Archive for March, 2010

Congress Fails To Renew Federal Flood Insurance Program Prior To Spring Break!

Tuesday, March 30th, 2010

The same people who are able to approve laws in one week that change one sixth of the economy and contain over 2000 pages of legislation, were unable to find a solution to allow the continuation of the federal flood insurance program prior to their two week spring recess.  At best case this means homes requiring flood insurance will not be able to close a sale until after Congress returns to work April 14 ..and that assumes they will then find a way to fund the renewal. 

In Lee County Florida flood insurance is required on over 134,000 structures.  Read what the Fort Myers News-Press had to say about this development.

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Posted in Financing, Flood Insurance | 2 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 »

Lee County Is Declared Worse Job Market In The Country

Saturday, March 20th, 2010

The Brookings Institution released a study this week placing Lee County Florida in last place of the country’s 100 largest metropolitan areas in job market performance.  According to thsi study, the number of jobs dropped 17% in Lee County from the peak early 2006 level to the fourth quarter of 2009.  Not surprizing, the hardest hit sector of the employment market is the construction sector where most jobs have completely disappeared.  Other Florida markets are also not creating new jobs.  Noted in the study that Lee County was rated 100:  Bradenton-Sarasota-97, Melbourne-92, and Tampa-St. Petersburg-89.  Read more.

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Posted in Florida, Lee County, Sarasota, Tampa-St. Pete | No Comments »

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 »

What You Have To Do To Get A Home Loan In Today’s Market

Monday, March 15th, 2010

I have lost count of how frequently I receive correspondence from people who wish to buy a home from us who can’t find a lender to help them.  Of course, a few years ago if you could breathe, I could find a way to get you financed.  Not today.  In fact, I now really believe it will be a long, long  time before we see some of the aggressive types of lending experienced five years ago.  The days of no income verification, zero down payment, and low credit scores for a home loan are gone.

So, if you are deciding that this is the year to buy a home, or an investment, because you are hearing so much about the deals out there..you better get prepared.  Just like baseball players are now spending their spring getting ready for the regular season..you need to do your own spring training to get prepared for the cold, rough world of mortgage finance.

Credit Scores

Find out your credit score (FICO score) and figure out what to do to get it higher than 650.  Better yet, over 680.   Under 680 you are going to be limited to FHA financing.  This means lower purchase prices even if your income allows you to qualify.   Editorial comment from the writer-if your credit score is under 650 you really should not be buying a house.  Get your credit score improved before taking on the large responsibility of a mortgage and maintenance.

Down Payment

FHA will allow you to only put 3.5 % down, but every other loan out there is going to look for at least 5%.   It was the lack of equity for homeowners that has caused a lot of issues today resulting in foreclosure and short sales.  Remember, we now know home prices don’t only move up, and there are many of us that believe it is not out of the question that some markets may experience another decrease. 

Income

The new lending world really wants to see your debt obligations not exceeding 35-40% of your income.  That includes your proposed mortgage payment.  It also is not  going to cut it if you just took a new job with a large increase in pay (wow-if that has happened to you I can understand wishing to celebrate-it just is not going to be with a larger home!).  Your income is going to be verified with tax returns and averaged over the last couple of years. 

Cash to Pay Costs of Financing and To Have A Reserve

Need to be able to show you have a reserve of cash.  This will likely equal about four months of mortgage payments.

Investment

Take everything I am saying and double it.  It is really that hard for investors today.  The reason is a disproportionate amount of the foreclosures experienced in the last few years, and continuing today are from investors.  Non owner-occupants do not have the same incentive to make their payments when the going gets tough.

There are two programs I am aware of that are stretching these rules of financing.  I mentioned earlier FHA and it is a good option if you are not able to meet the credit score or down payment requirements.  The best financing plan out there today if offered by Fannie Mae on their foreclosures.  Their Home Path plan offers low down payments, most closing costs paid, and no mortgage insurance.  If I can find a home that is a Fannie Mae foreclosure today, I would seriously puruse HomePath.  It is a great plan and will set you up for a much brighter future with your cash reserves and equity.  Read more about HomePath here and search for properties here.  Or just contact me and I will get you started finding how to use this program to avoid some of the limits that are part of the market today.

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Posted in Financing, HomePath | No Comments »

Defective Drywall Update

Tuesday, March 2nd, 2010

There is some progress to report in the ongoing issue of creating some recognition of the legitimacy of this issue in homes mostly in the Southeast US, in particular Florida.  As I have posted before, I bear witness to the fact that these homes are not liveable with the sulfer gas being emitted.  I have found myself nauseated after just a few minutes of being in one.  Yet, there has been a reluctance for any public agency to actually acknowledge a criterian for defining a home with defective drywall.  I have speculated this has been an effort to control the inevitable flow of class action lawsuits once this issue is clearly defined.

The U.S. Consumer Product Safety Commission (CPSC) is still studying the effects of exposure to the drywall as well as what should be done about it.  In January the CPSC issued an update report that did not really have much in the way of news, but offered reassurance that the issue was still being researched.  The CPSC indicates they have 2,822 incidents of this defective drywall reported across 37 states.  From the numbers I have read in Florida alone, I believe a lot of people are not reporting this issue due to the fear that some insurance companies have reportedly dropped coverage when learning of this issue.

More significantly, HUD and the CPSC announded new guidelines guidelines on how to identify the presence of metal corrosion, as well as other indicators of problem drywall in homes. The guidance takes into account visual signs of metal corrosion, evidence of drywall installation in the relevant time period, and the identification of other corroborating evidence or characteristics. Click here to review the entire press release.

HUD and the CPSC’s two-step guidance requires a visual inspection that must show blackening of copper electrical wiring and/or air conditioning evaporator coils; and the installation of new drywall (for new construction or renovations) between 2001 and 2008. To view the full text of this guidance, click here.

Homeowners who believe they may have problem drywall should immediately report to the CPSC by calling 800-638-2772 or logging on to www.cpsc.gov/cgibin/drywall.aspx. For further information on defective drywall please visit the CPSC’s Drywall Information Center.

This is progress.  Standards had to be established.  Upon review, these seem fair and appropriate.  We are closer to admitting there is a problem.  How to solve it?  A year and half ago I felt ultimately some type of class action suit would produce a fund that would be controlled by government and funded by private industry.  I still think this approach is likely but the potential biggest culprit is a company from China.  I do not think they will participate.  Why should they other than a concern for what is right.  I do not anticipate that to be relevant in their decision making…do you?

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Posted in Defective Drywall, Issues, Uncategorized | 1 Comment »