Smart Real Estate News & Commentary by Chris McLaughlin October 18, 2010
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DSNews.com – 7 million mortgages past due
There are 7,018,000 mortgages in the United States that are 30 or more days delinquent or in the process of foreclosure, according to new data from Lender Processing Services (LPS). The Florida-based analytics and technology firm offered the media a preview Friday of its September month-end mortgage performance figures, derived from the company’s loan-level database of nearly 40 million mortgage loans. Of the more than 7 million home loans in the country currently going unpaid, 2,055,000 have already commenced foreclosure proceedings. LPS reports that 4,963,000 are in the pre-foreclosure default stages, with nearly half of these falling into the 90-plus-days delinquent bucket. LPS’ measurement of the U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure) rose to 9.27 percent as of the end of September. That’s a 0.6 percent increase over the previous month, but down 7.8 percent compared to last September.
The nation’s pre-sale foreclosure inventory rate stands at 3.84
percent, according to LPS’ market data – up 1.1 percent from the August reading and 3.6 percent above a year earlier. LPS says the states with the highest percentage of non-current loans (defined as the total number of foreclosures and delinquencies as a percent of all active loans in that state) include: Florida, Nevada, Mississippi, Georgia, and Louisiana. The lowest percentage of non-current loans can be found in: Montana, Wyoming, Arkansas, South Dakota, and North Dakota.
Republicans will probe home loans for the poor
Darrell Issa, who would head the lower chamber’s main investigative committee, told the Financial Times in an interview: “We should look at financial entities and either reform them or kill them.” The conservative Republican from California, who would become chairman of the powerful House oversight and government reform committee, said hearings would focus on whether the federal government should be involved at all in sponsoring home loans for the poor. The investigations would centre on the roles of Fannie Mae and Freddie Mac, the nationalised government-sponsored lending institutions, which Republicans say contributed strongly to the 2008 meltdown by promoting subprime lending. Mr Issa said the role of Countrywide, the bankrupt subprime lender, would also be investigated.
He did not spell out whether he would investigate alleged connections between subprime lenders and Democratic politicians. “We need to look not only at the failure of Freddie and Fannie but even after that whether the federal government should be involved in financing home loans at all,” Mr Issa said. “By promoting these loans we have artificially raised the price of homes – it is anti-wealth creating. The problem still hasn’t been addressed and everyone assumes it’s a system we are going back to.” However, Mr Issa, who would replace Henry Waxman, the California Democrat, if the Republicans win next month, tried to play down talk there would be a witch-hunt of the Obama administration, as many Democrats are predicting.
Credit card delinquencies fall
Credit card bank stocks slumped on Friday, with shares of Capital One Financial posting the worst decline among banks. Shares of other major U.S. banks also fell on Friday, amid investor fears of a growing mortgage foreclosure crisis. Credit card delinquencies, which indicate that consumers are late paying their bills, are an early sign of future losses, or charge-offs. Banks file monthly credit card reports with the U.S. Securities and Exchange Commission. Delinquencies edged down at most major U.S. lenders in this sector, indicating that losses are unlikely to surge again soon. But the rate of decline at most lenders was slower than it had been in previous months this year. JPMorgan Chase Chief Executive Officer Jamie Dimon told investors and analysts on Wednesday that he did not expect the bank’s credit card portfolio to “bottom out’” until the third quarter of 2011.
The company and its main competitors are also struggling to grow their credit card businesses because consumers are reluctant to take on more debt. Bank of America and Citigroup reported the largest declines in overall credit card losses on Friday, but both continued to report some of the highest charge-offs among major U.S. credit card lenders. American Express said its delinquencies inched up to 2.5% in September from 2.4% in August. But the credit card lender and processing network continued to report the lowest monthly delinquencies and losses of the major U.S. lenders, and its charge-offs dropped to 4.7% from 5.5% in August. Discover Financial Services said delinquencies ticked down to 4.41% in September from 4.47% in August. Charge-offs also fell to 7.15%, their lowest level this year. Capital One’s delinquencies were 4.53% in September from 4.56% in August, while the McLean, Virginia-based bank’s credit card losses rose to 8.38 percent from 8.18 percent.
Olick – are Trusts on the hook?
“We’ve talked a lot about the robosigning scandal with respect to borrowers’ rights and the possibility that foreclosure documents were signed improperly. A bigger issue emerging is what those robosigners, perhaps unbeknown to them, were covering up—big flaws in mortgage securitization that could open the floodgates to investor lawsuits against trusts. In the mortgage process, after mortgage securities are ‘bundled’ and sold to investors, they are then assigned to trusts, which manage the assets of the beneficiaries, i.e. the investors. There are only a few trusts out there, primarily Deustche Bank, Wells Fargo, Bank of New York Mellon and US Bank. They are responsible for holding on to all the documentation of these loans—the mortgage, title, note, etc. subject to mortgage pooling and servicing agreements. The trouble is a lot of the paperwork was not properly transferred, and if not, ‘the ‘true sale’ of mortgages to the trusts that issued mortgage backed-securities would be in question,’ says Josh Rosner of Graham Fisher.
‘The problem is the MERS system is keeping track of the deed of trust without recording the interest on the deed,’ says Janet Tavakoli, of Tavakoli Structured Finance. ‘You can’t seal a deal with a handshake; we’ve got to have a signed document. It has to be on paper. That’s what all states require.’ All this means that investors in mortgage-backed securities, and about 2/3 of the nearly $11 trillion worth of U.S. mortgage were securitized and traded worldwide, could have a standing to cut their losses. How? They could argue that they took losses on securities that the trusts never legally had. ‘I think you’re going to see investors in securitization trusts suing the trustee, on the grounds that the trustee did not properly inspect all the documents it was supposed to,’ says Georgetown University law professor Adam Levitin. Then you could also have the trustees suing the investment banks that bundled the mortgages and sold them to the trusts on the basis that they may not have delivered what they said they were going to. ‘Probably the end game is that the litigation all ends up on the heads of the large financial institutions of this country,’ adds Levitin. Many have already argued that the big banks have prepared for this and have taken the appropriate cash reserves to deal with it. But what about the trusts? ‘If it wasn’t correct, these investors did not have a proper asset-backed securitization,’ notes Tavakoli. ‘The trustee is at fault, but the trustees tend not to have any money.’ So then you go after the securitizers, the folks who bundled these—which are of course the big banks.”
Industrial production falls
The Federal Reserve reports that output at the nation’s factories, mines and utilities dropped 0.2% last month. Industrial production grew 4.8% in the July-September quarter, slower than the 7% gains in each of the first two quarter of this year. Factory output, the largest element of industrial production, fell 0.2% last month. Manufacturing posted monthly gains for the first year after the recession ended in June 2009. But since then it has fallen twice in the past four months. Manufacturing has helped drive economic growth as businesses restocked and replaced worn-out equipment. September’s decline could slow that trend. Without consumer demand to take up the slack, industry can’t maintain its strong growth. Production of construction and consumer goods dropped last month as high unemployment made Americans reluctant to spend. Lower production of automotive products, appliances, and energy offset a small gain in business equipment production. Production of machinery and electrical equipment also fell. American factories were operating at 74.7% of their capacity in September, down 0.1% from August. That was the first drop since June 2009, when the deepest recession since the Great Depression ended. Production by mines grew 0.7%. Utility output fell 1.9%.
Now for our real estate education section…
The Changing Face of Real Estate – Then & Now
Real estate has changed dramatically in the past 25 years yet some agents are still doing business in much the same manner as when they first hung a newly minted real estate license on the office wall. Today we are going to take a quick trip down memory lane as well as a glimpse into the near future of real estate to see what clients want and how it matters to both agents and investors.
Blast from the Past
The year is 1985 and a desirable fixed interest rate is 9%. A real estate license virtually ensured success despite the low barrier to entry due to the near total domination of the MLS/Multiple Listing Service which was available to only a very select few participants each week. Compare that to today where instant access to millions of homes is instantly available at the click of a mouse. In fact, technology has not just transformed access to listing but the very method in which real estate transactions take place. According to the National Association of Realtors, buyers have completely different expectations when finally making contact with an agent, investor or other professional including:
57% – Help locating a property
22% – Help with price negotiations and/or paperwork
10% – Comps
07% – Affordability
04% – Help with financing or special program incentives
More than Skin Deep
The change have impacted nearly every aspect of the industry including brokerage methods, increased legal risk and even the consolidation and simultaneous fragmentation of the industry at a whole. Competition is much more fierce while agents are able to work at a much more leisurely pace. Clients not just expect greater access to information but demand 24/7 service…a mixed blessing/curse depending upon the level at which agents or investors have embraced new technology versus trying to respond to each inquiry on their own. This trend is reflected in the larger percentage of business dominated by the top producers in the industry as the top 50% of agents typically do 80% or more of all the business.
Right Moves – Wrong Direction
Despite the recognition that buyers want a “one stop shopping” experience that includes plenty of choices and expert help, most agents and investors alike have responded in exactly the wrong direction. Rather than harnessing technology to address the extra time demands and capture more market share, the majority view it as an extra cost and instead, have responded by trying to work more hours! With nearly 65% reporting the need to either hire additional people or work more days/hours, one wonders why they simply fail to recognize the full potential of technology to do the job instead. Servicing the needs and expectations of an on-the-go consumer is increasingly a necessity but the ability to do the job right is equally important for long term viability in the field.
Remember, instant gratification is not optional for those that wish to grab the most motivated buyers. Research shows that over 90% of prospective buyers that begin an online search for information end up working with a professional…often within a narrow window of the first inquiry. Since buyers are able to gain access to such a large extent of information, the first one that responds to their primary questions is often viewed as the most responsive and available. Make sure it is you! Use this quick quiz to see how you measure up:
1. I routinely send out new information once a…
(a) Week
(b) Day
(c) Several times per day
Correct Response – several times per day! Just a few years ago daily was considered acceptable but that is no longer the case. Serious buyers expect a near instant response and the most up to date information available.
2. I use automated services to notify clients including…
(a) Social media websites like Twitter and Facebook
(b) Automated MLS/IDX and other industry tools
(c) Phone, pre-recorded information and online information.
Correct Response – all of the above. Each has a proper function and target population.
3. Referrals remain an important part of my plan of action so I make it easy by using…
(a) Social media websites that allow friends to share new listings, information and other pertinent data
(b) Traditional referral techniques for the less savvy client group
(c) A handshake and business card is sufficient.
Correct response – A&B. A handshake and business card are terrific but don’t make the mistake of relying on something that is fast becoming as antiquated as recording the deed on papyrus.
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
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The Standard & Poor’s/Case-Shiller index, which measures movement of home prices in 20 major U.S. cities, rose 0.5% in May from April, the first monthly gain since June 2006. Analysts say that the housing market is showing signs of stabilization. “The housing market looks like it has found a floor and we may be on the way to some kind of gradual improvement,” said Ken Mayland, president of ClearView Economics. “After three years of this nasty housing recession, I think we’ve got to be pleased with such an improvement in a relatively short period,” said Harm Bandholz, economist at UniCredit Research.
The government program for preventing foreclosures is not in the best interest of lenders in all cases. If a borrower is likely to default even after participating in mortgage modification program, the lender is better-off opting for foreclosure. Michael Fratantoni, vice president at the Mortgage Bankers Association, said: “There is going to be this narrow slice of borrowers for which modifications is the right answer.” Fratantoni said it is tough to estimate the size of that slice and “the industry and policymakers have been grappling with that.” According to a study conducted by the Federal Reserve Bank of Boston, about a third of the borrowers who miss 2 payments can get back on track without help from their lender. 
In a secret testimony to Congress, an official of Countrywide Financial Corp. has said that Senators Kent Conrad (D-N.D.) and Chris Dodd (D-Conn.) received favored treatment from Countrywide. Dodd, who heads the Banking Committee, got 2 mortgages from Countrywide in 2003, while Conrad, who heads the budget Committee, got 2 Countrywide mortgages in 2004. “You don’t say ’no’ to the VIP,” Robert Feinberg, the Countrywide official, told Republican investigators for the House Oversight and Government Reform Committee.
