Smart Real Estate News & Commentary by Chris McLaughlin August 23, 2010
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HAMP a failure, defaults on the rise
According to a federal report released Friday, only 36,695 homeowners received long-term mortgage modifications in July under the Obama administration’s Home Affordable Modification Program, known as HAMP. This brings the total to 434,717 borrowers who have successfully made it out of the trial phase. A month ago, 51,205 delinquent borrowers were given long-term assistance, but the number of people falling out of the program is on the rise. Some 12,912 homeowners had their permanent modifications canceled in July, 272 of whom paid off their loans. “While there has been some stabilization in the housing market, it remains clear that we have more work ahead,” said Raphael Bostic, assistant housing secretary.
“We know that we must continue to provide support to underwater borrowers, unemployed homeowners, and to the nation’s hardest hit neighborhoods.” Foreclosure prevention programs have taken on renewed importance with the housing market on shaky ground again. A spike in foreclosures, combined with weak housing sales, could send home prices plummeting again. In July, foreclosures were up 3.6% from the month before but down 9.7% from the year earlier period, according to RealtyTrac. The latest report comes two weeks after the government had to revise its June redefault figures sharply higher, after analysts called the initial numbers misleading. The revision showed that nearly 20% of homeowners were at least two months delinquent nine months after receiving a permanent modification. The initial figure showed that 7.7% had fallen behind. The government did not provide redefault statistics for July in the current report. Officials said the data would be released quarterly. Analysts at Barclay’s Capital said last month said 60% of homeowners may ultimately redefault.
New rules for credit cards
New rules designed to protect credit card users from “unreasonable late payment and other penalty fees” came into force yesterday. According to the Federal Reserve, which approved the regulations, the rules block credit card companies from charging more than $25 for late payments except in extreme circumstances, prevent them from charging customers for not using their cards, and requires them to reconsider rate increases imposed since January 1, 2009. “The industry has moved swiftly to implement all of these changes and the final piece of the puzzle is now in place,” said Kenneth Clayton of the American Bankers Association. Some banking groups have concerns. Financial Services Roundtable’s senior lobbyist Scott Talbott warned that the Fed’s cap on penalty fees will limit the industry’s ability to offset the risk that credit cardholders don’t pay their bills. “The restrictions in the rules the Fed issued will decrease the ability of the credit card industry to price for risk and the net effect will be a decrease in [credit] availability,” Talbott said.
Olick – Government spin
“I don’t envy the folks over at Treasury and HUD who, month after month, are forced to report lackluster statistics on the Administration’s mortgage bailout and find something positive to say about them. Unfortunately they painted themselves into a corner by inventing a “Housing Scorecard” this summer, which only forces them to report more troubling numbers. Dr. Raphael Bostic, an assistant secretary at HUD, cited three reasons that we should feel good about housing. 1. “More stability in terms of prices than we’ve seen before the Administration initiatives were started” and “improving expectations offering some hope that we are moving to a more positive environment.” 2. Historically low interest rates that “will be an important incentive and tool for people to access housing and home ownership in a very affordable way.” 3. A lot of things the Administration has done outside of the mortgage bailout “have touched a significantly larger number of people than the number of people who have gone into foreclosure.” Numbers 2 and 3 are fair enough, but I, and another reporter on the call who got to ask the question first, took issue with Number 1. Yes, home prices are not in freefall, as they were before the current administration took office, but I’m not sure where they’re seeing “improving expectations.”
All I’m seeing are reports of double dips in home sales and prices, and increasing concern that the struggling job market will push more borrowers into foreclosure. When asked about that, Dr. Bostic replied only to the first part, about prices being better now than two or three years ago. He declined to answer the question: Where exactly are you seeing data that things are improving now? Administration officials seem to want to point to all the other programs and incentives out there that have and are stabilizing the housing market. It’s not just HAMP (Home Affordable Modification Program), they argue, but the FHA, the Hope Now industry program, the home buyer tax credits, and the government-induced low interest rates that are saving housing, they claim. Still, the reason everyone focuses on HAMP and criticizes its results is that HAMP is the direct bailout that we the taxpayers are paying for…”
AIG repays $4 billion
American International Group’s (AIG) aircraft leasing unit, ILFC, repaid nearly $4 billion of U.S. loans after raising new debt from investors. The repayment reduced the principal balance under a Federal Reserve Bank of New York loan to just over $15 billion, its lowest level since the March 2009 restructuring of government aid. A previous low of $17 billion was reached in December after AIG gave the Fed preferred interest in two special purpose vehicles created to hold its foreign life insurance business, the source said, declining to be named as the development is not yet public. International Lease Finance Corp raised $4.4 billion with new debt sales earlier in August. Chief Executive Robert Benmosche told Reuters in an interview the funds would be used to pay down the Fed’s loans that AIG had taken to prop up the unit
41% price drop in commercial real estate
National property prices on commercial real estate dropped 9.1% in June from last year, according to Moody’s commercial property price index. The rate declined 0.9% over the first half of 2010, and while prices remain 4.2% above the current recession low of October, they are down 41.4% from the peak in October 2007. Moody’s bases the index on the dollar volume of repeat sales transactions in commercial real estate. Analysts reported $2.1bn of these transactions in June, up from $1.5bn in May and $800m in April.
Moody’s managing director Nick Levidy said the increase in sales could mean prices have fallen far enough to meet new demand. “The increase in dollar volume in each of the past two months, taken together with this month’s 43% increase in the number of repeat sale transactions, may be an early indication that buyers and sellers are starting to agree on market-clearing prices,” Levidy said. “If this is in fact occurring, we would expect transaction volumes to rise steadily and price volatility to ebb in the months to come.” Analytics firm Realpoint found delinquency rates on these loans that have been securitized, CMBS, reached 7.79% in July, more than two times the 3.15% reported a year ago. It’s also more than 27 times the recorded low point, a 0.28% delinquency rate in June 2007. The delinquent unpaid balance for CMBS loans reached $60.8bn in July. While it did increase $387.9m from the previous month, it’s nearly 90% below the previous six-monthly average of $3.14bn in increases. Commercial loans that were either 90-plus days delinquent, in foreclosure, or REO grew in the aggregate for the 31st consecutive month, reaching $49bn in July. That figure is nearly triple the year ago and up 9% from the previous month. Realpoint said the delinquency rate could reach between 9% and 10% by the end of the year with the potential to reach 11% under more heavily stressed scenarios.
Now for our real estate education section…
What a Difference a Decade Makes: Marketing Today & Yesterday
Ever experience one of those moments when you suddenly realize an entire year has passed by without your notice? Perhaps a favorite song comes on the radio or an important date seems to catch you by surprise; sooner or later it happens to everyone.
The same phenomena occurs in the business world…especially marketing. What worked a few years ago isn’t just old news, it’s a downright waste of time and money. Unfortunately, it’s easy to be taken by surprise even when working with a marketing company or professionals that really should “know better”. Here to demonstrate the point is a quick comparison between what worked just a few years ago versus what works now.
Year 2000: Email blasts. Remember how easy (and expensive) it was to buy a target email list and send out a mass email or newsletter to prospective new clients? That has all changed. According to Marketing Sherpa, the average open rate for an email blast is less than 40%. Users routinely use filtering software to weed out unknown email and the National Canned Spam Act limits the use of email only to those clients you already have a relationship with.
2010 Update: Twitter/Facebook. Build a relationship and allow it to go viral. Not only is it less expensive than an email blast but it’s also a lot less work. No need to constantly clean and update the list nor hassle with other database management issues.
Year 2000: Telemarketing. Ten years ago it was still common practice to hire an independent firm or marketing pro to call on people directly. Caller ID combined with cell phones and a sizable increase in the number of people registered for the “Do Not Call Registry” have made this all but obsolete.
2010 Update: UTube and other viral video’s. Not only do they provide more comprehensive information to the prospective client but they are available 24/7 and cost a fraction of the amount required by telemarketing.
Direct mail: There was a reason credit card companies constantly sent unsolicited approvals through the mail…it worked! Direct mail was one of the mainstay marketing techniques used by mega corporations and small business owners alike; simply purchase a list and send out postcards or letters then wait for the response. Of course, it was also expensive. Design and printing, stamps and postage, the cost of the list all adds up.
2010 Update: Direct mail is still in use but tends to be much more targeted due to the high cost. Instead, email newsletters, blogs and social media websites are filling in the gaps and gaining more impressive results by creating a constant level of contact and interaction with clients.
Newspaper classified ads: Remember those? Most newspapers throughout the country have either shut down or are barely surviving…meanwhile, advertisements cost more yet reach fewer people than ever.
2010 Update: Online classified advertisements have almost entirely transformed real estate and secondary sales. Not only are they more timely and cost effective but viewers are able to gain valuable information that requires less of your valuable time.
Bottom Line: Today’s media savvy consumers are adept at blocking out unwanted interruptions and outbound marketing efforts. Learn how to reduce the time and cost…while increasing response rates…through the use of social media marketing. Tune in for one of our free webinars to learn more.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.
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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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