Smart Real Estate News & Commentary by Chris McLaughlin June 9, 2011
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Lenders make short sales even more attractive
CitiMortgage, the mortgage servicing arm of Citigroup is paying borrowers an average $12,000 after completing a short sale this year. Justin Rand, the senior vice president of loss mitigation at the bank, said servicers are putting more of an emphasis on streamlining the process and pursuing a short sale ahead of foreclosure. The short sale process in 2009 took an average 120 days from listing to close. But by reaching out to borrowers instead of waiting for them to ask the bank, short sales now take an average 83 days to complete, Rand said at a panel for the REO Expo Conference in Fort Worth, Texas, earlier this week. “For Citi-held portfolio loans today, we have a little over 16% of delinquent loans in a short sale program,” Rand said, adding that increased from roughly 4% two years ago.
Not only are the timelines shrinking to complete these deals, but the incentives paid to qualifying borrowers – again only on loans owned by Citi – increased in recent years as well. In early 2009, Citi offered an average $1,500 to qualifying borrowers. That went up to between $3,000 and $5,000 in 2010 and finally up to an average $12,000 so far in 2011, Rand said. “Incentives will be offered to customers experiencing financial hardship who need funds to proceed with the short sale,” a Citi spokesman said. “The amount, which is agreed upon up front, varies according to the borrower’s individual circumstances and loan characteristics. It is disbursed to the homeowner when the sale is completed.”
The key to a successful short sale, just like modifications, is the timely collection of financial documents. Regulators helped move the process along with guideline changes to programs like the Home Affordable Foreclosure Alternatives initiative, which lessened the amount of documents required. “It took us about 30 days to collect documentation in 2009 to now less than 10 days,” Rand said. “A lot of the time, for seriously delinquent loans, all we need is just a letter of authorization from the homeowner.” David Sunlin, the operations executive for short sales at Bank of America (BOA) was on the same panel as Rand. He said the entire industry is becoming more proactive. BOA completed more short sales than REO every month for the last year and a half. The short sale department at BOA grew from 150 people to now over 3,000. Each employee handles roughly 75 cases. “We’re past the point where we’re bumbling around losing files,” Sunlin said.
Rand said the big shift began in 2009 as the Treasury Department was putting together plans for the HAFA, which would launch in April 2010. “In 2009, we started a proactive approach, reaching through MLS services and reaching out to real estate agents and customers with underwater mortgages, distressed loans,” Rand said. “We’re not going to turn anybody away if the short sale meets the net requirement we’re looking for.”
IMF lowers outlook for US
In the latest update to its World Economic Outlook, the IMF said it expects the US economy to expand at an annual rate of 2.5% this year and 2.7% in 2012. That’s down from projected growth rates in April of 2.8% and 2.9%. The US government said last month that the economy grew at an annual rate of 1.8% in the first quarter of 2011, down sharply from 3.1% in the final three months of 2010. The slowdown in the first quarter was due partly to “transitory factors,” the IMF said, including higher commodity prices, bad weather and supply chain disruptions due to the March earthquake and tsunami in Japan. The report said “heightened potential for spillovers” from the fiscal challenges facing indebted nations on the periphery of Europe have grown since April. In addition, the IMF pointed to concerns in the financial markets about the slowing US economy. “If these risks materialize, they will reverberate across the rest of the world — possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies,” the report reads. The IMF also called on policymakers in advanced economies to come up with “credible and well-paced” plans to bring down long-term deficits. In the United States, the IMF said it is “critical” to immediately address the debt ceiling, which was exceeded earlier this year and has yet to be raised by Congress.
Olick – foreclosures down, but far from out
“Delays in foreclosure proceedings and a new push by big banks and servicers to find foreclosure alternatives are drawing a new, albeit still troubling picture of the nation’s real estate market. New notices of default, the first step toward foreclosure, fell to a level in May not seen since the end of 2006, according to a new report by online foreclosure site RealtyTrac. Bank repossessions, or REO, the final stage of foreclosure, also fell on a monthly basis for the second straight month. That pushed total foreclosure activity down 33% from a year ago. ‘I really wish I could say that looking at a 42-month low in foreclosures action means that the housing market is recovering, and the foreclosure problems are all going away and we should all go about our business and be happy,’ says RealtyTrac’s Rick Sharga. ‘Unfortunately, those would all be lies.’
The numbers have been on a roller coaster since the so-called ‘robo-signing’ foreclosure paperwork scandal that unfolded last Fall. Now there are big discrepancies in the numbers state to state, depending on which states practice judicial foreclosures and which don’t. The foreclosure timeline is also increasing as more banks and loan servicers focus on short selling distressed properties, which is when the sale price is less than the value of the mortgage. REO activity was down 6% overall in non-judicial foreclosure states month-to-month, but some non-judicial foreclosure states posted substantial month-over-month increases. Bank repossessions jumped 79% in Georgia, 36% in Virginia, and 19% in Michigan. In judicial states, bank repossessions actually rose 1% month to month, as courts finally begin to get new paperwork and work through lawsuits. In New York, REO activity jumped a whopping 97% and 21% in New Jersey.
While the usual suspects, California, Arizona and Nevada still lead the nation in foreclosure activity, the pain is still spreading nationwide. The sheer volume and share of distressed properties in the current market continues to push home prices to new lows since the worst of the housing crash. Some states may see higher numbers, but the effect is the same. ‘It’s a little bit like saying that aside from that one unfortunate incident with the iceberg, the Titanic had a really wonderful cruise,’ describes Sharga. ‘What we’re talking about are really markets that drive a lot of the real estate market, a lot of the economy. And these are states that have had really severe foreclosures. But beyond that, 72% of the top 200 markets saw an increase in year over year foreclosures activity in the last year.’”
ING sells US unit to Capital One
Capital One Financial Corp plans to buy ING Groep NV’s US online bank for $9 billion in cash and stock, freeing the Dutch bank to repay bailout funds and sever its state ties. ING is in the throes of a wrenching restructuring, forced on it as a condition of a 10-billion-euro state bailout during the 2008 financial crisis. The European Commission and ING agreed on a restructuring plan in late 2009, the most surprising part of which was a mandate that ING sell its US online banking operations. But ING has made clear it wants to be freed of its state shackles, as that would lift restrictions on making acquisitions and give it more flexibility on pricing and allow it to compete more easily. The Capital One deal caps a long list of divestments by the Dutch banc assurer. It has raised at least 5.4 billion euros from the sale of assets including its Asian private banking assets and insurance operations in Canada, Taiwan, Australia and Chile, and agreed to sell most of its real estate investment management operations to CB Richard Ellis and other parties in a deal worth $1.1 billion. But it still must complete the sale of ING Direct USA, and spin off its US European and Asian insurance operations in two separate IPOs next year. It also plans to divest its Latin American insurance business in the next few months. Last month, ING paid 3 billion euros to the Dutch state, which included a 50 percent premium, and said at the time that it would repay the remaining 3 billion euros by May 2012. With the proceeds from selling its US unit to Capital One, ING could repay the remainder sooner, but Chief Executive Jan Hommen said any decision on early repayment could be dictated by the outcome of a European court case, with a hearing set for next month.
NAR – home prices drop
According to the National Association of Realtors (NAR), the median home sale price in May dipped 1.6% compared to April, down to $188,900, according to one real estate listing website. , May’s median price was about 2.1% below a year earlier when government tax incentives were still driving consumer demand. The drop in price could be attributable to seller uncertainty of a double-dip in home prices. “The modest pull-back that occurred in May 2011 could signal seller concerns over widespread reports of a ‘double-dip’ in the housing market based on sales results for the first quarter of 2011,” according to the website Realtor.com. “However, unless there is further retrenchment, the results for the past three months could be viewed as a positive indicator of future home pricing trends.”
Median prices fell in 126 out of 146 markets covered by Realtor.com. Twenty-three markets experienced a more than 5% decline in home price, 14 of which were in Florida. Chattanooga, Tenn. witnessed the largest price drop, down 17.8% between April and May to a median $145,000. That price is down 16.9% compared to May 2010. As prices fell, sale inventory grew. Realtor.com reported a 3.5% growth in inventory to a total 2.3 million listed properties in May. That figure is down 14.3% compared to one year earlier, however. The average number of days a home spent on the market decreased to 92 days in May from April. The age of market inventory has been gradually decreasing since the beginning of 2011 and is now roughly equal to the age seen last summer.
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Chris McLaughlin
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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
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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.
