Foreclosures to Eclipse 2 Million This Year

In case you missed the news the other day, Nobel Prize-winning economist Joseph Stiglitz dropped another bombshell on the nation’s real estate industry. He expects an additional 2 million foreclosures to hit the U.S. this year – adding to the whopping 7 million that have occurred since the economic crisis of 2008.




“U.S Foreclosures are continuing apace,” Stiglitz told a packed news conference near Port Louis, the capital of Mauritius. “A quarter of U.S. homes are underwater.”



Why the gloomy forecast? Because the number of U.S. homes worth less than their outstanding mortgage jumped in the fourth quarter as prices dipped and lenders seized fewer properties from delinquent borrowers.



Currently 15.7 million homeowners had negative equity, also known as being underwater, at the end of 2010, according to Seattle-based Zillow Inc. That’s a 13 percent increase over the 13.9 million in the previous three months.



That total represented 27 percent of the mortgaged single-family homes, the highest in Zillow data dating back to the first quarter of 2009.



The news on the local front appears just as bleak. The Orlando Sentinel reported in its February 12th edition that the number of foreclosed homes on, or about to hit Metro Orlando’s resale market has more than doubled in the past year – forcing down the prices of other houses that have already lost more than half of their value since before the recession.



The four-county metro area of Orange, Seminole, Osceola and Lake counties had 13,712 bank-owned properties in January – up from 5,874 a year earlier, according to figures from California-based RealtyTrac. This has contributed to a record statewide glut of foreclosed properties that now stands at 104,759 and counting.



“Americans today are worse off than they were 10 to 12 years ago,” Stiglitz said, adding that the U.S. faces “increasing inequality,” with the “upper 1 percent controlling 40 percent of wealth. Instead of trickling down, it has trickled up.”



There are, however, some significant positives that have come to light.



First, foreclosures did slow down in the fourth quarter. Lenders, including Bank of America Corp. and Ally Financial Inc., halted many home seizures after accusations they used improper documentation and processes. Attorney generals in all 50 states are investigating.



But, more importantly, the wave of foreclosures, especially here in Central Florida, has created a tidal wave of opportunities for both homebuyers and investors alike.



Prospective buyers who previously were priced out of the housing market are using this opportunity and taking advantage of lower property values to purchase their first home and begin a new chapter toward their futures. Lower property values also have been a boon to investors who are adding to their real estate portfolios.



Take Larry and Janelda Minor, for example. They purchased a vacant eight-unit apartment complex in Kissimmee valued at $350K for just $200K. Within a few months all eight units were fully rented – a property lemon was turned into lemonade.



“Our experience with Rajia Ackley with Coldwell Banker Ackley Realty while purchasing the property was very positive,” the Minors said. “Our questions and concerns were answered quickly and completely throughout the entire process. We appreciate her guidance in helping us secure this commercial property during these trying times.”



Despite the gloomy real estate predictions of Joseph Stiglitz, et al, there’s still some happiness to be found. Just ask the Minors.



We’ll keep you updated.

Friday's Foreclosure

$110,000   --- 3855 Spirited Circle, Saint Cloud, FL 34772

You will love the new community of Esprit with community pool and tot playground! One story four bedroom, two bath, two car garage boasting 1938 square feet of living area. Home features stone front, paver driveway and walkway, block construction, carpet and tile flooring, kitchen nook with island for the chef in the family! Formal dining room and formal living room, master bath features garden tub, inside laundry utility room, rear open patio for entertaining. Great location in St. Cloud, close to shopping, dining, schools and the Florida Turnpike. Buyer must be pre-approved with Prospect Mortgage prior to submission of the offer to purchase. There is a no cost and no obligation.

Foreclosure Open House Calendar

US Foreclosures Reach Record Highs

Foreclosures reached record heights in 2010. Almost 26 percent of residential sales in the U.S. were foreclosures in 2010, with the average sales price of these properties 28 percent less than those that weren't in the foreclosure process. Although the entire nation faced the foreclosure wrath, metro areas in particular were the hardest hit, with California, Nevada, Florida, and Arizona home to 19 of the top 20 foreclosure cities in the country.


It was a buyer's market like never before in recent times. Although there were plenty of repossessions, there were also a record number of home buyers at foreclosure sales. Foreclosures were sold at rock-bottom prices and they provided a fantastic opportunity for first-time homebuyers and investors. Private and institutional investors from Europe and other parts of the world flocked to the U.S. in great numbers to cash in on the new "gold rush."

In early 2010 foreclosures seemed to slow down. This turned out to be a smoke screen caused by government policies that were designed to apply the brakes on foreclosures. These policies added more funds to foreclosure education programs and gave lenders incentives to provide loan modifications and refinancing for troubled home owners. Experts said these new policies just stalled foreclosures in the short term.

Foreclosures in the first quarter of 2010 were 35 percent higher than in 2009. By summer, more homes in the U.S. were seized by lenders than in any three-month stretch since the housing market began to go downhill in 2006. Fourth quarter foreclosure sales were pressured because the home-buyer tax credit expired and also because of the robo-signing controversy.

Experts are expecting foreclosures to climb even higher in 2011. Some say the statistics for foreclosures in 2011 are going to look very similar to those filed in 2010.

HAFA Revisions by Treasury Dept. Affects Homes under $100K

In an attempt to slow down the rampant foreclosures plaguing the U.S., the Treasury Department has revamped its short sales policy through its Home Affordable Foreclosure Alternatives Program (HAFA). Short sales are common when homeowners are facing foreclosure. The new HAFA guidelines would provide troubled homeowners incentives to opt for a short sale in lieu of a foreclosure. Mortgages owned or guaranteed by Fannie Mae or Freddie Mac, or insured or guaranteed by the FHA are not eligible for the new HAFA provisions.

 

Participants in the HAFA program now have new options and lenders have new requirements while dealing with short sales. The biggest change is it eliminates the 6% cap that first lien holders had on payments to second lien holders. However, this change only applies to homes under $100k in value because the overall cap remains unchanged at 6%.

 

The new HAFA rules which went into effect on February 1 include the following changes:

• Vendor fees can no longer be charged back to the seller or deducted from the commission.
• Lenders are required to first offer a potential short sale or a deed in lieu of a foreclosure.
• Lenders will have 30 days to send borrowers a short-sale agreement that includes the list price or acceptable sales proceeds under recent changes made to the HAFA program, aimed at distressed borrowers who don’t qualify for other government loan modification programs.
• Lenders will have 30 days to respond to an executed short sale contract.

  

In the past, buyers would frequently walk away from short sale offers because of the time it took lenders to review and approve. The stricter timelines are meant to speed up the short sale process.

 

This is the second major revision to the program since it was launched in 2009.

 

Why Fannie and Freddie May Never Die

By RICK NEWMAN


Posted: February 15, 2011

Their failures are manifest, and politicians of every stripe seem to revile them. Fannie Mae and Freddie Mac have turned out to be the biggest catastrophes of the 2008 financial meltdown. The government has already spent more than $130 billion in taxpayer money to keep them alive, and the tally is still rising.


If they were in any way expendable, the two mortgage agencies would be gone by now. But the credit crunch of the last three years has left middle-class home buyers more dependent than ever on Fannie and Freddie. The two agencies' main role is to purchase mortgages from banks and roll them into marketable securities, which benefits home buyers by keeping rates relatively low and giving banks a stronger incentive to lend. One byproduct is the 30-year fixed-rate mortgage, which most banks wouldn't offer without the government's backing, because the odds of losing money would be higher. Fannie and Freddie effectively reduce the risk of lending, making more people eligible for loans and therefore, homeownership.

That's the idea, anyway, but something obviously went wrong. During the housing boom, many lenders—including Fannie and Freddie—lowered their lending standards to accommodate millions of people who wanted in on the hot market, but ordinarily wouldn't have qualified for a loan. The result of those bad loans was an epic housing bust that's now in its fifth year, with home prices down more than 30 percent from the peak in 2006—and still falling. That led directly to the financial crisis that erupted in 2008, when Fannie and Freddie became insolvent and were taken over by the government.

The irony now is that Fannie and Freddie are keeping the housing market alive. Nearly all mortgages issued today are backed by Fannie, Freddie, or the Federal Housing Administration, a sharp increase from normal times when private lenders handled at least 20 percent of mortgages without any government backing. Without the government, in other words, hardly anybody would be able to buy a home today. The private mortgage market should revive as the overall economy heals. But as badly as policymakers may want to wind down Fannie and Freddie, it's obvious that doing so abruptly would crater the housing market all over again and trigger another recession.

So the first efforts at housing-finance reform call for a gradual wind-down of the two mortgage giants. The Obama administration's plan is to slowly reduce Fannie and Freddie's loan portfolios, with three options for how to replace them ultimately. One would be a housing-finance system that's mostly private, with the government backing only mortgages for some low-income and first-time buyers, and veterans. Another option is a private system with a mechanism for government intervention during emergencies or financial crises, to keep the housing market functioning. Under the third option, the government would still be involved, but it would have a more limited role than it does now and would charge private lenders more to backstop loans. Under all of those scenarios, Fannie and Freddie would go away, replaced, if necessary, by new or different agencies not stigmatized by loathsome bailouts.

But the Obama plan is a wish list, and even though some Republicans in Congress would gladly kill the two agencies tomorrow, it's not likely to happen. "We believe getting rid of Fannie and Freddie is much harder than it looks," advises analyst Jaret Sieberg of brokerage firm MF Global, in a research note to clients. "The status quo is the most likely outcome." For one thing, a reduced government role would almost certainly raise mortgage rates and other costs, since banks would have to add a cushion to cover the extra risk they'd be taking, without the government backstop. Down-payment requirements would probably go up. That might produce a healthier system less prone to shocks, but higher costs and monthly payments for buyers would also crimp demand for both new and used homes. Even some middle-class families with good credit might get priced out of a home, leaving politicians to explain how they killed the American Dream.

For all the daggers aimed at Fannie and Freddie, it turns out, there are many groups who like the housing-finance system just the way it is—and are fighting hard to keep much from changing. Some of them:

Home builders. They're reeling, and begging for a break. New-home construction has obviously tanked over the last few years, since plunging sales have created high inventories of unsold homes. The demise of Fannie and Freddie would effectively reduce government subsidies for mortgages, lowering demand for new homes even more.

Realtors. They too are looking for relief, so they can start doing deals again. Higher costs for home buyers would harm Realtors the same as home builders, by lowering demand for homes. It might also intensify pressure for Realtors to cut commissions, transferring a bit of the pain away from buyers and sellers. But Realtors have always guarded their commissions aggressively and will continue to.

Small and community banks. They could get priced out of the mortgage market if the government's not there to level the playing field, with megabanks undercutting them to grab market share. Small banks and credit unions have another powerful argument: Concentrating too much control of the housing market among a small number of huge banks makes the too-big-to-fail problem worse, not better.

Consumer groups. The Consumer Federation of America, for instance, has warned that a reduced government role in housing could cut off mortgages to many families and shift control to "Wall Street banks and investors whose previous missteps have already caused massive foreclosures and losses for consumers." They kind of have a point.

All told, the groups that support Fannie and Freddie—or at least reluctantly tolerate them—have significant clout in Washington. And populism is on their side, since they can plausibly claim that middle-class home buyers would be harmed if the government backed away. Of course, taxpayers bear a substantial cost for the current system too, since they're keeping Fannie and Freddie alive.

The Obama administration has said that a loose timeline for reforming Fannie and Freddie is five to seven years, which might be slow enough to allow the housing market to get back on its feet before much begins to change. But there are a lot of reasons it could take even longer, or never happen at all. Despite a lot of jawboning in Washington, it's unlikely there will be many major changes—to anything—before the 2012 presidential elections. After that, most economists still believe that unemployment will remain uncomfortably high, not returning to "normal" levels until 2015 or later. Many of the economy's lost jobs are in construction and other fields related to the wrecked housing market. That makes it hard to see how it will be politically feasible to do anything that will raise borrowing costs and depress home sales, even marginally.

But home buyers could be in for some changes nonetheless. There are a few things that Washington can do to strengthen the mortgage market, without a major makeover of Fannie and Freddie, like raising the down-payment requirement for government-backed loans and boosting the fee banks must pay for the federal backstop. That could push rates up a bit and make lending standards tougher, just as the housing market starts to recover. Either way, the glory days of government-backed lending are probably over. Still, you might have Fannie and Freddie to kick around for a good while longer.

http://money.usnews.com/money/blogs/flowchart/2011/02/15/why-fannie-and-freddie-may-never-die

Home Warranties: A Good Idea when purchasing a Bank Owned Home

Before delving into today’s topic, let’s quickly define a bank owned home. A property owned by a bank (lenderter an unsuccessful sale at a foreclosure auction is known as bank-owned or Real Estate Owned (REO) property. This usually happens when there are no bidders for a foreclosed home, which typically happens if the house in upside-down in value…meaning the amount owned on the home is higher than the current market value of the foreclosed property. Bank-owned homes are usually sold directly by the lender after it is repossessed.o


An REO is considered a non-performing asset of the bank. This means the bank has little or no incentive to invest in the upkeep and maintenance of the repossessed property. The condition of REO properties varies greatly. Some properties may be in dilapidated conditions with overgrown or dead landscapes and extensive repair requirements, while others may be in move-in ready condition. Both the interior and exterior of the property may in some instances be poorly maintained. Therefore, a bank owned property need not automatically be a great bargain. It requires plenty of due diligence by the potential owner at his or her own cost.

A bank owned property is generally purchased on an “as is” basis. Although the new owner is given an opportunity to inspect it, the bank usually does not agree to perform any repairs. However, the new owner assumes the risk of potentially unknown issues with the home. This could include electrical, plumbing, foundation, structural and other damages to the property. Repair costs and the time to complete them can also be unknown factors.

While some banks may include a one-year home warranty on the property if it is asked for in the purchase offer, most banks don’t offer to pay for it as a matter of policy. It behooves the typical home owner to purchase a home warranty plan at their own expense if they are faint hearted. Owners that are handy with repairs or those who are familiar or experienced in buying bank owned homes may choose not to buy a home warranty plan at their own risk.

Foreclosure Docs & Robo-Signers in the Headlines: Underlying Legal Issues

In the aftermath of the housing bubble burst, the housing market received a massive jolt from the discovery of serious problems with the foreclosure practices. The problems started at the height of the housing bubble and had been quietly simmering in the background. But after the housing market collapse, several allegations and improprieties were being unearthed almost on a daily basis in 2010, and the issue is far from over.

The deposition of a GMAC loan officer named Jeffrey Stephan opened a can of worms, which revealed deep and widespread flaws in the foreclosure practices of America’s largest banks. In a sworn deposition in Pennsylvania, the accused loan officer stated that he had signed off on up to 10,000 foreclosure documents a month for five years. Furthermore, he said that he hadn’t reviewed the mortgage or foreclosure documents thoroughly. This story made headlines overnight, and he quickly became known as the “robo-signer” for the way he handled mortgage and foreclosure documents in a cursory or robotic manner.

In subsequent developments, a Florida lawyer named Peter Ticktin, who is defending 3,000 foreclosed homeowners, gathered 150 depositions from bank employees of some of the largest banks, who stated they had signed foreclosure affidavits without ever laying eyes on them. This confirmed that the practice of rob-signing was chronic and rampant.

It didn’t take long for the attorneys general of all 50 states to announce an investigation of the shoddy practices banks were accused of using to kick struggling homeowners out of their properties.

Several class action suits have since been filed in the Florida and many other states. Since there is no precedent for many of the causes of action being alleged in these lawsuits, lawyers are unsure about how a wrongful foreclosure action is going to fare in the courts.

A Congressional oversight panel has stated that the implications of these wrongdoings remain unclear, and the infamous “robo-signing” practice may have concealed deeper problems in the overall practices of the mortgage industry. The panel also stated that this could potentially threaten America’s financial stability and undermine foreclosure prevention efforts for the foreseeable future.