The Good & Bad on Loan Modifications

Good news on the loan modification front! Loan modification approvals are up 69% in the 3rd quarter of 2009. Why are banks increasing the approval rate?

a) they have the Christmas spirit
b) they have so much money they are giving it away for the holidays
c) they are getting heat from the government and media

I think we all know what the answer is. There is also bad news. All approved loan modifications have had a 40% default rate. Why? Well, because a lot of the loan mods have the same or higher payment amounts than the original payment that was defaulted on! It's all about manipulating the numbers to make it look good when the government regulators start asking questions. My advice, keep up the pressure and write to your local Governor, Senator, and Representatives, and pull your money out of from the likes of B of A and Wells Fargo!

Upon further review... New short sale program lacks teeth!

I posted a couple of weeks ago about the government passing a new streamlined short sale program. I'd like to go over my thoughts on the program now that I have had some more time to evaluate it.

The key aspects of the program are:
1. The banks participating in this program have 10 days from a submitted offer to accept or deny the offer. Currently this time frame ranges from 30 days on the good side to 2 yrs if its Bank of America.
2. The banks would have no recourse after the acceptance of the short sale. Currently, if the short sale approval does not have the correct "verbiage" the bank can and will on occasion sell the deficiency to a collection agency.

This is a start and I have been preaching about reform for 3 yrs. The problem with this program however, is it does not address secondary lien holders which are in many cases the banks themselves, that usually hold up the transaction. The program allows secondary lien holders to receive a maximum of $3k. Right now secondary lien holders are asking much more than $3k. This is also a voluntary program, how realistic is it to think that the banks are going to be nice and agree to $3k when they are owed $100k and they know they can hijack the deal unless someone gets them some additional money? That will never happen. I applaud the government for trying but this program lacks the teeth that is needed when dealing with the likes of Bank Of America!

Stricter regulations for banks, finally!

So I got a call from a local politician asking me if my bozo bank videos were based on real stories. I told him absolutely and after about a 2 hour conversation, where he was amazed that such practices were happening even here in Portland, he thanked me and told me to keep up the good work. Honestly, it was a satisfying feeling for me to know that maybe the message is starting to get heard by the higher ups.

I came across this article yesterday and it seems the white house is going to be cracking down on banks to push forth more loan modifications with stricter regualtions. Now obviously there is no connection regarding my phone call with my local government official, but I thought the timing was pretty intriguing. Let's hope they are starting to listen to the masses and we will see if this is just political hyperbole or the start of real change.

Here is the full article: http://www.dsnews.com/articles/servicers-face-penalties-ill-repute-as-administration-rallies-for-more-modifications-2009-11-30

Is the uptick in home sales for real?

Home sales shoot up in October. The expiring tax credit, low interest rates and affordable prices all contributed to the uptick nationally as well as locally here in the Portland real estate market. I personally sold 15 homes in the month of October.

What looms ahead? I think we will see a seasonal lull with February and March of 2010 being big months with the April deadline for the extended credit. It is the months following that are a little worrisome. Is the tax credit keeping prices up and when that goes away, will we see like in the car industry a screeching halt?

Here's the full story: http://www.bloomberg.com/apps/news?pid=20601068&sid=at8txtF7KVaA.

Home buyers tax credit extension!

This week, the Senate is expected to pass an extension of the tax credit that was originally going to expire Nov. 30. Buyers who sign a purchase agreement by April 30th and close no later than June 30th can now claim the credit. The extension will apply to higher income buyers. Previously, the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.

There’s also something in it for move-up buyers: Before, you couldn’t claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at least five years, you can claim $6,500 in tax credit if you buy a new home. However, the new house can’t cost more than $800,000. Hip hip hooray! I think that this is one of the few ideas that our government has actually made a good decision on. You might say: "Of course you do Nick! You are a Realtor!" But why should I, as a tax payer that is not buying a home, have to pay the bill? History, my friend. Every recession and boom has led with housing, and trust me this will help sales.

In the last three months we have had a giant increase in sales on Portland homes priced under $300k, and that is the general feeling across the country. With the added tax credit for buyers upgrading, low interest rates, and a hot market under $300k, this will spur sales in a price point that was dead. So my vote is for giving the stimulus money to the American people and let us take ourselves out of this recession. We all know the national banks are not going to.

Shadow inventory. What? Where? When?

Shadow inventory. We wrote about this 2 months ago. Where is it ? What is it? It is around the corner like the experts say? This is where the banks do not re-list properties that they have foreclosed on, or they just don't foreclose at all. The debate is about if this is the right thing to do. I think it might be one of the only smart things the banks are doing right now. Common sense says why flood the market when that will only drive prices down instead of limit the inventory. Look at the diamond industry, diamonds are not rare stones and I would say they have done a pretty good job at keeping prices high. Is it ethical? I will leave that up to you!

BofA Implements Equator (REOTrans) Platform, as Short Sales Gain Ground

This is good news, because the truth with Bank of America is that you could not get any worse. I have clients that want their Portland home to go to foreclosure, and B of A won't foreclose even though it has been two years since they made a payment. I have over 50 short sales in with B of A and on average it is taking 172 days to get a response. By that time, generally the first buyer is gone, and if you have a new buyer the process starts all over again! It just doesn't make sense.

Full story here: http://www.dsnews.com/articles/bofa-implements-equator-reotrans-platform-as-short-sales-gain-ground-2009-10-22

Price matters in the 'rebound'

Nationwide, properties under $250,000 have been selling well, but the picture above that price point is still not very pretty. In our Portland real estate market, properties under $300k are competitively sought out by buyers, especially first time buyers who are taking advantage of the current $8,000 tax credit. Lots of Portland short sales and foreclosures have encouraged people to find great deals below market value, but overall there are only so many buyers for mid-priced to luxury homes at this time. If you have bought in the last five years and want to upgrade, chances are there is little or no equity in your home, and that makes it very difficult for most people. So consequently the middle of the market is slow because upgrading is a challenge for those buyers. Financing luxury homes, the expensive top 10% of those listed, is very difficult and the buyers are few. Buyers expect deep discounts right now on these high end properties, so unless you are willing to sell it at a reduced price or your Portland home is unique, it may not sell in a reasonable amount of time.

http://money.cnn.com/magazines/moneymag/moneymag_archive/2009/10/01/105855726/index.htm?postversion=2009092410

Another plan - This time from the FDIC

The FDIC covers some of the losses incurred by failed banks, so to help homeowners avoid foreclosure, they are encouraging banks to reduce mortgage payments for the unemployed struggling to pay their notes. This is basically a 3-6 month forbearance, with the balance payable over the life of the loan. The FDIC will cover the difference for the lenders, if any lenders agree to cooperate. http://money.cnn.com/2009/09/11/news/economy/forbearance_unemployment/index.htm?postversion=2009091118

The government and it's related agencies can implement 100 programs to help Americans, but if they can't deliver on these programs effectively, it's nothing but hyperbole. Let's keep these plans simple and effective. These programs need to be easy to understand for everyone, loss mitigators and homeowners alike, so that we can get loan mod approvals up from 12%. Yesterday, I met with an attorney who had no idea about a new law here in Oregon: HB 3004. Simply, if the 1st and 2nd purchase money mortgages on a home are with the same lender, the 2nd can no longer seek a deficiency judgment against the homeowner if they fail to perform. In this case, the client had US Bank holding both mortgages, and he literally skipped out of the restaurant with a big smile on his face.

Is the Obama Plan Working?

Maybe. Personally, we have seen a better response time from the lenders on short sales and loan modifications just recently, the approval time has decreased by about 12 days on average. Their cooperation with us has improved and that's a step in the right direction, but this is still an arduous process. Loan modifications are up 3% in the last 2 months to an average of 12% of eligible homeowner receiving approvals. That's still pretty rough, but any improvement is welcome. Here's a good example of a success story: A client just received an approved loan modification on a $1 million balance from 6.37% to 2.5% for 5 years! That's what is needed, since we all know these lenders really don't want to foreclose on these high end homes. Contact us anytime for answers to your Portland real estate questions in this unique market.