New Study – Three years into the foreclosure crisis, with just over a third of distressed homeowners working with their servicer’s loss mitigation departments, the State Working Group says it anticipates hundreds of thousands of foreclosures will occur later this year unless improvements are made in foreclosure prevention efforts.

 According to a new report from state attorneys general and bank supervisors from across the country, more than 60 percent of homeowners with seriously delinquent loans are still not involved in any form of loss mitigation with their servicer.

 The consortium of state regulators and chief attorneys also found that recent modifications that significantly reduce the principal balance of the loan have a lower rate of redefault compared to loan modifications overall, suggesting that servicers should strategically increase their use of principal reduction modifications to maximize prospects for success.

  Student Housing:

Focusing on financials:

 Currently Student Housing Developers see 65 percent loan to value as the norm in the student-housing market, and that most investors are looking for a 9 percent yield, although 8.5 percent is probably more reasonable.

 As for the structure of the new development deals, the personal guarantees have gone up,  he said. Seemingly the biggest hang-up with any of the groups, whether it’s a high net worth individual or a fund, is that the banks want real liquid order antibiotics online assets put against the loan.

 

A more recent investment trend in the student-housing market is: more people gravitating away from funds toward direct investing. People want more control, they want more influence. They want to move away from investing in closed-in vehicles where they lose all control of the money.

 Finance Execs Expect More Distressed Opportunities in 2011

What’s the word on the street? More distressed acquisition opportunities will come to the multifamily market next year, while the dearth of Class A assets trading hands will likely continue.

 

Forecasting Deals
While the wave of distressed auctions that many expected hasn’t yet materialized, investors are increasingly optimistic that next year will be different. Nearly 62 percent of those surveyed expect more distressed acquisition opportunities to be unearthed in 2011.

Table 1. Asset types expected to be available in 2011.
Distressed properties	61.9%
Class B	39.2%
Value-add	34.5%
Class C	33.3%
Niche (student, seniors, etc.)	24.4%
Class A	22%
None of the above	4.7%

Many feel that it’s just a matter of time before all of those short-term, interest-only CMBS loans made at the peak of the market finally come due. And balance-sheet lenders can only extend-and-amend for so long—as banks slowly return to health, they’ll be able to take greater losses as they clear their balance sheets of distressed notes.

 

Throughout 2010, Class A assets in strong locations inspired bidding wars so heated that most players walked away shaking their heads at the size of the winning bid. That feeding fenzy will likely continue: More than three-quarters of respondents (78 percent) believe there will be fewer stabilized Class A assets hitting the market next year.

Market Upsides Distressed Markets with the Most Upside.
South Florida	27%
Southern California	25%
Phoenix	11%
Atlanta	10%
Las Vegas	10%

Cost-Cutting Continues
Renegotiating vendor contracts and fighting tax judgments continue to be among the most popular cost-cutting strategies employed by firms. More multifamily firms also plan to pass utility costs on to residents and use software to automate business processes than they did last year.

  Linda Shea/ Managing Partner

CFO Capital Partners

“We Bring Experience to the Meeting”

 437 FoxTract Road, Bridgeport, NY 13030

O: 315.633.9653 * EFax: 775.248.6603

Linda@CFOCapitalPartners.com

Prices fell .64% in February, but increased 1.43% compared to a year earlier, according to new Case Shiller data, with the gain representing a significant positive change.

The Case Shiller 10-City Index would fall 7.68% over 12 months if the February fall continued, but the data on the direction of values point in many different directions. Prices for all of 2009 were flat, but have fallen 30% since values peaked in June 2006. The year-over-year increase is a new and positive pattern, but there are many negative trends to consider.

Most analysts for property values (and all assets including stocks) are naturally positive, which calls into question a positive zeitgeist now attached to property values. It is however unambiguously positive that both the 10-City and 20-City index registered a simultaneous annual gain in February — which was last seen in DECEMBER 2006 (more than THREE years ago).

Prices Fell .64 Percent in February, But Gained 1.43 Percent In Last Year

April 27, 2010

tags: New Observations Forecast of Property Values

by Michael David White

Prices fell .64% in February, but increased 1.43% compared to a year earlier, according to new Case Shiller data, with the gain representing a significant positive change.

The Case Shiller 10-City Index would fall 7.68% over 12 months if the February fall continued, but the data on the direction of values point in many different directions. Prices for all of 2009 were flat, but have fallen 30% since values peaked in June 2006. The year-over-year increase is a new and positive pattern, but there are many negative trends to consider.

Most analysts for property values (and all assets including stocks) are naturally positive, which calls into question a positive zeitgeist now attached to property values. It is however unambiguously positive that both the 10-City and 20-City index registered a simultaneous annual gain in February — which was last seen in DECEMBER 2006 (more than THREE years ago).

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Clouding any and every forecast on property values should be record delinquencies of 15% of all mortgages outstanding, unemployment at just under 10%, and a mortgage market of exceptionally high risk which has been abandoned by all private money sources. About 13.6 million homeowners have no equity or negative equity and therefore have no current wealth to protect by making their mortgage payment. Real estate prices would fall flat on their face without government mortgage money which represents nine of ten new mortgage dollars.

New Observations has previously forecast a fall in values in 2010 of 13 percent based on an average of four major property price indexes. In a separate analysis of a 120-year time series, we forecast a total fall still ahead in the national market of 22% and a total fall from peak-to-trend of 49 percent. Radical government intervention may stop these forecasted falls.

The Case Shiller monthly changes and annual changes for individual cities and for the composite indexes are listed above.

Check Calculated Risk for a good chart of rising and falling property prices and unemployment. Cool charts here on many of the cities covered by Case Shiller. Wall Street Journal on Case Shiller update.

***

PRINT — Prices fell .64% in February, but increased 1.43% compared to a year earlier

Please forward questions, corrections, and reactions to comments below or send me an email. Please send an email if you would like to take out a new mortgage.

Source Article

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

PALMDALE, Calif. — Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.

But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.

Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.

People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.

Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.

Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.

The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that “strategic defaults” by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007’s level.

Stiffing the bank is bad for peoples’ credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.

Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that’s roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.

The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers’ pockets.

For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven’t paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month — an injection that in the long term could be worth more than the tax breaks in the Obama administration’s economic-stimulus package.

“It’s a stealth stimulus,” says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. “The quicker these people shed their debts, the faster the economy is going to heal and move forward again.”

As the stigma of abandoning a mortgage wanes, the Obama administration could face an uphill battle in its effort to keep people in their homes by pressuring banks to cut their mortgage payments. Some analysts argue that’s not always the right approach, particularly if it prevents people from shedding onerous debts and starting afresh.

“The effect of these programs is often to lead homeowners to make decisions that are not in their economic best interests,” says Brent White, a law professor at the University of Arizona who has studied mortgage defaults.

Few places in the U.S. were better suited to attract true believers in home ownership than Palmdale. A farming community that expanded in the 1950s to accommodate the aerospace industry around nearby Edwards Air Force Base, the city more than doubled its population from 1990 to the present as it became the final frontier for Los Angeles-area workers looking to buy.

About half of Palmdale’s 147,000 residents endure a daily commute that can extend to two hours or more one way. In return, they get a homestead in a high-desert locale of haunting beauty, with Joshua trees dotting the landscape, and real-estate developments locked into a master grid of streets with anonymous names such as Avenue O-8 or Avenue M-4.

Club Rancho became a solid community of owner-occupiers, many of whom stretched their finances to the limit. As of the end of 2007, total mortgage debt attached to the 13 houses on the block for which records are available had reached $4.5 million.

Fast-forward to the end of 2009, and the picture changes radically. Thanks to a 50% drop in home prices, at least two owners on the block now owe between $60,000 and $160,000 more on their mortgages than their houses are worth. Four more homes have already passed through foreclosure into the hands of new owners.

In the process, the block’s total mortgage debt has fallen 37%, to $2.7 million.

Much of Club Rancho also has converted to rentals, a shift mirrored across Palmdale. Five homes on the 3100 block are now occupied by renters, up from only two in 2007. In the past six months, at least three families have moved into those rentals after walking away from other homes.

Ms. Richey, the teacher, arrived in Palmdale in 1999. In 2004, she and her husband, Timothy, bought a two-story home on Caspian Drive, near Avenue O-8, with a no-down-payment loan. They took pride in the amenities they installed: a powder room with granite countertops, a backyard pool and play area, and the purple-and-turquoise fantasy playroom upstairs for their three daughters.

But the value of the house plunged to less than $200,000 in 2009. Their $430,000 mortgage, with its $3,700 monthly payment, began to look more like an unwanted burden. By May, amid troubles getting tenants for two rental properties she also owned, Ms. Richey decided the time had come to cut a deal with America’s Servicing Co., a unit of Wells Fargo & Co. servicing the mortgage on the house.

Ms. Richey and her husband had already been working on Plan B — exploring the neighborhood’s “For Rent” signs.

On one trip, they drove by the house at 3152 Club Rancho Drive. It was bigger than their house on Caspian, had a pool with three waterfalls, and boasted a cascading staircase that Ms. Richey says she could picture her daughters descending on prom night. The rent was $2,195 a month.

The situation presented Ms. Richey with a quandary now facing more than 10 million U.S. homeowners who owe more on their mortgages than their houses are worth.

On one hand, walking away from her home would be easy. California is one of 10 states that largely prevent mortgage lenders from going after the other assets of borrowers who default. But she also had to consider the negatives. Her credit could be tarnished for years and, perhaps most importantly, she feared her friends and neighbors might ostracize her.

“It was scary,” she says, noting that people tended to keep such decisions to themselves for fear of being stigmatized. “It’s still very hush-hush.”

Tom Sobelman, whose family of four lives across the street from Ms. Richey, at 3127 Club Rancho Drive, sees mortgages as a moral as well as financial obligation. He’s still paying the mortgage on an investment property he owns nearby, despite the fact that the rent is about $1,000 a month short of covering his costs.

Mr. Sobelman, 37, argues that people who choose to default are unfairly benefiting at the expense of taxpayers, who have put trillions of dollars at risk to bail out struggling banks. “All these people are gaming the system, and I’m paying for it,” he says. “My kids are going to be paying it off.”

Mr. Sobelman has plenty of company. In a recent study of people who owe more on their mortgages than their houses are worth, economists Luigi Guiso, Paola Sapienza and Luigi Zingales online prescription found that about four out of five believe defaulting on a mortgage is morally wrong if one can afford to pay it. But they also found that the people become 82% more likely to say they’ll default if they know someone else who defaulted.

Moral or not, the individuals who want to shed their mortgage debts are quickly transforming the Palmdale real-estate market.

Adam Robbins, who runs the local Realty World franchise and manages about 80 properties, says about 90% of his prospective tenants are people in Ms. Richey’s situation. So he and other rental managers are loosening rules to accept people who have been through foreclosures.

“Those are all good people,” he says. “They just got bad loans or bought at the wrong time.”

Ms. Richey and her family made the move to Club Rancho Drive in August, when she was already several months behind on the mortgage. With Mr. Robbins’s help, she recently sold the house on Caspian Drive for $195,000, money that the bank will accept to settle the $430,000 mortgage debt. She’s also considering walking away from the mortgages on her two rental properties.

Showing a visitor the personal touches in her new home, including a $1,800 dining set she bought with some of her newly available income, she notes the advantages of being a renter rather than an owner.

“You take a risk for the American dream,” she says. “I don’t have to worry about paying property tax, homeowners’ insurance, the landscaping, cleaning the pool or any repairs.”

Others on Ms. Richey’s block have made similar moves. Mr. Fernandez, the firefighter, moved into 3139 in July, after stopping the $4,800 monthly payments on the home he owned around the corner on Champion Way.

Mr. Fernandez says he made four attempts to modify the larger of the two mortgages on his home, which add up to $423,000. Ultimately, he was offered a monthly payment that, together with back taxes, was higher than what he had been paying. Today he’s working to partially reimburse his lenders, IndyMac Bank (now OneWest Bank) and American First Credit Union, by selling the home, which he expects to fetch about $300,000.

A spokeswoman for OneWest Bank said the bank “offered Mr. Fernandez the lowest payment possible under the [Federal Deposit Insurance Corp.] loan modification guidelines.” A spokesman for American First said the company always seeks to help clients stay in their homes.

With an income of about $8,300 a month and a rent of $2,200, Mr. Fernandez says he now has the wherewithal to do things he couldn’t when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.

“I don’t know if I’ll buy another house again, because it’s such a huge headache,” he says.

Source Article www.wsjonline.com

Two years ago, almost everyone was discussing, and looking forward to, a tsunami of distressed assets which would be coming to market based upon the sub-prime mortgage crisis and the stresses it would exert on the credit markets in general. In September of 2008, when Lehman failed and Wall Street as we knew it was structurally transformed from an investment banking platform to one of bank holding companies, the “almost everyone” mentioned above was changed to “everyone”. But the tsunami has not arrived, not even close.

The fact that only a few distressed assets have been put in play is not because they aren’t out there. The pipeline is chock full of them.

Let’s use the New York City marketplace as an example. In the 2005-2007 period, there were $109 billion of investment sales in New York City. Based upon reductions in revenue (rent levels) across all product types including residential, office, retail and industrial and cap rate expansion, values have declined by 32%, on average, year to date. If we eliminate multifamily properties from this analysis, values have fallen from peak levels approximately 48%. Based upon these reductions, we estimate that, of the $109 billion buying medicine online spent on investment properties, $80 billion of that was spent on properties which now are in a negative equity position. This relates to about 6,000 properties.

If we include properties which were refinanced during the 2005-2007 period, the number of properties having negative equity jumps to 15,000. We estimate that there is about $165 billion in debt on these properties and, based upon today’s underwriting standards, there should only be about $65 billion in debt on them. This means that in order to have a conservatively leveraged marketplace, we would need to extract $100 billion in debt.

Clearly, this will not happen. Many investors have the ability to feed their properties and, based upon a desire to own them on a long-term basis, will do so. Other transactions will be worked out utilizing any of our favorite terms which have become commonplace in today’s vernacular including, “extend and pretend”, “delay and pray”, “a rolling loan gathers no loss” or “kicking the can down the road”. We do believe, however, that $30 to $40 billion will ultimately be extracted from the market in the form of losses.

So where are those distressed assets now? Some have not come to the market because they aren’t even in default yet due to mortgages which are still in interest only periods or are operating on an interest reserve set up by the lender when the loan was originated. Others have loans floating over 30-day LIBOR which closed on friday at 23 basis points (3-month LIBOR is only at 26 basis points). At 150 over LIBOR, the rate being paid on those loans would only be 1.73% and they can cash flow at those levels of debt service. While some properties are fundamentally under water, they are not yet in default, but likely will be when these advantageous terms expire.

Other distressed assets haven’t come to market because everything that has happened legislatively has allowed lenders to hide bad assets on their balance sheets. The FASB mark-to-market accounting rules have been modified to allow loss avoidance. Similarly, bank regulators will now allow lenders to hold a loan on their balance sheet at 100 even if they know that the underlying collateral for that loan is only worth 60. Additionally, modifications to the REMIC regulations have made it easier for CMBS loans to be kicked down the street.

Any of these delaying tactics will only be beneficial if appreciation is anticipated in the short-run. Given the massive deleveraging the market must experience and unemployment rates which are anticipated to remain elevated for at least another year to 18 months, we do not see support for the short-run appreciation argument.

We really don’t understand the reluctance of lenders to deal with these problem properties. Many of those that are in default are currently in the foreclosure process. This is a frustrating process, especially in New York, as it can take years to get through the process and obtain the title to the collateral. Many borrowers further complicate things by going into bankruptcy, which, based upon backlogs in the bankruptcy courts, adds additional time to the process.

It is very difficult to say this without sounding completely self-serving ( After all, I do sell buildings and notes for a living) but, if a lender wants out of a bad deal, selling a note today is likely to lead to a better recovery than waiting a year or two.

We believe this because the lack of product on the market toady has created a dynamic in which many investors are fighting over relatively few opportunities. Because of this, particularly on our income producing properties for sale, we are generally receiving 25 to 35 offers for each. Furthermore, on each note we have sold this year, we have received over 50 offers. This is due to the fact that buyers today would rather purchase from a lender than a private seller, believing they will get a better deal. “Believing” is the key word in the last sentence.

Due to the excessive demand for distressed assets, buyers are currently paying aggressive prices for anything banks are selling.  In many cases this year, we have obtained prices for notes that, we believe, are at or very near the value of the underlying collateral.

Some lenders are taking advantage of these dynamics to rid their balance sheets of underwater loans and are using the proceeds to make good loans today. Consider that two years ago, bank spreads, based upon all of the competition to put money out, were as low as 30 or 40 basis points. Those spreads can be 300-400 over corresponding treasuries today. Additionally, today’s loans have less risk associated with them as, rather than a loan to value ratio of 75%-85%, LTVs today are generally in the 60%-65% range. These loans are also significantly less on a price per square foot basis than they were two years ago.

If your business was 10 times as profitable as it used to be and there was much less risk involved, wouldn’t you be trying to do as much business as you could?

“Out with the bad, in with the good”, should be the mantra of lenders today. Until now, this has been slow to develop. To illustrate this, consider the following very telling statistics: Massey Knakal is asked by potential sellers to provide opinion of value reports and provide an explanation of our marketing program and we exclusively list about 31% of the properties that we are asked to analyze. It is just like a batting average in baseball, if we are hitting .300, we feel pretty good. With lenders and special servicers we are working with, we have completed just over 1,000 valuations and have exclusively listed just 12 properties/notes. That is a batting average of just .012. Many of these opportunities have simply not come to the market in any form. Perhaps the lender/servicer is waiting to see what the future will bring; perhaps they are simply making deals with the borrowers.

We have, however, seen this freeze thawing slightly as 2009 comes to a close. We expect to be coming to market with several distressed notes from lenders and special servicers right after the holidays and remain optimistic that we will be able to continue to achieve pricing at levels where the recovery versus collateral value is significant. There are also some foreclosures which should be concluding shortly which will lead to some REO which should be placed on the market shortly thereafter.

Let’s hope that 2010 sees a significant rise in these opportunities coming to market. It appears that the year will, at least, start out that way.

Mr. Knakal is the Chairman and Founding Partner of Massey Knakal Realty Services in New York City and has brokered the sale of over 1,000 properties in his career.

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Source Article www.globest.com

Industry tries to keep up with avalanche of troubled mortgages

SAN DIEGO (MarketWatch) — Millions of homeowners are struggling to make their monthly mortgage payments and the continued deterioration in the job market guarantees millions more will be at risk in the coming months.

That is putting a huge burden on mortgage-modification programs, both those run by the government and an increasing number operated by private industry, which are in a struggle of their own to stay ahead of the tide of potential foreclosures.

A housing counselor helps a homeowner facing foreclosure assess payment options, at a Housing Rescue Fair in Dallas, Texas. (Reuters)

“The subprime problem, by and large, has been dealt with,” said John Courson, chief executive of the Mortgage Bankers Association. “It’s a different kind of borrower now that we are trying to assist. And a lot of programs we have won’t work now. You can’t modify someone’s mortgage to 31% of income if they have no income.”

A good portion of the MBA’s annual convention held here this week was devoted to loan-modification issues. And with good reason.

As of Aug. 31, there were 3.3 million homeowners 60 days or more late on mortgage payments, said Faith Schwartz, who runs the Hope Now Alliance, a mortgage-industry trade group working on foreclosure prevention. A hotline for troubled homeowners run by the alliance fields 5,000 calls a day, she said, although that is only half of the number being handled earlier this year.

“There’s a lot more competition out there,” Schwartz said. “Fannie Mae and Freddie Mac have their own hotlines, and government and nonprofits. There is a lot hitting borrowers right now.”

But the flood of calls is only half the story. The stigma of being unable to pay a mortgage remains strong in America, and many borrowers resist attempts at aid. Mortgage servicers say that in nearly 50% of all cases where they reach out to delinquent borrowers and offer assistance, their phone calls or mailings get no response.

That also may be because the loan-modification process is a daunting one. There are 16 pages of documents that the borrower must fill out, “and 99% of the loan-mod packages that get returned to servicers are either missing some of the documentation necessary or have errors in them,” said Michael Young, MBA’s vice chairman and chairman of Cenlar FSB, a wholesale mortgage servicer.

“You have to spend time on documentation with the borrowers. You have to remember they originally went through this with a loan officer probably helping them every step of the way … and we’re going to need to have that type of capacity built into the process on this side too,” he said.

Government gears up

The government’s Home Affordable Modification Program, or HAMP, was launched in May with a goal of modifying a half-million mortgages by Nov. 1. Trial modifications had been started on nearly that many as of Sept. 30, but more than 250,000 other trial modifications were offered to borrowers and not taken.

Only mortgages that are owned by Fannie Mae and Freddie Mac, or administered by a servicer who agrees to join the program and is granted permission by the owner of the loan to modify it, are eligible for HAMP. Owners must be occupants of the property as a primary residence, must be in foreclosure or can reasonably be expected to default and must have a current mortgage payment that results in a debt-to-income ratio higher than 31%.

The chances that a homeowner who is having trouble paying a mortgage will find out about foreclosure-prevention efforts are good: 63 mortgage servicers, representing 85% of loans eligible to be modified under HAMP, are participating in the program.

Hundreds of thousands of mortgages are eligible for the government’s program, but even loans that do not qualify under the HAMP guidelines may be reworked under a variety of other programs available through Fannie Mae and Freddie Mac, as well as private mortgage servicers.

All of the help that is available to troubled mortgage borrowers is available free, and consumers are warned to beware of any offer of help from third parties that charge any sort of fee. Although many loan-modification and short-sale companies have sprung up in recent years, almost all make their money from loan servicers and investors who pay based on the success of the modification efforts.

For more tips on avoiding foreclosure-prevention scams visit the MBA’s consumer Web site www.homeloanlearningcenter.com.

Don’t go in blindly

Greg Hebner, president of MOS Group, an Irvine, Calif., company that specializes in loan-modification services, says borrowers who apply for loan modifications need to understand all the implications.

“For a lot of borrowers, their credit rating is important, a badge of honor, and a loan modification is going to cost them a 50- to 100-point hit on that credit rating,” he said. “Especially for folks who have taken a short-term income hit, maybe are underemployed, you have to ask: Is it temporary? Can I get my income back up? Can I dip into savings to tide me over? If you modify that loan, you may not be able to rebuild your credit so easily once those temporary setbacks turn around.”

Hebner’s advice: “The minute you are in a bad situation, call your servicer. Everyone gets a monthly statement — call the number on it. Ask for the home-retention department. Ask them if there is anything they can do to assist you during this period. Short-term forbearance is just one option they may offer.

“If you get to the point where the lender has started to take the home back, to foreclose, it’s hard to stop the process. It snowballs. If you start early, you have maximum flexibility. Whether you are current or not current on your loan, if you ask for help your servicer is required to give you an option,” he said.

“If not painless, at least it can be less painful that way,” he said.

If a loan modification is the best solution, Hebner said, “don’t go into the process if you’re not going to complete it. Get your ducks in a row and have the documents you need. If you go in and fail it, you’re not getting another chance. This is a one-time limited offer.”

One criticism of loan-modification programs has been the rate at which those mortgages go into default again, as high as 50% in some portfolios. But Hebner and others say today’s modifications are not like the ones being done in 2008, before HAMP went into effect.

“A lot of payments actually went up after the early loan modifications, after escrow payments for taxes and insurance got added in,” Hebner said. “Today’s modifications are extremely income driven.” Many in the industry believe there will be improvement in those numbers once HAMP data is available.

Short-sale solution

For many homeowners, a short sale is one way out from under. In a short sale, the lender agrees to accept a payoff less than the mortgage amount in satisfaction of the loan, which aids homeowners whose loans are underwater — meaning their home is worth less than the mortgage amount.

But short sales can be tricky. And homeowners who do sell that way still lose their house — they’ve got to move somewhere.

But Jim Satterwhite, executive vice president of Infusion Technologies, the parent company of National Quick Sale, says his company is pioneering a way for homeowners who go the short-sale route to stay in their homes — as renters.

Satterwhite says investors are showing increased interest in buying short-sale properties and then leasing them out to tenants who may eventually buy the properties themselves. The investors particularly like homes that are already occupied, since those are far more likely to be better maintained, and working out a rental deal with the short-selling owner can make a lot of sense.

“The investors know they have a better tenant and the former owner gets the opportunity to start over, without a bankruptcy or an eviction,” Satterwhite said. “If you’re an investor you like the idea of having a tenant who built the deck out back himself — you Xenical know he’s going to take care of the place.”

National Quick Sale, which works mostly with homeowners whose loans have been referred to them by servicers who have spotted trouble but also will work on behalf of any homeowners seeking short-sale assistance, provides its services free to mortgage holders. Satterwhite says many of its clients first tried to take advantage of loan modification for one reason or another.

“The servicers are bringing us the asset, but we do what you should do — try to keep people in their homes,” he said. “A lot of these owners are in a state of denial, they’re frustrated and they may not have heard back from their servicer for some time … a lot of people aren’t comfortable dealing with their servicer.”

“Our goal is to as quickly as possible push the process down the pipe. Once that decision is made, it is in everyone’s interest to put it behind them and move on.”

Satterwhite said he expects his firm to close 50,000 short-sale deals next year, and thinks the business will remain strong for at least the next two to three years.

Willing to pay something to stay put

Steven Horne, president of Wingspan Portfolio Advisors in Carrollton, Texas, also says keeping people in homes is a top priority of the investors his firm works for, investors who have bought pools of distressed mortgages and are looking to create some value out of them.

“There are a lot of borrowers who are willing to pay something, beyond what you might imagine, and we give them a shot,” Horne said. “They may have kids in school, like the neighborhood, and so have a commitment to home. So we’re looking at what are the workout strategies that make the most sense.

“These mortgages have already been repriced, essentially, so the question is are they being repriced with the borrower in the home or not. These investors really don’t want the collateral back, so if a borrower is willing to pay, they can stay,” he said.

Because the investors have purchased the loans at a big discount, 60% or more of the original value in some cases, Horne’s firm has more leeway to negotiate deals with borrowers: if 60% losses have already been built in, a borrower whose payments are reduced anything less than that still gives investors a positive return.

Horne has also created a Web site, www.betterborrowers.com, where struggling mortgage holders can find information about their options.

More data

• Since July 2007, more than 5.2 million borrowers have reworked mortgages in order to avoid foreclosure. More than 2 million of those workouts involved loan modifications, in which either interest rates were reduced, loan terms lengthened, delinquent amounts recapitalized into the loan or principal was reduced — or any combination of those.
• The pace of loan workouts has quickened this year. In just the first eight months of 2009 more than 2.1 million loans were reworked, and 40% of those involved a modification.
• Borrowers who were helped without a loan modification were most likely to have been offered some form of forbearance, in which payments are halted or reduced, sometimes for up to a year.
• Some homeowners may also have been able to simply refinance their mortgages to make the payments more affordable; Fannie Mae and Freddie Mac have refinanced 3.2 million troubled mortgages in the last two years, only 260,000 of which were done under the government’s Homes Affordable Refinance Program, said Jerry McCoy, a vice president in Fannie Mae’s servicing division.
• The mortgage industry has reworked more than 2.6 million troublesome subprime loans since July of 2007, but the level of those loans being worked on has fallen this year as delinquencies moved from the subprime market into the prime mortgage market.
• Source Article

SUDBURY, Mass. — Jon Davis handles 10 percent of the state’s foreclosure auctions. The Marshfield lawyer has been watching these auctions migrate from places such as Dorchester and Lowell.

Now you’ll see them in the Sudburys, the Hinghams and the Westons,” Davis said, “where you wouldn’t have in the past expected to see foreclosures.”

The reason for these auctions is not the crazy interest-rate mortgages. It’s the recession. Nowadays, people are losing their homes the way they used to before the sub-prime crisis.

“Historically, Buy Xenical people lost their home when they lost their job, they lost their health or they lost their spouse,” said Nick Retsinas, a housing market economist at Harvard University.

Unemployment is to blame again today. The number of foreclosure proceedings in Massachusetts has jumped an alarming 150 percent.

In fact, people under foreclosure I talked to in Sudbury didn’t want to be interviewed for this story. They said they’re ashamed — to have lost their jobs; to have run out of savings; to not be able to make their payments.

Whitney Tilson, a Harvard Business School grad and money manager, said, “the number of distressed homes coming through the pipeline has actually never been greater than right now.”

Snapshot Of A Suburban Foreclosure
7 Beechwood Ave., Sudbury, Mass.

(Curt Nickisch/WBUR) 

The facts:

• Single-family colonial house

• 1,770 square feet

• 3 bedroom, 1.5 bathroom

• Built in 1995

The figures:

• Purchased: $410,000 in Nov. 2003

• Assessed value: $420,800

• Foreclosed: Oct. 1, 2009

• Sale price at foreclosure auction: 1 bid at opening price of $365,000

Tilson said Sudbury is a good example of what this coming wave could do to the market. Only seven homes above $1,000,000 have sold in the town this year. Last year it was 43, and that was a bad year.

“The listed prices appear to show that prices are holding up, but that’s phony,” Tilson said. “So what breaks the logjam? The wave of foreclosures working their way through the pipeline.”

Foreclosed properties priced to sell will push housing prices down and push more homeowners under water and into foreclosure. And that could really hurt regional banks.

Unlike the sub prime mortgage crisis — which hammered national mortgage companies — in this instance, local banks carry more of these loans. When Massachusetts banks stand to lose as much as a few hundred thousand dollars a pop, they get more conservative about lending. Tilson said that will suppress economic recovery.

“This is something that’s going to be with us for a while,” he said. “There’s no real way to hurry it up. As Warren Buffet said, you can’t get nine women pregnant and have a baby in one month.”

If we’re lucky, Tilson said, the housing market will bottom out next year.

Harvard economist Nick Restinas agreed it will take a while, but at least Massachusetts, which isn’t seeing as many foreclosures as other parts of the country, will be among the first places to get there.

“We take solace in the fact that we are still a growing population, people need a place to live,” Retsinas said. “And at some point people will make the calculation –- not so much is this home a good investment, but is this home worth living in?”

Which goes to say: Massachusetts residents will have to go to more housewarming parties, before they can start celebrating a healthy economic recovery.

Yale professor Robert Shiller says the recent upturn in housing prices doesn’t signal that everything is now hunky dory for the home market.

In fact, it’s just typical price volatility in an uncertain market, says the guru who called the massive housing crash years early.

“The sudden rise in home prices suggests that the psychology of the market has shifted substantially,” Shiller wrote in The New York Times.

“But what should we expect in the months ahead? Not necessarily that we’re entering a new housing boom.”

The good news is that the S&P/Case-Shiller home price index for 10 major cities rose 3.6 percent between April and July.

“While that is not a whopping increase, it followed a decline of 4.8 percent in the previous period, between January and April,” Shiller writes.

“The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.”

Shiller says potential home buyers are trying to figure out when to pull the trigger.

“Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs — including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 — in an effort to time their home-buying decisions.”

Meanwhile, in the high-end, a tectonic shift is taking place: The rich are taking over from the poor in terms of foreclosures.

About 30 percent of June foreclosures came from homes in the top third of local housing values, up from 16 percent in 2006, when the foreclosure crisis began, according to real estate research service Zillow.com.

The bottom third of housing markets now make up 35 percent of foreclosures, down from 55 percent three years ago, The Wall Street Journal reports.

The Zillow report shows that foreclosures began to increase in late spring after dropping earlier in the year. And mansions are starting to get hit worse than shacks.

Even the wealthy aren’t so eager to keep making mortgage payments when the value of their homes falls below the value of their mortgage loans.

“The slope of that curve in recent months is much sharper than it was recently,” Stan Humphries, chief economist for Zillow, told the newspaper.

Bank analyst Meredith Whitney, whose fame for having also called the crash led to her forming her own consulting operation, now says home prices have another leg to drop, perhaps 25 percent. 

“No bank underwrote a loan with 10 percent unemployment on the horizon,” she told CNBC.

Source Article

RealtyTrac® … today released its U.S. Foreclosure Market Report™ for Q3 2009, which shows that foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 937,840 properties in the third quarter, a 5 percent increase from the previous quarter and an increase of nearly 23 percent from Q3 2008. One in every 136 U.S. housing units received a foreclosure filing during the quarter — the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

Foreclosure filings were reported on 343,638 properties in September, a 4 percent decrease from the previous month but a 29 percent increase from September 2008. Despite the monthly decrease, September’s total was still the third highest monthly total since the RealtyTrac report began in January 2005, 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 J. Saccacio, chief executive officer 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.”

This next part will surely not catch anyone off guard by the facts we are seeing in our research.-Sean

Six states account for more than 60 percent of nation’s third quarter total
California, Florida, Arizona, Nevada, Illinois and Michigan accounted for 62 percent of the nation’s total foreclosure activity in the third quarter, with 579,541 properties receiving foreclosure filings in the six states combined.

With 250,054 properties receiving foreclosure filings during the quarter, California accounted for nearly 27 percent of the nation’s total. The state’s foreclosure activity decreased nearly 2 percent from the previous quarter thanks to a 10 percent drop in default notices, but scheduled auctions increased 4 percent from the previous quarter and REOs increased 12 percent from the previous quarter.

Source Article RealtyTrac

Florida foreclosure activity decreased less than 1 percent from the previous quarter, but the state still posted the second highest foreclosure activity total for the third quarter. Foreclosure filings were reported on 156,924 Florida properties, a 23 percent increase from Q3 2008. Default notices in Florida decreased 6 percent from the previous quarter while scheduled auctions increased 5 percent from the previous quarter and REOs increased 16 percent from the previous quarter.

Arizona posted the nation’s third highest foreclosure activity total in the third quarter, with 50,342 properties receiving a foreclosure filing during the pharmacy online quarter — a 5 percent increase from the previous quarter and a 25 percent increase from Q3 2008.

Nevada posted the nation’s fourth highest foreclosure activity total, with 47,925 properties receiving a foreclosure filing in the third quarter, followed by Illinois, with 37,270 properties receiving a foreclosure filing, and Michigan, with 37,026 properties receiving a foreclosure filing. All three states reported increasing foreclosure activity from the previous quarter and from Q3 2008.

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (33,385), Texas (29,838), Ohio (29,645), and New Jersey (18,108).