The Foreclosure Report – December 2011

By Mike Daniel  |  Jan 12, 2012  |  4 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

4 Comments

Should I Stay or Should I Go Now?

By Michelle Lenahan  |  Jan 4, 2012  |  13 Comments
Categories: analysis, foreclosure advice, missing payments

In 1981, English punk rock band The Clash wrote “Should I Stay or Should I Go?” about the rocky personal relationships between members of the band when facing the dilemma of sticking together or breaking up. The lyrics could not be more appropriate for homeowners buried in a mountain of negative equity and wondering what to do. After all “if I go there will be trouble and if I stay it would be double.”

The first step in answering this question is to find out if you qualify for a modification or if you can refinance using the HARP program to take advantage of today’s low interest rates. The process of getting a modification can be very frustrating.  It’s “always tease, tease, tease, you’re happy when I am on my knees.” It not only takes a while to get approved, you must keep in mind that the lender does not have a legal obligation to offer or approve a loan modification. It is important to note that they may dual track your file, which means that while they are considering the modification they are moving forward with the foreclosure. Sometimes they “set you free” and foreclose in the middle of your modification application.

Let’s say you get a modification. I have a friend who was approved for what at first appeared to me to be an unbelievable loan modification. The modification did not lower the principle but did lower the interest rate to just 2 percent and locked that in for 30 years! This reduced their payment to the same amount that they would pay to rent a similar property. As such, it certainly seemed reasonable to stay – they get to keep their credit intact and remain owners, while paying no more than they would in rent anyway. Plus the payment remains fixed for 30 years, while rents would increase. But that analysis is incomplete. The question that remains is their status when they might want or need to sell, and when do they break even given the substantial negative equity that would remain?

Life events like divorce, death, job loss, job transfer, and others happen. Also sometimes folks just want to relocate. Based on our analysis, and assuming long-term home price appreciation rates, these folks would need to stay until 2026 to simply BREAK EVEN vs. paying rent. Worse, unless they use the rent savings to pay down principal, they’ll be stuck upside down in the property, and unable to sell without bank approval of a short sale until 2033. So whether or not it is a good deal for them depends a lot on how long they plan to stay.

For my friends, the best financial decision appears to be to try to short sell their current home, or if necessary let the bank foreclose. If they then rent for 3-5 years they should be able to qualify again to buy. Assuming interest rates don’t skyrocket, or some other major change doesn’t occur, this will save them over $100,000, and give them the flexibility to move if needed without being stuck in their current prison of debt until 2033.

Unfortunately, few homeowners facing this decision have the financial skills to really analyze the various scenarios, and few will consult a qualified accountant or other professional to do it for them.

This analysis is different for every homeowner facing this question. How far under water they are, and the terms of the loan modification are clearly important. It also requires some assumptions about price appreciation, rent inflation, and future interest rates. And importantly, it requires some serious thought as to how long they plan to stay, and perhaps some soul searching on the moral implications of walking away.

Bottom line, this question can be answered only by the homeowner based on their current situation and what is best for them. Would you stay or would you go now?

13 Comments

FHA Keeps Funding Flips, Investors and Buyers Rejoice

By Mike Daniel  |  Dec 28, 2011  |  3 Comments
Categories: FHA

In a move that will undoubtedly make investors stand up and cheer, the Department of Housing and Urban Development (HUD) announced today that the Federal Housing Administration is extending a temporary waiver of its “anti-flipping” rule. The waiver is a boon for investors who rely on rehabbing and selling properties in a short timeframe, and homeowners who rely on FHA-insured financing to buy.

The pool of buyers who rely on FHA dramatically increases the investors’ ability to quickly sell. FHA research finds that in today’s market, it takes a real estate investor less than 90 days to acquire, rehab, and sell a property. Before the initial waiver in February 2010, FHA did not allow potential buyers to purchase properties that had previously been purchased within the last 90 days to protect its mutual mortgage program from losses on homes that were not rehabbed, but flipped at inflated prices.

The waiver is subject to certain restrictions, including that transactions must be at arms-length, meaning that the deal must be made between separate parties who would not gain from the buying or selling of the property.

The waiver was set to expire on January 31, but now will be in effect through December 31, 2012.

This is great news for the thousands of potential homeowners who are first-time buyers or those who lack the down payment required on a conventional loan, as well as real estate investors that have built a business around rehabbing properties and selling to FHA borrowers.

As investors, how much of your business in 2011 has come directly from this waiver? We’d love to hear how this has helped your business.

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Looking Back: 2011 Analyzed, and My 2012 Real Estate Market Prediction

By Sean O'Toole  |  Dec 21, 2011  |  8 Comments
Categories: analysis

Last year I attempted to make some predictions for the coming year. I thought it would be a worthwhile exercise to take a look back at 2011 and see how I did, and then share my thoughts on what should happen in the new year.

At this time last year, I predicted the following:

My prediction: The Fed appears committed to keep interest rates low.

What happened: Rates dropped in 2011. After a rise in the first quarter, the index rate dropped by 0.47 points by the end of the third quarter. Interest rates on a 30-year fixed mortgage dropped by almost one percent over the course of the year, from 4.79 in January to 3.96 in December.

My prediction: Lending standards will not loosen any time soon, and may tighten.

What happened: Fannie Mae tightened their guidelines earlier this year, no longer funding balloon mortgages and requiring borrowers to put down more money and have a higher credit score. There was lot’s of talk from Congress on further tightening as well.

My prediction: The FHA’s waiver of anti-flipping rules might expire, but shouldn’t.

What happened: On January 28th, the FHA extended the suspension of the anti-flipping rule. Sales to 3rd parties grow substantially in 2011. California saw an increase of 29.4 percent year-over-year, while Arizona and Nevada fared even better, with growth at 101.6 and 79.9 percent, respectively.

My prediction: There will be no new housing stimulus or tax credits in 2011, and the 2010 tax credits will steal demand from 2011.

What happened: Nothing. There were no new stimulus programs in 2011. Most markets experienced a decline in sales volume in 2011.

My prediction: Mortgage interest deductions will not go away in 2011, but are at risk longer term.

What happened: They remain intact.  The year ended with the NAR announcement that there will be no immediate proposals to limit the mortgage interest deduction in 2012. The National Association of Realtors appointed a super committee to vehemently defend the mortgage interest deduction. A historical year in review can be seen here.

My prediction: States face unprecedented shortfalls and begin to look to property taxes to make up the difference.

What happened: Property taxes saw varying increases around the country, California’s Prop 13 was increasingly called into question, and many saw services cut in light of declining property tax revenue. Still total tax revenues are higher than they were pre-bubble in most areas, and the reality is that rapid increases seen during the bubble were a windfall that should have been saved not squandered.

My prediction: The government will continue to roll out programs that do little to help distressed homeowners.

What happened: More of the same. This year saw some progress on loan modifications, short sales and refinance programs, but what homeowners really need is principal balance reduction and there has been little, if any, progress there.

My prediction: Confidence will remain low that the housing market has stabilized due to the government’s handling of the robo-signing controversy and intervention in the foreclosure process.

What happened: Consumer confidence remains low, and with the budget showdown, and drama in Europe, it became clear the lack of confidence extends well beyond housing.

My 2012 Real Estate Market Prediction

Pulse Loans should make a comeback – but won’t. Back when prices were so high it didn’t makes sense to make loans at all, anyone with a pulse could get one. Now that prices, at least in some areas, are so low that we should give loans to anyone with a pulse, loans are difficult to come by. I’d rather invest my money in a home loan for a family who has strategically defaulted, then give it to a bank to use for free. Yet lending regulations essentially prohibit me, and anyone else looking for reasonable returns in a zero interest rate environment, from making those loans.

In Washington DC, the politicians say that the government shouldn’t be in the business of making home loans. Yet at the same time they ratchet up lending regulations to such onerous levels that no one but the largest banks backed by government lenders or insurance would dare lend.

While I predict very little change in an election year, it is still my hope that leadership will emerge to build consensus around a clear path back to a functioning housing market. A market that provides American’s both access to the opportunity to buy a home, and to the opportunity to get decent returns by investing in home loans.

What is your 2012 Real Estate market prediction? Change or more of the same? We’d love to hear your thoughts.

8 Comments

The Foreclosure Report – November 2011

By Mike Daniel  |  Dec 12, 2011  |  1 Comment
Categories: foreclosure report

Foreclosure Sales Slow for the Holidays, While Lenders Prepare for 2012

It is not unusual to see foreclosures slow for the holidays, and the this year is no exception. Foreclosure starts were up slightly in Nevada and Washington, but the increases were insignificant given the recent declines in those states due to legislative changes and legal challenges. Foreclosure Sales rose only in Arizona, but that increase simply offset the drop seen in October and is still well below average monthly sales for the year there.

Notice of Trustee Sale filings rose 34.7 percent from October to November in California. The increase came primarily from filings by Bank of America, up 52 percent, and Wells Fargo, up 23 percent. It is not unusual to see an increase in foreclosure sales each January, and these filings would be necessary in preparation for that.

Sales to 3rd parties, typically investors, have increased significantly year-over-year. The largest increases we’re seen in Arizona and Nevada at 101.6 and 79.9 percent respectively. Other states saw increases as well: California 29.4 percent and Washington at 6.7 percent.

“It’s great to see the banks slow down foreclosures and evictions for the holidays.” stated Sean O’Toole, Founder and CEO of ForclosureRadar. “We expect that the numbers will drop even further in December. Come January, it will be back to business with at least a small surge as banks play catch up after the delays.”

CLICK HERE for our complete November 2011 Foreclosure Report

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Occupy Wall Street Targets the Banks – Who Wins?

By Sean O'Toole  |  Dec 6, 2011  |  7 Comments
Categories: Occupy Wall Street

Today Occupy Wall Street (OWS) is having its National Day of Action to Stop and Reverse Foreclosures. The idea being that they can hurt the banks by forcing them to stop foreclosing. Only problem with this plan is that foreclosure delays help the banks as we introduced with our Foreclosure Roulette blog post, and demonstrated with our further analysis of foreclosure delays. In reality attacking foreclosures will result in little more than leaving homeowners stuck in their prisons of debt – unable to sell and unable to move on with their lives.

ZeroHedge, a popular finance blog, misinterpreted a Bank of America email, which is clearly just simply trying to keep their agents and employees safe, property secure, and press relations intact (is that possible at this point), as indicating that Occupy Wall Street is getting Bank of America (BofA) where it hurts them most.

Not a chance – I’d actually venture that it is more likely a bank operative infiltrated OWS to come up with this boneheaded plan – after all the banks are running out of excuses to delay foreclosure at this point with the robo-signing crisis now a year old. Perfect timing, yet another reason for the banks to extend and pretend while continuing to leave non-performing assets marked-to-model allowing them to remain solvent and pay bonuses. If Occupy Wall Street really wanted to hurt banks they’d have a national don’t make a payment month. More realistically they should lobby congress to end mark-to-model accounting and foreclosure delays… if banks were forced to take losses now, I guarantee they’d suddenly become a lot more interested in principal balance reductions. Certainly there is no reason for banks to lower principal balances when they can leave them on their books at inflated valuations.

Who is OWS really helping today? We’d love to hear what you think.

7 Comments

Big news on Robo-Signing and MERS today!

By Sean O'Toole  |  Nov 17, 2011  |  7 Comments
Categories: Uncategorized

Two big pieces of news today on the foreclosure front:

1. Michigan Supreme Court Reverses Ruling on MERS’ Right to Foreclose

2. Nevada Grand Jury Indicts Two in Alleged Robo-Signing Scheme

Before I share my thoughts on each of these cases, let’s start with some background:

When the whole robo-signing scandal first erupted, we predicted that in the end it would do little more than cause delays. This prediction angered many who believed that just because the lender used certain practices that have been called into question, the lender should be unable to foreclose. Two practices in particular have been the rallying cry for those that believe they should be able to stop making their payments, yet stay in “their” house forever without risk of foreclosure.

Robo-signing, is a practice where an employee signs computer generated documents, typically foreclosure related affidavits, without personal knowledge of the facts being attested to. When you consider the millions of foreclosure actions the banks have to process, and our reliance on computers these days, this practice should not have been a surprise to anyone… it makes sense. But the law often doesn’t keep up with common sense, and the banks are now paying for having gotten ahead of the law. In the end it is hard for us to see how a court of “justice” would deem it fair that one party, the lender (typically taxpayers these days) should lose everything, over whether or not a person who signed a document personally verified all the facts. There are those that will say the facts were wrong, but that doesn’t pass the common sense test… does anyone really believe that everyone being foreclosed on has actually been making their payments? Sure real mistakes occasionally happen, but those happen with or without robo-signing.

Another place the law hasn’t kept up with common mortgage banking practices is the requirement to record an assignment when the loan is transferred from one lender, or more specifically “beneficiary”, to another. The particular problem is that with mortgage securitization its a bit unclear who the beneficiary is, as the role of lender  is now split between the underlying investor, and the servicer who collects the payments. To simplify things, and to lower the costs of transferring loans between investors – a market that at the time was quite liquid -  the banks created their own system for tracking these loans called Mortgage Electronic Registration Systems or MERS. Like using robo-signers, it was a common sense solution, but one that some certainly argue the law does not support.

Since the day these two issues have come to light many have come to believe that these practices would lead to a huge windfall for homeowners by at least forcing the banks to negotiate, or at best leading to the loan being wiped out completely – a free house.

While we absolutely believe lenders should be held accountable for their role in the credit bubble that has left millions of homeowners underwater, these two issues are just a side-show, a distraction, and its keeping us from getting to the main event – dealing with the trillions of dollars in negative equity that continues to strangle homeowners, the housing market, and the economy itself.

The Michigan Ruling on MERS

Yesterday the Michigan Supreme court reversed a surprising appeals court ruling, reestablishing MERS authorization to foreclose in Michigan, and ending the chaos the earlier ruling created by leaving the status of thousands of earlier foreclosures in question. Given our position above it should be obvious this was the outcome we expected. It’s also what we’ve seen elsewhere. There have been a handful of wins to date against MERS, but all that we are aware of have been by lower courts, some of which one might argue were delivered by “activist judges” who were more focused on slapping banks for their behavior then on the proper application of the law. As these cases slowly work their way through to the top, we believe that mortgages and foreclosures in which MERS was involved will be allowed to stand, as was the case in Michigan yesterday. That said, please understand that we do think MERS should be better regulated, providing more transparency to homeowners on who currently holds the mortgage and note on their property, and establishing clear requirements on the transfer of both.

The Nevada Robo-Signing Indictments

A Nevada grand jury has handed up criminal indictments against two Lender Processing Services employees for filing foreclosure documents without proper legal review. Again, we believe lenders should be held accountable for their actions, and in those cases where mistakes of fact have been made their should be consequences. As foreclosure data providers we do see mistakes, like transposed parcel numbers, that lead to the wrong property being foreclosed on. We’ve never seen these foreclosures not immediately overturned as soon as the mistake was brought to light. Certainly the lender should make those who are a victim of such a mistake whole. No question. But should it really be a criminal offense for the person that signed the document to not have personally verified all those facts? We think that’s ridiculous. We are well past the days where your banker knew you personally, drove by your house before making the loan, and saw you each month when you brought your payment in. That’s all computerized now, and so are the foreclosure affidavits, the records of payments, mortgage assignments, etc. We’ll learn more about this case in the days ahead, but unless the acts of the Lender Processing Services employees that were indicted were far more devious then signing documents spit out by the computer without verifying facts, then these indictments seem completely misguided and vindictive to me.

That’s our two cents, we’d love to hear your thoughts.

7 Comments

The Foreclosure Report – October 2011

By Mike Daniel  |  Nov 15, 2011  |  0 Comments
Categories: foreclosure report

Little Change in California, as Nevada and Washington Foreclosure Starts Plummet

Foreclosure Starts in California were little changed this month, after a dramatic increase in August and subsequent fall in September. Other California foreclosure activity was also little changed in October. California foreclosure investors gained traction with 9.9 percent more properties sold to third parties in October, representing a record 28.8 percent of all foreclosure sales. A year ago just 16.9 percent of foreclosures were purchased by third parties.

Nevada Foreclosure Starts plummeted in reaction to the passing of AB 284, which imposed stricter requirements on filing new Notices of Default, and seems to have specifically targeted ReconTrust – the trustee that handles all Bank of America and Countrywide foreclosures – by prohibiting a trustee from being owned by the foreclosing lender, as ReconTrust is. Washington Foreclosure Starts continued their decline after being impacted by a lawsuit filed by the State Attorney General against ReconTrust in August alleging the trustee was illegally foreclosing on properties in that state.

Elsewhere, Arizona foreclosure starts are at the lowest levels since spring of 2009, with just 6,133 Notice of Sale filings in October. This is seen throughout the state, as cancellations, properties sold to the bank and those sold to third parties are all down. Oregon Foreclosure Starts continue their drop from the April spike, down 20.6 percent in October.

“I find it amazing that so many believe that legislation and lawsuits targeting the foreclosure process are a win for homeowners.” stated Sean O’Toole, Founder and CEO of ForeclosureRadar. “The reality is these delays help the banks by allowing them to keep bad loans on their books at inflated values, while leaving in limbo the millions of homeowners that are already in default. The housing market will not recover until we move beyond these delay tactics.”

CLICK HERE for our complete October 2011 Foreclosure Report

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Vultures – An Essential Part of the Real Estate Ecosystem

By Michelle Lenahan  |  Nov 7, 2011  |  3 Comments
Categories: advice, Foreclosure & Housing Markets
Tags: , , , ,     

In the animal kingdom it’s ironic that we glorify predators, like the lion, while we vilify scavengers, like the vulture, that clean up the mess left behind. Even the great Benjamin Franklin was unable to fight this prejudice in his preference of the turkey over the eagle (a predator) as a national symbol. If you encounter a lion on the savannah, it will kill you. If you run across a vulture in the process of cleaning up the carnage caused by the lion, you will be perfectly safe.

Unlike lions and other large predators, vultures don’t need to kill to survive. They serve a useful purpose by disposing of dead and decaying animal remains, cleaning up in areas with poor or non-existent sanitation. This, however, does not make them popular and it is doubtful that any major league sports teams would ever choose a vulture as a mascot.

Let’s bring this scenario home to the concrete jungle.

In almost every housing market that is plagued by negative equity and foreclosures you will find the decaying remains of houses, and sometimes entire neighborhoods. Despite the big lie to the contrary, Wall Street predators caused this crisis. Communities struggle to keep up with the mess they left behind. Now even those protesting Wall Street are adding to the carnage by breaking into properties, squatting in them, and even setting fire to them.

And who comes along to reverse the decay and clean up the carnage created by the predator? Real estate investors, often referred to as the vultures of the real estate industry, and like the vulture, unappreciated for the service they perform and the value they bring to these devastated communities. These investors are not only infusing the local economy with jobs but they are also working to create new homeownership opportunities, by bringing these properties back to marketable condition – a function that is a critical element in our housing recovery.

The average investor typically spends $10,000 to $15,000 rehabbing a property, which directly results in local jobs for contractors and other vendors. Plus most “vultures” will resell the property, resulting in real estate commissions, lending fees, title fees, inspections, appraisals, advertising and more… ALL of which creates jobs and supports the local economy. Finally, the sale and clean up of the property also means that past due property taxes will be paid, which is revenue our local counties and schools desperately need.

Real estate investors are not predators. They do not cause foreclosures. To the contrary, they are an integral part of helping to clean up this housing disaster. Call them investors, speculators, opportunists or even vultures but make sure that you realize the important role they play in the real estate ecosystem.

3 Comments

Protecting Our Protectors: Mortgages and the Servicemembers Civil Relief Act

By Mike Daniel  |  Oct 27, 2011  |  2 Comments
Categories: advice, buy at auction, foreclosure laws, preforeclosures, purchase at auction

Active military service can be very difficult financially for the men and women who serve, and the family members they leave behind. The stress of knowing your loved one is potentially in harms way is enough of a burden, without having to worry about loss of income and unpaid debts that sometimes are a part of being called to active duty. Fortunately there is a law to protect those actively serving from debt collection, and foreclosure. Unfortunately many people are unaware of the law and the rights it provides servicemembers, and the issues it can raise for others, including foreclosure investors.

­­­The Service Members Civil Relief Act (SCRA) of 2003 provides a wide range of protection for service members. It is intended to postpone or suspend certain civil obligations to allow service members the ability to devote full attention to their duties without creating additional stress on themselves and their families.

With regard to foreclosure, the law states that a lender who made a mortgage prior to the service members active service may not foreclose during, or within 90 days after, their active service unless ordered by a court or agreed to by the service member. Also note, SCRA only applies to active service members who are the principal homeowners. There is an amendment, H.R. 1263 which intends to amend the law to allow spouses similar protections.

Recently, the Justice Department reached a settlement in excess of $22 million with Bank of America and Morgan Stanley for SCRA violations due to wrongful foreclosing o active service members. Note that lenders don’t necessarily have anyway of knowing that someone is actively serving. As such, it is important to note that service members should proactively inform their lender of their rights, if for no other reason then to avoid the hassles of having the foreclosure overturned. And investors need to realize that lenders will make mistakes and wrongfully foreclose on occasion.

If you buy a property where the borrower is actively serving our country, we recommend that you do what you can to help the family, and work with them to have the sale rescinded as quickly as possible so that you can get your money back and move on to other deals. But also be aware that we’ve seen cases where homeowners have made false claims about serving to the lender, which resulted in an overturned sale and a lost opportunity for the investor. Knowing the law may also help you avoid the same fate.

Have you known someone who has been affected by SCRA?

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