Smart Real Estate News & Commentary by Chris McLaughlin September 28, 2010
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Home prices rise in July
According to the S&P Case-Shiller home-price indexes, prices began rising in April, boosted by the expiration of the first-time home-buyer tax credit that had new homeowners flocking to buy homes. Before that, they had fallen sequentially for six straight months. Still, the housing sector faces challenges, with unemployment remaining high and the tax credit’s benefits wearing off. S&P warned last month that home-price returns could slow down, noting that housing and mortgage data pointed to fewer gains in the future. Compared with a year earlier, unadjusted July prices rose 4.1% for the index of 10 metro areas, while the 20-city index climbed 3.2%.
The Case-Shiller index of 10 major metropolitan areas rose 0.8% from June, while the 20-city index climbed 0.6%. David M. Blitzer, chairman of S&P’s index committee, said that going forward, prices could “still see some residual support” from the home-buyer tax credit, which covers purchases made before the credit’s expiration that close no later than Thursday. But “judging from the recent behavior of the housing market, stable prices seem more likely.” Month-to-month gainers were headlined by Detroit — a city that has been walloped by the recession — which saw a 1.6% gain, as well as New York, which saw a 1.3% rise. Las Vegas again led decliners, posting a 0.8% drop.
No more tax mail?
Electronic filing of tax returns has become so popular that the Internal Revenue Service will no longer automatically mail a traditional paper form. “We’re finding that more and more people are choosing to e-file, and the number of paper returns is going down,” said IRS spokesman Anthony Burke. He told CNN Tuesday that the agency last year mailed the old-style set of paper forms, tables and instructions to just eight percent of the nation’s taxpayers. Burke said 96 million taxpayers this year have filed electronically, with another 20 million filing through professional tax preparers. The IRS hopes to save $10 million a year by not automatically mailing the materials. Those who prefer hardcopy documents can still find them at libraries, post offices and walk-in IRS offices around the country.
After Jan. 1, they can request a mailing through the IRS toll-free number, 800-829-3676 . The materials will also be available to download and print out from the IRS website: www.irs.gov. Burke said the IRS “won’t produce the package any more,” as the agency transitions to providing software and other support for electronic filing. Instead, in the next few weeks, those who filed traditional paperwork last year will get a simple postcard from the IRS, with instructions on how to obtain the documents needed to file a tax return.
29% of borrowers can’t afford mortgage
According to research by Zillow Mortgage Marketplace, any potential borrower with a credit score less than 620 is unlikely to receive a 30-year fixed-mortgage, even if they offer a relatively high down payment. Yet, according to myFICO.com, 29.3% of Americans have a credit score below that number. This means that nearly one-third of Americans would likely be turned down for the nation’s most popular mortgage product. Zillow tracked over 25,000 loan quotes and purchase requests in the first half of September. Potential borrowers credit scores 720 or higher received the lowest interest rates on Zillow.com, an average annual percentage rate of 4.3% for a 30-year FRM. Midrange credit scores, between 620 and 719, received APRs from 4.44% to 4.73%.
Those with credit scores below 620 received too few loan quotes to calculate the average APR, Zillow said. Zillow’s chief economist Stan Humphries attributes the trend to a tightening of credit standards, which he sees as a good thing. “Four years ago, in the era of easy-to-get subprime loans, many borrowers with low scores did buy homes, which in turn helped contribute to a housing bubble,” said Humphries. “Today’s tighter credit is a predictable response by banks after the foreclosure crisis, but also keeps a cap on housing demand, which is important for the greater housing market recovery.” Zillow entered into a partnership with Mint.com today, an online personal finance service from Intuit Inc. Now registered Mint users will receive a valuation quote, also known as a Zestimate, for their house as part of their online portfolio.
Banks failing
279 banks have collapsed since Sept. 25, 2008, when Washington Mutual Inc. became the biggest bank failure on record. That dwarfed the 1984 demise of Continental Illinois, which had only one-seventh of WaMu’s assets. The failures of the past two years shattered the pace of the prior six-year period, when only three dozen banks died. Between failures and consolidation, the number of U.S. banks could fall to 5,000 over the next decade from the current 7,932, according to the top executive of investment-banking firm Keefe, Bruyette & Woods Inc. The upside of failures is that they can represent a healthy cleansing of a sector that grew too fast, with bank assets more than doubling to $13.8 trillion in the decade that ended in 2008. Many banks that failed were opportunistic latecomers. Of the failed banks since February 2007, 75 were formed after 1999, according to SNL Financial.
Still, economists say, the contraction represents an enduring threat to capital, lending and the economy. “When we step back and look at this financial disaster 10 years from now, the destruction of capital in our economy as a result of what we’ve endured will be the single greatest lasting impact on recovery and how the economy performs in the future,” says Howard Headlee, president of the Utah Bankers Association. Since 2008, the industry’s assets have shrunk by 4.5%. “If you reduce the amount of assets at a bank, it means they make fewer loans, and that has a negative impact on the economy,” says Richard Bove, a bank analyst at Rochdale Securities in Lutz, Fla. From small towns like Rockford, Ill., to Miami, the banks’ disappearance means not only cutbacks in lending but fewer banking choices, lower interest rates on savings accounts, and lost jobs. The recession and collapse of the housing bubble have cut bank-industry employment by 188,000 jobs, or 8.5%, since 2007, according to FDIC data. Failures alone have cost 11,210 jobs, or 32% of the employees at failed banks, according to FIG Partners, an Atlanta investment firm that specializes in the banking industry.
CNBC’s Olick – 30 year fixed makes recovery harder
“Let me just preface that the study I’m about to discuss was funded by the Mortgage Bankers Association, the folks who represent mortgage bankers of course, so keep that in mind; this is not to say they don’t bring up a valid argument. ‘Mortgage features that are restricted in the Dodd-Frank Bill such as longer terms, interest-only periods and flexible payment designs are quite common in other countries and are not associated with higher rates of default.’ There’s your headline. That headline is of course meant to argue that perhaps some of the new restrictions recently passed by Congress to protect borrowers are going to hamstring lending going forward and slow the housing recovery. Interesting that this study comes out the same day that another industry player, online real estate sale site Zillow.com, puts out a survey showing that 1/3 of Americans today can’t qualify for a mortgage and half of Americans would not be eligible to get those low low rates on the 30-year fixed that we’re always talking about.
Zillow.com looked at 25,000 loan quotes and purchase requests during the first half of September and found that folks with a FICO score of 620 or lower looking for a 30-year fixed got no offers. That’s even when they offered 15-25 percent down on the home. 1/3 of Americans fall into this category, and that number is growing, as millions of troubled borrowers short sell their homes or go into foreclosure. Their credit scores drop and their ability to re-enter the housing market is gone. Am I advocating going back to the hey-days of wild and reckless lending? Of course not. But how are we supposed to get the housing market back up and running again if so many potential buyers can’t get a loan they can afford, and the only loans out there offer borrowers very little flexibility for investing not to mention little return for the non-government investors we need to fund the mortgage market?”
Now for our real estate education section…
Servicer Status Woes
A recent court case that took place in Duval Florida has potentially far reaching implications for the short sale and foreclosure market. A case filed by JP Morgage/WaMu claimed that WaMu submitted an assignment of mortgage in a foreclosure case despite the fact that WaMu never owned the mortgage; it was actually held by Fannie Mae.
Common Complaint
If this story sounds family it is probably because a similar situation has taken place thousands and tens of thousands of times across America; however, this time it’s different. Rather than ignore the “clerical errors”, the Court found WaMu “by clear and convincing evidence….committed fraud on this Court” and that these acts constituted a “knowing deception…”. Ouch!
Fraud by Any Other Name
In this situation, WaMu was only a servicer and did not actually own the loans; Fannie Mae did. Because WaMu claimed to be the “owner and holder of the note and mortgage” in order to file for foreclosure on the property, it was then necessary to prove that the course of ownership in the property was properly traced. In recent years it has become almost routine for servicers to take it upon themselves to file foreclosure proceedings when in fact, they have no legal ground to do so.
The implications for foreclosures, REO’s and other real estate transactions is immense; not only may banks be required to fully expose their levels of excess inventory but determining the actual owner of record is becoming more important than ever.
Little Help for Homeowners
Homeowners are likely to find little recourse other than a few months reprieve since it is expected that Fannie or Freddie will begin their own foreclosure proceedings “sooner or later” but it is expected to slow down an already flooded system as lenders and servicers scramble to get records in order.
Quick Steps
How can real estate investors protect themselves? Use this quick tips:
1. Use the Fannie Look-up tool to determine if the property is owned by a GSE.
2. If a GSE property is being foreclosed by any other entity, bank or lender then the case could be suspect.
3. Visit http://www.fanniemae.com/loanlookup/ to perform a search on prospective properties of interest.
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
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