Economists Predict Recession's End

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

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

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

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

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.

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.'”

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%

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

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

"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.