ProsperUS Real Estate Investors Network Blog

Residential Vacancies Rise in Third Quarter

2009-11-01T01:20:00.000-07:00

The number of empty homes in the United States – including foreclosures, residences for sale, and vacation properties – rose during the third quarter, according to data released by the U.S. Census Bureau Thursday.

There were a total of 18.8 million vacant homes scattered across the country during the three-month period, the federal agency reported. That number is up from 18.7 million during the previous quarter and 18.4 million during the third quarter of 2008.

The record high for vacancies was hit in the first quarter of this year, when 18.95 million homes sat empty.

The Census Bureau lumps foreclosure vacancies together with vacation homes that are typically used year-round but empty, and properties that are unoccupied because they are the focus of a legal dispute. The federal agency documented 7.7 million of the homes in this group as vacant during the third quarter, up from 7.5 million a year ago.

For third quarter 2009, the regional homeowner vacancy rate was highest in the South, at 2.8 percent. In the Midwest, 2.6 percent of homes were empty, while in the West, that figure dropped to 2.4 percent. The Northeast part of the country had the lowest homeowner vacancy rate, at 2.0 percent.

Citing the census study, Bloomberg News reported that in total, there were 130.3 million homes in the United States in the third quarter.

Foreclosure Hot Spots Claim New Metros

2009-11-01T01:17:00.000-07:00

Cities in California, Florida, and Nevada are still home to the 10 metro areas with the highest foreclosure rates, according to a new report released Wednesday by RealtyTrac.

But rising unemployment and a new round of mortgage resets have initiated a gradual shift in the nation’s foreclosure epicenters, away from the hot spots of the last two years, toward cities that, until now, could claim relatively small foreclosure numbers.

Based on RealtyTrac’s Q3 2009 Metropolitan Foreclosure Market Report, five of those top 10 metro areas in the Sand States reported decreasing foreclosure activity compared to the same time last year, while other metro areas in the top 50 reported especially sharp increases in foreclosure filings.

“While toxic subprime mortgages drove much of that first wave of foreclosures, high unemployment and exotic Alt-A Option ARMs are spreading the foreclosure flood to more metro areas in 2009,” commented James J. Saccacio, CEO of RealtyTrac.

RealtyTrac’s market data shows that the three biggest year-over-year foreclosure increases popped up in Boise City-Nampa, Idaho, and Provo-Orem and Salt Lake City in Utah.

In California, the Chico metro area – not previously a focal point for foreclosure activity in the Golden State – posted the biggest year-over-year jump, with a 98 percent increase from the third quarter of 2008. The medium-sized metro about 100 miles north of Sacramento had a 12.8 percent unemployment rate in August, above the state and national averages.

A similar trend was seen in cities like Reno-Sparks, Nevada, with 80 percent year-over-year growth in foreclosure activity; Prescott, Arizona, where foreclosures are up 77 percent; and Jacksonville, Florida, posting a 64 percent increase. Rockford, Illinois also reported a 64 percent upsurge in foreclosures, and Lansing-East Lansing, Michigan posted a 41 percent increase.

Even though the foreclosure crisis seems to be dispersing, the usual suspects are far from out of the woods.

Las Vegas posted the nation’s highest metro foreclosure rate, with one in every 20 homes in Sin City receiving a foreclosure filing last quarter – an increase of nearly 9 percent from the previous quarter and up nearly 54 percent from the third quarter of 2008.

Despite a 13 percent decrease in foreclosure activity from the previous quarter and a 11 percent decline from a year ago, Merced, California posted the nation’s second highest foreclosure rate, with one in 27 of its housing units in foreclosure during the third quarter.

Foreclosure activity in the Cape Coral-Fort Myers metro area in Florida also decreased from the previous quarter and from the third quarter of 2008, but the metro area still registered the nation’s third highest foreclosure rate.

Fannie Offers Mortgage Forbearance to Real Estate Investors

2009-10-25T13:12:00.000-07:00

Mortgage giant Fannie Mae said this week that it will retire its HomeSaver Forbearance (HSF) program and replace it with a new Payment Reduction Plan (PRP), which will extend the benefit to investors and owners of second homes.

Under HSF, which was introduced by the GSE in February of last year, mortgage payments can be reduced for up to six months for owner-occupants having trouble meeting their financial obligation. The PRP would make the same kind of mortgage relief available to property owners who do not live in the home.

The purpose of a PRP is to provide a borrower with temporary payment relief while the servicer and the borrower work together to find the appropriate permanent foreclosure prevention solution, Fannie said.

The GSE said servicers should first determine if a troubled borrower is eligible for the Home Affordable Modification Program (HAMP), but since property investors and second-home owners off-the-bat do not qualify for the government program, Fannie is hoping to offer them “new options of support” through the new PRP initiative.

Besides opening the benefit up to investors, the one significant difference between the two programs is that under HSF, the homeowner’s payments could be reduced by 50 percent. With PRP, however, the break is only 30 percent.

Servicers will be paid $200 for employing the new forbearance program upon the mortgage loan being brought to a permanent foreclosure prevention solution. This amount is in addition to the fee paid for the solution reached.

The HomeSaver Forbearance program will be officially terminated October 31, 2009.

GSEs' Regulator Reports Drop in Home Prices

2009-10-25T13:10:00.000-07:00

U.S. home prices fell 0.3 percent from July to August, the Federal Housing Finance Agency (FHFA) said Thursday. The decline breaks a three-month streak of gains in the agency’s measurement of national housing prices.

For the 12 months ending in August, FHFA says home prices are down 3.6 percent, compared to the 12 months prior. Based on the agency’s market data, the U.S. index currently sits 10.7 percent below its April 2007 peak.

Only four of the nine census divisions in the regulator’s survey saw price increases in August. Home prices gained 1.2 percent in the Pacific, 0.8 percent in the Mountain region, 0.4 percent in the East South Central part of the country, and 0.2 percent in the West North Central.

Prices were flat in the West South Central, while falling 0.6 percent in both the Middle Atlantic and East North Central regions, 1.1 percent in New England, and 1.6 percent in the South Atlantic.

The FHFA’s monthly House Price Index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

MBA Conference Attendees Blame Unemployment for Slow Mods, Slow Recovery

2009-10-18T19:22:00.000-07:00

Whether they were put on the defensive by charges of inaction or whether they were simply telling it as it is, executives at the Mortgage Bankers Association annual conference in San Diego this week spoke with one voice when explaining why loan modifications weren’t happening faster – and weren’t helping the economy all that much.

It’s the unemployment, stupid.

Since before the federal government instituted its own plan with lenders and servicers to modify loans for troubled homeowners, the servicers have been under fire for not doing enough to keep struggling borrowers in their homes. But now the servicers are fighting back, saying that all of their best efforts can’t speed the recovery if the U.S. continues to flirt with double-digit unemployment rates.

“We will be dealing with a different kind of borrower,” MBA president John Courson said at his group’s conference. In effect, he was saying that a borrower’s mortgage terms mattered far less than his or her ability to stay employed, married and healthy.

But the government’s Home Affordable Modification Program “just doesn’t work for these people,” Courson told reporters. “You can’t go to 31 percent if there is no income,” he said, referring to a HAMP rule that requires a borrower’s mortgage debt not exceed 31 percent of his or her wages.

Also at the conference Tuesday, the MBA’s chief economist Jay Brinkman said unemployment likely would continue to rise above 10 percent through next summer, and delinquencies would continue to rocket through the end of 2010.

“The recession is behind us but the effects of the recession will linger for some time in the form of higher unemployment and lower levels of business investment and home construction,” he said.

“Even when unemployment comes down,” he continued, “it will come down very slowly.”

That pessimism was echoed at the conference by Freddie Mac CEO Charles Haldeman. Haldeman said even rehiring businesses were slow to add personnel, and unemployment was the key reason homes were still being lost to foreclosure.

He and Brinkmann predicted that all this would spell a longer, harder recovery for the housing industry than many market observers were now expecting. Brinkmann said median home prices likely would continue to decline through the beginning of next year.

FHA Commissioner David Stevens acknowledged as much at the conference on Monday. “We’re forecasting about another 10 percent, roughly, price decline between now and the first quarter next year,” he said.

Foreclosure Activity Sets New Record in Third Quarter: Report

2009-10-18T19:20:00.000-07:00

Foreclosure activity in the United States set a new quarterly record in the three months ended September 30, increasing 5 percent from the previous quarter and 23 percent from the third quarter of 2008, according to new data released by RealtyTrac Thursday.

The online marketplace for foreclosure properties said that foreclosure filings – default notices, scheduled auctions, and bank repossessions – were reported on 937,840 properties in the third quarter. One in every 136 U.S. housing units received a foreclosure filing during the three-month period – the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

For the month of September, foreclosure filings were reported on 343,638 properties in September, down 4 percent from August but up 29 percent from September 2008. Even with the decrease, however, September’s total was still the third-highest monthly total since the RealtyTrac reports began, behind only July and August of this year.

“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James Saccacio, chief executive of RealtyTrac. “REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts, and high volumes of distressed properties.”

Nevada continued to lead the states’ foreclosure rates in the third quarter, with one in 23 housing units receiving a foreclosure filing – nearly six times the national average. Foreclosure filings were reported on 47,925 Nevada properties during the period, up nearly 10 percent from the previous quarter and up nearly 59 percent from the year-ago period.

Arizona posted the second-highest state foreclosure rate in the period, with one in every 53 housing units receiving a foreclosure filing. California was third, also with one in every 53 units receiving a filing. Other states in the top 10 were Florida, Idaho, Utah, Georgia, Michigan, Colorado, and Illinois.

Just six states – California, Florida, Arizona, Nevada, Illinois, and Michigan – accounted for 62 percent of the nation’s total foreclosure activity in the third quarter, with a combined 579,541 properties.

With 250,054 properties receiving foreclosure filings during the quarter, California alone accounted for nearly 27 percent of the nation’s total. Florida was second in number of foreclosure filings, with 156,924. Arizona was third with 50,342 properties, and Nevada, with 47,925 properties, was fourth.

Rules to Protect Borrowers May Keep Many Out of the Market

2009-10-14T12:37:00.000-07:00

As new rules to protect borrowers come into effect, some prospective homeowners may find themselves protected out of the market.

On October 1, new Federal Reserve rules went into effect, requiring greater diligence on the part of mortgage lenders and brokers who make high-cost loans – those at least 1.5 percentage points above the average prime mortgage rate – for borrowers with weak credit.

“We’re going to have some consumers who are not able to purchase a home because of this, since most lenders don’t want to do high-cost loans,” Jim Pair, the president of the National Association of Mortgage Brokers (NAMB), told the New York Times. “There’s too much potential liability for them.”

Pair told the newspaper he was concerned that the rules would greatly curtail loan alternatives, especially for those who might qualify only for subprime mortgages.

The regulations, which were adopted last year but are only now coming into effect, prohibit lenders from making a high-cost mortgage without verifying that a borrower could repay the loan, the Times reported.

During the boom from 2003 to 2006, subprime borrowers could get loans without proving that they could make the monthly payments. In stated-income loans – the famous “liar loans” – borrowers could just make up income figures.

Such lies were mortgage fraud, but brokers and lenders often overlooked them in the interest of generating loan fees, the newspaper said.

Stated-income loans continued into 2007, but the volume had tailed off sharply. After the onset of the subprime crisis, borrowers who could not document their income, such as waiters or others paid in cash, were largely rejected by lenders.

While states such as Connecticut and New York had enacted laws requiring more due diligence in subprime lending, these applied only to state-chartered institutions and not to the national banks doing most of the mortgage lending.

For this reason, Uriah King of the Center for Responsible Lending told the Times, the new federal rules are “important, and they are good.” But, said King, the new regulations are “five years too late” to prevent the damage done in the foreclosure crisis.

TARP Watchdogs Say Government's Not Doing Enough to Stop Foreclosures

2009-10-14T12:34:00.000-07:00

The Congressional Oversight Panel, set up to police the U.S. $700 billion bailout of financial markets, said in a report last week that the federal government isn’t doing enough to help homeowners who face foreclosure.

A majority of the panel’s members signed on to the Oct. 9 report, titled “An Assessment of Foreclosure Mitigation Efforts after Six Months.” The panel’s two Republican members distanced themselves from the findings.

The report expressed doubts that the “scale, scope, and permanence” of the Treasury Department’s Making Home Affordable Modification Program would adequately protect U.S. homeowners. The Treasury had previously said HAMP would help prevent as many as 4 million foreclosures with loan modifications through approved servicers and lenders.

“Rising unemployment, weak home prices, and impending mortgage rate resets still threaten to cast millions of Americans out of their homes, with devastating effects on families, local communities, and the broader economy,” the report said, noting that one in eight U.S. mortgages was currently in foreclosure or default, ultimately producing “10 to 12 million foreclosures.”
But panel member Jeb Hensarling – a Republican Texas Congressman who calls himself a “lifelong conservative” on the COP Web site – disagreed with the report. “Instead of focusing its attention on taxpayer protection and oversight,” he wrote in his dissent, “the panel’s majority report implies that the administration should commit additional taxpayer funds in hopes of helping distressed homeowners — both deserving and undeserving — with a taxpayer subsidized rescue.”

The report was the latest in a series of monthly opinions issued by the panel, which is charged with finding ways to improve the $700 billion Troubled Asset Relief Program. Its blistering critique came this week on the heels of an Oct. 6 announcement by officials from the Treasury and the Department of Housing and Urban Development that HAMP had resulted in 500,000 trial modifications for home loans, a month ahead of its self-imposed target date.

The Treasury took that milestone moment as an opportunity to argue for HAMP’s effectiveness, noting that the pace of loan modifications was now greater that the pace of new foreclosures.
But Treasury Secretary Timothy Geithner still acknowledged “a large number of families” were still at risk of foreclosure.

Treasury Officials Deceived Public on TARP Bailout: Inspector General

2009-10-05T06:17:00.000-07:00

An inspector general tasked with overseeing the government’s bank bailout program says the Treasury Department misled the public last year and raised doubts about the fairness of its payouts to the nation’s biggest banks.

In a report released Monday, Special Inspector General Neil M. Barofsky alleged that federal officials made bad statements about the health of major institutions that received the first round of massive funding under the government’s $700 billion Troubled Asset Relief Program, the New York Times reported.

The report singled out a statement last Oct. 14 by former Treasury Secretary Henry M. Paulson Jr., who said the big banks were “healthy” and accepted the bailout funds for “the good of the U.S. economy,” so they could continue to extend consumer and business lending even as credit markets tightened.

But the fact was that Paulson and his fellow regulators were gravely concerned that some of those banks would not survive the downturn, Barofsky wrote.

The Federal Reserve and the Treasury were given the opportunity to include their reactions to Barofsky’s conclusions in the report. While the Fed generally agreed with the inspector general’s concern over the public statements, the Treasury criticized his judgment. The official’s public pronouncements “must be considered in light of the unprecedented circumstances in which they were made,” the Treasury said.

The report also suggested that TARP regulators were inconsistent in how they distributed the money, especially in the already-controversial merger of Merrill Lynch and Bank of America.

Under the bailout rules, all institutions were eligible for a capital infusion of as much as $25billion. Yet Bank of America and Merrill were counted as a single institution – BoA was given only $15 billion initially, since Merrill was already set to receive $10 billion. That arrangement was set by regulators even before the companies’ boards and shareholders had approved a full merger.

BoA had to wait until the following January to receive Merrill’s more modest share of the bailout dollars.

Adding to the perceived inconsistency was the fact that when Wells Fargo merged with Wachovia, Wells received both banks’ combined funds at the outset.

But Barofsky reserved the lion’s share of his anger for the Treasury’s glossing statements about the bailout recipients’ health.

“Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public’s understanding and support,” his report said. “This loss of public support could damage the government’s credibility and have long-term unintended consequences that actually hamper the government’s ability to respond to crises.”

HOPE NOW Data Shows Increase in Workouts, Drop in Foreclosures

2009-10-05T06:15:00.000-07:00

An industry report released by the HOPE NOW Alliance this week reveals more promising news for the housing sector. The organization says both foreclosure starts and foreclosure sales are waning, and at the same time, workouts for troubled home loans are rising. If such imbalanced stats continue, it could mean the industry is finally beginning to put a dent in the dark cloud of foreclosures hanging so heavily overhead.

Based on HOPE NOW’s market data, lenders initiated 224,000 foreclosures during the month of August, a drop of 21 percent compared to July’s numbers. Foreclosure sales – 75,000 recorded in August – also fell 16 percent from July.

Lenders and servicers completed 325,000 mortgage workouts during August, an overall increase from the month prior of 28 percent. Repayment plans rose 38 percent and loan modifications were up 7 percent.

The Treasury Department reported last month that 360,000 trial modifications had been started under the administration’s Making Home Affordable Program.

“Our data suggests a correlation between the drop in foreclosures and the increase in workout solutions to help at-risk borrowers,” said Faith Schwartz, executive director of HOPE NOW.
“This shift suggests progress is being made using all of the tools available, such as HAMP – the government backed modification program – and other workout solutions, to slow the pace of foreclosures.”

HOPE NOW’s survey data, though, shows a 6 percent increase in homeowners who are 60 or more days behind on their mortgage payments – bringing that number to 3.3 million borrowers in August. The alliance explained that this jump may include the significant number of trial modifications under the government’s mod program that are not yet permanent.

“Mortgage servicers and non-profit housing counselors are working hard to help homeowners who are facing hardship in these tough economic times,” said Schwartz. “We see firsthand the commitment to offer consumers the best solution that meets their individual needs.”

HOPE NOW and the mortgage industry have helped an estimated 2.1 million homeowners since January 2009. In August and September, alone, HOPE NOW and partners have brought together more than 4,000 homeowners with servicers and non-profit housing counselors through outreach forums that offer face-to-face counseling. Outreach events in southern California and Atlanta are scheduled for October.

Geithner, Holder and State Officials Vow to Crack Down on Mortgage Fraud

2009-09-27T21:18:00.000-07:00

The heads of the Treasury, Justice Department, Department of Housing and Urban Development and Federal Trade Commission met with 12 state attorneys general and other authorities Thursday, vowing to crack down on mortgage fraud schemes that have proliferated since the start of the U.S. housing crisis.

“A clear lesson of this financial crisis is that American consumers need better protection against fraud,” said Treasury Secretary Tim Geithner, who along with Attorney General Eric Holder hosted the state and federal authorities. “While we will prosecute anyone who violated the law, going forward we will not wait for problems to peak before we respond. The Obama Administration is acting preemptively, across federal agencies and alongside state governments, to stop consumer fraud.”

The concerted move to target mortgage scams, especially illegal loan-modification and foreclosure swindles, came after Federal Bureau of Investigation Director Robert Mueller announced that mortgage fraud cases under investigation by the FBI had jumped 63 percent in the last year – and more than 300 percent since 2006.

“The schemes have evolved with the changing economy, targeting vulnerable individuals, victimizing them even as they are about to lose their homes,” Mueller said in testimony before the Senate Judiciary Committee Wednesday.

Officials are puzzling over just how to deal with a problem that they agreed was running rampant across the nation. Home foreclosure filings remained around their record highs last month, accounting for one of every 357 households in the U.S., the data provider RealtyTrac said.

The result: Many homeowners who are in arrears are falling for predatory scams online, in the mail and on the phone that promise to relieve them of their debt problems. But with luck and deft, the scammers can end up with borrowers’ personal and financial information, their money, and even their homes.

“These mortgage rescue scams raise false hopes and then cruelly exploit them, which is why my office is fighting them and welcomes the federal government as a strong ally,” said Attorney General Richard Blumenthal of Connecticut, which recently became the first state to ban up-front fees for mortgage repairs – a proposal that’s now being considered by other states.

The FTC also took the opportunity to announce it was initiating legal action against fraud perpetrators, bringing to 22 the number of such cases it has initiated this year.

The authorities also agreed they’d focus on preempting future violations by expanding consumer education programs and improving government efficiency to detect red flags.

“Consumer education is the new burglar alarm, and state-federal cooperative enforcement is the deadbolt that will protect homeowners from today’s crooks – fraudsters who claim to offer mortgage relief,” said Washington State Attorney General Rob McKenna.

New Housing Crash Looms as Shadow Inventory Climbs past 7 Million: Analysts

2009-09-27T21:14:00.000-07:00

The housing crash is about to come back with a vengeance, as 7 million new foreclosure properties are about to hit the market, analysts at Amherst Securities Group LP said this week.
The New York-based mortgage-bond analysts called that number – which is about five-and-a-half times larger than 2005’s national tally of delinquencies and foreclosures – a “huge shadow inventory” that threatens to further destabilize a housing market that had shown signs of righting itself over the summer.

Despite some recent optimism, many market observers now agree on several factors that are expanding the nation’s shadow inventory. Loan modifications, legal wrangling, redefaults and bank practices have delayed foreclosures while actually worsening many homeowners’ positions.
As a result, the analysts say a so-far undisclosed glut of homes is about to come to light, and it’s likely to further depress values and sales.

“There’s going to be a flood [of bank-owned homes] listed for sale at some point,” John Burns, a real-estate consultant based in Irvine, California, told the Wall Street Journal this week. He expects prices to decline another 6 percent this year. The analysts at Amherst predicted an 8 percent drop, while a Sept. 11 report by Barclays forecasted a further 13 percent drop, saying the worst of the crash is “decidedly underway,” with increased foreclosures sapping “the strength of the recovery in all but the most optimistic of scenarios.”

One cause of the problem, the Journal says, is unintended fallout from “well-meaning efforts to keep families in their homes.” Foreclosures have been stalled by state moratoriums, as well as by lenders and servicers who are using the time to determine if troubled borrowers are eligible for loan modifications.

“We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running” for modifications or other alternatives to foreclosing, a Bank of America Corp. spokeswoman told the Journal, adding that government pressure to stem foreclosures had reduced their foreclosure sales to “abnormally low” levels.

But as many proposed modifications result in higher monthly payments or other terms the borrowers don’t like, more potential foreclosures are getting held up in court, too. That’s what happened to Debra and Arthur Scriven of Columbia, South Carolina, who told the Journal that Citigroup had attempted to foreclose on them 15 months ago. Since then, the lender offered a modification they felt was unfair, and their situation has stalled as they await a date for a hearing in foreclosure court.

But evidence is mounting that even when modifications are successfully written, the likelihood of a borrower defaulting again – and heading for foreclosure again – is alarmingly high. That’s because even a significant reduction in interest or principal can’t save a homeowner who’s underwater or overleveraged. Modifications have made “not much” of a difference in the shadow inventory, the Amherst analysts’ report said. “And many of these borrowers would default later, if they remain in a negative equity position,” they added.

Banks, too, are contributing to the shadow inventory problem. Fearful of the added costs of acquiring foreclosure properties and trying to sell them, many banks have simply declined to foreclose on some of their most non-performing borrowers. According to a report by LPS Applied Statistics, banks hadn’t even begun the foreclosure process on 1.2 million properties that are 90 days or more past due. In July, 217,000 mortgages that hadn’t seen a payment in a year still weren’t being foreclosed on – a number that’s more than doubled since last year.

Lenders have also scaled back their bidding at the public auctions and trustee sales that usually precede a bank foreclosure. That’s letting outside investors pick up the properties at a deep discount: According to the research firm ForeclosureRadar.com, 19 percent of homes sold in August in California trustee sales went to investors and not lenders – a 500 percent increase in the past year.

What this all means, the Amherst analysts say, is that the shadow inventory will soon eclipse the economy’s recent sunny outlook. “The favorable seasonal will disappear over the coming months, and the reality of a 7 million-unit housing overhang is likely to set in,” they said.

Mortgage Demand Drops Even as Rates Decline

2009-09-07T00:03:00.001-07:00

Despite a dip in long-term mortgage rates, the number of people applying for a mortgage fell 2.2 percent last week, according to a weekly survey released by the Mortgage Bankers Association (MBA) Wednesday.

Although week-to-week demand declined, mortgage application volume is still up 22.7 percent compared to this time last year.

For the week ending August 28, 2009, MBA’s refinance index decreased 3.1 percent from the previous week, while the purchase index fell 1.0 percent.

The only segment of the survey that posted an increase in activity was the government purchase index, which rose 0.5 percent — the seventh consecutive weekly gain.

For the month of August, the government-insured share of purchase applications was 40.4 percent for the month of August, up from 38.3 percent in July and 31.7 percent in August 2008. The distribution of government-backed home loans has reached its highest level since February 1991.

MBA reported the average rate for 30-year fixed-rate mortgages at 5.15 percent last week. That’s an improvement over the 5.24 percent average rate the week prior.

Rates for 15-year fixed-rate mortgages averaged 4.57 percent during the final full week of August, down slightly from 4.58 percent one week earlier.

Distressed Sales Prove to Be a Drag on Local Home Prices

2009-09-07T00:00:00.000-07:00

With the deepening mortgage crisis came a flood of foreclosed homes repossessed by lenders. The longer these houses sit vacant, they become cesspools for blight and drive down neighboring property values. And evenwhen these homes are successfully sold off, the price reductions required to move them can drag down surrounding home prices with them.

Lender Processing Services, Inc. (LPS) released a nationwide study Thursday that reveals the impact of foreclosure sales on home prices.

According to Nima Nattagh, Ph.D., an SVP at LPS Applied Analytics, sales of foreclosed REO properties account for as much as 60 percent of housing activity in some states.

Based on LPS’ analysis, Michigan and Nevada are the highest ranking states in REO sales, with more than 60 percent of home buys being bank-owned properties in the first half of 2009. California and Arizona followed, with REO sales comprising 50 percent.

“Our study contains specific data to show [a spike in REO sales] is causing precipitous drops in home values,” Nattagh said.

In Michigan, where REO sales accounted for 64 percent of sales in the first six months of 2009, non-REO home prices have dropped by more than 26 percent since their peak in 2005. However, when REO sales are included, the decrease in home prices approaches 47 percent.

In contrast, in Massachusetts, where only 14 percent of homes sold during the first half of the year were REO sales, home prices, excluding REOs, have dropped by 15 percent. When REO sales are included the home price decrease climbs only slightly to 19 percent.

“This study clearly shows that when foreclosure levels are high and REO sales dominate the majority of transactions, their impact on the rest of the market should be taken into account accordingly,” said Nattagh.

In 2006, at the peak of the most recent housing boom, REO sales accounted for a little more than 3 percent of overall sales in California, the nation’s largest housing market. Today, LPS says REO sales account for more than 52 percent of all sales in California – and prices have plummeted.

LPS says in its report that the Northeast and Northwest regions of the country do not appear to have been as hard hit as the West and Midwest states, where a prevalence of subprime and exotic mortgage products, as well as general economic downturn, have elevated mortgage delinquencies to an all-time high.

“While REO sales activity has increased significantly across all regions in the country, there is clearly a dichotomy between states that have seen unprecedented levels of mortgage delinquency and those where the impact of the current housing crisis has been much more moderate,” Nattagh said.

Using a proprietary home price index (HPI) that gauges changes in the value of homes that have sold at least twice, LPS evaluated the influence of REO sales on regional housing markets. The company’s study demonstrates that in states with a relatively high share of REO sales, the impact of these sales on the rest of the market has been much more pronounced.

The Race is On: Regulators Race to Stave off Commercial Real Estate Downturn

2009-08-31T09:40:00.000-07:00

Federal officials are struggling to manage an impending glut of commercial real-estate foreclosures that could quickly flip the recovering economy into another tailspin, the Wall Street Journal reported Monday.Regulators at the Treasury and the Federal Reserve are focusing on $700 billion in commercial mortgage-backed securities whose underlying loans are at risk for massive defaults. Delinquency levels on CMBS have already reached 3.14 percent – fully six times what they were last July, according to the credit ratings agency Realpoint LLC.

Worse still, even borrowers on commercial loans who can afford their interest and principal are finding it difficult to refinance or extend their credit as property values fall and oversight on the refinances increases. It’s a phenomenon that could trigger more losses in CMBS and the majorinvestors – banks, pensions, hedge funds – that buy them, the Journal said.

One problem regulators are mulling is how to permit loan servicers to contact lenders earlier in the process to discuss ideas for avoiding foreclosures and defaults. Developers in financial trouble have complained that they currently have no easy avenue of communications with the holders of their CMBS to review their options.

The result, in a Realpoint study commissioned by the Journal, is that 281 CMBS loans worth $6.3 billion couldn’t refinance when they matured this summer, even though 173 of the loans – worth $5.1 billion – had plenty of money on hand.

Those pressures, and the threat of more properties hitting the market, could force banks into a new round of write-downs, said Realpoint’s managing director, Frank Innaurato.

“What’s going on in the CMBS world is a precursor for what might be seen in banks’ books,” he said.

So far, regulators haven’t been able to come up with a comprehensive plan of attack for the commercial property market’s woes, the Journal said.

“What landlords need is occupancy and rents to rise, and that means employers have to start hiring and consumers need to shop more,” the Journal said. “So far, there are few signs this is happening.”

Western States Crowned "Riskiest" for Mortgage Fraud

2009-08-31T09:37:00.000-07:00

Mortgage fraud risk over the last year seems to have migrated westward, with Nevada and California dominating the 10 riskiest metropolitan statistical areas (MSAs), according to a new study released by Interthinx this week. One of the study’s most telling findings – the states with the highest overall levels of mortgage fraud risk correspond to the states with the highest levels of foreclosure activity.

Here’s how the numbers stack up. Nevada – which claimed the highest state foreclosure rate in the latest RealtyTrac report – also has the highest mortgage fraud risk, with an Interthinx Fraud Index value of 245.

California, which contains eight of the 10 riskiest MSAs, has the next highest Interthinx Fraud Index value of 176. Guess where it ranked on RealtyTrac’s foreclosure report – No. 2.

As a reference point, Interthinx says the fraud index value for the whole United States is 130. Nationally, fraud risk in the second quarter declined 4 percent from the first quarter, but is up 7 percent over last year, due to the nature of mortgage fraud to flourish and capitalize on deteriorated economic conditions, Interthinx explained.

Mortgage fraud in the second quarter shifted to schemes that target distressed borrowers and the glut of bank-owned properties, Interthinx said.

“Federally funded economic stimulus and stabilization programs that target foreclosure prevention are also contributing to the current shift to schemes involving defaulted and foreclosed properties,” the company’s analysts said in their report.

The Property Valuation Fraud Index jumped 56 percent from the same period in 2008, reflecting fraudulent activity involving short sales, REO inventories, and refinancings. Valuation fraud is currently the most common type of fraud perpetrated against the industry.

The Occupancy Fraud Index, which is typically tied to schemes involving speculative investments, declined 25 percent. The decline was caused by the generally depressed market for residential investment and rental properties, Interthinx said.

So what makes Nevada and California such breeding grounds for fraudulent activity? Interthinx says fraud risk, particularly valuation fraud, occurs in any market with acute pricing volatility, whether home prices are rising or falling.

Even more foreboding for these two, the company says fraud risk is actually a leading indicator of foreclosure risk, which suggests that the nation’s hottest fraud spots today are likely to be the leading foreclosure MSAs within two years.

Interthinx analysts expect fraud indices will continue to rise over the next three years as a large number of adjustable-rate mortgage (ARM) loans – especially option ARMs with negative amortization – reset between now and the first quarter of 2012.

Delinquencies Are Still Climbing and Threatening More Foreclosures on the Horizon, MBA Says!

2009-08-24T09:24:00.000-07:00

More than nine percent of all mortgages in the United States are now delinquent, according to figures released Thursday by the Mortgage Bankers Association (MBA). The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to 9.24 percent of all loans outstanding at the end of the second quarter, MBA reported. The new number breaks the record set in the first quarter of this year, when 9.12 percent of the nation’s homeowners were behind on their mortgage payments.

Important to note is that the biggest jump in delinquencies last quarter came from prime fixed-rate mortgages. These seemingly low-risk loans also accounted for one in three of the nation’s foreclosure starts in Q2. A year ago they were only one in five.

Like prime, Federal Housing Administration loans are generally thought to be “safe,” but foreclosure starts among government-insured mortgages jumped to 9.1 percent last quarter – a record-high for the agency.

The states of California, Florida, Arizona, and Nevada continue to drag down the national numbers. These four had 44 percent of all the nation’s new foreclosures in Q2. Rhode Island, Georgia, and Michigan also posted foreclosure start rates above the national average.

All other states in the country fell below the national benchmark, and roughly half even saw their new foreclosure numbers decline.

But then, there’s the not-so-sunny Sunshine State. Florida has cemented itself as the worst state in the union for mortgage performance. Twelve percent of all mortgages there were somewhere in the process of foreclosure at the end of June, and another 5 percent were more than 90 days past due and about to cross that threshold. Based on MBA’s numbers, Florida has the highest foreclosure and delinquency rates in the country, and MBA’s chief economist, Jay Brinkmann, says he doesn’t expect to see a turnaround in Florida’s housing market for a long, long time.

Some fortunate regional markets are faring better and offsetting Florida’s bad numbers because the nation’s total foreclosure starts during the second quarter actually dropped slightly.

Foreclosure actions were initiated on 1.36 percent of the nation’s outstanding mortgages, compared to 1.35 percent during the first three months of the year, MBA reported.

Despite the leveling off of foreclosure starts, the fact that loans 90 or more days past due continues to climb in all categories suggests an overhang of foreclosure activity and engorged inventories of repossessed homes may be looming in the coming months.

So, when is the foreclosure problem going to crest? Brinkmann, points out that unemployment is currently the primary driver behind missed mortgage payments.

The number of jobless Americans is forecast to peak in mid-2010, and Brinkmann says he expects delinquencies to top out at about the same time. But because of the lag time associated with foreclosure proceedings, he doesn’t see a break in the upward trend of foreclosures until six months later, at the close of next year.

Commercial-Mortgage Downturn has Started, Standard & Poors Says!

2009-08-24T09:22:00.000-07:00

The economy is about to experience its second mega-wave of loan defaults, potentially triggering massive losses in securities backed by commercial mortgages, Standard & Poor’s said in a new report Monday.

“With almost 29,000 loans… now in the riskiest period of their lives with respect to default… Standard & Poor’s expects default levels to rise,” the ratings firm concluded in its default study.

The report comes just as rays of hope have appeared on the broader financial horizon. Residential housing prices and sales volumes have risen recently in many markets, and investor interest in residential mortgage-backed securities has risen with them. These factors have led many economists to predict modest growth – meaning an end to the recession – by mid-2010.
Still, Standard & Poor’s said, a number of factors in commercial-property lending serve as a reminder of the U.S. economy’s still-fragile state.

In particular, they forecast serious problems with rental properties that were at peak capacity near the height of the boom. Significant recent drops in the cost of buying and renting residential property, the firm said, means “three- and five-year leases coming due for lease rollover in 2009 could cause significant rental declines.”“We believe that the borrowers faced with possible property operating cash flow shortfalls and declining market values will be less likely to fund debt service shortfalls,”

New Foreclosure Numbers Eclipse Recent Optimism

2009-08-17T08:58:00.000-07:00

RealtyTrac released its July Foreclosure Market Report Thursday, and the findings are a stark contrast to recent news of healthier markets and price bottoms. More than 360,000 homes received a foreclosure filing last month – a new record. Despite hints that housing markets are beginning to stabilize, foreclosure activity rose 7 percent for the month and is up 32 percent from last year. To put things into perspective, RealtyTrac reported that one in every 355 homeowners in the United States faced losing their home in July.

“July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.”

Nevada, California, Arizona Post Highest Rates

For the 31st consecutive month Nevada documented the nation’s highest state foreclosure rate, with one in every 56 homes receiving a foreclosure filing in July — that’s more than six times the national average. Initial default notices in Nevada decreased 18 percent from the previous month, likely the result of a new state law requiring lenders to offer mediation to homeowners facing foreclosure. But scheduled auctions and bank repossessions in Nevada both increased more than 20 percent from the previous month, boosting overall foreclosure activity in the state by 4 percent.

Initial defaults in California spiked 15 percent from the previous month, pushing the Golden State into the No. 2 spot on RealtyTrac’s list for the third month in a row. One in every 123 California homes received a foreclosure filing in July. Scheduled auctions were down 1 percent from the previous month, but bank repossessions were up 4 percent.

In Arizona, one in every 135 housing units received a foreclosure filing in July, the nation’s third highest state foreclosure rate. Scheduled auctions, the first public record in the Arizona foreclosure process, jumped 25 percent from the previous month, while bank repossessions stayed flat.

Other states with foreclosure rates ranking among the nation’s 10 highest were Florida, Utah, Idaho, Georgia, Illinois, Colorado, and Oregon.

Usual Suspects Account for Half of Activity

Four states accounted for nearly 57 percent of the nation’s total foreclosure activity, according to RealtyTrac’s market data. California had 108,104 properties with foreclosure filings in July, Florida had 56,486, Arizona had 19,694, and Nevada 19,535.

Other states with total foreclosure filings ranking among the 10 highest in the country were Illinois (14,524); Texas (12,077); Georgia (11,136); Ohio (11,021); Michigan (8,257); and New Jersey (6,467).

Notably, foreclosure activity in Michigan dropped 39 percent from the previous month, mostly due to a 66 percent decrease in scheduled auctions. A state law that took effect July 6 requires lenders to provide delinquent borrowers with contact information for approved housing counselors before scheduling a foreclosure auction. The law freezes foreclosure proceedings an extra 90 days for homeowners who commit to work on a loan modification plan.

Report: California Foreclosure Prevention Act Fails To Slow Filings

2009-08-17T08:53:00.000-07:00

Despite state lawmakers’ efforts to curtail home losses, a record number of California foreclosures are now scheduled for sale – that’s according to a report released Tuesday by ForeclosureRadar, a local company that tracks every foreclosure in the Golden State and provides daily auction updates.

High-level findings of ForeclosureRadar’s July California Foreclosure Report include:

· Filings of new Notices of Default were little changed from June. A total of 44,996 default notices were filed during July, a 1.5 percent decrease. However, year-over-year filings rose by 11.9 percent from July 2008.

· Notice of Trustee Sale filings bounced back to 39,294 in July after dropping the previous month. The California Foreclosure Prevention Act, which adds 90 days prior to the filing of the Notice of Trustee Sale for lenders that do not have a loan modification plan in place, had only a fleeting impact last month. Notice of Trustee Sale filings hit their second highest level on record in July, just two weeks after the law took effect.

· After increasing for three consecutive months, foreclosure auction sales dropped by 22.7 percent to a total of 17,239, with a combined loan value of $8.08 billion dollars. Opening bids set by lenders were an average of 39.1 percent lower than the loan balance, with nearly half of sales discounted by 50 percent or more.

· Sales to third-party bidders were flat from June, with 2,683 foreclosures sold to investors, or in increasingly rare instances, junior lenders. As a percentage of total sales, those to third parties continued to increase, though lenders still took back 84.4 percent of foreclosures at auction, representing 14,555 loans with a total of $6.93 billion dollars in loan value.

· Foreclosures scheduled for sale rose to 124,874, a 10.4 percent increase from the prior month, and a 93.3 percent increase over the same time last year. The year-over-year gain is significant given that foreclosure sales in July 2008 set a record that has not again been reached.

“Despite the failure of the California Foreclosure Prevention Act to slow Notice of Trustee Sale filings it is clear that lenders and servicers are delaying foreclosure” said Sean O’Toole, founder and CEO of ForeclosureRadar. “More homeowners are now sitting at the brink of foreclosure, just days away from the next scheduled auction date than ever before, yet we simply aren’t seeing the wave of foreclosures many predicted.”

Political pressure, financial incentives, and the postponement of sales awaiting the completion of loan modification trial periods are likely reasons for the delays. The vast majority of foreclosures, 72 percent, are being delayed at the lender’s request or as mutual agreement between the lender and borrower. Only 10 percent are being postponed due to bankruptcy.

According to ForeclosureRadar’s report, the average California foreclosure has a total loan balance of $425,134 on a home that is now worth $236,739. While negative equity is a prerequisite for the vast majority of foreclosures in California, the degree of negative equity varies a great deal by location.

Foreclosures in Santa Cruz County had loan balances just 110 percent of the current estimated value, while in Merced County loan balances average 283 percent higher than the estimated value. The Bay Area counties of Santa Cruz, San Francisco, Marin, and San Mateo were among the least underwater during the month of July. Inland counties including Merced, San Joaquin, Stanislaus, Solono, Sacramento, San Bernardino, and Riverside were the most underwater.

Countrywide Borrowers Begin Receiving Notices of Foreclosure Reimbursements

2009-08-10T09:52:00.000-07:00

State officials have begun mailing letters to Countrywide customers who may be eligible for foreclosure relief payments. Countrywide’s parent company, Bank of America, said it will begin issuing checks to borrowers during the first quarter of 2010.

The reimbursements are part of the agreement reached last October between Bank of America, who acquired the once-subprime-leader in 2008, and state attorneys general from across the country to settle allegations of predatory lending brought against Countrywide.

Up to $150 million is allocated nationally to provide assistance for certain borrowers who experienced a foreclosure, short sale, or deed-in-lieu of foreclosure on their Countrywide mortgage. Forty states are participating in the program. Borrowers will be notified by letter from their state if they are eligible to receive a settlement payment.

Rust Consulting, a third-party administrator, will manage notifications and payment processing for eligible homeowners.

The foreclosure relief program is one of three components of Countrywide’s 2008 agreement with state attorneys general. The second part, the National Homeownership Retention Program, calls for the bank to modify loans and lower mortgage payments for up to 400,000 borrowers who financed their homes with subprime or payment option adjustable-rate mortgages serviced by Countrywide.

The third component of the agreement provides relocation assistance to borrowers who experience a foreclosure sale and agree to leave the property voluntarily. They are eligible for a cash payment to help them transition to a new place of residence.

Countrywide admitted no wrongdoing under the agreement reached with state prosecutors, and as a result of the unprecedented settlement totaling $8.4 billion, the individual states dropped their lawsuits against the lender.

Florida Attorney General Bill McCollum, though, has filed a separate suit against former Countrywide CEO Angelo Mozilo, alleging the subprime leader employed deceptive marketing and sales practices to lure borrowers into risky, high-cost mortgages and then knowingly resold those unsustainable loans to securities investors.

According to a report by the Miami Herald, Mozilo is seeking to have the case dismissed on grounds that the Broward Circuit Court in Florida has no jurisdiction over him as a California resident. The hearing on Mozilo’s dismissal motion, originally scheduled for Wednesday, has been postponed but no new date has yet been set.

Mozilo also faces civil charges of fraud and insider trading brought by the Securities and Exchange Commission (SEC) last month.

Foreclosures Comprise Half of Q1 Purchases

2009-08-10T09:50:00.000-07:00

While most of the real estate world is still reeling from sunken property values and the effects of the housing bubble fallout, one type of property out there is in hot demand. New statistics released by Los Angeles-based Foreclosure-Support show that during the first quarter of 2009, one out of every two home sales in the nation was a foreclosure or short sale property. Experts with the company say that this data is indicative of a trend that has been growing among homebuyers for the past two years.

Steve Siefken, business analyst for Foreclosure-Support, said, “After the market crashed no one was buying anything. But once foreclosures started to come onto the market in bigger and bigger numbers, I think people began to take notice and thought, ‘Hey, there’s a potential for deals here.’”

Foreclosed homes often sell for extremely large discounts, especially in areas where there are a lot of foreclosures available. Foreclosure-Support says depending on the location and condition of the property, a foreclosure now goes for anywhere from 10 percent to 60 percent off the price it was selling for only a year ago. And even though property values across the country have plummeted, the company says investors are now snatching up distressed properties in anticipation of the eventual turn-around.

Siefken explained, “At first, it was mostly the professionals at foreclosure auction, just like always. Then we got reports of certain sales in the high-demand areas like Texas, California – they were seeing record turnouts at these sales. But the interesting thing was that even though there was high competition, these properties were still going for way less than what was originally paid for them, so the value’s still there.”

High-demand areas like Los Angeles, Miami, and Charlotte, North Carolina, all report significant increases in foreclosure sale attendance. Foreclosure-Support says more foreclosures actually signify smart investment opportunities for savvy buyers.

Foreclosure-Support specializes in providing daily updates of foreclosure listings and foreclosure information from across the nation. With over a decade of experience in the foreclosure marketplace, Foreclosure-Support says its team helps buyers and investors get a detailed perspective on the foreclosure marketplace so they can make informed and profitable purchases.

Prime Foreclosure Sales Outpace Subprime

2009-07-31T09:57:00.000-07:00

Two-thirds of the 93,924 foreclosure sales in June were originally financed with prime mortgage loans, according to figures released this week by the HOPE NOW Alliance. It was the first time since HOPE NOW began collecting data that prime foreclosure sales outpaced subprime sales by two-to-one.

Foreclosures involving subprime mortgages have subsided over the past year. HOPE NOW’s survey data suggests the peak in subprime foreclosure sales occurred during the second quarter of 2008. The largest gain in foreclosure sales backed by prime loans occurred in the recently ended second quarter of 2009.

HOPE NOW’s report also showed a 25 percent surge in loan workouts during the month of June. The Alliance said mortgage lenders helped 310,000 homeowners avoid foreclosure – 96,000 loans were modified and 214,000 repayment plans were initiated.

June marked the second straight month that HOPE NOW’s participating servicers reported a drop in modifications (down 5.1 percent) and a significant increase in repayment plans (up 44.9 percent). The imbalance is primarily attributed to servicer participation in the Obama administration’s Home Affordable Modification Program (HAMP). Under the government’s guidelines, loans are subject to a three-month trial period and are reported as repayment plans until the modification becomes permanent after 90 days.

Faith Schwartz, executive director of the HOPE NOW Alliance, commented, “I am proud of the continued progress made by HOPE NOW servicers and am confident that they are aggressively and proactively using HAMP, as well as other successful foreclosure prevention programs, to help as many homeowners as possible. These efforts are in the best interest of consumers as well as the U.S. economy overall.”

Since January, 2009, HOPE NOW says more than 1.5 million homeowners have been helped through mortgage workout plans. However, the Alliance’s study shows that the number of distressed borrowers continues to grow. Those 60 or more days behind on their mortgage payments increased from 3 million to almost 3.1 million in June, HOPE NOW reported.

Last week, HOPE NOW and its partners hosted an outreach event with administration and local officials in foreclosure-ravaged Las Vegas, providing more than 1,500 at-risk homeowners in the area with the opportunity to meet directly with lenders and non-profit counselors. And today marks the start of a two-day event in Phoenix, another market struggling with high foreclosure rates and plummeting property values. Since the beginning of this year, HOPE NOW’s consumer outreach efforts have helped over 15,000 homeowners.

Foreclosures Continue to Burn Sun Belt's Biggest Metro Areas

2009-07-31T09:51:00.000-07:00

Cities in the Sun Belt states, including California, Florida, Nevada, and Arizona, continued to dominate foreclosure rankings throughout the first half of 2009, accounting for 35 of the 50 highest foreclosure rates among metro areas with a population of 200,000 or more, RealtyTrac reported Thursday.

However, RealtyTrac says the foreclosure epidemic appears to be spreading to other areas of the country not previously considered foreclosure hot spots, such as Oregon, Idaho, Utah, Arkansas, Illinois and South Carolina. Increased activity in these states suggests much of the new foreclosure activity may be more directly related to growing unemployment than continuing fallout from subprime and adjustable rate loans.

James J. Saccacio, CEO of RealtyTrac, explained, “Foreclosure activity continued its upward trajectory nationwide and in the majority of metro areas in the first half of the year, but there are some significant differences beginning to show up in the data. While some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, new markets like Provo, Utah, and Boise, Idaho, have seen large increases. As unemployment rates increase in different parts of the country, it’s very likely that we’ll see similar patterns develop elsewhere.”

Looking at RealtyTrac’s Midyear 2009 Metropolitan Foreclosure Market Report, Las Vegas posted the nation’s highest foreclosure rate, with 7.45 percent of its housing units receiving at least one filing in the first half of 2009 – that’s more than six times the national average and equates to one in every 13 homes. A total of 58,691 Las Vegas properties received a foreclosure filing during the first six months of the year.

The Cape Coral-Fort Myers metro area in Florida documented the second highest foreclosure rate. One in every 14 residential properties, or 7.20 percent of its housing units, have received at least one foreclosure filing this year.

Merced, California, claimed the No. 3 spot, with 6.89 percent – one in 15 – of its housing units receiving a foreclosure filing from January to June.

Both Cape Coral-Fort Myers and Merced reported a slight decrease in foreclosure activity from the previous six months but still experienced increasing foreclosure activity compared to the first half of 2008.

Five other metro areas in California made RealtyTrac’s top 10 list: Riverside-San Bernardino-Ontario (5.73 percent), Stockton (5.64 percent), Modesto (5.38 percent), Bakersfield (4.53 percent), and Vallejo-Fairfield (4.48 percent).

The Phoenix metro area (4.44 percent) and Orlando, Florida (4.28 percent) were also among the top 10.

All seven of these metro areas except for Stockton and Modesto reported increasing foreclosure activity from the previous six months and from the first six months of 2008.

Although Stockton, California, had the fifth highest metro foreclosure rate, activity actually decreased – down nearly 4 percent from the previous six months and nearly 13 percent compared to the first half of 2008.

Likewise, foreclosure activity in Modesto, which had the sixth highest foreclosure rate, decreased nearly 3 percent from the six months prior and is down more than 9 percent from the first half of last year.

Detroit continued to rank among the top 50 metro foreclosure rates, but activity there decreased 8 percent from the previous six months and 16 percent compared to the first half of 2008. Detroit’s foreclosure rate ranked highest in the nation in RealtyTrac’s 2006 and 2007 reports. During the first half of 2009, 1.86 percent of Detroit’s housing units received a foreclosure filing.

Foreclosure activity in Cleveland, which posted the nation’s sixth highest foreclosure rate in 2007, decreased 11 percent from the previous six months and 30 percent from the first half of 2008. With 1.36 percent of its housing units receiving at least one foreclosure filing, Cleveland’s foreclosure rate was still above the national average but was not among the top 50 metro foreclosure rates in the first half of 2009.

Other hard-hit Rust Belt cities posting year-over-year declines were Indianapolis and the Ohio cities of Toledo and Columbus.

Allison Testifies for More Foreclosure Aid

2009-07-26T11:22:00.000-07:00

Herb Allison, the Treasury’s new assistant secretary for financial stability and former CEO of Fannie Mae, told lawmakers at a Senate Banking Committee hearing last week that the administration is considering another housing proposal that would require lenders to allow previous homeowners to stay in their foreclosed homes as renters.

Officials say that besides providing a residence option for former homeowners, the plan would also address the glut of vacant properties plaguing neighborhoods across the country and pulling down home values.

Sen. Charles Schumer (D-New York), said, "This could make sense as a last resort for troubled homeowners who would otherwise lose their homes and find themselves with nowhere to live."
William Apgar, HUD’s senior mortgage finance adviser, also testified that the administration is exploring foreclosure rentals as another mortgage relief option. However, he noted that in many instances, borrowers who have gone through the distress of the foreclosure process do not want to stay on as renters in the same property.

The idea is similar to a program launched by Freddie Mac in March, which gives homeowners the choice to rent their homes after foreclosure. Brad German, a spokesperson for the GSE, told the Washington Post, though, that the company’s rental program has not attracted many participants because most former owners instead choose to accept money to voluntarily vacate under its cash-for-keys program.

The administration is also considering an initiative that would provide mortgage assistance to the growing population of unemployed homeowners.

Apgar told lawmakers at the hearing, "The current very high level of unemployment is making the already difficult task of helping families struggling to meet their mortgage payments even harder."

New York Fed: Lax Lending Not to Blame

2009-07-26T11:19:00.000-07:00

A recent study published by the New York Federal Reserve says that lax lending standards were not the air that inflated the market’s latest housing bubble and propelled the nation into an economic tailspin. Instead, the government bank argues that consumers’ misjudgments and swings in labor productivity played a significant role in the boom and bust of residential real estate.

James Kahn, author of the study and a professor of economics at Yeshiva University, explained, “What appears in retrospect to be relatively lax credit conditions in the early part of this decade may have emerged in part because of then-justifiable, although ultimately misplaced, optimism about income growth."

In the report, Kahn says a widely held view among market observers is that the rapid growth in home prices from the mid-1990s until the recent crash reflected a “bubble,” brought on by excessively lax lending standards and a belief that house prices would increase indefinitely. In this view, the bubble was destined to burst, triggering a dramatic decline in the housing sector.

Kahn contends it was consumer confidence that persuaded people they could afford more expensive homes. He says consumers believed they were working harder than the previous decade and expected their paychecks to likewise increase. Their optimism continued until 2007, Kahn says, when it became clear this was not the prevailing trend – a slowdown in productivity helped dash expectations of further income growth and stifle the boom in residential real estate.
These productivity swings helped determine the price of housing through their effects on income growth and long-term income expectations, Kahn says – both factors that directly influence what consumers are ready to pay for housing and what mortgage providers are willing to lend.

Using a recently developed model of housing prices, Kahn shows how a large share of price fluctuations over the last 45 years can be attributed to changes in productivity growth. Applied to the most recent housing cycle, the model suggests that the surge in home prices from the mid-1990s to 2007 was fueled at least in part by the belief that ongoing productivity advances would lead to continued strong growth in income.

Kahn explains that the relationship worked in reverse as evidence mounted in 2007 that productivity growth had slowed – at that time, expectations of further income growth declined, helping to quash the housing boom and jeopardizing mortgages and other investments.

Kahn’s argument attaches considerable importance to the perception of productivity shifts. He says housing market participants were slow to perceive the productivity decline because the data released through mid-2007 gave little indication of it. Subsequent data revisions, though, made it clear that productivity had in fact begun to decelerate in 2004.

According to Kahn, if productivity growth returns, then housing prices could bottom out and begin to move upward. But if productivity slows further or grows only modestly, he says property values will remain low or fall even further.

Report Says Investors Should Act Quickly

2009-07-19T10:08:00.000-07:00

Despite recent negative information about the job market in the United States, a report issued last week shows the housing market is beginning to exhibit some signs of improvement. Because real estate investors can acquire distressed properties well below their actual market value – with savings ranging from 10 to 50 percent – the New York-based company says investors looking for large profit margins, particularly in some of the best investment markets, should act quickly.

Based on nationwide data, foreclosures in many of the top states for investors have dropped. For example, foreclosure rate in California is down by more than 3.5 percent and in Florida it’s fallen by nearly 2 percent. Arizona’s foreclosure rate slipped by almost 1.5 percent, while in Texas the rate dropped by just over 1 percent. In Georgia and Michigan, The largest drop recorded was in Nevada, which saw its foreclosure rate plummet by nearly 7.5 percent.

Many individual cities also saw notable decreases in their levels of foreclosures, including Salinas (-18 percent), Las Vegas (-9.5 percent), Chicago (-6 percent), Detroit (-4.3 percent), Atlanta (-3.2 percent), Phoenix (-1.6 percent), and Memphis (-1 percent).

Home prices in many states and some big cities have also started to creep upward, squeezing investors’ potential profit margins. There was an increase of less than a percentage point in the states of California, Georgia, and Texas, while prices rose by just over 1 percent in Florida and Michigan. Report found that housing prices are now averaging $64,000 in Ohio (the lowest in the country) and $343,000 in California (the nation’s highest average).

Price increases have been seen in several hot investment cities as well. The report shows in Miami and Orlando, property values are up 1.3 percent, and in Las Vegas they’ve risen 1 percent. In Phoenix, Atlanta, and San Diego, the company says prices have increased less than 1 percent, while in Denver they’ve jumped 2.3 percent. Foreclosurelistings.com reports the biggest leap in Ridgefield, Connecticut, where prices rose by more than 45 percent.

California Law Impacting Foreclosures

2009-07-19T10:06:00.000-07:00

ForeclosureRadar, a company based in Discovery Bay, California that tracks every foreclosure in the Golden State, says it expected the new California Foreclosure Prevention Act to have little impact. But the company reported Tuesday that in fact, the day the law went into effect, it saw a significant decline in filings of Notice of Trustee Sale, which set the date and time of a foreclosure auction sale.

The law adds an additional 90 days to the waiting period between default notice and the filing of a Notice of Trustee Sale. However, lenders can avoid this requirement by putting in place a comprehensive loan modification program, and nearly all major lenders operating in the state had done so and were exempt as of June 16. But ForeclosureRadar reported that it actually documented a drop of nearly 50 percent in Notice of Trustee Sale filings among lenders who were exempt – an outcome for which the company says it is struggling to find an explanation.

Sean O’Toole, founder and CEO of ForeclosureRadar, said, “A number of lenders appear to have self-imposed California’s latest foreclosure moratorium on themselves, despite having received an exemption from it. Given the number of exempt lenders it was quite surprising to see Notice of Trustee Sale filings drop by nearly 50 percent the day the new law went into effect.”

Among the larger lenders who were exempt, ForeclosureRadar reported that Bank of America’s notice of sale filings declined by 48 percent from May to June, and Litton Loan Servicing’s dropped by 41 percent. At the same time, the company says a handful of lenders dramatically increased their filings in June, including CitiMortgage by 69 percent and Downey Savings by 45 percent.

ForeclosureRadar said California’s Notice of Trustee Sale filings began climbing during the later part of the month, so the company still contends it is unlikely the law will have a long-term impact on the state’s foreclosure activity.

Overall, ForeclosureRadar reported that Notices of Trustee Sale dropped by 28.7 percent in June and are down 14.8 percent compared to a year ago. However, the company’s California Foreclosure Report released Tuesday, showed all other foreclosure trends were up significantly in the state, with sales at auction rising for the third month in a row and default notices at near-peak levels.

Foreclosure sales jumped 24.7 percent in June –after a 31.9 percent rise in May, and a 35 percent April increase. However, the June figure is 8.2 percent lower than the prior year. A total of 22,291 California foreclosures were taken to sale at auction last month, according to ForeclosureRadar, representing loan value of $9.57 billion dollars.

The company said opening bids set by lenders were, on average, 39.3 percent lower than the loan balance. Forty-six percent of sales were discounted by 50 percent or more.

Sales to third-party bidders in June increased by 18.3 percent from May, to 2,687 foreclosures. ForeclosureRadar said the majority of foreclosures still continue to be taken back by the lender – 87.9 percent, or 19,604 sales, with a total loan value of $8.44 billion, were returned to the lender in June.

Notices of Default, the initial step in the foreclosure process, rose by 11.8 percent to the second highest level on record at 45,691 filings, after a 4.2 percent drop the prior month. Default notices were up 10 percent compared to June 2008.

A new statistic ForeclosureRadar says it is watching closely is the number of properties actively scheduled for sale – meaning that a Notice of Trustee Sale has been filed to set the auction date and time, but the foreclosure has not yet been sold or cancelled. Under California’s foreclosure code, a foreclosure sale can be postponed repeatedly for one year before a new Notice of Trustee Sale has to be filed. While postponements are quite common, they have reached record levels in recent months, ForeclosureRadar reported.

Congressman Proposes Home Loan Plan for Unemployed

2009-07-12T09:35:00.000-07:00

Rep. Barney Frank (D-Massachusetts) wants to ensure the growing population of jobless Americans don’t fall victim to foreclosure. At a House Financial Services Committee hearing on Thursday – a committee which Frank chairs – he pushed for another $6.5 billion stimulus program he’s calling “TARP for Main Street.”

The proposal includes a $2 billion loan program for unemployed homeowners who do not qualify for other mortgage aid since they no longer have a steady income stream to claim. The initiative would essentially bring back a 1975 program that provides credit to Americans who’ve lost their jobs so they don’t also lose their home – however borrowers would have to secure the loan with their property.

One billion dollars would also be earmarked to build and maintain affordable housing, $1.5 billion to revitalize foreclosed and vacant homes, and $2 billion to help apartment tenants keep their residence if the management company defaults on the mortgage.

The program would reportedly be funded with the dividends banks are paying the Treasury for the taxpayer dollars they received as part of Congress’ $700 billion bailout.

Frank is also fast-tracking the White House’s proposed bill that would create a new federal regulatory office, the Consumer Financial Protection Agency. The agency would be the primary protector of consumers’ rights related to the purchase of financial products such as mortgages, credit cards, and other loans.

In a statement, Frank said, “Recent reports about the lack of mortgage modifications and increases in various fees only reinforce the need for this bill. I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking.”

Foreclosure Starts on the Rise!

2009-07-05T10:00:00.000-07:00

Jacksonville, Florida-based Lender Processing Services (LPS) says foreclosure starts have increased to their second highest level since the company began keeping records in 1992. LPS released its June Mortgage Monitor Report last week, which provides mortgage industry performance indicators based on data collected as of May 31.

LPS' analysis shows that foreclosure starts in May increased 4.3 percent. Based on LPS' market data, rising foreclosures can be attributed to a larger number of states than the typical Sun Belt culprits. The company said Nevada, Florida, Arizona, California, Maryland, Michigan, Hawaii, Georgia, Rhode Island, and New Jersey all posted foreclosure starts above the national average, with the states of Washington, Illinois, and Maryland experiencing the largest percentage increases.

Total mortgage delinquencies also rose in May, to 8.49 percent, according to LPS' study. That figure represents a 5 percent increase over April and a 50 percent year-over-year climb. The LPS Mortgage Monitor also shows that the quality of loan originations has been improving, with 2009 delinquency curves well below prior years. With more attention focused on improved credit scores, lower LTV ratios, income, and documentation, LPS says overall loan vintage quality has escalated.

Based on LPS' research, the number of newly delinquent loans reached 637,822 last month. Roll volumes, which reflect loans moving to a more delinquent status (for example, moving from 30 days to 60 days delinquent), increased month-over-month, with the exception of loans moving from 60 to 90 days delinquent, perhaps signaling that more workouts are being completed for homeowners that are at the brink of foreclosure. But the April-to-May 2009 time period marks the first significant increase in loans rolling from current to 30-days delinquent in five years.

New Research Reveals One-Quarter of Mortgage Defaults Are Strategic

2009-07-05T09:58:00.000-07:00

New research released last week by the University of Chicago Booth School of Business and the Kellogg School of Management at Northwestern University in Evanston, Illinois, suggests that a novel phenomenon is at hand in the fallout of today's housing crisis - strategic default on mortgage loans.

According to the researchers, given that homes in many markets have lost more than 30 to 40 percent of their value, a growing number of homeowners say they would simply walk away from their loans, without fear of repercussion. Based on data collected from surveys conducted within the last six months as part of the universities' Financial Trust Index, the researchers estimate that more than a quarter of defaults on mortgage loans are strategic, especially when home values have fallen by more than 15 percent.

The research project was led by Paola Sapienza, Kellogg School of Management at Northwestern University, and Luigi Zingales, University of Chicago Booth School of Business – both co-authors of the quarterly Chicago Booth/Kellogg School Financial Trust Index – as well as Luigi Guiso with the European University Institute. Their paper, entitled "Moral and Social Restraints to Strategic Default on Mortgages," finds that a disturbing number of American homeowners are inclined to purposely default when the value of their mortgage exceeds the value of their house, even if they can afford to make the mortgage payments.

The researchers say that the Obama administration's housing policy has been largely influenced by a study of the Boston housing market during the 1990-91 recession, in which homes devalued by approximately 10 percent. This study found that very few people who could afford their mortgage chose to walk away from their homes. The new research issued last week confirms this claim that homeowners refrain from defaulting as long as negative equity does not exceed the 10 percent mark.

After that level, however, it shows that homeowners start to default at an increasing pace, and walk away massively after decreases of 15 percent or more. In fact, the researcher say 17 percent of households would default, even if they can afford to pay their mortgage, when the equity shortfall reaches 50 percent.

Sapienza commented, "Housing policy under the current administration has focused on reducing households' cash flow problems in response to the housing crisis, but no one has addressed the negative equity issue as part of public policy regarding housing. We're in a completely different economic environment today, where for the first time since the Great Depression millions of Americans have mortgage loans that exceed the value of their home."

Sapienze and his colleagues say moral and social variables play a significant role in predicting strategic default. People surveyed who said it was immoral to default were 77 percent less likely to declare their intention to do so, while people who know someone who defaulted were 82 percent more likely to say they would default themselves.

According to Zingales, the social pressure not to default is weakened when homeowners live in areas of high foreclosures or know others who defaulted strategically. He said, “The predisposition to default increases with the number of foreclosures in the same ZIP code."

The researchers also noted that mortgage default is considered less morally wrong in the Northeast and Western regions of the country. They said that homeowners under the age of 35 and over the age of 65 were less likely to say it was morally wrong to default compared to middle-aged respondents, and respondents who supported government intervention to help homeowners were also less likely to say strategic default is immoral.

Sapienza added, "As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans. This has an adverse effect on homeowners who do pay their mortgages, and the after-effects of more defaults and more price collapse could be economic catastrophe."

Are We at the Bottom? A Simplified Guide to the Ups and Downs of Real Estate!

2009-06-28T12:58:00.000-07:00

The value of real estate goes through cycles, which can be affected by many factors, including the basic rules of supply and demand. Below is a quick reference guide to some of the influencing factors and advice on how to spot a turning point in the market, brought to you by the Appraisal Institute, an industry association of real estate appraisers headquartered in Chicago.

1. A spike in local sales activity - A spike refers to a significant rise in the number of home sales (or values) in a local market area, but does not necessarily mean continued growth. It could be just a one month phenomenon.

2. Higher asking and selling prices vs. appraisal value opinions for residential properties - Appraisers study the markets, and when the data shows higher sale prices in comparable properties, market value opinions will increase proportionally. Appraisers seek evidence of value but do not create the value. In time periods with low activity, evidence of any kind is difficult to find.

3. More activity at open houses - Five to eight people is considered average, so a dozen or more people attending an open house means buyer interest is picking up. Also, the mood of the attendees is important. Buyers' interest alone does not always translate to effective purchasing power. If the number of buyers in the market increases but they do not have requisite down payments, the sales may still not occur.

4. Shorter marketing times - In some markets, houses have been up for sale for more than a year. In most balanced residential markets, properties that are priced competitively will typically sell in less than six months. If the days-on-market (DOM) is shortening, many practitioners will read an improvement in the market.

5. Reduced number of foreclosures and short sales - A reduction in these transactions commonly signals a more balanced market. However, if lenders are reluctant to foreclose because of an oversupply of inventory, they may choose to wait to repossess the properties, which could allow a spike in the number of foreclosures later despite a better market condition.

6. Stabilized employment - Stable or increasing employment rates provide the necessary confidence for potential buyers to invest in a home, since most buyers rely on borrowed funds to make real estate purchases and borrowing money requires a source of repayment, which usually means a job. An increase in this basic need, will enable more real estate sales.

7. Fewer buyer incentives and seller concessions - Seller-paid incentives or concessions are a sign of seller motivation. If there are fewer builders offering "free" upgrades and fewer sellers sweetening the deal with enticing add-ons, it may be a sign of lessening supply and therefore a better market.

8. New construction starts - Many builders are attune to their markets and will not build new homes without a corresponding contract for sale or a perceived increase in demand. An increase in the number of building permits usually indicates higher demand and higher prices. If residential properties are selling for 25 percent less than they cost to build, only a few new homes will be built.

9. "Move-up" buyers entering the market - More buyers willing to move to a larger or superior quality home indicates a healthy market. The lack of buyers at the lower end of the price range will have a chain reaction throughout the market. If a buyer for a high priced home has a lower priced home to sell first, the sale of the higher priced home may have to occur before the higher priced one can sell.

10. Apartments advertising renter specials - fewer renters in the market may indicate more people are moving into owner-occupied homes, or it could indicate a reduction in population. Lower population will cause an oversupply of housing which will oftentimes permeate throughout several markets.

The Appraisal Institute is a global membership association of professional real estate appraisers, with nearly 25,000 members and 92 chapters throughout the world. Organized in 1932, its mission is to support and advance its members as the choice for real estate solutions and uphold professional credentials, standards of professional practice, and ethics consistent with the public good.

Appraisal Institute Lashes Back at NAR

2009-06-28T12:57:00.000-07:00

The National Association of Realtors' (NAR's) chief economist, Lawrence Yun, publicly stated earlier this week that “poor appraisals” are stalling home sales. In announcing NAR's numbers for home resales in May, Yun said, “Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

Yun's remarks have drawn the ire of appraisers. The Appraisal Institute immediately issued a statement in response to Yun's commentary on Tuesday, saying, “We take offense with the notion that an appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the value reflected in the appraisal does not match the sales price is not the fault of the appraisal but a result of the market today.”

Bill Garber, director of government and external relations at the Appraisal Institute, said, “Appraisers provide lenders with objective information and value opinions that help protect them from making questionable loans and investments and help them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don't act like we want them to or hope they will. Nonetheless, competent and professional appraisers understand this and develop credible estimates of value that ultimately help ensure that lenders loan the proper amount, buyers don't pay too much, and sellers get a fair price.

According to Yun, though, lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. He said, “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

The Appraisal Institute did say in its statement, "In these complex markets, it is particularly important that lenders use only the highest caliber of appraisers,” pointing out that members of its organization who holding an MAI, SPRA, or SRA designation have met extensive experience and education requirements and must comply with the Code of Professional Ethics and Standards of Professional Appraisal Practice.

Mortgage modifications are happening

2009-06-21T09:31:00.000-07:00

NEW YORK (CNNMoney.com) -- Two months ago, Ivan Coleman was struggling, his mortgage payment having ballooned to $1,200 - more than half his income. Starting June 1, his monthly payment will fall to $725.

"My mortgage company was helpful, eager to have me stay in my home," said Coleman, who first fell behind on his payments after losing his job.

Coleman, who has owned his Maple Heights, Ohio, home for ten years, is among the first wave of homeowners to have their mortgages modified under President Obama's foreclosure-prevention program. As of last week, for example, Chase Mortgage, the servicing side of JP Morgan Chase (JPM, Fortune 500), had issued more than 15,000 modifications under the plan.

Bank of America (BAC, Fortune 500), which began reaching out to at-risk borrowers in early April, has sent out 100,000 letters to borrowers who could potentially benefit. It has issued some modifications, although it's not releasing data on just how many.

When the plan went into effect on March 4, Obama predicted it could help as many as 4 million people stay in their homes. It did this primarily by encouraging lenders to assist delinquent or at-risk mortgage borrowers by lowering interest rates to the point that total monthly housing payments would not exceed 31% of their gross monthly income.

How to apply
Becoming one of those 4 million takes five simple steps.

Step 1: Visit the Web site
Everything you need to get started is located here MakingHomeAffordable.gov

Step 2: Take the quiz
Click on "Find out if you are eligible" and then select the "Home Affordable Modification" option. (The "Refinancing" option is just for those who are current on their loans.) Take the five-question quiz. Based on your answers the site will tell you if you likely qualify for a modification under the Obama plan.

If you do - meaning you bought your house before Jan. 1, 2009, and owe less than $729,750; it is your primary residence; you are delinquent on your payments; and your payment is more than 31% of your monthly gross income - the site will present an eight-item checklist of paperwork you'll need to submit to your lenders.

Step 3: Compile the paperwork
The site recommends that you have: household-income documentation, such as pay stubs; tax returns; savings account records; mortgage statements; second mortgage info, such as home-equity loans statements; credit card bills; and information on other debt, including student and car loans.

You will also be asked to write a letter describing why you need assistance. Your reasons could include medical expenses, job or income loss, or even divorce.

A well-done hardship letter can make a difference in whether a loan wins modification, according to foreclosure-prevention counselors. These letters can point out factors that led to the delinquency but that may not be evident from your other paperwork.

"Don't say, 'I never could have afforded it in the first place,'" advised Tom Kelly, a spokesman for Chase Mortgage. "That isn't the ideal answer."

Instead, explain that illness prevented you from working for a time, that you've recovered and are back at work and paying bills again. Or a temporary job loss cause the problem, etc. Without that context, lenders may think you were just careless - or worse.

Step 4: Call your lender or servicer
Once your information packet is complete, call your lender or servicer - the company you write your monthly mortgage check to. To see if your lender is participating in this plan - or to get the phone number - click on "Contact Your Mortgage Servicer" on the Making Home Affordable site. After you've talked to one of their modification specialists, you'll be instructed to fill out an application and submit your documents.

There should be no need for face-to-face meetings with servicers, according to Jumana Bauwens, a spokeswoman for Bank of America. She said borrowers will be able to do everything over the phone and through the mail.

Step 5: Wait
During this phase, the lender will decide the approach it wants to take to reducing your debt: lowering your interest rate, extending the life of your loan, or reducing your debt balance.

The lender's first step will be to get your payment down to 38% of your monthly gross income. Once the debt is reduced that far, the government will pay the lender to lower it to 31% of income.

At that point, the loan will be rewritten, you will get the new paperwork to sign and the new payment will go into effect on your next bill.

This process has been taking several weeks to a month, so be patient. Although the banks expect it will get quicker as their personnel become more familiar with the modification plan.

"The 31% is now an industry standard and that's much more easily calculated," said Chase's Kelly.

One thing to remember: These are trial modifications that only become permanent once you make on-time payments for three consecutive months.

Foreclosures Still Climbing in California

2009-06-21T09:29:00.000-07:00

Despite the fact that lenders in California are voluntarily postponing the majority of foreclosure sales – 73 percent, to be exact – ForeclosureRadar says its market data reveals a steady increase in the number of foreclosed homes in the state sold at auction.

The company issued its monthly California Foreclosure Report this week, which shows that sales jumped 31.9 percent in May, following a 35 percent increase the prior month. Notices of trustee sale, which set the auction date and time, also rose a significant 42 percent from April, indicating that foreclosure sales are likely to continue to rise in the weeks and months ahead. However, notices of default, which are the first step in the foreclosure process, fell 4.2 percent from April.

In total, Foreclosure Radar reported, there were 17,871 foreclosed homes taken to auction in California last month. Though loan values represented a total of $8.01 billion, the company said 83 percent of the sales opened with a discounted bid that averaged just 58.6 percent of the loan value.

The majority of foreclosures put up for sale continue to be taken back by the lender. According to Foreclosure Radar, 87.9 percent, or 15,599 sales, with a total loan value of $6.98 billion, went back to the lender in May.

Third-party foreclosure auction sales continued to rise, as well, reaching 2,272 last month – that represents a 39 percent jump from the prior month, and a significant 228.3 percent increase from May 2008. Based on Foreclosure Radar's market data, more than half of third-party sales occurred in just five counties: Los Angeles, San Diego, Orange, Riverside, and Sacramento.

Foreclosure Radar tracks every foreclosure auction throughout the Golden State, making it uniquely positioned to see not only how many foreclosures were initiated, but also the current status of those foreclosures and their ultimate outcomes, whether postponed, canceled, or sold. By the end of May, the company said, there were record 111,824 foreclosures scheduled for sale in California, yet just 15.9 percent were actually sold, versus actual sales of 49.2 percent a year earlier.

Of those foreclosures currently scheduled, Foreclosure Radar says 40 percent are being postponed to a future date at the lender's request, and another 33 percent are being postponed based on the mutual agreement of lender and borrower. The company says this clearly demonstrates that lenders are indeed delaying foreclosure in the majority of cases on their own accord. It should also be noted that lenders were under no obligation in May to offer a loan modification program, short sale, or other resolution, as they are now that the statewide foreclosure moratorium went into effect this week.

Sean O’Toole, founder and CEO of Foreclosure Radar, commented, “While many complain that lenders are foreclosing too aggressively, and others claim a wave of foreclosures sales are imminent, the data actually shows that lenders are doing everything possible to delay foreclosure. The reality is that we have very few homeowners being foreclosed on when viewed as a percentage of those scheduled to be foreclosed on, in default, delinquent, or upside down in their mortgage.”

Lending Down at Bailed-Out Banks

2009-06-14T10:27:00.000-07:00

Federal regulators completed unprecedented stress tests of the largest banks' balance sheets last month, and found that 10 of the 19 institutions screened had enough capital on hand to not only sustain lending in the current environment, but could continue lending even if economic conditions worsen. Based largely on these conclusions and investors' seemingly renewed confidence in the nation's banking system, regulatory supervisors have given 10 major lenders the go-ahead to repay the capital injections they received from the government, which were intended to improve market liquidity and loosen the banks' tight grip on credit.

However, according to a report released last week by the Treasury Department, lending has actually declined at 500 of the 600-plus banks that have received federal bailout money. The report shows that outstanding loans for these banks totaled $5.23 trillion in March, down 0.8 percent from $5.28 trillion in at the end of February.

The drop in loans outstanding was a bit more pronounced at the 21 largest banks to receive taxpayer dollars. The Treasury said the aggregate loan balances at these leading institutions slipped one percent to an average of $4.38 trillion for March, down from $4.42 trillion in February. The Treasury said, though, that this decline was largely due to borrowers paying down outstanding debt.

In spite of the declines in loans held on these banks’ balance sheets, originations of new loans accelerated, the report said. The nation's top 21 banks reported an increase in total new lending of 27 percent from February to March (about $63 billion). However, the Treasury Department noted that increases in first lien mortgages and other consumer loans was smaller than in February.

Gary Koster, head of the Real Estate Fund Services Practice at Ernst & Young LLP, said, "It seems that, despite the widespread infusions of capital into various lending institutions through economic stimulus programs, it appears there is still very little, if any, lending taking place in the real estate industry right now."

Survey: Refinances Continue to Decline

2009-06-14T10:25:00.000-07:00

The Mortgage Bankers Association (MBA) released its Mortgage Applications Survey on Wednesday, for the week ending June 5, 2009. The association's study shows that refinances, typically an effective tool for lowering distressed homeowners' monthly payments, continued to fall last week – a trend that has prevailed for several weeks now. Applications for new purchases, however, held steady.

Based on MBA's market data, the total volume of mortgage loan applications has dropped by 7.2 percent on a weekly basis. But compared to the same time last year, the number of home loan requests is up 7.6 percent.

MBA's Refinance Index decreased 11.8 percent from the previous week. The refinance share of mortgage activity plummeted to 59.4 percent of total applications, down from 62.4 percent the previous week. This is the lowest the refinance share has been since November 2008.

The association said its Purchase Index, on the other hand, increased 1.1 percent from one week earlier. The four week average is up 0.5 percent for this measurement of home buys.

MBA also reported on average mortgage interest rates for the home loan petitions submitted last week. Rates for all types of mortgage products in the survey proceeded to follow the ascensions we saw the week prior.

According to MBA's study, the average interest rate for 30-year fixed-rate mortgages (FRM) increased to 5.57 percent, up more than a quarter of a percentage point from 5.25 percent the week before.

The average rate for 15-year FRMs rose to 5.10 percent last week, also an increase of more than a quarter point, from 4.80 percent the week prior.

MBA said the average contract interest rate for one-year adjustable-rate mortgages (ARMs), also increased. Last week, the 1-year ARM rate was 6.75 percent, compared to 6.61 percent one week earlier. The ARM share of activity increased to 3.4 percent of total applications.

MBA's survey covers more than 50 percent of all U.S. retail residential mortgage applications. Respondents include mortgage bankers, commercial banks, and thrifts

One fourth of sellers reduce asking price

2009-06-07T11:18:00.000-07:00

Sellers dropped their asking price on nearly one in four homes listed for sale on Trulia.com during the last year by an average of 10.6 percent, the company said today in a report identifying the markets experiencing the most and biggest price reductions.

Although Trulia's analysis did not include foreclosure properties, it showed that asking prices are being slashed more severely in areas hardest hit by foreclosures.

Price reductions averaged 23 percent in Detroit, 16 percent in Las Vegas, 15 percent in Miami, and 13 percent in Phoenix and Mesa, Ariz., Trulia said.

But luxury markets like New York City also saw price reductions exceeding the national average. Homes with a selling price above $2 million were reduced by 14.3 percent on average, compared with 9.7 percent for homes under $2 million.

While 23.6 percent of homes listed for sale nationwide on Trulia between June 1, 2008 and June 1, 2009, saw at least one price reduction, the percentage was considerably higher in some markets. Among the 50 largest U.S. cities by population, the 12 with the greatest percentage of listings with price reductions were scattered around the nation, Trulia said. They were:

· Jacksonville, Fla. – 36 percent
· Tucson, Ariz. – 32 percent
· Boston, Mass. – 32 percent
· Los Angeles, Calif. – 32 percent
· Columbus, Ohio – 31 percent
· Dallas, Texas – 31 percent
· Honolulu, Hawaii – 31 percent
· Minneapolis, Minn. – 31 percent
· Austin, Texas – 30 percent
· Washington, D.C. – 30 percent
· Baltimore, Md. – 30 percent
· Las Vegas, Nev. – 30 percent

Anti-Predatory Lending Bill Passes California Assembly

2009-06-07T11:14:00.000-07:00

As federal lawmakers continue to pour over proposals that would tighten anti-predatory lending statutes throughout the nation, California may become one of the first states to enact its own mortgage reform legislation.

Earlier this week, the California Assembly passed AB 260, and it has headed to the state Senate for review. The bill was sponsored by Assembly member Ted Lieu (D-Torrance), who says the measure will “ban the worst predatory lending practices.”

The bill would create a stronger fiduciary standard for mortgage brokers in the state, across all loan products. It eliminates compensation incentives, namely yield-spread premiums, that lenders pay to brokers for contracting higher- or adjustable-rate loans, such as those which prevailed in the subprime era.

AB 260 directly prohibits steering borrowers toward inferior mortgages and explicitly bars brokers and lenders from making false or deceptive statements regarding subprime loans. The bill also limits prepayment penalties, bans negative amortization loans, and establishes strong enforcement and punishment for abusive subprime lending. The measure would give the state Attorney General the power to revoke state licenses and impose a $10,000 fine per violation.

“Enough is enough,” said Lieu, who is presently in the running for the California Attorney General seat. “We must act to preserve homeownership opportunities and prevent the next crisis in the subprime lending market.”

Lieu points out that homeowners in California continue to experience record foreclosures as a direct result of irresponsible lending. According to RealtyTrac, one in every 138 homes in the state received a foreclosure filing in April – the highest state foreclosure rate in the nation. Total foreclosure activity in California is up 42 percent from April of last year.

Assembly Speaker Karen Bass (D-Los Angeles) commented,“So many Californians bought homes to provide a foundation for their families only to have it undermined by irresponsible lenders and faulty lending practices. Assemblymember Lieu’s AB 260 is real reform of the mortgage industry that will give homebuyers the piece of mind they need to invest in and stabilize our economy.”

A similar mortgage reform bill authored by Lieu, AB 1890, was vetoed by Gov. Arnold Schwarzenegger as soon as it hit his desk last year. The governor said that while the legislation was “well intentioned,” it was unbalanced and would stifle competition within the marketplace because the new statutes did not apply to federally regulated entities.

But since that time, Gov. Schwarzenegger has issued a pointed call to lawmakers to do something about the spiraling housing crisis in California and publicly commented that mortgage reform is now a top priority. Lawmakers hope AB 260 will see Gov. Schwarzenegger's signature.

A spokesperson from Assemblymember Lieu's office told DS News they feel the new legislation has been altered enough from last year's AB 1890 version to address the governor's previous concerns and will be better received.

Lieu was also the author of the California Foreclosure Prevention Act, which did find favor with the governor. He signed it into law in February to help stem the state's foreclosures. Effective June 15, the act will impose a 90-day foreclosure moratorium unless a lender offers a comprehensive loan modification program designed to keep people in their homes.

Home Prices Continue to Decline

2009-05-28T08:54:00.000-07:00

Data through March 2009, released Tuesday by Standard & Poor's, show the U.S. National Home Price Index continues to set record declines, a trend that began in late 2007 and prevailed throughout 2008. The company said residential real estate depreciation continued at a steady pace into March, with the overall index dropping 7.5 percent between the fourth quarter of 2008 and the first quarter of 2009. Nationally, home prices are down 19.1 percent compared to a year ago.

The S&P/Case Shiller 10-city composite dropped 2.1 percent from February to March, a pace equal to the decline between January and February. On an annual basis, the 10-city index is down 18.6 percent. The 20-city composite also fell at the same rate it did the month prior. In March, the 20-city figure recorded a decline of 2.2 percent, and a year-over-year depreciation of 18.7 percent.

David M. Blitzer, chairman of the index committee at Standard & Poor's, elaborated on the results, saying, "All 20 metro areas are still showing negative annual rates of change in average home prices, with nine of the metro areas having record annual declines. Seventeen metro areas recorded a monthly decline in March.”

But Blitzer added, “On a positive note, nine of MSAs are reporting a relative improvement in year-over-year returns and nine of the 20 metro areas saw an improvement in their monthly returns compared to February. Furthermore, this is the second month since October 2007 where the 10- and 20-city composites did not post a record annual decline.”

Still, Blitzer said, the March data shows no evidence that a recovery in home prices has begun.
According to S&P's study, Minneapolis, Detroit, and New York had the worst showing in March. Minneapolis' home values saw a record decline of 6.1 percent – representing the largest monthly decline of any metro area in the history of S&P's indices. For March, Detroit and New York also reported their largest monthly declines, returning -4.9 percent and -2.5 percent, respectively.
The cities that fared the best, based on S&P's market data, were Charlotte, where prices actually increased by 0.3 percent; Denver, which had a gain of 0.1 percent; and Dallas, where property values remained flat from February to March.

In terms of annual declines, the three worst performing metros in S&P's analysis continue to be the same three from the Sunbelt, each reporting negative returns in excess of 30 percent. Phoenix was down 36 percent, Las Vegas declined 31.2 percent, and San Francisco fell 30.1 percent. S&P reports that Denver, Dallas, and Boston continue to fare the best in terms of annual declines, down only 5.5 percent, 5.6 percent, and 8 percent, respectively.

The Federal Housing Finance Agency (FHFA) released a similar home price study on Wednesday, which confirmed continued declines in property values, but at a more modest pace.
FHFA's purchase-only Home Price Index (HPI) showed that in the first quarter of 2009, U.S. home prices fell 0.5 percent compared to the fourth quarter of last year. The agency reported that nationally, property values actually increased in January and February, but were offset by a decline in March. The first quarter depreciation of only half a percentage point is a much slower pace than the 3.3 percent decline reported for the prior quarterly period, FHFA said. Over the past year, the agency says prices have fallen 7.1 percent.

FHFA’s all-transactions HPI, which includes data from both home purchases and refinancings, showed more strength over the latest quarter than the purchase-only index. The all-transactions figure rose 0.4 percent from the fourth quarter of last year and is down only 3.3 percent for the year.

FHFA Director James B. Lockhart, commented, “Our latest data are consistent with growing evidence that housing market conditions may be stabilizing in some parts of the country, especially areas not covered by the other major repeat sales price index. I am hopeful that this first quarter data combined with recent market stimulus programs, such as the first-time homebuyer tax credit and President Obama’s Making Home Affordable program may mean that home price depreciation may be easing.”

The industry is certainly not short on home price reports and analysis, and sometimes the differing numbers that are tossed around can lead to confusion, particularly when it comes to housing data that varies significantly from market to market. Both the S&P and FHFA indexes employ the same fundamental repeat-valuations approach, but there are a number of data and methodology differences. FHFA explained the dissimilarities in the two property value reports:
a. The S&P/Case-Shiller indexes only use purchase prices in index calibration, while the all-transactions HPI also includes refinance appraisals. FHFA’s purchase only series is restricted to purchase prices, as are the S&P/Case-Shiller indexes.

b. FHFA’s valuation data are derived from conforming, conventional mortgages provided by Fannie Mae and Freddie Mac. The S&P/Case-Shiller indexes use information obtained from county assessor and recorder offices.

c. The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for more expensive homes have greater influence on estimated price changes than other homes. FHFA’s index weights price trends equally for all properties.

d. The geographic coverage of the indexes differs. The S&P/Case-Shiller National Home Price Index, for example, does not have valuation data from 13 states. FHFA’s U.S. index is calculated using data from all states.

Converting Primary Residences to Rental Properties More Difficult

2009-05-28T08:48:00.000-07:00

The housing market has been as uncertain as the next monthly unemployment figures. Families have put home purchases and remodeling projects on hold, waiting for a positive sign in consumer confidence -- or an upward, consistent move in the stock market -- to make a big-ticket decision.

A friend of mine, whose two daughters are grown and gone, would like to remodel a home in the neighborhood, sell his present residence, and then move in to the remodel. Given the present conditions, he doesn't feel he can do either. He's uncomfortable with investing a ton of dollars on the remodel that he may otherwise need for day-to-day expenses, and he's afraid there's already too much inventory now on the market to list his home for sale.

"The remodel may be closer," he said. "There are a lot of people out there now willing to work for a lot less than they were two years ago. If the drop in labor costs reaches a point that it equals what some of my investments have lost, it's close to a wash. I might as well do it."
Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence. They can sell the current residence and pay off the outstanding mortgage, make the property into a second home, or convert the property to an investment property. In the past two years, more and more people have been unable to sell and have been forced to consider the two other options.

However, unless you have a lot of cash, those two options are not as easy to execute as they were two years ago. In order to ensure that borrowers have sufficient equity and/or reserves to support both the existing financing and the new mortgage being originated, Fannie Mae is updating the policies for qualifying borrowers who are purchasing a new principal residence and converting their existing principal residence to a second home or investment property.

Perhaps the most stringent new rule requires borrowers to have a reserve amount set aside equal to six months of principal, interest, taxes and insurance (PITI) payments on both homes when converting the primary residence to a rental or a second home. Previous guidelines did not include reserves on both homes.

Lenders do have some leeway in the case of a second-home conversion. Lenders may consider reducing reserves of no fewer than two months for both properties if there is documented equity of at least 30 percent in the existing property. The value can be derived from an appraisal, automated valuation model (AVM), or broker price opinion (BPO), minus outstanding liens. The previous guidelines did not include a required equity percentage.

If the owner wishes to convert the primary residence to a second home, the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction.
If the current residence is converted to an investment property, Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment. Again, the new twist is the needed documented equity of at least 30 percent in the existing property. The rental income must be documented with a copy of the fully executed lease agreement, and the receipt of a security deposit from the tenant and deposit into the borrower's account. If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

If the current principal residence is a pending sale, but the transaction will not be closed (with title transfer to a new owner) prior to the new transaction, both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction. This sometimes occurs unexpectedly when an escrow is delayed or when an employee is transferred to a new location and buys a new home before the previous home sells.

Who can afford to pay cash for an additional home without first selling their primary residence? Surprisingly, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision, according to recent study by the National Association of Realtors.

All cash for real estate -- proof that somebody thinks it's a good idea.

Seller Financed Income Properties: Are You Kidding Me?

2009-02-19T21:55:00.001-08:00

We want you to meet Steve. Steve is an experienced real estate investor out of Bay Area in California. Steve did everything right; He bought twelve income properties during 2003 - 2005. He put 10% down on each property and didn't fall for the A.R.Ms, instead he financed the deals at a fixed interest rate. Steve diversified his investments by owning these income properties in six states. Smart move!

Not so fast! When Steve saw an amazing buying opportunity in Fall of 2008, he was declined for an investment property loan because he had more than "5" mortgages on his credit report.

Now meet Abbey. Abbey is a novice real estate investor who wants to buy properties to hold for long term. However, Abbey lacks the most important element to qualify for a traditional mortgage: the verified income. Abbey is a part time student and a full time home maker. Her husband's income is not enough to qualify them for an investment property loan.

Both Steve and Abbey have one thing in common: Both see a huge buying opportunity in today's market for the real estate investors. But neither one of them are viable candidates for an investment property loan even with above average FICO scores.

Recently, we asked one of our top loan brokers for some possible options. The answer wasn't surprising: there are none!

So what are 90% of aspiring real estate investors to do, who don't fit the criteria? The solution: Start thinking out of the box!

Interestingly, a huge industry is thriving in today's real estate market. This industry consists of creative real estate investors / sellers. The idea: Carry the note on the property and sell the note on a discount to thousands of note buyers. Note Buyers? What are they?

The note buying is an old idea that's making a come back during the "credit crunch". The void left by the banks, that are too busy rewarding stupidity of their executives, is rapidly being filled by this sophisticated industry.

Bottom line: Don't give up on your real estate investment goals simply because you are not a "viable" candidate for a conventional mortgage. Please contact us so that we can show you how to utilize the "un-conventional" Seller-carry mortgages to take advantage of this once in a lifetime investment timing.

Fannie Mae Rescinds 4 Property Limit for Investors

2009-02-19T21:50:00.000-08:00

If you read the Fannie Mae official announcement -- you get the sense that the nationalized group is getting with the program. This excerpt comes from the lead paragraph: "Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery."

The use of the phrases "high-credit quality," "bona fide" and "experienced" was a conscious one, by the way. Fannie Mae is averse to first-time investors and other foreclosure opportunists. Instead, it wants to serve individuals with a history of owning and successfully managing rental property.

To that end, Fannie Mae will now finance the purchases of one-unit homes for investors with an interest in between 5-10 properties, provided that all of the following guidelines are met:

· 25 percent down payment on the investment property;
· Minimum credit score of 720;
· No mortgage payments late within the last 12 months;
· No bankruptcies or foreclosures in the last seven years;
· Two years of tax returns showing rental income from all rental properties;
· Six months of principal, interest, taxes and insurance reserves on each of the financed properties.

And lastly, to reduce fraud, Fannie Mae will now require all real estate investors to sign a form granting lenders permission to verify supplied tax returns against the official, IRS-filed version. This document is less commonly known as a 4506-T.

But lest we think this guideline change is Fannie Mae's olive branch to the people, let's remember that our nation's banks are holding record numbers of foreclosed homes on their balance sheets right now while the most likely buyers of those homes have been to-date locked out from financing.

The rollback gives a secondary benefit to investors, too -- even those not buying additional property.

See, when the four-property restriction went into effect it was a surprise, 11th-hour announcement made on the Friday before Fannie Mae's nationalization. This date, meanwhile, has come to be known as the day before the refinance boom started.

So, on the following Monday, when mortgage rates instantly plunged three-quarters of a percent, homeowners with five properties or more found themselves ineligible.

They couldn't refinance their investment homes; they couldn't refinance their vacation homes; and they often couldn't refinance their primary homes, either. While rates fell for nearly every borrower class, experienced real estate investors were locked out. Today, that's no longer the case. "High-credit quality, bona fide" real estate investors are back in the game.

It's good for them; it's good for the banks; and it's good for housing.

Economists Warn, 'Don't Expect Return to High Growth of Past'

2009-02-12T13:42:00.000-08:00

According to a panel of financial experts at the 2009 Economic and Investment Forecast Dinner in Los Angeles last week, more pain lies ahead for the U.S. and global economies as they adjust from a long period of credit-fueled prosperity to a new era in which both economic growth and investment returns are likely to be lower.

At the assembly hosted by the CFA Society of Los Angeles, economists warned that efforts by governments in the United States and other developed nations to stimulate their economies, while necessary, are not going to quickly reverse the recession.

Paul Donovan, managing director and global economist for UBS and one of the panel members, said, “We are in the process of de-leveraging after a 15-year period of gradually increasing borrowing by consumers and others. Policymakers can work to speed up the process of de-leveraging but they cannot stop it. They can try to prevent things from getting worse, and may be able to bring forward the time when we can look forward to a resumption of growth, but what they are doing is not directly stimulating growth at this stage.”

Dr. Sung Won Sohn, former chief economist for Wells Fargo Bank and now professor of economics and finance at Cal State Channel Islands, added that American banks are going to need substantial additional help before they will begin lending again. He explained, “First of all, banks need additional capital and although the government has made some efforts there, more will have to be done. Second, bad loans will have to be extricated from the banks. That hasn’t even begun yet. The third thing that has to happen is the government guaranteeing individual bank loans to small and medium-sized businesses. Things have to go in those three stages. We’re in the middle of the first stage.”

Although the new Treasury Secretary Timothy Geithner presented a fresh plan for economic recovery this week, panelist Robert L. Rodriguez, CEO of First Pacific Advisors, LLC, gave failing grades to the efforts so far by Washington policymakers to deal with the financial crisis. Rodriguez oversees some $6.2 billion in investor assets at First Pacific and was recently named Fixed Income Manager of the Year by Morningstar Research.

Rodriguez said, “I have been highly critical of the actions taken by (Federal Reserve Board Chairman Ben) Bernanke and (Former Treasury Secretary Henry) Paulson, and the rest of the federal government, throughout this credit crisis. They have been on the wrong road and wasted precious time and resources.”

Rodriguez added that recent actions by the new administration do not give him any more confidence. He said he was particularly concerned about mounting government debt. “Our ratio of debt to GDP is skyrocketing,” Rodriguez said. “How we finance that expansion in our debt is a very important question. Do we finance it by printing money or by selling bonds? If the answer is bonds, who is going to purchase them? Excess debt creation led to asset inflation and over-consumption, culminating in this credit crisis mess. A cleansing of the credit system and a reprioritization of economic initiatives are required.”

Despite the grim economic outlook, Dr. Sohn and Donovan said there was a possibility for stock market gains this year.

Dr. Sohn said, “We’re not likely to see the kind of equity gains we’ve seen in the past. But equity markets over-react, and stocks have clearly over-reacted on the downside. Even in the middle of a long recession or depression, we have seen equities jumping 40 to 50 percent. It can happen. We may be in a secular bear market, which can last 12 to 15 years, in this case dating from 2000. But you can have significant bear market rallies within that time frame.”

While cautioning that investors remain highly risk-averse, Donovan added, “You could probably argue that U.S. equities do have some ability to outperform European shares, given what is priced into market.”

The panel discussion in Los Angeles was moderated by Bloomberg TV Anchor Kathleen Hays. CFALA is a network of investment management professionals working to disseminate useful financial information and increase awareness of the value of the Chartered Financial Analyst (CFA) designation, which is intended to lead the investment profession by setting the highest standards of ethics, education, and professional excellence.

Regulator Calls for Foreclosure Suspension, Banks Consent

2009-02-12T13:40:00.000-08:00

On Wednesday, the Office of Thrift Supervision (OTS) – the primary regulator of federal savings holding companies and thrifts, including the nation's largest banks and mortgage lenders – called on OTS-regulated institutions to suspend foreclosures on owner-occupied homes until the Financial Stability Plan's "home loan modification program" is finalized.

At a congressional hearing on the same day, lawmakers pressed the chiefs of major banks who were present to agree to at least a three-week moratorium, the timeframe Treasury officials have given for nailing down the specifics of its proposed mortgage aid program.

The CEOs of Bank of America and Citigroup both agreed to a temporary foreclosure freeze. BofA's Kenneth Lewis said his company would comply as long as it wasn't an “open-ended” suspension and stayed within the 3-week window. Vikram Pandit from Citi said his bank would commit to ensuring persons living in the home were not foreclosed on, but said he could not extend the same concession to property investors.

Wells Fargo's and Goldman Sachs' chief executives, both in attendance on Capitol Hill, said they were already underway with their own aggressive loan modification initiatives, which included necessary foreclosure halts when applicable. ING Direct, another one of the largest thrifts regulated by OTS, said that it also has a moratorium in place for owner-occupied properties, lasting through the end of March.

Following OTS' call-to-arms, House Financial Services Committee Chairman Barney Frank (D-Massachusetts) said he expects that more than 95 percent of U.S. banks will halt foreclosures until the Treasury rolls out its mortgage relief plan. Frank is currently pushing for legislation that would protect lenders from lawsuits resulting from modifications made on mortgages held by secondary market investors – something banks say poses the biggest obstacle to meaningful mortgage relief for troubled homeowners.

The new Financial Stability Plan was unveiled on Tuesday by Treasury Secretary Timothy Geithner, and although at that time he failed to divulge any specifics on government-led mortgage aid, administration officials have said Geithner intends to commit at least $50 billion in funding to prevent avoidable foreclosures by reducing monthly payments for homeowners.

According to a Washington Post report, Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), met yesterday with more than two dozen officials from large banks, nonprofit organizations, and industry groups at the Treasury Department to discuss ideas for foreclosure prevention. The Post said that participants from both sides of the debate -- consumer advocates and the financial industry -- were unaware the other side was invited but said there appeared to be consensus on the depth of the nation's housing crisis.

John Taylor, president of the National Community Reinvestment Coalition, told the Post, "The thing that was striking was the uniformity of support for the idea that we can no longer rely on a voluntary system" within the financial services industry to lead the foreclosure prevention effort.

According to Taylor, there was also strong support for a federal program to buy troubled mortgages at a discount and modify the loans for borrowers, the Post reported. "I know that is going to cost some people some money, but the truth is the foreclosures keep driving us further into this recession," Taylor said.

OTS Director John Reich said in a statement issued on Wednesday, “OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold.”

Reich and other OTS officials participated in the inter-agency effort led by the Treasury Department to develop the Financial Stability Plan.

Economists Predict Recession's End

2009-01-29T19:00:00.000-08:00

The country's recession is the longest and deepest in 60 years, but it will rebound in 2009, according to two economists at the Comerica Bank Economic Forecast Conference in Santa Clara, California.

Comerica Bank's chief economist Dana Johnson told approximately 600 Silicon Valley business leaders, “We should see at least a 6 percent increase in gross domestic product in the third quarter. I don't think it's at all a stretch to say that once the economy picks up steam, it will be really impressive.”

Another economist at the conference, Stanford University's John B. Shoven, agreed, but said he believes the rebound will happen in the fourth quarter of 2009.

He added as soon as investors realize the economy will strengthen in 2010, “the stock market could start to rally in the second quarter,” several months ahead of the recovery.
They both credited the economic stimulus actions taken by the U.S. Government from preventing disaster.

Johnson said, “We came within an eyelash of a catastrophic failure of our financial system.”
The economists said while President Barack Obama has surrounded himself with a strong team of economic advisors, the government won't be able to do much to prevent the unemployment rate increasing to 9 percent by mid-year.

However, Johnson said, “The federal fiscal stimulus headed our way beginning this spring...will do an enormous amount to get this

Real Estate Investor Helps Credit-Challenged Buyers

2009-01-29T18:58:00.000-08:00

Omaha Properties announced last Thursday that it will join with several large lending institutions to help credit-challenged individuals buy a home. Those with lower credit scores (sub 600) will benefit from the program.“It brings great pleasure to be able to assist people who could never afford a home based on their credit score,” said Richard Kingsbury, chief investment officer for Omaha Properties.

“Many of these individuals are good, honest, hard-working people that for whatever reason had financial hardship at one time. Many are now back on their feet, but their credit score still hampers any chance of buying a home... until now!”

Omaha Properties works primarily with subprime lenders. The majority of its home mortgage buyers have credit ratings in the 500s and 600s. Kingsbury said the goal of the program “is to provide a way for people to enjoy the things most take for granted... owning a home. I always felt that it was important to give someone a second a chance. Many of our buyers are people who had something happen to them financially at some point in their lives. Most have given up on even trying to buy a home because of the guidelines placed on trying to get a traditional mortgage.”

NAR Survey Shows Resistance To Tax Credit

2009-01-22T21:47:00.001-08:00

Homebuyers have little interest in the first-time homebuyer tax credit, largely because of the repayment feature, according to a survey of National Association of Realtor (NAR) members.

In its continued effort to persuade Congress to amend the first-time homebuyer tax credit, NAR members were surveyed on their perception of the credit's effectiveness on clients.

Real estate agents told NAR more than two-thirds of clients were first-time buyers, but while potential first-time homebuyers are actively shopping for homes, few are actually purchasing.
The survey asked agents what they felt were the obstacles of the tax credit. They could make multiple selections on the survey. Agents responded the biggest challenges were:

1. The credit must the repaid (71%)

2. Consumers view the repayment of the credit as adding to their debt load (60%)

3. Applies only to first-time homebuyers (43%)

4. Credit is not available as cash at settlement (42%)

5. Income limits (23%)

6. Tax credit is not large enough (15%)

Additionally, 27 percent of agents that took the survey said they had not completed a single sale to their first-time homebuyer clients, and another 26 percent said they had only closed one transaction. NAR did not indicate over what period of time those results come from, but the survey was administered during the week of January 5.

Delinquency Rates Expected To Rise

2009-01-22T21:46:00.000-08:00

Homeowner delinquency rates are expected to be higher than they've been in the past 17 years, according to TransUnion Trend Data.

TransUnion estimates a 54 percent increase in mortgages that are 60 or more days delinquent, from 4.66 percent at the end of 2008 to a projected 7.17 percent at the end of 2009. Prior to the housing and credit crisis, delinquencies have been around 2 percent for most of the decade.
TransUnion first began recording statistics in 1992, and samples a database of 27 million anonymous consumer records.

Mortgages won't be alone in the increase in delinquencies. TransUnion estimates delinquency rates for auto loans will increase from 0.80 percent at the end of 2008 to1.03 percent by the end of 2009.

If the unemployment rate increases, as many expect it will, borrowers will have a more difficult time making their obligations.

James Chessen, chief economist for the American Bankers Association told The Detroit Free Press, “The key factor that drives any consumer credit delinquency is job loss.”

The forecasts are bad news for consumers as credit markets continue to tighten, and even well-qualified borrowers will have to shop around for loans.

Fannie Mae Program Pre-Approves Short Sales

2009-01-15T20:06:00.000-08:00

In an effort to hasten the process of short selling homes, Fannie Mae has launched a pilot program in two of the country's hardest hit areas, according to a report in The Wall Street Journal.

The program, in its first of three months in Phoenix, Arizona and Orlando, Florida, will pre-approve selling prices for homes in danger of foreclosure.
Lenders will sometimes allow homeowners to sell their property for less than the balance of their mortgage and forgive the remaining debt when the alternative is a greater loss from an expensive foreclosure.

As foreclosure rates increased, short sales were seen as a viable option to minimized lenders' losses and help homeowners get out of homes they couldn't afford quickly. But many attempts at short sales fail because lenders and servicers would reject the sales price agreed upon by the buyer and seller, or deals fell through because they took too long to get approved.

“Short sales have received such a bad reputation among real-estate agents that, as a portion of the overall mortgage market, they have gone down,” Tom Popik, a survey director for research firm Campbell Communications, told the Journal. “We hear a lot of people say, 'I'm tired of doing them. They've been a nightmare.'”

In an effort to hasten the process of short selling homes, Fannie Mae has launched a pilot program in two of the country's hardest hit areas, according to a report in The Wall Street Journal.

The program, in its first of three months in Phoenix, Arizona and Orlando, Florida, will pre-approve selling prices for homes in danger of foreclosure.

Lenders will sometimes allow homeowners to sell their property for less than the balance of their mortgage and forgive the remaining debt when the alternative is a greater loss from an expensive foreclosure.

The average wait time to get approval of a short sale nearly doubled to more than eight weeks, according to a real estate agent survey Campbell conducted in November.

In the new program, Fannie Mae agrees on a price for a home, and how much of a loss it will take on the sale before the buyer is found. The program is open to homeowners who have Fannie Mae mortgages serviced by Bank of America's Countrywide Financial Corp. subsidiary, and are already listed for less than the remaining balance of the mortgage.

“Fannie Mae's goal is to make the short-sale process as fast as possible for homeowners in financial distress,” in order to ensure a “graceful exit strategy for homeowners,” Kevin Brungardt, Fannie Mae's vice president for servicing management, told the Journal.

While lenders still lose money on short sales, the story cites an analysis by Clayton Holdings Inc. that shows the average loss from a short sale is 19 percent, compared to the average 40 percent loss from a foreclosure sale.

2008 Foreclosures Up 81%

2009-01-15T20:04:00.000-08:00

Foreclosure filings were up 81 percent in 2008, according to RealtyTrac 2008 U.S. Foreclosure Market Report.

There were 3,157,806 foreclosure filings — default notices, auction sale notices, and bank repossessions — reported on 2,330,483 U.S. properties during the year, an 81 percent increase in total properties from 2007 and a 225 percent increase in total properties from 2006, the report said.

The huge increase means one in 54 homes received at least one foreclosure filing during the year.

December 2008's foreclosure filings were up 17 percent from November 2008, and up more than 40 percent from December 2007. Despite the December spike, foreclosure activity in the fourth quarter of 2008 was down 4 percent from the third quarter, but still up 40 percent from the fourth quarter of 2007.

“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” RealtyTrac CEO James Saccacio said. “The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners.”

Saccacio believes new legislation that prolongs the foreclosure process hasn't done anything to prevent foreclosure filings, it's only delayed them.

A new California law requires lenders to provide written notice of their intent to initiate foreclosure proceedings 30 days prior to issuing a notice of default (NOD). After the law was enacted, NOD filings dropped more than 50 percent from 44,278 in August to 21,665 in September. But just three months later, the number of filings jumped 122 percent, to more than 42,000 in December.

“Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami,” Saccacio said. “And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”

The states with the top ten foreclosure rates in 2008 were Nevada, Florida, Arizona, California, Colorado, Michigan, Ohio, Georgia, Illinois, and New Jersey.

California had the greatest number of foreclosure filings, up 110 percent from 2007. Florida, Arizona, Ohio, Michigan, Illinois, Texas, Georgia, Nevada and New Jersey filled out the rest of the top ten in total foreclosures.

Fannie & Freddie extend eviction suspension

2009-01-08T18:46:00.000-08:00

Fannie Mae and Freddie Mac will extend their suspension of all foreclosure sales and evictions for occupied single-family homes that the two companies own mortgages for through January 31, 2009.

The two had suspended the proceedings in anticipation of the holiday season beginning on Nov. 26, but were expected to resume on Jan. 9. Now they say they will give lenders servicing their mortgages more time to prevent foreclosures with the streamlined modification program they developed with the Federal Housing Finance Agency (FHFA), the HOPE NOW Alliance, and 27 mortgage servicers.

The suspensions do not apply to vacant single family properties.

“Freddie Mac is committed to pursuing every responsible opportunity to reduce foreclosures and accelerate the return of stability to the U.S. housing market,” Freddie Mac CEO David Moffett said. “Today’s announcement will provide Freddie Mac and its servicers additional opportunities to help put more families on the path to stable homeownership.”

The streamlined modification program went into operation on Dec. 15. It's aimed at borrowers that have missed at least three payments, own and occupy the property associated with the mortgage as a primary residence, and hasn't filed for bankruptcy. The program allows debtors and servicers the ability to modify loans so the homeowner can afford their monthly payment by reducing the interest rate and with mortgage term extensions.

The suspension will also give servicers more time to utilize Fannie Mae's National REO Rental Policy, which will allow renters in company-owned foreclosed properties to stay in their homes. Details of that new policy will be announced shortly.

In addition, borrowers in danger of missing a payment have options like forbearance, rate reductions, and mortgage term extensions. Freddie Mac said it helped 60 percent of its delinquent borrowers avoid foreclosure in 2008.

Home financing to get creative in 2009

2009-01-08T18:45:00.000-08:00

"Creating financing" is one of the items that is "in" for 2009, according to an annual survey conducted by Mark Nash, a real estate author who uses a network of 839 Realtors in all 50 states and eight Canadian provinces to acquire consumer responses to a variety of housing questions.

Nash, whose book "1001 Tips for Buying & Selling a Home" is a helpful guide for consumers considering the residential market, believes that seller financing, or "carrying the paper," will return to popularity this year along with the lease-option. The lease-option allows a potential buyer to lease the property and have some, or all, of the lease money applied to the purchase price if the potential buyer exercised the option to purchase.

In a conventional lease with option to buy, the seller charges the buyer a nonrefundable fee for the option to purchase the property at some agreed-upon point in time. The amount can vary depending on how eager the seller is to sell and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.

Because the lessee has made no down payment, the monthly rental fee is typically higher than prevailing market rates. The two parties agree on what portion of the rent will be applied to the down payment. Any amount can be credited.

The seller doesn't have to pay tax on the option fee until the option is exercised or the option period expires. If the option is exercised, the fee is considered part of the down payment.
It's often difficult to locate a seller willing to accept a lease-option unless the seller is eager to move. There will be many eager sellers in 2009.

Not all buyers are eager to seek bank financing, and an increasing number are finding they are unable to qualify under new stringent loan guidelines. Buyers would rather avoid loan costs and the possibility of a deal going south at the last minute. In return, they often offer the seller a slightly higher price.

Most of the time, seller financing works well for both sides, but both sides -- especially the seller -- should be prepared to handle the deal much like a small business. While the buyer can simply mail a check every month, it's up the seller to craft the ground rules.

If you participate in any sort of seller financing, make sure to build in safety features that protect your investment and sanity. In fact, it's not a bad idea to copy many of the loan requirements a local bank would insist upon.

Mortgage Modifications

2008-12-29T08:20:00.001-08:00

Many homeowners will receive foreclosure-prevention help this year, according to an industry report issued Monday, with the number expected to rise to more than 3 million in 2009.But fear is that a great number of these workouts will fail and many families will lose their homes anyway.Hope Now, the private-sector coalition of major lenders, servicers and consumer advocates, said that it completed 208,000 loan adjustments in November, and that the number of such adjustments would rise to more than 300,000 a month next year.The workouts being offered borrowers were of two types.First, there are simple repayment plans, which allow borrowers time to make up missed payments. Second, there are mortgage modifications, the more comprehensive and effective of the two types, which involve reducing or freezing interest rates, expanding the time given to repay loans or lowering mortgage balances. Many more of the workouts being issued by Hope Now members are mortgage modifications than in the past. These increased by 29% during the three months ended Nov. 30, while repayment plans increased by just 6%.

The goal is to make these mortgages more affordable, more sustainable.

Hope Now's critics claim, however, that even a lot of the mortgage modifications being done will prove unsuccessful because they do little to actually lower mortgage payments. They may merely freeze rates -- at unaffordable levels -- but add missed payments to mortgage balances. Some of the borrowers are getting put into modifications that are built to fail. Data released in early December, revealed that 51% of those with loans modified in the second quarter were already delinquent with their payments within just six months of the workouts. The number of modifications completed in November fell to 99,823, a 4% decrease compared with October. The good news was a decline in the number of actual completed foreclosures. There were 69,075 foreclosure sales during the month, a 14% drop from October. Industry insiders attribute some of the foreclosure sale drop to state and local initiatives that have instituted moratoriums or delays on foreclosure actions. For example, in Massachusetts, every at-risk homeowner now has to be notified of their lender's intention to file a notice of default against them, and they get a 90 day window during which they can attempt to bring their payments up to date.

And in November, Fannie Mae and Freddie Mac both announced moratoriums on foreclosures, and other major lenders also cut back on foreclosure proceedings.

Will this help etop tyhe flood remains to be seen.

Mortgage Rates

2008-12-18T11:11:00.000-08:00

Mortgage rates fell this week, with the 30-year fixed mortgage sinking to its lowest rate in 37 years as the Federal Reserve cut interest rates to historic lows. Government-sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.19% for the week ending Dec. 18. That's down from 5.47% last week and below the year-ago rate of 6.14%. Interest rates for 30-year fixed-rate mortgage rates fell for the seventh consecutive week, moving these rates to the lowest since the survey began in April 1971. The decline was supported by the Federal Reserve announcement on December 16th, when it cut the federal funds target to a record low and stated it stood ready to expand its purchases of mortgage-related assets as conditions warrant. In a bid to reduce interest rates and to stabilize the housing market, the government in late November announced a plan to buy $500 billion worth of mortgage-backed securities and $100 billion of debt issued by government-sponsored mortgage financiers Fannie Mae and Freddie Mac. The 15-year fixed rate mortgage this week fell to its lowest rate in four and a half years. It averaged 4.92%, down from 5.20% last week. A year ago at this time, a 15-year fixed rate loan averaged 5.79%.

Foreclosure rates are down

2008-12-12T08:19:00.000-08:00

Foreclosure filings dropped 7% from October to November, according a report released Thursday. But don't break out the bubbly. The tide of foreclosures may be slow now, but the flood isn't over yet. November foreclosure filings fell to 259,085, or one for every 488 households in the nation, according to the latest report from RealtyTrac, the online marketer of foreclosure properties. That was down from October, but up 28% from November of 2007. A total of 78,179 families lost their homes during the month, down 8% from October when 84,868 homes were repossessed by lenders. A total of 1,014,618 homes have been lost to foreclosure since the housing crisis hit back in August 2007. November's decline in foreclosure filings is deceiving, according to Rick Sharga, RealtyTrac's vice president of marketing, because much of it is attributable to temporary foreclosure prevention efforts. The reduction is because Fannie Mae and Freddie Mac both announced moratoriums on foreclosures, while major lenders also put the brakes on foreclosure proceedings. The economic climate is rapidly deteriorating and job losses are soaring - factors that are sure to exacerbate the housing crisis. And various forward-looking indicators show more trouble ahead. For instance, the number of homeowners who fell behind on their mortgages hit a record 6.99% in the third quarter, up from 5.59% a year ago, according to the Mortgage Bankers Association. Last week, Credit Suisse issued a report forecasting 8.1 million foreclosures by the end of 2012, accounting for 16% of all U.S. mortgages. Meanwhile, evidence is mounting that current foreclosure-prevention efforts are falling well short of the mark. A Dec. 8 report from the Office of Comptroller of the Currency stated that more than half of the borrowers who had their mortgages modified in the first half of 2008 are already delinquent again. Many of these delinquencies will turn into foreclosures in the coming months. To be viable, most modifications will require lenders to make a significant principal reduction. And for the most part, that's not happening. The former boom states mostly in the Sun Belt, as well as Midwestern industrial states hit hard by job losses, continue to bear the brunt of the foreclosure crisis. Nevada had the highest rate of foreclosures. One of every 76 homes there received some kind of foreclosure filing - notice of default, notice of foreclosure sale, bank repossession, etc. - during November. Florida was second with one filing for every 173 homes and Arizona had one for every 198. California had the highest total number of filings with 60,491, and the fourth highest rate; one for every 218 households. Michigan was the hardest-hit state outside of the Sun Belt, with one filing for every 309 households. Among cities, Cape Coral-Ft. Myers, Fla., posted the highest rate of foreclosure filings with one for every 59 households. Las Vegas had the second highest rate with one for every 61 homes.

Feds to Lower Interest Rate to 4.5%

2008-12-04T09:43:00.001-08:00

Lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%. Similar to an effort unveiled last week by the Federal Reserve, the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. Details on the plan remain sketchy, but an announcement could come as early as next week. The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market. Last week's Fed move drove mortgage rates down to 5.5%, from 6.06% a week earlier. The Fed said on Nov. 26 that it would purchase up to $500 billion in mortgage-backed securities from Fannie, Freddie and Ginnie Mae, and that it would buy another $100 billion in direct debt issued by those firms. Mortgage applications more than doubled as a result, the Mortgage Bankers Association said Wednesday. Much of the activity stemmed from homeowners looking to refinance. Industry groups have been pressuring President-elect Barack Obama and lawmakers to lend a helping hand to the housing market. The National Association of Realtors, for instance, has called for Treasury to buy mortgage-backed securities. Meanwhile, a coalition of industry groups have banded together under the "Fix Housing First" banner to call for measures including tax credits of up to $22,000 and the creation of a 30-year mortgage, carrying rates as low as 2.99%.
Experts see both pros and cons
Experts, however, had mixed views on how much a new Treasury initiative would help homeowners and the economy. Some felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend. This program is clearly designed to bring buyers into the marketplace and soak the inventory of unsold homes. But others questioned whether rates would remain low and, even if they did, only a narrow slice of credit-worthy borrowers would benefit. Rates are already inching up, hitting 5.75% on Wednesday. Several government attempts to lower mortgage rates this year have failed to have a lasting effect. Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates.Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments. Rates have not fallen below 5.37% in more than 45 years.

Mortageg Market News

2008-12-01T09:18:00.000-08:00

Mortgage lenders helped save a record 225,000 at-risk mortgage borrowers from losing their homes during October. The coalition, Hope Now, said the number was up from 212,000 in September. It claimed its members have helped 2.7 million homeowners have keep their homes since July 2007, with 1.7 million of those coming in the past 10 months alone. Workouts offered at-risk mortgages fall into two general categories.
In the first, called repayment plans, lenders grant delinquent borrowers extra time to make up missed bill. Borrowers may be allowed to pay more each month for a set number of months, for example, or payments can be added to the end of the loan's term. Of the 225,000 workouts arranged in October, 122,000 were of this type.
The second kind of workout is called a mortgage modification because the actual terms of the contract have to be rewritten. Changes can include freezing or lowering interest rates, extending the life of the loan - say from 30 years to 40 years - or even forgiving some of the balance owed.
Critics say this is a much more viable solution to payment problems because it can lower payments enough to make them affordable. The number of modifications accomplished over the past three months through October increased 24% over the previous three months while repayment plans were up only 9.8%. The U.S. economy is still troubled and that means that changing the terms of a loan is an increasingly appropriate way to keep more homeowners in their homes. Hope Now members are likely to continue to consider them as long as the broader economy continues to struggle. One sign that these efforts may be starting to pay off came in the data for the number of people who lost their homes during the month. That totaled a bit more than 77,000, an approximately 10% improvement over September when nearly 86,000 people had their homes repossessed. Many lenders have expanded their mortgage modification efforts over the past few months. In August, the Federal Deposit Insurance Corp. announced it would modify many of the loans it is administrated since its takeover of IndyMac Bank. The FDIC said it would lower payments to no more than 38% of gross income for at-risk borrowers by lowering mortgage rates, extending terms or deferring some of the principal. That was followed by similar announcements of added help for, among others, Countrywide-Bank of America , Chase Mortgage and Citibank borrowers, as well as a new mortgage rescue plan for borrowers of Fannie Mae and Freddie Mac backed loans.

Suspended Foreclosures

2008-11-24T08:23:00.001-08:00

Mortgage giants Fannie Mae and Freddie Mac have directed their network of servicers to halt all foreclosure and eviction proceedings between Nov. 26 2008 and Jan. 9, 2009, meant to give a recently announced rescue plan time to work. The Streamlined Modification Program, set to launch Dec. 15, enables delinquent borrowers to get a modified mortgage that lowers payments to no more than 38% of their gross incomes. By delaying these foreclosure sales, the nation's servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new program. Freddie has told its servicers to immediately contact the 6,000 borrowers who already have auction sales or evictions scheduled for between the specified dates to tell them the sales are postponed. Fannie estimated that 10,000 of its borrowers will be affected. Borrowers facing eviction between Nov. 20 and Nov. 26 were not expected to get relief. The foreclosure suspension affects only a small percentage of homeowners facing foreclosure over the next two months. Although Fannie and Freddie mortgages account for more than half of all mortgages, they have relatively few of the most risky subprime loans at the center of the foreclosure crisis. The vast majority of what's going into foreclosure are not Fannie Freddie loans. The Fannie, Freddie plan was unveiled on Nov. 11. Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home's current value, live in the home on which the mortgage was taken and have not filed for bankruptcy. The mortgage rate could be lowered to as little as 3% for five years. After that, it would increase by 1 percentage point a year until it hits either the market rate or the original interest rate, whichever is lower. Unlike previous federal efforts, participation by servicers is not voluntary. Several major servicers,including Bank of America, JPMorgan Chase and Citigroup, have recently announced expansions of their foreclosure prevention efforts, which could aid nearly a million more borrowers

Housing Fix

2008-11-17T08:06:00.000-08:00

Mortgage giants Fannie Mae or Freddie Mac may back 30 million mortgages. But that doesn't mean that the new foreclosure prevention program announced this week by the Bush administration will rescue every troubled borrower on their books. The Federal Housing Finance Agency (FHFA), which took control of Fannie and Freddie in September, together with Hope Now, the coalition of lenders, servicers, investors and community groups, designed the plan to help some of the most at-risk homeowners. The plan, which begins on Dec. 15, is open to borrowers with loans owned or backed by Fannie and Freddie who are at least 90 days behind with their mortgage payments. But in reality, qualifying for the program will probably be a lot more complicated than meeting these two requirements. In the end, it's probable that only a relatively narrow swath of people will benefit from the initiative. About 1.22% of Freddie's 12 million loans are 90 days or more late, while 1.7% of Fannie's 18 million loans are that far past due. That's a total of more than 450,000 borrowers, however it's unlikely that all or even most of them will get help. Fannie and Freddie are only targeting homeowners who are more than three months past due on their loans in order to ensure that the most troubled borrowers get help immediately. Beyond that, borrowers will have to write what's called a "hardship letter" to illustrate that they fell behind for a good reason - whether it's a a job loss, divorce or a medical problem. If they can't show that, they don't get a fix. Another condition: Borrowers cannot have too much equity in their homes. If their home's current market value exceeds their mortgage balance by more than 10%, they're considered too well off to participate. Instead, these borrowers have the option to tap that home equity, either by refinancing or taking out a home equity loan, to get current with their payments. And some borrowers are simply too far gone to help according to Brad German, a spokesman for Freddie Mac. Those with a mountain of debt and little income may need a much more drastic modification than any lender would be prepared to issue.Even borrowers in very bad shape should contact their lenders. They may not qualify for a loan workout, but a bank may be willing to do a short sale or a deed in lieu of foreclosure. In a short sale the lender agrees to let the borrower sell the property for less than what the mortgage is worth and forgive the difference. In a deed in lieu of foreclosure the borrower essentially gives the house back to the bank. Either of these options will do a lot less damage to a borrower's credit score. Finally, not everyone who could benefit from the program will chose to participate. Surprisingly, many borrowers who are in trouble just don't do anything; they don't contact their banks and they ignore their lender's phone calls and letters. Although the program may not have a massive impact, it's still a welcome supplement for the many other plans - FHA Secure, Hope for Homeowners and programs from individual lenders - already in place. And officials hope that it will provide an easy-to-apply template for other modification programs. It's an important step forward for the industry to establish clear-cut guidelines, that make it easier for servicers to act on modifications and for borrowers to understand what is involved. Lenders will look at their portfolios for borrowers who qualify, and then send out letters informing them that help is available and asking the borrowers for financial information, such as pay stubs and bills, as well as hardship letters. Then the banks will use that information to determine if they can keep a borrower in their home by reducing their monthly payment to no more than 38% of their gross income. To do that, they can lower interest rates to as little as 3%, extend the length of the loan or defer some of the loan principal. After borrowers complete their workout and make three payments at the lower level, the fix becomes permanent. At-risk borrowers need to call their lenders as soon as possible rather than waiting for the Dec. 15 start date. The longer borrowers wait, the more they fall behind on their payments, the harder it is to help them.

Homeowners Bailout

2008-11-11T11:18:00.000-08:00

The governement administration is set to unveil on today a potentially extensive new program to modify mortgages and help at-risk homeowners and stabilize the battered real estate market.The plan centers on Fannie Mae and Freddie Mac, which between them own or back about $5 trillion in loans. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages. While a number of major banks, including Citigroup, JPMorgan, Chase and Bank of America,have announced loan modifications programs in recent weeks, they hold only a fraction of the nation's mortgages compared with Fannie and Freddie.The government will establish standards for loan modifications and provide guarantees for loans meeting those standards so that unaffordable loans could be converted into loans that are sustainable over the long term. Most of the mortgage modification programs announced by banks so far try to cap the payments of homeowners at risk of losing their homes at a level they can afford, typically about 34% to 40% of their income, through lower interest rates, longer repayment schedules or reductions in loan balances. There are reports that the Fannie-Freddie plan will cap payment at the 38% level. It is clearly in the interest of the mortgage finance firms as well as banks to take steps to halt foreclosures. The market is already flooded with far more new and existing homes for sale than there are buyers, and foreclosures will only further drive down home prices and lead to more foreclosures in the future. Forecasts are saying that even with loan modification programs, 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale, and another 1.9 million are projected to lose their homes in 2009. On Monday, Fannie reported a $29 billion loss in the third quarter. The company also reported sharp increases in loan default rates and the amount it is setting aside for future loan losses.

Job Loss vs Foreclosure

2008-11-10T09:07:00.000-08:00

In addition to defaults due to bad mortgages these days banks are seeing more foreclosure filings due to job losses. For years, bad loans and their aftershocks have been sending homeowners into foreclosure. Now it's lost jobs that are putting troubled borrowers over the edge. As the economy tanks, unemployment is the major factor driving a much larger proportion of foreclosures now than in the earlier stages of the mortgage meltdown. In June, 45.5% of all delinquencies reported by Freddie Mac were due to unemployment or the loss of income, according to the company. That's an increase from 36.3% in 2006.And that's a situation that more and more people are finding themselves in. Nearly one million Americans have lost their jobs in 2008. 159,000 private sector jobs were lost in September. The rise in job losses will increase and extend the delinquency trend. Of course the housing crisis is driving unemployment, which in turn has exacerbated the housing crisis - particularly in bubble states like Florida, Nevada and Arizona. Like Florida, California has seen its economy devastated by the housing meltdown. Foreclosure prevention counselors now have far more clients seeking help because their jobs disappeared, rather than because their adjustable-rate mortgages are resetting.

As our economy continues to tank we are going to see more and more foreclosure fillings. I can guarantee that none of those people would like to loose their homes, but if you have a job that doesn’t pay enough you have no other choice. People have countless bills and the money that they make is not even enough to cover those much less to cover their mortgage, the only option they have is to stop paying for their mortgage. I heard rumors about the companies that negotiate with lenders to modify the existing mortgages to new terms, I could bet that every single homeowner facing financial hardship would be more than willing to accept the modified deal where it would become affordable for hima to have a mortgage in today’s economy. Let’s hope that we see more of these deals for the people that really need it.

Housing Prices

2008-11-06T09:36:00.001-08:00

Hurting home prices were big rises in foreclosures over the past 12 months, which may be getting even worse. Delinquencies more than doubled over that time and more than 155,000 lost their homes in bank repossessions during the first three months of the year. With many adjustable rate mortgages (ARMs) poised to reset this year to higher interest rates, defaults could go even higher. All that foreclosure activity added to the glut of homes on the market. The total inventory has risen to an average of 10 months worth of unsold homes. In addition, a record number - 2.9 million - of vacant homes are up for sale.The big inventory has led to aggressive price slashing and increased incentives by builders looking to sell homes. They've also cut way back on housing starts, which are at a 17-year low.Condo prices fared a bit better than single-family homes. The median price fell just 3% since early 2007. The price declines in falling markets may not have run their course. Some analysts point to low home prices in many Midwestern cities and assert there's not much room for prices to fall but Youngblood disagrees.As for the bubble markets that have already lost 30% of their values. Buble markets are expected to drop another 20% or so through February 2009.
So if the home prices keep plumetting in the bubble markets that means we are ending upside down on our mortgages. Ability and willingness to pay is going to lack which will as a result have more homes on the market. How long is it going to take for the economy to recover and stabilize housing prices, we can't tell. Our focus should remain in the areas that were not affected by housing bubble and consequently are not suffering decline in home values. Banks would be more willing to loan money in such areas and our life could be easier.

Lending Market Update

2008-11-03T14:58:00.000-08:00

Banks tightened the guidelines further on all sorts of lending, from home mortgages to credit cards and business loans, as the worst financial crisis in seven decades took a bigger toll on the economy. The Federal Reserve said Monday that its latest quarterly survey of bank lending practices found high numbers of banks reporting tighter credit standards across a broad range of loan products. Nearly 60% of banks responding to the survey said they had tightened lending standards on credit-card debt The unprecedented government moves are designed to bolster banks' balance sheets and break the jam in bank lending to get the credit system moving again -- and prevent the country sinking into a deep and prolonged recession. The Fed found 85% of the domestic banks responding to the survey reported that they had tightened their lending standards for a major type of business loans known as "commercial and industrial" loans, up from 60% in the June survey. Nearly all banks -- 95% -- reported tighter standards for the lines of credit they extend to large and medium-sized businesses. A large number of banks also reported they were tightening standards for both credit cards and other types of consumer loans. Besides the nearly 60% of banks tightening standards on credit-card debt, 65% said they had tightened lending standards for other types of consumer loans over the past three months. Amid the souring economy and rising job losses, defaults on credit-card debt have mounted, and banks already staggering from the mortgage and credit crises are losing billions more from unpaid credit-card bills. Credit-card lenders have been reducing customers' credit lines, raising interest rates or even closing accounts as they tighten the reins to reduce their risk. Continuing a pattern seen since the housing bubble burst, large majorities of banks reported tighter lending standards on prime mortgage loans, as well as nontraditional mortgage loans and subprime mortgages extended to borrowers with weak credit histories. The Fed survey found 70% of the banks responding said they had tightened lending standards further for prime mortgages. That was on top of 75% who were tightening such standards in the previous survey. The latest results for that area covered 52 institutions that account for about 78% of residential real estate loans as of June. Record defaults that began in the area of subprime mortgages have resulted in billions of dollars in losses for financial institutions and triggered the most severe financial crisis to hit this country.
How is all this going to play out affects, every one of us. The loss of credit availability will definitely affect our plans for success as well as our ability to reach our financial goals. Instead of kicking back and “enjoying the ride” we should get up and grab every opportunity while we still have it.

Bailout Plan

2008-10-31T09:40:00.001-07:00

The government is expected to announce soon that it will devote up to $50 billion to directly address the source of the financial crisis: bad mortgages and millions of homeowners at risk of foreclosure. No decisions yet have been made on a number of housing proposals. New program would be designed to prevent foreclosures by having lenders reduce delinquent borrowers' mortgage payments to affordable levels. In exchange the government would guarantee some percentage of each loan to backstop lenders if borrowers re-default on modified mortgages. The plan could help up to 3 million homeowners. The plan being considered likely would not require such a strict write down. Instead, it might require that the new payment for the borrower be affordable. Monthly payments can be made affordable by, among other ways, reducing the interest rate for a period of time or extending the term of the loan. Typically one way to determine affordability is to consider a delinquent borrower's debt-to-income ratio. At Indy Mac, which was taken over by the FDIC this summer, loans are being modified so that borrowers' new mortgage payment - including insurance and taxes - does not exceed 38% of their pre-tax income. The new government plan could offer lenders a way to reduce their losses on troubled loans. Lenders would have to modify the loan to make it affordable. Funding for the potential initiative would come from the $700 billion financial rescue package passed by lawmakers in early October. To date, most of the money from that package has been devoted to getting the credit markets going again. Details of the plan are still being worked out between the Treasury, the White House and the FDIC. The government and lenders are behind where they should be in terms of preventing avoidable foreclosures. And that while voluntary programs have been helpful, going forward there needs to be a package of incentives. On Thursday, the majority of Senate Democrats on the Banking Committee sent a letter to President Bush urging him to use the powers granted under the financial rescue package "decisively, aggressively, and swiftly to reduce foreclosures." The fact remains that the administration has not dedicated the time, attention or resources needed to address the cause of the crisis - the historic levels of foreclosure.

What to do with Upside Down Real Estate Investments?

2008-10-27T17:54:00.000-07:00

We are presenting a one hour webinar on November 11th on this topic. Please sign up for it on our website www.cashflowbox.com

We are also looking for input from our readers and investors. Any ideas?

Please feel free to post them. Thanks

The Housing Market

2008-10-27T10:48:00.000-07:00

The solution for existing housing market troubles is nowhere in the sight. It seems to be getting worse as the time goes on. We see daily that the government is trying to solve the crisis that we are in.

The feds are considering guaranteeing payments on some troubled mortgages. The move would aim to reduce foreclosures by pushing investors and lenders to agree to restructure loans.While such an outcome would no doubt keep some residents in their homes, it's worth noting that the government has yet to put forth any proposal that approaches what it has done in the financial sector. Government support for homeowners has been limited to a few modest foreclosure-reduction and mortgage-refinancing plans. But with tens of thousands of jobs being lost every month, the decline of values in the housing market - the biggest source of Americans' personal wealth - is weighing even more heavily on the economy. House prices have fallen 17% over the past year. Foreclosure filings rose 71% from a year ago in the third quarter. The government's failure to act pre-emptively and decisively on the housing crunch has only added to the problem. The comments Thursday by FDIC chief Bair suggest that the government's first priority is to speed the restructuring of troubled loans. But there are numerous hurdles to loan workouts, not the least of which is that some borrowers may simply have bought houses they couldn't afford no matter the terms of their loan.

Still, given the scale of the crisis, a piecemeal approach to restructuring mortgages may not be enough. Millions of homeowners could end up in trouble in a deep recession, because they bought houses during a decade when prices essentially doubled even as incomes were flat. Now, prices are moving back into their historic relationship with rents, which will leave many borrowers owing more than their houses are worth. It's tough to devise a housing rescue plan in large part because there's no consensus on how the burden of falling house prices should be shared. Should lenders and investors have to take substantial losses, as envisioned in, for instance, the FHA Secure refinancing plan that was enacted earlier this year? Or should the government consider an approach that would guarantee mortgage payments across the board, and then leave taxpayers on the hook for losses taken in any mortgage restructurings?

Either way, there's more pain ahead for both lenders and homeowners. Even after the declines of recent years, the cost of buying a house in many areas remains well above the price of a comparable rental.

Which way all this is going to go the time will show.

Emerging Real Estate Markets Nationwide

2008-10-14T13:05:00.000-07:00

Where are some of the emerging real estate markets located? What makes these markets "Bubble Proof"? Please post your thoughts and insights.

Wholesale Real Estate Deals

2008-10-14T13:03:00.000-07:00

Wholesaling Properties has become a lucaritive business. Please share your success and failure stories with other investors.

Is Prosperity Pure Luck?

2008-10-13T17:43:00.000-07:00

I have always wondered why some folks are born with the "midas touch" while most struggle all life to make ends meet. Is it a pure coincidence or is there a higher power working on our case? What do you think?