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Matt’s Take on the News

August 10th, 2010

Habitat for Humanity volunteers breathe new life into foreclosed homes

Tom Perkins from AnnArbor.com brings us a great story regarding an effective use of foreclosed homes. Habitat for Humanity is giving many deserving families the gift of home ownership. They are taking foreclosed homes and renovating them after which time they are placing deserving families in them. Habitat purchases the foreclosed properties and then uses volunteer workers to rehabilitate the homes.

The program isn’t free to the new owners. Each adult who lives in a Habitat house must volunteer a minimum of 300 hours of their time in renovating their house or another Habitat house. They must also make payments on zero percent interest loans. They must also pay taxes and insurance for the home.

Why don’t we see this program in all of our cities?

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Matt’s Take on the News

August 5th, 2010

Coppell Mayor bought clothes, groceries with city-issued credit card

Brandon Formby and Erinn Connor bring us a very sad story from the State of Texas. The mayor of an affluent town decided to take the life of her 19 year daughter and then take her own life. According to the article, a contributing factor may have been their financial despair and the imminent loss of their house to foreclosure. The death of these two people surprised many that were around them.

You may be thinking, “Matt…What does this have to do with real-estate?” The answer is nothing…directly….but lots indirectly.

The vast majority of people (if not all?) that are reading this have either gone through foreclosure/short sale/loan mod, are going through it now or know someone that has/is. This can be a very harrowing time for the people that are going through what can be a very tumultuous time in their lives. Always keep your eyes and ears open to the warning signs. Always offer to find people professional help if they are on the brink. Always be understanding of the plight of those around you.

If you are reading this and you are thinking about suicide, think about the effect it will have on those that are around you. Also know that life isn’t that bad! If you think it is bad…guess what….it can only get better!

As quoted from the web:

“If you are feeling desperate, alone or hopeless? Call the National Suicide Prevention Lifeline at 1-800-273-TALK (8255), a free, 24-hour hotline available to anyone in suicidal crisis or emotional distress. Your call will be routed to the nearest crisis center to you.

Call for yourself or someone you care about
Free and confidential
A network of more than 140 crisis centers nationwide
Available 24/7”

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Matt’s Take on the News

8/3/2010

Homeowners Associations: The New Foreclosure

Diana Olick from CNBC brings us a very timely article regarding Home Owners Associations (HOA’s) foreclosing due to delinquent fees. While I will never give foreclosure advice to a homeowner (I leave that to the lawyers) I do add my opinions when asked. Homeowners do ask about staying current on their homeowners dues. I always suggest that they do. In most states HOAs have the ability to recover a set amount of HOA fees from the new owner (whether that’s the current owners bank at foreclosure or the new owner). In addition to this, they have the ability to foreclose on the property, take the title and then rent the property out until the senior lien holders sort things out with them. Because of this, HOA’s are foreclosing at an alarming rate.

Last week I visited an enclave of very nice waterfront homes. I met with the listing agent of a property that was in preforeclosure. He/she was also the President of the HOA (figure that one out). As the President of the HOA, they have been pushing to foreclose on the properties that are late on their HOA dues. They want to foreclose so they can put a renter into the property which will allow them to recover what they haven’t been paid in the form of dues from the previous owner.

While I am not an attorney, I disagree with one part of the article. I don’t believe they have the ability to resell the property without paying off senior lien holders. None the less, you need to be aware of this fact when dealing with sellers with HOA’s. It can be a nasty surprise!

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Matt’s Take on the News

7/29/2010

Foreclosure Friday – The Top 1% Stick It To The Banks

John Nyardi from the Wall Street Journal reports on a topic that I have been addressing for awhile. As time goes on, a higher percentage of people with $1M and up mortgages are defaulting as compared to their median priced brethren. Mr. Nyaradi points out that, “One in seven homeowners with (a) loan over $1M are in default. That compares to 1 in 12 loans below the $1M mark. This is putting a huge amount of stress on the financial system as 23% of all luxury homes bought as investments are now 90 days or more overdue compared to just 9% of the smaller homes.”

There could be several reasons for this trend. Some folks that are defaulting on $1M+ mortgages, are doing so on second and third homes. If they lose these homes, they still have other(s) to move to and live in. Typically, if an individual with a median price home defaults, they are defaulting on primaries and have no other place to do. So they do there best to hang in there. The other side of the coin is that those that have $1M+ mortgages, have the means to continue throwing good money after bad so they do so until it runs out. Guess what? The money is running out!

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Matt’s Take On The News
July 27, 2010

Average Homeowner In Obama Foreclosure Program Deeply Underwater, Drawing Calls From GOP To Cut Off Help

Shahien Nasiripour from the Huffington Press brings us an interesting story regarding President Obama’s Foreclosure Prevention efforts. He states that, “The average beneficiary of the Obama administration’s flagship homeowner-assistance program owes their mortgage lender more than $1.50 for every dollar their home is worth, which means they fall into the stratum of homeowners most likely to simply walk away from their mortgages, recent government data show.” Assuming that this is true, the significance of this data revolves around whether any modification program will have a lasting effect if the effected homeowners have no earthly possibility of coming out ahead. Their natural inclination will be to walk away, eventually, from their mortgage.

A reason behind this is that only a rare few have seen principal reductions in their mortgages. The vast majority get temporary interest rate adjustments and/or the term of their loan repay is lengthened. These are band aid solutions for gaping wounds.

An interesting excerpt from the article is, “That’s because of the test that mortgage servicers run to determine whether homeowners qualify for the program. Called the “net present value” test, it essentially tells lenders and investors whether they’ll make more money foreclosing on the home or modifying the borrower’s mortgage. This profit motive determines whether distressed borrowers will keep their homes or be kicked to the curb.” What this means to me is this. Lenders/servicers etc. run a test when presented with a loan modification request. If a property has equity in it, they are more likely to foreclose because they can recoup the vast majority (if not all) of their money at auction. If there is negative equity, oftentimes it makes more sense to modify with the banks band aid approach.

So what does this mean? Buyer beware. Go into all loan modification instructions with open eyes that are focused on the present but also the future.

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Matt’s Take On The News

July 22, 2010

Mortgage Delinquencies Are Back Up

The positive news about mortgage delinquencies appears to be a fleeting memory. Nick Timiraos brings us a blog entry that discusses rising mortgage delinquencies in May. Mr. Timiraos noted that 9.2% of all loans were delinquent by 90 days or more! That is a staggering number. Nearly 1 in 10 mortgages are delinquent by 90 days or more. He also notes that, “The number of loans that were 30 days past due jumped in May from April, while the share of loans that were 60 and 90 days late also increased.”

Another interesting stat that he reported was , “The volume of loans that “cured” or moved from delinquency to current status declined to a six-month low in may. Nearly 2.5 loans went delinquent for every loan that improved. Those deterioration ratios had improved for two straight months beginning in February”. What this means is that we are going backwards. For every 1 loan that improved, 2.5 loans didn’t.

So, while our government is great at grasping at straws and painting rosy pictures, they cant dispute the facts. Were in this mess for quite a bit longer. So, instead of burying your heads in the sand, be part of the solution.

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Matt’s Take On The News

July 20, 2010

Fannie Mae Gets Tough With Walk-Away Mortgage Defaulters

Alex Finkelstein from the Real Estate Channel brings us an article that may impact quite a few people. The subject of “strategic defaults” or “Walk Aways” has been the topic of conversation at cocktail parties or around water coolers for sometime. Simply put, a strategic default involves an individual who has no hardship and can afford to make payments but chooses not to.

According to Mr. Finkelstein:

“Under the new rules:

The five-year waiting period is eliminated.
Borrowers who can’t document “extenuating circumstances” or show that they made an effort with their lender to avoid foreclosure will have to wait seven years to get a new loan.
Those who can demonstrate hardship or attempted a workout with their lender may have to wait only three years.
Fannie plans to step up legal actions to seek deficiency judgments in states that allow lenders to go after borrowers’ other assets. In addition,
Fannie will instruct its lender partners to monitor delinquent loans owned by Fannie, and recommend cases that warrant attention.”

In my opinion the biggest detriment for strategic defaults revolves around going after deficiency judgments. I’m not sure that tacking on a few extra years to the “waiting period” required to secure a new loan will make much of a difference.

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Matt’s Take On The News

July 15, 2010

Obama is Our Landlord!

Fed owns nearly half of all foreclosed homes

Ryan McMaken from the Christian Science Monitor reports on a growing problem within our government. The government owns close to 50% of all homes that have been foreclosed upon. Mr. McMaken astutely points out that bullish calls on the state of the housing market (i.e. prices) have caused lenders, servicers, investors etc. to stand pat when evaluating offers (pre foreclosure) in the hope that housing prices would miraculous bounce back. This is not happening anytime soon.

This is best exemplified by the following passages from the article, “The latest data for the S&P/Case-Shiller Home Price Index were released. The home price index for April is still down considerably from the July 2006 peak:

As of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively.

To paraphrase Donald Rumsfeld from a different context, it is close to impossible now to deny that the housing markets are in for a long, hard slog. Well, the places that have hit bottom are in for a slog. Some places, such as Las Vegas, are still on their way down. Comparing year over year, Las Vegas home prices actually fell 8.5 percent. April of 2009 was a disastrous month for home prices, but Vegas is now below even that.”

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Matt’s Take on the New’s

July 13, 2010

Mansion Foreclosures Surge

Robert Frank from the Associated Press reports on a trend that just keep on increasing. He reports that, “The percentage of $1 million-plus loans more than 90 days delinquent rose to 13.3% in February.” Mortgages that are delinquent and are greater than $5M also continue to rise.

Mr. Frank reports that, “Lenders to the wealthy are taking a hit. Bank of America’s U.S. Trust unit reported a nearly six fold increase in its loan-loss provision in the first quarter, to $184 million from $31 million a year earlier. “ The point here for those realtors and real estate buyers that are involved in short sales is that the higher end foreclosures are crushing banks bottom lines. As a result they are more apt to take discounts on these mortgages in order to keep them off of their books.

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Matt’s Take On The News

July 8, 2010

Don’t Count on Principal Reductions!

Less Than One Percent Of Modified Mortgages In Obama Foreclosure Plan Involve Principal Cuts

Shahien Nasiripour from the Huffington Post reports on an alarming fact that involves principal reductions. I speak with homeowners ,weekly, who hold out hope that the lenders are going to forgive a portion of the principal that they owe on their home. While this is certainly possible, it is very unlikely.

Mr. Nasiripour reports that 0.1% (not 1% but one tenth of one percent!) of loan modifications resulted in principal reductions! Only 121,000 mortgages have been modified under the Obama Administrations Home Affordable Modification Program through March 2010. Of these only 120 (one hundred and twenty!) resulted in principal reductions. Those that are of the half is half full crowd might say, “Yeah but it’s still possible!” While that is certainly true. It is very unlikely.

The article reports that, “More than 11.2 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. The firm estimates that the typical “underwater” homeowner won’t return to positive equity until late 2015 to early 2016.

“In some depressed markets, the typical borrower in negative equity may not experience
positive equity until 2020 or later,” the firm cautions.

A January report by the State Foreclosure Prevention Working Group noted that principal reduction is the best way to stem the foreclosure crisis.

“Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts,” the state regulators noted in their report. With so many homeowners underwater, “doing ‘business as usual’ only adds to the likelihood of ultimate default.”

The article quotes, Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform as saying, “The inescapable reality is that the economic problems facing our country [are] exacerbating the foreclosure problem, and until we have economic policies that enable and foster private sector job creation, efforts like HAMP will continue to fail and ultimately hurt those who need help the most,” Unemployment is still a major problem and lynchpin in this recovery.