Defaults Down and Flipping Returns

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Here are two fun things to ponder this week:

Mortgage defaults are down – way down. First-time delinquent home loans fell to 0.84% of the 50.2 million mortgages in March, according to LPS.

It was monumental because it was the first month defaults fell below 1% since 2007, when the first defaults of the financial crisis reared their heads.

First-time delinquents are defined as loans that went from performing to at least 60 days delinquent when the report was created.

The days of problem loans aren't fully behind us – there will be some amount of that in the market for a while. But the days of massive waves of these loans are safely tucked in the background, for now it seems.

Flip: Real estate's four-letter word

Flipping made a media comeback this past week when RealtyTrac released a report highlighting the top 25 markets for flipping homes in 2012. The markets reflect those cities in which flipping produced the highest rate of return for flippers, i.e., gross profit.

Phoenix had the highest number of flips in 2012 with 10,589 property flips. Inland Empire, CA, Las Vegas, Miami, Denver and Detroit also topped the list by volume of flips.

The top five markets in terms of dollar amount profit in 2012 were San Jose ($103,241), San Diego ($85,714), San Francisco ($80,306), Las Vegas ($70,746), and Ventura County, CA ($70,426).

While flipping may conjure up bad memories of its TV glory days when everyone from waiters to hairdressers was a self-proclaimed real estate investment guru, it's not a bad thing.

Flipping implies property improvements and increasing values - two important factors in pushing a healthy, widespread recovery.

Something tells me it'll be less circus-like this time around. More seasoned investors and levelheaded borrowers. More lending restrictions. Less snap decisions and debt digging.

Lessons learned indeed. But it's something to keep an eye on. If we start to see insane rampant flipping by real estate hobbyists again, we may need to step back and reboot.

Foreclosures Tumble Significantly

 

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc

Even as things have improved vastly in the housing resale market this year – both in terms of sales activity and prices – foreclosures have remained a concern. Generally, the foreclosure situation has
improved steadily over the last year, but with so many properties to go through and so many local markets suffering, it’s been slow.

This week, we got news of the state of foreclosures as we near the end of the year. And it’s
looking good. The number of foreclosures completed in October slipped to 58,000 from 77,000 in September and 70,000 a year ago, according to the latest report from CoreLogic.

In addition, CoreLogic reports that fewer properties were in the foreclosure process in October – an indicator of the months to come. About 1.3 million homes were in some stage of foreclosure in October, down 1.3% from September, and accounting for about 3.2% of all mortgages.
The total foreclosure inventory has fallen 9% this year.

For comparison, CoreLogic reports that in the years before the housing market collapse,
2000-2006, an average 21,000 foreclosures were completed in a month. And in total, there have been about 3.9 million foreclosures since September 2008, when the financial crisis kicked into high gear.
Foreclosure activity is spread across the country, but five states accounted for nearly half of all
completed foreclosures in the last 12 months: California, Florida, Michigan, Texas and Georgia.
The five states with the highest foreclosure inventory as a percentage of all mortgaged homes were: Florida with 11.1%, New Jersey with 7.7%, New York with 5.3%, Illinois with 5%, and Nevada with 4.8%.

It appears 2012 was the big turnaround year for foreclosures. As the resale market continues its pickup next year, we’ll likely see even larger drops in the percentage of foreclosures that make up all mortgaged homes. We see the light!

And in related news, a bit of relief for impacted families:

Fannie Mae and Freddie Mac each announced their moratorium dates, halting evictions on foreclosure properties during the holiday season so that families can stay in their homes until after the new year. Fannie Mae’s moratorium applies to single-family and 2- to 4-unit properties and runs from Dec. 19, 2012 through Jan. 2, 2013. Freddie Mac’s eviction moratorium starts Dec. 17 and runs through Jan. 2.

Recovery for Former Homeowners

The recent San Jose Mercury News article about foreclosure victims buying again is good news all around. As we all know, Americans want to be homeowners. And they want to own a home so much that they forget about the pain and sadness their last experience caused. So, for many, just three years later they are ready with their down-payment and their moving boxes, and they’re saying, “Let’s do it again!”

Fortunately, there are ways to accomplish home-ownership for these people with the help of the government backed programs like FHA. Read the article, and if you’re ready to be a homeowner again, contact us and we’ll get you on your way.

Being FICO wise

By Chris Moles, Brokerage Counsel, Intero Real Estate, Inc.

A recent study shows that foreclosures and short sales have a similar immediate impact on a property owner’s Fair Issac Company (FICO) Score.

Data from the three major credit reporting agencies suggests that a typical distressed homeowner with a FICO score of 620 was likely to see his score fall to between 575-595 after either closing a short sale or defaulting to foreclosure. The same study suggested that those with a score of 720 could expect a drop to between 570-590 and those with a score of 780 could expect a drop to between 620-640. The manner of parting with the property did not seem to affect the average FICO drop, indicating that a short sale is not “better” for a person’s credit score than a foreclosure.

Those secondary credit considerations that some use to justify selling short (like trying to “settle a debt” or “work with the bank”) are not factored into the strict FICO equation. Therefore, short sales and foreclosures are weighed the same – each is a "failure to pay as agreed.”

Giving FICO advice
These results simply reinforce the real estate agent’s duty to manage the client’s expectations and not give financial advice. Short sale listing agents do not exist to give credit advice. Rather, they exist to facilitate the client’s decision to sell short and avoid foreclosure. Whether the client should sell short or strategically default is ultimately a choice that the client must make with his own professional legal and/or financial advisor.

Of course, if advising clients on FICO matters, real estate agents should always disclose that short sales and foreclosures have the same general effect on the client’s FICO score. It is not accurate to say, “a short sale will have a less detrimental effect on your credit score than a foreclosure.”

"Flip" by Another Name

Here's an article about "investors" buying foreclosured properties and selling them quickly - once repairs have been made and the property can qualify for government-sponsored guarantees or conventional financing. Team Patereau says this is not new - it's the very common practice of flipping. It happens in Gilroy and the surrounding area regularly.

We should all say a big "Thank You" to these investors who have the cash to take distressed properties off the market, more cash to fix them up, and the time to have their cash tied up until a new homeowner, oftentimes a first time buyer, can be found.

Here's a video from HAFA, the US Government supported housing recovery program. We learned about this by going to http://www.makinghomeaffordable.gov/.

The main page description is: The Obama Administration’s Making Home Affordable Program includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the Home Affordable Foreclosure Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.

As is the case with many government programs, this one has not been completely successful - BUT - a few have benefitted. And, if you are in a situation that stresses you constantly, watching this video may help you take action to change things.



If this applies to you or someone you know, contact Team Patereau. We have helped people move on. We can help you too.

Keep Your Home California introduces new program for unemployed

Picked up this announcement from my CALIFORNIA ASSOCIATION OF REALTORS®  newsletter:

Unemployed California homeowners now can apply for up to $3,000 a month in mortgage assistance to tide them over for up to six months while looking for work.

The Unemployed Mortgage Assistance Program (UMA) is the first of four programs the state is scheduled to roll out as part of an initiative called “Keep Your Home California.” The programs are supported by $2 billion in federal dollars provided through the Hardest Hit Fund.

Eligible homeowners who are struggling to make their mortgage payments after suffering a job loss may qualify for assistance.

ForclosureGate's Impact on Recovery

We're now deep into a widespread foreclosure investigation – in fact, it has reached "gate" status. ForeclosureGate is upon us.

Last week, I discussed why this foreclosure news was a big deal– not because it could mean millions of people were falsely foreclosed upon (remember, this is likely not the case), but because it presents a major hurdle on the road to housing recovery...

...Read the full article here.

Realty Times Reports on California's Slice of the Bailout Pie

California gets $700,000 slice of special $1.5 billion homeowner bailout pie


Broderick Perkins of Realty Times reports, "California struck gold, receiving the biggest chunk of a special $1.5 billion federal fund pie for programs that target struggling homeowners in states hardest hit by the housing crash."

Perkins goes on to report that the California Housing Finance Agency (CalHFA) recently announced the fat $7,000,000 slice would go toward four different programs ultimately assisting 40,000 homeowners.

Read on to find out more about this windfall for California homeowners in distress.

"Foreclosure" is not always a Bad Word

This week's message from Gino, Intero's CEO, is that while foreclosures are not something we think of as a good thing, it turns out there is an upside. Read the full article.

3 Definitions

Short Sale

Deed in Lieu of Foreclosure

Foreclosure - In California it's the Non-Judicial kind....

Thanks Nolo Press.

What the Heck is a Short Sale?

As we have all read and heard and seen, real estate is not normal these days. Today’s real estate market is a great value for home buyers. There is currently a 15 month inventory of homes available in Silicon Valley. Life goes on and buyers need to move, or want to upgrade, but they must sell their current homes first, and homes are sitting on the market for a long time.
In addition, foreclosures are at a record high. However, there is this thing called a “Short Sale” that isn’t a foreclosure, and isn’t just listing and selling a house by the owners. It is our experience that most people don’t know what a Short Sale is, so here is the scoop.

Basically, a Short Sale is the sale of a property for less than what is owed on it, Owners do this by obtaining permission from all the secured creditors to complete this kind of transaction, and transfer clear title to a new owner (purchaser). When lenders agree to a Short Sale it means the lender is accepting less than the total amount due, and will transfer clear title to a purchaser. Not all lenders will accept short sales, or discounted payoffs, especially if it would make more financial sense to foreclose.

Short Sales leave the homeowner/borrower free of debt when the sale closes. However, they also leave with no money in hand to move on to the next home – no down payment, and not even money for first and last months rent and security deposit if the seller now has to rent.

Another thing Short Sale Sellers should be aware of is that the IRS will consider debt forgiveness as income. As an example, the owner owes $789,000 on the home. They get agreement from the lender that it can only sell now for $725,000. The home gets put on the market and is sold for $719,000. There is a forgiveness from the borrower(s) for $70,000. The IRS will consider the $70,000 as income in the year of the sale.

Short Sales appear on the owner’s credit history for three years. That’s less than the seven years for a foreclosure, but it still has a long-lasting effect on credit.

There’s lots to do in a Short Sale, but of the utmost importance is that the owner keep in contact with the lender. The owner should also have an experienced real estate agent to represent them in this complicated transaction.

Here’s a couple of links to Short Sale information:

About.com: Short Sales in Real Estate - How to Handle Real Estate Short Sales

eHow.com: How to Do a Short Sale

Real Estate Journal.com: Short Sale May Be an Option WhenMortgage Debt Looms Too Large

Losing your home can be very emotional and most people don’t want to face up to the reality until foreclosure sets in. Our recommendation is to talk to your lender. If you cannot pick up the phone and call the lender, then at the very least, call Team Patereau. We can help you get started on this very difficult project.