Don's Commentary - Real Estate Market Analysis

I am constantly researching the real estate market so you will be informed of the latest news and trends....

(6-27) New home sales dropped 32 percent down to a level which is the lowest number of units since recording began.  The Senate failed to pass the federal un-employment benefits extension along with other stimulus items such as a small business R&D Tax credits.  This will negatively impact the economy and put further downward pressure and the real estate market.  View the congressional hearing on foreclosures - very informative. 

(6-10) Home sales are off more than 10 percent after the government first time mortgage tax credit expired.  The tax credit pulled in people who were already planning on buying a house within the next 12 months.  New foreclosures continue to climb with the phantom inventory finally coming to market over the rest of this year: expect more Short Sales and inventories going forward.  Part of the new HAPA program gives homeowners $1500 in relocation funds - this should help people get a new start.

(3-9) Next month the Treasury starts a program to help homeowners in Short Sale Transactions.  This government program is called the HAPA, second loans are settle in full with a Short Sale with the bank receiving $3000 and deficiency judgments are not allowed.  the Short Sale process will proceed at a faster pace for banks involved in the program.

(1-11) Over 30 percent of homes are now "underwater" and climbing.  Employment is still very bad: 660,000 Americans were dropped from the un-employment numbers due to their benefits running out or other ways in which the government uses to determine whether you are actively looking for work or not.  The un-employment figure would be 10.4 percent if they were included.  2010 will be the year all eyes from main street to Washington will be looking at what the banks have done to help Americans out of the financial mess they got us into.  Expect banks to be a core issue in the November elections plus "throw the rascals out", mentality among many people.  2010 will be the year in which Short Sales are finally viewed as a way to establish the new pricing level for real estate.

(12-20) Mortgage delinquencies are at a record high of 9.4 percent - the housing problem continues to grow.  "Americans have grown gloomier about both the economy and the nation’s direction over the past three months even as the U.S. shows signs of moving from recession to recovery. Almost half the people now feel less financially secure than when President Barack Obama took office in January, a Bloomberg National Poll shows.  Expect another painful year for real estate in 2010.

(12-1) The Obama administration announced today a program to help homeowners use Short Sales as a means to help them get out of underwater homes and start: fresh. Under this program, homeowners will receive: $1500, banks holding second mortgages will receive $3000, servicers will receive $1000 from the program.  Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines - its about time!

(11-17) Fannie Mae announced a new lease program for homeowners.  A homeowner may lease their property from the loan servicer for up to one year - if they qualify for a deed in lieu of foreclosure first.  They must exhaust all other alternatives first: Loan Modification and Short Selling the property before they can qualify for this program.  

(11-7) We had some very good news this week: Congress extended the home buying tax credit adding a $6500 credit to home buyers who already own a home.  To qualify, you must have owned your home for more than 5 years.  The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

The Supreme Court, will allow lawsuits against both mortgage companies and banks who created this tremendous housing crisis.  State Attorney Generals are gearing up to go after these lenders in earnest.

(10-20) My team just finished up a Short Sale with Chase Bank.  When everything was ready to close the transaction, Chase sent the settlement letters which included an agreement for the seller to contact the bank "after escrow closes" to pay back the $250,000 loss in value the property suffered in this financial crisis.  The seller has no way of paying for this deficiency and the loss mitigator at the bank agrees there is little chance of the bank recouping this money. 

The property was purchased with an 80/20 loan - both the first and the second are Purchase Money loans and no recourse is possible in the state of California after the auction.  Chase refuses to change the deficiency clause, the seller won't sign the settlements and the property will go to auction with an estimated $50,000 to $70,000 loss to the bank.  FYI: Chase just reported record profits this quarter. 

Sellers: when you finally receive the settlement offer from the bank, make sure it has a clause which states: "Settled in full for less than owed" - this is the language the credit reporting agencies use.  If there is language regarding agreeing to working out the deficiency amount after the sale, you should have a lawyer review it before signing the document. You may be agreeing to paying the bank the entire amount your house is underwater at some a later date: A Short Sale is defined as a short pay off: the lender is settling for less than the loan amount.

 All banks need to work with the American People who are caught holding the bag in this crisis.  The banks caused this enormous financial calamity in the first place with their "liberal" lending products - they need to step up the plate and help everyone work things out.  Short Sales, help the market establish a new (market driven) level of pricing for housing.

(10-9) Look at the two new charts in the right hand column: Mortgage Delinquencies are the highest on record and 4.3 of all mortgages across the United States are in the foreclosure stage.  This is while we have some good news on the pricing front: house prices rose by 1.8 percent in the June to July 2009 period.  The $8,000 New Buyer Incentive is mostly the cause for this uptrend in prices and lowering of inventory.  Congress has not extended this important credit as of this writing but I expect it to renew it and expand it to include all buyers.  There is word the amount may rise to $15,000 - if Congress does not act, expect the housing crisis to deepen rapidly.

(9-29) Congress is considering a new Bill, S. 1230: Home Buyer Tax Credit Act of 2009, increasing the home buyers tax credit to $15,000 and expanding eligibility requirements.  The bill is no longer limited to just first time buyers, expanding to most buyers.

(9-7) Un-employment, loan resets, and underwater houses (30% plus nationwide) are still driving the housing market.  See: Unemployment Spike Compounds Foreclosure Crisis for a good overview of the problem.  Banks are getting better at Short Sales now, however, they still are taking 3 to 4 months to complete these transactions.  Under the government programs, people who choose to Short Sale their property and don't just walk away, may be able to receive $1500 at the close of escrow.  Talk to your realtor to see if you qualify.

(8-20) Un-employment rose slightly - New jobless claims rise unexpectedly to 576K - continuing the trend of close to 600,000 Americans losing their jobs each and every month.  As I said earlier, the real estate market won't really improve until we start creating jobs again.  The only reason mainline news tells us the real estate market is improving - banks are keeping people in the foreclosure process and postponing auctions - this won't last.  I also want to address the rise in median house prices.  When the crisis began, mostly sub-prime homeowners were in trouble.  Now, the crisis is hitting prime homeowners with more expensive homes - thus the average price goes up...

(8-17) I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent up supply out there.”  Banks are holding houses in foreclosure rather than taking them back through the Trust deed  Sale (auction).  This is the shadow supply the Wells Fargo economist was talking about.  They don't want to be responsible for the properties, drive current prices down further and they need show the politicians - they are "helping" homeowners with loan modifications.

(8-3) Banks have essentially implemented another moratorium on foreclosures as Barney Franks, Chairman of the House Financial Services Committee, threatens them with more action.  Over 90% percent of all homeowners in foreclosure have seen their auction dates postponed by the lenders.  The loan modifications I personally have reviewed, remind me of the type of loans which started this crisis in the first place: they lock the homeowner into a house which is terribly underwater, almost all do not have principle reduction, all late fees have been added back into the loan, huge pre-payment penalties, a 50-50 split with the bank if the property actually has equity and is sold in the future.  If the homeowner sells the home before the end of the loan (40 years), they are obligated to pay the bank the amount the property is underwater.  Some I have seen have balloon payments at the end of the term.

(7-27) We had some good news this week: new home sales have increased 11% in June with home re-sales strong with available inventory in the $150,000 to the $350,000 price range selling well.  I am still concerned about the bank inventory waiting in the wings.  These homes are currently owned by homeowners who have received their NOD from the bank and are waiting for the auction to take place.  Banks have postponed 90% of these auctions in order to work out loan modifications and keep these houses from flooding the market.  This tactic has placed a price floor for housing at current levels.  Fannie Mae and Freddie Mac foreclosures continue to increase, however.

(7-23) The next wave of foreclosures are in the queue ready to strike!  There were about 1000 NOD's filed in the first 15 days of July.  The Trust Deed Sales (auctions) data shows almost 700 transactions occurred: 230 were cancelled due to Loan Modifications and other work-outs; the rest were sold to investors or the property went back to the banks as REO properties.  When you compare this to the Orange County Trustee Sales Chart in the right column, the foreclosure market is getting worse and the banks have started taking properties back again.  I would expect to see a wave of new REO properties hitting the market sometime this fall.  REO agents in our office listed over 10 properties in the last week in comparison to almost nothing in the last 3 months.

(7-10) The Banks have postponed 90% of the scheduled foreclosure auctions hoping for most homeowners to accept their Loan Modifications.  The new 40 year loans, have large prepayment penalties and/or end of term balloon payments.  Only a handful (34 total!) of these loan modifications offer a reduction in the loan amount (principle reduction).  Homeowners are teased into these loans with very low payments for 5 years - then the payments "reset" to a much higher amount.  60% of loan modifications wind up in foreclosure again after 6 months.  If you sell your house before the loan is paid off a substantial sum is owed to  the bank.  Also, many have a provision to share any equity appreciation with the bank.  Doesn't this program sound eerily like the sub-prime loans which got us into this mess?

Check out the California Dept of Corporations 1st Quarter Mortgage Services Survey.pdf.

(7-4) The California Department of Real Estate (DRE) has issued Desist and Refrain Orders and/or Accusations for Loan Modification Activities; check this list if you are thinking of using a loan modification company other than a bonafied Real Estate Law Firm.

(7-3) What does the economic bailout cost Americans?  Look at CNNMoney.com's bailout tracker to see some "eye popping" numbers.  It took the United States over 200 years to acquire $11 trillion dollars of public debt - we are on the road to double this debt in the next 5 years.  The Federal Reserve is buying massive amounts of: Treasury's, Fannie Mae/Freddie Mac bonds (supporting the housing market) plus funding: money market funds, foreign central banks, large private enterprises (AIG, GM, Chrysler); including massive bank mergers using copious amounts of taxpayer money.  Democrats, industry battle on consumer protections trying to create new banking regulations resulting in avoiding further unsound banking practices to be unleashed on the American public.

Banking policy decisions created the financial products sold to the public, causing this financial disaster - banks need to quickly staff up their Loss Mitigation Departments in order to streamline Short Sales and start getting serious about loan modifications by reducing principle balances.  If we are going to spend trillions of dollars anyway, why not fund principle reductions and Short Sales: this would focus on the core problem: the housing collapse.

(7-2) The unemployment rate climbs to 9.5% nationally while job cuts are 467,000 Americans and new un-employment claims of 614,000 have been announced in the last 24 hours.  This emphasizes the economy has not turned around yet - stimulus or no stimulus.  Employment drives the housing market - period (demand).

We had the top major lenders come to the office yesterday discussing FHA loans and other programs they offer to homeowners, in today's market.  An FHA loan buying a $350,000 house requires an income of $7,400 or $88,000 per year.  By the way, $250,000 to $350,000 is where the most demand for real estate is today.  If you purchase a $700,000 house, you need $176,000 of income to qualify for today's loans requirements.  I asked the Loan Manager (major bank) what programs do you have for homeowners who are "upside down" on their house?  His reply: "go talk with your congressman!" then he laughed - "all lenders should leave the room now". 

How many buyers live in Orange County, make $176,000 per year, and want to buy a house soon?  How many years into the future will you be able to find a buyer for that $700,000 house you are upside down in?  Check out the FHA Loan Calculator and see for yourself. Most lenders are using the same income to debt service ratio of 38 percent now.  Experiment with the calculator to determine how much income a buyer needs today in order to buy your house and pay off your existing loans so you can walk away with nothing. 

Housing prices must come down to where there is affordability and demand - this is very fundamental economics!  I personally expect this crisis will be with us for the next 5 to 10 years based on the "solutions" both big government and the big banks are pushing onto Americans, today.  The only solution to this problem is principle reductions and Short Sales, period.  Then the market will find it's own pricing level based on supply and demand, a good old American solution to the problem which always works: remember Free Enterprise?  Our founding fathers had it right - let's get back to what works.

(6-30) Mortgage Modifications are the all the rage right now - just make a few commitments first:  Commit to a new 40 year mortgage, the bank gets any appreciation of your home's value for the next decade or two; you owe a large pre-payment penalty if you try and sell before a specified date; you lock-in the full principle amount you currently owe without any reductions on the loan's principle. This "deal" locks you into your currently underwater home for at least a decade or more.  Some modifications include a split of the equity with the bank: your new partner!  Read the fine print very carefully before you sign the loan documents.  The main enticement: you will receive much lower monthly payments for the first five years.  Then you wait for your home to appreciate up to the point, where, you can sell it just to pay off the loans against it - walking away with nothing.  This sounds like renting to me...

Working with you lender on a loan modification? - send me an email at: anewstartoc@gmail.com, with "free Home Market Report" on the subject line.  Please include your name and phone number (if you wish to discuss the report with me, personally) in the body of the email.  I will run a Comparables Report plus a detailed Market Analysis on your home then email it back to you.  This is a powerful tool you can use in your negotiations with your lender for principle reductions or second loan forgiveness.

Thinking of a loan mod? Read this first: To Prosper Again...

Loan Mod experiences on CNN Blog...

A great summary of the housing market from Bloomberg: “Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. There’s little chance the turnover will increase enough this year to end the housing recession, said Andres Carbacho- Burgos, an economist with Moody’s Economy.com.”

“‘We have a lousy job market and an excess of around 1 million extra homes that has to be worked off,’ he said in an interview. ‘The housing market is not going to hit bottom before mid-2010.’”

“If the cost of money doesn’t put consumers off, loan officers’ new strictness may keep them out of the market, said Grant Stern, a mortgage broker in Miami Beach, Florida. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more cash on hand, among other things, the Fed said. ”

“‘Six years ago, standards were pretty permissive, and two years ago all you needed was a pulse,’ Stern said in an interview. ‘Nowadays, even people who have reserves that equal amount of the loan are getting rejected.’”

(6-23) Job losses from the housing crisis induced recession are impacting everyone now in every corner of the land.  Job losses are the new driver in this recession as they always have been in previous recessions: if you don't have income, you can't pay your bills!  Watch job losses carefully, when they start to subside, then, and only then, can we declare victory of the Greatest Recession since the Great Depression.  Last month's job losses of 345,000 were reported as much better than the previous month's total of 539,000.  The Bureau of Labor Statistics (BLS) published the May Report reporting that the number of un-employed persons increased by 787,000 raising un-employment to 14.5 million in May which works out to a 9.4 percent un-employment rate in the US.  The difference between the 787,000 un-employed persons and the 345,000 job losses is due to a computer model the BLS uses which added some statistically created phantom jobs, I'll go into that at a later date...

 An excerpt from USA Today:

"Nearly 1 in 8 of the nation's home mortgage holders were behind in their payments in the first quarter — the most since at least 1972, the Mortgage Bankers Association said Thursday.

It said more than 12% of residential mortgage loans were delinquent or in some stage of foreclosure.

(5-28) The rate of foreclosure actions begun the past quarter also beat MBA figures going back to 1972." says USA Today.

The recession's teeth are sinking deeper into the America's flesh...

(6-20) A new "California Mortgage Moratorium" has begun - according to your favorite "Nightly News"...really?  This new law intends to coerce banks into helping homeowners work out loan modifications - reducing the still continuing wave of foreclosures.  The law extends the time period from the Notice of Default (NOD) to the Trust Deed Auction from 111 days to 201 days, giving incentives to banks for loan work out solutions (theoretically)- with one big exception: if a bank has a loan modification program already in place, they can register to be exempt from the new auction date extension.  Read the list of exempt banks on the California Dept of Corporations: Exempt List.   It reads like the Who's Who of banking - this new law will affect very few of these big banks (they collectively control 70% of the loan market).

I am currently talking with many homeowners  who have already received their NOD - they are trying to work out a loan mod with their bank.  Many have spent thousands of dollars on people who are not lawyers or registered loan councilors for something they can easily do themselves.  The banks, encouraged by government guidelines to reduce mortgage payments substantially, are offering these homeowners 40 year mortgages with 5 year low teaser rate payments resulting in balloon payments (resets-remember them?) in year five.  There is  a balloon principle payment at the end of the loan (year 40).  They also have a clause in these loans to insure any equity through appreciation goes to paying them first.  The banks are not reducing loan principle.  These terms and conditions smack of the same crazy loans which got us into this mortgage meltdown in the first place.

Some homeowners who really want to keep their house are not getting approvals in time to avoid the auction: result? foreclosure.  A Short Sale needs to be initiated very soon after the certified mail NOD is received in order to allow sufficient time to be successful.  Current real estate prices are down at least 40 percent from 2007 prices; how can a loan mod be a good investment for Americans under these conditions?  We all love our homes - however, retirement and a real Return On Investment (ROI) are very important concepts  with regard to our largest financial asset: our home - history repeats itself, again....

(6-12) The government is now officially promoting Short Sales as a great way for the housing market to find a new foundation with respect to pricing.  Walking away just doesn't make any sense when you have nothing to lose from a Short Sale and everything to gain.  Don't just "Walk Away" if you are underwater with your home, talk to your Realtor or call me directly.

 "A recently announced extension of the government's housing rescue plan could make it easier to buy short-sale properties. The new version of the Making Home Affordable plan will pay lenders up to $1,000 if they allow a short sale of a property when the owners don't qualify for loan modification because they owe too much money on the home. The program will spell out a short-sale process and provide standard documents, the U.S. Treasury says." - Fox News

(6-9) "Walking Away" from your house - you hear this discussion in the news, on the web, and from your family and friends - "I can just walk away", you say.  Another phrase is "keys in the mail box, foreclosure".  The consequences of walking away, can hound you for the next decade and beyond.  First, the balance of the loan owed, from the auction sale price of the property, most likely will be considered taxable by the IRS as income.  The second mortgage or Line of Credit will most likely be "Charged Off" by the bank.  When people receive this notification from the bank, they breath a sigh of relief - "it's finally over." 

Actually the fun is just beginning; the next step: the loan is purchased by a collection agency who will then make your life miserable for many years to come: including the prospect of legal action to collect on the debt.  These companies are relentless using same legal powers the original lender had access to in order to collect debt, but never used themselves.  The collection agencies buy this debt really cheap - typically a few percent of the original balance so any money they force out of you is profit for them.  They also receive all of the information from the bank regarding your personal assets which you disclosed when acquiring the loan.  They may even go to court to Garnish Your Wages - a percentage of every pay check you receive, under this court ordered debt collection solution,  the payments will go to the collection agency until the debt payoff judgment is fully satisfied. 

A Short Sale by your Realtor is a much better solution: all debts on the property must be settled to release the liens against the property for escrow to close.  Read the debt settlement letter thoroughly, make sure it says "Full settlement of debt for less than owed" or similar words, beware of  simple "release of lien" or "collection rights retained" small print - you need the acknowledgement of a "Full Settlement" stated in this letter.

 

The California State Legislature recently passed a temporary bill: California Foreclosure Prevention Act,  helping some homeowners stay in their homes longer during the foreclosure process.  This law, gives qualifying  homeowners more time to pursue either a Loan Modification or Short Sale of their property. 

The bill extends the time period from the Notice of Default (NOD) to the trustee sale on qualifying mortgages for an additional 90 days, thus making the time to the Trustee Sale 211 days (7 months).  In the bill, this only applies to lenders who do not have a viable Loan Modification Program in place - lenders can register with the state to be exempt from this extension.

Look at the Monthly Mortgage Rate Resets chart on the right.  The US financial system will be working with homeowners for many years to come using both Loan Modifications and Short Sales. 

Every job lost represents another household where a wage earner cannot pay their mortgage.  Over 500,000 Americans who lose their jobs every month further impact the housing problem.

The current market is dominated by first time buyers - house affordability is back to 2004 levels.  The government enacted a temporary $8,000 first time home buyer tax credit and the first time buyers saved their money wisely to take advantage of today's bargain prices.  House prices have come down to approximately what it costs to rent a house, today.  Take one of my listings for example on 821 Clementine Ave, Anaheim, CA.  The listing price is $345,000 - a thirty year fixed FHA loan with only 3.5 percent down ($12,500) and a monthly payment of $1774 with a FICO score of above 700. 

Real Estate prices in the United States are now viewed by foreigners as cheap with the recent fall in prices and the US dollar.  I heard one story from an agent where a Japanese woman bought a beautiful Anaheim Hills home valued at 2.2 million in 2007 for 1.2 million in all cash.  Foreign buyers are competing with American first time buyers for homes causing bidding wars on some very desirable properties.

The city of Anaheim has a program to help fund re-development of foreclosed property under their Neighborhood Stabilization Program.  Payment assistance of up to $125,000 for the purchase and rehabilitation of qualified homes in Anaheim.

Click on arrow to discover how to stop foreclosure and start a new life...

Please don't hesitate to contact me personally to discuss the content on this website or any of your Real Estate needs...

Thanks,

Don

Please call our team at 714 658-5739, to discuss whether a Short Sale will help your situation.

anewstartoc@gmail.com