HERE'S A CURIOUS POST by a Washington Post real estate column commentor who tags himself Afraid4America. Several key points are made which differentiate this coming tide of foreclosures from the one last year, which was nurtured by Chris Dodd and Barney Frank over at the Fannie Mae and Freddie Mac wing of all things wrong about government involvement in big business...
The bankers are in a real dilemma. They really don't want to foreclose. Foreclosure to a lender has two very negative consequences. First, they must recognize the loss of the mortgage on their books. Even if the borrower isn't paying, the loan is not considered a loss that has to be written off on the books until a foreclosure is processed. So, they defer the foreclosure for too long in most cases. Also, the foreclosure process has disastrous consequences for the collateral/house.
Borrowers trash places. You wouldn't believe it-torn out appliances, walls bashed in, broken toilets, spray painted obscenities, garbage, feces. Thousands of dollars of damage. Even if they don't trash the place, once they have been kicked out by the sheriff, you have the problem of a vacant house-breakins, fires, undetected roof leaks, etc. [Sometimes a house will simply explode due to an undetected gas leak.] Then you have to hire someone to monitor the place, clean it up and a broker to sell it.
There's another critical reason to deny the cold reality that the borrower will never be able to bring the loan current in just merely kicking the can further down the road, postponing the inevitable and making the ultimate loss even worse. It's a form of lender denial. The underwriting standards for so called "conventional" mortgages have steadily deteriorated over the years. For example, it used to be that you couldn't get a mortgage if the cost of owning the home (mortgage, taxes, insurance) exceeded 30% of your gross provable income. That percentage has gone up and up. And I am not talking about subprime loans to people with lousy credit.
However, as mentioned in the article, with regards to the foreclosure fiasco, there seems to be a win win solution at least short term and that is to let the defaulting borrower live in the house at a modest rent or no rent for a while.
But, a critical and easily preventable problem in this current mortgage meltdown is one the finance writers seldom mention. The people who control the workout system, the mortgage servicers, are hamstrung by the fact that most of these mortgages are in pools of collateralized mortgages and the "rules" that govern whether these servicers can modify the terms of the loans (i.e., lower interest rate, deferral of payments, write-down of principal, etc.) don't allow the kind of flexibility available to them if a mortgage is owned outright by a bank or GSE.
This lack of flexibility was foreseen from the outset by real estate lawyers who handled workouts as a problem with these CMBS structures from the get go, but the securities industry really didn't understand the special problems presented by collateral in securitized mortgage pools (as opposed to, say, pools of credit card receipts or car loans).
These collateralized mortgage structures were engineered by securities lawyers who know nothing about mortgages. They didn't have the brains or the curiosity to wonder whether credit card or car loan receipts and mortgages were totally different types of collateral. If things go south in a pool of credit card receipts or car loans, you just chase the borrower or repo the car and that's it. Blame the arrogant geniuses who "structured" these financial "vehicles" without consulting real estate lawyers for part of the problem here.
The Mortgage Banker's Association tried to address this issue about 7 yers ago with respect to commercial real estate mortgages [a different type of collateral], but I don't think anyone really listened or applied the conclusions to collateralized home mortgages.
Friday, March 12, 2010
Saturday, August 29, 2009
SHORT SALES CERTIFICATION NOW AVAILABLE
NEARLY ONE-THIRD OF ALL existing homes sold recently were either short sales or foreclosures, according to National Association of REALTORS® data. To help practitioners meet the needs of home buyers and sellers who need these services, NAR has launched a new Short Sales and Foreclosure Certification Program (SFR).
“Foreclosures and short sales can offer opportunities for home buyers, but it’s extremely important to have the help of a real estate professional for these kinds of purchases,” says NAR President Charles McMillan. “This new certification will help them serve a growing need.”
The SFR certification program is offered by the Real Estate Buyer’s Agent Council of NAR. The program includes training on how to manage short sale, foreclosure, and real-estate owned transactions, and provides resources to help practitioners stay current on national and state-specific information as the market for these distressed properties evolves.
To earn the certification, REALTORS® must complete a one-day education program, either in-person or online, as well as three, one-hour Webinars. The certification program will be offered at the REALTORS® Conference & Expo in San Diego, Nov. 13-16.
— NAR
“Foreclosures and short sales can offer opportunities for home buyers, but it’s extremely important to have the help of a real estate professional for these kinds of purchases,” says NAR President Charles McMillan. “This new certification will help them serve a growing need.”
The SFR certification program is offered by the Real Estate Buyer’s Agent Council of NAR. The program includes training on how to manage short sale, foreclosure, and real-estate owned transactions, and provides resources to help practitioners stay current on national and state-specific information as the market for these distressed properties evolves.
To earn the certification, REALTORS® must complete a one-day education program, either in-person or online, as well as three, one-hour Webinars. The certification program will be offered at the REALTORS® Conference & Expo in San Diego, Nov. 13-16.
— NAR
BUYER TAX CREDIT EXTENSION POSSIBLE
BILLS TO EXTEND THE MAXIMUM $8,000 tax credit for first-time home buyers, which expires November 30, are pending in both the U.S. House and the Senate. That's good news for savvy buyers, sellers, and realtors alike.
The fact that one of the myriad of Fannie Mae and Freddie Mac crooks, Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate Banking, Housing, and Urban Affairs Committee, is spurring up to co-sponsor of a bill with Georgia Republican Sen. Johnny Isakson that would raise the credit amount to a maximum of $15,000, is a less enthralling boost to the general welfare of the country.
Senate Majority Leader Harry M. Reid of Nevada favors an extension of the current credit. He was quoted by the Las Vegas Sun saying, "It's something we can get done."
Odds are that the credit will be extended and broadened to cover all buyers next year, but the chances of the amount increasing aren’t as good, observers say. We'll see what happens. Stay tuned.
The fact that one of the myriad of Fannie Mae and Freddie Mac crooks, Sen. Christopher J. Dodd, a Connecticut Democrat and chairman of the Senate Banking, Housing, and Urban Affairs Committee, is spurring up to co-sponsor of a bill with Georgia Republican Sen. Johnny Isakson that would raise the credit amount to a maximum of $15,000, is a less enthralling boost to the general welfare of the country.
Senate Majority Leader Harry M. Reid of Nevada favors an extension of the current credit. He was quoted by the Las Vegas Sun saying, "It's something we can get done."
Odds are that the credit will be extended and broadened to cover all buyers next year, but the chances of the amount increasing aren’t as good, observers say. We'll see what happens. Stay tuned.
Thursday, August 27, 2009
LIMITED SERVICE AGENCY
YES, IT'S TRUE. AFTER NINE SPLENDID YEARS we're selling our wonderful home in NW Washington DC. As a licensed Virginia realtor, I am limited as a FSBO (for sale by owner) in the degree of ordinary realty services I can provide to myself as my own representative in a jurisdiction other than the one in which I am licensed. One of these is the legal ability to post my property and receive inquiries from buyers' agents who depend daily on the local MLS (Multiple Listing Service). Listing property on the MLS is almost mandatory in attracting the quality buyer, the one who knows what he needs and is ready to address those needs, in greater numbers than any other online or old or new media service available.
In seeking to save myself a substantial amount of money in these cash-strapped times, I must seek out a relatively new phenomenon in real estate law called Limited service agency.
Here is an addition made to the original law which took effect on 1 July, 2007.
“Limited service representative” means a licensee who acts for or represents a client with respect to real property containing from one to four residential units, pursuant to a brokerage agreement that provides that the limited service representative will not provide one or more of the duties set forth in subdivision A 2 of §§ 54.1-2131, 54.1-2132, 54.1-2133, and 54.1-2134, inclusive. A limited service representative shall have the obligations set out in the brokerage agreement, except that a limited service representative shall provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal or state law, or local disclosures expressly authorized by state law, and shall disclose to the client the following in writing: (i) the rights and obligations of the client under the Virginia Residential Property Disclosure Act (§ 55-517 et seq.); (ii) if the client is selling a condominium, the rights and obligations of the client to deliver to the purchasers, or to receive as purchaser, the condominium resale certificate required by § 55-79.97; and (iii) if the client is selling a property subject to the Property Owners’ Association Act (§ 55-508 et seq.), the rights and obligations of the client to deliver to the purchasers, or to receive as purchaser, the association disclosure packet required by § 55-512. A limited service representative may act as the agent or representative of the client only by so providing in writing in the brokerage agreement. If the brokerage agreement does not so state, the limited service representative shall be deemed as acting as an independent contractor of the client.
Over the next few days my task will be to find someone who actually knows of this form of agency, and is willing to provide me the small service of posting my information on the MRIS (the local MLS) for a small fee. There are those agents with a bit more seasoning than I have who speculate that limited service agency will actually become rather popular once the public and the industry begin to detect its advantages over traditional agency.
In seeking to save myself a substantial amount of money in these cash-strapped times, I must seek out a relatively new phenomenon in real estate law called Limited service agency.
Here is an addition made to the original law which took effect on 1 July, 2007.
“Limited service representative” means a licensee who acts for or represents a client with respect to real property containing from one to four residential units, pursuant to a brokerage agreement that provides that the limited service representative will not provide one or more of the duties set forth in subdivision A 2 of §§ 54.1-2131, 54.1-2132, 54.1-2133, and 54.1-2134, inclusive. A limited service representative shall have the obligations set out in the brokerage agreement, except that a limited service representative shall provide the client, at the time of entering the brokerage agreement, copies of any and all disclosures required by federal or state law, or local disclosures expressly authorized by state law, and shall disclose to the client the following in writing: (i) the rights and obligations of the client under the Virginia Residential Property Disclosure Act (§ 55-517 et seq.); (ii) if the client is selling a condominium, the rights and obligations of the client to deliver to the purchasers, or to receive as purchaser, the condominium resale certificate required by § 55-79.97; and (iii) if the client is selling a property subject to the Property Owners’ Association Act (§ 55-508 et seq.), the rights and obligations of the client to deliver to the purchasers, or to receive as purchaser, the association disclosure packet required by § 55-512. A limited service representative may act as the agent or representative of the client only by so providing in writing in the brokerage agreement. If the brokerage agreement does not so state, the limited service representative shall be deemed as acting as an independent contractor of the client.
Over the next few days my task will be to find someone who actually knows of this form of agency, and is willing to provide me the small service of posting my information on the MRIS (the local MLS) for a small fee. There are those agents with a bit more seasoning than I have who speculate that limited service agency will actually become rather popular once the public and the industry begin to detect its advantages over traditional agency.
Saturday, August 15, 2009
FIVE WAYS TO MAKE REO OFFERS IRRESISTABLE TO BANKS
STEPHANI DAVIS HAS PENNED a splendid article offering buyers and investors a few tips in getting the banks to stand up and take notice on an REO offer. An REO (Real Estate Owned) is a property that reverts to the mortgage company after an unsuccessful foreclosure auction. To a buyer an REO property frequently offers a great deal, but can often be a nightmare for unsuspecting investors, so buyer beware...
But let's think positive in this article. Quickly, the five hot tips for winning the favors of banks willing to take a loss on property they own but wish to get off its books, are:
Make cash offers
Dismiss the inspection contingency
Give the listing agent both sides of the commission
Offer a large earnest money deposit
Offer a quick closing
Now, of course, it would be that rare deal that ALL of these suggestions will work for every buyer. In the everyday world the perfect REO buyer would be the one COULD and WOULD offer each of these hands down assurances to the bank. But in a down market like we are in today where investors are snapping up properties, there is indeed trusted wisdom in Stephani's advice.
But while we are on the topic, what role do professional appraisers have in this scenario, especially when the client is not you the buyer, or Jane the seller, but First Trust the lender? Here is a supplemental article on the appraisal business that savvy readers should refer.
If you've got cash on hand and want an REO, don't hesitate. There are some spectacular deals out there. I've given you Stephani's five tips, but you need to read her full essay to know exactly what she's learned.
But let's think positive in this article. Quickly, the five hot tips for winning the favors of banks willing to take a loss on property they own but wish to get off its books, are:
Now, of course, it would be that rare deal that ALL of these suggestions will work for every buyer. In the everyday world the perfect REO buyer would be the one COULD and WOULD offer each of these hands down assurances to the bank. But in a down market like we are in today where investors are snapping up properties, there is indeed trusted wisdom in Stephani's advice.
But while we are on the topic, what role do professional appraisers have in this scenario, especially when the client is not you the buyer, or Jane the seller, but First Trust the lender? Here is a supplemental article on the appraisal business that savvy readers should refer.
If you've got cash on hand and want an REO, don't hesitate. There are some spectacular deals out there. I've given you Stephani's five tips, but you need to read her full essay to know exactly what she's learned.
Friday, August 14, 2009
NORTHERN VIRGINIA MARKET IMPROVING
THE HOUSING MARKET IN THE AREA is beginning to stabilize. Just today, my wife and I spotted an UNDER CONTRACT sign posted on a $900,000 palatial homestead on Lovettsville Road. Metropolitan Regional Information Services has released its July statistical report. There is some very good news. Both single family and townhouse inventory is moving at a clip, dropping a whopping fifty percent or better from a year ago across the area. Median prices are holding firm from July a year ago, although 2009 year to date median sales price numbers still average 11-20% lower than 2008 prices year to date indices.
Click below for each report (pdf):
LOUDOUN COUNTY
FAIRFAX COUNTY
FREDERICK COUNTY
ARLINGTON COUNTY
FAUQUIER COUNTY
But before we draw too many false conclusions on the wall, let's give some attention to one common misconception in the real estate statistics game. Dictionary.com defines ‘Median’ as “the middle number in a given sequence of numbers”.
Studying the linked statistics above must be done with that definition applied. Keep in mind that the median price is not the average, nor is it the mean price, which is expressed as half the house prices in any given category rise above and half the house prices in that category fall below the mean price. The median price just means that if there are 7 sales—the price of the number 4 sale is the median home price.
One cannot draw the conclusion that all prices have fallen x% when comparing July ‘08 and ‘09 median home price figures. Remember many of the sales are foreclosures. Much of the movement in our market is in the lower price points and in the most distressed price points—hence a lower median price.
Median home price is still a valuable indicator in the market but one must be careful of the conclusion one draws from the information. There is no denying prices have fallen precipitously. But, it’s important to evaluate the numbers in the right context.
Click below for each report (pdf):
But before we draw too many false conclusions on the wall, let's give some attention to one common misconception in the real estate statistics game. Dictionary.com defines ‘Median’ as “the middle number in a given sequence of numbers”.
Studying the linked statistics above must be done with that definition applied. Keep in mind that the median price is not the average, nor is it the mean price, which is expressed as half the house prices in any given category rise above and half the house prices in that category fall below the mean price. The median price just means that if there are 7 sales—the price of the number 4 sale is the median home price.
One cannot draw the conclusion that all prices have fallen x% when comparing July ‘08 and ‘09 median home price figures. Remember many of the sales are foreclosures. Much of the movement in our market is in the lower price points and in the most distressed price points—hence a lower median price.
Median home price is still a valuable indicator in the market but one must be careful of the conclusion one draws from the information. There is no denying prices have fallen precipitously. But, it’s important to evaluate the numbers in the right context.
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