marked to market they would track home values but a change in accounting is unlikely and ill-advised so we must look to other ways of clearing the market.
To date there has been only one – foreclosure, a method that is slow, inefficient and rife with negative externalities on neighbors, communities, and local governments. Foreclosures can also result in over-clearing. For various reasons the market for distressed properties is thin, bids are heavily discounted, and market prices are driven even lower.
Licensee representing Seller acknowledges and agrees that, in his or her professional opinion, Property has been listed on the appropriate local Multiple Listing Service at a listing price intended to generate open market competitive offers to purchase Property and not at an artificially low or high listing price. Licensee representing Seller further acknowledges and agrees that his or her marketing efforts were in fact and “in spirit” aimed toward maximizing the selling price of Property from a ready, willing and able buyer. Licensee has not engaged in any conduct that restricts or limits offers from buyers, including but not limited to requiring cash offers, using disparaging language regarding the property or tenants, or unreasonably restricting access.
Licensee representing Seller acknowledges that he or she has made Seller aware of all offers to purchase Property that Licensee received during the listing period and that he or she has not coerced, harassed or improperly influenced Seller in selecting a buyer for Property or in agreeing to the terms and conditions of the purchase contract.
Licensee acknowledges and agrees that Licensee is not engaging in appraisal fraud, flipping (a predatory lending practice whereby a recently acquired property is resold for a considerable profit with an artificially inflated value within a short period of time, as defined by the Federal Bureau of Investigation), identity theft and/or straw buying. Licensee has disclosed all agreements or understandings relating to the current sale or subsequent sale of Property of which Licensee is aware or should be aware. Licensee is not aware of any other agreements or understandings that call for the subsequent sale of the Property within 30 days of the current sale, the assignment of the property to the Seller or the option for the Seller to purchase.
NAR, CAR and local boards have yet to author anything similar to this.
The negative equity problem may actually be pushing up home prices at the bottom of some of the hardest-hit housing markets, according to a report from CoreLogic.
The national supply of unsold homes dropped to 6.5 months in April from nine months last June. But the decline occurred less because of an increase in sales. In fact, pending home sales dropped 5.5% in April, according to the National Association of Realtors.
Instead, fewer homes reached the market because the owners owe more on their mortgage than the home is worth and are trapped in negative equity, said CoreLogic Senior Economist Sam Khater in the report. More than 11 million borrowers are underwater, according to CoreLogic.
“Negative equity is typically a demand-side obstacle to sales and refinances, but currently is also restricting the supply of homes for sale,” Khater said.
In markets where more than half of borrowers are underwater, the average supply drops to 4.7 months, compared to 8.3 months in healthier areas.
As a result of the restricted supply, lower-priced homes in these areas are actually rebounding at their fastest pace since the homebuyer tax-credit “boom” in 2010, according to CoreLogic.
Prices on less expensive homes increased an average 4.5% from one year ago, compared to just a 0.6% uptick at the higher end of the market.
“Paradoxically, as the flow of REOs has slowed over the last 18 months, negative equity has become a positive force in real estate markets by restricting supply in the face of increasing demand,” Khater said. “We have transitioned from pricing dynamics driven by economic weakness and high shares of distressed sales to one of restricted supply, which will likely exist for some time to come.”
A bad employment report will hopefully provide some relief for buyers, here’s why:
1. For the sellers who are waiting to list because they think the economy is getting better, hopefully a bad jobs report will cause them to think otherwise. The economy isn’t stable enough to expect it to get substantially better anytime soon.
So hopefully more sellers will decide to sell now, while mortgage rates are at 60-year lows and we need the inventory. In August, 2006 there were 21,000 homes for sale in San Diego County, today there are 6,101.
2. Hopefully bad economic news will dissuade some buyers, and soften the rip-roaring demand we are experiencing. Of the sales I’ve closed this year, 80% of them had multiple offers.
3. You read everywhere that housing depends on jobs, but how many people who find a job this month are going to buy a house next month? None. More jobs today might fuel some future real estate demand, but more new jobs today won’t equal more home sales today.
4. Consumer confidence – won’t today’s committed homelookers pause when they see the Dow dump 2.22% in one day over a bad jobs report?
Don’t most people think the stock market is a rigged casino by now, and expect it to bounce around? I don’t think committed homelookers will back off until we see a change in the low-inventory environment. It doesn’t look like there will be any new surge of inventory from banks or elective sellers, both who seem content to wait for higher prices.
The only hope for increased inventory is from short sales, with the looming debt-tax exemption set to expire on January 1, 2013. But you don’t see any soundbites about Congress extending the exemption, which enables potential short-sellers to delay the decision, thinking it will somehow miraculously happen later. If the tax exemption does expire at the end of this year, it will cause many of those potential short-sellers to NOT move, rather than to sell and pay the debt-relief tax.
The best thing that could happen today for buyers is to have banks to unleash their inventory to help satisfy the demand throughout San Diego County. Unfortunately, there are only around 5,000 homes owned by banks, so it would be a short-lived rally. But if they cut them loose, and the REOs were gobbled up, maybe it would help banks recognize that demand is healthy – and they should be putting more pressure on defaulters.
