Archive for the ‘REO’ Category

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Pace of Foreclosures Accelerates

Thursday, August 12th, 2010

I am hearing all kinds of rumors that banks are going to soon complete foreclosures, or release for sale, significant chunks of what many have called for the last year the “shadow inventory” of foreclosed properties.  If these rumors are true there is two ways to look at the change.  One..if you have a home to sell in an area that has a higher than average rate of default, thisfall and winter may not be the best time to do so.  If foreclosure activity picks up, it will likely put pressure on values for non-foreclosed homes  as buyers compare traditional non-distressed housing to the values offered on a foreclosed property.  The second affect, and something I have advocated for two years now, is an acceleration of the recovery of the housing market will occur.  My reason for stating this is that a lot of uncertainty today in housing is stemming from concerns regarding values.  When appraisers hear about shadow inventories of foreclosures, combined with ongoing government efforts to prop up the housing market by trying to keep people in their homes who can’t pay to maintain them, values are pushed down.  This uncertainty creates problems on the finance side of the equation as mortgage lenders hesitate to loan funds to anybody who does not have a healthy down payment. 

So, my ongoing theory is if we let the market take care of the default situation, ultimately housing will recover faster.  Unfortunately, this theory sounds pretty cold to the family who is in a mortgage over their head, so it has to be counter-weighed with the social implications.  Over the last two years, the social implications have won out. 

It might be safe to say the social implications havc started to lose out.  Last week Lender Processing Services (LPS) released their Current Mortgage Performance Observations based on data as of June 30, 2010.  The interesting news from this report is that the government owned and sponsored enterprises (GSE’s) Fannie Mae and Freddie Mac have accelerated their pace of foreclosures.  Considering these are two of the three largest lenders in the country, this is fairly significant news as it relates to the housing market.

Here are a few main points from the report:

Foreclosure starts by Fannie and Freddie have been accelerating and are currently at all-time highs.  From May to June 2010 foreclosures initiated by Fannie and Freddie increased 21%.

GSE foreclosure starts are accelerating along with Home Affordable Modification Program (HAMP) cancellations.  Most of the increase is concentrated in the 6+ month delinquent category.

And on the uncertainty factor affecting financing…”originations remain very low, with stricter underwriting driving relatively low first payment defaults.”

It is a painful process.  The sooner we let the market clean up what the market created, the sooner it will be easier to sell your home.

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Posted in Modifications, News and Statistics, Shadow Inventory, Underwriting | No Comments »

19 Million USA Homes Vacant In Second Quarter

Wednesday, July 28th, 2010

Bloomberg is reporting that, despite so many options for homeowners to avoid foreclosure, the market is correcting itself and the results are not pretty.  According to the US Census Bureau, vacant homes are increasing and the rate of ownership is decreasing.  In fact the rate of ownership now stands at 66.9%, the lowest level since 1999.  Vacant homes stand at 19 million.  There is an estimated 128 million homes  in the USA so almost 15% today stand vacant.

I will confirm that the Census Bureau is actively attempting to get their arms around the status of vacant homes.  Hardly a day has gone by since April where we do not field at least one call from a Census worker wanting to know about a bank foreclosure we have listed.  They confirm if it is a foreclosure and if we know if it was vacant on April 1.  I suspect this census information will ultimately be the best insight available as to the total devastation in the housing market and more specifically, where the markets are in the worst shape.

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Posted in REO, Vacant Homes | No Comments »

Time To Move On

Monday, July 26th, 2010

The following is written to other Realtors.  Not to upset but to emphasize a point.

When you are contacted by an agent informing you that the home you have listed has been foreclosed, don’t ask or expect to receive a listing cancellation.  The fact your listing is executed by a party no longer in ownership cancels your listing.

If you really do not believe the bank’s listing agent, check with your client or the public records.  Don’t waste a lot of time hanging on because somebody has an offer in to your seller.   Your seller has no authority to accept it and the bank is going to want to complete their own valuation before looking at any offers.

Assuming the home is vacant, the bank will likely hire a company quickly to change the locks.  It should not happen but often those fancy electronic lock boxes, are left hanging on the old removed handset.  So, don’t waste any time if you are informed of a change in title.  Not if you want to get your lock box back easily.

Speaking of lock boxes, we have over and over again worked in a spirit of cooperation to remove a lock box for the former listing agent and leave it somewhere that they can pick it up.   When we do this we are not accepting responsibility for what happen to the lock box…so don’t wait a week to come pick it up.

Same can be said for your signs.  We work with the former listing agent, but do not take responsibility and don’t have room in our vehicles to throw them in.

It is common for the banks to have a  property preservation company that changes the locks, mows the lawns, and removes interior debris and furnishings left behind.  A certain estimated value of between $300 and $500 is going to result in a personal property posting notice.  Some Realtors have been known to add a few hand towels, kitchen and bath bric-a-brac, and fake flowers in the mode of staging.  Chances are these are not going to cross the threshold of being saved as personal property.  I have no idea what happens to these items, but please, when you are told the home is foreclosed, just come get your stuff and then confirm.  I have seen this become a big issue in several cases where the agent did not want to stop showings because they were convinced that a sale was about to occur.   

Last but not least, unless you really want to make some type of point that will cause you to have a bad name with the bank seller and have a complaint filed with your local MLS, go ahead and withdrawl your listing from the MLS when informed of the foreclosure.  I realize this is the last line of defense.  I have never seen a bank choose to keep the existing listing agent at this point so there is nothing but bad things to occur by taking this path.

I know it is hard to do, and I do have empathy, but the truth that needs to be accepted is that it is “time to move on”.

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Posted in Management, REO | No Comments »

35.7% Increase In Home Foreclosures Expected for 2010

Thursday, June 10th, 2010

At the recent REO Expo Conference, Rick Sharga, SVP of RealtyTrac.com estimated 3.8 million households will receive a foreclosure filing in 2010, as compared to 2.8 million in 2009.   Interestingly, Sharga also stated that RealtyTrac economists stated that the 2009 foreclosures were reduced by almost 800,000 due to government related modifications and moratoriums. 

Interestingly, as many programs continue to be offered to slow down the foreclosure losses, it seems the numbers actually being foreclosed on are growing.  It is likely that this is the eventual outcome created when the delays and modifications do not work.  Almost 80% of foreclosure filings today are homes that will not end up an REO property.  They will likely be given a new opportunity to avoid the loss of their home. 

It is not surprising when all of this is considered that foreclosures and eventually REO’s will continue to set records for the next few years.   The question is whether helping a homeowner save their home is really providing the highest benefit to the homeowner and the community affected?  Only time will tell the value of these efforts.  If a homeowner has the resources to maintain the home and avoid default a second time, these efforts will be the best thing ever offered to the borrower.   Right now, the statistics are not supporting that enough people are either asking for help, or able to be helped.

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Posted in Shadow Inventory | 1 Comment »

Foreclosure News

Thursday, May 13th, 2010

Here are a few bits of news that came across my desk yesterday and my interpretation.

Foreclosure Filings Drop Nationally In April- If you know me you are aware I do not get to hung up on these month to month comparisons.  One month does not a trend make.  What is interesting is the statement by RealtyTrac’s CEO that there are two significant milestones in the April numbers that  indicate foreclosure activity may have plateaued.

The first, April 2010 is the only month in the history of RealtyTrac’s report with an annual decrease in U.S. foreclosure activity. Secondly, bank repossessions, or REOs, hit a record monthly high for the report even while default notices dropped substantially on both a monthly and annual basis.

I looked it up.  RealtyTrac started keeping these statistics in 2005.  So, we just experienced the first annual decline in foreclosures in the last five years.  Interesting..but significant?   

In this report, Florida dropped to third in filings, with a impressive 25% decline in filings over the same period of 2009.  Indiana remains back in the pack at 18.  Remember when Indiana led the nation in foreclosures?

Still over 330,000 properties received foreclosure filings in April…so a 2% drop in a year to year comparison is relative to very high numbers of ongoing defaults.  Speaking of defaults…

Shadow Inventory To Peak In Summer Of 2010- In another sign that the foreclosure inventory is starting to slowly get sopped up, Barclays released this report earlier in the week.  Barclays defines shadow inventory as loans in 90 day plus delinquency or already in foreclosure.  The reason the term “shadow” is used is that traditional foreclosure statistics do not take these defaulting loans into account because they have not actually been foreclosed.  Government programs have held back foreclosure actions making certain information, like Realty Tracs, left to further interpretation.

So, what can be concluded is this.  Foreclosures are still at record highs and there are still approximately 4.5 million loans in default that have not been foreclosed.   RealtyTrac’s headlines of a decline are great…but like everything today, we return to the old “is it real or is it Memorex?”  Time will tell as we see if foreclosures can level off at the same time the shadow inventory declines due to successful modification and short sale programs, or the return to finanancial health that allows a borrrower to recover. 

My point is you can’t read these foreclosure headlines and jump to any conclusions.  You have to assess the whole complex picture in the current environment.

 

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Posted in News and Statistics, Shadow Inventory | No Comments »

So You Want To Buy A Foreclosure?

Thursday, May 6th, 2010

Did somebody (late night television?) convince you that now is the time to get in on the greatest investment opportunity since gold?  Well, just like gold, there is/was an opportunity.  The question now is has the ship already sailed?

The reason for this question lies in the unreasonable returns potential buyers of foreclosures are seeking.  Even owner occupant buyers have it in their heads that they can purchase a foreclosure and immediately see 20% appreciation.  There are several problems with this line of thinking.

The market does not lie. 

There are some big questions about the future.

My comment on “the market does not lie” is based in the reality that when a home is priced below market we see multiple offers.  Makes sense.  More than one person sees the value versus the list price.  What ensues though is a process called “highest and best” that usually ends up with the winning offer getting the home very close to what we believed originally to be the correct value.  The market does not lie.  That is what is so great about “free markets”.  Real estate sales are very much a free-supply/demand market.

The future is a question because nobody, and I mean nobody, has their arms around the amount of foreclosure inventory that is in existence or is still to occur.  You may have heard of the shadow inventory of foreclosures?  This is a reference to the large number of homeowners who are either not making payments, being given modifications that may ultimately default, trying for a short sale, or are just struggling-in addition to the existing defaulted inventory of homes.   Many homes in default and vacant have not been foreclosed on.  The more of these homes that hit the market, the more there is a moderating force on home values.  I continue to see homes sell for a value far below other traditional sales on the same street.  One foreclosure sale can be overlooked as to value.  Several foreclosures, defaults, possible defaults and the market may not ignore.  Remember value, as objectively determined by reviewing recent comparable sales, is not the same thing as what the market will pay.  Uncertainty still is a big factor in what the market will pay.

If you want to buy a foreclosure..time to learn all about the many ways homes become a foreclosure.   CNNMoney.com published an article this week that covers the three ways a home in default can be purchased.  All are relevant and the article is worth your time to review.   It use to be that 90% of default homes were sold in the REO stage (my estimate).  Today we see an increasing percentage occuring in Pre-Foreclosure.  These are usually called short sales because the mortgage is more than the market will pay.  Sheriff sales are very tough and very risky.  Better know what you are doing and have ample cash before trying that game.

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Posted in Buyers, Foreclosure, Modifications, Shadow Inventory, Short Sales | 1 Comment »

As The World Turns

Friday, April 16th, 2010

The words we use.  The labels we associate with actions.  Like most industries, in the default business we have a number of  unique acronyms and labels.  Today I made note of how some of them either do not make sense or are changing.

When I was a young credit analyst at First National Bank in Dallas, we had to learn all about balance sheets.  Actually, I hasd learned quite a bit on this topic at Indiana University with my finance degree.  Nevertheless, a question that has bothered me for about 20 years today was actually asked by a client.

Why do they call it REO?

At first, because I am so indoctrinated to years of this industry, I figured he just needed to understand foreclosures so I started with the pat answer.  I was quickly interrupted by my client as he explained he has an accounting background and REO mean Real Estate Owned which in traditional balance sheets for banks is the account designated for things like their branches, headquarters and operations centers.  Actual real estate owned and a part of their operations. 

The light bulb went on as I realized this client had a legitimate point.  I immediately looked at him and said Oreo.  To the uniformed they would believe I was being rude and asking for a cookie!  The reality is bank owned foreclosures in the accounting world are labeled Other Real Estate Owned.  Other real estate that the bank does not intend to hold for any period and having nothing to do with operations.

I think somebody decided it was easier to say REO.  After all of these years I think I might just start calling it OREO.  I like the sound of being called an Oreo Broker!  Actually might be very politically correct!

This whole dialogue got me thinking later as I reviewed a document offering a tenant funds to move from the foreclosed property where  they currently reside.  For 20 years, these agreements have been affectionately called “Cash For Keys”.  This document was called a “Financial Relocation Assistance” agreement.  OK..that really is political correctness.

Then I saw an ad for a broker advertising to the banks their services.  They thought it was cute to call themselves “Involuntary Relocation Enforcers”.   In today’s default world, I doubt too many people will find that funny.

Just call yourself an OREO Broker.  They will know what you mean!

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Posted in Management | 1 Comment »

Why Has That House Sat Vacant For A Year?

Thursday, April 1st, 2010

A common question in our two markets of Indiana and Florida is when is the bank going to put that vacant home on Elm Street on the market.  The street name is fiction to protect the innocent!  So common, that also is the creativity of my response. 

“I don’t know!”

Why don’t I know?  Why does this happen?  What about the values of the homes in the neighborhood where the vacant home sits?  Who is going to mow the lawn, trim the trees, fix the fence…on and on.

One of the reasons I am constantly so negative about all the efforts to save defaulting homeowners is that these efforts often seem to forget the affect a defaulting homeowner has on a neighborhood.  People in trouble with their mortgages do not take care for their homes for lack of cash and the expectation they are going to lose the home.  They often abandon the home and it takes months for anybody to figure it out.  I am now hearing stories of homeowners still working on a HAMP modification and they have abandoned their home!

The reality of the foreclosure mess is that people have issues that can’t be fixed with a loan modification.  In many circles this is now accepted but the truth, whispered in corners, is that the government is simply trying to slow the number of foreclosed homes on the market down so that values hold up.  A nice thought, but one that seems to have come out of a think tank and not Main Street. (Ah..there is Main Street again….).

Now, we can add a new cause to why your neighbors home has sat vacant for the last year.  Indiana and Florida are both what is called Judicial Foreclosure states…meaning a Judge signs off on the foreclosure allowing it to then be sold by the local authorities.  Florida courts are so backed up they are now requesting $9.6 million from the state to hire needed case managers to process the backlog.  Now, this is particularly interesting since last year these same legislators passed a law requiring a mortgage company to provide modification conferences to any homeowner requesting one.  From what I am told, the request of these conferences is also taxing the system, and has become a common suggestion from attorneys advising their clients as to delay tactics to use to delay the foreclosure. 

Of course they are.  But, that means these cases sit in limbo during these conference periods.  More delays.

In Florida, Barclays Capital estimates there are over 500,000 foreclosure dockets waiting for action.  The question, that I have asked in good faith for over two years now, is when do we decide that the costs of these delay tactics is not worth the harm to our communities?  When does it become the right thing to let the market finish this correction?

As an aside, and a post for another day, it appears the new tactic will be to just forgive principal.  An interesting development to watch. Will these new reduced loans help states like Florida clear out their backlog?  Or will we just continue to stretch out the volume of people living in limbo wondering who is going to clean up the vacant house next door?

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Posted in Florida, Vacant Homes | No Comments »

What Is This Shadow Inventory of Foreclosed Homes?

Tuesday, March 23rd, 2010

One does not need to spend much time searching for information on foreclosures to discover what those of us in the industry already know.

There are a lot of homes sitting vacant and apparently in a state of default that no legal action has taken place to create a foreclosure.

And, nobody seems to know how many.

There is a lot of speculation as to why this is occuring.

The chart to the right shows three different attempts to track the amount of homes actually owned by banks.  This is another metric outside of the vacant homes not being foreclosed on metric.  I borrowed this from a very good blog post in the Wall Street Journal that tells the story of the shadow inventory statistically from the perspective of three different record keepers.

Mainly due to government internvetion, spurred on by the simple fact that the majority of the mortgage market is now government controlled, many different options are being tried to stop or avoid foreclosures.  In many cases I have seen, these interventions have not stopped the clock from ticking on completing a foreclosure unless successful modifications or short sales occur within a time that allows cancellation of the foreclosure.  As verified by the charts above..the banks did slow down their prosecution of foreclosures in 2009.   The number of vacant homes support that.  In 2010 we are seeing the discovery that homes are vacant, and the determination that the occupant is not a bona-fide tenant under the Protecting Tenants Act, causing the banks to proceed with a new amount of urgency.  There are no available statistics to support this..it is based on observations gathered from our marketplaces and national industry groups of which I am a participant.  I think it is fair to assume that a homeowner who figures out they will not qualify for a modification, and chooses to not hassle with a short sale (or even know the option exists), will often make plans to move before they have a foreclosure on their credit record.

This one theme continues to be seen.  The vacant houses.  Just ask anybody you know if they have a vacant home on their street. Is it being maintained?  These are the likely homes of the future in REO that are not in anybody’s count. This is also why I do not know of any markets in America where valuations should be assuming much increase in value.  There is still to many homes that need to be sold distressed.  There is no government modifications or short sales for vacant homes.  What there should be is the ability to accelerate the foreclosure when it is determined a home is in default and vacant.  The value slides quickly when a vacant home sits vacant and maintenance is lacking. 

It would be nice to see a different perspective on this issue.  One of saving the neighborhoods by deciding to stop trying to turn around the train that has already left the station.  Lets identify these vacant, defaulting properties and expedite them through foreclosure and sale to a new mortgage holder who will help the community by instilling pride of ownership back to the property.

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Posted in Default, Modifications, REO, Shadow Inventory, Short Sales, Vacant Homes | 1 Comment »

Unexpected Benefit From Protecting Tenants At Foreclosure Act

Wednesday, March 17th, 2010

I am hearing and reading that certain banks are actually turning the Protecting Tenants At Foreclosure Act (PTFA) to their advantage.  I have not actually experienced ths but it makes sense to me.

PTFA allows a tenant to stay in a foreclosed property for a minimum of 90 days after being notified of foreclosure.  If they can provide a valid lease, they can stay through the term of the lease.  This issue is creating all kinds of issues for banks..with most that we work for taking the approach of trying to buy a tenant out so that they waive their rights under PTFA.

Apparently, in some areas, banks are finding actually having a tenant in the property is helping the marketing and keeping the costs of management down.  Makes perfect sense.  Of course, we need to assume we have a good tenant, which PTFA helps determine by requiring a legitimate lease.  Right away they are likely keeping the heat on and not letting the home deteriorate as fast as it does when left vacant.  Most tenants actually do care and will keep a home in better shape than the alternative.  This can reduce maintennace costs.

The surprize benefit is that banks are learning that if the home has a paying tenant, that insists on the bank honoring their lease, the property has more value to prospective investment purchasers.  Investors are attracted to homes already leased and the idea that possibly they can negotiate a new lease with the tenant is actually allowing these homes to hold value.

As far as I can tell the part that is causing banks fits is they have no idea how to handle property management and related issues such as emergency repairs and rent collection.  There are companies that have sprung up offering these services on a national scale.  All of them are basically built on the national property preservation model..one office managing lots of contractors in the field on a national level.  The problem with this is there are to many hands in a small pie and there are real people involved (the tenants).  Property management handled with this model is not a long term solution.  It is the easy one for the lender as it limits their point of contact.  I can’t blame them for that.

Yet, if good property management of properties with tenants will preserve value and potentially assist in resale…why shortcut the effort with the wholesale approach currently being utilized?  I would encourage the banks to seek out strong local companies that are already familiar with REO, and established in offering property management services to assist in these specific situations.   It appears the returns are well worth not taking short cuts!

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Posted in Laws, Management, Protecting Tenants At Foreclosure, REO | No Comments »

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