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Short Sales Lead Real Estate Market in March

An industry study released Monday shows that nearly half of home sales activity last month involved distressed properties, a trend that is likely to continue as the backlog of foreclosures and mortgage defaults make their way through the pipeline.

Within this distressed property segment, the market analysis shows a boom in short sales during the month of March to record-high levels and a drop in the proportion of damaged REO.

These deductions come from the HousingPulse Tracking Survey generated by Campbell Surveys and Inside Mortgage Finance.

The survey’s overall distressed property index rose to 48.6 percent in March – the second highest level seen in the past 12 months.

Short sales rose from 17.0 percent in February to a record-high 19.6 percent in March. Over the same period, damaged REO fell from 14.9 percent to 12.0 percent.

The report referred to both developments as “a positive sign” for the market.

Short sales can eliminate the sometimes long periods of time a home sits vacant after it is repossessed by the lender after foreclosure, and because damaged REO has the worst effect on comparables used for appraisals, smaller amounts of damaged REO should be a positive for home values in future months.

In another potentially significant – but not so positive – development, the monthly survey registered a slowdown in owner-occupant activity during March.

Activity among both current homeowners and first-time homebuyers declined just over half a percentage point from February to March, while investor activity was up only slightly.

Survey respondents reported mixed opinions on traffic for the winter and spring housing market.

“January, February, and March sales were characterized by a wait and see attitude of buyers,” stated an agent in California, noting that concern over the happenings in the nation’s Capitol, as well as economic influences on consumer finances such as gas prices, are impacting buyer demand.

“Our market bottomed out last year and started to rise slowly,” reported an agent in Colorado. “January was flat with activity and inventory. February saw more buyers coming out. March has seen a sharp increase of new listings, approximately double what we had in February. It appears that we should have a marked increase in activity as we continue in this strong season of the year.”

A large number of respondents commented on the problems the high proportion of distressed properties is causing for the appraisal system, noting that when so many properties are distressed, it is often difficult for appraisers to find recently sold non-distressed properties to gauge value.

“Appraisers continue to use distressed property sales to establish value on non-distressed listings,” complained an agent in Arizona. “Further, these same appraisers will not make any adjustments for amenities, (pools, spas, solar, etc.), when compiling a normal sale vs. distressed comps.”

The agent went on to explain, “I have had at least one appraiser tell me that his firm has been given marching orders to calculate the current value based on all properties sold within the last 3 to 6 months and only use the average square footage minus 10 percent to establish neighborhood value comps. If this is indeed standard practice, it will take a mighty long time to realize any increases in property values.”

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey polls more than 3,000 real estate agents nationwide each month to provide insight on home sales and mortgage usage patterns.

Source: DSnews

Today's Real Estate Market a 'Once-in-a-Generation Opportunity'

Greg Rand, a 20-year real estate veteran and CEO of OwnAmerica, says now is the time to invest in real estate.

Rand compares the current market to the years following the Great Depression when market conditions sparked a boom that sustained 65 years of appreciation in real estate.

“This economic crisis, while similar to the Great Depression, is also unique in the way that the housing market played a central role,” Rand said. “It is true that this is a once-in-a-generation crisis. It is also true that this is a once-in-a-generation opportunity. It’s time to focus on the other side of the coin.”

According to Rand, a little optimism can go a long way toward spurring real estate back to life.

“There is a very real economic force called irrational pessimism that is the cause of much economic hardship, not the effect,” he said.

“More people are unemployed because successful businesses are afraid to expand. More people are losing homes they can afford because they are underwater and believe their home will never appreciate again. People with job security are convinced they don’t have it and live in fear,” Rand explained.

He insists, “Irrational pessimism is one reason why today’s situation runs so parallel to the Great Depression.”

Rand contends there is no housing meltdown. Rather, there was a media and Wall Street meltdown centered on a predictable housing correction.

The real estate market changes hourly, he says, and investing in real estate is a matter of watching the trends.

“It comes down to the idea that no matter how the markets change, no matter which way the winds shift, people will always need a place to live,” Rand said. “That’s been true of America since the first log cabin.

“If you plug into that concept and leave fear in a box on the shelf, you can be ahead of the curve and ride the wave of the trends that matter,” according to Rand.

OwnAmerica is a Web-based resource for real estate investors and investment advisors headquartered in New York.

Rand is also on WABC Radio, a regular commentator on the Fox Business network, a columnist for Real Estate magazine, and author of the book “Crash-Boom” from Career Press.

Freddie Mac Predicts 5% Increase for Home Sales in 2011

I recently read an interesting article from DSNews. According to Freddie Mac, a pick-up in home sales is expected due to a recent increase in employment rates. This is good news and a step in the right direction for our industry. Here is the article:

Freddie Mac forecasts a 5 percent increase in 2011 home sales over 2010, according to its U.S. Economic and Housing Market Outlook for April.

The report also contends that refinancing will likely account for a smaller share of loan applications later this year as wealthy borrowers decrease and mortgage rates increase.

“Expect to see a bit of spring in homes sales activity during the second quarter,” said Frank Nothaft, VP and chief economist at McLean, Virginia-based Freddie Mac.

Nothaft continued, “Sales contract signings for existing homes were up in February, positioning the market for a bounce up going into the traditional home-buying season.”

The expected pick-up in home sales is due to recent positive employment reports, the Market Outlook reveals. Unemployment declined for the fourth straight month to 8.8 percent, and net employment increased by 216,000 jobs. Real estate employment was up by 10,000 jobs since last November.

The report also calculates that the share of adjustable-rate mortgage loans will be 7 percent in 2011 compared to the 5 percent 2010 average.

Freddie Mac compiles data on major economic and housing and mortgage market indicators and offers forecasts based on those indicators.

Source: DSnews

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California expands its foreclosure relief effort

California homeowners who refinanced their properties for cash or took out home equity lines of credit will now be allowed to participate in parts of the state's $2-billion foreclosure relief initiative.

Many people tapped their rising equity during the boom years, using their homes as ATMs to fuel spending. The California Housing Finance Agency had initially excluded people who used their home equity in such a manner from participating in its Keep Your Home initiative, which launched this year with federal funds reserved for the 2008 rescue of the financial system.

But California's high unemployment rate caused the agency to reconsider its policy, agency Executive Director Steven Spears said in a statement.

"In the two short months since the launch of these programs, we have collected information that has helped us identify areas of improvement to make the programs more effective, particularly given the continued high level of unemployment in California," he said.

The California Housing Finance Agency will now allow people who refinanced or took out home equity lines of credit to participate in three of its four Keep Your Home programs.

This includes the agency's biggest initiative, which allocates $875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs, providing as much as $3,000 a month for six months to cover home payments and associated costs.

It also includes a plan that would give homeowners as much as $15,000 to help them get current on their mortgages. The third program provides moving assistance for people who can't afford to remain in their homes.

These same programs also are being expanded to include mortgages that were originated after Jan. 1, 2009, the agency said. Homeowners who previously applied to the program and were disqualified for that reason can reapply.

Those who refinanced or took out a home equity loan will not be allowed to participate in the initiative's principal-reduction effort, its second-biggest and most controversial program. About $790 million is slated for that program, which would write down the value of an estimated 25,135 "underwater" mortgages, those in which the amount owed is more than what the property would bring in a sale.

Source: By Alejandro Lazo, Los Angeles Times

Proposed settlement would force banks to allow short sales for delinquent homeowners

Major banks may be forced to let severely delinquent homeowners sell their houses for less than the loan amounts owed as part of a broad settlement of federal and state investigations into botched foreclosure paperwork, according to government officials involved in the negotiations.

The requirement to allow so-called short sales would be in addition to forcing mortgage servicers to reduce the amount some homeowners owe on their loans, said two officials, who spoke on the condition of anonymity because negotiations are ongoing.

The goal of short sales would be twofold: provide a quicker and more economical way for banks to dispose of distressed real estate and to help stabilize the real estate market by clearing out a backlog of defaulted mortgages that are poised for foreclosure.

They would be used in situations in which borrowers were so underwater that the more costly and time-consuming process of foreclosure would seem to be the only option.

"Short sales just command a better premium than foreclosures," said Glenn Kelman, chief executive for online brokerage Redfin. "It's like day-old bagels. They never sell for the same price. If they sit there for a while, nobody wants them because houses just break down when they are left alone."

Foreclosures continue to drive down housing values, with prices in 20 major U.S. cities down an average of 3.1% in January compared with the same month a year ago, according to new data from a Standard & Poor's/Case-Shiller index. Prices in Los Angeles were down 1.8%.

The latest proposal is among those to be discussed when executives from the top five mortgage servicers meet Wednesday in Washington with state and federal officials working on a settlement that could range from $5 billion to $25 billion.

Those servicers are Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

It will be the first face-to-face meeting since attorneys general from all 50 states, along with federal officials from the Justice Department and other agencies, presented the banks with 27 pages of demands calling for sweeping changes to mortgage servicing, including how homeowners are treated when they try to modify their loans.

The banks have given officials a counterproposal on some of the mortgage servicing requirements that includes a single point of contact for distressed homeowners, timelines for considering modifications, an online system for checking the status of applications and a third-party review of rejections, one of the officials said.

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Short sales would help accelerate the turnover of homes from borrowers who are months behind on their mortgage payments, Kelman said.

Some sellers are not eager to complete a short sale because it would force them out of their home. And lenders can withhold approval of a short sale if they don't like the price.

Banks often resist such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. In addition, short sales lock in losses for the lender that might be reduced if the sale is delayed until the market improves.

Requiring banks to allow short sales could fuel further opposition from some Republican attorneys general and members of Congress who already have criticized the broad scope of the proposed settlement.

Some House Republicans have derided possible payments of $20,000 to encourage distressed homeowners — dubbed by some as "cash for keys" — as a bailout for irresponsible behavior.

Seven Republican attorneys general recently wrote to Iowa Atty. Gen. Tom Miller, a Democrat who is leading the negotiations for the states, saying the proposals go beyond resolving damages from foreclosure paperwork problems. Those problems include robo-signing, the practice of bank employees' signing sworn documents without reading or understanding them.

"I think it's morphed into something that's bigger and different than what we talked about in the beginning," said Oklahoma Atty. Gen. E. Scott Pruitt, a Republican who organized the signing of one of the letters.

Pruitt said he might not join the settlement if it is too broad. And with 24 Republican attorneys general nationwide, opposition could limit the size of a settlement and how many people it covers.

Miller has been in contact with some of the attorneys general who have raised concerns, said spokesman Geoff Greenwood.

"We'll do the best we can to reach a comprehensive agreement that is in everyone's best interest," Greenwood said. "At the end of the day, an attorney general must decide for himself or herself whether to sign on to this, assuming we get a settlement."

In Southern California, short sales made up an estimated 19.8% of the market for previously owned homes last month. That was up from an estimated 18.4% in February 2010 and 12% in February 2009, according to DataQuick Information Services of San Diego.

Combined with foreclosures, these so-called distressed sales made up more than half of homes sold in the Southland last month.

Though struggling homeowners escape weighty mortgage debts quickly under a short sale, they don't get away unscathed.

Their credit scores are damaged enough to limit their borrowing capability for years, though the damage is perhaps less severe than in foreclosure. Money for down payments and renovations would be lost, and there may be tax consequences.

The California Assn. of Realtors has been pushing for short sales to be made simpler. Earlier this month, in an open letter in the Los Angeles Times and six other California newspapers, the group called on banks to approve more short sales and for regulators to streamline the process.

The real estate agents argued that short sales are better for consumers and banks.

Source: LA Times
La Times Article

REO Influx: How the foreclosure floodgates opening will affect the short sale market

After months of bank scandals, the massive held-back inventories of REOs are finally opening up!

Now that these floodgates are opening up, how will this affect the short sale market?
The bottom line is that this is a good thing; one way or another, these inventories need to be worked through in order for the market to correct itself. But read on if you want to know the specifics as to how this will help you as a short sale agent…

Lower Comps

Most of us share the experience of stubborn banks digging their heels in at a price without budging, despite a complete lack of interest at that price point. Foreclosed inventory will set new market lows for those properties we’ve had trouble completing CMAs for at a price the market will bear. As soon as the REO listings open up this will change and benefit everyone!

Bank Hiring

Banks have been cutting negotiators and asset managers while staying on a hiring freeze until the REO scandals started to wrap up. Hence, the system has been gummed up more so than usual with the banks being understaffed. Letting out more foreclosures will force the banks to bring in new staff with a lighter volume per negotiator, expediting the negotiation process of your REOs.

Public Awareness

With all these REO properties coming on the market, banks will be under increased scrutiny to help distressed homeowners avoid foreclosure and keep people in their homes.
Look for even more legislation and regulation on the short sale industry to be passed this summer, which will seek to speed up and demystify the process for everyone involved.

Source: Short Sale Daily News