A record 3 million U.S. homes will be repossessed by lenders this year as high unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast.

Last year there were 2.82 million foreclosures, the most since RealtyTrac began compiling data in 2005. More than 4.5 million filings are expected this year, including default or auction notices and bank seizures, said Rick Sharga, senior vice president for the seller of default data and forecasts based in Irvine, Calif. There were 3.96 million filings in 2009.

“This will be the peak year, and the main reasons are unemployment and house prices that have stabilized way below mortgage amounts,” Kenneth Rosen, chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley, said in an interview.

Government and lender efforts to keep people in their homes are failing to relieve the worst foreclosure crisis since the Great Depression. Unemployment was 10 percent in December, unchanged from the previous month, while the so-called underemployment rate that includes part-time workers and discouraged workers rose to 17.3 percent from 17.2 percent, the Labor Department said Jan. 8.

U.S. lenders permanently modified 31,382 mortgages, or 1 percent, of the 4 million loans targeted under the Obama administration’s foreclosure prevention plan through November, the U.S. Treasury Department said last month. Fewer than half of the 3.2 million homeowners estimated as eligible for mortgage relief by the Treasury actually qualify, according to Herb Allison, assistant secretary for financial stability.

“The government doesn’t have their act together on housing,” Rosen said. “They seem to be pussy-footing around. We need a much more robust effort.”

Obama’s loan-modification program is “destined to fail” because it doesn’t confront the problem of negative equity that is driving foreclosures, Laurie Goodman, senior managing director at Amherst Securities Group LP, told Congress Dec. 8. Homeowners with negative equity, where a property is worth less than the loan, have little incentive to keep paying the mortgage and will “strategically default,” Rosen said.

More than 728,000 borrowers have already received an average $550 reduction in monthly payments, giving them “a second chance to stay in their homes,” she said.

An $8,000 first-time homebuyer tax credit and a $200 billion lifeline to keep mortgage buyers Fannie Mae and Freddie Mac solvent are among the administration’s efforts to date that have supported the housing market, she said.

“Modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Reilly said.

The number of homeowners with negative equity totaled 10.7 million, or 23 percent, at the end of the third quarter, according to a Nov. 24 report by First American CoreLogic, a Santa Ana, Calif.-based real estate research firm.

Home prices probably fell 13 percent in 2009 to a median of $172,700, following a drop of 9.5 percent the previous year, Walt Molony, a spokesman for the National Association of Realtors, said in an interview. Prices are down 26 percent from the July 2006 peak.

Defaults among prime borrowers are likely to accelerate, adding to a “huge” inventory of properties that banks possess and haven’t yet put on the market, according to Robert Shiller and Karl Case, who created the S&P/Case-Shiller Home Price Index. In September, Goodman estimated that 7 million homes were already in foreclosure or likely to be seized.

The housing market is weighed down by a “a massive supply of delinquent loans” that will end up in foreclosure this year, James Saccacio, RealtyTrac’s chief executive officer, said in a statement Friday.

The end of the government’s tax credit for first-time buyers, scheduled to expire in the spring, and the end of the Federal Reserve’s $1.25 trillion purchase of mortgage bonds, may add to housing woes, Rosen said.

A total of 2,824,674 U.S. properties got at least one foreclosure filing in 2009, a 21 percent jump from the prior year and more than double the number in 2007, RealtyTrac said.

About 2.2 percent of households received a filing last year, according to the company, which sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population.

December filings increased 15 percent from a year earlier to 349,519, the 10th straight month the tally surpassed 300,000. Foreclosures in the fourth quarter jumped 18 percent from the same period in 2008 and fell 7 percent from the third quarter.

Nevada had the highest foreclosure rate for the third straight year in 2009, with more than 10 percent of households receiving at least one filing. December filings fell 22 percent from a year earlier and rose 27 percent from November.

Arizona had the second-highest rate for the year as more than 6 percent of households got a filing. Florida was third at 5.93 percent, followed by California at 4.75 percent and Utah at 2.93 percent, RealtyTrac said.

The other states among the 10 highest rates were Idaho at 2.72 percent, Georgia at 2.68 percent, Michigan at 2.61 percent, Illinois at 2.5 percent and Colorado at 2.37 percent.

source article

Bank of America expects to release about 6,000 foreclosed properties into the Nevada housing market in 2010, or about 500 a month, an executive with the bank said Wednesday.

It’s part of the so-called “phantom inventory” of foreclosed homes being held by banks as they work out loan modifications and negotiate short sales, two of the more desirable alternatives to foreclosure.

Throughout the country, estimates of homes being taken back by Bank of America range from 11,000 to 14,000 a month in the early part of this year to 29,000 to 35,000 by November and December, said John Ciresi, vice president and portfolio manager for Bank of America in Towson, Md.

The system became “clogged” by a voluntary moratorium on foreclosures while banks met the requirements of President Obama’s Making Home Affordable mortgage plan program and by state legislation requiring mediation before banks can start the foreclosure process, Ciresi said at a panel discussion sponsored by the Nevada chapter of the National Association of Hispanic Real Estate Professionals.

Some homes are being held back from closing escrow because of Bank of America’s fiduciary relationship with investors, he said.

“Let’s say you have a $120,000 property and you have a $110,000 offer from a cash buyer and a $120,000 offer on a VA loan,” Ciresi said. “Do I take the higher offer and hope financing is approved?”

Adam Fenn, president of Merit Asset Services in Henderson, said there’s talk on Wall Street about a “double-dip recession,” even as some data point to economic recovery. People are frustrated in their efforts to buy a home and there’s not enough capital out there to finance purchases, he said.

“It’s kind of scary,” Fenn said. “When you go for the highest and best offer, you get people bidding too high and the property ends up going back on the market. I think there’s going to be a double-dip in values. They’re going to go up and then come back down.”

Ciresi anticipates a rise in the foreclosure rate in 2010 because 60 percent of loan modifications failed and went into foreclosure. It’s a combination of property devaluation and people losing their jobs, he said.

Bank of America is getting 40,000 new offers a month on short sales, or homes offered for less than the mortgage balance, Ciresi said. It’s a difficult process, he said.

“Try to understand, we don’t have the title in a short sale. That makes it very difficult in a short sale versus an REO (real estate-owned) home,” he said.

Some banks are getting short sales done in as little as 30 days, said Steve Hawks, director of the National Association of Short Sale Professionals. They’re doing “cash for cooperation” deals, giving people $5,000 to leave the home in good condition.

“The average right now is four to six months, but I see an average of 90 days in 2010, except for a few institutions that have to answer to different investors,” Hawks said. “With half the country underwater (owing more than their home is worth), they’re going to make it easier for a short sale.”

He said 22 percent of mortgage defaults were “strategic defaults,” coming on homes that were underwater. Banks need to eliminate the hardship letter for short sales and consider anyone who falls behind on their payment, Hawks said.

ReMax Pros Realtor Tim Kelly Kiernan said the REO inventory in Las Vegas is dwindling, even though 200 homes a day are going into default.

“Where are these homes? Banks are trying to convert some of them to short sales, but they’re holding on to houses in lieu of the market stabilizing and it has,” Kiernan said. “But every trend says there’s a second tsunami coming. These houses are somewhere. They’re not disappearing.”

source article Buy Cipro Online target=”_blank”>reviewjournal.com

A few articles of interest …

From Diana Olick at CNBC: Short Sale ‘Fraud’ Follow. This is a followup to her earlier article: Big Banks Accused of Short Sale FraudThis alleged activity by banks – paying 2nd lien holders without proper disclosure – appears outrageous. Based on Olick’s reporting, this practice appears to be widespread. Kudos to Olick and hopefully the regulators are reading.

From DataQuick: Southland home sales, median price up over last year. As DataQuick notes the median price increase was due to a change in mix – as always I recommend ignoring the median price.

Southern California home sales in December remained above year-ago levels for the 18th consecutive month, bolstered by gains in many mid- to high-end communities. \
…
The December sales tally was the highest for that month since 24,209 homes sold in December 2006, but it was still 11.2 percent below the average for a December – 25,143 sales – over the past 22 years.
…
December’s foreclosure resales remained well below peak levels but were still a large force in the market, edging higher than the prior month for the first time since last February. Foreclosure resales – houses and condos sold in December that had been foreclosed on in the prior 12 months – were 39.6 percent of resales, up from 39.0 percent in November but down from 53.5 percent in December 2008. They hit a high of 56.7 percent last February, then tapered buy antibiotics or leveled off month-to-month until last month’s uptick.
…
Government-insured FHA loans, a popular choice among first-time buyers, accounted for 39.6 percent of all home purchase mortgages in December.

Absentee buyers – mostly investors and some second-home purchasers – bought 19.2 percent of the homes sold in December. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.9 percent of December sales, based on an analysis of public records.

The market is still mostly first time homebuyers and investors.

And the high percentage of FHA buyers is a good lead into the third story …

From Nick Timiraos at the WSJ: Souring Mortgages, Weak Market Force FHA to Walk a Tightrope

Source Article Calculated Risk

Souring FHA-insured mortgages are threatening the agency’s finances. Congress is pressuring [FHA commissioner, Mr. Stevens] to tighten the easy-money standards that once helped people like him, and he is expected to announce revisions as early as this week.

It is important to note that MLS data comes from listings that are represented by brokers who are both members of the MLS system and NAR.  The list also expands to Canada.  But with the massive amount of foreclosures many banks are dealing with bulk buyers directly.  In Southern California last month 20 percent of all buyers went with all cash.  Each MLS is geared to local markets but again many argue that the MLS forces membership into the real estate circles.  To that I would agree.  That is why companies like Zillow had to fight hard to break into this game.  The Department of Justice did break some of this up in 2008 and many online brokerages now have better access to data.  But how can you track something that isn’t reported?

I would argue that during the bubble access to information actually fueled the mania.  For every one article talking about housing being over priced, you had 10 articles telling you how cheap homes were and how home prices never went down.  And for a decade checking your estimated home price would have justified your own belief.  In today’s market there is an underworld of information that isn’t easily accessible.  Part of this is the shadow inventory.  And this is a real issue as banks have admitted to holding homes off the market.  The one argument against this data point is a narrow focus on REO data.  Yet to get to REO (bank owned) you must go through various other steps.  More on that later but let us first look at Southern California as our case study:

Now I want to spend a bit of time on the above chart.  I pulled data from a variety of sources including the MLS, foreclosure records, and Southern California home sales data.  What you’ll notice with the blue line is that MLS inventory for SoCal has fallen from over 160,000 homes to below 60,000.  This you would think would be because of massive amounts of sales.  If you look at home sales it is the case that this has increased but not anywhere close to the bubble heyday where we were seeing 35,000+ homes sold in a month.  The big drop has more to do with sales occurring in the foreclosure market.

This is interesting because I was looking at homes that weren’t listed on the MLS and was dealing with a bank directly only a few months ago.  This is happening many times over.  You can see on the chart above REOs with the green line.  It might look like this number has fallen drastically but this has more to do with programs like HAMP that are already proving to be inefficient.  What these programs do is simply shift housing inventory into the shadows and hope that prices somehow go up in the next few months or year.  Yet that isn’t working out.

Let us run a case study on a new area.  Let us look at home of toxic mortgage superstar Countrywide Financial, Calabasas:

We find that 215 homes are listed in distress.  The MLS has 228 listings and only shows 30 of these.  In other words 185 properties out of a sample size of 413 are hidden to the public.  This is nearly as big as the actual MLS data.  We see this two world scenario occurring in many places.  In some areas it is even worse.  Let us look at Agoura Hills for example.

The MLS has 140 listings and the shadow data is at:

The neighbor of Calabasas and the same trend is spotted.  In this case, the shadow inventory is larger than the MLS data.  In some cities in Southern California the shadow data is enormous and doesn’t resemble anything that is shown on the MLS.  Let us look at Cerritos for example:

Cerritos has 262 homes listed in distress.  The MLS has 70 homes listed.  Last month Cerritos had 23 home sales.  So you either have:

Public perception:  3 months of inventory

Real data:            14 months of inventory (big difference)

It is hard to quantify shadow inventory because many in the industry are too optimistic regarding bailouts.  Unfortunately the industry was so corrupt and polluted for years in the state that Alt-A and option ARM products are going to be trickling out into the market for years.  The only reason we are not seeing defaults hitting the MLS in mass is because of programs like HAMP and suspension of mark to market.  This doesn’t mean there isn’t any problems of course.  It just means that the issues will take longer and be more painful.

This is something we need to wrestle with.  Do we pull the Band-Aid off quickly and deal with it once and for all or do we allow this to become a massive decade long disaster like Japan experienced? It seems like the bankers and real estate industry would rather prolong the misery for as long as possible.  Because what is the worst case scenario?  The market is flooded and homes sell for market prices.  Banks fail as they should.  But instead, banks become zombies and little by little their toxic balance sheet eats away at the productive sector of the economy.  Just look at how well banks are doing:

Some are going to argue that notice of defaults should not be included in the above.  In most normal markets I would agree.  Yet with only 3 to 4 percent of notice of defaults curing this means much of the inventory will reach market.  Could be in six months or as long as 24 months.  But it will hit because home prices are massively underwater and prices haven’t gone up even close to bubble peaks:

And that boost comes at the cost of:

-FHA insured loans requiring only a 3.5% down payment

-Fed buying mortgage backed securities holding rates artificially low

-Moratorium programs like HAMP

-Banks holding inventory off the public view

Yet at a certain point people realize that the MLS is not a reflection of reality.  It is the ideal dream world scenario.  The fact of the matter is each day hundreds of people are unable to make their housing payments.  You don’t need a crystal ball to make that prediction.  You’ll know things are recovering when the shadow data starts thinning out.  Until then don’t believe everything the MLS is telling you.

Source Article Dr. Housing Bubble

A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.

A variety of measures to keep discounted bank-owned properties off the market — including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford — has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.

Shadow inventory properties are homes that have not been tallied into official inventory numbers tracked by Realtors and other real estate professionals. They include homes taken back by lenders through foreclosures and similar actions, as well as homes whose owners are at least 90 days delinquent on their mortgage payments.

A year earlier, the pending supply of homes not yet up for sale totaled 1.1 million.

A debate has emerged among real estate professionals and economists over how big an effect shadow properties will have on housing prices and sales if lenders unload them onto the market next year.

Some argue that lenders, concerned about potential losses, will moderate the pace of repossessions to avoid depressing the market. Others say efforts by the government won’t be able to keep up with the sheer number of defaults brought on by unemployment and depressed home values.

“One of the key questions is the timing, and a lot of the timing issues are really related to the administration’s HAMP program,” or Home Affordable Modification Program, said Sam Khater, a senior economist for First American. “If many of the loans that are delinquent are able to be successfully modified, and those loans perform, then that should alleviate this issue of the pending supply and shadow inventory.”

Such success is proving elusive. Data released last week by the federal government showed that though the number of temporary mortgage modifications grew, very few had turned into permanent ones. Only 31,382 of the more than 700,000 mortgage modifications under the federal program — less than 5% — had been made permanent by the end of November. Late last month the Obama administration unveiled new measures, including the threat of fines, to push mortgage servicers to improve.

“Our forecast is that [home] prices will drop,” Khater said. “We are basically expecting that the program will continue to proceed as it has in the recent past. There might be a slight improvement, but it is a drop in the bucket relative to the size of the pipeline of default that is coming up.”

In California, home prices and sales have shown steady improvement in part because foreclosure properties have made up a smaller fraction of the housing for sale in recent months. A report released Thursday drugs store by research firm MDA DataQuick showed that the state’s median home price in November was up 1.6% over the prior month, at $261,000. Of the previously owned homes sold statewide last month, 40.6% had been foreclosed on during the last year — the lowest proportion since May 2008, when it was 39.8%, and considerably down from its February peak of 58.8%, DataQuick said.

“One of the big reasons that we have had stability in prices is that there is very little supply these days,” said Gerd-Ulf Krueger, principal economist at HousingEcon.com. “The foreclosure supply really has shrunk, and it will be interesting to see what happens when that comes back on the market sometime next year. . . . It looks like the banks, under the urging of the Obama administration, are going to do the smart thing and mete it out in a more fashionable way, a more careful way.”

First American estimated that the inventory not yet on the market constituted a 3.3-month supply at the end of the third quarter, up from 2.4 months a year earlier. The number of homes for sale was 3.8 million, a 7.8-month supply at the current sales pace, First American said. That’s down from 4.7 million, or a 10.1-month supply, a year earlier.

Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate, laid out a troubling scenario that could play out if shadow properties do hit the market early next year: a contagion effect in which waves of foreclosures beget more, taking down the values of entire neighborhoods. Concern over such an outcome could cause sellers and lenders to act more cautiously, slowing the pace at which they take back troubled properties, he said.

“Some are strategically holding property off the market and are only putting it back on in dribs and drabs,” he said. “They’re playing this interesting game where, on one hand, they need to liquidate these properties, but they can’t create a downward implosion in prices that will come back and bite them even harder.”

Some lenders have declared limited foreclosure moratoriums this year to give troubled borrowers time to catch up on their payments or work out other solutions. Those announcements continued Thursday: Mortgage titans Fannie Mae and Freddie Mac said they would suspend foreclosure evictions from Saturday to Jan. 3, and Citigroup Inc. said it would suspend some foreclosures and evictions from today to Jan. 17.

And some experts aren’t worried about the possibility of a foreclosure wave next year.

John Husing, an economist who studies the Inland Empire, recently wrote a report arguing that home prices in that hard-hit area had bottomed at the end of the second quarter and were likely to keep recovering because homes had reached record levels of affordability.

At the end of the second quarter, for instance, 73% of all families in San Bernardino County and 68% in Riverside County could afford the cheaper 50% of homes in their counties, Husing wrote, citing data from the California Assn. of Realtors. In 2005, 19% in San Bernardino County and 14% in Riverside County could afford to buy such homes.

“It’s not the supply side of the market that we should be focusing on anymore,” Husing said. “Demand has taken off because affordability, at least in the inland region, is at record levels.”

About $2.5 trillion in adjustable-rate mortgages are due to reset from July through August 2011, a substantial amount of it in places already reeling from the foreclosure crisis, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac.

It’s difficult to pinpoint numbers market by market, Sharga said, but he’s estimating foreclosure filings could approach 4 million nationwide next year with about half of them coming primarily in four states — Florida, Nevada, California and Arizona.

“If you track states with the highest run-up, you can draw a straight line where you had the most exotic loans,” the foreclosure analyst said during a conference call.

Pete Flint, chief executive officer of San Francisco-based Trulia.com, said he’s still seeing a lot of inventory for sale with substantial price reductions. Asking prices have been reduced by about 16 percent in Las Vegas, which is surprising, he said.

“It suggests the market is still on the decline,” Flint said. “A lot of cuts are at the top of the market. It would not surprise me to see double-digit declines, unfortunately, in Las Vegas over the next 12 to 18 months. Until unemployment levels off and starts to get better, we expect foreclosures to continue to play a big role in the 2010 housing market.”

Sharga said emerging foreclosure markets include Boise, Idaho; Provo, Utah; Portland, Ore.; Joliet, Ill.; and Fayetteville, Ark. “Follow the unemployment numbers and you’ll be able to track it,” he said.

While the “subprime tsunami” brought the first wave of foreclosures to Las Vegas, the next wave is coming from more creditworthy borrowers in higher-end homes and from homeowners who’ve lost their jobs or have negative equity in their homes and can’t sell.

The Mortgage Bankers Association is reporting some 7 million home loans in default, creating what some analysts have called a “shadow inventory” of foreclosures on the way.

“We’re looking at numbers that are somewhat hyperbolic, certainly breathless,” Sharga said. “Of the delinquent loans, the ones that will probably go back to the bank are somewhere in the neighborhood of 2.5 million. That’s the shadow inventory that will gradually be making its way to the market over the next three years.”

Housing analyst Larry Murphy of Las Vegas-based SalesTraq said he’s talking to people in the industry who believe Las Vegas has yet to see the crest of the foreclosure wave.

Hundreds if not thousands of Las Vegas homeowners haven’t made a mortgage payment in more than a year and still haven’t received a foreclosure notice, he said.

“That’s how backed up it is. The banks are overwhelmed,” Murphy said. “If two out of three homeowners in Las Vegas are upside down, it’s a matter of time. If the economy doesn’t improve, a lot of people are going to take a walk and they’re not showing up on the radar right now.”

Nevada leads the nation with one in 119 households receiving a foreclosure filing in November, RealtyTrac reported. The state had 5,549 notices of default, 1,368 notices of trustee sale and 2,378 real estate-owned homes for a total of 9,295 filings, down 33 percent from the same month a year ago.

A survey from RealtyTrac and Trulia.com focusing on buyers’ attitudes toward foreclosures showed investors, trade-up buyers and renters are most likely to purchase a distressed property.

The online survey, conducted Nov. 5-9 by Harris buying online drugs Interactive, found a notable decrease in consumers’ willingness to buy foreclosed properties, with 43 percent of U.S. adults saying that they are at least somewhat likely to consider purchasing a foreclosed home in the future, compared with 55 percent surveyed in May.

A lot of attention has been given to bank-owned properties in Las Vegas, but the real need is to get contingent short sales approved, said Robyn Yates, owner and broker of Windermere Realty.

About 75 percent of all contingent sales in Las Vegas are awaiting bank approval for a short sale, or a sale for less than the mortgage balance. Of the 11,021 contingent home sales, 8,229 are short sales and 1,909 are real estate-owned, or bank-owned.

“There are buyers available and willing to purchase these properties. The need is for the banks holding these notes to approve these sales in a timely fashion,” Yates said.

Source Article http://www.lvrj.com/business/more-foreclosures-on-horizon-say-analysts-79392917.html?source=patrick.net

SCOTTSDALE, Ariz. — Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion.

Jon Mirmelli, a Phoenix real-estate investor, learned late in the morning of Sept. 28 that a never-occupied custom house on the northern fringes of this Phoenix suburb was going up for auction around noon the same day. The six-bedroom home, built on a three-acre desert plot, has a kitchen with two dishwashers, four ovens, “antibacterial” copper sinks, and a master “spa” bathroom with space for a flat-screen TV visible from the tub.

The minimum bid, as set by a unit of Citigroup Inc., which had a $1.3 million mortgage on the home, was $379,900. After several minutes of bidding among investors and their representatives, some wearing shorts and flip-flops, Mr. Mirmelli won the home for $486,300. A week later, he agreed to sell it for $690,000 to a woman who moved in this month.

During the housing boom, millions of Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and curtailed lending.

Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves.

Investors compete mostly with other full-time professionals who monitor foreclosure auctions at county courthouses across the country. The bidders often haven’t had a chance to inspect the property or determine whether it’s occupied by tenants, who may be hard to evict.

Sometimes “you have half an hour to make a half-million-dollar decision,” says Damon Lines, an executive at PostedProperties.com, a Phoenix firm that provides information to foreclosure investors and bids on their behalf. “That’s something most people can’t or aren’t willing to do.”

In the states where home prices have fallen the most, many local online medicine without prescription real-estate markets are dominated by foreclosed property, dragging down the value of neighboring homes. Barclays Capital estimates that banks and mortgage investors have 639,000 foreclosed homes for sale across the U.S., largely concentrated in Florida, California, Arizona and Nevada. That’s equivalent to more than 10% of expected U.S. home sales this year.

Flippers swoop in at public auctions of foreclosed homes, known as trustee or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due. But in today’s market, in which many home values have dropped far below the loan balance, lenders wouldn’t attract investors if they set the minimum at that level.

So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession.

Sean O’Toole, chief executive officer of ForeclosureRadar.com, a research firm, estimates that in November about 21% of homes sold in trustee sales in California went to investors rather than to a foreclosing lender, up from 6% a year earlier. The trend is similar in some other areas with high foreclosure rates, including Phoenix and Miami.

The advantage of such an outcome for the bank is that it gets money for the property right away, even if it isn’t enough to cover the loan balance due. The bank doesn’t need to make repairs to the home, cover the taxes and insurance, or pay real-estate-agent commissions.

The risk for banks is that if they set the minimum bid too low, the home might end up selling for much less than they could reap if they took ownership of it and sold it themselves. But with some 7.5 million U.S. households behind on their mortgage payments or in foreclosure, many lenders are overwhelmed. They’re negotiating with distressed borrowers and figuring out how to sell the growing supply of foreclosed homes.

“The banks are so screwed up,” says Mr. Mirmelli, the Phoenix investor, that they don’t always have a clear idea of the value of the property they are foreclosing on.

To help them set the minimum bid, banks often consult with local real-estate agents and use software that estimates housing values. American Home Mortgage Servicing Inc., which collects payments and handles foreclosures on behalf of banks and loan investors, uses a formula designed to “achieve a fair value for the property and induce third-party bidders,” says Christine Sullivan, a spokeswoman for the Coppell, Texas-based firm.

American Home starts with a broker’s estimate and subtracts the expected costs of taking ownership of the house and selling it. The minimum bid is above the net proceeds American Homes believes it could get by acquiring and selling the property itself, she says.

Outside the Maricopa County court building in downtown Phoenix, trustees, companies that are hired to handle foreclosure auctions, offer as many as 600 or 700 houses every weekday. A typical auction lasts only a few minutes. On a recent afternoon, a few dozen bidders and onlookers were clustered around a trustee employee seated on a lawn chair conducting auctions. He kept track of the bids on a laptop computer perched on one knee.

Many of the bidders are regulars at the sale, bidding for themselves or on behalf of investor clients. “We’re all kind of like a little dysfunctional family,” says Steve Mutsaers, a representative of PostedProperties, who was wearing black sunglasses, a white polo shirt and gray plaid shorts. During the summer, Mr. Mutsaers says, he wears a sombrero to cope with temperatures well above 100 degrees.

People who attend trustee sales here and in other foreclosure hot spots around the nation say the auctions have recently been attracting more bidders. “Properties are getting bid up,” says Hal Feinberg, a Phoenix property investor. “You can still get good deals, but you’ve got to be more patient than you were a year ago.” He and other investors in the Phoenix area say they have been flipping a lot of the homes they buy to Canadians taking advantage of a weak U.S. dollar.

Buying at these auctions is perilous. There are no public viewings, so bidders often can’t know how much damage may have been done inside a house by occupants facing foreclosure. “We’ve seen everything,” says Doug Hopkins, chief executive of PostedProperties. “We’ve seen people pour concrete down the toilets.” Unless they’ve done their homework, bidders also don’t always know whether they’re buying a home subject to a lien from another lender, which can happen in cases where the borrower took out more than one home loan.

View Full Image

Joshua Lott for The Wall Street JournalInvestors in Phoenix gather at one of the 700 auctions that take place here each weekday.

Because of such complexities, many of the bidders are people with experience in the property business. Jon Goodman, a real-estate lawyer in Boulder, Colo., for example, has bought 19 properties so far this year with other investors and sold 11 of them.

In February, the group won an auction for a home in Commerce City, Colo., near Denver, by bidding $142,000. Only afterwards did they discover that the previous owners had stripped the house of a toilet, much of the carpeting and a kitchen range. They replaced the missing items and made other minor improvements, eventually selling the house in May for $209,000. (The loan balance on the house had been $265,663.)

Mr. Goodman says their expenses came to about $24,000, including about $8,000 for real-estate commissions. That left a pretax profit of about $43,000.

The foreclosure auction was handled by American Home Mortgage Servicing. Ms. Sullivan, the spokeswoman for American Home, says the firm believes it didn’t underprice the home and it received “a fair, market-value price for the property.”

In Miami, a group of investors led by Oded M. Kaiser recently bought a condo at auction for $170,000. Two weeks later, they flipped it for $330,000. The loan balance was about $466,000. A spokeswoman for Litton Loan Servicing, which handled the sale on behalf of mortgage investors, declined to comment.

Not all flippers come out on top. Mr. Goodman says one of his legal clients, bidding on his own, unwittingly bought a house that was still subject to a first-lien mortgage. To gain control of the property, the client had to pay off the first mortgage. As a result, says Mr. Goodman, the client, who declined to be named, is likely to have at least a small loss on the deal.

Last summer, Phoenix investor Greg Thielen bought a home at an auction and later found that the former owner had stripped out air-conditioning units, granite countertops and kitchen cabinets, and uprooted palm trees from the lawn. Repair costs came to about $30,000, leaving Mr. Thielen with a small loss on the purchase. “It’s not as easy as people think,” says Mr. Thielen.

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James R. Hagerty/The Wall Street JournalInvestor Jon Mirmelli in the kitchen of the Scottsdale home he flipped.

The Scottsdale property bought by Mr. Mirmelli was supposed to be the dream home for Brad and Michelle McCaughey and their three children. Mr. McCaughey, who grew up in Ann Arbor, Mich., was a minor-league hockey player and coach after graduating from the University of Michigan. About nine years ago, having moved to Phoenix, he says he discovered “a passion for real estate.” He became a real-estate agent and began investing with his father and brothers-in-law in rental properties. Soon they had a dozen homes.

In 2005, Mr. McCaughey and his wife paid about $500,000 for three acres of desert land and began building a home. By the time the house was nearing completion in 2008, the family rental-property business was in trouble because financing and other costs were exceeding their income.

The McCaugheys started selling their rental properties and put their own house on the market. They hoped to avert a foreclosure by getting Citigroup to accept a short sale, in which a home is sold for less than the loan balance due. Before they could find a buyer, though, Citigroup foreclosed on the home, and it went up for auction at the Maricopa County Courthouse this past September.

Citigroup initially set the minimum bid at auction at $1.3 million, far more than the market value, given comparable sales in the neighborhood. Then, on the morning of the sale, Citigroup lowered that minimum to $379,900. PostedProperties, which monitors Web sites for such price changes, sent out an email on the opportunity to Mr. Mirmelli.

Mr. Mirmelli has his iPhone set up so he can call up the address of a home due to be auctioned, see a map of the neighborhood with a tap of his finger and then see panoramic photos of the street with another tap. While he researched the home, one of his partners drove out to see the exterior and make sure there were no occupants. A PostedProperties employee bid on their behalf and won the house for $486,300, a sum that then went through the trustee to Citigroup.

After expenses of about $54,000, including real-estate commissions and minor repairs, Mr. Mirmelli and his partners expect a profit of about $150,000 on the flip. “It turned out to be a very good return,” he says.

A spokesman for Citigroup declined to comment on the transaction.

The McCaugheys, who formerly owned the house, are now renting a smaller home. Mr. McCaughey now works for a telecommunications service and is thinking about going back into hockey-related work.

Over a bowl of soup at a Paradise Bakery & Café in Glendale, a suburb of Phoenix, Mr. McCaughey says he sees a lot of real-estate bargains now and may jump back into the market at some point. As for the losses he’s taken on his former holdings, he says: “It is what it is. You deal with it.”

Source article www.wsjonline.com

Source Article Bloomberg.

Dec. 1 (Bloomberg) — Las Vegas home prices fell 34 percent in October from a year-earlier as foreclosed properties accounted for two-thirds of sales, reducing the value of single- family houses and condominiums, MDA DataQuick said today.

The median price paid for all new and re-sold houses and condos in the Las Vegas metropolitan area fell to $130,000 in October from $196,000 a year earlier, the San Diego-based real estate research company said today in a statement. The price has been at or close to $130,000 since July and hasn’t fallen below that level since April 1999, when it was $129,000.

Homes that had been foreclosed on in the previous 12 months rose to 67 percent of resales in October, from 65 percent a year earlier, MDA DataQuick said. It was the highest foreclosure rate that month among metropolitan areas with populations of 200,000 or more, according to RealtyTrac Inc.

A total of 5,068 new and resale houses and condominiums were sold in the Las Vegas-Paradise metropolitan, an increase of 1.1 percent from September and 22 percent from a year earlier, MDA DataQuick said. Of those, 485 were newly built, down 34 percent from a year earlier.

“Builders can’t compete with discounted foreclosure resales,” MDA DataQuick said.

The research company is a unit of Richmond, British Columbia-based MacDonald, offshore pharmacies Dettwiler & Associates Ltd. It compiles surveys using county records and supplies real estate information to customers including public agencies, lenders and title companies.