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.
Wednesday, October 29, 2008
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.
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