Obama Calls for Loan Servicers to Beat the Dead Horse Harder

Obama Calls For Servicers To Work Harder

According to a report this morning by Ruth Simon at the WSJ, The Obama administration is urging loan servicers to up the ante on their loan modification efforts.  Treasury Secretary Geithner and HUD Secretary Donovan sent a letter out to 25 loan servicers urging them to “devote substantially more resources to this program”.

More than 270,000 borrowers have received modification offers under the program.  But housing counselors complain many borrowers are waiting for help as mortgage-servicing companies get up to speed. The administration has said its program could help as many as
four million homeowners.

The administration has “started to see a significant ramp-up” in modification activity, the letter said. But it added, “there appears to be substantial variation among servicers in performance and borrower experience.” It called on mortgage-servicing companies to beef up staffing and training, and to provide “an escalation path for borrowers dissatisfied with the service they have received.”  Freddie Mac, which serves as compliance agent for the program, will be developing a “second look” process in which it will audit a sample of rejected modification applications, the letter said.

This letter demonstrates the Keynesian mindset of the Obama administration in trying to deal with the so called “crisis” in the housing market.  The housing market is not in crisis.  The housing market is in perfect form as it cold-heartedly deleverages itself after 5 years of greed and risk-free speculation.  If this is a crisis, then the government should be setting up shelters for people that bought a home with no money down and claimed they made $20K a month as a “food services advisor”.  Instead, they are enabling them to continue to live a life of making bad decisions with no consequences.

Sending warning letters to loan servicers won’t fix the problem, it will only extend the problem and ensure a steady supply of short sales and bank-owned homes for a few more years.  The problem is that people are living in homes that they can’t afford, even if their loans are modified to 0%.

In order to fix the problem, we need to have government step out of the way and let the free market go to work to clear the inventory.  Yes, people will lose their homes.  Yes, there will be more pain.  But ultimately, it will be better for all Americans as the economy will recover faster and the people that lost their homes will have jobs to save up for a down payment on a home they can afford.

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Are Banks Being Realistically Valued?

Short Sale & Foreclosure SearchCyrus Sanati wrote an article in The New York Times Deal Book this morning that some on Wall Street that are suggesting that TARP is masking some serious financial problems within some of the country’s largest banks.  Daniel Alpert of Westwood Capital is quoted in the article:

The big concern for Mr. Alpert is that the banks are not being realistic in their valuation of those whole loans, and that all the government cash is masking the banks’ vulnerability to deteriorating loan values.

“The capital provided by the government through TARP, etc. has
allowed the banks to continue holding deteriorated assets at values far in excess of their true market value,” Mr. Alpert said in his note.  Later, he added: “It is unrealistic to believe that home or commercial real estate values are destined to recover any meaningful portion of bubble-era pricing.”

Consider the example of a person who bought a house in Phoenix in 2007 with a $400,000 mortgage from a bank. By 2009, the market value of the home may have fallen to $200,000. Instead of repaying a mortgage worth twice the house, the homeowner defaults on the loan and mails the keys back to the bank.

Up until the point the bank forecloses on the house, the bank can
carry that whole loan on its books at $400,000. When the bank finally sells the house for, say, $180,000, then it will record the loss.

The net effect of the TARP money is that banks are holding back properties that would normally be on the market, either as a short sale or a foreclosure, were it not for the government trying to “fix” the problem.  Honestly, if you were a board member of one of these banks with a multi-billion dollar market cap it would seem logical to think that the share price will stay higher if you can just hold on to these loans until the market stabilizes or the Treasury buys the toxic assets from you at a higher value.  You would not want to take the write down at this point since you have the TARP money to cover up the real value of these loans.

Let’s let the market decide the fate of these banks, not the bureaucrats in Washington.

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Los Angeles Leads the Nation in Mortgage Fraud

Los Angeles Leads Nations Mortgage FraudPeter Hong of LA Land recently posted on an FBI report that Los Angeles leads the nation in mortgage fraud – and not by a small margin either:

The Los Angeles field office received 9,971 “suspicious activity reports” in 2008; second-place Miami had 5,155. The report says fraud schemes include builders offering secret incentives to home buyers, such as falsely inflating a purchase price to make it appear as if a buyer has made a down payment when none was made. If the home forecloses, there is no home equity for the lender to recover.

Other schemes the report identifies are scams in which a group uses a straw buyer to intentionally default on a mortgage, then buys the property at a discount from the lender through a short sale; and foreclosure rescue schemes in which perpetrators offer to help a borrower in foreclosure and surreptitiously take over the deed to the property.

The interesting part of this report for us is the finding of yet another short sale scam to add to the list.  It seems pretty clear that many of the former Circle K shift leaders that started selling wild option ARM loans to granny back in ’05 & ’06 have now fully settled into the short sale business.

With banks holding back huge numbers of REOs from the market and 1 in 5 mortgages underwater (1 in 4 depending on which data source you use), rising unemployment, and rising interest rates, it will be many years before short sales and REOs fade away.  Standardized practices, certifications for short sale listing and selling agents, and more regulations need to be put in place to clean up the short sale process so that real price levels can be discovered.

These steps will help to clear the market of excess supply more efficiently and enable the housing market to recover sooner than it would by imposing moritoriums on foreclosures or doing loan modifications to 125% LTV.  Moritoriums and crazy loan mods that distort real market prices will only extend the pain.  We need to let the free market clean up the mess that it made over the past few years.  But this time the free market needs to do it with sufficient regulatory oversight over lenders, loan officers, and real estate agents.

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Get Ready for Late Summer Deals on Short Sale Homes

Late Summer Deals Short Sale Homes
A recent article by Don Lee in the LA Times titled Another wave of foreclosures is poised to strike highlights the wave of foreclosures that is likely to start breaking onshore by late summer.  He cites that the most of the big banks are going to push to clean up many of their properties in default now that the moratoriums from the Obama administration have lifted.  Adding to the problem are increasing unemployment, likely rise in interest rates, and increasing default rates on mortgages and lines of credit.  In particular, he cites the percentage of loan modification applicants that don’t qualify.

The rapid pace of layoffs is of particular concern. Employers shed nearly a half-million jobs in June. Homeowners who are out of work have little chance of having their mortgages modified. That puts many homeowners on a collision course with banks that are preparing to take a more aggressive stance. “Absolutely,” Chase Bank spokesman Tom Kelly said when asked about an impending surge in foreclosures. Since April 6, Chase has approved modifying 138,000 loans under Obama’s program. But an undisclosed number of other Chase borrowers didn’t meet modification eligibility, and many of those homeowners face possible foreclosure.

Separate from that group, Kelly said, Chase is proceeding to deal with an additional 80,000 borrowers in default whose foreclosure process had been voluntarily halted by the lender starting late last year.

Summer is typically the hot season for home sales.  We think this will still be the case, but with prices heading lower on higher volume.


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What Does the Moratorium Mean for Orange County?

Foreclosure Moratorium Orange County
OC Register asks, “Will the
moratorium ending impact south coastal O.C. in any way?” The 90-Day Moratorium was pushed into law by the state of California to help slow the flood of
foreclosures hitting the market and encourage lenders to work with families to keep homeowners in their homes longer.   The Moratorium ends in September.

The OC Register turned to radio host and lender Norm Bour to answer their question, “Like many other  legislative mandates meant to put “pressure” on lenders to cooperate fully with troubled homeowners, I don’t think this carries a lot of weight.  Interestingly enough, many lenders are willingly now trying to cooperate and negotiate something with the homeowner that ‘makes sense.’” One of the things lenders are opening up to that ‘make sense’ are short sales.   According to the Real Estate Blog, short sales make sense for
investors because they “
are not paying off the existing loan nor making up the back payments” and are an equally good move for people wishing to live in their newly purchased home because “Sellers don’t need to be in default for a short sale to occur.” Which means the home is likely to be better cared for than a foreclosure.

Reves is a freelance blogger for SHORTsense.com

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OC Home Prices Stop Plummeting

OC Home Prices Stop Plummeting“Home prices continued to tumble in April, falling 18.1% from a year earlier — but the change from March narrowed sharply, indicating that housing markets may be starting to turn.” That little burst of sunshine is from CNNMoney.com.
But they’re also quick to warn you that summer is typically the portion of the
year the market is strongest. Here in the OC we’re slowly working our way down
in the home price decline ranking, the OC
reports, “California, which ranked No. 1 in price declines among states for 20 consecutive months, moved into third place in April. Home prices fell 22.7% in April.” However, it’s more realistic to wait until late Fall to see if this is just a seasonal trend or if the housing market really is turning around. Either way investors and first-time homebuyers should still keep their SoCal home searches going, so they can take advantage of the HUD $8,000 tax credit and other incentives being offered by the state before their deadlines arrive.  And if you’re going to buy a house, why not buy a bargain real estate?

On a related note, Fox Business is reporting that the optimistic news about the housing market has given the stock market a small, but much needed bump.

Minda Reves is a freelance blogger for SHORTsense.com

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Short Sales No Longer on Shaky Terms

Short Sales No Longer Shaky Terms We reported it here first folks, short sales will work if you have the right agent and the right paperwork in place. Now, the OC Register is switching its once gloomy short sale song for brighter notes, one savvy OC realtor, said of her recent short sale success in the snazzy Seabridge gated community (the house is pictured to the right), “They’re going a lot faster. The lenders are starting to staff up, and the agents are learning how not to inhibit the process.”  This probably ha a lot to do with Obama’s addition of short sales to his housing rescue plan. Check out the short sale incentives listed in the Wall Street Journal, “The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or “deeds in lieu” transactions. It will also spend up to $1,000 to help defray the cost of getting holders of second mortgages to release their liens so these transactions can be completed.” So, it’s no surprise that short sale process has suddenly become so streamlined.

Minda Reves is a freelance blogger for SHORTsense.com

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Should I Do a Short Sale of My Home? eBook is Bogus

Should I Do A Short Sale eBookHello, we are in a recession. Most people seeking out a short sale don’t need an eBook they need an eRescue! And any savvy homeowner knows the right realtor is what really makes the difference. Heck, even the supposed Orange County authors of the book, Should
I Short Sale My Home?,
say right on their, “A Short Sale is a complex transaction that requires an expert with short sale experience. Not every real estate agent can handle one.” So, one would assume the next logical step would be to acquire a real estate agent with some short sale experience NOT turn to an 248-page ebook on the subject of short sale that covers who-knows-what.

I know when I need a complex surgery I don’t head for library, I head for the hospital. I’m calling shenanigans on their site!  If you read our SHORTsense blog regularly you already know the benefits of a short sale and have some great resources to help you prepare for the process. What makes this short sale eBook even more sketch is that depending on where you look on the web different real estate agents have copy-and-pasted their names onto the image of the cover of the book.   Some sites are even trying to charge you for this FREE ebook!  There’s no need for any ebook gimmicks, when the info is already available to you.  Cut to the chase and get yourself setup up with the right Realtor, experienced short sale agents right now!

Minda Reves is a freelance blogger for SHORTsense.com

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Echo Boomers: Time to Kiss Your Mommies and Your Roomies Good-Bye!

Time To Kiss Mommies / Roomies Good Bye
The first time we ever heard the term “echo boomer” was today over at CNNMoney.com.
The term refers to “the 75 million Americans born between 1979 and 1995.”  The demand in housing will swell dramatically over the next decade to house all of these folks and their families, “household growth during the next 10 years should range between 12.5 million and 14.8 million.” And according to the 1999
U.S. Census Bureau Report
, 25-44 year olds are the largest population in California, totaling more than 10,325,692 people. This same group makes up almost 30% of Orange County residents. Since Echo Boomers are likely to be first time homebuyers (hey you’ve got to move out of your mom’s basement some time, right?), they can take advantage of the $8,000 tax credit provided by HUD, as long as they purchase by November, and Orange County has several programs to make purchasing a home easier for rookies, check out the list here, then browse bargain homes here.

C’mon Echo Boomers, the country’s counting on you!

Minda Reves is a freelance blogger for SHORTsense.com

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SoCal High End Home Market Begins to Sizzle

Luxury Short Sales
The high-end home market picked up enough to give the overall median home price in SoCal a 1% increase—I guess not everyone’s losing their job! John Walsh, MDA DataQuick president, told the L.A.
, “As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we’ll see a more normal share of sales in the more  established, higher-cost areas that have been nearly comatose.” Want to hear something crazy?  “The April-to-May
Southern California median price increase was the first month-to-month gain since July 2007…” So, that 1% increase has been a long time coming! SHORTsense.com is currently featuring many luxury short sales.

Although the high-end market is beginning to sizzle, the low-end market is HOT!  The OC
home market watcher, Steve Thomas, shows distressed and short sale properties moving like hotcakes, “The expected market time for foreclosures is currently 0.65 months. For short sales, the expected market time is 2.10 months.” Now, that’s news you can use!

Minda Reves is a freelance blogger for SHORTsense.com

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