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

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

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.

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

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

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.

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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

Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter – a sign the plague is still spreading.

NEW pharmacies online YORK (CNNMoney.com) — Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

“They were the worst three months of all time,” said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

Nevada continued to be the worst-hit state with one filing for every 23 households. But even tranquil Vermont, where the foreclosure crisis has barely brushed the housing market, saw foreclosure filings jump nearly 170% compared with the third quarter of 2008. Still, that resulted in just one filing for every 5,023 households in the state — the best record in the country.

The RealtyTrac report also unveiled the results for September, and it found that there was slight relief from foreclosure filings. Last month, notices totaled 343,638, down 4% compared with August. Unfortunately, that total accounts for 87,821 homes that were repossessed by lenders.

That deluge contributed significantly to the quarter’s record 237,052 repossessions, a 21% jump from the previous three months. So far this year lenders have taken back 623,852 homes.

“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,” James Saccacio, RealtyTrac’s CEO, said in a statement.

Most disturbing is that all foreclosures — not just repossessions — are rampant despite efforts to corral them. Not only has the Obama administration’s Making Home Affordable foreclosure prevention program taken a bite out of REOs but lenders themselves have scaled back repossessions over the past few months to give the program time to work.

And in some low-price markets, lenders simply aren’t following through on foreclosures, according to Jim Rokakis, treasurer for Cuyahoga County, Ohio, which includes Cleveland.

“They’ll even set the date for the sheriff’s sale, but they don’t file the final papers,” he said. “They hold it in abeyance and let the residents stay in the house.”

In ever more frequent cases, delinquent borrowers want out of the mortgage worse than the lenders. There are no firm statistics for it, but many industry watchers claim the percentage of REOs caused by borrowers voluntarily walking away from their homes is skyrocketing.

A study of the trend by the Chicago Booth School of Business and the Kellogg School of Management determined that when home price declines drop home values 10% below the mortgage balances, people start to give up their homes. When “negative equity” approaches 50%, 17% of households default, even when they can still afford their mortgage payments.

The foreclosure crisis may not diminish anytime soon. “The fastest growing area is in the 180 days late-plus category, the most seriously delinquent borrowers,” Sharga said. “It’s going to be a lingering problem.”

Plus, the RealtyTrac statistics may understate the depth of the foreclosure mess because lender and government actions have delayed many filings. As a result, some delinquencies have not been counted on the foreclosure tallies. That means the crisis may not end quickly.

And because there are so many delinquent borrowers, Sharga predicts the banks will be slow to take back their properties and put the repossessed homes back on the market.

“It’s hard to envision [the banks] putting millions on properties up for sale and cratering prices,” he said. “Recovery will be slow and gradual. I don’t see home prices getting much better until 2013.” 

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).

Just when you think you’ve heard it all in today’s housing market, along comes a story that takes all those statistics and all those monthly foreclosure reports and all that testimony to Congress and just drop kicks them all out the window.

I’m going to tell you about a nice young woman named Katie. Last week Katie tried to buy a house in Las Vegas, and got a lesson in real estate reality that she will never forget.

Let’s back up a bit for some background. Katie and her husband live in Maryland and are about to have their first child. Both work, but Katie’s husband, who has a very solid government job, is being transferred to Vegas. And please note, the government is paying all his moving expenses, Buy Xenical Online including Realtor and closing costs. Both he and Katie have credit scores right around 800.

So off the two went to Vegas, thinking they were in the right place at the right time.

The foreclosure capital of America, Vegas home prices are down more than 50 percent from their peak in 2006. The median price of a home there is $138,000, but, interestingly, the inventory is down to a less than 3-month supply. Compare that to the national inventory, now at an 8.5 month supply. Despite the low supply, prices are not recovering quickly because the sales are all by banks, looking to unload properties quickly.

But back to Katie. Her Realtor, who is also an old friend, emailed Katie the following warnings before her arrival on the Vegas strip:

- This market is crazy and many things are just not going to make any sense.

- I can guarantee you 99.99% of the listings emailed to you will no longer be available by the time you get here.

- Properties are selling in the blink of an eye.

- Properties are getting multiple offers within a few days of being on the market, the most offers I’ve heard a house had recently was 44 offers (I know, crazy).

- This market is crazy and many things are just not going to make any sense.

- 40% of all transactions are cash purchases, which makes it harder for the buyers who are financing to get their offers accepted.

- We have 1/2 the inventory we had a year ago and 4 times as many buyers as we did a year ago.

- Chances are we will have to submit several offers to have the chance of getting 1 accepted.

- This market is crazy and many things are just not going to make any sense.

- You will probably leave not knowing if you have a house or not because banks take 2 to 3 weeks to respond, because this market is crazy… you know the rest.

I’m guessing you noted the crazy part. Katie is looking in the $150-200,000 price range. Despite the warnings, Katie was completely unprepared for what she found. In seven days, she saw 50 homes. All but one were foreclosures.

On the first day, Katie and her husband saw 13 homes.

Only three were anywhere close to move-in condition, despite the fact that all of the homes were built in 2005 or later. All were foreclosed properties. “People find out a year before they’re ever kicked out, so what do they do for that year?” says Katie. “Completely destroy their homes.”

I know we’ve already heard about this, as had Katie, but the destruction was even beyond her expectations. “There’s no cleaning that would help.” There was dirt rubbed on the walls, graffiti, holes in the walls and garbage deposited inside the holes. The smell? “I couldn’t get past it.” Obviously there was no hardware on the doors and no appliances, kitchen cabinets, stovetops…whatever could go went. 75 percent of the homes she went into were an instant no.

But here’s the crazy part:

“We went to a home that had been on the market for one day, and the key was stolen out of the lock box. Our Realtor said immediately, ‘You want this home.’ She told us another Realtor had stolen the key because they wanted their client to get it. So what did my Realtor do? She broke in. And sure enough this was the home we fell in love with. It was on for $132,000 so we decided to be really aggressive and offered $160,000, plus we had government backing on our loan. Well our Realtor called that night and said, ‘You’re not going to get the home. They got 30 offers and half are cash offers, so the bank is not even going to look at you.’ The banks just want the cash to unload these places.”

Finally, on day 7 of looking, and after having 7 offers ignored by the banks (who owned all the homes), the Realtor called Katie with “a gold mine.” Yes, an owner-occupied, regular home. A rare non-foreclosure. They went immediately and put in an offer. The owner claims to like them, but she ended up with 10 offers and is still mulling.

Ironically, in a market still flooding with new foreclosed properties every day, at the end of their week Katie and her husband met with a local builder. “We know our money will not get us as much, but they’re giving away the granite and hardwoods for free.” It’s not in their ideal location, and they wouldn’t be able to move in until March, the month their first baby is due. But at least they don’t have to deal with the banks, the filth and the competition.

• Slideshow: 10 Most Affordable Metro Areas

Oh, and by the way, a fun factoid on Katie’s Realtor: She bought her brand new home in 2005 for $240,000. According to the comps she runs daily, she says it’s now worth between $90-110,000. So in January she decided to stop paying her mortgage. No financial hardship, she just figured she was throwing money away. The bank hasn’t gotten to her yet, so she’s just been living there for free. At some point, she knows, her bank will foreclose, but she’s fine with that. She says she’ll do far better financially renting for a while.

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