The Arizona Republic - September 2009
It should be the best time to purchase a home in decades.
Prices are at record lows. Many, if not most, of the houses on the market in areas such as Ahwatukee Foothills are owned by banks - not emotional and capricious homeowners.
Instead, even seasoned real-estate agents say it's the most difficult market they have worked in decades.
And buyers say they are frustrated with the condition of houses they find on the market - plus, they are getting caught up in unpleasant bidding wars with cash-rich real-estate investors.
"I have six buyers who want homes in Ahwatukee, but we can't find a thing," said Pam, a longtime Ahwatukee real-estate saleswoman.
"There also is a huge shortage of owner-owned, well-maintained homes," she said.
Pam said the selection of attractive, move-in-ready homes is low because owners who are not having financial problems intend to hang on to their properties until prices rise again.
So instead of walking through their dream houses, buyers are looking at repos gutted by evicted former owners.
"You would not believe the condition some of these places are in," said Nancy Nighswonger, an Ahwatukee resident who is helping her mother, Diane Moss, search for a comfortable home for her retirement years.
Buyers who want houses to live in must also compete with real-estate investors who have deep enough pockets to pay cash for discounted properties. Banks are creating bidding wars on such properties by calling potential buyers and asking them to up their offers, real-estate professionals say.
While that might sound similar to bidding wars for Valley houses at the peak of the real-estate market, experts say there is a difference: In 2005 and 2006, home prices were set at market value and buyers could offer higher amounts, depending on the competition.
"Now sellers are pricing their homes 25 to 30 percent below the market because they want to take eight or 10 offers to the bank (that foreclosed on the property)," said Pete Meier, who has sold real estate in Ahwatukee for 30 years.
Mike, another longtime Ahwatukee real-estate salesman, said the upside to the situation is that "the market is starting to move again."
Also, he said, buyers with the patience and fortitude to endure the bidding wars can wind up with great deals.
In some cases, houses in neighborhoods where houses/homes recently sold for $600,000 are now at "FHA levels" - the $300,000 range, he said.
Mike said he recently represented a house in Chandler that was offered as a "short sale" - the owners owed more on the house than what it was worth.
"I had nine offers on it," he said. "It was a very nice house. A million-dollar property originally."
The house sold for $449,000, he said.
Pam was so thrilled by a similar success story that she posted a message about it on Twitter.com the day the deal was signed.
The family she was representing - Honeywell engineer Rudy Dudebout, his wife, Tina Hynes, and their three sons, Eric, 6, Adam, 4, and Alex, 2 - had just paid $556,000 for a home that appraised for $1.2 million at the peak of the housing boom, she said.
The 1982 five-bedroom, 3,500-square-foot custom home backs to the South Mountain Preserve and has a pool, basketball court and a balcony overlooking a circular driveway.
"We had had our eyes on this neighborhood for a long time," Dudebout said. "It does not have the uniformity of looks that you find in other parts of Ahwatukee."
It helps not to be in a rush in the current housing market.
Dudebout said he and his family were prepared to stay in their old home until they found the right new house at the right price.
Saturday, September 12, 2009
Tuesday, September 8, 2009
Theft of fixtures becomes major risk in foreclosures
The Arizona Republic - September 2009
With a $165,000 price tag, the two-story, four-bedroom house for sale in Avondale was a steal.
Three years ago, when the house was new, a family paid $416,000 for it.
But its soaring living-room ceiling, whirlpool bath, three-car garage and pool with a slide and waterfall weren't enough to make it much more than a handyman's special.
Thieves made off with the home's $30,000 custom-kitchen and other fixtures after it went into foreclosure.
Custom cabinets, appliances, granite countertops and other fixtures just disappeared one day.
"These are fixtures that are supposed to be part of the house. They basically took $30,000 out of the kitchen and left," said John Lincoln, the real-estate agent who recently sold the house to buyers who don't mind fixing it.
Julie Halferty, a special agent who oversees the Phoenix FBI Mortgage Fraud Task Force, said no one knows exactly how many foreclosed houses in the Valley have been stripped by former owners, neighbors or strangers.
Those who work in real estate believe the number is in the thousands.
"Without question, probably 85 to 90 percent of houses on the market under $200,000 have been stripped," said Tempe real-estate agent Kim Baker.
"Appliances are the most commonly poached item, but plumbing fixtures and faucets, ceiling fans, light fixtures, water heaters and air-conditioning units are fair game" in the eyes of the strippers, she said.
Halferty said she and her fellow FBI agents "haven't been able to quantify it, but we know it is rampant."
She said that since metropolitan Phoenix foreclosures are up 600 percent since 2005 - half of the homes sold here this summer were bank-owned - she believes stripping is more common here than anywhere else in the nation.
"These crimes are happening with enough frequency that it has caught the attention of law enforcement, Realtors and lenders across our state," said Tom Farley, executive director of the Arizona Association of Realtors.
"Many Realtors are taking photos of the interior of the home as soon as they take a lender-owned listing to document the condition of the property in case of vandalism," Farley said.
Last week, the Maricopa County Attorney's Office announced five recent prosecutions of accused foreclosure strippers, including one involving a real-estate salesman.
Halferty said the task force hopes the information will educate owners of homes in foreclosure, neighbors and others that it is illegal to help themselves to fixtures and appliances in a vacant home.
"Take a look at Craigslist," Lincoln said. "It's full of things that have been stripped out of houses."
Halferty said Craigslist.org tipped the fraud task force to the extent of the problem.
"It is so blatant," Halferty said. "People would advertise that they were selling cabinets in a foreclosure sale."
Halferty said legally there should be no such thing as a foreclosure sale. The law states that anything attached to a home - stoves, cabinets, lights and ceiling fans - belongs to the property and stays there when it is sold.
Lincoln, who is based in Ahwatukee Foothills but represents properties all over town, said the problem is most widespread in Valley neighborhoods that were built during the housing boom a few years ago.
"Mature neighborhoods aren't seeing this as much as the newer neighborhoods in places like Avondale and Tolleson," he said.
While some homes are stripped by cash-strapped former owners, others are targeted by strangers.
Lincoln said one of his clients purchased a bank-owned house in Tolleson. Before it closed, thieves posing as pest-control workers broke in and removed $4,000 in appliances. The matter was reported to police, Lincoln said, but there has not been an arrest.
"Neighbors said two guys drove up in a white truck and said they were there to spray for bugs," Lincoln said. "What they really did was go in the backyard and bust a window to get into the house."
He said the deal still went through, but the family paid $6,000 less.
Talk to anyone searching for a deal on a house these days and you will hear similar stories.
"People are having to look at 20 or more houses before they find one that is suitable," said Jay Butler, director of realty studies in the Morrison School of Management and Agribusiness at Arizona State University at the Polytechnic campus.
"One of my students looked at 35. Doors are missing. Plumbing is gone. There is a huge secondary market for these things. People buy them and put them in their own homes."
In extreme cases, thieves rip copper pipes and wiring out of the walls, Baker said.
Nancy Nighswonger of Ahwatukee Foothills just wants to help her mother find a deal on a house for retirement. That might have taken a few weeks a couple of years ago.
"You would not believe the condition some of these places are in." Nighswonger said. "We've researched 100 houses and looked at 20 since June. All of them needed extensive repairs."
Getting financing to fix up damaged properties is not easy, Baker said.
"The FHA will not loan on a property that isn't fully intact," Baker said.
With a $165,000 price tag, the two-story, four-bedroom house for sale in Avondale was a steal.
Three years ago, when the house was new, a family paid $416,000 for it.
But its soaring living-room ceiling, whirlpool bath, three-car garage and pool with a slide and waterfall weren't enough to make it much more than a handyman's special.
Thieves made off with the home's $30,000 custom-kitchen and other fixtures after it went into foreclosure.
Custom cabinets, appliances, granite countertops and other fixtures just disappeared one day.
"These are fixtures that are supposed to be part of the house. They basically took $30,000 out of the kitchen and left," said John Lincoln, the real-estate agent who recently sold the house to buyers who don't mind fixing it.
Julie Halferty, a special agent who oversees the Phoenix FBI Mortgage Fraud Task Force, said no one knows exactly how many foreclosed houses in the Valley have been stripped by former owners, neighbors or strangers.
Those who work in real estate believe the number is in the thousands.
"Without question, probably 85 to 90 percent of houses on the market under $200,000 have been stripped," said Tempe real-estate agent Kim Baker.
"Appliances are the most commonly poached item, but plumbing fixtures and faucets, ceiling fans, light fixtures, water heaters and air-conditioning units are fair game" in the eyes of the strippers, she said.
Halferty said she and her fellow FBI agents "haven't been able to quantify it, but we know it is rampant."
She said that since metropolitan Phoenix foreclosures are up 600 percent since 2005 - half of the homes sold here this summer were bank-owned - she believes stripping is more common here than anywhere else in the nation.
"These crimes are happening with enough frequency that it has caught the attention of law enforcement, Realtors and lenders across our state," said Tom Farley, executive director of the Arizona Association of Realtors.
"Many Realtors are taking photos of the interior of the home as soon as they take a lender-owned listing to document the condition of the property in case of vandalism," Farley said.
Last week, the Maricopa County Attorney's Office announced five recent prosecutions of accused foreclosure strippers, including one involving a real-estate salesman.
Halferty said the task force hopes the information will educate owners of homes in foreclosure, neighbors and others that it is illegal to help themselves to fixtures and appliances in a vacant home.
"Take a look at Craigslist," Lincoln said. "It's full of things that have been stripped out of houses."
Halferty said Craigslist.org tipped the fraud task force to the extent of the problem.
"It is so blatant," Halferty said. "People would advertise that they were selling cabinets in a foreclosure sale."
Halferty said legally there should be no such thing as a foreclosure sale. The law states that anything attached to a home - stoves, cabinets, lights and ceiling fans - belongs to the property and stays there when it is sold.
Lincoln, who is based in Ahwatukee Foothills but represents properties all over town, said the problem is most widespread in Valley neighborhoods that were built during the housing boom a few years ago.
"Mature neighborhoods aren't seeing this as much as the newer neighborhoods in places like Avondale and Tolleson," he said.
While some homes are stripped by cash-strapped former owners, others are targeted by strangers.
Lincoln said one of his clients purchased a bank-owned house in Tolleson. Before it closed, thieves posing as pest-control workers broke in and removed $4,000 in appliances. The matter was reported to police, Lincoln said, but there has not been an arrest.
"Neighbors said two guys drove up in a white truck and said they were there to spray for bugs," Lincoln said. "What they really did was go in the backyard and bust a window to get into the house."
He said the deal still went through, but the family paid $6,000 less.
Talk to anyone searching for a deal on a house these days and you will hear similar stories.
"People are having to look at 20 or more houses before they find one that is suitable," said Jay Butler, director of realty studies in the Morrison School of Management and Agribusiness at Arizona State University at the Polytechnic campus.
"One of my students looked at 35. Doors are missing. Plumbing is gone. There is a huge secondary market for these things. People buy them and put them in their own homes."
In extreme cases, thieves rip copper pipes and wiring out of the walls, Baker said.
Nancy Nighswonger of Ahwatukee Foothills just wants to help her mother find a deal on a house for retirement. That might have taken a few weeks a couple of years ago.
"You would not believe the condition some of these places are in." Nighswonger said. "We've researched 100 houses and looked at 20 since June. All of them needed extensive repairs."
Getting financing to fix up damaged properties is not easy, Baker said.
"The FHA will not loan on a property that isn't fully intact," Baker said.
Struggling Valley homeowners left in limbo
The Arizona Republic - September 2009
Five months into the $75 billion federal program meant to toss a lifeline to homeowners facing foreclosure, most people in need of help are still floundering.
Overall, about 15 percent of borrowers across the country who are eligible for the program have been offered help from their lender, according to a recent U.S. Treasury Department report. Of those homeowners, 9 percent have participated in a trial loan modification. President Barack Obama's administration is calling for lenders to ramp up their efforts and help 500,000 more homeowners by November.
For homeowners facing foreclosure, the loan-modification process is slow, time-consuming and exhausting. Homeowners fall further behind as lenders, who say they are training more workers to handle the flood of requests, keep them waiting. Even when a loan modification is approved, some people discover the results are disappointing.
Thousands of Valley homeowners have experienced tough going with the program.
Cheryl Edgemon
Cheryl Edgemon was laid off from her longtime position as a legal secretary in April 2008. The 66-year-old has been looking for a new job ever since.
Savings, Social Security and unemployment benefits allowed her to scrape by at first. But in April, after a year of being unemployed, her savings were gone and she fell behind on the mortgage for her Glendale home.
Edgemon has contacted her lender multiple times, asking for a loan modification. Because she has income from her monthly Social Security check, she was told that she qualifies for a loan modification under the Obama plan.
"At first, they wanted me to be three months behind before I applied for loan modification," Edgemon said. "I can't understand why they would want me to ruin my credit first. I have worked hard to have good credit."
When she did fall behind, her lender offered to let her skip a few months and then make a balloon payment.
"How did they think I could afford a balloon payment? I just wanted them to extend the terms on my loan, drop my interest rate, something to help me keep the house," she said. "I will pay, but my Social Security is $1,244 and my unemployment is about to run out. I am trying to find a job, but it doesn't help to spend so much time trying to save my home."
She contacted housing groups and her congressman, asking for help. But her pleas for help weren't enough.
Edgemon's home was sold in a short sale a few weeks ago. She is now renting a house in her neighborhood for $500 less then her old monthly mortgage payment.
"It was going to be my retirement home," she said. "Not only did I not receive help, the people who I talked to at my lender were nasty and made the process harder than it had to be."
Kasey Broach
Kasey Broach applied for a loan modification right after the new plan was announced. She sent her lender documentation on her income and expenses, including a student-loan statement and bill for the homeowners-association fees on her Phoenix condominium.
Broach, a public-relations specialist for a Valley law firm, was required to show receipts on everything from groceries to doctor bills. Her lender also required her to meet with a loan counselor. The counselor recommended her for a loan modification.
Broach bought her condominium in 2006, at the peak of the Valley's real-estate market, right before she was about to start an MBA program.
She had a roommate who helped with the bills. But her roommate moved to New York last year, and Broach hasn't found another. Payments on her student loans started this year.
"When I purchased my home, part of the deal was that I didn't have to pay HOA fees until 2009," Broach said. "The condo is in a great location. I thought I would be able to easily sell it in two years, allowing me to pay off my student loans and never have to pay HOA fees."
Her HOA fees are $150 a month. Her student-loan bill is $250 a month. Overtime at her job used to supplement her monthly income, but that stopped with the recession.
Broach's lender promptly processed her paperwork and modified her loan. However, her new monthly payment is only $40 lower than her old payment, not enough to help her.
Because condo values in her complex have fallen, Broach can't sell and break even, so she is a considering a short sale or deed-in-lieu-of-foreclosure deal with her lender. A deed in lieu requires a borrower to give back a house to the lender. In exchange, homeowners take a slightly smaller hit to their credit than they would with a foreclosure.
"What bothers me most is that I didn't mess up and could not have seen this coming," Broach said. "I have worked full-time since I was 19. I bought a small condo, which no one would consider lavish. I have had great credit and paid my own bills my entire adult life. However, I'm still stuck in this position."
Rick Scott
Rick Scott asked his lender for help in October, before he fell behind on his mortgage payments. His annual income had dropped by $30,000. His roommate girlfriend was out of work.
Scott was trying to be proactive. He still had a job at Boeing, earning $50,000. But before the housing crash, he had also worked part-time as a loan officer. When that extra income stopped, he saw trouble ahead.
But the lender said he didn't qualify for help. He later fell behind on his $2,000 monthly mortgage payment and feared a foreclosure notice would come any day on his Mesa home.
When President Barack Obama announced the new loan-modification program in March, Scott immediately checked the details and found he was eligible. He faxed information on his income and bills to his lender, which told him he would have an answer in 30 to 60 days. By then, his savings were exhausted.
The foreclosure notice came several weeks later. He called his lender. The foreclosure was postponed for a month while his application for a loan modification was considered.
"So then I thought, OK, this is going to work, despite all the confusion," Scott said. "We are going to keep our home, and get a payment that's not more than 31 percent of my income like the program calls for."
Next, Scott received a Fed Ex package from his lender. Inside was a contract he was to sign that required him to pay half his current monthly payment for six months to show he could afford that amount.
"I happily signed the contract and sent them a check," he said. "A week letter, I received another Fed Ex with a letter saying congratulations, my loan modification is complete. Except the new contract called for me to pay $150 more than I was paying for my original mortgage payment. My payment went up."
Scott has an adjustable-rate mortgage. His lender proposed a fixed-rate mortgage, but at a higher rate, and would not lower the principal amount, so the monthly payment went up.
Scott asked again about a modification that would lower his payment. The lender said he could reapply, but consideration would take 90 days, and it might foreclose before that.
"I asked to speak to a supervisor with my lender's loan-modification department," Scott said. "I was put on hold and then disconnected."
Scott isn't sure whether he's going to apply for another loan modification.
Five months into the $75 billion federal program meant to toss a lifeline to homeowners facing foreclosure, most people in need of help are still floundering.
Overall, about 15 percent of borrowers across the country who are eligible for the program have been offered help from their lender, according to a recent U.S. Treasury Department report. Of those homeowners, 9 percent have participated in a trial loan modification. President Barack Obama's administration is calling for lenders to ramp up their efforts and help 500,000 more homeowners by November.
For homeowners facing foreclosure, the loan-modification process is slow, time-consuming and exhausting. Homeowners fall further behind as lenders, who say they are training more workers to handle the flood of requests, keep them waiting. Even when a loan modification is approved, some people discover the results are disappointing.
Thousands of Valley homeowners have experienced tough going with the program.
Cheryl Edgemon
Cheryl Edgemon was laid off from her longtime position as a legal secretary in April 2008. The 66-year-old has been looking for a new job ever since.
Savings, Social Security and unemployment benefits allowed her to scrape by at first. But in April, after a year of being unemployed, her savings were gone and she fell behind on the mortgage for her Glendale home.
Edgemon has contacted her lender multiple times, asking for a loan modification. Because she has income from her monthly Social Security check, she was told that she qualifies for a loan modification under the Obama plan.
"At first, they wanted me to be three months behind before I applied for loan modification," Edgemon said. "I can't understand why they would want me to ruin my credit first. I have worked hard to have good credit."
When she did fall behind, her lender offered to let her skip a few months and then make a balloon payment.
"How did they think I could afford a balloon payment? I just wanted them to extend the terms on my loan, drop my interest rate, something to help me keep the house," she said. "I will pay, but my Social Security is $1,244 and my unemployment is about to run out. I am trying to find a job, but it doesn't help to spend so much time trying to save my home."
She contacted housing groups and her congressman, asking for help. But her pleas for help weren't enough.
Edgemon's home was sold in a short sale a few weeks ago. She is now renting a house in her neighborhood for $500 less then her old monthly mortgage payment.
"It was going to be my retirement home," she said. "Not only did I not receive help, the people who I talked to at my lender were nasty and made the process harder than it had to be."
Kasey Broach
Kasey Broach applied for a loan modification right after the new plan was announced. She sent her lender documentation on her income and expenses, including a student-loan statement and bill for the homeowners-association fees on her Phoenix condominium.
Broach, a public-relations specialist for a Valley law firm, was required to show receipts on everything from groceries to doctor bills. Her lender also required her to meet with a loan counselor. The counselor recommended her for a loan modification.
Broach bought her condominium in 2006, at the peak of the Valley's real-estate market, right before she was about to start an MBA program.
She had a roommate who helped with the bills. But her roommate moved to New York last year, and Broach hasn't found another. Payments on her student loans started this year.
"When I purchased my home, part of the deal was that I didn't have to pay HOA fees until 2009," Broach said. "The condo is in a great location. I thought I would be able to easily sell it in two years, allowing me to pay off my student loans and never have to pay HOA fees."
Her HOA fees are $150 a month. Her student-loan bill is $250 a month. Overtime at her job used to supplement her monthly income, but that stopped with the recession.
Broach's lender promptly processed her paperwork and modified her loan. However, her new monthly payment is only $40 lower than her old payment, not enough to help her.
Because condo values in her complex have fallen, Broach can't sell and break even, so she is a considering a short sale or deed-in-lieu-of-foreclosure deal with her lender. A deed in lieu requires a borrower to give back a house to the lender. In exchange, homeowners take a slightly smaller hit to their credit than they would with a foreclosure.
"What bothers me most is that I didn't mess up and could not have seen this coming," Broach said. "I have worked full-time since I was 19. I bought a small condo, which no one would consider lavish. I have had great credit and paid my own bills my entire adult life. However, I'm still stuck in this position."
Rick Scott
Rick Scott asked his lender for help in October, before he fell behind on his mortgage payments. His annual income had dropped by $30,000. His roommate girlfriend was out of work.
Scott was trying to be proactive. He still had a job at Boeing, earning $50,000. But before the housing crash, he had also worked part-time as a loan officer. When that extra income stopped, he saw trouble ahead.
But the lender said he didn't qualify for help. He later fell behind on his $2,000 monthly mortgage payment and feared a foreclosure notice would come any day on his Mesa home.
When President Barack Obama announced the new loan-modification program in March, Scott immediately checked the details and found he was eligible. He faxed information on his income and bills to his lender, which told him he would have an answer in 30 to 60 days. By then, his savings were exhausted.
The foreclosure notice came several weeks later. He called his lender. The foreclosure was postponed for a month while his application for a loan modification was considered.
"So then I thought, OK, this is going to work, despite all the confusion," Scott said. "We are going to keep our home, and get a payment that's not more than 31 percent of my income like the program calls for."
Next, Scott received a Fed Ex package from his lender. Inside was a contract he was to sign that required him to pay half his current monthly payment for six months to show he could afford that amount.
"I happily signed the contract and sent them a check," he said. "A week letter, I received another Fed Ex with a letter saying congratulations, my loan modification is complete. Except the new contract called for me to pay $150 more than I was paying for my original mortgage payment. My payment went up."
Scott has an adjustable-rate mortgage. His lender proposed a fixed-rate mortgage, but at a higher rate, and would not lower the principal amount, so the monthly payment went up.
Scott asked again about a modification that would lower his payment. The lender said he could reapply, but consideration would take 90 days, and it might foreclose before that.
"I asked to speak to a supervisor with my lender's loan-modification department," Scott said. "I was put on hold and then disconnected."
Scott isn't sure whether he's going to apply for another loan modification.
Friday, August 7, 2009
New-home sales in U.S. climbed 11 percent in June
WASHINGTON - New-home sales in June posted the fastest increase in more than eight years as buyers took advantage of bargain prices, low interest rates and a federal tax credit for first-time homeowners.
While home prices are still falling, the figures released Monday were another sign the housing market is finally bouncing back.
Earlier this month, the government reported that new-home construction rose to the highest level since last fall. And data out last week showed home resales rose almost 4 percent in June, the third straight monthly increase.
"The worst of the housing recession ... is now behind us," said David Resler, chief economist at Nomura Securities. "We're turning the corner toward increased activity in housing."
New-home sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000, the Commerce Department reported Monday.
Shares of big home builders soared on the news, with Beazer Homes USA up by more than 13 percent and Hovnanian Enterprises rising 8 percent in afternoon trading. But with home prices still falling, these companies won't be making much money anytime soon.
The median sales price of $206,200 was down 12 percent from $234,300 a year earlier and off nearly 6 percent from $219,000 in May.
In addition to lower prices, buyers are rushing to take advantage of a federal tax credit that covers 10 percent of the home price or up to $8,000 for first-time buyers. Home sales need to be completed by the end of November for buyers to take advantage.
"The window of opportunity is closing," said Bernard Markstein, senior economist for the National Association of Home Builders.
June's results were the strongest sales pace since November 2008 and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units. The last time sales rose so dramatically was in December 2000.
There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply - the lowest level since October 2007. If that number falls to just over 6 months, analysts say, builders will feel more comfortable ramping up construction.
Fallout from the housing crisis has played a central role in the U.S. recession, now the longest since World War II. Foreclosures have spiked, home builders have slashed construction and financial companies have lost billions.
Construction levels are still weak because builders still have too many unsold homes sitting vacant.
Thursday, June 25, 2009
Foreclosures fuel home stripping by ex-owners
The Arizona Republic - June 2009
When Surprise police arrested a man for stripping his foreclosed home of a dishwasher, oven and air-conditioning units last week, officials highlighted a rash of problems that have gone largely unsolved across the Valley.
Despite hundreds, perhaps even thousands, of similar offenses in the Phoenix area, authorities believe the Tuesday arrest of Roberto Garcia, who was arrested on charges of criminal damage and defrauding a secured creditor, is part of only a handful of its kind in the Valley since the start of the housing crisis.
Police, neighbors and task-force officers have reported finding homes in the process of foreclosure without toilets, bathtubs and even spiral staircases.
Investigators often find that in many cases homeowners are responsible for stripping and devaluing the homes.
Often, those who have stripped their foreclosed homes sell the removed fixtures on Craigslist or more recently, in garage sales.
"Stripping out your home is a new phenomenon. Somebody had to sit down and ask what the way for agencies to do this is. It's a lot of legwork," said Dan Hughes, Surprise police chief.
The difficulty comes in finding probable cause to make an arrest when ownership of the home is in limbo and officials can't determine whether a bank, mortgage company or person is the proprietor, said Julie Halferty, who supervises Arizona's FBI Mortgage Fraud Task Force.
To arrest someone they believe has stripped their home of fixtures, police need to identify the person or organization victimized in order to submit charges to a county attorney.
Though police and federal agents maintain that neighbors are victimized by eventual drops in property value, there is no victim unless a bank or mortgage company has officially taken ownership of the property.
Neighbors living near the stripped homes and frustrated that their neighborhoods are devalued often feel they are the unwitting victims.
"What can people like me do?" Phoenix resident Stacey Huscher said.
Huscher said she has desperately attempted to inform authorities that another homeowner in her northeast Phoenix neighborhood has stripped his foreclosed house of fixtures.
"It seems crazy to me that people can be arrested for speeding violations but a person is free to ruin a whole neighborhood," Huscher said.
The cases are further complicated because authorities must be able to prove it was the homeowner who stripped their former home of valuables, said Officer Luis Samudio, a Phoenix police spokesman.
"You have to catch them with their hands in a cookie jar in a sense," Samudio said.
So Surprise police got a head start in February when resident Lou Provenzano e-mailed City Manager Randy Oliver to tell him that one of the block- watch members in his neighborhood had been shocked by Garcia's actions.
Someone who lived near Garcia's home in the 11900 block of North 143rd Avenue in Surprise said he had been startled by pounding noises coming from the foreclosed home late at night.
The neighbor said he watched as Garcia removed fixtures from the garage and items such as air compressors on the side of the home went missing, Provenzano said.
Because most police agencies in the Valley don't have policies and specific training on foreclosure crimes, which have spiked in the past year, Surprise detectives spent weeks tracking down the current owner of Garcia's former residence before submitting the case to the Maricopa County Attorney's Office.
They recommended he be charged with criminal damage and defrauding a secured creditor, both felony offenses.
The Surprise case was the second that county attorneys agreed to prosecute, said Michael Scerbo, spokesman for the Attorney's Office.
Once the two offenders - Garcia and Valley real-estate agent Kailash Bhatt - go to trial, prosecutors will have to prove that the former homeowners knew what they were doing was illegal.
"In order to have a crime there has to be some intent," said Barnett Lotstein, a special assistant in the Maricopa County Attorney's Office.
"If someone in good faith (who) honestly didn't know takes a chandelier, then in most circumstances there would be questions about whether or not that person would be charged."
A jury is less likely to convict someone who wasn't aware what she was doing was a crime, Lotstein said.
Whatever the complications and red tape associated with home-stripping cases, arrests and convictions are the best way for law enforcement to show they take foreclosure crimes seriously and halt problems associated with them, said Halferty of the FBI.
"Everyone in Arizona is waiting for the housing market to go up, and when people are stripping their homes, I think it makes the rebound take longer," Halferty said.
Friday, March 27, 2009
Buyers flock to cheap foreclosed homes
A Glendale home that sold less than two years ago for $259,000 sold again three months ago for $113,000. A Phoenix home that fetched $190,000 two years ago just went for $45,900. A Queen Creek home sold for nearly $275,000 when it was built in 2005. Last month's price: $78,000.
If there's an upside to the Valley's growing foreclosure problem, it's the number of home bargains now available.
Lenders saddled by a growing portfolio of foreclosed properties are selling homes for prices not seen in metropolitan Phoenix for a decade.
Almost half of all Valley home sales last year were foreclosed homes resold by lenders, according to an analysis of sales data by The Arizona Republic.
Investors, first-time buyers, retirees and people moving up to bigger homes are all taking advantage. Deals can be found on nearly new homes on the Valley's fringes, fixer-uppers in historic neighborhoods in central Phoenix, new and old condominiums from Mesa to Glendale, and even luxury homes in Scottsdale.
There are some potential pitfalls to buying foreclosure homes: bidding wars, repair costs, financing and the risk that home prices will continue to fall. But foreclosures do offer an opportunity to buy Valley homes at prices unthinkable just a few years ago.
"There's a lot of properties to choose from, particularly in the $100,000 range," Zeitzer said.
Finding deals
Nearly half of Valley homes for sale are properties that lenders have taken back or that are about to go into foreclosure, according to the Cromford Report, which analyzes area real-estate data. Market watchers expect that number to increase in the next few months as the foreclosure moratoriums put in place by big lenders begin to expire.
Prospective buyers can find foreclosed properties on most Internet sites that list houses for sale and by contacting real-estate agents.
Before buying a foreclosed home, check out the neighborhood. Are there other foreclosures that might threaten your hoped-for resale price? Are there rentals that might drive down your rental income? Are there empty homes for sale that soon might become foreclosures themselves?
"Look at other homes in the area, particularly on the same block," said Julie Bieganski, a real estate agent with 1st USA Realty. "Check out the schools, the shopping and the roads." In January, she and her husband paid $63,000 for a foreclosed home in Phoenix that they plan to sell or rent. More than $261,000 was owed on the home when it was foreclosed on last fall.
"Try to buy the ugliest home on the block," she said.
The most popular segment of the foreclosure market now is homes priced below $100,000. Many of the best deals can be found in the West Valley, south Phoenix and Pinal County, the areas hurt most by the housing-market downturn.
"You are going to find the real deals on the homes with the most (physical) damage in the neighborhoods with the highest foreclosure rates," said Realty Executives agent Brett Barry, who says 70 percent of his business now is listing foreclosures. "Those are the homes that draw the multiple offers."
He said lenders don't want to spend more than $15,000 to $20,000 to fix up a foreclosed home for a sale. So if a home has extensive damage, the price is discounted more. Some foreclosed homes have been stripped of appliances, light fixtures, tile and even toilets by former residents.
Bob Ortega bought a foreclosed home in Queen Creek for $90,000 late last year. Similar homes in the area that aren't in foreclosure were listed for more than $150,000. But he had to buy a new stove, refrigerator, washer and dryer and then repaint and carpet the house.
"The last owners must have been mad because they did some real damage," he said. "It was a big headache, but I think I ended up with a deal."
Unfortunately, he is seeing other foreclosed homes in his neighborhood now selling for $10,000 to $20,000 less than he paid.
Buying
There are two ways to buy a foreclosed home now: directly from a lender by working with a real-estate agent or at an auction.
When working with an agent, it helps to find someone who knows how to negotiate with lenders. Most lenders have downsized their staff and may not respond quickly to offers on foreclosed homes.
In January, Brady Switzer bought a 2,290-square-foot foreclosure home in Litchfield Park.
"The asking price was $229,000, but we haggled with them and got it for $190,000," he said. "The lender was fairly easy to deal with."
To sell foreclosed homes quickly, lenders have been hiring big auction firms.
George Bein has bought three Valley foreclosed homes at auction. One he bought for less than what he had offered the lender a month earlier.
"Wait for the auctions if you can," he said. "The deals are better. But it's extremely important to inspect the properties and know your top bid and stop there."
Typically, photographs, addresses, information on the size of the homes and opening bids are available on the auction firm's Web site. Most auction firms also hold open houses on foreclosed properties, but the viewings are limited. Buyers can get their own appraisals on foreclosed homes and use those to negotiate with lenders.
"Due to the increase interest in foreclosures, lenders are now being flooded with offers," Zeitzer said.
She advises buyers to keep their offers simple, without too many demands or contingencies.
Financing
A foreclosure sale can close more quickly when the buyer has financing lined up before making an offer.
More buyers are paying with cash now because the mortgage industry, battered by loan defaults, is making financing tougher to obtain, especially for people who don't plan to live in the home. Some lenders will discount foreclosure prices even more for cash deals. More than 30 percent of all Valley homes sales in January were paid for with cash, compared with 19 percent in January 2008.
Financing is available to buy foreclosed homes, particularly for buyers who are going to live in them.
Jay Luber, president of Phoenix-based Galaxy Lending, said borrowers with good credit can usually take out a conventional loan with a 5 percent down payment.
For buyers who plan to live in the home, the Federal Housing Administration offers mortgages that require a 3.5 percent down payment. This program has a sales price limit of $346,000 in Arizona.
Both of those loans require the house to be in decent shape, and the loans don't usually come with money for renovations.
There is a loan that will finance fixing up a foreclosure home: the FHA 203K streamline loan.
"Homeowners can take the purchase price of a foreclosure home and add the home's rehab cost to come up with an adjusted sales price," said Reg Gustin of Mesa-based Sun American Mortgage. "Buyers can finance the adjusted amount through FHA if the property appraises for that much."
These loans require the buyer to keep the home for 90 days.
Other financing help for foreclosure home buyers is coming soon from the federal government. A portion of the $121 million coming to Arizona next month from the federal Neighborhood Stabilization program includes money to help people buy foreclosed homes. Specifics on the program vary by city. More information will be available soon on the Arizona Department of Housing's Web site.
The city of Phoenix plans to use a portion of its neighborhood funds to give qualifying buyers $15,000 to cover the down payment or closing cost on a foreclosed home.
Who's buying
Many investors bought Valley foreclosed homes during the past year, and more investors are jumping into the market as prices continue to fall.
Hossien Safaie of Keller Williams Arizona Realty said he works to find foreclosed homes for clients that can be fixed up in four weeks and then resold quickly before being undercut in price by new foreclosures.
"The last foreclosure home I worked with a client to buy and fix up was in north Phoenix," he said. "It resold in a day for a $60,000 profit. The day we bought the foreclosure house, we had contractors ready and started marketing it for resale."
Some market watchers are concerned about too many investors buying foreclosed homes.
"It's great that foreclosure homes are selling and investors are interested," said Margie O'Campo de Castillo of Arizona Dream Realty. "But too many investors got us into the current mess."
For first-time buyers, the foreclosures are a blessing of sorts.
O'Campo recently worked with a young family who bought their first home in El Mirage for $86,900. The house sold for more than twice that much when it was built a few years ago.
"Valley foreclosures are one family's tragedy and another family's opportunity now," O'Campo said.
Market overview
Foreclosure-resale deals aren't likely to go away anytime soon, and in some areas the deals are getting even better.
Only about half of the 50,000 Valley homes to go into foreclosure during the past year have resold.
Tom Ruff, an analyst with the real-estate research firm Information Market, recently looked at buying a small home in Phoenix.
The property sold for $232,000 in March 2005. The lender foreclosed on the home in early February and turned around and listed it for $45,900.
"The bungalow sold within hours, and there were multiple cash offers on the property." Ruff said.
Last month, foreclosure sales climbed to account for almost 70 percent of all Valley resales, a figure that may alarm fretful homeowners. But the figure also suggests better things ahead.
"Homeowners with foreclosures in their neighborhood might not like what these sales with low prices do to their values, but these homes must be resold and fixed up for the market to come back," said Arizona housing analyst RL Brown. "The good news is that the foreclosure homes are selling."
Builders: E.V. new home sales picking up
Tribune - March 2009
Growing interest from buyers, reduced inventory and a slight uptick in construction has homebuilders with communities across the south East Valley cautiously optimistic about 2009.
Homebuilders are in the middle of what is traditionally the busiest time of the year for new home sales. However, continued anxiety over the economy, as well as stiff competition from foreclosure homes, is keeping new home sales to a minimum.
However, homebuilders say slow progress is being made in the new home market.
"We are pleased with an apparent increase in consumer demand and interest, but it is premature to count on a few recent months' numbers for any long-range conclusions about the local market conditions," said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb, which has 18 communities in the East Valley.
Last week, housing analyst RL Brown reported the Valley's new home market appears headed for recovery at a much faster pace than the existing home market. Prices have stabilized and the new home market is no longer plagued by oversupply unlike the existing home market, he said.
The new home market will slowly improve as 2009 progresses, but it's still going to be a tough year for builders, said Steve Hilton, chairman and CEO of Meritage Homes, which recently opened a new community in Queen Creek.
"We need to have a healthy resale market before we can have a healthy new home market because most people have to sell a home before they can buy one," he said. "There's so many foreclosures out there, so many (existing homes) for sale that we're competing against more than we are competing with other builders. We need that inventory to clear in the resale market in order for the new home market to be healthy again."
THE MYTH OF INVENTORY
Contrary to popular belief, homebuilders don't have a big inventory of new homes just waiting for buyers, Hilton said. Throughout the market downturn, Meritage's communities have only included a handful of vacant homes, he said.
"At least the public builders that I know of ... they have a lot of land, they have a lot of lots, but they don't have a lot of standing homes on the ground," he said. "There's certainly a lot of resale homes and foreclosure homes for sale, and a lot of those are empty and available."
Ken Peterson, vice president of Shea Homes, said the company started the year with an inventory of 94 homes and that has since dropped to 28 homes. It has communities in Gilbert and Queen Creek.
"We do not build speculative homes or inventory homes," he said. "The inventory resulted because people canceled on their homes. I talked to many of the builders across the Valley and the fourth quarter of 2008 was one of the worst quarters for cancellations that we have seen. That was really scary to see people just walk away from a home that they wanted us to build."
Meritage has been attracting buyers by aggressively lowering its prices and redesigning its product to compete with the foreclosure market, Hilton said.
"Most of the homes that are being sold today in Maricopa County are foreclosures," he said. "If we want to survive and compete as a new-home builder, we've got to be able to match those prices and in many cases we have."
Out in Maricopa, buyers can get into a new Meritage home for a monthly mortgage payment of $700, including principal, interest, taxes, insurance and homeowners association fees, Hilton said.
"We're selling homes," he said. "We do have traffic in our communities, but I'd also say it's at record low levels."
OUT OF THE GROUND
New home construction permits plummeted starting last fall and remain at an all-time low, according the Phoenix Housing Market Letter. There are signs, however, that permit activity will be increasing in the coming months.
Standard Pacific Homes recently sold seven homes at its Vincenz community in Gilbert, and not at reduced prices, said Cathy French, vice president of sales and marketing. The message is getting out that the new home market seems to have hit bottom and "you don't know where the bottom is until prices start going up and then it's too late," she said.
"We did real well in the East Valley last month," she said. "In four communities we have about seven total (unsold homes) left, which is not very many."
With inventory down, Standard Pacific will be ramping up construction early next month, French said.
"In the East Valley ... I anticipate about 20 to 25 homes under construction in the Gilbert area and Queen Creek," she said. "We didn't start many homes in January or February, but now we have seen more people coming out. Plus, there's a lot of people moving here from out of state and I'm very happy about that because they can't find speculative homes to suit them, so they're doing new builds."
Also, numerous winter visitors from Canada are in the market for new homes, French said.
Shea started construction on 14 homes this month and will have another 20-plus homes under construction in the near future, Peterson said.
"We had very few homes under construction," he said. "We now have homes under construction in Seville in Gilbert, at Old Stone Ranch in Chandler, and then out in Cabrillo Canyon (in Pinal County)."
Meritage has homes under construction, but it remains minimal as fear continues to grip consumers, Hilton said.
"We need to get people to feel confident that they're going to be able to keep their jobs and that they're going to get a loan," he said. "There's 40,000 homes that need to be (built) every year in Phoenix just to provide housing for the births over deaths."
Pulte and Del Webb continue to sell homes and build homes, Petroulakis said.
"Consumer confidence is an issue that has affected the housing industry and many others," she said. "We have been doing all we can to provide incentives for consumers to take advantage of the great home prices that exist right now. We've had several sales events and traffic generators at our ... communities in recent months and weeks, and we've been very pleased with the large amount of traffic."
Growing interest from buyers, reduced inventory and a slight uptick in construction has homebuilders with communities across the south East Valley cautiously optimistic about 2009.
Homebuilders are in the middle of what is traditionally the busiest time of the year for new home sales. However, continued anxiety over the economy, as well as stiff competition from foreclosure homes, is keeping new home sales to a minimum.
However, homebuilders say slow progress is being made in the new home market.
"We are pleased with an apparent increase in consumer demand and interest, but it is premature to count on a few recent months' numbers for any long-range conclusions about the local market conditions," said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb, which has 18 communities in the East Valley.
Last week, housing analyst RL Brown reported the Valley's new home market appears headed for recovery at a much faster pace than the existing home market. Prices have stabilized and the new home market is no longer plagued by oversupply unlike the existing home market, he said.
The new home market will slowly improve as 2009 progresses, but it's still going to be a tough year for builders, said Steve Hilton, chairman and CEO of Meritage Homes, which recently opened a new community in Queen Creek.
"We need to have a healthy resale market before we can have a healthy new home market because most people have to sell a home before they can buy one," he said. "There's so many foreclosures out there, so many (existing homes) for sale that we're competing against more than we are competing with other builders. We need that inventory to clear in the resale market in order for the new home market to be healthy again."
THE MYTH OF INVENTORY
Contrary to popular belief, homebuilders don't have a big inventory of new homes just waiting for buyers, Hilton said. Throughout the market downturn, Meritage's communities have only included a handful of vacant homes, he said.
"At least the public builders that I know of ... they have a lot of land, they have a lot of lots, but they don't have a lot of standing homes on the ground," he said. "There's certainly a lot of resale homes and foreclosure homes for sale, and a lot of those are empty and available."
Ken Peterson, vice president of Shea Homes, said the company started the year with an inventory of 94 homes and that has since dropped to 28 homes. It has communities in Gilbert and Queen Creek.
"We do not build speculative homes or inventory homes," he said. "The inventory resulted because people canceled on their homes. I talked to many of the builders across the Valley and the fourth quarter of 2008 was one of the worst quarters for cancellations that we have seen. That was really scary to see people just walk away from a home that they wanted us to build."
Meritage has been attracting buyers by aggressively lowering its prices and redesigning its product to compete with the foreclosure market, Hilton said.
"Most of the homes that are being sold today in Maricopa County are foreclosures," he said. "If we want to survive and compete as a new-home builder, we've got to be able to match those prices and in many cases we have."
Out in Maricopa, buyers can get into a new Meritage home for a monthly mortgage payment of $700, including principal, interest, taxes, insurance and homeowners association fees, Hilton said.
"We're selling homes," he said. "We do have traffic in our communities, but I'd also say it's at record low levels."
OUT OF THE GROUND
New home construction permits plummeted starting last fall and remain at an all-time low, according the Phoenix Housing Market Letter. There are signs, however, that permit activity will be increasing in the coming months.
Standard Pacific Homes recently sold seven homes at its Vincenz community in Gilbert, and not at reduced prices, said Cathy French, vice president of sales and marketing. The message is getting out that the new home market seems to have hit bottom and "you don't know where the bottom is until prices start going up and then it's too late," she said.
"We did real well in the East Valley last month," she said. "In four communities we have about seven total (unsold homes) left, which is not very many."
With inventory down, Standard Pacific will be ramping up construction early next month, French said.
"In the East Valley ... I anticipate about 20 to 25 homes under construction in the Gilbert area and Queen Creek," she said. "We didn't start many homes in January or February, but now we have seen more people coming out. Plus, there's a lot of people moving here from out of state and I'm very happy about that because they can't find speculative homes to suit them, so they're doing new builds."
Also, numerous winter visitors from Canada are in the market for new homes, French said.
Shea started construction on 14 homes this month and will have another 20-plus homes under construction in the near future, Peterson said.
"We had very few homes under construction," he said. "We now have homes under construction in Seville in Gilbert, at Old Stone Ranch in Chandler, and then out in Cabrillo Canyon (in Pinal County)."
Meritage has homes under construction, but it remains minimal as fear continues to grip consumers, Hilton said.
"We need to get people to feel confident that they're going to be able to keep their jobs and that they're going to get a loan," he said. "There's 40,000 homes that need to be (built) every year in Phoenix just to provide housing for the births over deaths."
Pulte and Del Webb continue to sell homes and build homes, Petroulakis said.
"Consumer confidence is an issue that has affected the housing industry and many others," she said. "We have been doing all we can to provide incentives for consumers to take advantage of the great home prices that exist right now. We've had several sales events and traffic generators at our ... communities in recent months and weeks, and we've been very pleased with the large amount of traffic."
Saturday, January 3, 2009
9 Housing-Market Head Winds for 2009
US News - January 2009
Here's a look at the factors that will be weighing down the housing market in 2009:
With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year's Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. "A lasting recovery in the housing market?" says Mike Larson, a real estate analyst at Weiss Research. "I don't see it in the cards1. Recession: After months of speculation, the National Bureau of Economic Research made it official Monday, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a November 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. "We now estimate that real GDP is falling at a 5 percent annual rate in the current quarter, and we expect this to be followed by declines of 3 percent and 1 percent in the next two quarters," the economists said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then)." The recession will exert downward pressure on the housing market in a number of ways.
2. Higher Unemployment: The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing—it now stands at 6.5 percent—but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate to hit 9 percent by the end of 2009. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned," the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. "A job is necessary for a home," says Mark Zandi, chief economist at Moody's Economy.com. "Without [a job] you can't get [a home]."
3. Consumer Confidence: If consumers are worried about the state of the economy and their jobs, they are much less likely to make the biggest financial investment of their lives: buying a house. With a leading survey showing that consumer confidence in the United States dropped to 28-year lows in November, downward pressure on this front will be working against the housing market as well. "You generally don't buy a home unless you feel pretty good about your economic situation," Zandi says. "No one feels good [today]."
4. The Underwater Effect: A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics.
5. Tighter Credit: As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70 percent of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing.
6. Slowing Household Formation: At the same time, the pace of new household formation is slowing, which further chips away at housing demand. Richard Moody, chief economist at Mission Residential, says the development is linked to three factors: More singles are moving in with each other, young adults are returning to live with their parents, and fewer immigrants are entering the country. "For those three reasons, you are seeing a slowdown in the rate of household formation," Moody says. "And to the extent that the economy and the labor market remain weak this year—which I think they will—then that's going to continue."
7. Radioactive Effect: Despite lower real estate prices and cheaper mortgage rates, the pain inflicted by the housing bust will frighten many would-be buyers away from the market next year, Larson says. "Enough of your 'average Joes' have been burned very badly and will be burned by the time this is all over that investment money is not going to flood back into the market," Larson says. "Any recovery—in my opinion—will be gradual and is going to take time."
8. Foreclosure Sales: A huge problem for the housing market in 2008, foreclosure sales will continue weighing down the market next year. "There was a surge this year," Zandi says. "But next year [there] will be even more." While that will give buyers an opportunity to go bargain hunting, it's bad news for sellers. "It puts more homes out there for sale at a very deep discount," Zandi adds.
9. Subprime Mortgages: While resetting subprime mortgages may not be a leading factor behind the decline in home prices—as they were this year—such products will again be working against the housing market in 2009, Thornberg says. "There are still lots of subprime mortgages out there that are going to reset not just in 2009, but 2010 and 2011," he says. "And so that's going to be a consistent problem for a while, although it is probably reduced in magnitude [from 2008]." until the back end of the year—if that."
Here's a look at the factors that will be weighing down the housing market in 2009:
With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year's Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. "A lasting recovery in the housing market?" says Mike Larson, a real estate analyst at Weiss Research. "I don't see it in the cards1. Recession: After months of speculation, the National Bureau of Economic Research made it official Monday, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a November 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. "We now estimate that real GDP is falling at a 5 percent annual rate in the current quarter, and we expect this to be followed by declines of 3 percent and 1 percent in the next two quarters," the economists said. "This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then)." The recession will exert downward pressure on the housing market in a number of ways.
2. Higher Unemployment: The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing—it now stands at 6.5 percent—but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate to hit 9 percent by the end of 2009. "This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned," the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. "A job is necessary for a home," says Mark Zandi, chief economist at Moody's Economy.com. "Without [a job] you can't get [a home]."
3. Consumer Confidence: If consumers are worried about the state of the economy and their jobs, they are much less likely to make the biggest financial investment of their lives: buying a house. With a leading survey showing that consumer confidence in the United States dropped to 28-year lows in November, downward pressure on this front will be working against the housing market as well. "You generally don't buy a home unless you feel pretty good about your economic situation," Zandi says. "No one feels good [today]."
4. The Underwater Effect: A recent Zillow report found that 1 in 7 American homeowners has negative equity—owing more on a home than it is worth. (For those who bought a home in the past five years, it's nearly 1 in 3.) Many homeowners in this situation will choose to simply walk away from their homes rather than continue to pay off a devaluing investment. And with home prices expected to fall further next year, the number of "underwater" mortgages will most likely increase. "The underwater phenomenon is going to be very bad in 2009," says Christopher Thornberg of Beacon Economics.
5. Tighter Credit: As banks face higher loan delinquencies, they've responded by jacking up their lending standards for even well-qualified borrowers. The Federal Reserve's most recent Senior Loan Officer Survey found that 70 percent of domestic banks had boosted their lending standards for prime mortgages. More stringent terms will prevent certain borrowers from obtaining mortgages, thereby limiting demand for housing.
6. Slowing Household Formation: At the same time, the pace of new household formation is slowing, which further chips away at housing demand. Richard Moody, chief economist at Mission Residential, says the development is linked to three factors: More singles are moving in with each other, young adults are returning to live with their parents, and fewer immigrants are entering the country. "For those three reasons, you are seeing a slowdown in the rate of household formation," Moody says. "And to the extent that the economy and the labor market remain weak this year—which I think they will—then that's going to continue."
7. Radioactive Effect: Despite lower real estate prices and cheaper mortgage rates, the pain inflicted by the housing bust will frighten many would-be buyers away from the market next year, Larson says. "Enough of your 'average Joes' have been burned very badly and will be burned by the time this is all over that investment money is not going to flood back into the market," Larson says. "Any recovery—in my opinion—will be gradual and is going to take time."
8. Foreclosure Sales: A huge problem for the housing market in 2008, foreclosure sales will continue weighing down the market next year. "There was a surge this year," Zandi says. "But next year [there] will be even more." While that will give buyers an opportunity to go bargain hunting, it's bad news for sellers. "It puts more homes out there for sale at a very deep discount," Zandi adds.
9. Subprime Mortgages: While resetting subprime mortgages may not be a leading factor behind the decline in home prices—as they were this year—such products will again be working against the housing market in 2009, Thornberg says. "There are still lots of subprime mortgages out there that are going to reset not just in 2009, but 2010 and 2011," he says. "And so that's going to be a consistent problem for a while, although it is probably reduced in magnitude [from 2008]." until the back end of the year—if that."
Tuesday, December 9, 2008
Low-rate mortgage plan generates hope - Valley would benefit, analysts say
The Arizona Republic - December 2008
Home builders and industry analysts say a proposal to offer federally subsidized mortgage rates as low as 4.5 percent could go a long way toward reviving the Valley's decimated housing market.
Mortgage rates have not been that low for more than a generation.
RL Brown, publisher of the Phoenix Housing Market Letter, said the projected low rates could bring in more buyers and help slow falling housing values. More stable values, in turn, could help slow rising foreclosures.
The lower rates would be available only for purchases, according to the proposal, which is under consideration by the Treasury Department. They could not be used to refinance higher-interest loans.
The mortgage-rate program could get prospective buyers off the fence by offering a rate almost 1.5 percentage points lower than the 5.92 percent that large lenders are offering for 30-year, fixed-rate mortgages, according to a Dec. 3 Bankrate.com survey.
Buyers would have to document income, be able to afford the payments and qualify for guarantees from Freddie Mac, Fannie Mae or the Federal Housing Administration.
Thus, the initiative would be geared toward boosting the housing market to stem future foreclosures rather than helping people whose homes now are in the process of being taken back by lenders.
Besides stimulating sales, Brown said, the low rates could send a message that there may never be a better time to buy.
"Right now, buyers are sitting on the sidelines waiting for prices to go even lower," Brown said
Stephanie Dunbar of Phoenix said she has been looking to buy a house to take advantage of the "incredibly low prices." Dunbar, a property manager, said she would jump at a 4.5 percent mortgage rate.
"I've been waiting for interest rates to fall," she said, adding that the lower rates would enable her to buy a better house.
Dunbar, who has been looking at mortgages in the $125,000 range, said that a 1 percentage-point decrease in the interest rate would reduce her monthly payments by about $100.
At a fixed-interest rate of 6 percent over 30 years, a $250,000 mortgage would cost $1,498.88 a month. At 4.5 percent, a $250,000 mortgage would have a $1,266.71 monthly payment.
Prospective buyers, paralyzed by the credit issues or the economy, as well as mounting foreclosures, are keeping Valley home prices in a free fall, which is further feeding the downward cycle.
Under the plan, the Treasury would offer to buy securities that finance newly issued loans for home purchases. But to sell the securities to the government, mortgage lenders would have to charge interest rates of no more than 4.5 percent.
Further intervention in the housing market appears likely as serious troubles persist.
Federal Reserve Chairman Ben Bernanke estimates that U.S. lenders could initiate 2.25 million foreclosure proceedings this year and that as many as 20 percent of mortgage-holders could be "underwater," meaning they owe more than their homes are worth.
In September, metro Phoenix led the nation in falling home prices, logging a 32 percent decline in a year and 38 percent over two years, according to the S&P/Case-Shiller Home Price Indices.
RealtyTrac, a service that follows foreclosure filings, counted 17,507 Arizona foreclosure notices in October, up 35 percent from the previous month and 176 percent from October 2007.
Jay Butler, director of realty studies at Arizona State University's Morrison School of Management and Agribusiness, believes lower interest rates could slow foreclosures. But he is worried that the stimulus could be offset by mounting job losses and worsening economic conditions.
Traditionally, he said, the primary reason for a home falling into foreclosure has been loss of employment by the owner.
"We're just starting to see than now," he said.
Many of the recent foreclosures have been the result of investors walking away from houses that have declined in value and homeowners getting in over their heads.
The plan to offer low-interest loans, would work through quasi-government mortgage giants Fannie Mae and Freddie Mac. Longtime Valley home builder Garth Wieger believes the program could help stem the persistent slide in home values and growing foreclosures that are the underpinning of the current financial crisis.
"It would certainly go a long way to bring in more people to take the inventory off the market," he said.
Brian Esquivel, a loan officer with Security Mortgage in Scottsdale, said 4.5 percent interest rates definitely would stimulate sales.
"It would move a lot of the Valley's inventory of unsold houses," he said. "Rates are low, prices are low and Arizona is a great place to live."
Meanwhile, government agencies continue to work on other plans to jump-start the nation's ailing housing industry.
• On Thursday, Bernanke suggested sweeping moves are needed to halt falling home prices, including a plan for the government to buy troubled mortgages and refinance them under more favorable terms.
• Last week, the Federal Reserve and Treasury Department announced a plan to cut mortgage rates by purchasing up to $600 billion in debt issued or backed by federal agencies. The announcement briefly helped push mortgage rates down almost a point to about 5.5 percent.
• A third plan, offered by Federal Deposit Insurance Corp. Chairman Sheila Bair would use $24 billion from the government's $700 billion financial-rescue fund to stave off 2 million foreclosures by modifying loans and providing government guarantees.
Valley foreclosures down
The Arizona Republic - December 2008
Valley foreclosures significantly fell in November, suggesting that lenders are finally working with borrowers to help them pay their loans and that the area's housing market may have hit bottom.
Last month, 3,826 Phoenix-area homes fell into foreclosure, according to the Information Market. That is down 17 percent from October.
Foreclosures are likely to fall again in December because notices of trustee sales, or pre-foreclosures, fell 23 percent in November, to 6,509.
In the past few months, several big lenders announced programs to work with more struggling borrowers. Fannie Mae and Freddie Mac halted foreclosures during the holidays and plan to begin lowering interest rates and payments on some loans.
Valley housing recovery on track
The Arizona Republic - December 2008
National real-estate analyst Tim Sullivan of the Sullivan Group put together a seven-point test to track a recovery of metropolitan Phoenix's housing market. Last December, the Valley passed only one of the measures.
Check out the area's current housing report card on Sullivan's seven criteria. The market is getting better marks.
• The number of resales on the market falls below a seven-month suply.
The Valley has 55,620 homes for sale, according to the Cromford Report's analysis of Arizona Regional Multiple Listing Service data. That's about a 12-month supply, which is better than the market's 14-month supply of homes for sale a year ago.
• Home sales need to stop slowing.
Resales are up from a year ago, according to realty studies at Arizona State University. Last month, 4,465 existing homes sold Valley-wide. That compares with 3,280 in November 2007.
• New-home permits must fall.
New-home permits dropped to 697 in October, their lowest level in more than 25 years, according to RL Brown's Phoenix Housing Market Letter.
• Mortgage-purchase applications increase.
Applications from home buyers did increase last week, according to the Mortgage Bankers Association of America.
• Thirty-year mortgage rates drop to 6 percent.
The average 30-year rate is down to almost 5.9 percent this week, according to Freddie Mac.
• Affordability must improve dramatically.
Valley home prices dropped 26 percent through August, according to data released Tuesday from ASU's Repeat Sales Index. The Valley's median has dropped to $175,000. That makes many Valley homeowners, including me, cringe. But it means a lot more first-time buyers can afford homes, which will help the market.
• At least one major home builder goes away.
Unfortunately, several builders have gone under.
Score: The Valley's housing market has six out of the seven indicators, a much better score than last year. Unfortunately, now the financial and credit markets must stabilize and the recession must end before the housing market recovers.
National real-estate analyst Tim Sullivan of the Sullivan Group put together a seven-point test to track a recovery of metropolitan Phoenix's housing market. Last December, the Valley passed only one of the measures.
Check out the area's current housing report card on Sullivan's seven criteria. The market is getting better marks.
• The number of resales on the market falls below a seven-month suply.
The Valley has 55,620 homes for sale, according to the Cromford Report's analysis of Arizona Regional Multiple Listing Service data. That's about a 12-month supply, which is better than the market's 14-month supply of homes for sale a year ago.
• Home sales need to stop slowing.
Resales are up from a year ago, according to realty studies at Arizona State University. Last month, 4,465 existing homes sold Valley-wide. That compares with 3,280 in November 2007.
• New-home permits must fall.
New-home permits dropped to 697 in October, their lowest level in more than 25 years, according to RL Brown's Phoenix Housing Market Letter.
• Mortgage-purchase applications increase.
Applications from home buyers did increase last week, according to the Mortgage Bankers Association of America.
• Thirty-year mortgage rates drop to 6 percent.
The average 30-year rate is down to almost 5.9 percent this week, according to Freddie Mac.
• Affordability must improve dramatically.
Valley home prices dropped 26 percent through August, according to data released Tuesday from ASU's Repeat Sales Index. The Valley's median has dropped to $175,000. That makes many Valley homeowners, including me, cringe. But it means a lot more first-time buyers can afford homes, which will help the market.
• At least one major home builder goes away.
Unfortunately, several builders have gone under.
Score: The Valley's housing market has six out of the seven indicators, a much better score than last year. Unfortunately, now the financial and credit markets must stabilize and the recession must end before the housing market recovers.
Thursday, November 27, 2008
Flipping homes profitable, but not risk free
Yahoo Finance - November 2008
If flipping a house in today's real estate market seems riskier than trekking with a ragtag band of hobbits to Mordor, take heart: Home flippers can still find plenty of opportunities, though they're not entirely without risk.
It may seem counterintuitive to invest in real estate when the housing market is in its darkest hour. But in fact, it may prove to be the most optimal time for such a venture. According to RealtyTrac, a seller of mortgage default data, the foreclosure rate is at its highest level in 50 years, rising to record numbers in the third quarter of 2008. Real estate investors are finding bargains everywhere, particularly in formerly hot housing markets such as Florida, Nevada and California.
Angie Hicks, founder of Angie's List, a compendium of consumer-service reviews, says a recent informal poll of list members found that of those who had purchased a home in foreclosure, 29 percent of respondents had done so within the last six months. Of those, 95 percent said their purchases were profitable.
"The key ... is doing your research and knowing what you're getting into," says Hicks. "Know the area you're buying, the market, how the price compares to the neighborhood."
The horizon is flush with opportunity for those with the money and know-how to snap up a bargain and flip it, but to make it pay you first must understand how the rules of the game have changed.
The new rules for flipping homes
1. Stick with familiar territory
2. Check your capital
3. Cut your costs creatively
4. Consider it a long-term investment
1. Stick with familiar territoryCharlotte, N.C., resident Emma Allen, CEO of Emma Allen Enterprises and an experienced flipper, says there's lots of inventory on the market.
"The prices that were recently so outrageous are down again, so those with capital or access to credit will find it's a very good time to pick up bargains in the marketplace," Allen says.
Allen finds those bargains mostly in neighborhoods where she would like to live. "Properties I've added lately are near our downtown area, with an urban feel to them," Allen says.
Areas undergoing urban renewal present good investment opportunities. Allen, who owns a home on a large, popular lake, also thinks waterfront is a win-win on a flip, but she echoes Hicks' caution. "If you're not terribly experienced, stick with what you know -- just like buying stocks," says Allen.
The dreary economy has resulted in increased inventory, but it has also affected financing. Allen and other veteran home flippers say the days of flipping on a thin wallet have officially ended.
2. Check your capitalIt seems elementary, but in the recent past many flippers found themselves in trouble because they had not correctly calculated the amount of money it takes to finish a flip and market it. Allen says investors should figure out how much money they'll need right up front, and not just the purchase price. It translates to being realistic about both renovation costs and the hidden expense that gets so many in trouble: carrying costs.
"You may have carrying costs on the books longer than you think. The days of the 60-day flip are gone," Allen says.
Carrying costs, or house payments you must make until you sell the property, can subtract thousands from the bottom line. And even though you are technically chipping away at the debt incurred when you purchased the property, the interest you're paying at the top of the flip probably won't be earned back in the sale. Those payments come right out of your potential profit.
What about financing in general? While it's certainly more difficult to obtain a bank loan, it still can be done. But having a stash of cash is still important. Veteran Southern California flipper and interior designer Nicole Sassaman advises would-be flippers looking for a loan to: "Be sure to have 25 percent down and 18 months of reserves in the bank."
If you can't come up with it any other way, consider putting together a consortium of investors -- either share the cost of the project or divide the responsibility by contributing the manpower while your investor brings cash to the table. But when partnering on such a deal, Sassaman cautions, remember that the process has changed.
"In the last 10 years, any dummy could make money in real estate. Now you must buy sharp, do a professional finish job on your product, (and) you must create something very special," Sassaman says. "You must have the staying power and the stomach to go with it all."
3. Cut your costs creativelyFlipping in an economy that's not terribly user-friendly takes guts and creativity. Home flipper and Internet entrepreneur Scott Patterson says he increases his chances for success by breaking as many rules as possible, including making aggressive "low-ball offers" on potential flips.
"(I) offered $80,000 on a house I would have offered $100,000 (on) a year earlier," Patterson says. His strategy worked and he sold the renovated home for a tidy $160,000 a few months later.
Patterson also hopes to cut the middleman by obtaining his real estate license, letting him pocket the commission he would normally pay to sell his flips. He actively seeks capital via Internet and e-mail lists, marrying projects to the right investors.
"The stock market tanking has more people thinking that real estate is looking good right now," Patterson says.
He also expands his chances of selling his flips by targeting VA and FHA homebuyers. "We are concentrating on the first-time buyers market (and) will offer to pay closing costs where possible," Patterson says. He plays up a home's VA or FHA eligibility when advertising.
But buying and selling aren't the only places where a flipper needs to become adventurous to succeed. It also helps to get creative with materials.
Think good secondhand appliances or new ones sold as scratch and dent models, refinishing old cabinets by painting them and changing out the hardware, purchasing leftovers from rolls of carpet, close-outs on tile and fixtures, clearance items and even recycled stuff. By cutting renovation costs, you can keep your asking price low and make your property attractive to more potential buyers.
4. Consider it a long-term investmentReal estate consultant and mortgage broker Todd Huettner of Huettner Capital says changing markets have forced his clients to alter their business practices. Huettner says that while a quick flip is possible, investors should be prepared to hold the property for several years as a rental.
"If they flip it at their price, then they made their short-term gain. If they can't sell it at their price, then they will have a good long-term flip investment and just sell it in a few years," he says.
Huettner says renting protects investors from losing properties they can't sell. "Some complain they tie up too much money if they hold a property, but I point out they will be much better off with money tied up with a return than losing money." In other words, a positive return is always better than a negative one.
Huettner concedes it's more difficult now to qualify for loans and the terms are not always as favorable to buyers, but that well-qualified investors can still make a profit if they meet three criteria: understand their risk tolerance, know their market and come prepared to hold a property long term if needed.
The journey from Point A to Point B may take more time, but in the long run, there's still profit to be made in flipping homes.
If flipping a house in today's real estate market seems riskier than trekking with a ragtag band of hobbits to Mordor, take heart: Home flippers can still find plenty of opportunities, though they're not entirely without risk.
It may seem counterintuitive to invest in real estate when the housing market is in its darkest hour. But in fact, it may prove to be the most optimal time for such a venture. According to RealtyTrac, a seller of mortgage default data, the foreclosure rate is at its highest level in 50 years, rising to record numbers in the third quarter of 2008. Real estate investors are finding bargains everywhere, particularly in formerly hot housing markets such as Florida, Nevada and California.
Angie Hicks, founder of Angie's List, a compendium of consumer-service reviews, says a recent informal poll of list members found that of those who had purchased a home in foreclosure, 29 percent of respondents had done so within the last six months. Of those, 95 percent said their purchases were profitable.
"The key ... is doing your research and knowing what you're getting into," says Hicks. "Know the area you're buying, the market, how the price compares to the neighborhood."
The horizon is flush with opportunity for those with the money and know-how to snap up a bargain and flip it, but to make it pay you first must understand how the rules of the game have changed.
The new rules for flipping homes
1. Stick with familiar territory
2. Check your capital
3. Cut your costs creatively
4. Consider it a long-term investment
1. Stick with familiar territoryCharlotte, N.C., resident Emma Allen, CEO of Emma Allen Enterprises and an experienced flipper, says there's lots of inventory on the market.
"The prices that were recently so outrageous are down again, so those with capital or access to credit will find it's a very good time to pick up bargains in the marketplace," Allen says.
Allen finds those bargains mostly in neighborhoods where she would like to live. "Properties I've added lately are near our downtown area, with an urban feel to them," Allen says.
Areas undergoing urban renewal present good investment opportunities. Allen, who owns a home on a large, popular lake, also thinks waterfront is a win-win on a flip, but she echoes Hicks' caution. "If you're not terribly experienced, stick with what you know -- just like buying stocks," says Allen.
The dreary economy has resulted in increased inventory, but it has also affected financing. Allen and other veteran home flippers say the days of flipping on a thin wallet have officially ended.
2. Check your capitalIt seems elementary, but in the recent past many flippers found themselves in trouble because they had not correctly calculated the amount of money it takes to finish a flip and market it. Allen says investors should figure out how much money they'll need right up front, and not just the purchase price. It translates to being realistic about both renovation costs and the hidden expense that gets so many in trouble: carrying costs.
"You may have carrying costs on the books longer than you think. The days of the 60-day flip are gone," Allen says.
Carrying costs, or house payments you must make until you sell the property, can subtract thousands from the bottom line. And even though you are technically chipping away at the debt incurred when you purchased the property, the interest you're paying at the top of the flip probably won't be earned back in the sale. Those payments come right out of your potential profit.
What about financing in general? While it's certainly more difficult to obtain a bank loan, it still can be done. But having a stash of cash is still important. Veteran Southern California flipper and interior designer Nicole Sassaman advises would-be flippers looking for a loan to: "Be sure to have 25 percent down and 18 months of reserves in the bank."
If you can't come up with it any other way, consider putting together a consortium of investors -- either share the cost of the project or divide the responsibility by contributing the manpower while your investor brings cash to the table. But when partnering on such a deal, Sassaman cautions, remember that the process has changed.
"In the last 10 years, any dummy could make money in real estate. Now you must buy sharp, do a professional finish job on your product, (and) you must create something very special," Sassaman says. "You must have the staying power and the stomach to go with it all."
3. Cut your costs creativelyFlipping in an economy that's not terribly user-friendly takes guts and creativity. Home flipper and Internet entrepreneur Scott Patterson says he increases his chances for success by breaking as many rules as possible, including making aggressive "low-ball offers" on potential flips.
"(I) offered $80,000 on a house I would have offered $100,000 (on) a year earlier," Patterson says. His strategy worked and he sold the renovated home for a tidy $160,000 a few months later.
Patterson also hopes to cut the middleman by obtaining his real estate license, letting him pocket the commission he would normally pay to sell his flips. He actively seeks capital via Internet and e-mail lists, marrying projects to the right investors.
"The stock market tanking has more people thinking that real estate is looking good right now," Patterson says.
He also expands his chances of selling his flips by targeting VA and FHA homebuyers. "We are concentrating on the first-time buyers market (and) will offer to pay closing costs where possible," Patterson says. He plays up a home's VA or FHA eligibility when advertising.
But buying and selling aren't the only places where a flipper needs to become adventurous to succeed. It also helps to get creative with materials.
Think good secondhand appliances or new ones sold as scratch and dent models, refinishing old cabinets by painting them and changing out the hardware, purchasing leftovers from rolls of carpet, close-outs on tile and fixtures, clearance items and even recycled stuff. By cutting renovation costs, you can keep your asking price low and make your property attractive to more potential buyers.
4. Consider it a long-term investmentReal estate consultant and mortgage broker Todd Huettner of Huettner Capital says changing markets have forced his clients to alter their business practices. Huettner says that while a quick flip is possible, investors should be prepared to hold the property for several years as a rental.
"If they flip it at their price, then they made their short-term gain. If they can't sell it at their price, then they will have a good long-term flip investment and just sell it in a few years," he says.
Huettner says renting protects investors from losing properties they can't sell. "Some complain they tie up too much money if they hold a property, but I point out they will be much better off with money tied up with a return than losing money." In other words, a positive return is always better than a negative one.
Huettner concedes it's more difficult now to qualify for loans and the terms are not always as favorable to buyers, but that well-qualified investors can still make a profit if they meet three criteria: understand their risk tolerance, know their market and come prepared to hold a property long term if needed.
The journey from Point A to Point B may take more time, but in the long run, there's still profit to be made in flipping homes.
Wednesday, October 29, 2008
Home values stay ahead of 2004 levels
The Arizona Republic - October 2008
Foreclosed homes are shredding the paper gains made during the market's run-up in recent years, but Southeast Valley cities are still ahead of 2004 levels.
Median home values fell from 2005 to 2008, but they're still greater than four years ago, according to data from Information Market and analyzed by The Arizona Republic.
"The only people generally who have lost real value in their house are those who have bought in the last three to four years," said real-estate analyst RL Brown, who produces the Phoenix Housing Market Letter. "It's tragic when someone has to sell their home in this market."
Homeowners who bought at the market peak in 2005 and 2006 have seen values decline to record lows in many cases throughout the Valley. But those in the Southeast Valley have fared better, in part, because they aren't located in the farthest-flung areas.
The average median home values in Mesa, Chandler, Gilbert and Tempe through mid-September this year are still $42,000 to $68,000 greater than the average median home values in 2004.
But communities in outlying areas aren't holding onto their gains. They are the ones that boomed during the real-estate heyday and the "drive till you qualify" buyer mantra.
Banks have taken back many of those homes through foreclosure, while others have agreed to "short sales" in which buyers pay less than what is owed on a mortgage.
"Mostly what I'm doing are short sales, and I've got quite a few listings in Queen Creek," said Julie Bieganski, a real-estate agent with Century 21 Premier Realty. "Oh, man, that place is getting decimated."
Like many real-estate agents, Bieganski recommends homeowners sit tight and not try to sell their homes until the market recovers.
"If you don't need to, don't," she said.
The number of foreclosures and short sales are driving down median home values but so is the sheer number of homes for sale. The number of properties on the Arizona Regional Multiple Listing Service totaled more than 44,000 plus another 6,800 under contract or pending as of Tuesday.
In a so-called normal market, listings total 15,000 to 20,000 at any given time.
Bill Ryan, a broker with Re/Max Elite, said the majority of single-family homes being sold are foreclosures, also known as bank-owned properties, and short sales.
"Buyers know that there are opportunities on properties that have been written down as a loss," he said. "One foreclosure sale drives the market, and people have to take that into account."
Ryan sympathized with homeowners who lose their jobs, become ill or otherwise can't keep up with their mortgages. But he had harsh words for homeowners who walk away from their homes because they are "upside down" on their mortgages, meaning they owe more to the bank than they their homes currently are worth.
"It's unconscionable to walk away just because the market has gone down," he said. "It's not an excuse to go into default if you are capable of paying. A deal is a deal."
Homeowners who believe their credit won't be ruined by a foreclosure and in some cases, a short sale, are wrong, he added.
For the vast majority of homeowners, declining or rising home values are immaterial to their everyday lives.
"When you think about it, what you have really lost is this big fluff of paper," he said. "That's the outlook you have to have on it."
Most real-estate analysts say it's impossible to predict when the housing market will bottom out and when values will rise again. A lot, they say, has to do with the current economic slump.
But for first-time buyers, the home buying picture couldn't be brighter, said Jodi Erwin, a real-estate agent with Coldwell Banker Residential Brokerage in Tempe.
Erwin said she has several clients in the Southeast Valley who are first-time homebuyers who have pre-qualified for mortgages and are shopping for homes under $350,000.
"I'm working with a lot of buyers because everyone wants a deal right now," she said.
Banks anxious to unload bad mortgages have priced homes cheaply, Erwin said, adding that she has found more than 100 single-family homes throughout the Valley listed for $200,000 or less.
"Two years ago, you couldn't touch a condo for $200,000," she said.
But even with the prospects for first-time homebuyers, Erwin is candid about the complexity involved in trying to buy short sales and bank-owned properties.
"I tell my clients, 'Don't expect logic to prevail because it won't. It's out of our control,' " she said.
Foreclosed homes are shredding the paper gains made during the market's run-up in recent years, but Southeast Valley cities are still ahead of 2004 levels.
Median home values fell from 2005 to 2008, but they're still greater than four years ago, according to data from Information Market and analyzed by The Arizona Republic.
"The only people generally who have lost real value in their house are those who have bought in the last three to four years," said real-estate analyst RL Brown, who produces the Phoenix Housing Market Letter. "It's tragic when someone has to sell their home in this market."
Homeowners who bought at the market peak in 2005 and 2006 have seen values decline to record lows in many cases throughout the Valley. But those in the Southeast Valley have fared better, in part, because they aren't located in the farthest-flung areas.
The average median home values in Mesa, Chandler, Gilbert and Tempe through mid-September this year are still $42,000 to $68,000 greater than the average median home values in 2004.
But communities in outlying areas aren't holding onto their gains. They are the ones that boomed during the real-estate heyday and the "drive till you qualify" buyer mantra.
Banks have taken back many of those homes through foreclosure, while others have agreed to "short sales" in which buyers pay less than what is owed on a mortgage.
"Mostly what I'm doing are short sales, and I've got quite a few listings in Queen Creek," said Julie Bieganski, a real-estate agent with Century 21 Premier Realty. "Oh, man, that place is getting decimated."
Like many real-estate agents, Bieganski recommends homeowners sit tight and not try to sell their homes until the market recovers.
"If you don't need to, don't," she said.
The number of foreclosures and short sales are driving down median home values but so is the sheer number of homes for sale. The number of properties on the Arizona Regional Multiple Listing Service totaled more than 44,000 plus another 6,800 under contract or pending as of Tuesday.
In a so-called normal market, listings total 15,000 to 20,000 at any given time.
Bill Ryan, a broker with Re/Max Elite, said the majority of single-family homes being sold are foreclosures, also known as bank-owned properties, and short sales.
"Buyers know that there are opportunities on properties that have been written down as a loss," he said. "One foreclosure sale drives the market, and people have to take that into account."
Ryan sympathized with homeowners who lose their jobs, become ill or otherwise can't keep up with their mortgages. But he had harsh words for homeowners who walk away from their homes because they are "upside down" on their mortgages, meaning they owe more to the bank than they their homes currently are worth.
"It's unconscionable to walk away just because the market has gone down," he said. "It's not an excuse to go into default if you are capable of paying. A deal is a deal."
Homeowners who believe their credit won't be ruined by a foreclosure and in some cases, a short sale, are wrong, he added.
For the vast majority of homeowners, declining or rising home values are immaterial to their everyday lives.
"When you think about it, what you have really lost is this big fluff of paper," he said. "That's the outlook you have to have on it."
Most real-estate analysts say it's impossible to predict when the housing market will bottom out and when values will rise again. A lot, they say, has to do with the current economic slump.
But for first-time buyers, the home buying picture couldn't be brighter, said Jodi Erwin, a real-estate agent with Coldwell Banker Residential Brokerage in Tempe.
Erwin said she has several clients in the Southeast Valley who are first-time homebuyers who have pre-qualified for mortgages and are shopping for homes under $350,000.
"I'm working with a lot of buyers because everyone wants a deal right now," she said.
Banks anxious to unload bad mortgages have priced homes cheaply, Erwin said, adding that she has found more than 100 single-family homes throughout the Valley listed for $200,000 or less.
"Two years ago, you couldn't touch a condo for $200,000," she said.
But even with the prospects for first-time homebuyers, Erwin is candid about the complexity involved in trying to buy short sales and bank-owned properties.
"I tell my clients, 'Don't expect logic to prevail because it won't. It's out of our control,' " she said.
Thursday, October 23, 2008
US working on plan to help homeowners refinance
Associated Press - October 2008
The federal government is working on a loan-guarantee plan that could help many homeowners escape foreclosure, a banking regulator told Congress Thursday. At the same time former Federal Reserve Chairman Alan Greenspan said the financial crisis will get worse before it gets better.
Accused of contributing to the meltdown, but denying that it was his fault, Greenspan told a House panel the crisis left him — an unabashed free-market advocate — in a "state of shocked disbelief."
Federal regulators told Congress they were making steady headway in confronting the worst financial crisis since the 1930s as committees in both the House and the Senate held hearings on a contagious financial collapse that has infected global markets.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the Senate Banking Committee that the government can do more to help tens of thousands of home borrowers avert foreclosure. She suggested the government set standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them.
"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."
The FDIC is working "closely and creatively" with the Treasury Department on such a plan, she said.
While Bair, a Bush appointee and independent regulator, has publicly nudged the administration in recent months to go further on remedies for troubled home borrowers, Democrats have voiced vigorous support for her and have applauded her public pleas on this front.
On the other side of the Capitol, Greenspan, who stepped down in February 2006 after serving as Fed chairman for 18 1/2 years, was asked to explain his role in the crisis.
Some critics have blamed Greenspan for contributing to the problem by leaving interest rates too low for too long and for failing to regulate risky banking practices such as the issuance of subprime mortgage. But he put the blame on soaring mortgage foreclosures on overeager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward.
Greenspan called the global financial crisis is a "once in a century credit tsunami" that policymakers did not anticipate.
He said that he and others who believed lending institutions would do a good job of protecting their shareholders are in a "state of shocked disbelief." And Greenspan also blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.
"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan said. "Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity."
He told the House Government Oversight and Reform Committee that a necessary condition for the crisis to end will be a stabilization in home prices but he said that was not likely to occur for "many months in the future."
Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed to "irresponsible lending practices" by rejecting appeals that the Fed intervene to regulate a surging subprime mortgage industry.
"The list of regulatory mistakes and misjudgments is long," Waxman said of oversight by the Fed and other federal regulators.
In other testimony, Neel Kashkari, a Treasury Department official who is overseeing the government's $700 billion bailout program, told the Senate Banking Committee that the administration was making "tremendous progress" in carrying out the bailout program enacted earlier this month.
There have been "numerous signs of improvement in our markets and in the confidence in our financial institutions" since the program was started, he said.
Still, Kashkari cautioned that "while there have been recent positive developments, the markets remain fragile."
The administration must move to resolve the deepening financial crisis as swiftly and aggressively as it has so far addressed only the symptoms of the debacle, said Sen. Christopher Dodd, D-Conn., the Banking Committee chairman.
Otherwise, continued "volatility and paralysis" will reign in the markets, he warned.
Dodd said he was troubled by recent reports that some major banks receiving multibillion-dollar cash injections from the government under the rescue plan are weighing using the money to buy up other institutions rather than making loans.
Just as it is crucial to stabilize U.S. banks, "it is absolutely imperative" that homeowners be helped to avoid foreclosure, he said.
Sen. Charles Schumer, D-N.Y., said that by not setting conditions on banks in return for the government injections of money, "We're feeding them a little too much dessert and not making them eat their vegetables."
Schumer said he's "still not convinced" that banks receiving the government money should continue paying dividends to their shareholders.
Greenspan said that when home prices finally stabilize "the market freeze should begin to measurably thaw and frightened investors will take tentative steps towards re-engagement with risk."
"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan said. "Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity."
Greenspan called the $700 billion rescue package passed by Congress on Oct. 10 "adequate to serve the need" and said that its impact was already being felt in markets.
Greenspan's critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.
Data show how foreclosures pull down Valley home values
The Arizona Republic - October 2008
Here's a new way to help better track home prices in Valley neighborhoods: foreclosure resales.
For the first time, homeowners can see exactly how foreclosures are affecting their home values.
New data tracks the prices of homes taken back by lenders through foreclosure and then resold. It then compares that median price of the foreclosure resales to the median price of regular resales in a ZIP code.
With that, homeowners can look at the overall median price for home sales in their neighborhood and see how much foreclosures are pulling down overall values.
"This is the indicator to watch now," said Tom Ruff, analyst with real-estate data-research firm Information Market, which began tracking foreclosure resales a few months ago. "Everyone knows foreclosures can drag down home prices in an area. It's surprising to see how low lenders are selling some homes for in the Valley now."
In summer 2007, when Valley foreclosures had just started to climb, the foreclosure-resale number wasn't that important an indicator of where the housing market was headed. But now that foreclosures are at record levels and haven't yet peaked, what happens to those houses is key for neighborhoods.
In a normal housing market, most homes to go into foreclosure are sold at trustee-sale auctions. Since last fall, about 98 percent of all homes to go into foreclosure have instead been taken back by the lender. What lenders resell foreclosure homes for now is driving home values, particularly in neighborhoods where a higher percentage of existing-home sales are foreclosure resales.
Foreclosure resales make up at least one-fourth of all sales in a many Valley neighborhoods now. In a few areas, the rate of foreclosure resale is much higher. In the El Mirage ZIP code 85335, there were more foreclosure resales than regular resales. The overall median home price in the area is $135,000. The foreclosure resale is $133,750. In most other Valley neighborhoods, the overall median price is $20,000 to $40,000 higher than the foreclosure resale.
"These foreclosure homes need to sell for the Valley's housing market to recover," said Brett Barry, a Phoenix real-estate agent with Realty Executives. "It's a good thing they are selling, but it's not going to make you happy if you are a homeowner in a neighborhood with a lot of these properties."
He said for buyers who are patient and will work with lenders, there are great deals in foreclosure resales.
Gloria Giroux recently bought a foreclosure-resale home from Deutsche Trust Bank. She paid $560,000 for a 3,400-square-foot Carefree home on a half-acre lot that had sold for $815,000 in 2005. "The pool was green. It needed work, and it was frustrating waiting for answers on my offers from the bank," Giroux said. "But I got it, and the house behind me is almost identical and sold for $839,000 in April of this year."
Strategy to stave off Arizona foreclosures falls short of goal
The Arizona Republic - October 2008
More than 7,000 homeowners facing foreclosure in the Valley are trying to sell their homes through a process known as a short sale, according to Arizona Regional Multiple Listing Service data.
But less than 5 percent manage to sell before lenders seize their houses.
The failure by banks and homeowners to agree to a short sale - to sell a home for less than the amount still owed on the mortgage - is adding to the Valley's growing foreclosure problem.
And the government's recent financial-bailout package to help alleviate the nation's housing crisis will do little to address the problem of short sales.
When homeowners whose property values have collapsed fall into arrears on a mortgage, short sales allow them to negotiate a deal with their lender to sell their home for less than they owe and avoid foreclosure.
An increase in the number of short sales could slow the Valley's record foreclosure rate, which has yet to peak.
However, a number of factors are preventing short sales:
• Lenders, overwhelmed by a record number of mortgages in default and their own losses in the financial-market meltdown, are not negotiating with many borrowers seeking a short sale.
• Many homeowners facing foreclosure wait too long before contacting their lenders.
"I don't see many people having success with short sales, either sellers or buyers," said Mike Orr, a Valley real-estate agent. "For buyers, the process of getting lender approval is lengthy and tiresome. Sellers often run out of time if they are already behind in their mortgage payments."
Because there are so many foreclosed-on homes that lenders are trying to resell at bargain prices, he said, there is little incentive for a buyer to go through the "laborious" process of a short sale.
Lenders have foreclosed on almost 30,000 Valley homes this year. Most are sold for tens of thousands of dollars below what was owed on them. And many resell for thousands of dollars less than what was offered through short sales.
Better than foreclosure
The purpose of a short sale is to allow a homeowner to sell a house at its current market value and get off the hook for however much of their mortgage isn't paid off by the sale.
Homeowners don't get any cash from a short sale but avoid a foreclosure black mark on their credit. A short sale impacts credit, too, but not as badly.
A short sale is better for a neighborhood because it means a home is being purchased by someone and not foreclosed on by the lender, left vacant for months and then resold for even less.
Also, short sales usually cost lenders less than a foreclosure. Research from the national financial-consulting firm Clayton Holdings Inc. indicates lenders lose only 19 percent of a home's loan amount on a short sale, compared with 40 percent on a foreclosure.
"Short sales are the best solution out there for the borrower, the bank and the buyer," said Randy Kutz of HomeSmart's Phoenix Heritage Real Estate Group. However, he said short sales are "the brain surgery of real estate" and take time and expertise to execute.
There's no exact way to track short sales in Arizona. The best indicator is how many homes in pre-foreclosure sell before a foreclosure. In the Valley, only about 200 homes a month in pre-foreclosure sell before the lender takes them back, according to housing-data firm Information Market. In September, pre-foreclosures hit a record 7,447 in the Valley while foreclosures hit a high of 4,378.
A slow process
Myra Shane has been shopping for a home in an east Phoenix neighborhood for months. Her agent found one that a couple were trying to sell through a short sale. That was four months ago.
"I thought the lender would want to move quickly and keep the house out of foreclosure," Shane said. "We can't get answers on anything from the lender."
Shane said she is about to give up and make an offer on a home in the same neighborhood that a lender has already foreclosed on and is now reselling for even less than her short-sale offer.
Slowing the process are the multiple lenders and investors involved.
"It's even trickier if there's both a first and second mortgage involved," said Chris Doyle of American Alliance Mortgage of Tempe. He said lenders with second mortgages on properties are asking for more money before agreeing to a short sale.
More than 7,000 homeowners facing foreclosure in the Valley are trying to sell their homes through a process known as a short sale, according to Arizona Regional Multiple Listing Service data.
But less than 5 percent manage to sell before lenders seize their houses.
The failure by banks and homeowners to agree to a short sale - to sell a home for less than the amount still owed on the mortgage - is adding to the Valley's growing foreclosure problem.
And the government's recent financial-bailout package to help alleviate the nation's housing crisis will do little to address the problem of short sales.
When homeowners whose property values have collapsed fall into arrears on a mortgage, short sales allow them to negotiate a deal with their lender to sell their home for less than they owe and avoid foreclosure.
An increase in the number of short sales could slow the Valley's record foreclosure rate, which has yet to peak.
However, a number of factors are preventing short sales:
• Lenders, overwhelmed by a record number of mortgages in default and their own losses in the financial-market meltdown, are not negotiating with many borrowers seeking a short sale.
• Many homeowners facing foreclosure wait too long before contacting their lenders.
"I don't see many people having success with short sales, either sellers or buyers," said Mike Orr, a Valley real-estate agent. "For buyers, the process of getting lender approval is lengthy and tiresome. Sellers often run out of time if they are already behind in their mortgage payments."
Because there are so many foreclosed-on homes that lenders are trying to resell at bargain prices, he said, there is little incentive for a buyer to go through the "laborious" process of a short sale.
Lenders have foreclosed on almost 30,000 Valley homes this year. Most are sold for tens of thousands of dollars below what was owed on them. And many resell for thousands of dollars less than what was offered through short sales.
Better than foreclosure
The purpose of a short sale is to allow a homeowner to sell a house at its current market value and get off the hook for however much of their mortgage isn't paid off by the sale.
Homeowners don't get any cash from a short sale but avoid a foreclosure black mark on their credit. A short sale impacts credit, too, but not as badly.
A short sale is better for a neighborhood because it means a home is being purchased by someone and not foreclosed on by the lender, left vacant for months and then resold for even less.
Also, short sales usually cost lenders less than a foreclosure. Research from the national financial-consulting firm Clayton Holdings Inc. indicates lenders lose only 19 percent of a home's loan amount on a short sale, compared with 40 percent on a foreclosure.
"Short sales are the best solution out there for the borrower, the bank and the buyer," said Randy Kutz of HomeSmart's Phoenix Heritage Real Estate Group. However, he said short sales are "the brain surgery of real estate" and take time and expertise to execute.
There's no exact way to track short sales in Arizona. The best indicator is how many homes in pre-foreclosure sell before a foreclosure. In the Valley, only about 200 homes a month in pre-foreclosure sell before the lender takes them back, according to housing-data firm Information Market. In September, pre-foreclosures hit a record 7,447 in the Valley while foreclosures hit a high of 4,378.
A slow process
Myra Shane has been shopping for a home in an east Phoenix neighborhood for months. Her agent found one that a couple were trying to sell through a short sale. That was four months ago.
"I thought the lender would want to move quickly and keep the house out of foreclosure," Shane said. "We can't get answers on anything from the lender."
Shane said she is about to give up and make an offer on a home in the same neighborhood that a lender has already foreclosed on and is now reselling for even less than her short-sale offer.
Slowing the process are the multiple lenders and investors involved.
"It's even trickier if there's both a first and second mortgage involved," said Chris Doyle of American Alliance Mortgage of Tempe. He said lenders with second mortgages on properties are asking for more money before agreeing to a short sale.
Saturday, October 4, 2008
The Consumer Bailout That Nobody Knows About
RISMEDIA, Oct. 1, 2008-As congress considers various bailout proposals for the financial system, there is a little known ‘bailout’ for home owners that has already been enacted into law, according to Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. Section 1403 of the new housing bill that was signed into law on July 30, 2008 (HR 3221) requires mortgage servicers to modify loans for homeowners and help them avoid foreclosure as long as three requirements are met:
1. Default on the mortgage either has already happened or is “reasonably foreseeable”
2. The home owner is living in the property as his or her primary residence
3. The lender is likely to recover more through the loan modification or workout than by forcing the home owner into foreclosure
“The fact is that this law is effective immediately, and most distressed home owners are simply not aware that they have this option,” Nicholas said. Borrowers make their monthly payments to mortgage servicers, and servicers keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage. “This law requires servicers to act in the best interest of all their investors and obligates them to modify your loan if you can afford the modified loan terms and if they are likely to recover more for their investors by working with you than by going all the way through the foreclosure process,” Nicholas said.
When negotiating a loan modification with your mortgage lender, it is advisable to follow this four step process:
1. Make sure you are dealing with your lender’s loss mitigation and/or work out department.
2. Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or some other financial calamity that will make it impossible for you to continue making your mortgage payments as scheduled. Unless you are in imminent danger of default as required by this new law, lenders are not likely to work with you.
3. Send the lender your financial statements, employment records, tax returns and bank statements demonstrating how you would be able to afford the modified loan terms under your present financial circumstances
4. Send the lender a current appraisal of your home or some documentation on recent comparable sales in your neighborhood demonstrating the current value of your home. “The key is to demonstrate how the lender is likely to recover less money through foreclosure than they would by working with you in your proposed loan modification plan,” Nicholas said.
Here is a sample letter that you can use during your renegotiation:
http://www.cmpsinstitute.org/pdf/SampleLoanModificationRequest.pdf
It may be advisable to consult with an attorney - especially if you qualify for a loan modification under the law and your lender still refuses to work with you.
1. Default on the mortgage either has already happened or is “reasonably foreseeable”
2. The home owner is living in the property as his or her primary residence
3. The lender is likely to recover more through the loan modification or workout than by forcing the home owner into foreclosure
“The fact is that this law is effective immediately, and most distressed home owners are simply not aware that they have this option,” Nicholas said. Borrowers make their monthly payments to mortgage servicers, and servicers keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage. “This law requires servicers to act in the best interest of all their investors and obligates them to modify your loan if you can afford the modified loan terms and if they are likely to recover more for their investors by working with you than by going all the way through the foreclosure process,” Nicholas said.
When negotiating a loan modification with your mortgage lender, it is advisable to follow this four step process:
1. Make sure you are dealing with your lender’s loss mitigation and/or work out department.
2. Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or some other financial calamity that will make it impossible for you to continue making your mortgage payments as scheduled. Unless you are in imminent danger of default as required by this new law, lenders are not likely to work with you.
3. Send the lender your financial statements, employment records, tax returns and bank statements demonstrating how you would be able to afford the modified loan terms under your present financial circumstances
4. Send the lender a current appraisal of your home or some documentation on recent comparable sales in your neighborhood demonstrating the current value of your home. “The key is to demonstrate how the lender is likely to recover less money through foreclosure than they would by working with you in your proposed loan modification plan,” Nicholas said.
Here is a sample letter that you can use during your renegotiation:
http://www.cmpsinstitute.org/pdf/SampleLoanModificationRequest.pdf
It may be advisable to consult with an attorney - especially if you qualify for a loan modification under the law and your lender still refuses to work with you.
Saturday, September 20, 2008
Getting a loan is tough, here's what you need to know
The Arizona Republic - September 2008
With tighter lending standards and a slumping housing market, opening the door to a home of your own is more challenging than it has been in years.
Experts say the rules for obtaining a home loan have undergone more revision in the past 18 months than during any comparable period since the Great Depression, as lenders seek to do away with practices that landed their industry in its current crisis.
Changes include tougher credit-score and down-payment requirements; a recent crackdown on stated-income "liar loans"; the disqualification of rental income on some loan applications; an expected lowering of Federal Housing Administration insurance limits and the pending elimination of seller-funded down payment assistance for FHA loans.
More changes are expected in the coming months, and even lenders say they have yet to understand the future impact of a federal housing bill passed in July.
"Everything is pretty much in flux," said Jill Hoogendyk, president of the Arizona Mortgage Lenders Association.
Here is a rundown of the current situation on several lending fronts:
• Down-payment requirements.
Down-payment requirements, paramount to any prospective home buyer's ability to obtain a loan, have risen dramatically for conventional loans and are scheduled to increase Jan. 1 for FHA loans.
Up until a year ago, lenders were still offering conventional loans with no down-payment requirement, said Hoogendyk, owner of HomePoint Mortgage in Phoenix. Now the bare minimum is 5 percent for borrowers with "stellar credit," she said.
Most applicants for conventional mortgage loans can expect to put down at least 10 percent, she said, and certain loan types require up to 30 percent.
The federal government's recent decision to place mortgage-lending giants Fannie Mae and Freddie Mac into conservatorship should help keep interest rates down for conventional loans, but the increased down-payment requirements have made them cost-prohibitive for most borrowers, Hoogendyk said.
As a result, most borrowers have turned to FHA-insured loans, but an expected decrease in the maximum-allowable loan amount could limit their future appeal.
Lenders expect the limit for FHA loans in Maricopa County to decrease by about $50,000 or more as of Jan. 1. The FHA limit is generally 115 percent of a county's median home price for the previous year, and area property values continue to decline.
Hoogendyk said she expected the local limit to drop below $300,000 from the current $346,250, which was inflated to begin with.
"That $346,250 was really a gift, because it had nothing to do with reality," she said.
FHA loans require only about 3 percent down, but that requirement will increase to 3.5 percent on Jan. 1. Meanwhile, Hoogendyk said most sellers in today's market were covering the buyers' closing costs, usually another 3 percent, which wasn't happening prior to the downturn.
• Down-payment assistance.
Still, lenders say as many as 80 percent of recent home buyers in the Valley have taken advantage of a loophole in FHA guidelines that allows sellers, usually home builders, to pay the entire down payment on an FHA loan by funneling it through one of two large non-profit organizations.
A ban on the practice, known as seller-funded down-payment assistance, was included in the recent federal housing bill and is set to take effect Oct. 1. From a practical standpoint, it is already dead, Hoogendyk said, because banks have stopped accepting new loan applications that involve seller-funded assistance.
However, a bill to revive the practice is scheduled for committee action on Tuesday, and some supporters say it has gained traction in recent weeks.
House Resolution 6694 would allow borrowers with credit scores of 620 or higher to use seller-funded assistance, and the U.S. Department of Housing and Urban Development would be allowed to lower that threshold beginning in mid-2009.
Ann Ashburn, president of seller-funded down-payment assistance provider AmeriDream Inc., said there has been support for the bill.
"Support for H.R. 6694 in Congress is gaining steam," Ashburn said. "This is encouraging news, and the credit goes to the 32,000 Americans who called on leaders in Washington to protect down-payment assistance."
• Credit scores.
Though there is no credit-score requirement to obtain an FHA loan, Hoogendyk said underwriters have also gotten a lot pickier about credit.
Standards vary from one lender to the next, but the typical credit-score requirement for an FHA loan is now 580, and the minimum score to obtain a conventional loan is generally 620, she said.
To get the best available interest rate on a conventional loan, the borrower must have a near-pristine score of 740.
One loan that was popular during the housing boom but has proven particularly onerous for lenders is the stated-income loan, nicknamed the "liar's loan. "
Though the loans are still available, increased credit score and down-payment requirements have rendered them inaccessible to most borrowers, Hoogendyk said.
For instance, in the past year the required down payment has crept upward from 10 percent to 30 percent, she said.
Liar loans belong to a category of alternative prime loans, referred to as Alt-A loans, which includes jumbo loans, 80/20 loans, interest-only loans and option-ARM loans, in which the borrower can pay less than the amount of accrued interest for a limited period of time.
None of those loans have been eliminated, Hoogendyk said, but most have become prohibitively expensive in the past year.
• Qualifying income.
Another factor that will limit some potential borrowers is a recently imposed restriction on the use of income from renters to qualify for a home loan, she said.
In July, Fannie Mae announced that it would no longer accept rental income as a qualifier to obtain a second home loan unless the applicant had accrued at least 25 percent equity in the first home.
The purpose was to thwart buy-and-bail schemes, in which a homeowner facing foreclosure qualified for a second loan before walking away from the first mortgage.
Some buy-and-bailers had been using estimated rental income to qualify even though they had no intention of renting out their existing home.
Friday, July 25, 2008
Investors boost Valley home resale activity
The Arizona Republic - July 2008
Renewed investor interest in low-priced properties helped make June the best month so far this year for Valley home resale activity, but foreclosures were almost just as prevalent, according to the latest report from Arizona State University's Realty Studies department.
ASU reported Wednesday that Valley home resales hit 4,565 in June, up slightly from May and almost exactly the same as in June 2007.
Foreclosures, however, were way up from the previous June - 3,275 this year compared with 575 in 2007, according to the latest report from Jay Butler, director of Realty Studies at the Morrison School of Management and Agribusiness at ASU's Polytechnic campus. In May, the split was 2,895 foreclosed homes and 4,315 resale transactions, the report says. June 2007 saw 575 foreclosures and 4,570 resales.
June is usually a strong month for home sales, so it's not surprising that it has been the best month so far this year for home resales.
The year-to-date total for 2008 is 21,060 resales and 14,590 foreclosures, according to Butler's report. That number is slightly less than the 16,647 foreclosures The Arizona Republic's own data analysts reported recently.
Renewed investor interest in low-priced properties helped make June the best month so far this year for Valley home resale activity, but foreclosures were almost just as prevalent, according to the latest report from Arizona State University's Realty Studies department.
ASU reported Wednesday that Valley home resales hit 4,565 in June, up slightly from May and almost exactly the same as in June 2007.
Foreclosures, however, were way up from the previous June - 3,275 this year compared with 575 in 2007, according to the latest report from Jay Butler, director of Realty Studies at the Morrison School of Management and Agribusiness at ASU's Polytechnic campus. In May, the split was 2,895 foreclosed homes and 4,315 resale transactions, the report says. June 2007 saw 575 foreclosures and 4,570 resales.
June is usually a strong month for home sales, so it's not surprising that it has been the best month so far this year for home resales.
The year-to-date total for 2008 is 21,060 resales and 14,590 foreclosures, according to Butler's report. That number is slightly less than the 16,647 foreclosures The Arizona Republic's own data analysts reported recently.
Housing-aid bill not a cure-all
The Arizona Republic - July 2008
A federal housing bill poised to become law this week is likely to help ease Arizona's housing-market pain, but a variety of local voices in the industry said it won't heal the deeper wounds.
Too many residents are neck-deep in unaffordable mortgages for Arizona's cut of the proposed $300 billion in federal refinancing aid to save them all, government and business leaders said Wednesday.
"We've got a huge problem here," said Fred Karnas, state Department of Housing director. "It's obviously not going to solve the problem, but it will bring a variety of resources for partial solutions."
Those resources provided in the bill include a higher cap on Federal Housing Administration loans; $3.9 million in community-development block grants to buy and restore abandoned properties; an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac; and the creation of an independent regulator to ensure sound management and operating standards for those lending institutions.
"Overall, we're really positive about it," Karnas said. "I've been joking . . . that every housing bill we've wanted to get passed in the last 18 years somehow wound up in this bill."
Kevin Egan, president of Tempe luxury-home builder T.W. Lewis, said any measure that helps maintain the stability of Fannie Mae and Freddie Mac is good for Arizona's housing market.
Egan said home builders such as T.W. Lewis that specialize in "move-up" homes, those for existing homeowners who have accrued equity and want or need a larger home, have been struggling even more than builders at the extreme high and low ends.
Therefore, raising the cap for FHA loans from $362,790 to $625,000 (which follows a temporarily higher limit earlier this year) will help get midrange customers buying again, he said.
"I think we have to get investors back into the market," Egan said.
ARM conversions
Home buyers struggling to keep up with adjustable-rate loan payments would be allowed to convert those loans to 30-year, fixed-rate FHA loans under the legislation.
But Karnas said some Arizona borrowers are so deep in negative equity that no realistic refinancing deal would allow them to keep their homes.
"I think there are some markets in which the bottom has completely fallen out," he said.
Margie O'Campo de Castillo of Arizona Dream Realty said she doesn't understand why lenders aren't already trying to help homeowners refinance into fixed-rate loans to avoid foreclosure.
"The housing package will help some," she said, "but we shouldn't kid ourselves. Housing is just one failing pillar of our economy, and I'm not sure we the taxpayers have enough money to fix our housing crisis."
Property-rehab grants
The housing bill also will provide $3.9 billion in community-development block grants for local governments nationwide to buy and rehabilitate foreclosed properties.
President Bush initially threatened to veto the bill unless Congress removed the grant provision, which his administration called a bailout for banks.
Still, Karnas said, the amount is not significant enough to take on a large percentage of foreclosures.
Foreclosures across metro Phoenix numbered 16,647 for the first half of the year, up from 9,966 during all of 2007 and 1,070 in 2006.
Karnas said Arizona officials expect to receive about $100 million of the bill's grant money, based on a formula that favors states with the greatest number of foreclosures.
"A hundred-million dollars maybe buys you 500 homes," Karnas said. "It'll make a dent, but it won't solve the problem."
Federal backing
The bill also is aimed at protecting future loans by offering mortgage giants Fannie Mae and Freddie Mac an unlimited line of credit and allowing the federal government to buy equity in those institutions. Federal legislators say it will also promote sound management and operating standards of those government-sponsored institutions by creating an independent regulator with wide-ranging authority.
Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. Kaufman also said the bill, along with recent government promises to support Fannie Mae and Freddie Mac, should help calm jittery investors here and abroad.
"Foreign investors, so far, have been very patient," said Kaufman, referring to turmoil in the U.S. financial markets.
Another provision likely to affect Arizona's new-home market is the proposed ban on federal insurance for mortgage loans in which a home's seller pays the buyer's down payment through a non-profit intermediary.
Down-payment assistance requires the buyer to receive approval for a Federal Housing Administration loan, and the seller must agree to pay the buyer's down payment, usually 3 to 6 percent of the home's sale price. Then, the lender arranges with a non-profit assistance provider to accept the seller's donation, which it then gifts to the buyer, minus a transaction fee.
Seller-funded, down-payment assistance has drawn criticism from the FHA, which considers the practice a "shell game" that circumvents sound lending standards and carries a higher default rate.
However, some local lenders say down-payment assistance is responsible for at least half of all mortgage loans currently being issued in the Valley. They are worried that eliminating the practice would knock the already staggering local housing economy flat on its face.
"It has really opened the doors to so many people, and now those doors are going to be shut," Phoenix loan originator Dean Wegner said.
Wegner also questioned why the bill includes an increase in the required down payment on FHA loans from the current 3 percent to 3.5 percent.
"It's going to hurt good people who want to buy houses, who don't have any issues," he said about the bill, "and it's going to help the people who are in trouble."
A federal housing bill poised to become law this week is likely to help ease Arizona's housing-market pain, but a variety of local voices in the industry said it won't heal the deeper wounds.
Too many residents are neck-deep in unaffordable mortgages for Arizona's cut of the proposed $300 billion in federal refinancing aid to save them all, government and business leaders said Wednesday.
"We've got a huge problem here," said Fred Karnas, state Department of Housing director. "It's obviously not going to solve the problem, but it will bring a variety of resources for partial solutions."
Those resources provided in the bill include a higher cap on Federal Housing Administration loans; $3.9 million in community-development block grants to buy and restore abandoned properties; an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac; and the creation of an independent regulator to ensure sound management and operating standards for those lending institutions.
"Overall, we're really positive about it," Karnas said. "I've been joking . . . that every housing bill we've wanted to get passed in the last 18 years somehow wound up in this bill."
Kevin Egan, president of Tempe luxury-home builder T.W. Lewis, said any measure that helps maintain the stability of Fannie Mae and Freddie Mac is good for Arizona's housing market.
Egan said home builders such as T.W. Lewis that specialize in "move-up" homes, those for existing homeowners who have accrued equity and want or need a larger home, have been struggling even more than builders at the extreme high and low ends.
Therefore, raising the cap for FHA loans from $362,790 to $625,000 (which follows a temporarily higher limit earlier this year) will help get midrange customers buying again, he said.
"I think we have to get investors back into the market," Egan said.
ARM conversions
Home buyers struggling to keep up with adjustable-rate loan payments would be allowed to convert those loans to 30-year, fixed-rate FHA loans under the legislation.
But Karnas said some Arizona borrowers are so deep in negative equity that no realistic refinancing deal would allow them to keep their homes.
"I think there are some markets in which the bottom has completely fallen out," he said.
Margie O'Campo de Castillo of Arizona Dream Realty said she doesn't understand why lenders aren't already trying to help homeowners refinance into fixed-rate loans to avoid foreclosure.
"The housing package will help some," she said, "but we shouldn't kid ourselves. Housing is just one failing pillar of our economy, and I'm not sure we the taxpayers have enough money to fix our housing crisis."
Property-rehab grants
The housing bill also will provide $3.9 billion in community-development block grants for local governments nationwide to buy and rehabilitate foreclosed properties.
President Bush initially threatened to veto the bill unless Congress removed the grant provision, which his administration called a bailout for banks.
Still, Karnas said, the amount is not significant enough to take on a large percentage of foreclosures.
Foreclosures across metro Phoenix numbered 16,647 for the first half of the year, up from 9,966 during all of 2007 and 1,070 in 2006.
Karnas said Arizona officials expect to receive about $100 million of the bill's grant money, based on a formula that favors states with the greatest number of foreclosures.
"A hundred-million dollars maybe buys you 500 homes," Karnas said. "It'll make a dent, but it won't solve the problem."
Federal backing
The bill also is aimed at protecting future loans by offering mortgage giants Fannie Mae and Freddie Mac an unlimited line of credit and allowing the federal government to buy equity in those institutions. Federal legislators say it will also promote sound management and operating standards of those government-sponsored institutions by creating an independent regulator with wide-ranging authority.
Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. Kaufman also said the bill, along with recent government promises to support Fannie Mae and Freddie Mac, should help calm jittery investors here and abroad.
"Foreign investors, so far, have been very patient," said Kaufman, referring to turmoil in the U.S. financial markets.
Another provision likely to affect Arizona's new-home market is the proposed ban on federal insurance for mortgage loans in which a home's seller pays the buyer's down payment through a non-profit intermediary.
Down-payment assistance requires the buyer to receive approval for a Federal Housing Administration loan, and the seller must agree to pay the buyer's down payment, usually 3 to 6 percent of the home's sale price. Then, the lender arranges with a non-profit assistance provider to accept the seller's donation, which it then gifts to the buyer, minus a transaction fee.
Seller-funded, down-payment assistance has drawn criticism from the FHA, which considers the practice a "shell game" that circumvents sound lending standards and carries a higher default rate.
However, some local lenders say down-payment assistance is responsible for at least half of all mortgage loans currently being issued in the Valley. They are worried that eliminating the practice would knock the already staggering local housing economy flat on its face.
"It has really opened the doors to so many people, and now those doors are going to be shut," Phoenix loan originator Dean Wegner said.
Wegner also questioned why the bill includes an increase in the required down payment on FHA loans from the current 3 percent to 3.5 percent.
"It's going to hurt good people who want to buy houses, who don't have any issues," he said about the bill, "and it's going to help the people who are in trouble."
NE Valley foreclosures surge
SCOTTSDALE - About 800 Northeast Valley property owners lost their homes to foreclosure in the first half of this year, nearly five times as many as the same period a year ago, according to a data analysis by The Arizona Republic.
Plus, nearly 2,000 area homeowners have been issued a notice of trustee sale, a precursor to foreclosure. That is nearly three times as many as the first six months of 2007.
Foreclosures by city through June 30 of this year and the percentage increase from a year ago are:
• Scottsdale, 640 homes, an increase of 378 percent.
• Fountain Hills, 82 homes, up 531 percent.
• Cave Creek, 58 homes, up 164 percent.
• Paradise Valley, 17, up from zero.
• Carefree, 7, up 250 percent.
Notices of a trustee sale were sent to 1,543 Scottsdale homeowners and another 410 went to owners in the four other Northeast Valley communities.
The highest concentration of foreclosures are in these areas:
• Downtown, south to Thomas Road.
• The Scottsdale Airpark area, bounded by Shea Boulevard, Bell Road, Scottsdale Road and 104th Street.
• The Kierland area, bounded by Tatum Boulevard, Shea, Bell and Scottsdale Road.
• DC Ranch, McDowell Mountain Ranch and other areas in the 85255 ZIP code.
Plus, nearly 2,000 area homeowners have been issued a notice of trustee sale, a precursor to foreclosure. That is nearly three times as many as the first six months of 2007.
Foreclosures by city through June 30 of this year and the percentage increase from a year ago are:
• Scottsdale, 640 homes, an increase of 378 percent.
• Fountain Hills, 82 homes, up 531 percent.
• Cave Creek, 58 homes, up 164 percent.
• Paradise Valley, 17, up from zero.
• Carefree, 7, up 250 percent.
Notices of a trustee sale were sent to 1,543 Scottsdale homeowners and another 410 went to owners in the four other Northeast Valley communities.
The highest concentration of foreclosures are in these areas:
• Downtown, south to Thomas Road.
• The Scottsdale Airpark area, bounded by Shea Boulevard, Bell Road, Scottsdale Road and 104th Street.
• The Kierland area, bounded by Tatum Boulevard, Shea, Bell and Scottsdale Road.
• DC Ranch, McDowell Mountain Ranch and other areas in the 85255 ZIP code.
Thursday, July 10, 2008
Arizonans brace for summer mortgage resets
The Arizona Republic - July 2008
More Arizonans than ever before will face the threat of foreclosure this summer as their adjustable-rate mortgage loans jump to a higher interest bracket.
Adjustable-rate mortgage "resets" - in which a low initial interest rate is converted to a higher rate - are expected to peak this month in Arizona, and experts say the summer resets undoubtedly will lead to fall foreclosures.
In a state where one in 20 mortgage borrowers is already at least 30 days behind on payments, government officials, nonprofit organizations and even some lenders have stepped up efforts to help Arizona families stave off foreclosure. A statewide hotline set up in late May to connect borrowers with HUD-approved foreclosure intervention counselors received nearly 1,500 calls in its first month of operation, and a large nonprofit organization with strong lobbying power recently opened an office in Phoenix to bring its counseling services to the state.
Those efforts have contributed to a growing number of success stories. Unfortunately, the fastest-growing segment of delinquent borrowers is just beginning to grapple with the prospect of higher monthly bills, which typically are triggered by resets two to three years into the term of a sub-prime loan.
The effect of a reset varies tremendously based on each loan's specific terms, ranging anywhere from a slight increase in the required monthly payment to doubling it.
Most borrowers awaiting initial loan resets have accrued no equity because of plummeting land values, making it virtually impossible to refinance. For some of them, foreclosure is all but inevitable.
"My opinion is that we haven't seen the worst of it," said Kevin Murphy, executive director of Labor's Community Service Agency in Phoenix. "People who got into those stupid loans did so with the idea that the property value would increase."
Resets rising As of February, an estimated 157,000 adjustable-rate loans had yet to reach their initial reset dates in Arizona, according to economic research firm First American CoreLogic, based in Santa Ana, Calif. The total value of those Arizona loans was roughly $38.7 billion, company spokeswoman Meghan Donovan said.
First American determined that nearly 10 percent of those loans would reach their initial reset dates between March and August, with the highest monthly total - about 2,600 loans, valued at nearly $665 million - occurring in July.
The number of monthly resets is then expected to gradually decline and stabilize until a second, even more dramatic increase in resets occurs in mid-2010, according to First American's research.
The second spike represents so-called "option ARM" adjustable-rate loans, in which borrowers are allowed to make lower monthly payments until the loan reaches an automatic 5-year reset date or the borrower hits the maximum limit on negative amortization, usually 110 percent to 125 percent of the original loan amount.
The vast majority of adjustable-rate mortgages in Arizona that have yet to reach their initial reset dates were issued from 2004 to 2006, when the housing market crested and fell, Donovan said.
The lending industry has since phased out most of the loan types responsible for the ensuing foreclosure crisis, but homebuyers who agreed to those terms are still contractually bound to fulfill their obligations unless the lender is willing to renegotiate, said Murphy, who runs a free, nonprofit foreclosure intervention counseling service in Phoenix.
Since September, calls from struggling borrowers with adjustable-rate loans have increased from a small fraction of all inquiries to nearly half, Labor's counselor Liz Henry said.
"Prior to that, it was more traditional loans," she said.
Murphy said most lenders won't even consider modifying a loan to reduce the effects of a reset until the borrower is at least 60 days delinquent and has demonstrated a willingness to eliminate excess spending, sell off luxury items and even take a second job if necessary to keep the home.
Even then, the mortgagor must have sufficient monthly income and a history of timely payments before the reset made them unmanageable.
"They're not going to bend over to the extent some of these homeowners need them to," Murphy said.
The surge in resets has made it far more difficult to negotiate agreements that will keep homebuyers out of foreclosure, Murphy said.
"Up until six to eight months ago, our success rate was up in the 90 percent range," he said. "That's when some of those ARMs started to reset."
Sweat equity Labor's Community Service Agency has still enjoyed some recent successes, however bittersweet.
Phoenix resident Connie Vasquez was one of hundreds of struggling Valley homebuyers who picked up the phone in June and called for help.
Vasquez, 56, reached out to the Arizona Foreclosure Help Line, a new service administered by the Arizona Department of Housing that connects residents with one of a dozen state-contracted foreclosure intervention services.
"When I first called, I was a bit leery," said Vasquez, who works for the Arizona Public Safety Retirement System. "I just took a shot."
Vasquez, who has a traditional, fixed-rate loan, struggled to pay the monthly bills after worsening arthritis made it impossible for her 58-year-old husband, Nolberto, to continue practicing his trade as a concrete finishing contractor.
"My husband hasn't worked in about a year, and so I got stuck with everything," she said.
At first, Vasquez was able to keep her mortgage current by taking on a second job at the post office and cutting back on family expenses.
However, the seasonal job ended after the New Year, and before long she had missed a house payment.
The already difficult task of scraping together $1,400 a month to pay off the mortgage suddenly became double, Vasquez said. Now she would have to come up with $2,800 to avert the foreclosure process.
"It was very stressful during that time," she said. "I was getting desperate."
Vasquez was connected by the hotline service to Labor's Community Service Agency, where counselor Henry asked her to collect the required documents to prove her income and expenses.
Two weeks later, Vasquez arrived for a face-to-face meeting to go over the documents with Henry and answer some questions. By that time, her mortgage had become three months past due.
Henry convinced Vasquez' lender, HSBC Mortgage Services, to forgive the past-due payments and add them back into the loan's principle. The lender did not reduce her interest rate or the amount of her monthly bill.
Vasquez still had to make one payment of $1,400 in June, but she is no longer in default.
"It took every penny I had," she said, sitting in her 115-degree living room on Monday afternoon. Air-conditioning is a luxury she can no longer afford.
Still, Vasquez said she is committed to keeping the home at any cost.
"I don't want to worry about where I'm going to live in 10 or 20 years," she said. "It's stability - I'll always have someplace to go."
New hope Though it might seem harsh, Henry said the forbearance agreement she negotiated for Vasquez would not have been possible six months ago.
Faced with the prospect of taking on massive inventories of abandoned homes, lenders are becoming more flexible in situations where the borrower shows a strong desire to honor their mortgage agreement.
"A lot of the lenders are creating special departments dedicated to what they call 'home retention,'" Henry said, adding that it's a big step forward from the typical "loss mitigation" departments focused entirely on recovering the lender's money.
The home retention staff usually has limited autonomy to negotiate with foreclosure intervention counselors, which makes the process more productive, she said. In some recent cases, lenders have agreed to reduce the interest rate of an adjustable loan to what it was before the reset and fix it at that rate, though such concessions are still rare.
One persisting obstacle to loan renegotiation is that mortgage lenders have a fiduciary responsibility to the investors who have purchased bundles of sub-prime loans, also known as mortgage-backed securities, on the open exchange.
"A lot of these policies are set by the ultimate investor in the loan, and not the people who administer the loan," Murphy said. "They can only go so far, because everybody up the chain has someone to answer to,"
Darren Duarte, spokesman for nonprofit mortgage lender and foreclosure intervention provider Neighborhood Assistance Corporation of America, said his organization also has seen a greater willingness on the part of lenders to make deals with counseling services on behalf of borrowers.
One lender even agreed to reduce the total amount of a client's debt by $20,000 and lower her interest rate from almost 15 percent to less than 7 percent, Duarte said, adding that such deals are not typical.
Neighborhood Assistance Corporation, based in Boston, opened a Phoenix office two months ago and already has helped several Valley residents hang on to their homes, he said. The nonprofit group also offers its own low-interest, fixed-rate mortgage loans to responsible borrowers and lobbies against predatory lending practices.
Duarte said the middlemen of mortgages, including bankers, brokers and investment marketers, are responsible for creating and selling loans that doomed borrowers and mortgage-backed securities investors to failure.
"People took advantage of these people," he said. "We had all these players here trying to make money off them."
Murphy said he believes regulators also failed the borrowers and backers of adjustable-rate mortgage loans, and the half-baked efforts of Congress to bail out borrowers are too little, too late.
"There needs to be more control at the federal level," he said. "This whole mess is the result of lax enforcement by the federal government."
More Arizonans than ever before will face the threat of foreclosure this summer as their adjustable-rate mortgage loans jump to a higher interest bracket.
Adjustable-rate mortgage "resets" - in which a low initial interest rate is converted to a higher rate - are expected to peak this month in Arizona, and experts say the summer resets undoubtedly will lead to fall foreclosures.
In a state where one in 20 mortgage borrowers is already at least 30 days behind on payments, government officials, nonprofit organizations and even some lenders have stepped up efforts to help Arizona families stave off foreclosure. A statewide hotline set up in late May to connect borrowers with HUD-approved foreclosure intervention counselors received nearly 1,500 calls in its first month of operation, and a large nonprofit organization with strong lobbying power recently opened an office in Phoenix to bring its counseling services to the state.
Those efforts have contributed to a growing number of success stories. Unfortunately, the fastest-growing segment of delinquent borrowers is just beginning to grapple with the prospect of higher monthly bills, which typically are triggered by resets two to three years into the term of a sub-prime loan.
The effect of a reset varies tremendously based on each loan's specific terms, ranging anywhere from a slight increase in the required monthly payment to doubling it.
Most borrowers awaiting initial loan resets have accrued no equity because of plummeting land values, making it virtually impossible to refinance. For some of them, foreclosure is all but inevitable.
"My opinion is that we haven't seen the worst of it," said Kevin Murphy, executive director of Labor's Community Service Agency in Phoenix. "People who got into those stupid loans did so with the idea that the property value would increase."
Resets rising As of February, an estimated 157,000 adjustable-rate loans had yet to reach their initial reset dates in Arizona, according to economic research firm First American CoreLogic, based in Santa Ana, Calif. The total value of those Arizona loans was roughly $38.7 billion, company spokeswoman Meghan Donovan said.
First American determined that nearly 10 percent of those loans would reach their initial reset dates between March and August, with the highest monthly total - about 2,600 loans, valued at nearly $665 million - occurring in July.
The number of monthly resets is then expected to gradually decline and stabilize until a second, even more dramatic increase in resets occurs in mid-2010, according to First American's research.
The second spike represents so-called "option ARM" adjustable-rate loans, in which borrowers are allowed to make lower monthly payments until the loan reaches an automatic 5-year reset date or the borrower hits the maximum limit on negative amortization, usually 110 percent to 125 percent of the original loan amount.
The vast majority of adjustable-rate mortgages in Arizona that have yet to reach their initial reset dates were issued from 2004 to 2006, when the housing market crested and fell, Donovan said.
The lending industry has since phased out most of the loan types responsible for the ensuing foreclosure crisis, but homebuyers who agreed to those terms are still contractually bound to fulfill their obligations unless the lender is willing to renegotiate, said Murphy, who runs a free, nonprofit foreclosure intervention counseling service in Phoenix.
Since September, calls from struggling borrowers with adjustable-rate loans have increased from a small fraction of all inquiries to nearly half, Labor's counselor Liz Henry said.
"Prior to that, it was more traditional loans," she said.
Murphy said most lenders won't even consider modifying a loan to reduce the effects of a reset until the borrower is at least 60 days delinquent and has demonstrated a willingness to eliminate excess spending, sell off luxury items and even take a second job if necessary to keep the home.
Even then, the mortgagor must have sufficient monthly income and a history of timely payments before the reset made them unmanageable.
"They're not going to bend over to the extent some of these homeowners need them to," Murphy said.
The surge in resets has made it far more difficult to negotiate agreements that will keep homebuyers out of foreclosure, Murphy said.
"Up until six to eight months ago, our success rate was up in the 90 percent range," he said. "That's when some of those ARMs started to reset."
Sweat equity Labor's Community Service Agency has still enjoyed some recent successes, however bittersweet.
Phoenix resident Connie Vasquez was one of hundreds of struggling Valley homebuyers who picked up the phone in June and called for help.
Vasquez, 56, reached out to the Arizona Foreclosure Help Line, a new service administered by the Arizona Department of Housing that connects residents with one of a dozen state-contracted foreclosure intervention services.
"When I first called, I was a bit leery," said Vasquez, who works for the Arizona Public Safety Retirement System. "I just took a shot."
Vasquez, who has a traditional, fixed-rate loan, struggled to pay the monthly bills after worsening arthritis made it impossible for her 58-year-old husband, Nolberto, to continue practicing his trade as a concrete finishing contractor.
"My husband hasn't worked in about a year, and so I got stuck with everything," she said.
At first, Vasquez was able to keep her mortgage current by taking on a second job at the post office and cutting back on family expenses.
However, the seasonal job ended after the New Year, and before long she had missed a house payment.
The already difficult task of scraping together $1,400 a month to pay off the mortgage suddenly became double, Vasquez said. Now she would have to come up with $2,800 to avert the foreclosure process.
"It was very stressful during that time," she said. "I was getting desperate."
Vasquez was connected by the hotline service to Labor's Community Service Agency, where counselor Henry asked her to collect the required documents to prove her income and expenses.
Two weeks later, Vasquez arrived for a face-to-face meeting to go over the documents with Henry and answer some questions. By that time, her mortgage had become three months past due.
Henry convinced Vasquez' lender, HSBC Mortgage Services, to forgive the past-due payments and add them back into the loan's principle. The lender did not reduce her interest rate or the amount of her monthly bill.
Vasquez still had to make one payment of $1,400 in June, but she is no longer in default.
"It took every penny I had," she said, sitting in her 115-degree living room on Monday afternoon. Air-conditioning is a luxury she can no longer afford.
Still, Vasquez said she is committed to keeping the home at any cost.
"I don't want to worry about where I'm going to live in 10 or 20 years," she said. "It's stability - I'll always have someplace to go."
New hope Though it might seem harsh, Henry said the forbearance agreement she negotiated for Vasquez would not have been possible six months ago.
Faced with the prospect of taking on massive inventories of abandoned homes, lenders are becoming more flexible in situations where the borrower shows a strong desire to honor their mortgage agreement.
"A lot of the lenders are creating special departments dedicated to what they call 'home retention,'" Henry said, adding that it's a big step forward from the typical "loss mitigation" departments focused entirely on recovering the lender's money.
The home retention staff usually has limited autonomy to negotiate with foreclosure intervention counselors, which makes the process more productive, she said. In some recent cases, lenders have agreed to reduce the interest rate of an adjustable loan to what it was before the reset and fix it at that rate, though such concessions are still rare.
One persisting obstacle to loan renegotiation is that mortgage lenders have a fiduciary responsibility to the investors who have purchased bundles of sub-prime loans, also known as mortgage-backed securities, on the open exchange.
"A lot of these policies are set by the ultimate investor in the loan, and not the people who administer the loan," Murphy said. "They can only go so far, because everybody up the chain has someone to answer to,"
Darren Duarte, spokesman for nonprofit mortgage lender and foreclosure intervention provider Neighborhood Assistance Corporation of America, said his organization also has seen a greater willingness on the part of lenders to make deals with counseling services on behalf of borrowers.
One lender even agreed to reduce the total amount of a client's debt by $20,000 and lower her interest rate from almost 15 percent to less than 7 percent, Duarte said, adding that such deals are not typical.
Neighborhood Assistance Corporation, based in Boston, opened a Phoenix office two months ago and already has helped several Valley residents hang on to their homes, he said. The nonprofit group also offers its own low-interest, fixed-rate mortgage loans to responsible borrowers and lobbies against predatory lending practices.
Duarte said the middlemen of mortgages, including bankers, brokers and investment marketers, are responsible for creating and selling loans that doomed borrowers and mortgage-backed securities investors to failure.
"People took advantage of these people," he said. "We had all these players here trying to make money off them."
Murphy said he believes regulators also failed the borrowers and backers of adjustable-rate mortgage loans, and the half-baked efforts of Congress to bail out borrowers are too little, too late.
"There needs to be more control at the federal level," he said. "This whole mess is the result of lax enforcement by the federal government."
Fed to curb shady home-lending practices
July 2008
WASHINGTON - The Federal Reserve will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, its most sweeping response to a housing crisis that has propelled foreclosures to record highs.
To prevent a repeat of the current mortgage mess, Bernanke said the Fed will adopt rules cracking down on a range of shady lending practices that have burned many of the nation's riskiest "subprime" borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles.
The plan, which will be voted on at a Fed board meeting on Monday, would apply to new loans made by thousands of lenders of all types, including banks and brokers.
Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.
"These new rules ... will address some of the problems that have surfaced in recent years in mortgage lending, especially high-cost mortgage lending," Bernanke said.
Consumer groups have complained that the proposed rules aren't strong enough, while mortgage lenders worry that they are too tough and could crimp customers' choices.
The Mortgage Bankers Association urged the Fed to "take a balanced approach in devising final regulations so that the credit crisis is not worsened."
Meanwhile, the Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, warned the Fed that weak regulation and oversight has led to the "worst credit crunch in generations."
The Fed — under former chairman Alan Greenspan — came under attack for not acting early on to crack down on dubious lending. Some critics complained that Greenspan, who ran the Fed for 18 1/2 years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, when easy credit spurred lots of subprime home loans and many exotic types of mortgages.
Meanwhile, signs emerged Tuesday that the housing market's slump is likely to persist through the summer, and the real estate market may not recover for at least another year.
The National Association of Realtors' pending home sales index slipped by 4.7 percent in May to the third-lowest reading on record. The decline "suggests we are not out of the woods by any means," said the group's chief economist, Lawrence Yun.
In an extraordinary action aimed at averting a financial catastrophe, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.
The Fed's decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed's lending powers since the 1930s.
Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.
Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.
Bernanke, in appearances on Capitol Hill has said he doesn't believe taxpayers will suffer any losses.
In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn't intervene, he said, problems in financial markets would have snowballed, imperiling the country.
"Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy," Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.
Dodd, meanwhile, praised the Fed's actions in a statement Tuesday, saying, "I am pleased that the Federal Reserve is now taking steps to issue new rules for mortgage lending and to improve oversight of our financial system. As documented by the Senate Banking Committee, it was the lack of regulatory will, not lack of regulatory authority, that contributed to the current credit crisis."
The Fed's consideration of giving Wall Street firms more time to tap the Fed's emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.
Policymakers — in the White House, in Congress and other federal agencies — will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.
Although those efforts are already under way and will be the focus of a House Financial Services Committee hearing Thursday, it will fall to the next president and next Congress to settle them. Both Bernanke and Treasury Secretary Henry Paulson are scheduled to testify at Thursday's hearing.
The Bush administration has proposed revamping the nation's financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.
The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.
Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.
Bernanke recommended that Congress give a regulator the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC's oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.
Saturday, June 21, 2008
Report: May Valley home resales up over April
The Arizona Republic - June 2008
Valley home resale activity increased in May over the previous month but still lagged behind the pace of a year earlier, according to the latest Arizona State University Realty Studies report.
There were 4,265 home resales in May, compared with April's total of 3,760 sales, ASU reported. Both figures exclude foreclosure transactions.
Home resales totaled 4,915 in May 2007, according to the report. Realty Studies Director Jay Butler said May is typically a strong month for home sales.
Still, he said factors such as job losses and layoffs are weakening the economy and likely will add further stress to the housing market.
Valley home resale activity increased in May over the previous month but still lagged behind the pace of a year earlier, according to the latest Arizona State University Realty Studies report.
There were 4,265 home resales in May, compared with April's total of 3,760 sales, ASU reported. Both figures exclude foreclosure transactions.
Home resales totaled 4,915 in May 2007, according to the report. Realty Studies Director Jay Butler said May is typically a strong month for home sales.
Still, he said factors such as job losses and layoffs are weakening the economy and likely will add further stress to the housing market.
Smart Ways To Profit From Foreclosures
Forbes.com - June 2008
With 700,000 bank-owned homes on the market, and another one million in some state of foreclosure, according to RealtyTrac, an Encino, Calif., provider of foreclosure listings, you might be tempted to add a distressed property to your portfolio.
Beware. Buying a home in foreclosure is not for the meek. Those with an appetite for risk, however, will find the tumultuous market stocked with plenty of investment opportunities.
These may include the sale of brand new luxury homes in an upscale Nashville community for half their marked value or a bank giving away a foreclosed property in a poor Detroit neighborhood for back maintenance.
But this complex arena is teeming with professionals. Private equity juggernaut Blackstone Group alone this year raised an $11 billion war chest to chase distressed properties, and large homebuilders looking to recapitalize, like Centex and Lennar, unloaded over $1.5 billion in homes to vulture funds between December 2007 and April 2008, for between 30 and 40 cents on the dollar.
Whether you're looking to flip a home, buy into a neighborhood you couldn't otherwise afford or planning to rent the home, you, like these big companies, must have heaps of cash on hand.
There are properties that can be turned within a few months, but the overall market is still slow. Even if you have a renter lined up or have enough money for a 10% to 20% down payment, you should be ready to weather a depressed market for another two or three years.
Go to the county assessor's office and study recent sales for price-per-square foot and time spent on market to determine what sort of price you can expect at resale. Be conservative. If you are renting, calculate a capitalization rate, and subtract 10% or more of the annual yield for maintenance and depreciation. Make sure that your endeavor is still profitable if you incur two to three years of carrying costs and depreciation.
It's also crucial to remember that bad loans that plagued speculators and unprepared borrowers don't simply disappear when distressed owners sell their properties. Unless the property goes through foreclosure auction and becomes bank-owned, outstanding liens and fees are simply transferred to the new owner. If you plan to buy out of pre-foreclosure, make sure the property has a clean title; otherwise you'll just be trading places with the distressed homeowner.
In such situations, outstanding fees, second liens and the like aren't automatically washed away. It isn't always the case that pre-foreclosure homes lack clear title, but once a home goes into the auction on the courthouse steps and is bought back by the bank, it is clear of all the bad loans that got the original owner into trouble. Making sure a home has clean title is a critical first step to a sound investment.
It's also important to note that you make money on a foreclosure the moment you buy the home. You can make a good return if you're selling in a sinking market, for example, by unloading a home at 70 cents on the dollar, if you bought it for 50 cents on the dollar. In heavily hit foreclosure areas, banks are juggling so many properties that offers on distressed homes, out-of-business homebuilders' developments and excess inventory are being entertained at under-listing prices.
Just don't get attached. As in any market, falling in love with a home--and overpaying--is a surefire way to lose money in a highly risky one.
When you've located an appealing property, order a new appraisal and study foreclosure patterns in the neighborhood. You'll also want to explore creative financing options to defer costs.
However you do the math, the most important thing to keep in mind is that the investment has to be worthwhile--even if you can't sell the home at your desired price for two or three years and the current housing market deteriorates a further 10% to 20%.
If that's a model you can live with, it might be time for a subscription to a foreclosure listing service.
With 700,000 bank-owned homes on the market, and another one million in some state of foreclosure, according to RealtyTrac, an Encino, Calif., provider of foreclosure listings, you might be tempted to add a distressed property to your portfolio.
Beware. Buying a home in foreclosure is not for the meek. Those with an appetite for risk, however, will find the tumultuous market stocked with plenty of investment opportunities.
These may include the sale of brand new luxury homes in an upscale Nashville community for half their marked value or a bank giving away a foreclosed property in a poor Detroit neighborhood for back maintenance.
But this complex arena is teeming with professionals. Private equity juggernaut Blackstone Group alone this year raised an $11 billion war chest to chase distressed properties, and large homebuilders looking to recapitalize, like Centex and Lennar, unloaded over $1.5 billion in homes to vulture funds between December 2007 and April 2008, for between 30 and 40 cents on the dollar.
Whether you're looking to flip a home, buy into a neighborhood you couldn't otherwise afford or planning to rent the home, you, like these big companies, must have heaps of cash on hand.
There are properties that can be turned within a few months, but the overall market is still slow. Even if you have a renter lined up or have enough money for a 10% to 20% down payment, you should be ready to weather a depressed market for another two or three years.
Go to the county assessor's office and study recent sales for price-per-square foot and time spent on market to determine what sort of price you can expect at resale. Be conservative. If you are renting, calculate a capitalization rate, and subtract 10% or more of the annual yield for maintenance and depreciation. Make sure that your endeavor is still profitable if you incur two to three years of carrying costs and depreciation.
It's also crucial to remember that bad loans that plagued speculators and unprepared borrowers don't simply disappear when distressed owners sell their properties. Unless the property goes through foreclosure auction and becomes bank-owned, outstanding liens and fees are simply transferred to the new owner. If you plan to buy out of pre-foreclosure, make sure the property has a clean title; otherwise you'll just be trading places with the distressed homeowner.
In such situations, outstanding fees, second liens and the like aren't automatically washed away. It isn't always the case that pre-foreclosure homes lack clear title, but once a home goes into the auction on the courthouse steps and is bought back by the bank, it is clear of all the bad loans that got the original owner into trouble. Making sure a home has clean title is a critical first step to a sound investment.
It's also important to note that you make money on a foreclosure the moment you buy the home. You can make a good return if you're selling in a sinking market, for example, by unloading a home at 70 cents on the dollar, if you bought it for 50 cents on the dollar. In heavily hit foreclosure areas, banks are juggling so many properties that offers on distressed homes, out-of-business homebuilders' developments and excess inventory are being entertained at under-listing prices.
Just don't get attached. As in any market, falling in love with a home--and overpaying--is a surefire way to lose money in a highly risky one.
When you've located an appealing property, order a new appraisal and study foreclosure patterns in the neighborhood. You'll also want to explore creative financing options to defer costs.
However you do the math, the most important thing to keep in mind is that the investment has to be worthwhile--even if you can't sell the home at your desired price for two or three years and the current housing market deteriorates a further 10% to 20%.
If that's a model you can live with, it might be time for a subscription to a foreclosure listing service.
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