Senate unhappy with the progress of foreclosure prevention program
Real Estate News & Commentary by Chris McLaughlin, July 20, 2009
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Senate unhappy with foreclosure prevention program
Senators, cutting across party lines, expressed dissatisfaction at the lack of effectiveness of the government program to stem the rising tide of foreclosures, at a Banking Committee hearing. “If you can’t tell us what you’re headed to — what you’re goal is in terms of the number of properties you’re going to deal with each month — we’ll be flailing around with this two years from now,” Senator Mike Johanns (R., Neb.) said. “It will be regarded as a failed program — a costly failed program.” Senate Banking Chairman Christopher Dodd (D., Conn.), said: “I’m hoping that, with the stakes this high, somebody can explain to me why nothing has changed.” The Obama administration officials defended the program. Treasury’s Assistant Secretary for Financial Stability Herbert Allison said: “We are encouraged by the level of improvement we’ve achieved in the last ten weeks.” Allison said that the rising unemployment is worsening the situation. William Apgar, Housing and Urban Development Senior Advisor, said that the administration is mulling ways of helping the unemployed, including increasing unemployment benefits, in order to tackle foreclosure. “All options are under review because we have to get a program that works,” said Apgar.
Experience may not count in mortgage industry
According to research conducted by Mark Garmaise, an associate professor of finance at the Anderson School of Management, experience of mortgage brokers positively correlates with the extent of foreclosures on the loans they make. An analysis of about 23,000 mortgage loans processed by 2,905 brokers from 2004 to 2008, shows that the fifth loan made by a broker is 8% less likely to result in foreclosure than the tenth loan. Experienced brokers typically do more mortgages than less experienced ones. This means that they have less time to adequately evaluate the riskiness of individual mortgage. In addition, lenders make exceptions to underwriting guidelines for mortgages that come from more experienced brokers.
According to Garmaise, distance plays a role in determining the effectiveness of mortgage evaluation. For example, for brokers who are located 150 miles from a lender’s headquarters, their tenth loan was 1% more likely to default than their fifth. Garmaise says that lenders may lack the financial resources to monitor distant brokers as closely as those who are nearby. Do these findings mean that experience is of no use in mortgage business? Not quite. Garmaise says that borrowers with poor credit scores may want to look at better-established brokers. “It’s pretty clear these guys are the ones that get loans approved,” said Garmaise. Alan Rosenbaum, the chief executive of the Guardhill Financial Corporation, says that the study makes sense and exhorts borrowers to seek brokers with good reputation rather than just experience.
Stimulus funds not reaching “economically distressed”
The Obama administration introduced the stimulus plan with the idea of helping people who are “economically distressed”- people in places where unemployment is higher than the national average by 1% or where per capita income is 80% or less than the national average. According to an analysis of stimulus spending by the Transport Department, carried out by the Associated Press, only about 47% of the total $16 billion allocation on transportation projects is directed towards counties that are economically distressed.
In Texas, about $1.2 billion has been allocated to more than 200 projects. Just 44% has been directed at counties considered economically distressed. “If economically distressed areas get the money, it’s just by coincidence,” said Jim Dunnam, a Democratic member of the Texas House of Representatives. In Louisiana, 7% of the funding announced so far is going to economically distressed areas. Cathy St. Denis, spokeswoman for the Federal Highways Departments, says the department is monitoring the use of funds but cannot do much about targeting of funds. “The final decision is up to the states,” said St. Denis.
Bank failures this year: 57 and counting
Regulators last week shut 4 banks – 2 in California and 1 each in Georgia and South Dakota – taking the number of bank failures to 57 this year. Temecula Valley Bank with $1.5 billion in assets and deposits of about $1.3 billion, Vineyard Bank, National Association with assets of $1.9 billion and $1.6 billion in deposits, First Piedmont Bank with $115 million in assets and $109 million in deposits, and BankFirst with $275 million in assets and $254 million in deposits were the failed banks.
The Federal Deposit Insurance Corporation (FDIC) estimates that the cost to the deposit insurance fund from the 4 banks failures will be $990 million. The FDIC officials say that delinquencies in commercial real estate loans remain a concern. If the economy does not turnaround, a number of high-risk loans held by banks could get into default. The number of banks in the “problem banks” list of the FDIC stood at 305 in the first quarter of this year. This was the highest since 1994 when the savings and loan crisis broke out. The FDIC expects its insurance fund to take a hit of $70 billion through 2013 on account of bank failures.
NABE survey says recession is easing but not yet over
The quarterly industry survey conducted by the National Association for Business Economics (NABE), has found that demand is stabilizing, but a small majority of survey participants said their firms are yet to see the bottom. The net demand index dropped to -5 in the second quarter of this year, from the first quarter’s -14. In the fourth quarter of last year, it registered -28. Sectorally, financial services showed the strongest demand, with an index reading of +15. The transportation, utilities, information and communications sector had the lowest reading at -90. The survey, which was conducted among 102 respondents, found that profitability remained weak in the second quarter. However, the rate at which profits are declining is slowing.
Sara Johnson, managing director of global macroeconomics for IHS Global Insight, said the survey “provides new evidence that the U.S. recession is abating, but few signs of an immediate recovery. Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half of the year.” Only 6% of the firms what participated in the survey added jobs last quarter while 36% of the respondents said their companies cut jobs. Respondents expect jobless rate to come down towards the end of this year.
Now on to our real estate investor education section…
Value Matching – Selling What Matters Most
There is a new trend hitting America that every real estate professional and short sale investor should use to their advantage; getting back to basics. You’ve seen the credit card commercials with feel good family values that claim conspicuous consumption is dead or the big box stores touting stay-cation’s rather than expensive European getaways….but how can you make it work for real estate?
It’s simple once you understand the basics about value matching. Keep reading to learn more:
- Don’t Pigeonhole. Value matching is not about putting labels on people; in fact, that is a sure-fire way to fail. Instead, it is about learning what values are important to your target population then meeting their needs by providing the best “fit” possible. Real estate is one of the most important investments most people will make during their lifetime. Aside from the large dollar amount, it is often a critical decision which will define the future of their family and social standing for years to come.
- Listen. Value matching requires the ability to listen in order to understand the needs, hopes and desires of the buyer (or seller). It’s imperative to find out what matters most to each client then sell those factors – forget about the typical trappings of success (unless that is indeed what matters most to your client) and instead focus on what they value most. The typical family will fall into several distinct categories including:
- Family – Young married couples searching for safe, affordable family oriented neighborhoods. Schools, cost, local amenities like parks and safety take top priority.
- Empty Nester’s – Convenience typically trumps everything else. Low maintenance yards, access to hospitals/grocery/shopping/golf and good neighbors get their attention.
- Sanctuary – Freedom, privacy and safety is of utmost concern for some; don’t be too quick to put a label since these come in all shapes and sizes. From high net worth individuals seeking solitude to good-ole-boys that want to practice commando moves in their back yard, those seeking safety and privacy will pay a premium for the right property.
- Build Relationships – The future will require the ability to build meaningful relationships even for temporary transactions like those of real estate. Trust has become a bigger issue than ever as people feel uncertain about whether or not they are getting a good deal or will encounter trouble later down the road. Word of mouth marketing has always been a real estate agents best friend but now, investors are recognizing the benefits as well.
- Position as a Problem Solver – Become more than a sale person or investor by positioning yourself as a problem solver with solutions to people’s most urgent housing related needs. People have an inherent need to feel unique and a growing grudge about paying for simple ’paper shuffling’. On the other hand, everyone is grateful when someone solves their most pressing problem…even if the cost is higher. Remember, its part of the value you bring to the table during any transaction.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
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About the author:
Chris McLaughlin is widely known as America’s top
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* As the top Florida foreclosure and pre-
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* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
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According to the National Association of Realtors (NAR), sale of existing-homes rose to a seasonally adjusted annual rate of 4.77 million units in May, denoting a rise of 2.4% over the April figure. This is the second straight month of increase in sale of existing-homes, due to a plentiful supply of homes and availability of attractive mortgage rates. According to NAR, this is the first back-to-back rise since August and September 2005. “While sales may not have yet reached an absolute bottom, clearly a bottoming process is underway,” said Wachovia, a financial services firm. The total number of existing-homes available, at the end of May, stood at 3.80 million units; this represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April, according to NAR. Lawrence Yun, NAR chief economist, expressed concerns about “faulty valuations that keep buyers from getting a loan.” Yun said: “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment.” Yun warned of a “delay in housing market recovery” and a “further rise in foreclosures” if the appraisal problems are not quickly corrected.” Regionally, existing-home sales in May rose 3.9% in the Northeast, 9% in the Midwest, remained unchanged in the South, and dropped 0.95% in the West.
