How Many Foreclosures Have You Sold This Year?

History will probably judge 2010 as the year of record foreclosures in the U.S. While the actual numbers are still coming in, experts expect numbers to cross the one million mark.  Some analysts think the actual numbers could reach as high as a whopping 2.5 million when the final numbers come in for 2010. In comparison, over 900,000 homes were repossessed in 2009. About 528,000 were foreclosed during the first six months of 2010, and during this period, about 1.7 million homeowners received a foreclosure warning – this translates to one in 78 homes. Historically, the average annual foreclosures have been in the range of 100,000.

Although the pace of foreclosures had slowed down during the last quarter of 2010 due to various factors including robo-signing accusations, which was followed by the massive investigation launched by the attorneys general of all 50 states, the fallout from these scandals may continue to cripple the housing market in 2011 and beyond.

According to Lender Processing Services, which tracks U.S. mortgages, for a home loan to go from being 30 days late to the property being foreclosed and sold takes an average of 15 months. As of July 2010, over 7.5 million homes were in some stage of delinquency. Foreclosures accounted for about 25% of the home sales in the second and third quarters of 2010.

Where there’s adversity, there’s also opportunity. 2010 presented unprecedented opportunities for buyers and investors of foreclosed properties, which meant opportunities for Realtors too. However, most Realtors were overwhelmed by the foreclosure deluge and many struggled to adapt to the rapid change. Agents that jumped in too quickly made mistakes and those that waited too long missed opportunities.

As the year progressed, a lot of agents learned the tricks of the trade. They figured they must be one step ahead of their customers in terms of knowing the exact foreclosure status of properties in their geographic service areas, and to price the listings right the first time, so that they could move buyers off the fence using foreclosure comps. Many agents and brokers positioned themselves as “foreclosure experts” and even some universities jumped on the bandwagon by offering fast-track foreclosure certification programs.

Many savvy and aggressive Realtors converted the foreclosure lemon into profitable lemonade for themselves and their customers.

So how many foreclosures did you sell in 2010?

NAR report highlights home buying and selling trends

Earlier this month, the National Association of Realtors® released their Profile of Home Buyers and Sellers for 2010. Each year, this report helps real estate professionals better understand their clients and provides insight into the ever-changing real estate market.

Here’s a look at some of the highlights from this year’s report:

• The number of first-time home buyers continued its upward trend this year. Of all buyers, 50% were first-time buyers in 2010, up from 36% in 2006.
• The home buyer tax credit was a major incentive to buy a home this year. Eight percent of all buyers cited the tax credit as their primary reason for purchasing a home, and 93% of first time buyers used the home buyer tax credit. In 2009, only 1% cited tax incentives as their primary motivation for purchasing a home.
• More buyers cited affordability as a reason for purchasing a home, up 5% from 2009. In tough economic times, it’s important to stress your commitment to getting the best deal for your buyers, so they know you won’t let the economy get in the way of their best interests.
• Sellers in 2010 were slightly older than in 2009, but nearly two-fifths were selling a home for the first time. Additionally, sellers this year said they most wanted agents to help price their home competitively. Whether working with buyers or sellers, stress your commitment to getting your clients the best deal possible.
• 38% of buyers found the home they purchased through an agent, up by 4% since 2008, while 37% said they found the home on the Internet.
• Fewer buyers this year purchased homes in foreclosure, although 57% said they had considered it.
• Buyers rated photos, detailed information about the property and virtual tours as the most useful web site features.
• Buyers identified honesty and trustworthiness as well as the agent’s reputation as the most important factors when choosing an agent.
• Eighty-eight percent of sellers used an agent or broker to sell their home, up from 79% in 2001. Only 9% of houses sold were FSBOs.

For the full report, visit Realtor.org.
By Felicite Fallon

Mortgage Rates on the Rise?

After hitting a low of 4.43% four weeks ago, the 30-year fixed mortgage rate rose sharply to 4.74% in mid December. Following the path of yields on government bonds, mortgage rates have steadily risen since the past five weeks. Rates on 15-year loans have risen from 3.96% to 4.17% in one week. Mortgage lenders are predicting the average 30-year home loan rates to range between 4.75% and 5.25% in 2011.

The Federal Reserve’s efforts to boost the credit crunch and the economy by buying about $900 billion in Treasury bonds through next June doesn’t seem to be working because both Treasury yields and mortgage rates have been surging.

Government borrowing costs which have been rising incessantly have driven mortgage rates to their highest level in six months, challenging the still-shaky housing market and the Federal Reserve's efforts to boost the U.S. economy. The sudden rise in mortgage rates have put a lid on the refinancing boom which began at the beginning of 2010 and put billions of dollars into homeowners’ pockets.

Kevin Cavin, mortgage strategist at Sterne Agee in Chicago said that the rate increase has been so sudden and so sharp that it's almost too late for many borrowers to refinance. Home owners have been making applications for refinancing at their fastest rate since 2003. The 10-year Treasury yield is expected to continue rising in 2011 by an additional 20 basis points to reach 4.6%. In early October the rate was a low 2.38%. It had surged to 3.23% in mid-December. Bond yields and prices move in opposite directions.

Some areas of the economy seem to be slowly recovering. While factory output and consumer spending have shown some improvement lately, the housing slump continues unabated. Recent data on home sales, prices and foreclosures have been disappointing, and rising mortgage rates certainly won’t help. According to Sung Won Sohn, an economist at California State University, “housing is in the process of a double dip, and the rise in interest rates is certainly another nail in the coffin.”

The jump in mortgage costs may have made refi an unattractive prospect for more than five million borrowers, representing about $1trillion in outstanding mortgage debt. The worst part of this according to Sterne Agee is the fact that these were the most credit-worthy borrowers. According to the Mortgage Bankers Association (MBA), their index of refinancing activity fell to its lowest level in mid-December since early June. The MBA estimates that refinancing will fall to about $370 billion next year from $921 billion this year and $1.3 trillion in 2009.

Rising rates seem to have had less of an impact on home-purchase activity. New-mortgage originations rose in the first week of December, according to the MBA, and have been climbing slowly but steadily since summer. But mortgage originations are still down more than 12% from a year ago.

Understanding the Second-Home Market

Second and vacation homes have been one of the silver linings in the otherwise bleak, current housing market. This part of the housing industry was devastated by the housing crash. It is slowly beginning to show signs of improvements, particularly in places like Miami and Las Vegas, where bargain hunters are cherry picking some of the best deals in the country.

In order to clearly understand the drivers behind the second home sales, we have to go back to the mid 2000’s. This segment peaked in 2005 when approximately one million second/vacation homes were sold nationwide. The sales continued to decline for the next few years due to the chain of crisis and events that continued to plague the housing market. Also, most people who wanted a second home had bought one prior to 2005. Since then, there has been a glut of properties on the market. However, this sector started making a comeback in early 2009, and by the end of that year, about half a million second/vacation homes were sold.

So what’s behind the recent surge of second home sales?

Ironically, many of the sellers are second homeowners themselves. Most of these sellers bought their second homes at the peak of the real estate boom.  High mortgage payments and depreciated home values are some of the motives to sell their second homes.

Baby boomers, who have been dominating the U.S. real estate market for many years are the ones primarily fueling this new buying trend. Between 2005 and now, there have been five more years of baby boomers entering the market who under normal market conditions would have already purchased a second home.

Almost 4 out of 5 boomers own primary homes. Many are now regarding investment in a second home as a long-term strategy to diversify their portfolios. Conversely, the new generation of second home buyers now has multiple advantages such as low interest rates, abundant supply and choices, and home prices that are well below the normal market prices.

In 2009, vacation and second home sales outpaced the sales of primary residences and investment homes. There are several reasons for this. While the sales of primary homes have been declining over the past few years, the expiration of tax credits has slowed it further to a crawl. According to the National Association of Realtors (NAR), there are three factors benefitting the second and vacation home sales: increased interest from foreign buyers, improvement in the stock market and easier availability of jumbo mortgages.

Investors from Europe and Canada have been taking advantage of the current buying opportunities in droves. Analysts expect investors and institutional buyers of second homes from the emerging economies of China, India and Brazil to also stake a claim to the tremendous buying opportunities in the U.S.

Experts caution that it is too early to rejoice. While the market for second and vacation homes has certainly improved, any new wrinkles in the U.S. and European financial markets could derail this train.

The Foreclosure Crisis & Title Insurers

The foreclosure crisis, which initially started as just another factor that added to the prolonged financial woes of the nation has since become the leading story and perhaps the biggest stumbling block for the economy’s recovery. Every sector of the housing industry has been taking a severe beating since the start of the crisis and there seems to be no end in sight.

The prevailing uncertainty will severely impact the refinancing prospects of homes that were purchased while undergoing foreclosure. This will affect the sales of foreclosed and distressed properties, which constitute majority of the current home sales.

Investors and buyers of foreclosures risk facing ownership challenges and even potential “clawback” of the purchased properties if previous owners claim and are able to prove that they were deceived by a faulty foreclosure process.

The massive investigation that’s currently being carried out by all fifty states has been discovering many shortcomings and questionable practices by banks and mortgage servicers, some of which apparently go back several years. This means the investigation could go on much longer than anticipated, cost a lot and may find several guilty parties along the way. The Attorney General of Ohio has already cited one mortgage servicer for questionable practices and it could potentially cause them to pay billions in damages. The high cost of fighting multiple lawsuits could mean more bank bankruptcies, especially those with low reserves against losses.

While all these and many other problems continue to add fuel to the foreclosure fire, “title Insurers” could potentially transform this proverbial fire into a raging inferno and bring the sales of foreclosures to a grinding halt. Here’s the problem. Lenders require title insurance in order to issue a mortgage because it ensures that buyers have a clear title to their property. This is done to protect the financial interests of both the buyers and the insurers.

Thanks to the robo-signing scandal, insurers are applying their emergency brakes on insuring new foreclosures to limit their liability. If prospective buyers can’t get title insurance, they won’t get a mortgage and this could stall or completely shut down sales of future foreclosures. Also, those who’ve already purchased foreclosed properties from lenders accused of robo-signing could file claims against their title policies and this could inundate underwriters with claims and put some insurers out of business.

In conclusion, there is no end in sight for the continuing foreclosure crisis. Some mainstream financial media commentators and legal pundits have been using phrases such as “housing Armageddon” to describe the debacle and its future course.

The Lifting/Resolution of the Foreclosure Freeze

While dust from the robo signing – a shady practice where lenders allegedly processed foreclosure documents and affidavits sloppily, without a thorough review mechanism to verify the authenticity of documents – controversy is still up in the air, Bank of America and other giant lenders announced resumption of foreclosures which put almost 2 million homes at risk.

These institutions had temporarily suspended evictions and foreclosures in 23 states that require judicial approval for foreclosures. The attorneys general of all 50 states are currently investigating the mortgage servicing industry’s foreclosure practices. While robo-signing became an overnight Internet buzz word, it wasn’t the only ingredient of this deadly concoction.  Attorneys for home owners have found evidence of missing documents, some of which may have been thrown away. Federal and state investigators now believe that they may have to go back more than three years to unearth root causes that may have contributed to the current situation.

Despite skepticism expressed by various experts, Bank of America said it would resume foreclosures in the 23 judicial states, while the freeze would continue or lifted on a case-by-case basis in the 27 states that do not require judicial approval.

Lifting the foreclosure freeze is good news for real estate agents as many of them had seen their business come to a grinding halt after major banks had frozen foreclosures in October. Conversely, homeowners who are behind on their mortgage payments could soon feel the banks breathing down their necks.

Homebuyers and investors are in a dilemma about pulling the trigger now to purchase REOs or wait until the dust settles down. The hesitation to buy is partly emotional, but largely fueled by the uncertainty of the ongoing federal investigation and the recent announcement by the nation’s three largest insurers about not offering title insurance to buyers of bank-owned homes with flawed or nebulous foreclosure paperwork. This is a catch-22 for a lot of buyers that finance home purchases through a mortgage because lenders require a title insurance policy and insurance companies won’t issue one till they are convinced that the property in question was properly foreclosed by the bank.

A Category 5 Hurricane named “Foreclosure Crisis” and its ill-effects on the Sunshine State

While the U.S. was spared the wrath of the 2010 Atlantic hurricane season, many states have encountered the wrath of a man-made hurricane named “foreclosure crisis,” which in many states including Florida has reached a category 5 status in terms of its destructive power.

This gargantuan hurricane continues to wreak havoc on the mortgage industry and destroy thousands of homes in its path since the time it made landfall several months ago.

Besides Nevada and Arizona, Florida is the third hardest hit state in the nation, thanks to the deadly blend of the national financial abyss, bank failures and the foreclosure crisis. Just this year alone Florida was socked with 27 bank closures, which is a whopping 19% of the nation’s share. The ripple effect of this financial swamp has caused huge volatility in the rental and owner-occupied residency rates. Jacksonville led the nation with a 14.4% rental vacancy rate, which is almost twice the national average.

Back in September, Ally GMAC’s mortgage division stopped foreclosures in Florida and 22 other states to investigate a fraudulent practice called “robo-signing,” in which their employees were allegedly signing off and improperly filing paperwork with questionable or cursory review processes. Other banks followed suit by halting foreclosures in these 23 states.

In mid-October, this domino effect prompted the attorneys general of all 50 states and mortgage regulators in 30 states to announce a joint investigation of the foreclosure practices of mortgage servicers. Preliminary reports from the investigators indicate that the robo-singing allegations may just be the tip of the iceberg and there may be numerous other shoddy practices which could have started over 3 years ago.

The investigation committee which has 12 top legal bigwigs from various states continues to uncover deceitful practices. For example, in a deposition filed at a West Palm Beach court in December of 2009, a GMAC employee, who was a member of a 13 people team responsible for reviewing and signing 10,000+ affidavits, was many times not bothering to verify the accuracy of the documents and information given to him.

A news feature about Michael Carlson’s case which was published on November 9th in the St. Petersburg Times has the potential to push the foreclosure crisis into unchartered waters. Carlson’s home in Dunedin, FL was foreclosed in 2008 by Bank of America. Carlson is contesting the foreclosure, stating the bank’s failure to notify him about the legal proceedings until after the foreclosure was completed. The problem is Bank of America sold that home to another owner more than a year ago. The current owners had assumed they were buying a bank-owned foreclosed property. They could lose their home and be evicted if Carlson wins his case. If that happens, those owners would almost certainly file a case against Bank of America. Legal pundits believe if Carlson wins the case, this could set a national precedent and if one or more such cases are filed, the snowballing effect could create a legal tsunami which could potentially rattle the housing market even further and the put the nation’s shaky economy into a tailspin.