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A Big Step Forward for the Housing Market

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For years, the housing market has been locked in a deep freeze, as a combination of underwater mortgages, reluctant lenders, and a lack of political will have kept a huge mass of homes off the market and in limbo. But as banks are finally coming to the conclusion that it makes more sense to accept smaller losses now to move forward, rather than clinging to the fading hope that they’ll somehow recover more in the future, housing could finally get the catalyst it needs to recover.

Banks and short sales
Banks have had problem mortgages on their balance sheets for years. But after stubbornly hanging on to those trouble assets, some banks are coming around and changing their tone when it comes to so-called “short sales.” In fact, not only are they allowing such transactions to happen, they’re also giving homeowners some big incentives to do so.

Short sales occur when a prospective buyer makes an offer on a home that isn’t enough to pay off the seller’s mortgage. Especially in states like California, where the lender often doesn’t have recourse to hold the homeowner liable for any shortfall, lenders have often resisted short sales. For a while, that made sense, as banks figured that short-sale offers were lowballing the true value of the home and that if they foreclosed on the property, they could resell it at its higher market price.

But lately, banks have realized that the foreclosure process is long, costly, and fraught with peril. With regulatory investigations into foreclosure practices adding to the potential problems of years-long delays and an obstacle course of legal requirements, banks are concluding that it’s better to accept the bird in hand of a short sale than to hope for a recovery that may take years to come.

Gimme some money
What’s most surprising about this about-face is the length to which some banks are going to get short sales done. JPMorgan Chase (NYSE: JPM  ) reportedly offered one homeowner $30,000 to accept a short sale on a $600,000 home, despite having a loan for nearly $200,000 more.

Real estate agents that Bloomberg interviewed said that the company offers $10,000 to $35,000 for many (but not all) of the 5,000 short sales it approves in a typical month. Wells Fargo (NYSE: WFC  ) and Bank of America (NYSE: BAC  ) have made similar offers to certain homeowners, especially in states like Florida, where foreclosure is especially onerous.

Is it the end of the bust?
What the housing market has needed all along is a market-clearing event like this. While refinancing and mortgage modifications only kicked the can down the road, allowing actual purchases and sales to occur is a step in the right direction.

A host of companies could benefit. Already, homebuilder stocks have soared as news on the housing front has gotten progressively better, and improving employment reports suggest that consumers may finally be getting back on their feet.

But other possible winners include companies with land development opportunities. For instance, Howard Hughes Corp. (NYSE: HHC  ) owns master planned communities and other real-estate holdings in 18 states, with key properties near Houston, Las Vegas, New York, and Honolulu. Having the housing market flowing again would open the door to further development. Similarly, St. Joe Company (NYSE: JOE  ) could return to profitability if itsextensive Florida land holdings find themselves back in demand, which could happen once the market starts perking up again.

Move forward
It’s always a tough decision to cut your losses and admit that you’ve made a mistake. Although it’s taken too long, it’s good news that banks have finally figured out that throwing good money after bad doesn’t make any sense. With banks finally biting the bullet and letting the housing market breathe again, a recovery should come a lot faster than it otherwise would have.

Housing is a key component of planning for retirement.

 

 

 

Source: By Dan Caplinger

http://www.fool.com/how-to-invest/personal-finance/home/2012/02/09/a-big-step-forward-for-the-housing-market.aspx

Banks Pay Homeowners to Avoid Foreclosures

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Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody’s. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., aSanta Ana, California-based real estate information company.

Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.

$200,000 Short

Farley, whose home construction lending business dried up after the housing crash, said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 — about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home. Farley, who is also approved for an additional $3,000 through a federal incentive program, is scheduled to close the deal Feb. 10.

“I wondered, why would they offer me something, and why wouldn’t they just give me the boot?” Farley, 65, said in a telephone interview. “Instead, I’m getting money.”

Tom Kelly, a JPMorgan spokesman, declined to comment on the company’s incentives.

“When a modification is not possible, a short sale produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” he said in an e-mail.

A mountain of pending repossessions is holding back a recovery in thehousing market, where prices have fallen for six straight years, and damping economic growth. Owners of more than 14 million homes are in foreclosure, behind on their mortgages or owe more than their properties are worth, said RealtyTrac Inc., a property-data company inIrvine, California.

Foreclosure Holdouts

Short sales represented 9 percent of all U.S. residential transactions in November, the most recent month for which data is available, up from 2 percent in January 2008, according to Corelogic. Bank-owned foreclosures and short sales sold at a discount of 34 percent to non-distressed properties in the third quarter, according to RealtyTrac.

As lenders shift their focus to sales, they are finding that some borrowers would rather risk repossession while they wait for a loan modification, according to Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. In a loan modification, the monthly payment, and sometimes principal, is reduced to help prevent seizure. Homeowners facing foreclosure may live rent-free for years before they are forced out.

“That’s why the banks have got to pay the big bucks,” Cecala said. “The real question is why is the bribe so big? Is that what it takes to get somebody out of their home?”

Multiple Banks

Banks also pay a few thousand dollars to the owners of second liens, whose loans can be wiped out by a short sale, to encourage them not to block the deals.

While JPMorgan is giving the largest incentive payments, other banks and mortgage investors are also offering them, according to interviews with 12 real estate agents in Arizona, California, Florida, New York and Washington. Lenders also provide incentives on loans they service and don’t own when the mortgage investor, such as a hedge fund, requests it.

JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Borrowers also can receive payments from the federal government’s Home Affordable Foreclosure Alternatives program, which in 2010 began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who complete short sales.

Quicker Resolution

For banks, approving a sale for less than is owed on the home can cut a year or more off the time it takes to unload a property. From listing to sale, the transactions took about 123 days on average at the end of last year, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Lenders spend an average of 348 days to foreclose in the U.S. and an additional 175 days to sell the property, according to RealtyTrac. In New York, a state that requires court approval for repossessions, it takes about four years to foreclose on a home and then resell it, the company said.

Lenders can often afford to forgive debt, offer the incentive and still make a profit because they purchased the loan from another bank at a discount, said Trent Chapman, a Realtor who trains brokers and attorneys to negotiate with banks for short sales.

Chapman, who also writes a blog on TheShortSaleGenius.com, said he’s heard about 50 homeowners who have received incentives from lenders including JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

Wells Fargo

“My guess is they want to get rid of bad loans,” Chapman said. “If they short sale these types of loans, they have less of a headache and have some goodwill with the homeowner.”

Wells Fargo, based in San Francisco, offers relocation assistance of as much as $20,000 for borrowers who complete short sales or agree to transfer title through a deed in lieu of foreclosure “in certain states with extended foreclosure timelines, including Florida,” Veronica Clemons, a spokeswoman, said in an e-mail.

Bank of America Corp. sent letters to 20,000 Florida homeowners as part of a pilot program, offering incentives of as much as $20,000, or 5 percent of the unpaid loan balance, Jumana Bauwens, a spokeswoman, said in an e-mail. The program expired in December and theCharlotte, North Carolina-based bank hasn’t decided whether to introduce it in other states, she said. About 15 percent of the homeowners agreed to participate in the program, she said.

Citigroup Offers

“The bank is pleased with the response,” Bauwens wrote. “The state is experiencing higher foreclosure rates than other parts of the country and is therefore seen as a viable market to gauge incremental short-sale response and completion rates when presenting homeowners with relocation assistance at closing.”

Citigroup offers $3,000 to most borrowers who qualify for its program, but the “amount may increase based on the circumstances of each individual case,” Mark Rodgers, a spokesman for the New York-based bank, said in an e-mail. “Investor programs have different guidelines for relocation incentives, which we honor.”

Susan Fitzpatrick, a spokeswoman for Detroit-based Ally, didn’t comment specifically on incentives when asked about them.

Borrowers typically can’t negotiate the incentives, which arrive by mail, Chapman, the Realtor, said.

Tap on Shoulder

“It’s not really easy to identify the guidelines because Chase doesn’t tell you, they kind of tap you on the shoulder,” he said. “When I first saw it in January 2011, I thought it was a joke or a typo. I was convinced it must say $3,000, not $30,000.”

Offering enough for the homeowner to put down a deposit on a rental apartment is reasonable, said Sean O’Toole, chief executive officer of ForeclosureRadar.com, which tracks sales of foreclosed properties. Giving tens of thousands of dollars to delinquent homeowners sends the wrong message, particularly if they got into trouble by running up home-equity loans during the housing boom, he said.

“It may make sense for people to walk away, it doesn’t make sense for them to get rewarded for doing it,” O’Toole said. “It’s not the homeowner’s fault that house prices dropped so dramatically, but they have already received months of free rent, if not cash out.”

Cecala of Inside Mortgage Finance said he wonders whether lenders are making big payments on properties with underlying title problems. Evan Berlin, managing partner of Berlin Patten, a real estate law firm in Sarasota, Florida, said representatives of a large bank told him the incentives are primarily given to borrowers when it doesn’t have the proper paperwork needed to win its foreclosure case. He declined to name the bank for publication.

Incentive Disconnect

State attorneys general across the U.S. began investigating foreclosure practices in October 2010 following allegations that the nation’s top mortgage servicers were using faulty documents to repossess homes.

Berlin said his office negotiated about 400 short sales in the past year and about a quarter included an incentive, ranging from $3,000 to $48,000. In some cases, the payments aren’t incentives at all because they’re offered after the borrower has almost completed the short sale, he said.

“The idea is that this is relocation assistance,” Berlin said. “But when you’re offering $48,000, obviously it doesn’t cost $48,000 to relocate.”

Cooperation Sought

The size of the payment may have little to do with sales price. JPMorgan gave one Phoenix homeowner $20,000 after she sold her property in June for $32,000, according to Royce Hauger, the real estate agent who represented the seller and shared a copy of the settlement sheet with Bloomberg News. The bank also agreed to forgive more than $70,000 in debt, she said.

Kelly, the JPMorgan spokesman, declined to comment on the payment.

The homeowners are getting the money in exchange for their cooperation, said Kris Pilles, a Riverhead, New York-based real estate broker who represents banks, servicers and hedge funds that own distressed housing debt.

Pilles is frequently dispatched to the homes of delinquent borrowers to explain the benefits of avoiding foreclosure, he said. His clients have paid as much as $92,500. In return, the lenders expect the seller to clean the house before showings, and trim the grass.

“Money talks,” Pilles said. “From the bank side, it’s anything to initiate a conversation with someone who may not be listening to them.”

 

 

SOURCE: By Prashant Gopal

http://www.bloomberg.com/news/2012-02-07/banks-paying-homeowners-a-bonus-to-avoid-foreclosures-mortgages.html

California Attorney General Rejects Foreclosure Settlement

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Calling it “inadequate for California,” the state is rejecting the latest settlement proposal between states and major U.S. banks over lending abuses that fueled the foreclosure crisis.

California Attorney General Kamala Harris pulled out of nationwide talks with the banks in October, saying the proposed $25 billion deal gave too much immunity to lenders and didn’t provide enough relief for homeowners in a state hard hit by the mortgage meltdown.

On Wednesday, Harris’ office said a new version of the settlement plan still falls short of those goals.

“At this point, this deal does not suffice for California,” said spokesman Shum Preston.

For more than a year, the nation’s five largest mortgage lenders – Bank of America, Citibank,Wells Fargo, JPMorgan Chase and Ally – have been working on a settlement agreement with a coalition of attorneys general in 50 states.

The latest settlement proposal seeks to help nearly 1 million homeowners, who could see the size of their mortgages lowered by an average of $20,000, according to the Associated Press.

The deal also calls for payment of about $1,800 to homeowners harmed by deceptive lending practices, the AP said.

Some consumer groups said the deal is an imperfect compromise that still provides significant reforms.

The Center for Responsible Lending said the pact could mean sustainable loan modifications for many delinquent homeowners and could end so-called “robo-signing” practices by requiring banks to individually review key foreclosure documents.

California and other states began their investigations after lenders and mortgage servicers were accused of rubber-stamping foreclosures without actually reviewing homeowners’ loan documents.

California is the nation’s No. 1 state when it comes to the number of foreclosures.

According to Irvine-based RealtyTrac, more than 420,000 homes had a foreclosure filing last year, which is more than double the filings in Florida, which had the next most filings.

Lawyers in the AG’s office have reviewed the settlement offer during the past several days and found that the proposal prevents the state from pursuing substantial legal actions against lenders.

“Our state has been clear about what any multistate settlement must contain: transparency, relief going to the most distressed homeowners, and meaningful enforcement that ensures accountability,” said Preston.

The state’s rejection came a day after President Barack Obama in his State of the Union speech called for the creation of a special investigative unit to delve into abusive lending practices that helped trigger the foreclosure crisis.

In many ways, the goals of federal unit, made up of federal prosecutors and state attorneys general, are similar to those of the 40-member Mortgage Fraud Strike Force set up by Harris in May.

That unit recently joined forces with Nevada Attorney General Catherine Cortez Masto’s mortgage fraud strike force to investigate lending abuses.

Source: By Rick Daysog
Read more here: http://www.sacbee.com/2012/01/26/4216052/california-attorney-general-rejects.html#storylink=cpy

 

Top Real Estate Market News of 2011

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(MoneyWatch)  COMMENTARY The holidays are over, the decorations have been taken down and New Year’s Eve has come and gone. We’re onto a new chapter of the real estate story, and everyone is hoping it’s better than the last one. There were some positive signs last year, but overall the market remained oversaturated and underperforming.

Before we get too far into 2012, let’s take a look back at some of the top real estate market news of 2011:

January 2011. The biggest news at the beginning of 2011 was what happened in 2010: It was a record year for foreclosures. RealtyTrac’s 2010 Year-End U.S. Foreclosure Report showed roughly 1 million homes – that’s one in every 45 – were foreclosed on in 2010.

March 2011. CoreLogic released data indicating U.S. homeowners had a massive $750 billion in negative equity. The top five states for underwater mortgages included Nevada, Arizona, Michigan, California and Florida. These states still continue to struggle, with high foreclosure rates resulting in lower home sale prices across the board.

April 2011. The Office of the Comptroller of the Currency (OCC) announced it would proceed with mandatory enforcement actions against eight mortgage servicers including Citibank, HSBC, JP Morgan Chase, MetLife Bank, PNC, U.S. Bank, Wells Fargo and Bank of America.

The measures required banks to engage an independent auditing firm to review foreclosure actions, and to prove to these auditors they complied with federal and state laws during proceedings. Some of these banks – such as Bank of America – are still fighting legal battles in court over foreclosure proceedings.

June 2011. Bank of America’s mortgage legal issues intensified when New York Attorney General Eric Schneiderman launched a formal probe into the bank’s mortgage securitization practices. The probe was part of a larger investigation to determine whether mortgage companies followed New York state law when creating and selling mortgage backed securities, but it had major fallout for Bank of America in particular.

July 2011. The fun continued for Bank of America when the Federal Trade Commission (FTC) announced it would return nearly $108 million to more than 450,000 homeowners who were overcharged by Countrywide Financial, a unit of Bank of America. Though the settlement was part of an investigation that began before Bank of America acquired Countrywide, it raised more red flags for consumers.

October 2011. Mortgage interest rates fell to new lows through the fall of 2011, but reached a record low in October with rates under 4 percent for the first time in history. Even with those rates, would-be homebuyers found it difficult to jump into the mortgage market due to the tight credit market. Federal Reserve Chairman Ben Bernanke was less than enthused about the low rates, saying the recovery was close to “faltering.”

November 2011. Remember those enforcement actions the OCC called for back in April, which included foreclosure reviews? The Independent Foreclosure Review finally started in November, giving homeowners the opportunity to request a review of how the lender conducted the foreclosure of their primary residence. Homeowners interested in a review can still apply until April 2012, but be prepared to wait a few months for the results of the review.

December 2011. Bank of America came under more fire towards the close of 2011, once again due to problems with Countrywide Financial.

In late December, federal officials announced a $335 million settlement stemming from an investigation into Countrywide’s lending procedures. The lawsuit alleged Countrywide discriminated against African American and Hispanic borrowers, charging them more than similarly qualified white buyers and steering them towards subprime loans based solely on their race or national origin.

With the low housing prices, long market times and legal issues which plagued the housing market last year, it’s probably a good thing we can put the 2011 real estate market behind us. Here’s hoping 2012 brings a robust housing market and new opportunities for economic growth.

 

 

 

By Ilyce Glink