Tag Archives: Short Sales

Even as foreclosures continue to fall, analysts are still worried

We’ve already reviewed the default/disclosure April numbers for San Diego County, but there are addtional voices of concern about the future of local foreclosures.  Roger Showley of the Union-Tribune spoke with analyst Andrew LaPage of MDA Dataquick recently for some thoughts on the April numbers.  LaPage commented, “We’ve been talking for a year now how a growing amount of distress will be handled outside the formal disclosure process mainly through short sales (homes sold for less than the mortgage balance) and to some extent loan modifications and other methods.” 

He also commented that the short-term trend has been uneven, “If you look at quarters, the general trend has been less going into the formal foreclosure process.  We know short-sales are up significantly, as are loan modifications, and some would argue there have not been nearly enough loan modifications, but there are more than there were a couple of years back.”

Showley also spoke with Sean O’Toole, founder and CEO of ForeclosureRadar.com who acknowledged that there is still a large amount of inventory in the pipeline and at the current pace, it’s going to take years work through it.

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New rules on short sales designed to help homeowners

Earlier this month, new rules were set up to assist homeowners in the short sale process.  Alan Zibel of the AP reported that the Obama administration “…will give $3,000 for moving expenses to homeowners who complete such a sale – known as a short sale – or agree to turn over the deed of the property to the lender.”

The homeowner has to show that they don’t qualify for a loan modification. 

Zibel goes on to say that short sales usually nets more money to the lender than a foreclosure due to the costs homeownership brings to the lender. 

Another rule change is that, ” Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.”  Anyone who has been involved in a short sale knows that the biggest downside is the length of time it takes to complete the entire process, especially if you’re the homeowner, so any change in rules to help speed up the process will be a relief!

This program only applies to properties that are primary residences.  Mortgages owned or guaranteed by Fannie Mae and Freddie Mac are not eligible, but they should be soon.

Follow up on possible lender short sale fraud

Diana Olick of CNBC did a follow up on there Realty Check blog a few days ago on the story she broke late last week on alleged short sale fraud by major lenders.

Check out the e-mail Diana got after the story aired:

“And then just a few minutes after the story aired Friday, I received another email from my whistle-blower, Kayte Gentry:

Diana – we thought it funny that this came in about 10 minutes after the 2nd airing of the story…the email is to my Lead Negotiator.

‘Linda,

The agent contribution of $500.00 can’t show on the HUD. Have that removed and resend just the HUD.

If it shows on the HUD the investor thinks they are getting it and not the 2nd lien holder.’

The author of the email reportedly works at Citi // [C  3.2725    0.0025  (+0.08%)   ] // , as her email address shows. I have to believe/hope that she doesn’t even know what she’s demanding is illegal, otherwise I can’t imagine she would put it in an email. This is clearly fraud.”

Ignorance in the business isn’t an excuse. 

Cick here to see Diana’s entire entry.

REALLY??!!! Big Banks accused of short sale kickbacks

One of the few shining stars on CNBC is Diana Olick, who is the business cable channel’s main reporter on everything real estate.  Her segment “Realty Check” is always worth listening to.  I’ve been watching her since the summer of ’07, and she’s been honest and spot on reporting the mortgage meltdown and collapse of the real estate market.

These days, I usually have the sound turned DOWN, except when Diana comes on.  As I turned the sound up this morning, she had breaking news that Big Banks have been accused of taking kick backs to make a short sale close.

It seems to be happening when there is a second involved in the short sale.  The first lienholder does not have to give any money to the lender who holds the second, but according to Diana, first lienholders are compensating the lender in second position for some amount.  That is happening more and more recently.  As Diana said, that’s legal.

What agents have been complaining about recently is that some second lien holders have been requesting cash payments, off the HUD-1 settlement statement, which is a RESPA violation.  Clearly ILLEGAL

One agent taped a conversation with a lender to prove it was happening:

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”

Oh, SNAP!!!  The agent was damned smart to get that on tape.

I can tell you the whole energy of the last 18 months in the lower end of the real estate market has had feeling of the craziness of the refi market 5-6 years ago, so I’m not suprised that something like this has been happening.

Diana contacted several federal agencies alerting them of what she learned.  HUD is VERY interested in seeing her story.  I’ll let you know if Ms. Olick provides any updates on this story.

The Chart That Says It All

Back in the early part of this decade, I made the decision that I wanted to get into the mortgage business.  I thought my background in title insurance would soften the learning curve of breaking into the money side of real estate.

I landed my first mortgage position in late 2002.  I was “hungry” and eager to learn the “back end” of the mortgage process.  I thought it would make me a better loan officer, that I’d actually know what I was talking about when I was ready to go to the sales side of the business.

As I learned more about mortgage products and guidelines, I began to ask my co-workers questions.   I soon found out the difference between “A paper” and “sub-prime” loans.  It bothered me that money was flying everywhere and people did not need documentation for income or assets.  The loans were called “stated/stated”, or “No Income, No Assets, NO PROBLEM” loans.

The theory was that someone could take out a loan, say a 3 year interest only, and when the 36 months was up, they could refinance into either a 30 year fixed loan or another interest only loan because their  property’s value would still be going up.  Add that to being told they could use a home equity line for home improvement, go on vacation or buy a new car.  There wouldn’t be a problem since real estate would never go down again.

Having lived through two oil shocks, the inflation of the 1970’s, five recessions and the stock market crash of 1987, I was uuuuhhhhh….not convinced.  A few “old school” co-workers agreed, we agreed we were witnessing the seeds of not only a real estate crash, but that we were  probably seeing the foundation of a financial meltdown.  That was in 2003 and 2004.

Fast forward to August of 2007.  I had just been laid off from my previous mortgage position in June and the credit markets were in meltdown, altough Wall Street and the rest of the country seemed to be going along its merry way.  Some of my ex-coworkers turned me on to two web sites that were telling it like it was, ML-Implode.com and Blownmortgage.com.

Monthly Mortgage Resets

Monthly Mortgage Resets

Every once a in a while, a chart would appear in blog posts on Blownmortgage, similar to the one that appears above.  It shows all the mortgages that would be resetting over a five year period.

As you can see, the amount of mortgages resetting in ’07 and ’08 were very high, with ’09 taking somewhat of a dip.

Look at 2010 and 2011.  Many, MANY more resets are coming, mostly Option ARMS, peaking in 2011 and not settling down to relative normalcy in 2012.  

When people ask me what I think is going to happen, I point them to this chart.  I could be wrong, but I don’t see us recovering from the current economic distress until 2012.  When I atteneded a USC Marshall School of Business event earlier this year, someone had heard Sam Zell speak on the status of real estate and when things would stablize.  He was quoted as saying, “Stayin’ clean ’til 2013”.  I’ll let you make your own conclusions on that one, but I think Mr. Zell is one bright guy. 

What does that possibly mean for us?  Well, I see a lot more foreclosures coming, and the banks can’t hold on to them forever, but I also see many more short sales coming next year.  Servicers are FINALLY (after THREE YEARS) hiring staff to handle all of the files, upgrading their software and streamlining the process.  

I don’t think they want to do loan modifications, and foreclosures cost them a lot of money so I think they are finding a happy medium in the short sale process. 

Technically, we are in a recovery, but it’s going to bumpy for a couple of more years.

Decline of foreclosure filings from Oct. to Nov.

Jen Lebron Kuhney of The Daily Transcript reported this month that there was a 17% drop in trustee’s deeds that were recorded from October to November in San Diego County.

Mark Goldman, a professor of real estate at SDSU and certified mortgage specialist  commented that the decline may have to do with lenders trying to workout troubled mortgages.  He speaks more to loan modifications, but I think it’s also short sales.

I don’t think this means we’re nearing the end of the mortgage crisis, but how borrowers deal with being upside down and what eventually happens to the house, is evolving.

Glimmer of hope in the SD market?

Roger Showley of the San Diego U-T covered USD’s annual real estate outlook conference last week, with the panel in general agreement that we’re nearing the bottom of the market.

I generally trust what Alan Gin has to say.  I’ve been reading his comments for the last two and a half years, and he doesn’t gloss things over like a lot of people I read.  I do agree with him that the recovery will be an elongated “U” shape (eventually).  We still have a lot of bad assets that need to be shaken out of the current system.  The elongated “U” looks a heck of a lot better than falling off of a cliff did last year.

With that being said, I think I most agree with Alan Brinkman’s comments, the market will hold at the low end, but the high end above $700k will continue to fall.