short sales

Smart Real Estate News & Commentary by Chris McLaughlin July 13, 2010

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Wells Fargo leaves a gap in financing

The closure of much of the Wells Fargo Financial consumer finance operations, which we reported on a few days ago, will result in a gap of funding that may never be fully replaced, according to a weekly credit outlook today by Moody’s Investors Service.  “The contraction of the traditional consumer finance industry leaves a hole that will not be filled by regulated banks with tighter underwriting standards,” said Curt Beaudouin, a senior analyst at the firm in commentary. “A withdrawal of this form consumer lending is credit negative and suggests the prospect of slower economic growth and a stubbornly gradual decline in unemployment.”  The housing and subprime mortgage crises also eliminated residential mortgages — particularly cash-out refinancing — and the ample supply of wholesale funding. Wells’ closure of the Wells Fargo Financial branch network is just the latest move in an industry-wide contraction of consumer finance.

And the gap it leaves, particularly in non-prime mortgage lending, may never be filled.  Beaudouin did, however, note several means of meeting the consumer lending demand left by Wells’ restructuring.  Traditional banking operations — like Wells’ newly expanded community banking network — will likely look to fill the gap.  Retailers will similarly look to fill the gap by offering “creative financing” and other promotions like discounts on retail chain credit cards.  Finally, the void left by the decline of traditional consumer lenders potentially leaves room for new non-bank participants, although Beaudouin noted funding will continue to constrain operations.

Small business loans drying up

According to bank financial reports submitted to the Federal Financial Institutions Examination Council, loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010.  Ben Bernanke, chairman of the Federal Reserve, says there are several factors behind the contraction in small businesses lending.  He cited weaker demand from Main Street businesses worried about taking on more debt during tough times, “deterioration in the financial condition of small businesses during the economic downturn,” and a lack of supply of available credit. 

Throughout dozens of similar forums, a couple of issues came up repeatedly. In particular, banks noted they are stuck between a rock and a hard place. On the one hand, banks are being told to increase their small businesses lending, while on the other hand bank regulators are telling banks to tighten lending standards.  For small business owners, the collapse in the real estate market has also created another roadblock to obtaining a loan, since many depend on the value of their real estate as collateral for loans. Additionally, many manufacturers also rely on the value of their equipment as collateral for loans — and those values have fallen off sometimes more than real estate.

More mortgage bureaucracy in LA

The city of Los Angeles passed a city ordinance last week allowing for fines up to $100,000 to lenders and servicers of properties under foreclosure for failing to adequately preserve properties.  RealtyTrac, an online marketplace of foreclosure properties, reports new foreclosure filings in Los Angeles grew by nearly 3,000 properties in May. The state of California is listed as the highest ranked state for foreclosures, on the firm’s website.  However, data compiled by RealtyTrac finds that of the 72,030 properties in default, 15,946 are in real-estate owned status – meaning ownership is now transferred back to the lender. The average sales price for a LA home in foreclosure is $400,000. “The LA ordinance is an example where lenders, servicers now have one more piece of paper to push around in what is becoming a compliance nightmare,” says Dustin Hobbs, spokesman for the California Mortgage Bankers Association.

“The city is essentially asking firms to take responsibly for homes that they technically don’t own yet.”  The passage of a California state law last year, Senate Bill 1137, slows down the foreclosure process by adding an additional 30 day window to satisfy “due diligence requirements” and “in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.”  One servicer said Monday that the additional time means the risk of damage to the property will increase as borrowers grow more disenchanted with the status of the property.

Businesses hire workers because of tax breaks?

According to the Treasury Department, businesses have added 4.5 million workers under a new program that provides tax breaks for hiring unemployed workers.  The bill, which was passed in March, exempts businesses that hire people who have been unemployed for at least 60 days from paying the 6.2% social Security payroll tax through December. Employers get an additional $1,000 credit if new workers stay on the job a full year. 

The administration released the report, which looked at the period from February through mid-May, in hopes, it says, of raising awareness about the credit – and of course not because it sounds good before November’s congressional election.  Unsurprisingly, the report does not estimate how many of those jobs would have been added without the tax break, since businesses run by anyone who has mastered 2nd grade math are not going to hire people just to get a fraction of their wages back through a tax break.  Alan Krueger, the Treasury Department’s chief economist, says, “”I would be cautious about attributing [additional hiring] to the HIRE Act.”  Indeed.

DSNews.com – Mortgage firms close

During the first half of 2010, the number of mortgage-related firms to close or fail jumped by more than a quarter from the same time last year, according to industry data released week. The increase was driven by financial institution failures as the number of non-bank lenders to close has dwindled.  Based on information tracked by the online industry resource Mortgage.com, the period between January 1 and June 30 of this year saw 109 mortgage-related failures and closings. The figure represents a 27% increase from the 86 closings reported during the first half of 2009.  

Bank and credit union failures have both doubled when compared to the first six months of last year, with the number of banks to go under tallying 86 over the last two quarters and credit union collapses at 11. Non-bank closings, on the other hand, fell by more than two-thirds during the same period to 12.  An analysis by MortgageDaily.com of bank failures and regulatory orders suggests this year’s bank failures will end up between 175 and 200. FDIC Chairman Sheila Barr has indicated that bank closings will likely pick up pace and peak during the latter half of this year.

NFIB – Business optimism down

The National Federal of Independent Businesses’ (NFIB) says that the small business optimism index fell by 3.2 points in June, dipping to 89, after posting several months of gains.  The report is based on 805 responses to a random survey of NFIB members.  “70% of the decline this month resulted from a deterioration in the outlook for business conditions and real sales gains,” the NFIB survey concluded.  The survey showed that only 10% of firms plan new hiring, down 4 points from May, and about 8% of firms plan to reduce their workforce, up one point from the previous month. Small businesses account for a major share of jobs in the U.S. economy.  The number of business owners planning to make capital expenditures over the next few months fell a point to 19%, 3 points above the 35-year record low, the NFIB said.  “This indicates that the ‘inventory’ stimulus in this cycle is likely fading,” the report concluded.

Now for our real estate education section… 

When to Seek Outside Investors

Novice short sale investors typically rely upon traditional mortgage products to fund their short sales; combined with personal loans, hard money lending and savings this strategy is more than sufficient to build a strong portfolio. However, there comes a time when outside investors may be the wisest choice. Learn when to seek outside investors and when to go it alone with these quick tips:

1. Seek outside investors when your growth strategy requires capital beyond your ability to self-fund. Sounds simple enough but a surprising number of short sale investors continue to struggle with traditional mortgage loans and slow self-funding mechanisms rather than turn to outside investors. This is primarily due to the following fallacies:

The belief that finding investors is hard work and will take longer than planned.   The reality is a large number of people are searching for ways to obtain better than average returns without the headache and hassle of timing the market or dealing directly with real estate. Show them the money and you will be surprised at the number of investors able and willing to fund your next purchase.

The belief that you will be at the beck and call of the investor. While it’s only natural that an investor take an active interest in how their funds are performing, the reality is they do not want to be bothered with the minutia and mundane tasks involved in the investment. Most investors simply want a return with the least amount of time and effort required. The last thing they want to do is micro-manage every detail of your daily life.

2.  Seek outside investors when the level of input equals or exceeds the anticipated output. What this means is that the deal needs to be big enough to attract the interest of an investor that is seeking higher than average rates of return.

3. Seek outside investors when the investors experience or contacts can accelerate your growth. This is the essence of “smart money” and a critical component to growing from a small-time investor to a major player. In fact, this is such an essential criteria that many novice investors deliberately seek out deals just to attract the interest of highly qualified investors with good contacts or experience. Remember, “dumb money” only brings money to the table whereas “smart money” bring experience, contacts and otherwise fills a much needed void in your long term investment strategy.

Think of short sale investing like any other small business start-up; who you bring to the management team and/or board of directors is just as important (perhaps even more important) than the actual product or service. With the right people, nearly any endeavor can become a raging success. To learn more about finding and working with outside investors as well as other information you can use to grow your real estate portfolio, attend one of our free webinars.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
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http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

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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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
-

Smart Real Estate News & Commentary by Chris McLaughlin July 12, 2010

Forward this e-mail to your friends! 

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Foreclosures to persist

According to authors at the Federal Reserve Bank of Cleveland, the nation’s high foreclosure rate is likely to persist.  The Fed article looks at the changes in foreclosure and unemployment rates across states, noting the differences in the timing of the movements.  The conjecture that the high foreclosure rate will persist is based in part on the observation that states that experienced boom-bust housing cycles in the past (Texas, Oklahoma, Massachusetts and California) had elevated foreclosure starts for years after the peak in foreclosure starts and inventory.  These previous boom-bust cycles “were small in comparison to the current cycle,” the article said.  While the recession has left deep scars in the housing and labor markets — with the unemployment rate doubling and the foreclosure start rate roughly tripling — the timing of the movements differs over the cycle, according to the abstract, written by Timothy Dunne, a vice president at the Federal Reserve Bank of Cleveland, and Kyle Fee, a research assistant.

Credit scores down

According to FICO Inc., 25.5 percent of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. With scores like that it’s unlikely they’ll be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.  FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis.

Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.  On the positive side, the number of consumers who have a top score of 800 or above has increased in recent years. At least in part, this reflects that more individuals have cut spending and paid down debt in response to the recession. Their ranks now stand at 17.9 percent, which is notably above the historical average of 13 percent, though down from 18.7 percent in April 2008 before the market meltdown.  There’s also been a notable shift in the important range of people with moderate credit, those with scores between 650 and 699. The new data shows that this group comprised 11.9 percent of scores. This is down only marginally from 12 percent in 2008, but reflects a drop of roughly 5.3 million people from its historical average of 15 percent.

Olick – NYT caught with its pants down

The other way we posted an article claiming the rich were the worst defaulters.  Diana Olick says it ain’t so:  “The data show that while one in 12 mortgages under a million dollars are delinquent, “more than one in seven homeowners with loans in excess of a million dollars are seriously delinquent.”  Shall I wax on about how the rich care less about their credit ratings than the not-so-rich, or how many of these luxury homes are second homes that the owners don’t really need, or how rich folks don’t give a hoot about their communities and see these homes purely for their investment value?  

Nah, I’d rather do a little math. Here’s my problem with the thesis of this article: A little less than 14 percent of the loans outstanding in the U.S. are “jumbo,” meaning over $417,000, according to government statistics (FHFA). The number of loans that are over $1m are even less than that.  So when we’re talking about rates of default, you have to factor in the share of the market that you’re looking at and the bottom line numbers.  Yes, the rate is higher, but it’s a far smaller share of borrowers, and that makes the numbers far more volatile.   Just 1.7 percent of all home sales in May were of homes over one million dollars.  That just gives you an idea of how small that marketplace is.  Yes, we can always find the odd celebrity that squandered away all their millions and defaulted on the loan, but I would take a big step back before I come to the conclusion that the ‘rich: are more likely to default on a loan than the “unrich.’”

CMBS Delinquency Rate Exceeds 8%

The US commercial mortgage-backed security (CMBS) delinquency rate ticked up 17 basis points to 8.14% in June, according to Fitch Ratings.  It marked the smallest increase in 11 months, and the fifth straight month of loan resolutions in excess of $1bn. Fitch noted $1.5bn of loans leaving the index helped to offset the $2bn of new delinquencies, bringing the total net increase in delinquencies to $512m of loans.  Newly delinquent loans in June bore smaller average balances of $10.1m than the index’s overall $13.1m average. No loans with a balance in excess of $100m became newly delinquent in June.  “While delinquencies slowed for the month, this trend is not expected to continue,” said Managing Director Mary MacNeill. “The number of distressed properties continues to grow, and if borrowers are unable to access capital for leasing costs or are unable to restructure their loans to a leverage level commensurate with sustainable property values, they may stop subsidizing debt service payments.”  Loans continue to transfer to special servicing at an elevated rate, with a net increase of $4.2bn in performing specially serviced loans in June. In total, $23bn of loans in special servicing remain less than 60 days delinquent but face an increased risk of default.  The multifamily delinquency rate rose to 13.82%, from 13.65% in May, while the office delinquency rate grew to 4.84% from 4.59%. The retail delinquency rate grew 16 basis points to 6.19% from 6.03% in May, while the industrial delinquency rate grew 41 basis points to 5.48%, from 5.07% in May. The rate of delinquency in hotel loans grew a single basis point to 18.62%.

Now for our real estate education section…

Stats, Facts & Other Social Media Solutions

Are you putting the power of social media marketing to work for your real estate business? If not now-when? If you have been sitting on the sidelines waiting for the perfect time to take the plunge, here are a few stats and facts that should provide all the inspiration required:

Inclusive…

77% of Internet users rely upon blogs for information…roughly 80% of real estate buyers and sellers make first contact with an agent via by reading their blogs first.

The average social media user has 195 friends they routinely communicate with an average of 1 to 2 x per week.

Mobile Facebook users are twice as active as non-mobile users. Only one of every four Twitter users interact via the web interface.

Exclusive…

Over 60% of Twitter users are outside of the USA.

Over half of YouTube users are under 20 years of age.

Take Away’s…

1. Make mobile a priority when using social media websites. Mobile users on both Facebook and Twitter are more active, linked to more people and increasingly interact exclusively via applications outside of the web interface.

2. International real estate sales and market must use Twitter.

3. UTube is especially geared toward a younger audience.

4. Blogs are a ‘must have’ for building relationships.

5. Put an “I” in social media marketing. Effective marketing is an extension of your professional “voice” but that doesn’t meant it must take a lot of time and effort. Learn how to put the power of social media marketing to work for your real estate endeavors by joining one of our webinars or other informational sessions.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
-

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

 http://www.smartrealestatenews.com/ 

*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

**********************************************************

I get asked all the time.

“Chris, how do you guys do it?  How the heck do you have

so many Facebook Fans and Twitter followers?”

By the time you read this, I’ll probably have over 12,000

Facebook fans and over 117,000 Twitter followers.

And guess what?

You could, too.  And make lots of money doing it.

Because this coming Wednesday afternoon I’m pulling back the

curtains of our social media business.  Jump on here at 3 PM ET,

NOON PST:

https://www2.gotomeeting.com/register/572252147

****************************************************
Obama’s mortgage plan in troubled waters

A new government report released Monday shows that more troubled homeowners have fallen out of trial mortgage modifications than have received long-term help  The administration’s signature housing-rescue plan, Home Affordable Modification Program, known as HAMP saw a surge of people leave the initiative in May. More than 152,000 have had their trial adjustments cancelled since the program started, mainly because they could not document their income or because they earned too much to qualify for assistance, officials said.  Nearly 430,000 borrowers have had their trials cancelled — more than one-third of the total started. Servicers place troubled borrowers in trial modifications for several months to verify their income and see whether they can make the lowered payments. More than 70% of  those cancelled this month had been in trial for at least six months. 

“The administration’s housing policies, combined with actions of the Fed, have lowered mortgage interest rates, helped stabilize home prices and reduced the rate of foreclosures, repairing some of the damage caused by the financial crisis to the financial security of millions and millions of American families,” said Treasury Secretary Tim Geithner. But a deeper look at the scorecard shows that dark clouds remain over the housing market. Completed foreclosures soared to 93,800 in May, up from 65,000 a year earlier, while delinquency rates for borrowers with the best credit history jumped a full point to 5.9% in the first quarter. Borrowers who owe more than their house is worth rose to 11.3 million in the first quarter, up from 10.2 million a year earlier.  The number of vacant homes held off the market rose to 3.6 million in the first quarter, up from 3.5 million a year earlier. The number of mortgages refinanced in the first quarter fell to 1.17 million, from 1.31 million during the same period in 2009.

Congress Sprints for Wall Street Reform Finish

Dashing to overhaul the financial rulebook, the U.S. Congress was going through the final touches before submission to the President and the banks are expected to take some knocks off a Tuesday noon meeting.  The reforms on consumer protection, debit card fees and mortgage lending, are meant to prevent a repeat of the credit crisis that tipped the economy into a deep recession.  A new financial consumer watchdog is expected to take shape as an independent unit within the Federal Reserve. It would consolidate consumer protection duties now dispersed across several agencies, and oversee mortgages, credit cards and other consumer financial products that critics say were poorly supervised in recent years. 

Banks were pushing hard for limited, or ‘de minimis,’ exemptions to a part of reforms that would prohibit them from sponsoring or investing in private equity and hedge funds. Some lawmakers were inclined to support the banks on this front, while others were not.  The conference committee of congressional negotiators seeking to resolve differences between the House and Senate versions of the bill plans to work through the consumer-protection issues on Tuesday, the Volcker Rule on Wednesday, and derivatives regulation on Thursday. The timing could slip if lawmakers need more time to resolve disputes. Democrats and administration officials still expect almost all Republicans to vote against the final bill.  Tightening global oversight of banks and capital markets in a coordinated way will be a key topic at a meeting of the Group of 20 economic powers in Canada next weekend. A senior Obama administration official said Monday the panel would finish a bill within days that would be the strongest reform plan to emerge from a G20-member government.

Obama Administration Scorecard Tracks Housing Data, Foreclosure Mediation

The Obama Administration released the first edition of its monthly housing scorecard that tracks housing market indicators as well as efforts by the Federal Housing Administration (FHA) and the Making Home Affordable programs to prevent foreclosures. The monthly report  is an aggregate of housing initiative reports, including the most recent Home Affordable Modification Program (HAMP) numbers, which showed that servicers completed 47,700 permanent modifications in May, down approximately 30% from the 68,100 completed in April. Since the program launched in March 2009, a total of 340,459 modifications have gone permanent and are active through the program, or approximately 11.3% to 8.5% of the projected 3m to 4m modifications the program is expected to generate by its expiration in December 2012.

“For the first time we have comprehensive data that shows how all of the administration’s unprecedented housing recovery efforts are working and the results they’re producing in our neighborhoods and communities,” Department of Housing and Urban Development (HUD) secretary Shaun Donovan said in a conference call with reporters. A section of the scorecard covers housing indicators, including the HUD and Census Bureau home sales data, the Standard & Poor’s (S&P)/Case-Shiller home price index, mortgage origination data, mortgage delinquency rates, as well as CoreLogic  projections on the number of underwater homeowners.

Another ‘Flash Crash’ Coming? 

The May 6 “flash crash” may be history, but its after-effects continue to loom large after two recent mini-crashes in individual stocks. Regulators have characterized the initial flash crash, which saw the Dow lose nearly 1,000 points in a matter of minutes, as a one-off occurrence possibly attributable to a “fat finger” trade or some other market anomaly. But a growing chorus of traders and legislators believe the flash crash is symptomatic of a larger problem with high-frequency trading and a market that lacks visibility and is susceptible to similar events in the future.  Thus far, the main reaction has been the implementation of circuit breakers that stop trading on individual stocks should they rise or fall more than 10 percent in a five-minute span. 

The rule, implemented for a six-month test period, got its first workout last week when Washington Post shares doubled inside of a second Wednesday, from nearly $460 to $929.18. The circuit breakers essentially did their job, halting trading in the company after the surge. But the mystery remains over why such events happen in the first place. The non-transparency that stems from high-frequency trades, which can happen in milliseconds, makes tracking the trades virtually impossible. Some estimates have high-frequency trading accounting for about 70 percent of all market activity. A congressional panel looking into the issue has made little headway. From a legislative standpoint, Sen. Ted Kaufman (D-Del.), who has been pressing the Securities and Exchange Commission and Congress to address the underlying causes that led to the flash crash is a trader himself, remains frustrated that Congress is moving so slowly to address the issue.

Diana Olick – Obama Administration’s Housing Scorecard 

The U.S. Department of Housing and Urban Development’s new “Monthly Housing Scorecard,” is full of numbers. It came in a package of data, emailed to reporters, that included the already widely cited Home Affordable Modification Program monthly status report.  This is the one that calls out all the banks on how many borrowers they’re getting into trial and permanent modifications, and how many are failing the program. It also adds the number of borrowers counseled, which, don’t get me wrong, is a big number at 839,000 in May (although down from 1.075 million in April).  Then there’s my favorite part, where they calculate the “change in aggregate home equity.” 

The number is about 1 trillion dollars since Q1 2009.  The report also shows the ugly side, like FHA delinquencies and prime loan delinquencies both on the rise. Foreclosure completions are also way up from a year ago, and the number of borrowers failing the HAMP program is growing faster than the number of borrowers getting permanent mods. In May, 47,724 borrowers got so-called permanent status, while 152,056 trial mods were “canceled.” But representatives of the government should know, if anyone should, that all those stats about mortgage modifications and home price stabilization are backward looking…looking straight into the mouth of a government subsidized housing market.

After the expiration of the home buyer tax credit, home buyer traffic fell off a cliff. Realtors, mortgage bankers, home builders…ask any of them. The drop off is even worse than expected. Initial data points to a double dip in home sales and prices before a recovery, perhaps, some time next year. We are also seeing a recent surge in bank repossessions and short sales, which will only put more pressure on home prices. “Obviously we are not out of the woods,” Donovan admitted.  “Our housing recovery remains fragile.”  I’m always wary of report cards, especially those with strong political agendas behind them.  The numbers are clear and irrefutable, but I’m not sure they included all the subject matter that needs to be covered.”

Real Estate Owned Inventory to Peak in Summer 2011: BarCap

The amount of REO inventory held by lenders is expected to peak in August 2011 at 545,000 properties, according to analysts at Barclays Capital. In April, REO remained relatively flat, increasing 0.8% from March to 526,000. The influx was primarily due to an increase in REO from the government-sponsored enterprises (GSEs), according to BarCap. Analysts also reported that properties are taking roughly 23 months to move from foreclosure to REO. Servicers are showing signs of caution, not wanting to shock the fragile housing recovery with too much inventory, according to analysts.

And foreclosure moratoriums are the first line of defense. Moratoriums announced by the major banks and GSEs are the latest example. Servicers are also easing on the rate of foreclosure. The inventory of foreclosed homes, not yet in REO, fell to 1.95m in April, a 2.6% decline from 2m. It’s the first drop since 2005. Analysts said the tide in default servicing has shifted. For the past year, fewer loans moved from current status into delinquency as programs like the Home Affordable Modification Program (HAMP) kept foreclosure numbers from climbing. Now, however, homes are moving from foreclosure into REO at a faster rate as delinquencies have peaked. Because of this, analysts said the foreclosure stock is likely to decline in the months ahead.

Now on to our real estate education section…

What’s Old is New Again

Dead subdivisions line the highway, their pompous names half- obliterated on crumbling stucco gates. Lonely white-way lights stand guard over miles of cement side-walks, where grass and palmetto take the place of homes that were to be… Whole sections of outlying subdivisions are composed of unoccupied houses, past which one speeds on broad thoroughfares as if traversing a city in the grip of death.

Henry S. Villard, 1926 

If the above quote, written in 1926, seems to resonate with the modern situation of real estate, it should come as no surprise that may other facets of the economy also seem to have been taken from the pages of history. The “roaring 20’s” were a time of prosperity, booming real estate, easy credit and extravagant gains in the stock market. Excess was everywhere, times were good and then it ended….not with a boom as many believe, but rather a series of growing warning signals indicating ominous tones on the horizon. Few people are aware of the false crash that took place before the major market crash and subsequent bank holiday that eventually plunged the nation into the Great Depression.

Likewise, modern history seems to be repeating itself. A series of ever worsening events have taken place each creating shockwaves throughout the financial world. Each time Americans believe the worst is over and attempt to pick-up where they left off with stocks, bonds and “cash” for safety. Unfortunately, many experts predict the nation is still in the midst of what may eventually play out as the second Great Depression where millions of retirees lose their life savings, retirement accounts file for bankruptcy, states are unable to pay their debt and even nations default on their loans.

By now, savvy investors should be asking what worked in the past? Is there a lesson to be learned from the 20’s and the subsequent pain of the 30’s? Of course, those that don’t learn from history are doomed to repeat it and while the nation may not have learned their lesson, that doesn’t preclude individual investors from doing so. Yes, there are lessons to be learned and fine ones at that. While the nation experienced one of the most difficult economic periods in our history, there were still those that were able to profit even during the very worst of times and still others that were situated to make a full and expedient recovery after riding out the worst of the financial storm. Students of history will recognize that tangible assets were the key to profit and recovery for both individuals and the nation.

Real estate experienced a major correction after the excess of the 20’s…as evidenced from the above quote it was severe. Bubble prone areas took years to fully recoup their former value while the excess of the market was absorbed by existing inventory. High unemployment rates and strict lending standards exacerbated the problem but despite everything…real estate did recover and actually flourish even in the midst of severe financial chaos.  For those would be investors that shy away from real estate due to the current market conditions, take a big picture approach and learn a lesson from history. Like Proverbs said….”there is nothing new under the sun.” History has a way of re-playing itself with each generation. Watch, listen, learn….and profit.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

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Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
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75% of modified home loans will redefault

Most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months, according to a report released Wednesday.   Between 65% and 75% of loans that are modified through the Home Affordable Modification Program(HAMP) but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency. The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added.  “Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director, “auto loans, credit cards and other expenses.

The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations.”  Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure. The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance.  The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales.. Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.

US Housing Market Slows as Buyers Get Picky

Against a backdrop of misery, buyers are empowered — and are taking full advantage. Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual. It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil. 

Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided. Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer. 

The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.  But the optimists, and real estate remains full of them, say the trough is temporary. The stimulus might have stolen sales from May but by July, they argue, people will need to buy again.

Unemployment benefits, ‘doc fix’ scaled back in Senate bill

Seeking to appease deficit hawks, the Senate scaled back unemployment benefits and Medicare physician reimbursement measures on Wednesday. The revised jobs bill eliminates a $25 weekly supplement for the jobless that had been part of the last year’s stimulus act. Those currently receiving the supplement in their unemployment benefits check will continue to do so until they exhaust their extended benefits, or until the week of Dec. 7, whichever comes first.

That cut will reduce the bill’s cost by $5.8 billion over the next decade. The new version of the bill would also freeze a 21% cut to Medicare physician reimbursement rates only through November, instead of through 2011. This will reduce the bill’s size by $16.4 billion over 10 years.  Senate lawmakers also voted Wednesday to include a measure in the bill that would push back the deadline to close on home purchases and still qualify for a federal tax credit of up to $8,000. Homebuyers would have until September 30, instead of June 30, to complete the transaction. The provision will cost $140 million over 10 years

Diana Olick – Oil May Be the Nail in Florida Housing’s Coffin

“I’ve been in beastly hot Pensacola, Florida, preparing stories on mortgage mediation, and, of course, oil. President Obama dropped by the beach of Pensacola, Florida yesterday to talk to some local folks, while I spent the day in empty beach front mansions and empty ocean-view condos. The oil isn’t really here yet, just a few tar balls, but the apprehension is everywhere.  This is a housing market that saw prices drop 50 percent in the housing crash.  I’m talking beautiful, grand, beachfront properties, where the sand is positively Caribbean white, and values just plummeted.  Last year, as investors started to dip their toes back into the warm water here, it all started to pick up, and condos and homes alike were selling again, albeit at bargain prices.

Now just the perception, the fear that oil is coming, changed all that in an instant. It’s not just buyers putting the breaks on, but renters as well, and that will not bode well for condo owners who rely on renters to offset their mortgages. Rothfeder, a self-proclaimed optimist, says he’s hoping BP will start writing checks to all sorts of people in Pensacola Beach, including condo owners. But how much and for how long?   What strikes me, though, in driving around here for the last few days is not the growing fear among the locals, but the sheer number of “For Sale” signs down the beach. They’re literally almost every third house. That kind of inventory isn’t healthy for any market, forget a beach-front community staring down the face of an oil slick.” 

Economic Weakness Continues to Weigh on Commercial Mortgage Performance: MBA Report

Delinquency rates continued to increase in the first quarter for all commercial / multifamily mortgage investor groups, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report. The delinquency rate for loans held in CMBS is the highest since the series began in 1997.  Delinquency rates for other groups remain below levels seen in the early 1990’s, some by large margins.  Between the fourth quarter 2009 and first quarter 2010, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 1.54 percentage points to 7.24 percent.  “Weakness in the economy has continued to weigh on commercial properties, which in turn weighs on the mortgages they back,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. 

“Economic growth, specifically in areas of jobs and consumer spending, will be key to stabilizing the commercial property and mortgage markets going forward.”  The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac.  Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding  

Senate Backs Extending Deadline for Housing Tax Credit

The Senate voted Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market.  The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers.  Existing homeowners buying a new primary residence are eligible for a $6,500 credit.  Buyers are offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers. The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30. The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break.

Now on to our real estate education section…

Mid-Year Review: Progress or Problems?

Half the year is now over – how is your short sale career going? Have you made progress or are you plagued by problems? It’s time to take inventory, make any necessary changes and chart a course for action with these telling signals. Answer each question honestly then make it a priority to revise any situation in need of additional attention:

1. Have you met your profit goals? If not, are you able to identify a specific reason such as a deal gone bad, failure to correctly calculate costs or some unavoidable setback? What about your profits per sale…are they stagnating or growing? Work less and earn more by integrating the 80/20 rule.

2. Is your customer service impeccable? If not, it should be. People demand multiple ways to make contact and the sooner the better. Social media is moving into the mainstream as professionals compete for the best clients.

3. Are you actively networking and investing in marketing? It’s essential to maintain a market presence and actively network with others. Yes, the economy might be bad but history has taught that those who thrive during tough times rise to the top…the others merely fade away. Use tough times to your advantage by looking for opportunity and adding value to the relationship. Not sure how to measure your network activities? Hers’ a simple tip…review the number of new contacts added to your database since January 1st of this year. Remember, each year the bottom 10% should be eliminated while focusing efforts on the top 10%. At this point in the year, your database should have grown by at least 5% (minimally).

4. Have you expanded your professional referral sources?  Similar to the contacts and networks, review the number of referrals you make and receive. Both should indicates at least a 5% increase at this point in the year.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
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