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Distressed Property Comprised Half of All March Home Sales
By Michael Kraus on April 25, 2011

Distressed property sales rose to the second highest level in a year in March, according to a new Campbell/Inside Mortgage Finance report (which I learned of via a Calculated Risk blog post this morning).

Nearly half of all home sales in March were distressed properties. The Distressed Property Index rose to 48.6% in March. The high for the year is 49.6% in January. Per the report:

“The HousingPulse DTI indicated that nearly half of the housing market is now distressed properties. This trend is likely to continue as a backlog of foreclosures and mortgage defaults make their way through the housing pipeline.”

It is fairly stunning to learn that distressed properties make up this large of a percentage of home sales. Distressed properties sell at a substantial discount versus “normal” home sales. According to an MIT study last year, the average price reduction on a foreclosed property is 27%. Rising distressed property sales will drive down the sales prices of normal homes that are forced to compete with the lower sale prices. Distressed properties also lower home appraisal values, to the point that several states are considering outlawing the use of distressed properties as comparable home sales in appraisals. The large number of distressed properties sold will serve to put more downward pressure on home values.

On the other hand, the housing market needs to clear a ton of excess inventory before it can bottom out and begin to heal. It is good to see that some of these foreclosed homes are being sold. Unfortunately, declining home values is a necessary part of this process.

Category: Mortgage Rates
Canadians: Possible Saviors For Distressed Housing Markets
By Michael Kling on March 31, 2011

Distressed housing markets can try looking north for help. With home prices low in the American Sun Belt and the Canadian dollar strong, Canadians might be doing more than sunbathing during spring vacations stateside.

One in five Canadians would now consider purchasing real estate in the United States, reveals a survey from BMO Bank of Montreal. Lower prices for American homes and a strong Canadian dollar are boosting their interest in U.S. properties.

Housing prices in the U.S. overall have dropped 30 percent from their peak four years ago, but prices where Canadian snowbirds traditionally visit have dropped even more. For instance, prices have dropped 44 percent in Tampa, Fla., 54 percent in Phoenix, 57 percent in Las Vegas, and 49 percent in Miami.

“Now, with the American economy and employment gaining strength, home sales should pick up and put a floor under soft prices,” says Sal Guatieri, a senior economist at BMO Bank of Montreal. “We expect prices to rise over time as the overhang of unsold homes eases.” Continue Reading…

Category: Housing Market
In A Reversal, More Homeowners Pay Credit Cards And Miss Mortgage Payments
By Michael Kling on March 31, 2011

In a departure from traditional behavior, more homeowners continue to pay their credit card bills while falling behind on mortgage payments.

Consumers typically paid their mortgages and missed credit card bills during financial troubles, but that pattern revered in the recent recession.
Experts thought payment behaviors would return to normal when the recession ended. Instead, the trend became even more widespread, finds a study by TransUnion, a company providing credit and information services.

“The latest data from our study show that the new payment hierarchy has persisted for longer than many industry experts initially believed, and provides evidence that consumers continue to adjust their payment behavior in response to their economic and personal financial environment,” said Sean Reardon, author of the study released yesterday.

The percentage of consumers current on their credit card payments and delinquent on their mortgages first surpassed the percentage of those current on their mortgages and delinquent on credit cards in the first quarter of 2008. Continue Reading…

Category: Housing Market
Mortgage Fraud Up In Hard-Hit Housing Markets
By Michael Kling on March 30, 2011

Mortgage fraud is increasing where foreclosures are the highest and home values have fallen the most.

Criminals are gravitating to those distressed housing markets to employ foreclosure rescue schemes and other fraudulent plots such as “flopping” or selling homes at deflated short sale values then quickly selling it for a higher price, according to Interthinx, a California company specializing in detecting and preventing mortgage fraud.

Mortgage fraud is way up in Nevada, as well as the Chicago area. Nevada had the same fraud risk level as California in late 2009, but since then Nevada has become much riskier. Mortgage fraud in California, meanwhile, has actually decreased, although it remains high, especially in its Central Valley region.

“This may be due to a migration of fraudsters seeking to take advantage of the more fertile grounds for fraud in Nevada, where the proportion of foreclosure and distressed sales is by far the highest in the nation,” Interthinx states in its 2010 annual mortgage fraud risk report.

The riskiest states are Nevada, Arizona, California, Michigan, Florida, Colorado, Minnesota, Georgia, Rhode Island and Massachusetts. The District of Columbia, Maryland, New Jersey, Tennessee, Ohio, Illinois, Oregon and Hawaii also have higher than average fraud risks.

Employment/income and identity fraud risk both increased substantially over the past year. In those types of fraud, borrowers lie to qualify for a loan.

Lenders and law enforcement officials have largely ignored those loans, believing they are uncommon and rarely default. Instead, they focused on sophisticated criminals trying to defraud lenders in “fraud for profit” schemes.

However, they were the predominant form of mortgage fraud during the real estate boom, mostly through stated income and low- and no-document programs. Sometimes encouraged by mortgage professionals to lie, millions of borrowers obtained loans they could not afford to repay.

“When these borrowers began to default en masse,” the report states, “it sparked the mortgage meltdown, which led to the failure of hundreds of financial institutions, the liquidity crisis, and, ultimately, the Great Recession.”

Going forward, Interthinx warns, they must be identified and addressed with the same urgency as frauds for profit.

Category: foreclosures
Banks Offer Their Own Plan For Mortgage Servicing
1 By Michael Kling on March 29, 2011

Major banks are offering a counter proposal for setting mortgage servicing standards for handling loan modifications and foreclosures.

According to an article in The Wall Street Journal today, that bank plan includes time lines for processing loan modifications, a third-party review of foreclosures, a single point of contact for homeowners, and online portals where homeowners can check the status of their loan modification application. The proposal notably lacks mentions of mortgage principal write-downs and bank penalties for shoddy mortgage servicing.

The servicing standards plan is a response to a proposal from the attorneys general and federal agencies. That proposal would limit bank fees, penalize banks for bad mortgage servicing practices, encourage principal writedowns, set strict schedules of loan modifications, and forbid foreclosure proceedings during loan modifications.

That plan received plenty of criticism. Not just from the large banks, but from community lenders, House Republicans, and even some state attorneys general. Many believe principal writedowns will create a “moral hazard” that will encourage borrowers to default.

Community banks say it will open the door to cramdowns, or mortgage principal write downs in bankruptcy court, which lenders have long opposed. Among their other complaints, House Republicans say negotiations are trying to do what should be done through legislation.

Republican AGs in Florida in, Texas, South Carolina, and Virginia say the settlement proposal exceeds the scope of the initial investigation into mortgage servicing practices. Some Democratic AGs are also unhappy with the talks.

Negotiations will continue this week, the Journal reports. Maintaining a united front will be extremely difficult for the state AGs. They will probably have to drop some of the more controversial initial proposals such as principal writedowns for the talks to go forward. Whether the state AGs and federal agencies will be able to reach a comprehensive agreement is questionable.

The Office of the Comptroller of the Currency has already broke ranks to seek its own settlement with mortgage servicers.

Category: foreclosures
Banks Warned About Trading Foreclosed Homes
By Michael Kling on March 28, 2011

As banks grapple with growing numbers of foreclosed homes, they’re trying new exchange programs and other novel ways to dispose of foreclosed homes. The problem is that such practices may be ill-advised and even fraudulent and illegal.

Several companies have started REO exchange programs, asking banks to exchange their foreclosed homes, or REO properties, for performing assets. The companies say their exchange programs will improve balance sheets of banks, but the Office of the Comptroller of the Currency is warning that they could make things worse.

Banks could get poor or questionable assets in the trades, create legal and accounting problems, lose control of the property, and get stuck with significant upfront and recurring fees.

“These programs purport to reduce nonperforming assets by exchanging OREO for an interest in another asset, which is represented to be performing,” the OCC warns. “This ‘performing asset’ is often an equity interest in the entity acquiring the OREO or a trade for a large volume of loans such as home equity lines of credit.” Continue Reading…

Category: foreclosures
Tough Mortgage Lending Criteria Hurting Home Sales
By Michael Kling on March 25, 2011

Getting a mortgage is becoming more difficult for many potential home buyers. That’s one of the reasons why investors are starting to dominate purchases of short sales and bank-owned properties, concludes a survey of real estate agents.

Investors, typically using cash to buy homes, accounted for 23.5 percent of home purchases in February, an increase from 19.9% percent in just two months, reports the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. Cash purchases of homes set a record, reaching 33.7 percent of purchases in February.

“We are seeing investors come back into the market. One investor told me that one house he wanted came on Wednesday p.m. and had 9 offers by Thursday a.m.,” stated New Jersey real agent participating in survey.

Mortgage application requirements may get even tougher later this year and next year as the government withdraws its support for the housing market and tougher regulations implements new regulations. For instance, the conforming loan limit for jumbo mortgages in high-cost is scheduled to retreat from $729,750 to $625,000 on Sept. 30 and new regulations will require lenders to keep a stake in riskier, or non-qualified, mortgages. Those changes will probably mean higher mortgage rates and tough qualification requirements for many borrowers. Continue Reading…

Category: Purchase
FTC Cracks Down On Foreclosure Fraud Operation
By Michael Kling on March 16, 2011

As many homeowners continue to have trouble meeting their mortgage payments, foreclosure scams have proliferated.

Saying it is cracking down on foreclosure scams, the Federal Trade Commission (FTC) broke up a national operation based in Florida that it says targeted financially distressed consumers using direct mail, the Internet, and telemarketing. These borrowers were falsely promised loan modifications.

Giving an idea of how pervasive these foreclosure scams are, the state of Florida foreclosure prevention website, the Hardest Hit Fund, begins by warning about copycat websites. Website visitors, the Hardest Hit Fund website warns, should verify that the website is the official site before providing personal information. Application for and participation in the program is free.

According to the FTC, the scam operation promised loan modifications even to homeowners whose lenders had already denied their modifications or who had already received foreclosure notices. The scam artists charged up to $2,600, typically ask for half of the fee up-front, claiming a success rate of up to 100 percent. Continue Reading…

Category: foreclosures
Both Small And Large Banks Blast Foreclosure Settlement From State AGs
By Michael Kling on March 14, 2011

A proposed foreclosure settlement from state attorneys general is drawing attacks from different quarters, including both small and large banks and House Republicans.

Community banks are blasting the proposal from state AGs and federal regulators as stealth cramdown legislation.

Prompted by investigations into shoddy foreclosure practices, the “term sheet” would define how major banks offer foreclosure alternatives and complete foreclosures. Among other actions, it would require banks to cut mortgage balances as a first option and open the door to mortgage balances to be reduced in bankruptcies.

The settlement “will likely cause additional upheaval and confusion,” according to the Independent Community Bankers of America, a trade group representing small banks. “In fact, the term sheet appears to be de facto regulation done outside of both the Congress and the established rule making process thus opening a back door to cramdown.”

In a cramdown, a bankruptcy judge forces the lender to write down the borrower’s mortgage balance. Continue Reading…

Category: foreclosures
Mortgage Writedowns Will Make Housing Markets Worse, Argues Bank of America Chief
2 By Michael Kling on March 9, 2011

Writing down the principal mortgage balances of troubled homeowners as proposed by state attorneys general is a bad idea and would make matters worse, said Bank of America CEO Brian T. Moynihan. Reducing principal balances for some borrowers would be unfair to homeowners who continue to pay their mortgages despite having mortgages larger than their home values, Moynihan said in an article in The New York Times. It would also encourage homeowners now paying their bills to default on their mortgages, he said. That would cause home values to fall even more.

Mortgage writedowns are just one aspect of the proposed settlement between state attorneys general and the five largest banks that would change everything how banks handle home foreclosures and loan modifications. As American Banker magazine noted, the settlement, “if implemented as proposed, “would fundamentally change the relationship between servicers, investors and borrowers.”

Imagine faxing your loan modification to the bank from Wal-Mart for free. Or tracking your loan modification through an online portal. Those are just some of the services and requirements the “term sheet” proposes.

Banks are not obligated to accept the proposal, but they probably prefer reaching one settlement rather than working with all 50 states plus numerous federal agencies. In addition, they probably wish to put the foreclosure scandal behind them. Negotiations will continue over the coming months, and the outcome will probably be less stringent on banks. Iowa Attorney General Tom Miller, who leading the talks, said he hopes an agreement will be reached in a couple of months. Continue Reading…

Category: foreclosures