Smart Real Estate News & Commentary by Chris McLaughlin December 9, 2010
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BOA resumes foreclosures
Bank of America (BOA) said today it was ending its hiatus on foreclosure sales, and promised to get its act together after a series of sloppy home seizures prompted the bank to back off and re-examine its process. The bank said it plans to proceed with 16,000 foreclosures this month, though it will observe a “holiday suspension” of sales and evictions from Dec. 20 to Jan. 2. Freddie Mac and Fannie Mae have announced a similar holiday freeze. The Bank of America action ends the “voluntary freeze” that the bank initiated in October, after a series of messy real estate mistakes. They included the foreclosure of a house that was owned outright by someone who had paid cash, without any mortgage at all, as reported by the Sun Sentinel of Florida.
In another case, the bank shut off the utilities of a Pittsburgh homeowner and seized her pet parrot, despite the fact that she was current on her payments. The bank reiterated that “more than 86% of the bank’s home loans are current on their mortgage,” which means that less than 14% of home owners are not current. The bank also reiterated that “at the point of foreclosure sale, one-third (of the) properties it services are vacant.” “We have identified areas of our process that can be improved and while we make these improvements, it’s important that we move ahead with efforts to reduce the number of abandoned properties across the country,” said Barbara Desoer, president of Bank of America Home Loans, in a statement. “The properties can drag home values in neighborhoods and slow the eventual recovery of the housing market.”
Americans get richer
Net worth for households and individuals climbed $1.2 trillion, or 2%, to $54.9 trillion in the third quarter, according to the Federal Reserve’s Flow of Funds report released yesterday. Household wealth had tumbled in the second quarter — sliding $1.5 trillion between April and June — after having climbed for four straight quarters. But growth returned in the third quarter thanks to higher stock values, with the S&P rising 11% following a 12% slide in the second quarter. Corporate equities jumped $939 billion and mutual fund shares gained $378 billion, eclipsing the $698 billion dip in real estate assets — the first decline in five quarters. “Today’s report shows that households have continued to rebuild their balance sheets throughout Q3, although the boost to net worth was completely due to a strong recovery in the equities market,” Theresa Chen, an economist with Barclays Capital, said in a note to clients. “Looking forward, we expect net worth to rise further as overall economic activity increases and the employment outlook improves.” Meanwhile, liabilities fell $7.6 billion in the third quarter, as a $64 billion drop in home mortgages was slightly offset by a $22 billion gain in consumer credit.
Olick – government to become investor friendly?
”Last week I interviewed an investor who buys foreclosed properties and rents them out long-term for solid returns. He claims that’s the only way to right the housing market — get long-term investors to eat up the excess inventory. The biggest roadblock, however, is credit. Fannie Mae and Freddie Mac both limit the number of investor mortgages. Multiple sources now tell me that the Administration, specifically over at the Department of Housing and Urban Development, is considering ways to get more investors into the housing market, possibly with the help of Fannie and Freddie. HUD would not confirm that, but Fannie Mae’s chief economist Doug Duncan said it is definitely on the table both at HUD and at Fannie. ‘We’re certainly exploring the opportunities to expand that,’ said Duncan in an interview, cautioning, ‘the data in our own portfolio show that when you get to a certain number, like ten is the number we’ve chosen, if there’s any default issue, all the loans go bad at the same time, so at the present time we have two mandates, one is to help provide liquidity and help with funding, but the second is to protect taxpayers as well.’
No question that any such program would have to require investors to have significant skin in the game, that is, large down payments on all properties, and perhaps a designated capital reserve level to protect against losses. Underwriting would have to be stringent, unlike what went on in the heyday of the housing boom. Part of the problem is that the Administration doesn’t want to spend any more money on housing, and it is particularly politically unpalatable to offer financial assistance to investors, who are widely blamed for causing the housing crisis in the first place. But we’re talking about a different kind of investor here. There is an awful lot of hedge fund capital just sitting on the sidelines, if and only if the banks would let them on the field. With home prices falling yet again, a collective $1.7 trillion of collective home equity lost in 2010, according to Zillow.com, and mortgage rates rising, more potential home buyers are being priced out of the housing market. 23 percent of borrowers are now underwater on their mortgages, which means they can’t sell to move up. Inventories are still far above a healthy level, and the shadow inventory of foreclosed properties will only add pressure to prices.
I’m sure the Administration is well aware of all that, which is why officials are putting ever more pressure on Fannie and Freddie to write down mortgage principal. ‘The Administration believes strongly that the FHA short refi [which involves principal write-down] is a viable option to deal with borrowers with negative equity, and outright refusal to implement a program which could have economic value to the institutions bearing the risk, we think is shortsighted,’ FHA commissioner David Stevens told me. Whether it’s principal write-down or investor incentives, it is becoming ever more abundantly clear that the housing market is not going to right itself on its own without considerably more pain.”
Trade deficit narrows
The U.S. trade deficit narrowed much more than expected in October, as exports rose a robust 3.2 percent and imports declined slightly in the face of slackening demand for industrial and petroleum products, a Commerce Department report showed today. The trade gap totaled $38.7 billion, down from a revised estimate of $44.6 billion for September. Analysts surveyed before the report had expected the October trade deficit to narrow just slightly to about $43.60 billion. On an annual basis, the trade deficit has widened sharply this year and could surpass $500 billion when final figures for 2010 are available.
Last year, in the midst of the global financial crisis which put a squeeze on world trade, the U.S. trade gap narrowed about 46 percent to $374.9 billion. Record exports to China and Mexico in October helped push the overall export tally to $158.7 billion, the highest since August 2008. Exports to the European Union and Japan also showed growth. Overall U.S. imports fell 0.5 percent to $197.4 billion, led by drop in imports of industrial supplies and materials and the lowest petroleum imports since November 2009. Despite the overall drop, imports from Mexico were the highest on record and imports from Japan and the European Union were the highest in two years. Imports of advanced technology products also set a record. Despite record exports to China in October, the U.S. trade deficit with that country in the first 10 months of 2010 was $226.8 billion, up 20.3 percent from the year-earlier period.
GSE principal writedowns “symbolic”
Mortgage-backed securities strategists at Credit Suisse say the market-wide impact of potential Fannie Mae and Freddie Mac principal writedowns on securitized mortgages would be minimal. The Credit Suisse comments come in response to recent news reports that the Obama administration is pressuring the two government-sponsored enterprises to force principal writedowns for underwater borrowers, something they have thus far resisted. Credit Suisse analysts said that the number of incremental mortgage borrowers is so small that the power of such a program would be limited due to the small number of people who would qualify. The Wall Street Journal reported that the GSEs are being pressured to participate in the Federal Housing Administration’s short refinance program. Participation so far has been weak, with only 61 applications in the first three months and only three processed, according to the WSJ.
“We believe the market impact of this program should be more symbolic and psychological than fundamental,” write analysts Mukul Chhabra, Qumber Hassan and Mahesh Swaminathan. “We estimate that 5% to 15% out of the $224 billion outstanding balance of more than 105% LTV loans from 2005-2008 vintages might qualify,” they write in a note to clients. Furthermore, such a program will likely need congressional approval and require the distressed borrower to be in imminent default. “Borrowers who meet the imminent default criteria are already being offered HAMP,” the government-sponsored mortgage modification program, they write, “so there are no incremental borrowers for the new program – just a shift from HAMP to FHA short refi.” The analyst doubt that, given the current makeup of Congress, getting a large, market changing mortgage reduction program passed into law unlikely.
Pimcoe raises growth forecast after tax compromise
Pacific Investment Management Co, manager of the world’s largest bond fund, raised its growth forecast for the U.S. economy to between 3 percent and 3.5 percent for 2011 from its earlier estimate of 2 percent to 2.5 percent, Chief Executive Mohamed El-Erian told CNBC late Thursday. The more positive outlook was influenced by measures put in place to stimulate the economy such as the compromise to extend Bush-era tax cuts for another two years, but further stimulus measures would be needed to keep the growth going, El-Erian said.
Pimco sees the economy growing 3 percent to 3.5 percent in the fourth quarter of 2011 from the same period of this year. “We revised this week our outlook for U.S. growth in 2011 taking into account Monday’s announcement on additional fiscal stimulus measures,” El-Erian said in an interview with Reuters. Many economists also raised their U.S. gross domestic product forecasts after the compromise tax deal made by Obama, which included a surprise reduction in payroll taxes for 2011. El-Erian said: “Such a multiyear improvement would likely also require structural measures aimed at improving America’s global competitiveness and a credible medium-term fiscal consolidation program.” He warned: “It’s important to ask whether the extraordinary fiscal and monetary stimulus measures, by themselves, will also have a meaningful impact on growth beyond 2011.”
Now for our real estate education section…
Gotta Get Item of the Week: Tangible Social Media Tools
First there was online MLS, then virtual tours and now social media. Sometimes the more things change the more they stay the same. Although today’s gotta get item of the week may not be a game-changer, it is an enticing, fun and even potentially profitable undertaking….tangible social media tools.
Tangible Social Media Defined
Tangible social media may not be a term you have heard before but that is only because it is so new. Basically these tools (more on that in a minute) allow consumers or social media site owners to create customized books, comics, memoirs, portrait books and other printed versions of online interactions to be used as keepsakes or future reference.
Cool Tools
The EggBook – Organized and print a physical copy of Facebook interactions. It even includes a photo mosaic of all your friend avatars and a top 20 list of best commentators. Create a Facebook page for seminars, online events or specialized information then turn it into a commodity to give away later.
Printing Facebook – This creative an unique service allows you to create posters ($20 each) filled with all your Facebook friends.
PerfectFools Facebook Book – Ever wish there was a way to preserve the great memories, interaction and even quips on your Facebook page? Well now there is thanks to the Facebook Book. Freeze your internet activity in a space and time by creating a book that compiles all the interaction, images and even status updates on your account. A great tool for information heavy users or those seeking to capitalize on an especially interesting theme.
Custom Twitter Books – This could be one of the best $20 you spend in a long time (and don’t forget those tax deductions); customized Twitter books that preserve all your best Tweets in a printed version. Include or omit tweets as desired, then put them all together to preserve those words of wisdom (or downright foolishness…your pick). As an added benefit, real estate and investment pro’s will become more aware of the value of information when including a tweet with an eye for posterity. Great give-away or gift idea as well.
FledglingWine.com – Think of this as social media on ice. In an effort to encourage literacy, a wine enthusiast has created what may be one of the most creative uses of Twitter to come about; Twitter wine. At $20 per bottle, you can customize the Twitter label in a choice of Chardonnay or Pino Noir. Right in time for the holiday celebrations, it’s a fun twist on an old tradition.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
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