Uncle Sam needs you to help unload 250,000 distressed properties

Federal agencies are scrambling to come up with ways to get rid of 250,000 properties in various stages of distress and are leaning heavily toward making many of them rentals through investors and previous owners.

by Broderick Perkins
© 2011 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Federal agencies are scrambling to come up with ways to get rid of 250,000 properties in various stages of distress and are leaning heavily toward making many of them rentals.

The Federal Housing Finance Agency (FHFA), in conjunction with the U.S. Department of the Treasury and U.S. Department of Housing and Urban Development (HUD), has announced a "Request for Information: Enterprise/FHA REO Asset Disposition", seeking input from both the public and private sectors on options for moving off the books residential real estate owned (REO) properties held by Fannie Mae, Freddie Mac (GSE's or "Government Sponsored Enterprises") and the Federal Housing Administration(FHA).

Federal agencies own a quarter million properties with only about 70,000 of them currently listed for sale. Buyers have made offers on another 22,000 of them, but the bulk, about 158,000, are in limbo.

The Feds want to reduce agencies' carrying costs, including loan losses, and address repair and rehabilitation needs (taxpayers foot the bill) in a manner that recognizes economic and real estate conditions and needs in specific locations, while helping stabilize falling pricesexacerbated by the glut of distressed properties.

"While the Enterprises will continue to market individual REO properties for sale, FHFA and the Enterprises seek input on possible pooling of REO properties in situations where such pooling, combined with private management, may reduce Enterprise credit losses and help stabilize neighborhoods and home values," said FHFA Acting Director Edward J. DeMarco.

"Partnerships involving Enterprise properties may reduce taxpayer losses and meet the Enterprises’ responsibility to bring stability and liquidity to housing markets. We seek input on these important questions," DeMarco added.

Federal agencies are looking hard at selling off pools of properties to investors who will turn the REOs into rental units. It's a strategy that could help ease tight rental markets.

The tactic is hard at work in places like Las Vegas and Florida where a glut of distressed properties have squeezed million dollar homes until they are worth only a quarter million dollars.

While some groups are purchasing distressed properties in bulk to flip and resell, others are renting them out if they can get adequate cash flow to make the deals pencil.

"It's going to be a cold winter. There's nothing we are seeing in jobs or the economy or housing to make us believe there is any more good news for this year. It's making it easy for investors to pick up homes and banks are thinking about that," said Jon Sterling, Director of Marketing at Mountain View-based Altos Research.

However, Feds aren't likely to put all their eggs in one basket.

Another idea includes allowing previous homeowners to rent properties and perhaps even buy them back under a rent-to-own deal.

Current renters could also participate in rent-to-own deals, and the homes could be put up for sale as reduced-price affordable housing.

"As we continue moving forward on housing finance reform, it's critical that we support the process of repair and recovery in the housing market," said Treasury Secretary Tim Geithner.

"Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability," Geithner added.

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Underwater homeowners taking on more water

Click on my big head!

Banks are selling more than three times as many distressed homes as builders are selling new ones, and half as many homes as the resale market. With as much as 39 percent slashed off what a similar resale home would cost, the distressed home sector is a real drag on home prices.

by Broderick Perkins
© 2011 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Here's one more nasty little statistic that will make underwater homeowners wheeze for air.

Banks are selling more homes than builders. In fact they are selling more than three times as many distressed homes as builders are selling new ones, according to a recent Hanley Wood Housing Intelligence (HWHI) report.

What's more, the banks' REO (for "real estate owned") homes are selling at deep, deep discounts, with as much as 39 percent slashed off what a similar resale home would cost, according to RadarLogic's latest housing market report.

That's good news for buyers, investors and others who have the cash or can somehow wrench a loan from tight fisted lenders.

Unfortunately, the price plunge is sending homeowners further underwater if they already owe more than their home is worth.

Some economists say the deep discounts on the large volume of distressed properties sent home prices double-dipping this year, at a pace greater then the home price crash of the Great Recession.

HWHI broke down the home sale share for the first quarter 2010 with existing homes comprising 61 percent of the market, REOs accounted for 29 percent of the market and new homes only 10 percent.

For the first quarter this year, REO sales swiped a greater share, apparently getting more resale and new home buyers to join the REO buying crowd -- existing home sales' share dropped to 60 percent, REOs increased to 32 percent and the sale of new home sales also dropped to only 9 percent.

The share of new home sales has been reduced by half since peak times, and the resale share decline by about one-fourth, thanks to the incursion by REOs, according to HWHI.

"Defaults are expected to reach new record highs this year which have buyers holding out for better deals and traditional home sellers battling lowball offers from banks," HWHI reports.

RadarLogic says homeowners suffering negative equity are stuck. Most can't or won't pay lenders the difference between their current mortgage balance and the price for another home, given the new home is likely to lose value.

Other than FHA loans, lenders are tighter than ever, requiring larger down payments and higher credit scores. First-time buyers don't have the stomach for handing over hard-earned money as equity "in an environment where home prices are widely expected to fall over the next 12 to 24 months," RadarLogic reported.

Investors with cash are more willing to take the risk, especially at the bargain basement prices they can get from the REO sector.

"The aggressive pricing on distressed properties is undercutting individual home sellers and new home builders alike, and wreaking havoc on local housing markets," HWHI grimly reported.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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Quarterly foreclosure activity sets new record

Golden State's first lady again
exhibits connectile dysfunction

Foreclosures in the third quarter this year were up five percent from a quarter earlier, soaring 23 percent from a year ago, as banks began to unload pent-up supplies of distressed properties. The West was hit hard again.

by Broderick Perkins

Keep up with the foreclosure saga, right here.

© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Foreclosures in the third quarter this year were up five percent from a quarter earlier, soaring 23 percent from a year ago, as banks began to unload pent-up supplies of distressed properties.

One in every 136 U.S. housing units received a foreclosure filing -- default notices, scheduled auctions and bank repossessions -- during the quartet, the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

Foreclosure filings were reported on nearly a million properties -- 937,840, for the third quarter.

September filings were down 4 percent from August this year, but up 29 percent from September 2008, according to RealtyTrac. September’s total was the third highest monthly total since 2005, behind only July and August of this year.

Bank repossessions, or REOs (for "real estate owned") was the culprit. They jumped 21 percent from the second quarter to the third quarter and banks begin to move foreclosures held back for a variety of reasons.

James J. Saccacio, chief executive officer of RealtyTrac said "REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties."

For the quarter, Nevada, Arizona, California again were at the top of the foreclosure rate list.

Nevada recorded one in 23 housing units receiving a foreclosure filing, six times the national average. Arizona and California both recorded one in every 53 housing units facing foreclosure during the third quarter.

Other states with high foreclosure rates during the third quarter included Florida, Idaho, Utah, Georgia, Michigan, Colorado and Illinois.

Six states, California, Florida, Arizona, Nevada, Illinois and Michigan, accounted for 62 percent of the nation’s total foreclosure activity in the third quarter.

Populous California, with a quarter million properties facing foreclosure filings, accounted for nearly 27 percent of the nation's total.

Keep up with the foreclosure saga, right here.


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© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

Perkins is also the first Examiner to cover three beats for the Examiner.com news service:
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NAR certifies agents for short sales, foreclosures, REOs

Most currency laced with cocaine

A new Short Sales and Foreclosure Certification Program (SFR) trains agents how to manage short-sales, foreclosures, and real-estate owned (REO or bank owned) transactions.

by Broderick Perkins
© 2008 DeadlineNews.Com

Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - The National Association of Realtors (NAR) is coming to the rescue of homeowners facing foreclosures or short sales with real estate agents specifically schooled in those subjects.

A new Short Sales and Foreclosure Certification Program (SFR) trains agents how to manage short-sales, foreclosures, and real-estate owned (REO or bank owned) transactions, and keeps agents current on national and state-specific information and regulations on these issues.

To earn the certification, agents must complete a one-day education program, either in-person or online, as well as in three one-hour Webinars. The certification program also will be offered at NAR's Conference & Expo in San Diego, CA Nov. 13-16.

Nearly one-third of all existing homes sold recently were either short sales or foreclosures, NAR says.

"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," said NAR President Charles McMillan.

McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, TX says the SFR certification program is offered by the Real Estate Buyer's Agent Council of NAR.

Learn more about "How To Choose A Real Estate Agent"

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Monterey County, CA housing market outlook tentatively rosy

Foreclosures, bank-owned homes, short sales and other distressed properties account for the bulk of home sales in large swaths of Monterey County, CA. That's depressing prices and charging sales.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime

Deadline Newsroom - Investors are testing the waters. Multiple offers aren't unusual. Interest rates are cooperating. And housing affordability is three times better than it was a year ago.

Monterey County area real estate experts are beaming with hope that early 2009 housing market indicators are harbingers of a real housing market recovery.

With that hope also comes a warning for fence-sitters: Prices are already as low as they've been in 10 years. Further delaying a home buy, with hopes for bottom market prices, could backfire.

It's virtually impossible to pinpoint market bottom until after home prices are already on a steady rise, the experts say. Should prices bounce off the bottom and move up fast, some buyers could be quickly priced out of the market.

"Economists seem to believe that half way through 2009 we'll see some changes that could mean the housing market will swing more toward a sellers market," says Jean Manner Schwimmer, a past president of the Monterey County Association of Realtors.

"I'm not so sure it will happen that quickly and it's not that people should move too fast, but a whole bunch of people may be moving too slowly. Instead of trying to predict what might happen, people should be trying to get an interest rate and (mortgage) payment they are comfortable with. It's time to move," added Schwimmer, also a Realtor with Coldwell Banker-Gay Dales in Salinas.

With foreclosures, bank-owned, short sales and other distressed properties accounting for the bulk of home sales in large swaths of the county, depressed home prices are already charging sales.

Faster sales, shrinking inventories, low prices

Closed sales of single family homes, county-wide, zoomed in January this year to 283, more than triple the 93 sales the same month a year ago, according to Richard Calhoun, a broker-owner of Creekside Realty in San Jose who tracks sales throughout Northern California.

They are also selling faster and for a greater percentage of the asking price compared to a year ago. Inventories are shrinking too -- 1991 single-family detached homes were listed in January this year, compared to 2,381 the same month a year ago, Calhoun reported.

Sales are up because some homes cost less than they did a decade ago and they are nearly three times more affordable than they were a year ago.

"What we are seeing is that prices and activity are reflective of 1999. Some 85 percent of the market in the Salinas area is an REO (bank owned) or short sale. So what we are seeing is the number of sales going high as the median price goes down," said Kim DiBenedetto, the current president of the association.

Calhoun found some areas in Monterey County with distressed properties comprising nearly 100 percent of sales.

It's no surprise then, that in Monterey County, the median price of single-family homes in closed sales was $230,000 in January, down from a $500,000 median just a year ago January and down from a peak of $799,500 in August of 2007.

The January 2009 median for single-family homes is also lower than the $310,000 median in January 1999 -- ten years ago.

Likewise, the much smaller condo market came in with a $74,000 median price in January, compared to $116,000 in January 1999, according to Calhoun.

The low prices, coupled with low mortgage interest rates (the fixed rate average was at or below 5.25 percent in January, according to Freddie Mac) has created a boom in affordability.

Affordability luring investors

In Monterey County, 58 percent of households could afford entry-level housing in the region, up from 21 percent just a year ago, according to the California Association of Realtors (CAR).

CAR says first-time buyers typically purchase a home equal to 85 percent of the prevailing median price. In Monterey County, in the fourth quarter of 2008, the minimum household income needed to purchase that $265,700 entry-level home was $52,200, based on an adjustable interest rate of 6.02 percent and assuming a 10 percent down payment. The monthly payment including, taxes and insurance was $1,740 for the purchase, according to CAR.

A year ago, based on an adjustable interest rate of 6.21 percent and assuming a 10 percent down payment, a $591,200 entry level home came with a $3,940 monthly payment and required a qualifying income of $118,200.

Current market conditions, including interest rates and median prices both lower than CAR's affordability calculations, likely push affordability levels even higher.

That's not lost on investors.

Real estate sales people say investors, including second-home and vacation home buyers, are leading the way, returning to the region attracted by the prospect of bargain basement purchases with enough rental income cash-flow to pay the mortgage.

"Some of them are repositioning wealth because of loses in the stock market. They are the type to come in now and get the best properties. Some condos are less than $100,000 in Salinas. Rent them out and the cash flow totally makes sense now," says DiBenedetto, also a Realtor with Coldwell Banker Del Monte Realty in Carmel.

"In Monterey we see some properties in the $400,000s. We haven't seen that in a very long time," she added.

Schwimmer said priced-right properties in good condition in the $250,000 to $350,000 range can attract multiple offers and a fast sale while other properties priced too high languish unsold.

Sales are slower, but picking up in the higher-end markets of Carmel and Pebble Beach, where values have slipped only to 2004 levels. Even with the slippage they markets still reveal 11-year appreciation rates of 273 percent and 209 percent respectively.

How to cash in

"You can't get that kind of return in the stock market or anywhere else. Fifteen homes sold in Carmel since the first of the year, after the seasonal lapse. Half were for under $2 million and half were for more than $2 million. That's very good activity and a good sign for the market," said DiBenedetto.

Real estate experts advise first-timers and others looking to buy to get both mortgage money in the pipeline and experienced representation on their side if they want to beat what could be a spring rush.

"You have to come in totally preapproved (for a mortgage). Not just prequalified. If you have competition you need to stand out," said Schwimmer.

She added, "And, if you are going to be in this, with short sales and foreclosures, you need help navigating the market. Everybody is looking for a good deal and it's hard to get a good grasp on distressed properties. You won't know how to do this without the guidance of a Realtor who has experience," said Schwimmer.

Broderick Perkins operates a digital real estate news service, the DeadlineNews Group. Contact him at news@deadlinenews.com

© 2008 DeadlineNews.Com

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Buying Foreclosures 'Not For The Novice'

by Broderick Perkins
© 2007 DeadlineNews.Com

Deadline Newsroom – On a scale of fear where 1 is a sort of "pshaw" and 10 is your life flashing before you, the fear of buying foreclosures should be right up there with the out-of-body experience.

Be afraid. Be very afraid.

No doubt a foreclosure purchase can be a good way to save money on buying a home or investing in real estate, but if you don't know what you are doing the ordeal can smother you under a shroud of financial losses.

There's simply too much risk in foreclosure acquisition for most financial portfolios and there are easier ways to make a buck in real estate.

The American Homeowners Foundation (AHA) says with more and more homes facing foreclosure, some home buyers are considering acquiring foreclosures -- or they are being led by the nose to the "deals".

[Also see: Foreclosures, Short Sales Already Less Taxing]

More than 2 million Americans stand to lose their home to foreclosure in the current mortgage market morass.

"Whenever the real estate market shifts, there's always this tendency to say, 'Hey. It's a good time to buy,' perhaps to cash in on those who maybe didn't understand what that really means, to cash in on the shifting market, to cash in on a returning or new trend," says Newport Beach, CA-based consultant Danielle Babb.

Babb, with Corona, CA-based mortgage banker and investor William Nazur, is co-author of "Finding Foreclosures: An Insider's Guide to Cashing in on This Hidden Market" (Entrepreneur Pr, $21.95).

"Foreclosures are already shaping up to be the next 'good time'," says Babb.

That's provided you have the time.

AHA president Bruce Hahn says the foreclosure market is dominated by real estate professionals who specialize in the market because it's a full time job, not an on-the-job-training opportunity.

"Buying a home at a foreclosure sale requires a lot of work and due diligence and is fraught with risks. You can end up spending a lot of time and money doing your homework, only to learn at the last minute the auction was canceled because the borrower filed for bankruptcy protection (which temporarily suspends the auction). Even if the sale proceeds, you may not be the successful bidder," Hahn says.

Hahn says you should not initially venture into foreclosures without competent assistance, a real estate attorney, investor or other professional familiar with local laws. That point person should also be endowed with ample connections to other savvy professionals you may also need on the way, among them, perhaps, a home inspector, appraiser and real estate agent.

"Establish a relationship in advance," Hahn advises.

Given the many unknowns associated with buying foreclosures, you'll also have to be endowed with the right financial stuff that gives you a tolerance for risk.

"Those who venture into the area should have solid equity positions in their primary residencies, they shouldn't be up to their eyeballs in credit card or revolving debt, they should be able to afford to take a little risk and they should be considering this an investment; perhaps diverting some of their investment dollars to this endeavor as a replacement for others," says Babb.

After the necessary prerequisites, the approach to buying foreclosures is a timing game. When you buy is as important as what you buy.

Preforeclosure

The period after a homeowner goes into default (misses one payment or more) and the lender files a public default notice to that affect (Notice of Default or Lis Pendens) is the period when the foreclosure process begins.

You can find the notices in your local public records office or, for a fee, get them, with varying levels of detail, from on- and offline firms that track the data.

This is one of the best times to buy foreclosure properties, experts say, because you'll have more time to get a comparable market analysis, research the title and have the home inspected.

It's also a time when the seller may be most accommodating, especially if he or she can walk away with something to show for any equity and if he or she can avoid further ruining his or her credit standing, says Babb.

During preforeclosure, the home likely isn't up for sale, so you'll avoid competition that comes with listed homes. That means, relatively speaking, there's a greater chance you can offer a price that's less than market value but more than the amount owed the bank.

"People should know that foreclosures are not always in the best of shape and they should always hire an inspector who is very detailed that will give them not only the list of items that needs to be fixed, but bids to fix it (or at least a contractor that can do that). Repairs, as well as real estate agency fees (if you aren't selling by owner, which is what I would recommend doing to avoid the fees) are all going to come out of the purchaser's bottom line and need to be considered.

Hahn suggests, whenever possible, selecting homes with substantial equity. That's often evidenced by the owners' tenure.

"Normally only consider houses owned by people who have lived there for a minimum of two years. However, appreciation stopped in most areas two years ago, and in many areas prices have dropped since then. Make it four years in this market. The longer someone has lived in a home, the more equity will be built in, even if they made interest-only payments," Hahn said.

Auction

The next phrase, the lender's auction, can represent the highest potential return, but, wouldn't you know it, also represents the greatest potential for risk.

"We don't recommend waiting until the auction. Usually bigger investors or institutions will buy these homes and the equity position is lower," says Babb.

Foreclosure auctions vary from state to state and may be held on the courthouse steps, in a county office or at the foreclosed home.

Unless you met the home in its preforeclosure stage you can't inspect it, you won't have time to run comparables or do a title search, but you'll have to pay in cash, usually with a cashier's check.

Auctions typically attract hard core investors looking to flip the property (sell within a short period for a profit) and others who've been around the foreclosure block a few times.

If you buy and things get nasty, you may have to evict residents reluctant to leave their lost home. That gives them plenty of time to trash the place or otherwise strip it for their own financial gain.

"Even if the foreclosed-upon family took care of the property, which is unlikely; the property probably has not been lived in for some time," said Dane Hahn broker/owner Exit 11 Real Estate in Stratham, NH.

"Expect the (homes) to be really dirty, maybe without appliances (even without toilets and sinks), probably without acceptable carpets, and in Northern states, showing the damages of ice and water. It's very easy to get swept-up in the potential future profits of a flip and to ignore the out-of-pocket expenses required to make the property whole," Dane Hahn added.

Real Estate Owned (REO)

Banks repossess homes that aren't auctioned off, say if the highest offer is less than the homeowner owes the lender.

Banks aren't in the business of holding and selling homes, but don't expect to land an REO for a song.

"When banks offer the property for sale, they are not necessarily pricing the property fairly. Often, they are trying to get top dollar based on what was owed, not what's based on a fair appraisal that takes condition and location into account. Just because it's bank-owned, don't expect a bargain," said Dane Hahn.

At least there's time to arrange for an inspection and a title search, removing some of the risk from the cost.

Babb says no matter what strategy you take, there's an inherent risk in the current market that property values will decline.

"It is possible that you could be in an upside down position even on a foreclosure, which is why doing real comparative analyses and knowing your equity position up front is absolutely crucial in this market. Remember that excessive foreclosures in an area can reduce property value, so it doesn't hurt to also check and make sure that a lot of the neighbors aren't in notice of default status, Babb said.

Exit Strategy

Then there's the exit strategy, which you'll have to consider at the onset of your decision to buy a foreclosure.

Why are you buying the foreclosed property? As your primary residence? To flip? As a rental?

"You basically have to know a little bit about every aspect of investing to include, contracts, financing, negotiating, acquiring, rehabbing and distributing these properties," said Richard James, owner/investor of New Home Investment Group in Lorton, VA.

"Distribution is the key in any real estate investment. You must have a good exit strategy. In the meantime, you must be prepared for some holding costs. It's a lot to juggle for a seasoned investor. A novice would really be gambling. Foreclosures aren't for the novice," James added.

Also see: Foreclosures, Short Sales Already Less Taxing

© 2007 DeadlineNews.Com

DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Of Intellectual Property Is A Federal Crime

Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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