Real Estate Commentary:
Permanent Modifications Showing Slight Improvement
According to a report from Barclays Capital, modification rates picked up over December and January as servicers converted more trials into permanent modifications under the Home Affordable Modification Program (HAMP). According to the latest HAMP progress report from the Treasury, servicers provided more than 66,000 permanent modifications through December. Participating servicers receive more than $35 billion in total capped incentives, but the program could reach as high as $50 billion. Modification rates “turned a corner” in October 2009, according to BarCap analysts, congruent with the rise in HAMP permanent conversion rates. The Treasury recently changed document guidelines for the servicers that go into effect June 1, 2010. After that date, borrowers seeking help through the program must provide certain documentation to enter into a trial modification. At the start of the program, servicers collected the documents during the three-month trial plan, creating a lagtime in the permanent conversion rate. Out of the more than 1 million borrowers in HAMP trials, 34% have been on private-label securitized loans – meaning the loans are not held by Fannie Mae, Freddie Mac or Ginnie Mae. After assuming a similar conversion rate for non-agency loans, analysts found 22,600 non-agency permanent modifications under HAMP. “This ties in closely with the 25,000 loans modified in past two months that we see using our custom logic on Loan Performance. A higher number based on our logic also makes sense to us as some servicers have non-HAMP modification programs,” according to the report.
FTC says no more upfront loan modification fees
The Federal Trade Commission has proposed a new rule that would prohibit third parties, including loan modification specialists and loss mitigation attorneys, from collecting payment for foreclosure prevention services until after they obtain a documented offer from a lender or servicer for a modification or other form of mortgage relief. “Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.” The FTC has brought 28 cases against companies suspected of foreclosure rescue and mortgage modification scams, and state and federal law enforcement partners have brought hundreds more. According to the agency, generally these cases charged that companies do not provide the services they promise and that they misrepresent their affiliation
with the government and government housing assistance programs, including the Making Home Affordable program. “Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered,” Treasury Secretary Timothy Geithner said. “I commend the FTC for proposing a strong set of safeguards to protect consumers from these predatory practices.” The proposed rule also would bar providers from telling consumers to stop communicating with their lenders or mortgage servicers. It would also require them to disclose to consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.
Geithner says no double dip
U.S. Treasury Secretary Timothy Geithner said yesterday that the risk the U.S. economy will slip back into recession is lower now than at any time in the past year, but that recovery will be slow and uneven. Even though credit ratings agency Moody's last week warned that anemic U.S. growth, on top of already stretched government finances, could put pressure on the country triple-A status, Geithner dismissed concerns that rising U.S. indebtedness might put pressure on the United States' prized triple-A credit rating. "Absolutely not," Geithner said when the interviewer suggested rising debt levels could put pressure on the top-notch rating. "That will never happen to this country." Former Treasury Secretary Hank Paulson, however, says that reducing the federal budget deficit poses "the most serious long-term challenge" to the United States. He also says he realized as Treasury secretary it was tough to convince lawmakers to tackle controversial issues without a crisis. Geithner claimed there were even some encouraging signs in Friday's report on U.S. unemployment for January, which showed another 20,000 jobs lost but a dip in the unemployment rate to 9.7 percent from 10 percent in December. He said the Obama administration is doing everything it can to enhance recovery prospects and played down chances that growth might stall and push the United States back into recession.
The EU debt crisis and us
"Sovereign debt panic" finally struck last week, causing severe one-day drops in stock markets from New York to London to Toronto on Thursday. The epicentre of the crisis is Greece, in danger of defaulting on its debt payments to worldwide holders of its government bonds, or sovereign debt. The world is awash in potentially unsustainable debt, and the U.S. looms largest. President Barack Obama just tabled a budget that projects a doubling in America's national debt, to $28 trillion (U.S.), by decade's end. That's twice the size of the U.S. economy. Yet it's the EU who is threatening the wealth of all of us. If Greece defaults on its debts, and it's followed by Spain and Portugal and possibly Ireland and Italy as well, then the collapse of Lehman Brothers in 2008 will seem like a mere blip. It isn't so much the risk of default by these countries themselves that is spooking the markets at the moment, but the possibility that a still-skittish financial system will succumb to
another fear-driven contagion.
Normally Greece would simply devalue the drachma, or allow the markets to do it for them, and that adjustment would rebalance the economy and eventually make it more competitive, while also raising the value of foreign liabilities and making the people poorer. But that can't happen, because Greece is part of the monetary union, and the euro is held up by Germany's strength. There's talk of Greece leaving the euro, or being kicked out, but that would just make matters worse: outside the euro Greece would go into a downward spiral, dramatically increasing the value of its euro-denominated debts and creating hyper-inflation. While it's hard to imagine any of these countries' governments defaulting on their debts, restoring their budget balances is going to hold back their economic growth for a long time and lead to higher long-term government interest rates around the world.
It is estimated over 95% of millionaires made their money from real estate. On the other hand, the average Realtor earns less than $40,000 annually. Why the discrepancy? Obviously it's quite possible to make stellar returns from real estate yet each and every year plenty of people barely make ends meet even while working at it full-time. Yet research shows that success in real estate doesn't require full-time work, a large private income or many of the other trappings of success typically associated with wealth creation from other venues. In fact, plenty of part-time investors far outperform fulltime real estate associates each and every year. Learn the secret of their success with these quick tips:
1. Accept Success - Seriously! Have you ever stopped to contemplate how easily most people accept failure or fate versus those that take responsibility for their own success? It's quite remarkable when you stop to think about it. Understand that everyone is capable of making a success from short sale investments - but few people actually do so not because they are helpless but because they wait for help rather than forging their own path. When in doubt about what to do, first find a mentor and then...simple do it. IF it's wrong you will learn from the experience but if not, you have made progress either way.
2. Work at home when possible. Set a schedule then stick to it. Don't allow distractions to clutter up your productive short sale investing time. Hire childcare if needed, find a reputable and reliable virtual assistant and then focus time and energy on building the foundation for your short sale empire by automating as much as possible.
3. Dump dumb rules. Simply your life and investing goals as much as possible. Sit down and think about how much time it takes you to argue with your spouse about some minor situation versus finalizing a deal or making offers on upcoming short sales. Re-evaluate what rules and roles dominate your day then eliminate those that don't enhance your life.
4. Learn to say NO. Stop apologizing and don't try to do it all yourself. It's not in your best interest (or that of your family and friends) to tackle more than you are able to deal with on a regular basis. Leave space for down-time as well as impromptu activities. Short sale investments are especially prone to last minute maneuvers where those that win aren't necessarily the most prepared but simply those in the right place at the right time.
5. List- Buy. The more you list the more they buy and vice versa...the more you buy the more you have to list as a short sale investor. It's a numbers game so take action and automated it as soon as possible. Increase your target marketing efforts on a regular basis; once you reach the desired number of homes, begin to switch your strategy to include more affluent clients.
Fannie and Freddie failing
Freddie Mac and Fannie Mae were among the first big financial institutions to receive massive federal bailouts after the financial crisis hit in 2008. Government officials have been racing to fix bailed-out car makers and banks and are pushing to reshape the financial-services industry. But Fannie and Freddie remain troubled wards of the state, with no blueprints for the future and no clear exit strategy for the government. Nearly a year and a half after the outbreak of the global economic crisis, many of the problems that contributed to it haven't yet been tamed. The U.S. has no system in place to tackle a failure of its largest financial institutions. Derivatives contracts of the kind that crippled American International Group Inc. still trade in the shadows, and investors remain heavily reliant on the same credit-ratings firms that gave AAA ratings to lousy mortgage securities. Fannie and Freddie, for their part, remain at the core of a housing-finance system that inflated a dangerous housing bubble.
After prices collapsed, sending shock waves around the world, the federal government put America's housing-finance system on life support and it has yet to decide how that troubled system should be rebuilt. On Dec. 24, Treasury said there would be no limit to the taxpayer money it was willing to deploy over the next three years to keep the two companies afloat, doing away with the previous limit of $200 billion per company. So far, the government has handed the two companies a total of about $111 billion. The government is "running Fannie and Freddie as an instrument of national economic policy, not as a business," says Daniel Mudd, who was forced out as Fannie Mae's chief executive in September 2008 when the government took control. Other housing experts contend that prolonged government intervention will make it more difficult and costly to eventually wean the companies off government support. "The more aggressively we continue kicking the can down the road, the larger the losses become and the harder it becomes" to address the companies' future, says Joshua Rosner, managing director at investment-research firm Graham Fisher & Co. As mortgage delinquencies rise, Fannie and Freddie are required to set aside more capital to cover anticipated losses. Each quarter, if their revenues are insufficient to meet those financial needs, the Treasury has to kick in more money. With delinquencies still rising, the outlook is grim. At Freddie, 3.87% of single-family mortgages were at least 90 days past due at the end of December, up from 1.72% a year earlier. Fannie is worse: 5.29% were 90 days past due in November, up from 2.13% a year earlier.
Olick - Obama shifting from HAMP to HAFA (short sales)?
Diana Olick picked up on something Seth Wheeler, Senior Advisor to the Treasury Department, said last week. According to Olick: "In discussing the Obama Administration's Home Affordable Modification Program (HAMP), which is arguably less successful than anyone intended, Wheeler made a comment leading some to believe that the Administration may be shifting focus from modifications to another program which simply gets troubled borrowers out of their homes as quickly and cleanly as possible. Wheeler told ASF members and guests, 'Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve stability [in housing]. Modifications are only for a certain subset of distressed homeowners.'" Olick points to the widely acknowledged failure of HAMP and suggests that Wheeler's mention of the Home Affordable Foreclosure Alternatives program (HAFA) is indicative of a shift in emphasis for the Obama administration.
HAFA specifically targets short sales and deeds in lieu of foreclosure. According to the directive: Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower: Does not qualify for a Trial Period Plan; Does not successfully complete a Trial Period Plan; Is delinquent on a HAMP modification by missing at least two consecutive payments; or requests a short sale or DIL. According to Olick: "My guess is that last one is the most popular. The HAFA program offers incentives in this program "upon successful completion of the short sale" or Deed in Lieu. They include borrower relocation assistance of $1500, a servicer incentive of $1000 to cover administrative and processing costs and investor reimbursement of $1000 for subordinate lien releases. That's when the investor allows up to $3000 in short sale proceeds to go to subordinate lien holders. 'It is my belief that the success of HAFA will be vastly greater than HAMP,' says Mark Hanson, a mortgage consultant in California. 'Going forward, figuring out exactly what this means for foreclosures, REO, house sales, housing inventory, values, bank balance sheets, second mortgages, RMBS prices, the builders, the mortgage insurers, and sentiment is where the focus will be.'"
Tax rate balloons
Companies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies. The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold. Many of these hikes happened automatically as prolonged joblessness triggered state laws governing their unemployment insurance systems. But at least seven states voted to raise their taxable wage bases, the level of income subject to unemployment tax. And another 10 are looking at upping the wage bases or tax rates. In addition, employers pay federal unemployment taxes. If states don't repay their federal loans, businesses could see their this federal tax go up as well in coming years, said Rich Hobbie, executive director of the National Association of State Workforce Agencies. Higher taxes dampen employers' ability to hire new workers, crimping any nascent economic recovery. Companies pay taxes on each employee on the payroll. "There's no doubt it discourages hiring," said Douglas Holmes, president of UWC-Strategic Services on Unemployment and Workers' Compensation, an employers' trade group. "In fact, it leads to increased unemployment." Texas, Hawaii, and Florida are the hardest hit.
Consumer credit falls
According to the Federal Reserve, total consumer borrowing fell a seasonally adjusted $1.8 billion, an annual rate of 0.8%, to $2.456 trillion in December 2009. Economists predicted a decline in total borrowing of $10 billion in December, according to a consensus survey from Briefing.com. November saw a downwardly revised 10.6% decrease, or $21.8 billion, in total consumer borrowing. Sean Maher, associate economist at Moody's Economy.com said he expected November to be revised upward, but instead it was even more negative -- so December's more upbeat data "doesn't mean we're out of the woods." For all of 2009, consumer debt dropped by 4% to $2.46 trillion from $2.56 trillion in 2008. Revolving credit, which includes credit card debt, fell in December by $8.5 billion, or an 11.7% annual rate, to $866 billion.
But nonrevolving credit, which includes car and student loans, bucked the trend. It rose by $6.8 billion, or a 5.2% annual rate, to $1.59 trillion. The data's recent volatility and large revisions make it difficult to make predictions, Maher noted, but he expects revolving credit will fall substantially in the coming months but will start to taper off around June. "Consumers are still finding it tough to get credit, but there are some signs we've reached a bottom," Maher said. The credit crunch should begin easing now, he said, "with breakeven around the middle of the year -- and we're looking for a pretty quick rebound by the second half of 2010."
Home ownership at lowest point in a decade
Home ownership in the United States hit a 10-year low during the fourth quarter of 2009. According to data released by the Census Bureau last week, the homeownership rate fell to 67.2% at the end of last year. That’s down from 67.6 percent the previous quarter and 67.5 percent one year earlier. It represents the lowest percentage of Americans who owned a home since the second quarter of 2000. Homeownership has been on a steady downward slope since 2006, when it became evident that more and more borrowers were put into loans they couldn’t afford and housing woes began to eat away at the government’s long-time push to make the American Dream a reality for anyone that wanted it.
Regionally, homeownership rates are highest in the Midwest (71.3 percent) and in the South (69.1 percent) where housing is considered relatively affordable. They are lowest in the West (62.3 percent) and the Northeast (63.9 percent) where home prices are on the higher end of the spectrum. Relative to a year ago, the biggest decline, though, was in the South (down 0.7 points) and in the West (down 0.4 points), where you can find the foreclosure hotspots of Florida, California, Arizona, and Nevada. The Census Bureau also reported that the percentage of vacant homes in the U.S. rose from 2.6 percent in the third quarter of last year to 2.7 percent in the fourth. All told, there were 2.09 million homes sitting empty and available for sale at the end of last year, up from 1.99 million three months earlier, the agency said. As Bloomberg explained, this number includes both listed properties and those that banks have repossessed and have not yet listed.
Sooner or later every short sale investor encounters a sale in danger of dying. Fortunately, with a few simple steps it's possible to dramatically reduce the risk of spoiling a sale.
1. Get Smart. Prequalify and prepare from first contact. Everyone has an "A" list and a "B" list when it comes to prospective buyers but it's still necessary to put things into proper perspective before spending a lot of time and effort on dead-ends. Remember, the internet helps to eliminate and reject prospects through the use of well placed questions and comments. For example, asking a simple question such as "Is there another home you wished you had bought?" can explain a lot; price range, comfort zone and readiness just for starters.
2. Value-Driven. Tough economic times have led most buyers to become more price conscious than ever; it's no longer enough to simply show a few over-priced homes to prep for an attractive in-house alternative...instead, be prepared to demonstrate real value with low risk. Buyers want to know they won't lose money in the long run by buying a given house or property.
3. Don't Shut Doors on any Deal. Some buyers are just the opposite - they have money and when presented with the right opportunity - are willing to go substantially above and beyond their traditional budget. Don't automatically exclude higher priced properties for those that have the means to make ends meet at a larger than life level. In this situation, recognize the price is not the prime motivator but rather the "right" property. Determine what constitutes a desirable deal then make it happen.
4. Time Right. Timing is everything but it takes time to learn how to distinguish valid help from harassment when working with prospective clients. Too soon and you can quickly cool even the hottest prospect...too long of a delay and you risk having others step in to fill your shoes.
5. Preferred Status. Everyone likes to feel special and as a short sale professional it is your duty to given individualized attention to every prospect....of course, some clients are just a bit more special than others especially when it comes to sealing the deal. Find a few ways to express that little extra something when working with your "A" list clients; meet at a local coffee shop then foot the bill (don't worry - it's a legitimate write-off) or schedule exclusive "preview" showings to the most promising prospective buyers before the big announcement. Remember, it's the thought that counts not necessarily the size of the status symbol.
6. Teach sellers to think like buyers and vice versa. Yes, it's easier said than done but it's all in the wording. By teaching sellers to act like buyers and buyers to act like sellers you assure they will present and demand more reasonable offers. Think of it as a small investment that pays big dividends at closing time.
7. Have a contingency plan in place. Every good investor identifies the "out" long before buying into the given investment - it's no different with short sales. Know when and how you plan to exit the property then have a contingency in place should something go amiss. It's one additional layer of protection that allows short sale investors to sleep easy by knowing they have plenty of outlets for every property.