Are Banks Getting Better on Short Sales?

Are short sales getting easier? Some home owners are reporting that banks are now not only more willing to consider a short sale, but are even offering incentives to complete a short sale. For example, a home owner in Chicago says his lender approved his short sale and then gave him a $20,000 check after the deal was finalized for selling the home as a short sale instead of letting it sink into foreclosure. Lenders accepting a lower mortgage payoff from an underwater seller traditionally isn’t thought of an easy transaction to complete. Lenders weren’t so willing a few years ago. But as the number of Americans underwater on their mortgages grow, more lenders are reconsidering as they try to avoid extra costs incurred to their bottom-lines that a foreclosure can cause. For 2011, short sales accounted for about 8 percent of total home sales, and rose 7 percent over 2010 totals, according to CoreLogic data. Short sales are up by 59 percent year-over-year in Illinois, 32 percent in Michigan, and 19 percent in Arizona alone, according to CoreLogic. “We’re starting to see that servicers and lenders are viewing short sales as a better alternative than they had in the past,” says Daren Blomquist, spokesman for RealtyTrac. “Some of that relates to the fact that it’s getting harder to foreclose. There are additional requirements in terms of paperwork and requirements that states and judges are imposing.” Short sales can still be complex and lengthy — they can take up to nine months to close and even after that, there’s no guarantee it’ll end successfully. “In general, it is a totally different type of transaction,” says Mike Cuevas, a real estate profesional at Exit Realty in Chicago. “You’re not only selling a house, you’re negotiating debt.” Source: “Why it can Pay to try a Short Sale; Lenders may be Viewing Short Sales as a Better Alternative,” MarketWatch (Oct. 20, 2011)

Existing-Home Sales Off in September

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of REALTORS®. Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010. Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable — this speaks to an unfulfilled demand.” Market Issues According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010. Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses. NAR President Ron Phipps said access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he said. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery — not place more obstacles in the way of financially qualified buyers.” Who’s Buying? What’s Selling? All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases. Investors purchased 19 percent of homes in August, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010. The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes — foreclosures and short sales typically sold at deep discounts — accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010. Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August. Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago. Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 inSeptember, which is 1.0 percent below September 2010. Around the U.S. Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and are 6.8 percent above a year ago. The median price in the Northeast was $229,400, down 3.3 percent from September 2010. Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago. In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010. Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but are 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago. “The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of the September,” Yun said. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.” Source: NAR

Beige Book Cites Economic Growth but Weakness in Real Estate

The Federal Reserve released a new rendition of its market-gauging Beige Book Wednesday, which provides an assessment of regional conditions from those in the field. Beige Book findings are based on commentary and observations collected by the 12 Fed districts from businesses and contacts outside of the central banking system. The latest version covers the reporting period from August 26 through October 7. Fed officials say reports from the 12 districts indicate that overall economic activity continued to expand in September, although many districts described the pace of growth as “modest” or “slight” and contacts generally noted weaker or less certain outlooks for business conditions. Loan demand for the most part declined, however the one exception was an increase in mortgage refinancing in many districts. Loan standards were described as still tight for many classes of borrowers, but several districts indicated that strong competition among banks for high quality borrowers was leading to lower rates and fees for these customers. A few districts reported slight improvements in construction and real estate activity, nonetheless, overall conditions for both residential and commercial real estate remain soft. Home sales remained weak overall, and home prices were reported to be either flat or declining across the entire country. In contrast, rental demand continued to rise in a number of districts. Commercial real estate conditions remained weak overall, although commercial construction increased at a slow pace in most districts.

HUD and CitiMortgage in Dispute Over Short Sales

According to a recent report by HUD’s Office of Inspector General (OIG), CitiMortgage, Inc., based in Missouri, has violated the Federal Housing Administration’s (FHA) Preforeclosure Sale Program by submitting improper claims. After reviewing 68 FHA claims, the inspector general found 63 claims for loans Citi had not properly reviewed, according to the OIG’s report. Citi “respectfully disagrees” in its written response. FHA’s Preforeclosure Sale Program is essentially a short sale program for distressed FHA borrowers. “Citi did not properly determine that borrowers were eligible to participate in the program,” the OIG stated in its report. According to the OIG, Citi did not verify that borrowers were in default or in imminent danger of default as a direct result of unavoidable financial stress, and the bank did not determine that the homeowners would not be able to keep current on their mortgages. “We recommend that the U.S. Department of Housing and Urban Development (HUD) require Citi to reimburse HUD for the 63 improper claims totaling nearly $5 million,” states the inspector general’s report. Citi maintains it reviewed each borrower’s financial status using “prudent underwriting practices that are standard in the industry” in each case and concedes that “only seven of the exceptions cited have merit.” In addition, the bank believes the OIG’s recommendations would slow down the preforeclosure program’s processing to such a rate that it could prevent borrowers from qualifying for short sales and send them into foreclosure. “As noted in the report, Citi disagrees with its findings, and we are confident that all appropriate guidelines and procedures were followed accordingly,” a Citi spokesperson told DSNews.com.

State Court Voids Home Sale Due to Improper Foreclosure

A Massachusetts man lost something he never had – his home. The Masachusetts Supreme Judicial Court ruled this week that when Francis Bevilacqua purchased the home from U.S. Bank in 2006, the bank did not actually hold the home’s title. The court ruled that because U.S. bank did not hold the mortgage note when it foreclosed on the property, it did not obtain the title in the foreclosure. Therefore, Bevilacqua did not purchase a legal title when he made the purchase. In its ruling in Bevilacqua v. Rodriguez, the court referenced a case tried in the same court last January, U.S. Bank, N.A. v. Ibanez, in which the court ruled that if a bank cannot provide proof it owns the mortgage note, any foreclosure filings it initiates are void. The Ibanez case, however, simply involved a foreclosure action. Bevilacqua extends that ruling to instances when a new homeowner has already purchased the property. “As we recently held in the Ibanez case, Massachusetts ‘adhere[s] to the familiar rule that ‘one who sells under a power [of sale] must follow strictly its terms’‘ so, where a foreclosure sale occurs in the absence of authority, ‘there is no valid execution of the power, and the sale is wholly void,’” the court wrote. “This case is just one example of a much larger problem,” stated Massachusetts Attorney General Martha Coakley in response to the ruling. “In the rush to foreclose, the banks’ reckless origination and foreclosure practices have created a domino effect that has harmed Massachusetts homeowners as well as third-party purchasers who purchased properties after foreclosure.” “This is yet another clear demonstration that the only way we are going to restore a healthy economy is to address the foreclosure crisis and hold the banks accountable for their actions,” she continued.

REOs: Where Are They Now?

Five years into the housing crisis, and foreclosures remain elevated. We’ve seen temporary lulls in home repossessions that coincided with the implementation of new state and municipal mediation efforts, moratoria enacted as federal programs ramped up, and suspensions of filings as lenders initiated paperwork reviews last fall. But by all accounts, the foreclosure tide has yet to ebb, and the massive supply of bank-owned homes building over the last half-decade has taken its toll on market fundamentals. What’s become of all those properties seized by banks? CoreLogic delved into the stats to find out. The company’s analysts took a closer look at the post-foreclosure outcomes of properties since 2006. In 2006, just as the housing bubble popped, over 355,000 properties proceeded through a foreclosure auction. CoreLogic’s data show that approximately 34 percent (122,000) were successfully bid on by an investor. The remaining 66 percent (233,000) went back to the banks as REO properties. Of the properties that went into REO, CoreLogic reports that 90 percent (210,000) were liquidated as REO sales to third-party buyers. Nearly half of those sales took six months or less to complete, but 21 percent took 12 months or longer. Nearly 10 percent (23,200) of the properties added to the REO inventory in 2006 remained in REO as of mid-2010, according to CoreLogic’s analysis. Similarly, of 2007’s REOs, 10 percent have never left the banks’ books. CoreLogic says investors have shifted from buying properties at foreclosure auction to buying properties at the REO sale, increasing the burden of losses on banks holding REO properties. The company also found that only 2 percent of the bank-owned homes bought with a mortgage in 2006 have since been foreclosed on again and made an encore appearance as REO. “This indicates that REO recidivism is not as significant a concern as previously thought,” CoreLogic said in its report.

New-Home Building Soars 15% in September

Last month, home building was at its fastest pace in 17 months, rising 15 percent from August and posting the new-home sector’s best pace since April 2010, the Commerce Department reported Wednesday. In September, single-family home building increased 1.7 percent, while apartment building jumped 53.4 percent. Builders began work on a seasonally adjusted 658,000 homes in September. While that marks a big improvement, the level still remains only about half of the 1.2 million pace that economists consider healthy for the new-home sector. Builders are continuing to struggle to compete against heavily discounted foreclosures and short sales that are plaguing many markets. Building permits, which serve as a measure of future building, dropped 5 percent in September, the Commerce Department reported. Yet, builders seem to be getting more optimistic that the new-home market is showing signs of improvement. The National Association of Home Builders reported on Tuesday that industry sentiment rose in October to 18, the highest level in over a year. However, overall sentiment about the industry remains low--any reading below 50 indicates negative sentiment about the housing market (a level that hasn’t been reached since April 2006). Source: “September Home Building Rose 15%, But Permits for Future Homes Fell 5%” Associated Press (Oct. 19, 2011)

Multifamily Sector Shows Positive Movement

While the homeownership rate falls, rental demand rises bringing rental rates up and apartment vacancies down – all of which has led Freddie Mac’s chief economist to label the multifamily sector “a positive signal for the U.S. housing industry.” “[T]he improvement in the economics of apartment management has prompted an increase in structure values, property sales, and new construction for larger buildings,” states Freddie Mac’s chief economist Frank Nothaft in his October U.S. Economic and Housing Market Outlook. After a 32 percent drop from 2008 to 2009, the’ U.S. apartment values rose 18 percent in the first quarter of this year, Nothaft reports, referencing the National Council of Real Estate Investment Fiduciaries apartment value index. This rise is a result of the fact that many newly-formed households are choosing to rent rather than own in the current, unstable economy, according to Nothaft. From June 2010 to June 2011, the number of households renting rose 4 percent with an additional 1.4 million households moving into rental units, according to the Census Bureau. At the same time, the homeownership rate fell by 1.5 percent to 65.9 percent, according to the Bureau. Freddie Mac notes the decline in homeownership has been greatest amongst the under-30 population. Compared to the national average of 1.5 percent, homeownership amongst those under 25 years of age has declined by 4.4 percent, and by 7 percent amongst those between 25 and 29 years of age, according to Nothaft. This decline in homeownership has translated to a decline in apartment vacancy. Nothaft points out the Census Bureau’s recent finding that in buildings with at least five units, vacancy rates have fallen to 10 percent during the second quarter of this year. This is the lowest vacancy rate among these properties in more than five years. Additionally, a survey by A Reis Inc., found the vacancy rate among professionally managed buildings in metropolitan areas was 5.9 percent as of the second quarter of this year. This is the lowest vacancy rate for these properties since 2007. As demand for apartments increases, so do prices. “Apartment rents, which have been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly,” Nothaft states in his outlook. According to Nothaft, rental property sales and multifamily lending are both increasing, and there has even been a rise in construction in this segment. Measured in dollars, rental property sales volume reached its highest level since 2007, according to Red Capital Analytics. Nothaft attributes the rise in originations among multifamily properties to low mortgage rates as well as the return of traditional lenders to the market. In fact, The American Council of Life Insurers reported 165 apartment loan commitments for the second quarter of this year. This is the largest multifamily commitment by a single insurer in 39 years, according to Nothaft’s outlook.

States and Servicers Consider New Proposal for Aiding Those Underwater

Help for underwater homeowners has moved from principal writedowns to refinancing in the settlement negotiations between state attorneys general and the nation’s five largest mortgage servicers. According to a widely circulated Wall Street Journal report, the proposal was put on the table at a meeting last week between representatives from both sides. DSNews.com has received confirmation from a source involved in the negotiations that the parties are indeed considering a proposal to incorporate refinancing for underwater homeowners into an agreement to settle allegations of robo-signing and improper foreclosure practices. While the Journal concedes that discussions are ongoing and “any final outcome is uncertain,” reporters Nick Timiraos, Ruth Simon, and Dan Fitzpatrick lay out the framework for who would qualify for such assistance. Borrowers who are current on their mortgage payments but unable to take out a new loan due to the equity constraints of a typical refinance would fit the bill. The main caveat is that the borrower’s loan must be owned directly by one of the five banks involved in the

Fannie Mae and Freddie Mac to Do Away With Attorney Networks

The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to transition away from their current foreclosure attorney network programs, and move to a system where mortgage servicers will select law firms based on minimum qualifications and uniform criteria. Currently, each GSE designates eligible law firms for individual states. Servicers then choose a firm from these lists to handle their foreclosure work. FHFA says the new approach is in line with the Servicing Alignment Initiative that has been rolled out by Fannie and Freddie, which is intended to standardize procedures for handling past-due mortgages and processing foreclosures. “FHFA believes these efforts will lead to greater transparency and benefit delinquent borrowers who become subject to the foreclosure process,” the GSEs’ conservator said in a statement. “Further, the change will be supportive of the Consent Orders entered into by financial regulators and servicers.” Fannie Mae’s Retained Attorney Network currently consists of 247 law firms that are pre-selected by the GSE to handle foreclosure-related matters for its loans in specified states. Freddie Mac’s Designated Counsel Program includes 92 pre-approved firms for certain states. FHFA has instructed Fannie and Freddie to work together to develop and implement consistent requirements, policies, and processes for managing default and foreclosure-related legal services. As part of this effort, the GSEs are to “pursue an eventual restructuring” of their respective attorney networks, Freddie Mac explained in a bulletin to servicers Tuesday. That includes discontinuing the practice of maintaining a network of designated law firms for servicers, the company said. FHFA says the dismantling of the networks will occur after a transition period in which the agency will seek input from servicers, regulators, lawyers, and other market participants. During this period, existing contracts remain in place and in effect. In a report released earlier this month, FHFA’s inspector general disclosed the results of an investigation prompted by “widespread allegations of abuse by … law firms hired to process foreclosures” for the GSEs. The inspector general said “FHFA had not previously considered risks associated with foreclosure processing to be significant,” and as a result, “lacks assurance that law firms with histories of performance deficiencies do not jeopardize the safety and soundness” of the nation’s two largest mortgage financiers.