The Foreclosure Report – April 2012

By Susan  |  May 14, 2012  |  3 Comments
Categories: foreclosure report

Foreclosure Activity Declines Hurting Investors

April 2012 Foreclosure Starts declined across our coverage area wiping out the small gains in new foreclosure filings last month. In California, Notice of Default filings are down 69.8 percent from the peak in March 2009, and 15.8 percent from April 2011. Notice of Trustee Sale Filings, the start of Arizona’s foreclosure process, are down 59.4 percent from the peak in March 2009, and down 8.0 percent year-over-year.

Foreclosure Sales also declined, however, foreclosure investors purchased a record percentage of the limited inventory that was actually sold. Nevada investors purchased more than 50 percent of foreclosure sales for the first time at 50.7 percent. Arizona followed with 44.6 percent and California at 41.3 percent. The low number of sales, combined with record percent purchased on the courthouse steps left very little to become Bank Owned (REO).  This further depletes the inventory of Bank Owned homes as REO sales continue to outpace the addition of new inventory.

Despite investors purchasing a higher percentage of foreclosure sales, margins have rapidly declined in recent months. In both Arizona and Nevada winning bids on the courthouse steps on average equal the current estimated value of those properties. In California the discount between market value and winning bid have on average declined to 12.3 percent. This leaves investors who intend to resell their purchases with record low profits after eviction, repairs, and closing costs.

“Foreclosure declines would be wonderful news if they were being driven by a true market recovery in which hundreds of thousands were no longer unable to make payments, and millions were no longer upside down. That is not the reality today. Instead we are seeing unprecedented government intervention into the foreclosure process leaving underwater homeowners in limbo, while stealing opportunity from investors and first time buyers.” stated Sean O’Toole, Founder & CEO of Foreclosure Radar. “California’s pending legislation, which is similar to laws we previously saw enacted in Nevada, will almost certainly bring foreclosure activity to a near halt there if passed. The reality is that these laws don’t solve anything as they fail to address the real problem – negative equity – while instead they punish real estate professionals, homebuyers, and investors far more than the banks they were aimed at.”

CLICK HERE for our complete April 2012 Foreclosure Report

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The housing crash was no accident; maybe it’s time to start assigning blame!

By Michelle Lenahan  |  Apr 18, 2012  |  63 Comments
Categories: foreclosure process, going into foreclosure

If you have ever been in an auto accident, you know that insurance adjusters from both sides examine the accident to determine the comparative negligence. If the fault was fifty percent yours, you are responsible for 50 percent of the damage.

Having tracked hundreds of thousands of foreclosures, we have yet to see a single case where the owner was making their payments, did everything right, and still lost their house. This seems to be lost on most that see foreclosures as “the problem”.

We have long said foreclosures are not the problem, negative equity is. Despite what you may hear about the housing crisis, negative equity was not caused by a downturn in the economy, nor job loss. A run away credit bubble caused it. While we believe banks and government deregulation were primarily to blame, do homeowner’s really have no responsibility?

Lets look at two real life examples:

  1. Owner purchases a property in 2004 for no money down. Over the next two years she pulled out $140,000 of equity. In 2007 she defaults on the loan.  In 2011 the bank takes the property back in foreclosure. One year later, 2012, she is finally evicted from the property after living there for five years without making a payment. She is now in the news for breaking back into the home to fight what she says is an “unlawful foreclosure”. The lender was forced to secure the property with steel doors and window coverings to keep her out. What really are her damages? What consideration does she deserve? What consequences should she suffer?
  2. An eighty-year-old couple in poor health needs money for medical bills. They are collecting social security and yet qualify for three back-to-back option ARM loans in a three-year period, resulting in outstanding debt of $500,000. Each time they refinanced, the loan fees and prepayment penalties nearly exceeded the amount they received at close of escrow. Now that the payments are increasing, they can no longer afford to stay in the home they have owned for 30 years. Clearly they were refinancing of their own free will, using the cash they received, but were also put into loans they could obviously not afford. Who is at fault here? Should they be entitled to live out their final years in the home?

Both of these examples are of people who took cash out of their homes. Should the rules be different for them, then for those who purchased with no money down and never took cash out, but are now upside down? And what about those who did everything “right” and put 20 percent or more down, yet now find themselves underwater?

These are real questions of fairness that we rarely see addressed.

First it seems to us that it would be fair and equitable, to not allow any principle reductions on cash out. Instead we think the underwater, cash out, portion of any mortgage should be converted to unsecured debt. This allows lenders to fully pursue collection, while allowing borrowers the right to eliminate the debt in bankruptcy without fear of losing their home. If the borrower doesn’t want this option, then they can try to negotiate a short sale, or deal with the consequences of foreclosure – fair all around.

As for principle balance reductions, those should be strictly limited to amounts used to purchase a home, where the home has since fallen in value, through NO direct fault of the borrower. This is fair because banks were in a far better position to realize that prices were unsustainable at the peak, then the average homeowner, who kept hearing that prices would only go up, or that there was no bubble.

What’s most unfathomable to me is why anyone condones breaking the law by suggesting its ok to break and enter into homes that have been foreclosed on. Even if one intends to take a stand, is that really the right way? And is foreclosure actually bad for homeowners? Why in the world would anyone take a stand against a process that, at least in California, allows you in many cases to walk away from a huge debt with nothing but a hit to your credit report. In some countries not paying one’s debts means jail time.

The saddest thing I see today, is that the worst actors, who signed up for the worst loans, and cry the most about unjust foreclosures are the most likely to get help from the banks. While prime borrowers with great credit, traditional 30-year financing who didn’t use their house as an ATM, and showed respect for the law, rarely get a decent loan modification no matter the circumstances, and often have short sale requests declined.

What do you think? Can you honestly say only the banks are to blame?

 

63 Comments

The Foreclosure Report – March 2012

By Mike Daniel  |  Apr 13, 2012  |  4 Comments
Categories: foreclosure report

For the second month in a row we’ve seen a dramatic drop in the number of properties sold at foreclosure, or “trustee sale”, auctions. Foreclosure sales in California are down 16.7 percent from February to March 2012 and down 53.1 percent from March a year ago. A total of 86,487 sales were scheduled to occur in California, but of those 80.0 percent postponed, and 10.6 percent were cancelled, leaving just 8,392 that were actually sold. Third parties, typically investors, purchased a record 38.6% of the properties that did sell in California.

Foreclosure starts rose in most states, with the largest increases occurring in Washington, California and Nevada. This, at least temporarily, reverses a downward trend, but even with the increase the volume of new foreclosures remains significantly down year-over-year in all the states we cover.

The increase in foreclosure starts is especially interesting in Nevada. Bank foreclosures came to an almost complete halt there after the passage of Assembly Bill 284, which made significant changes to Nevada’s foreclosure laws. The increase this month is directly attributable to new foreclosure starts by Fannie Mae, which is one of very few lenders to have filed any new foreclosures in Nevada since September 2011. Even with the increase by Fannie Mae it is still homeowner associations that are initiating the vast majority of foreclosures in Nevada.

“It is easy to see why some analysts continue to predict that there will be a wave of foreclosures. Clearly we still have far too many homeowners in trouble, and with the recent Attorney General Settlement over robo-signing, and other issues, it seems completely logical that a wave of foreclosures would follow. It won’t.”, stated Sean O’Toole, Founder & CEO of ForeclosureRadar. “To reach the conclusion that there will be a wave of foreclosures, you have to assume that the banks either want to foreclose – they don’t – or will be forced to foreclose – they won’t. In September 2008 the rules of the game were changed to help the banks remain solvent, and since then it has been in their best interest to find reasons to delay foreclosures through whatever means necessary. I don’t see that changing anytime soon.”

CLICK HERE for our complete March 2012 Foreclosure Report

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2012: The Year of the Short Sale?

By Mike Daniel  |  Apr 10, 2012  |  6 Comments
Categories: REO, short sales

As we mentioned in the February Foreclosure Report, government intervention into the foreclosure crisis has slowed the rate at which foreclosures go to trustee sale. As a result, there are fewer houses to buy, either at the auction, or from the banks as REOs. In fact, fewer auction properties went back to the bank in February than any month in the past five years. REOs began rising in 2007 and climbed steadily until the end of 2008. Since then, the numbers have declined, with some fluctuation. In February they reached mid-2007 numbers.

With the number of properties going to trustee sale diminishing, many investors are turning to preforeclosure for inventory. The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey reported that short sales to investors were up almost five percent over the six month period ending February 2012, despite a drop in the overall number of short sales completed, due to long-approval times from mortgage servicers and unpredictable closing dates.

In other states, we are seeing senators introducing legislation that would force a written response by a bank within 75 days of receiving the request for approval package from the seller; which would require a written response of an acceptance, rejection, counter offer, or the need for an extension of time with a $1,000 penalty for those that don’t comply, along with legal fees. Rather than wait, Bank of America has taken a proactive approach. They have announced they have started working on streamlining short sale procedures, which would greatly decrease the time it takes to get a decision.

Those looking to buy preforeclosure inventory should exercise caution if looking to flip, rather than holding as a rental, called “flopping”. Law enforcement agencies have indicated they plan to investigate flips after a short sale to ensure bank fraud did not take place.

With more attention focused on short sales, it’s time to brush up on preforeclosure investing in the ForeclosureRadar Investing Guide, if you haven’t already.

6 Comments

Which Line is for the $2,000 Payment?

By Michelle Lenahan  |  Mar 20, 2012  |  10 Comments
Categories: Uncategorized

In February, US Attorney General Eric Holder announced the unprecedented $25 billion national mortgage settlement with the five largest banks in the US. One of the provisions of the settlement is a $2,000 payment to homeowners who lost their homes to foreclosure.

A month later, people are asking, “When am I going to get my check?”

The answer is, “It depends.”

One thing is for certain. It won’t be this week or this month. It will take up to two months to select an administrator and six to nine months to actually get the ball rolling.

Then you have to meet a few other requirements.

  • Did Bank of America, Citigroup, JPMorgan Chase, Wells Fargo or Ally Financial service your loan? If so, good, because the settlement only applies to them. But even then, you’ll only qualify if your loan was NOT a government-backed mortgage (such as FHA, VA, Fannie Mae and Freddie Mac loans), and which account for over half of home mortgages.
  • Did you lose your house between Jan 1, 2008 and Dec 31, 2011? If so, good, because the settlement only covers those four years. (This period is for when the house went back to the bank or an investor, not the loan origination date, as some reports indicate.)
  • Are you feeling lucky? The $1.5 billion set aside for these payments will cover 750,000 borrowers. We have no numbers on how many foreclosures these five lenders completed from 2008 to 2011, but there were roughly 3.8 million foreclosure sales during that period, over five times as many as will receive payments.

According to the national mortgage settlement site, eligible borrowers will be contacted. Given that everyone who is entitled to these checks has lost their home and have now moved, it will be interesting to see if they can actually find you. Hopefully you filled out a Change of Address with the US Postal Service.

Other provisions of the settlement include:

  • $3 billion for refinancing lower interest rates for homeowners who are current on their payments but are underwater on their loan.
  • $17 billion for principal reduction and short sale assistance for homeowners who are in default.

While this “unprecedented” settlement will certainly help a few individuals, it is, as we’ve said before, an absolutely meaningless amount of money when compared to the $4 Trillion in excess mortgage debt that created during the credit bubble.

 

10 Comments

The Foreclosure Report – February 2012

By Mike Daniel  |  Mar 13, 2012  |  9 Comments
Categories: foreclosure report

Foreclosure Activity Continues to Fall

The “foreclosure wave” many predicted at the end of last year is beginning to look more like a drought, as foreclosure sales dropped significantly in February. Although sales to 3rd Parties, typically investors, were down month-over-month, as a percentage of all sales 3rd Parties purchased a record 37.6 percent of foreclosures, up from 20.3 percent a year earlier, and just 2.2 percent in February 2008.

Further eliminating any possibility of a foreclosure wave for months to come, was a substantial drop in new foreclosure filings in California, Nevada, and Washington. Arizona saw a modest increase in foreclosure starts, while Oregon jumped a dramatic 39.4 percent. Despite the size of the increase, it simply offset a drop in January, and showed little change in comparison to earlier months. Nevada remains far below the average number of foreclosure starts; and the dramatic changes to their foreclosure laws will likely drag out the Nevada foreclosure process for years to come.

Unlike years past, February’s drop in sales was not due to the short month. Thanks to the Leap Year, California had only one less business day than usual in February (because of the Abraham Lincoln’s birthday observation). The other states do not observe Lincoln’s birthday, and so had the same number of business days as other months.

“Government intervention into the foreclosure crisis has clearly succeeded in slowing foreclosures. Unfortunately, it has also largely failed to deal with the real problem–negative equity. While principal balance reductions and short sales are friendlier than foreclosures for eliminating negative equity, foreclosures are an extremely effective, if perhaps crude, cure as well.” Stated Sean O’Toole, Founder & CEO of ForeclosureRadar. “While I believe banks should be strongly encouraged to work with homeowners who fall behind, there will be uncooperative homeowners. Passing laws to essentially eliminate foreclosures, as they appear to have accomplished in Nevada, and are now contemplating with similar draconian measures in California, is likely to do more harm then good. The pendulum of regulation is once again swinging too far.”

CLICK HERE for our complete February 2012 Foreclosure Report

9 Comments

Head to Head: Home Price Index vs. Housing Affordability Index

By Mike Daniel  |  Mar 9, 2012  |  6 Comments
Categories: analysis, appreciation
Tags:     

Compare these two headlines:

Case-Shiller Home Price Index Ends 2011 With New Lows (February 28, 2012) *

Home Affordability Index Hits Record High (March 7, 2011) **

Throughout the housing crisis, the headlines have focused on the precipitous fall of prices and the resulting plight of homeowners who are underwater.

There is no doubt that the crisis has taken a huge financial and emotional toll on millions of families as the home price index has continued to decline – but it has also created opportunities for many first-time homebuyers, and for the investors who take the financial risk to restore distressed properties and make them available to buyers as the affordability index has risen.

In our September 2010 post Want to know when prices will rise? Ask the government!, we talked about the graph below and how government intervention to make homes more affordable inevitably has the opposite effect.

History of Home Values - The New York Times
Comparing the rocket trajectory on the right of the graph to home values of the previous 110 years kind of puts the recent bubble into perspective. Instead of decrying plunging prices for the past five years, why haven’t we seen the following headline?

Absurdly Inflated Home Prices Get Reality Check, Prices Return to Sanity

In the past few years, the government has intervened through foreclosure moratoriums and refinancing programs in an attempt to keep home prices high rather than make them more affordable. This has not been effective, and many markets have corrected anyway – back to pre-bubble values that are in line with what people can actually afford using sensible long-term financing.

Will prices eventually make their way up to mid-2000’s peaks? Yes, over a very long time, but not really – the increase will have far more to do with the declining value of the dollar (i.e. inflation), then the actual increase in the value of housing.

Perhaps that’s a good thing. Relatively affordable housing leaves more money to spend on other things. Our children’s education, vacations, saving for retirement, etc. We understand why government wants home prices to rise – it increases tax revenues. It’s good for bankers too – higher prices equal bigger fees. But how exactly does it make a homeowner richer except on paper? Sure they can cash out if they sell, but won’t they still need a place to live?

I doubt our grandparents had the degree of fascination with home prices that we do. By and large once they purchased a home, they stayed put and paid off their mortgage around the time they were ready to retire – making that transition far easier. Baby boomers nearing retirement today have record levels of mortgage debt, and I fear that transition will not go well for them, or for our economy.

What do you think? Which is more important – high home prices or high home affordability?

*Case-Shiller Home Price Index. Designed to measure changes in the total value of all existing single-family housing stock through a complex methodology.

**NAR Housing Affordability Index.  Measures the current median income against the income required to qualify to buy a median-priced single-family home using conventional financing. (Financing with 20 percent down and monthly payments at 25 percent of the gross income.)

6 Comments

California to Enforce Overlooked Property Tax Law as a Source of Revenue

By Mike Daniel  |  Feb 28, 2012  |  6 Comments
Categories: IRS, paying the IRS

One of our real estate predictions will soon have an impact on your tax return.

At the end of 2010, Sean O’Toole predicted that states would to look to property taxes to make up budget shortfalls. During 2011, the California Franchise Tax Board (FTB) proposed a change to Schedule CA to require the information necessary to enforce an overlooked area of the real estate tax deduction.

The real estate tax deduction applies to ad valorem taxes, the real estate tax amount based on the assessed value of a property. Taxes based on a direct levy or special assessment, such as Mello-Roos or various services provided to specific properties are generally not deductible.

However, many taxpayers are not aware of this distinction and in practice most individuals or their tax preparers include the total property tax on Schedule CA. Until recently the FTB didn’t have the capability to determine whether the reported number included non-deductible taxes, but a computer system planned for 2012 will give the FTB that capability.

The FTB had planned to enforce compliance stating this year by adding three lines to the 2011 state tax returns that would require property owners to show their parcel number, total property tax bill and the deductible amount. On November 1, 2011 the FTB announced the decision to delay the change to Schedule CA for a year and use 2012 to educate taxpayers and preparers on the rules. The board encourages voluntary compliance for 2011 tax returns and plans to enforce the rules on the 2012 Schedule CA.

As part of the education effort, the FTB created a page on their website called Understanding the Real Estate Tax Deduction that explains the rules and provides an example tax bill with the ad valorem taxes and direct levies or special assessments broken down.

For the 2011 tax year, some preparers are requiring their clients to bring in the county property tax statement before they will include the deduction in the Schedule CA.

The FTB estimates that the change will bring in an additional $200 million of revenue per year and that voluntary compliance could bring in $20 million this year.

6 Comments

The Foreclosure Report – January 2012

By Mike Daniel  |  Feb 14, 2012  |  4 Comments
Categories: foreclosure report

Trustee Sale Investors Kickoff the New Year with Near Record Activity

Real Estate investors started off 2012 with a bang. Sales to Third Parties, typically investors rose significantly in January throughout our coverage area, with the exception of Washington. California saw the most activity, with investors purchasing 3,964 properties for $766.2 million. Note that trustee sale investors must pay in cash, in full, with no title insurance or inspections prior to purchase. This is the fourth largest month on record in California, and the busiest since March of 2011.

Nevada saw the largest month-over-month increase in Foreclosure Sales, with investors there purchasing 973 properties for $99.1 million. This increase, coupled with the dramatic decline in new foreclosures that began in October 2011, is quickly depleting the foreclosure inventory that remains scheduled for sale in Nevada. Year-over-year the number of Nevada properties scheduled for sale has dropped 57.6 percent.

Despite what appears to be significant percentage increases in Foreclosure Starts in California, Nevada and Washington, these increases barely offset the declines seen over the holidays. Compared to January one year ago, Foreclosure Starts are significantly lower now – despite the fact that many banks were still under self-imposed moratoriums due to robo-signing last year.

“January’s numbers should put to rest any notion that we will see a wave of foreclosures in 2012, at least in the western states that we cover.” Stated Sean O’Toole, Founder & CEO of ForeclosureRadar. “Foreclosure Starts remain near record low levels, significantly lower than a year ago, when many banks still had self-imposed moratoriums in place due to the robo-signing scandal. Add to that a foreclosure timeframe of more than 8 months, and there is little chance of a wave this year even if all the banks started the foreclosure process en masse tomorrow.”

CLICK HERE for our complete January 2012 Foreclosure Report

4 Comments

The Foreclosure Report – December 2011

By Mike Daniel  |  Jan 12, 2012  |  14 Comments
Categories: foreclosure report

2011 Foreclosure Activity Ends With a Whimper

Foreclosure Starts dropped significantly throughout our coverage area with the exception of a modest increase in Oregon. Foreclosure Sales were mixed, and down far less than we expected given lender announcements of holiday moratoriums. California and Washington actually saw modest increases. Also surprising was a drop in the time to foreclose across most states, since foreclosures typically get extended over the holidays.

An event of particular note this month was an unexpected spike in the Cancellations of foreclosure in California, with an increase of 45.8 percent from the prior month. Almost the entire increase occurred in Los Angeles County where over 5,000 sales were cancelled. This looks to have been caused by a city ordinance eliminating the trustee sale location in Norwalk. We expect many of the cancelled sale dates to be reissued at a new location within the county soon.

Nevada’s new foreclosure law, which caused Foreclosure Starts to plummet in October, are now impacting Foreclosure Sales as well. We’ve seen foreclosure activity bounce back after lenders deal with state law changes in the past, but its less clear that we’ll see such a recovery in Nevada anytime soon.

“Nevada’s new foreclosure rules appear on track to bring a near complete halt to foreclosures in that state.” stated Sean O’Toole, Founder and CEO of ForeclosureRadar. “In the near term this will certainly help homeowners who were facing foreclosure, eviction, and potentially deficiency judgements. Longer term, we believe there will be unintended consequences for the state as business declines for the many real estate related companies that would normally service, resell and finance those foreclosures. While we hope the rules will lead to better lender accountability as intended, we fear that they will instead lead to higher unemployment and less certainty as to when the cloud of ‘shadow’ inventory hanging over the state will be lifted.”

CLICK HERE for our complete December 2011 Foreclosure Report

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