(The Orange County Register) Fueled by falling home prices, buyers got moving in July and pushed sales up 17 percent over last year, ending a 33-month home buying slump.
DataQuick reported that last month's sales jumped to 2,799 houses, condos and new residences, topping the July 2007 number by 408 units. The last time O.C. home sales exceeded the year-ago pace was September 2005.
The median price was $461,000 – down 28 percent in a year and the lowest median since President Bush was inaugurated for his second term.
Orange County's median – or price at the midpoint of all sales – has fallen $184,000 from the all-time high of $645,000 reached in June 2007. That's equivalent to a price drop of $431 per day for the past 13 months.
Agents said that kind of discounting helped break the sales slump.
"Houses are becoming a little more affordable (because prices) have dropped 20 to 25 percent," said Tom Moon of Pacific Moon Real Estate in Huntington Beach, a top agent in the sale of foreclosed homes. "There has been a pent-up demand. (Buyers) have been waiting to buy a house."
After nearly three years of consecutive drops, sales almost had almost nowhere to go but up.
In January, sales fell to 1,286 units, the lowest in DataQuick records dating back to 1988. That was down 72 percent from September 2005, the last month before the slump began.
"We've been on a winning streak since January," said Mike Hickman, president of Seven Gables Real Estate. "Pricing is finally reaching a level where there's a perceived value by the consumer."
Kerry Vandell, director of the UC Irvine Center for Real Estate, noted that in addition to first-time homebuyers, investors have been moving into the market, buying foreclosed properties at a discount, renting them out and waiting for prices to come back.
He added that President Bush's signature on housing legislation that provides government backing to mortgage giants Fannie Mae and Freddie Mac may have a bit of an impact, helping to increase somewhat the flow of cash to home borrowers.
"It's gradually going to come back if we can get through the (backlog of) inventory," Vandell said. "This is good news, but you have to drill down to see what's drawing it."
Vandell and others noted that while sales show signs of improvement, prices will continue to fall at least into mid-2009.
DataQuick reported that sales increased in 49 of Orange County's 83 ZIP codes, with sales up 215 percent in south Santa Ana's 92707.
First Team agent Connie Alonzo noted that most homes in that area are getting multiple offers.
"There are a lot of buyers for this area," she said of the ZIP code east of South Coast Plaza. "It's a nice part of Santa Ana."
8.19.2008
Home building at 17-year low
NEW YORK (CNNMoney.com) -- Home building fell sharply in July to a 17-year low, according to government readings released Tuesday that offered fresh signs that the battered real estate market has yet to hit bottom.
Housing starts plunged 11% to an annual rate of 965,000 from a revised 1.084 million pace in June, according to the Census Bureau report. Economists surveyed by Briefing.com had forecast starts would fall to a rate of 960,000.
Permits - often seen as a sign of builders' confidence in the housing market - tumbled 17% to an annual rate of 937,000 from a revised 1.138 million in June. Economists had forecast that permits would come in at 959,000.
The sharp percentage drop from June was due partly to a jump in multi-family home starts and permits during that month. Single-family home starts and permits slipped only slightly from the June level. But the single-family starts were also at a 17-year low in July, while single-family permits fell to a level not seen since the 1982 recession, reaching a rate of only 584,000 homes in July.
The sharp fall in building activity suggests that home building will continue to be a drag on the economy in the second half of 2008. Earlier this year, many economists hoped that building activity would bottom out this summer and start to show signs of improvement.
In the second quarter, the drop in home building took 0.6 percentage points off gross domestic product, the broad measure of the nation's economic activity. It marked the 10th straight quarter that home building has been a drag on GDP.
But the continued drop in building could be just what the battered real estate market needs. One of the biggest problem for sellers is a glut of unsold homes on the market. Since demand for homes remains weak, the glut will only ease if fewer new homes are built.
In June, builders faced a median wait of 8.4 months to sell a completed home, the longest delay in selling time in 25 years, according to a separate Census Bureau report issued recently.
David Seiders, chief economist for the National Association of Home Builders, says he's hopeful the historically low levels of single-family permits is a sign that the glut of homes on the market could finally start to decline.
Seiders said he's hopeful that the market for new homes will hit bottom in late 2008 or early 2009. But he added that his forecast could prove optimistic given other problems, such as rising job losses and the credit crunch. And the continuing rise in foreclosures adds to the glut of homes available for sale, particularly in markets such as California and Florida.
"We're dealing with a weakening economy in the second half of this year, and early '09 doesn't look that great either," Seiders said. "We don't have any numbers that really show stabilization in the housing market yet."
The government report on housing starts and permits comes the day after a survey of builder confidence by the National Association of Home Builders remained at a record low in August. Only 5% of builders said the current market is good, 8% said they expected a favorable market in the next six months and fewer than 2% said they were seeing strong traffic from potential buyers.
The downturn in housing and building has hammered the results of most of the nation's major builders. Late last month Centex (CTX, Fortune 500), which is the No. 2 builder by revenue, reported a larger-than-expected loss and warned it was seeing no improvement in the home building market.
Most builders have reported larger than expected losses, although Pulte Home (PHM, Fortune 500), the largest builder by revenue, did slightly better than forecasts. Only one major builder, NVR (NVR, Fortune 500), has reported a profit through the current downturn, although its earnings have plunged.
As a group, the revenue of the nation's eight largest home builders has plunged 37% over the last year. Analysts surveyed by Thomson Reuters are forecasting another 36% drop in revenue over the course of the next 12 months.
Housing starts plunged 11% to an annual rate of 965,000 from a revised 1.084 million pace in June, according to the Census Bureau report. Economists surveyed by Briefing.com had forecast starts would fall to a rate of 960,000.
Permits - often seen as a sign of builders' confidence in the housing market - tumbled 17% to an annual rate of 937,000 from a revised 1.138 million in June. Economists had forecast that permits would come in at 959,000.
The sharp percentage drop from June was due partly to a jump in multi-family home starts and permits during that month. Single-family home starts and permits slipped only slightly from the June level. But the single-family starts were also at a 17-year low in July, while single-family permits fell to a level not seen since the 1982 recession, reaching a rate of only 584,000 homes in July.
The sharp fall in building activity suggests that home building will continue to be a drag on the economy in the second half of 2008. Earlier this year, many economists hoped that building activity would bottom out this summer and start to show signs of improvement.
In the second quarter, the drop in home building took 0.6 percentage points off gross domestic product, the broad measure of the nation's economic activity. It marked the 10th straight quarter that home building has been a drag on GDP.
But the continued drop in building could be just what the battered real estate market needs. One of the biggest problem for sellers is a glut of unsold homes on the market. Since demand for homes remains weak, the glut will only ease if fewer new homes are built.
In June, builders faced a median wait of 8.4 months to sell a completed home, the longest delay in selling time in 25 years, according to a separate Census Bureau report issued recently.
David Seiders, chief economist for the National Association of Home Builders, says he's hopeful the historically low levels of single-family permits is a sign that the glut of homes on the market could finally start to decline.
Seiders said he's hopeful that the market for new homes will hit bottom in late 2008 or early 2009. But he added that his forecast could prove optimistic given other problems, such as rising job losses and the credit crunch. And the continuing rise in foreclosures adds to the glut of homes available for sale, particularly in markets such as California and Florida.
"We're dealing with a weakening economy in the second half of this year, and early '09 doesn't look that great either," Seiders said. "We don't have any numbers that really show stabilization in the housing market yet."
The government report on housing starts and permits comes the day after a survey of builder confidence by the National Association of Home Builders remained at a record low in August. Only 5% of builders said the current market is good, 8% said they expected a favorable market in the next six months and fewer than 2% said they were seeing strong traffic from potential buyers.
The downturn in housing and building has hammered the results of most of the nation's major builders. Late last month Centex (CTX, Fortune 500), which is the No. 2 builder by revenue, reported a larger-than-expected loss and warned it was seeing no improvement in the home building market.
Most builders have reported larger than expected losses, although Pulte Home (PHM, Fortune 500), the largest builder by revenue, did slightly better than forecasts. Only one major builder, NVR (NVR, Fortune 500), has reported a profit through the current downturn, although its earnings have plunged.
As a group, the revenue of the nation's eight largest home builders has plunged 37% over the last year. Analysts surveyed by Thomson Reuters are forecasting another 36% drop in revenue over the course of the next 12 months.
8.15.2008
Home Equity Frenzy Was a Bank Ad Come True
That catchy slogan, dreamed up by the Fallon Worldwide advertising agency, was pitched in 1999 to executives at Citicorp who were looking for a way to lure Americans to financial products like home equity loans. But some in the room did not like it. They worried the phrase would encourage people to live exorbitantly, says Stephen A. Cone, a top Citi marketer at the time.
Still, “Live Richly” won out. The advertising campaign, which cost some $1 billion from 2001 to 2006, urged people to lighten up about money and helped persuade hundreds of thousands of Citi customers to take out home equity loans — that is, to borrow against their homes. As one of the ads proclaimed: “There’s got to be at least $25,000 hidden in your house. We can help you find it.”
Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become universally accepted, their image transformed by ubiquitous ad campaigns from banks.
Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion, and nearly a quarter of Americans with first mortgages have them. That explosive growth has been a boon for banks. Banks’ returns on fixed-rate home equity loans and lines of credit, which are the most popular, are 25 percent to 50 percent higher than returns on consumer loans over all, with much of that premium coming from relatively high fees.
However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.
The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent, owing banks more than $10 billion on these loans, often on top of their first mortgages.
None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and with it Americans’ attitudes toward debt.
“Calling it a ‘second mortgage,’ that’s like hocking your house,” said Pei-Yuan Chia, a former vice chairman at Citicorp who oversaw the bank’s consumer business in the 1980s and 1990s. “But call it ‘equity access,’ and it sounds more innocent.”
Changing the Language
Many experts say the ads encouraged Americans to go deeper into debt.
“It’s very difficult for one advertiser to come to you and change your perspective,” said Sendhil Mullainathan, an economist at Harvard who has studied persuasion in financial advertising. “But as it becomes socially acceptable for everyone to accumulate debt, everyone does.” A spokesman for Citigroup said that the bank no longer runs the “Live Richly” campaign and that it no longer works with the advertising agency that created it.
Citi was far from alone with its simple but enticing ad slogans. Ads for banks and their home equity loans often portrayed borrowing against the roof over your head as an act of empowerment and entitlement. An ad in 2002 from Fleet, now a part of Bank of America, asked, “Is your mortgage squeezing your wallet? Squeeze back.” Another Fleet ad said: “The smartest place to borrow? Your place.”
One in 2006 from PNC Bank pictured a wheelbarrow and the line, the “easiest way to haul money out of your house.”
In 2003, one from Citigroup said a home could be “the ticket” to whatever “your heart desires.” It continued: “You’ve put a lot of work into your home. Isn’t it time for your home to return the favor?”
In 2004, Banco Popular said in its “Make Dreams Happen” ads: “Need Cash? Use Your Home.”
“Seize your someday,” a Wells Fargo ad advised in 2007.
It might seem hard to believe, but not long ago people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. You mailed your check to the bank every month for 20 or 30 years, paying interest and principal, and bit by bit, at the end you owned your home free and clear.
The newly mortgage-free even used to throw mortgage-burning parties to celebrate their financial freedom. In 1975, Edith and Archie Bunker torched their mortgage on “All in the Family.” Two years later, the Walton family burned theirs on “The Waltons.”
Now the idea of paying off the mortgage and owning a home outright is disappearing. One reason is that many people make smaller down payments on homes than they once did, so it takes longer to pay off their debt.
But another reason is that banks now enable homeowners to keep borrowing. In fact, they encourage it. Little by little, millions of Americans surrendered equity in their homes in recent years as home prices seemed to rise inexorably from one peak to the next.
As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent.
Bankers defend home equity loans by saying they merely give customers what they want: Easy credit to buy things that they otherwise might not be able to afford. Advertising executives say society’s attitudes about debt shaped the ads, not the other way around.
The phrase home equity loan has been around since at least the Depression, when it appeared in classified ads. But the transformation of the second mortgage into the home equity loan began in earnest in the 1970s and early 1980s.
That was when federal laws allowed mainstream banks to offer second mortgages as well as loans with interest-only, adjustable rates and so-called piggyback features combining first and second mortgages. Until then, such products were primarily marketed to lower-income customers by savings and loans and financing companies, like Beneficial and Household Finance.
Marketing executives knew that “second mortgage” had an unappealing ring. So they seized the idea of “home equity,” with its connotations of ownership and fairness. The phrase was also used for lines of credit, which are sometimes taken out by people who have already paid off their first mortgage.
But in the early 1980s, Americans were not very familiar with the concept of dipping into home equity. Charles Humm, the senior vice president for marketing and sales at Merrill Lynch Credit Corporation, had to go on a road show explaining the idea to potential customers.
He had to change the notion that only people in financial trouble took out a second mortgage, he recalls. Merrill wanted to sell second mortgages to consumers who did not need to borrow money urgently.
“The second mortgage category, then as probably now, suffered from a pretty bad reputation,” he said. “It generally tended to be a credit facility of last resort, and it was done by people in dire straits. That was not the audience we were after.”
The campaign worked. The amount of home equity loans outstanding grew from $1 billion in 1982 to $100 billion in 1988 — in part because a portion of the loans were tax deductible, as the ads often pointed out.
A Bank of New York ad in 1986, for instance, told homeowners who exploited those tax advantages they were “absolutely brilliant.”
An ad from CIT Financial, now struggling, said, “You don’t have to sell your home to get $10,000, $30,000 or even more in cash. You don’t even have to walk out the door.”
Citibank’s home equity ads portrayed housing as a revolving account similar to the plastic card in your wallet. One in the mid-’80s, for example, bragged: “Now, when the value of your home goes up, you can take credit for it.” Citigroup also used equity in its product name, calling the line an “Equity Source Account.”
A Different Approach
Advertising historians look back at the ’80s as the time when bank marketing came into its own. Citigroup led the way by hiring away advertising staff from packaged goods companies like General Mills and General Foods, where catchy ads were more common.
“Banking started using consumer advertising techniques more like a department store than like a bank,” said Barbara Lippert, an advertising critic for the magazine Adweek. “It was a real change in direction.”
Banks thought they were in safe territory. A Merrill Lynch executive, Thomas E. Capasse, told The New York Times in 1988 that home equity loans were safe because bankers believed that consumers would spend the money on wise investments and not “pledge the house to buy a blouse.”
Mr. Capasse worked in the bank’s division that was repackaging mortgage loans into bundles of loans to resell to investors, a practice that enabled lenders to make even more loans.
But other executives at Merrill were worried about the explosion of home equity lending. Mr. Humm, the marketing executive in Merrill’s credit division, said he was concerned about ads from other banks that suggested using home equity loans for family vacations, new pools and shopping jaunts.
“We thought it was an inappropriate use,” Mr. Humm said. “We thought it would bring to the equity access category the same kind of reputation over time that had come to the second mortgage category.”
Marketing executives who pushed the easy money slogans of the 1980s and 1990s now say their good intentions went awry.
Mauro Appezzato used to run marketing at The Money Store, now defunct, the lender whose longtime television spokesman was Phil Rizzuto, the former Yankees shortstop and announcer. In 1993, Mr. Appezzato helped come up with the pitch line “less than perfect credit,” a phrase he said was meant to refer to people whose credit was only slightly problematic.
But by the late 1990s, the phrase was co-opted by subprime lenders like Countrywide Financial, Washington Mutual, New Century and Ameriquest.
Ameriquest ran an ad in 2004 during the Super Bowl, one of the biggest advertising events of the year, that has come to symbolize the excesses of subprime lending. The ad showed a woman on an airplane climbing over the man sitting next to her to reach the aisle. The plane’s lights go off during turbulence and the woman slips, landing on the man’s lap. Other passengers gasp because it looks as if they were in a sexual embrace.
“Don’t Judge Too Quickly,” the ad said. “We Won’t.” Two and a half years later, Ameriquest went bankrupt.
Bank executives say that their customers wanted to borrow more money, and that desire is what drove changes in the marketplace. Consumers gave a resounding yes to offers of new credit, said Richard Kovacevich, the chairman of Wells Fargo, recalling questions he raised back in the 1980s when he oversaw retail banking at Citigroup.
“When you went to market research and asked people questions: would you like to have 24 by 7 access to your money? Would you like to have access to home mortgages and credit cards? Even if the product didn’t exist as such, would you like a line of credit where you can just write a check anytime?” Mr. Kovacevich said. “There’s no question, then, that that caused credit to enlarge.”
Still, Elizabeth Warren, a professor at Harvard Law School who has studied consumer debt and bankruptcy, said that financial companies used advertising to foster the idea that it is good, even smart, to borrow money.
“That ‘unused home equity in your house? Put it to work for you.’ ” Professor Warren said, mimicking the ads. “Doesn’t that sound financially sophisticated?” Not to Professor Warren. “Put it to work,” she said, is just a euphemism for borrowing.
Still, “Live Richly” won out. The advertising campaign, which cost some $1 billion from 2001 to 2006, urged people to lighten up about money and helped persuade hundreds of thousands of Citi customers to take out home equity loans — that is, to borrow against their homes. As one of the ads proclaimed: “There’s got to be at least $25,000 hidden in your house. We can help you find it.”
Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become universally accepted, their image transformed by ubiquitous ad campaigns from banks.
Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion, and nearly a quarter of Americans with first mortgages have them. That explosive growth has been a boon for banks. Banks’ returns on fixed-rate home equity loans and lines of credit, which are the most popular, are 25 percent to 50 percent higher than returns on consumer loans over all, with much of that premium coming from relatively high fees.
However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.
The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent, owing banks more than $10 billion on these loans, often on top of their first mortgages.
None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and with it Americans’ attitudes toward debt.
“Calling it a ‘second mortgage,’ that’s like hocking your house,” said Pei-Yuan Chia, a former vice chairman at Citicorp who oversaw the bank’s consumer business in the 1980s and 1990s. “But call it ‘equity access,’ and it sounds more innocent.”
Changing the Language
Many experts say the ads encouraged Americans to go deeper into debt.
“It’s very difficult for one advertiser to come to you and change your perspective,” said Sendhil Mullainathan, an economist at Harvard who has studied persuasion in financial advertising. “But as it becomes socially acceptable for everyone to accumulate debt, everyone does.” A spokesman for Citigroup said that the bank no longer runs the “Live Richly” campaign and that it no longer works with the advertising agency that created it.
Citi was far from alone with its simple but enticing ad slogans. Ads for banks and their home equity loans often portrayed borrowing against the roof over your head as an act of empowerment and entitlement. An ad in 2002 from Fleet, now a part of Bank of America, asked, “Is your mortgage squeezing your wallet? Squeeze back.” Another Fleet ad said: “The smartest place to borrow? Your place.”
One in 2006 from PNC Bank pictured a wheelbarrow and the line, the “easiest way to haul money out of your house.”
In 2003, one from Citigroup said a home could be “the ticket” to whatever “your heart desires.” It continued: “You’ve put a lot of work into your home. Isn’t it time for your home to return the favor?”
In 2004, Banco Popular said in its “Make Dreams Happen” ads: “Need Cash? Use Your Home.”
“Seize your someday,” a Wells Fargo ad advised in 2007.
It might seem hard to believe, but not long ago people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. You mailed your check to the bank every month for 20 or 30 years, paying interest and principal, and bit by bit, at the end you owned your home free and clear.
The newly mortgage-free even used to throw mortgage-burning parties to celebrate their financial freedom. In 1975, Edith and Archie Bunker torched their mortgage on “All in the Family.” Two years later, the Walton family burned theirs on “The Waltons.”
Now the idea of paying off the mortgage and owning a home outright is disappearing. One reason is that many people make smaller down payments on homes than they once did, so it takes longer to pay off their debt.
But another reason is that banks now enable homeowners to keep borrowing. In fact, they encourage it. Little by little, millions of Americans surrendered equity in their homes in recent years as home prices seemed to rise inexorably from one peak to the next.
As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent.
Bankers defend home equity loans by saying they merely give customers what they want: Easy credit to buy things that they otherwise might not be able to afford. Advertising executives say society’s attitudes about debt shaped the ads, not the other way around.
The phrase home equity loan has been around since at least the Depression, when it appeared in classified ads. But the transformation of the second mortgage into the home equity loan began in earnest in the 1970s and early 1980s.
That was when federal laws allowed mainstream banks to offer second mortgages as well as loans with interest-only, adjustable rates and so-called piggyback features combining first and second mortgages. Until then, such products were primarily marketed to lower-income customers by savings and loans and financing companies, like Beneficial and Household Finance.
Marketing executives knew that “second mortgage” had an unappealing ring. So they seized the idea of “home equity,” with its connotations of ownership and fairness. The phrase was also used for lines of credit, which are sometimes taken out by people who have already paid off their first mortgage.
But in the early 1980s, Americans were not very familiar with the concept of dipping into home equity. Charles Humm, the senior vice president for marketing and sales at Merrill Lynch Credit Corporation, had to go on a road show explaining the idea to potential customers.
He had to change the notion that only people in financial trouble took out a second mortgage, he recalls. Merrill wanted to sell second mortgages to consumers who did not need to borrow money urgently.
“The second mortgage category, then as probably now, suffered from a pretty bad reputation,” he said. “It generally tended to be a credit facility of last resort, and it was done by people in dire straits. That was not the audience we were after.”
The campaign worked. The amount of home equity loans outstanding grew from $1 billion in 1982 to $100 billion in 1988 — in part because a portion of the loans were tax deductible, as the ads often pointed out.
A Bank of New York ad in 1986, for instance, told homeowners who exploited those tax advantages they were “absolutely brilliant.”
An ad from CIT Financial, now struggling, said, “You don’t have to sell your home to get $10,000, $30,000 or even more in cash. You don’t even have to walk out the door.”
Citibank’s home equity ads portrayed housing as a revolving account similar to the plastic card in your wallet. One in the mid-’80s, for example, bragged: “Now, when the value of your home goes up, you can take credit for it.” Citigroup also used equity in its product name, calling the line an “Equity Source Account.”
A Different Approach
Advertising historians look back at the ’80s as the time when bank marketing came into its own. Citigroup led the way by hiring away advertising staff from packaged goods companies like General Mills and General Foods, where catchy ads were more common.
“Banking started using consumer advertising techniques more like a department store than like a bank,” said Barbara Lippert, an advertising critic for the magazine Adweek. “It was a real change in direction.”
Banks thought they were in safe territory. A Merrill Lynch executive, Thomas E. Capasse, told The New York Times in 1988 that home equity loans were safe because bankers believed that consumers would spend the money on wise investments and not “pledge the house to buy a blouse.”
Mr. Capasse worked in the bank’s division that was repackaging mortgage loans into bundles of loans to resell to investors, a practice that enabled lenders to make even more loans.
But other executives at Merrill were worried about the explosion of home equity lending. Mr. Humm, the marketing executive in Merrill’s credit division, said he was concerned about ads from other banks that suggested using home equity loans for family vacations, new pools and shopping jaunts.
“We thought it was an inappropriate use,” Mr. Humm said. “We thought it would bring to the equity access category the same kind of reputation over time that had come to the second mortgage category.”
Marketing executives who pushed the easy money slogans of the 1980s and 1990s now say their good intentions went awry.
Mauro Appezzato used to run marketing at The Money Store, now defunct, the lender whose longtime television spokesman was Phil Rizzuto, the former Yankees shortstop and announcer. In 1993, Mr. Appezzato helped come up with the pitch line “less than perfect credit,” a phrase he said was meant to refer to people whose credit was only slightly problematic.
But by the late 1990s, the phrase was co-opted by subprime lenders like Countrywide Financial, Washington Mutual, New Century and Ameriquest.
Ameriquest ran an ad in 2004 during the Super Bowl, one of the biggest advertising events of the year, that has come to symbolize the excesses of subprime lending. The ad showed a woman on an airplane climbing over the man sitting next to her to reach the aisle. The plane’s lights go off during turbulence and the woman slips, landing on the man’s lap. Other passengers gasp because it looks as if they were in a sexual embrace.
“Don’t Judge Too Quickly,” the ad said. “We Won’t.” Two and a half years later, Ameriquest went bankrupt.
Bank executives say that their customers wanted to borrow more money, and that desire is what drove changes in the marketplace. Consumers gave a resounding yes to offers of new credit, said Richard Kovacevich, the chairman of Wells Fargo, recalling questions he raised back in the 1980s when he oversaw retail banking at Citigroup.
“When you went to market research and asked people questions: would you like to have 24 by 7 access to your money? Would you like to have access to home mortgages and credit cards? Even if the product didn’t exist as such, would you like a line of credit where you can just write a check anytime?” Mr. Kovacevich said. “There’s no question, then, that that caused credit to enlarge.”
Still, Elizabeth Warren, a professor at Harvard Law School who has studied consumer debt and bankruptcy, said that financial companies used advertising to foster the idea that it is good, even smart, to borrow money.
“That ‘unused home equity in your house? Put it to work for you.’ ” Professor Warren said, mimicking the ads. “Doesn’t that sound financially sophisticated?” Not to Professor Warren. “Put it to work,” she said, is just a euphemism for borrowing.
Home prices down 7.6%
NEW YORK (CNNMoney.com) -- Real estate prices continued to post steep year-over-year declines during the three months ended June 30, according to a new report from the National Association of Realtors (NAR).
Nationwide, the median existing single family home price plunged 7.6% to $206,500 in the second quarter, down from $223,500 in the same period of 2007. The median price represents the point at which half of all homes sold for more and half sold for less.
A record number of foreclosures helped drive down prices, according to NAR. In fact, foreclosures and short sales accounted for about one third of all existing homes sales.
"Banks price homes to sell," said Patrick Newport, real estate economist with Global Insight, a forecasting firm. "When demand for homes drops, ordinary sellers will take their homes off the market, let them sit or reduce their prices in small increments. But banks will slash prices to where the homes will sell quickly."
Poor economic conditions are also hurting the housing market, according to Nicholas Retsinas, Director of Harvard University's Joint Center for Housing Studies, and may continue to take a toll.
During the boom, many housing markets thrived despite tough economies. At the height of the frenzy in the Spring of 2005, Stockton, Calif. saw home prices climb by double-digits, even though the unemployment rate there hit 9.4%.
"Now we're getting into a time when the real economy is starting to affect housing markets more," said Retsinas. "It's a little bit of a contest now. Will lower prices stimulate home sales, or will the slowing economy slow down sales."
Regional and local prices
Sun Belt metro areas led with price declines. These areas ran up fabulous gains during the mid-2000s boom, but are experiencing even more severe declines during the bust.
In Sacramento, Calif. prices plunged 35.6% year-over-year to $$229,500. Cape Coral, Fla. saw a decline of 33.1%, while prices in Riverside, Calif. dropped 32.7%, and Los Angeles prices are down 29.6%. Las Vegas prices fell 23.6% and Phoenix was down 22.5% for the quarter.
More bargain hunting buyers are coming into the market, according to the Realtors association. "The biggest home-sales gains over the previous quarter have been in some of the markets with the steepest and fastest price drops," said Lawrence Yun, NAR's chief economist. "Buyers in these areas are responding to deeply discounted home prices."
The biggest regional home price declines occurred in the West, where the median home price declined 17.4% to $290,500.
At the same time, sales in that part of the country increased. Existing-home sales were up 25.8% in California, 25% in Nevada, 20.5% in Arizona.
Prices in the South, at $177,000, were almost flat, down just 0.9%, while Florida sales saw an uptick of 10.1% in the quarter.
The Northeast median home sold for $269,000, down 9.6%, and prices in the Midwest were down 4.1% to $161,500.
Among metro areas, Yakima, Wash. posted the largest price increase, up 8.9% year-over-year to $162,300. Binghamton, N.Y. was second with a price jump of 8.7% to $120,900.
The most expensive metro area in the nation is San Jose, where a median priced home cost $755,000, off 12.7% from 12 months ago. The second most expensive area is San Francisco, where homes sold for a median of $684,900, down 19.1%. Honolulu was third, with a median price of $636,000, down 4.4%.
Youngstown, Ohio is the nation's lowest priced major market with a median price of just $71,700, down 6.5% from 12 months ago. Elmira, N.Y. is the second-most affordable locale, with a median price of $76,400, which was up 4.4% year-over-year, followed by Saginaw, Mich., which saw prices decline by 7.6% to $80,300.
Condo prices fell much less than single family homes, down just 3% year-over-year to $220,000 from $226,900. A couple of cities actually recorded double-digit condo price gains, led by Syracuse, N.Y., up 17.8% to $144,900, and New Orleans, up 15.9% to $192,100. Houston condo prices rose 9.9% to $141,100.
Still, Global Insight's Newport does not expect home prices to rebound anytime soon.
"Loan officers are reporting that they are still tightening underwriting standards," he said. "We expect that sales volume, which has leveled off some, will drop another 10% over the next few months over this credit squeeze."
Reduced demand for housing, combined with high home inventories and so many bank-owned properties on the market, are all factors likely to depress home prices for the foreseeable future.
Nationwide, the median existing single family home price plunged 7.6% to $206,500 in the second quarter, down from $223,500 in the same period of 2007. The median price represents the point at which half of all homes sold for more and half sold for less.
A record number of foreclosures helped drive down prices, according to NAR. In fact, foreclosures and short sales accounted for about one third of all existing homes sales.
"Banks price homes to sell," said Patrick Newport, real estate economist with Global Insight, a forecasting firm. "When demand for homes drops, ordinary sellers will take their homes off the market, let them sit or reduce their prices in small increments. But banks will slash prices to where the homes will sell quickly."
Poor economic conditions are also hurting the housing market, according to Nicholas Retsinas, Director of Harvard University's Joint Center for Housing Studies, and may continue to take a toll.
During the boom, many housing markets thrived despite tough economies. At the height of the frenzy in the Spring of 2005, Stockton, Calif. saw home prices climb by double-digits, even though the unemployment rate there hit 9.4%.
"Now we're getting into a time when the real economy is starting to affect housing markets more," said Retsinas. "It's a little bit of a contest now. Will lower prices stimulate home sales, or will the slowing economy slow down sales."
Regional and local prices
Sun Belt metro areas led with price declines. These areas ran up fabulous gains during the mid-2000s boom, but are experiencing even more severe declines during the bust.
In Sacramento, Calif. prices plunged 35.6% year-over-year to $$229,500. Cape Coral, Fla. saw a decline of 33.1%, while prices in Riverside, Calif. dropped 32.7%, and Los Angeles prices are down 29.6%. Las Vegas prices fell 23.6% and Phoenix was down 22.5% for the quarter.
More bargain hunting buyers are coming into the market, according to the Realtors association. "The biggest home-sales gains over the previous quarter have been in some of the markets with the steepest and fastest price drops," said Lawrence Yun, NAR's chief economist. "Buyers in these areas are responding to deeply discounted home prices."
The biggest regional home price declines occurred in the West, where the median home price declined 17.4% to $290,500.
At the same time, sales in that part of the country increased. Existing-home sales were up 25.8% in California, 25% in Nevada, 20.5% in Arizona.
Prices in the South, at $177,000, were almost flat, down just 0.9%, while Florida sales saw an uptick of 10.1% in the quarter.
The Northeast median home sold for $269,000, down 9.6%, and prices in the Midwest were down 4.1% to $161,500.
Among metro areas, Yakima, Wash. posted the largest price increase, up 8.9% year-over-year to $162,300. Binghamton, N.Y. was second with a price jump of 8.7% to $120,900.
The most expensive metro area in the nation is San Jose, where a median priced home cost $755,000, off 12.7% from 12 months ago. The second most expensive area is San Francisco, where homes sold for a median of $684,900, down 19.1%. Honolulu was third, with a median price of $636,000, down 4.4%.
Youngstown, Ohio is the nation's lowest priced major market with a median price of just $71,700, down 6.5% from 12 months ago. Elmira, N.Y. is the second-most affordable locale, with a median price of $76,400, which was up 4.4% year-over-year, followed by Saginaw, Mich., which saw prices decline by 7.6% to $80,300.
Condo prices fell much less than single family homes, down just 3% year-over-year to $220,000 from $226,900. A couple of cities actually recorded double-digit condo price gains, led by Syracuse, N.Y., up 17.8% to $144,900, and New Orleans, up 15.9% to $192,100. Houston condo prices rose 9.9% to $141,100.
Still, Global Insight's Newport does not expect home prices to rebound anytime soon.
"Loan officers are reporting that they are still tightening underwriting standards," he said. "We expect that sales volume, which has leveled off some, will drop another 10% over the next few months over this credit squeeze."
Reduced demand for housing, combined with high home inventories and so many bank-owned properties on the market, are all factors likely to depress home prices for the foreseeable future.
8.14.2008
Nation's foreclosure plague widens
NEW YORK (CNNMoney.com) -- The foreclosure juggernaut lurched forward in July as banks took back 77,295 homes - up 8% in a month and 183% in a year, a report issued Thursday shows.
Total foreclosure filings - delinquency notices, auction sale notices and bank repossessions - were up 8% from June and 55% year-over-year, according to RealtyTrac, an online marketer of foreclosed homes.
One of every 464 U.S. households received at least one filing during July. And more than 680,000 homes have been repossessed by lenders since the beginning of August 2007, when the credit crunch hit.
"Bank repossessions, or REOs, continued to be the fastest growing segment of foreclosure activity," said RealtyTrac's chief executive officer, James Saccacio, in a statement. "The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale."
The company says it has more than 750,000 active listings of repossessed homes for sale on its database. That represents about 17% of all the existing homes for sale in the United States as reported by the National Association of Realtors.
Leading states
Foreclosure activity in Nevada, surpassing all other states, touched one in every 106 households in July. Foreclosures in the state were up 15% for the month and were almost double the rate of last July.
Other hard-hit states included California (one of every 182 households), Florida (one of 186) and Arizona (one of 195). For sheer volume, California led the other states with a total of 72,285 filings.
An especially high percentage of the California filings were bank repossessions. There were 23,406 in all, up from just 4,444 in July 2007. The state accounted for more than a third of all such events in the nation. The number was also a big jump from June's total of 20,624 bank repossessions in the state.
"The properties there, once they enter foreclosure, are making a beeline back to the banks," said RealtyTrac's spokesman, Rick Sharga.
Many of the California homes were bought during the height of the frenzy of the mid-2000s at inflated prices. Now that home values have dropped, borrowers who bought at the top owe more than their homes are worth. These properties are almost impossible to refinance and are difficult to sell.
A couple of Midwestern states have also been consistently among the leading foreclosure hot spots and July was no exception. Ohio was fifth in the nation for foreclosures with one for every 375 households. That includes 4,057 bank repossessions, a 33% increase since July 2007. Michigan had 3,933 repossessed homes, or 17% fewer than last July, when it recorded 4,739.
City centers
The worst-hit metro area of the 230 regions that RealtyTrac covers was Cape Coral, Fla. About one of every 64 households in the Gulf Coast city received a filing during the month, more than seven times the national average.
Merced, Calif., with one filing per 73 households, had the second highest foreclosure rate, followed by the nearby Central Valley cities of Stockton and Modesto, which each had about one filing for every 82 households.
The report is bound to disappoint Washington policy makers and lending industry insiders who have stepped up their efforts to slow the massive default problem. June filings, which were down 3% from May, had been a cause for slight optimism.
But, according to Sharga, that decrease was helped along by rule changes in Massachusetts and Maryland that prevented lenders from issuing filings for up to an additional 90 days after borrowers first fall behind in their payments.
That significantly reduced the number of foreclosure filings in both states. In June, for example, Massachusetts recorded a 55% decrease in initial filings.
"Now, both states are creeping back up," he said. "The 90-day lull in Massachusetts is being followed by a whole run of properties [in delinquency]."
Total foreclosure filings - delinquency notices, auction sale notices and bank repossessions - were up 8% from June and 55% year-over-year, according to RealtyTrac, an online marketer of foreclosed homes.
One of every 464 U.S. households received at least one filing during July. And more than 680,000 homes have been repossessed by lenders since the beginning of August 2007, when the credit crunch hit.
"Bank repossessions, or REOs, continued to be the fastest growing segment of foreclosure activity," said RealtyTrac's chief executive officer, James Saccacio, in a statement. "The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale."
The company says it has more than 750,000 active listings of repossessed homes for sale on its database. That represents about 17% of all the existing homes for sale in the United States as reported by the National Association of Realtors.
Leading states
Foreclosure activity in Nevada, surpassing all other states, touched one in every 106 households in July. Foreclosures in the state were up 15% for the month and were almost double the rate of last July.
Other hard-hit states included California (one of every 182 households), Florida (one of 186) and Arizona (one of 195). For sheer volume, California led the other states with a total of 72,285 filings.
An especially high percentage of the California filings were bank repossessions. There were 23,406 in all, up from just 4,444 in July 2007. The state accounted for more than a third of all such events in the nation. The number was also a big jump from June's total of 20,624 bank repossessions in the state.
"The properties there, once they enter foreclosure, are making a beeline back to the banks," said RealtyTrac's spokesman, Rick Sharga.
Many of the California homes were bought during the height of the frenzy of the mid-2000s at inflated prices. Now that home values have dropped, borrowers who bought at the top owe more than their homes are worth. These properties are almost impossible to refinance and are difficult to sell.
A couple of Midwestern states have also been consistently among the leading foreclosure hot spots and July was no exception. Ohio was fifth in the nation for foreclosures with one for every 375 households. That includes 4,057 bank repossessions, a 33% increase since July 2007. Michigan had 3,933 repossessed homes, or 17% fewer than last July, when it recorded 4,739.
City centers
The worst-hit metro area of the 230 regions that RealtyTrac covers was Cape Coral, Fla. About one of every 64 households in the Gulf Coast city received a filing during the month, more than seven times the national average.
Merced, Calif., with one filing per 73 households, had the second highest foreclosure rate, followed by the nearby Central Valley cities of Stockton and Modesto, which each had about one filing for every 82 households.
The report is bound to disappoint Washington policy makers and lending industry insiders who have stepped up their efforts to slow the massive default problem. June filings, which were down 3% from May, had been a cause for slight optimism.
But, according to Sharga, that decrease was helped along by rule changes in Massachusetts and Maryland that prevented lenders from issuing filings for up to an additional 90 days after borrowers first fall behind in their payments.
That significantly reduced the number of foreclosure filings in both states. In June, for example, Massachusetts recorded a 55% decrease in initial filings.
"Now, both states are creeping back up," he said. "The 90-day lull in Massachusetts is being followed by a whole run of properties [in delinquency]."
TOP TEN QUESTIONS SELLERS WILL ASK ABOUT A SHORT SALE.
Number 10
I can’t make my house payments, but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn’t that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender’s.
Number 8
Do I have to have my home “Approved” by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being “Short Sale Approved.” The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more…how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 6+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender, it depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can’t make the payment. Do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can’t make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.
Number 4
Do I have to pay income taxes…I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me…the seller…is this true?
It WAS true, now it’s not. Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
Number 3
How do you, my listing agent get paid…who pays your commission?
The bank will pay the commission along with all the other usual closing costs.
Number 2
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holders.
I can’t make my house payments, but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder), it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn’t that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender’s.
Number 8
Do I have to have my home “Approved” by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being “Short Sale Approved.” The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more…how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 6+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender, it depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can’t make the payment. Do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can’t make their payment and they are otherwise insolvent, they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.
Number 4
Do I have to pay income taxes…I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me…the seller…is this true?
It WAS true, now it’s not. Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
Number 3
How do you, my listing agent get paid…who pays your commission?
The bank will pay the commission along with all the other usual closing costs.
Number 2
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holders.
8.13.2008
25% of home sales result in loss
NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.
In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.
While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.
"It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."
In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.
About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.
And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.
The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.
He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.
"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."
The short-sale solution
Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.
"The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.
A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.
For Bell, whatever the sale brings, it's going to be a lot less than what she paid.
The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.
Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.
"They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."
That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.
That trend will almost surely continue.
In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.
Broader impact
A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.
"That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."
A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.
"With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.
In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.
While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.
"It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."
In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.
About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.
And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.
The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.
He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.
"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."
The short-sale solution
Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.
"The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.
A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.
For Bell, whatever the sale brings, it's going to be a lot less than what she paid.
The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.
Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.
"They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."
That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.
That trend will almost surely continue.
In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.
Broader impact
A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.
"That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."
A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.
"With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.
Sovereign Wealth Funds To Buy-Up $29 Billion In Foreclosed Homes
The great American sell-off continues. For sale this time: foreclosed homes throughout the United States with depreciating values. These pieces of real estate are tempting foreign big-money sovereign wealth funds to purchase them at an incredible value. Nothing can be truly considered sacred or American when everything is now for sale at discount prices.
According to a report from the New York Post, an undisclosed sovereign wealth fund has allocated $29 billion to begin purchasing foreclosed homes along the West Coast. American home values and the dollar are both plummeting in value, attracting foreign oil money to invest in the nation’s houses. Abu Dhabi, known for its recent purchases of the Chrysler and GM Buildings, is preparing to announce next month what failing American real estate it will soon invest in.
America is defenseless against foreign takeovers of realty and big business as long as it remains addicted to oil. The nations that are buying up America with zeal are rich with American dollars from the purchase of oil. Petro-dollars have allowed Abu Dhabi to amass $875 billion in sovereign wealth fund assets, while Norway has $391 billion, Singapore $303 billion and Kuwait with $264. The U.S. remains subservient to each of these nation’s oil, and their wealth funds are growing large enough to dismantle America bit-by-bit.
Perhaps the dollars recent success of reaching 7-month highs can be attributed to the massive influx of foreign capital; America’s abysmal lack of manufacturing is not contributing to the greenback’s gains. The nation’s industries and real estate are selling at the fastest rate ever witnessed, $121 billion in assets sold so far this year. The exuberant amount of foreign money entering the states is artificially inflating the dollar, providing the nation with some short-lived relief by driving down oil prices and other commodities. But this is only a false illusion that will not last.
If this practice continues, nothing will remain American. No industries to manufacture and sell goods and no national real estate. The influx of foreign capital will be spent and America will have no assets left to sell and nothing to produce to dig itself out of the insurmountable debt it is accruing. There will be no prosperous future for the upcoming generations if America continues to sell every vital industry and remain dependent on foreign banks to purchase debt and artificially inflate the dollar.
Foreign money, which up to now has focused its attention on investing in iconic commercial real estate - like Barneys New York and the Chrysler Building - is now moving to scoop up tens of thousands of discounted foreclosed homes across the country.
A sovereign fund would have two distinct advantages over other investors - the depressed value of the US dollar makes the homes a bargain, and sovereign funds have deeper pockets.
The sovereign fund of Abu Dhabi, for example, has a reported $875 billion in assets, while Norway has $391 billion, Singapore has $303 billion and Kuwait has $264 billion in their sovereign funds, which are funded by proceeds from oil sales.
According to a report from the New York Post, an undisclosed sovereign wealth fund has allocated $29 billion to begin purchasing foreclosed homes along the West Coast. American home values and the dollar are both plummeting in value, attracting foreign oil money to invest in the nation’s houses. Abu Dhabi, known for its recent purchases of the Chrysler and GM Buildings, is preparing to announce next month what failing American real estate it will soon invest in.
America is defenseless against foreign takeovers of realty and big business as long as it remains addicted to oil. The nations that are buying up America with zeal are rich with American dollars from the purchase of oil. Petro-dollars have allowed Abu Dhabi to amass $875 billion in sovereign wealth fund assets, while Norway has $391 billion, Singapore $303 billion and Kuwait with $264. The U.S. remains subservient to each of these nation’s oil, and their wealth funds are growing large enough to dismantle America bit-by-bit.
Perhaps the dollars recent success of reaching 7-month highs can be attributed to the massive influx of foreign capital; America’s abysmal lack of manufacturing is not contributing to the greenback’s gains. The nation’s industries and real estate are selling at the fastest rate ever witnessed, $121 billion in assets sold so far this year. The exuberant amount of foreign money entering the states is artificially inflating the dollar, providing the nation with some short-lived relief by driving down oil prices and other commodities. But this is only a false illusion that will not last.
If this practice continues, nothing will remain American. No industries to manufacture and sell goods and no national real estate. The influx of foreign capital will be spent and America will have no assets left to sell and nothing to produce to dig itself out of the insurmountable debt it is accruing. There will be no prosperous future for the upcoming generations if America continues to sell every vital industry and remain dependent on foreign banks to purchase debt and artificially inflate the dollar.
Foreign money, which up to now has focused its attention on investing in iconic commercial real estate - like Barneys New York and the Chrysler Building - is now moving to scoop up tens of thousands of discounted foreclosed homes across the country.
A sovereign fund would have two distinct advantages over other investors - the depressed value of the US dollar makes the homes a bargain, and sovereign funds have deeper pockets.
The sovereign fund of Abu Dhabi, for example, has a reported $875 billion in assets, while Norway has $391 billion, Singapore has $303 billion and Kuwait has $264 billion in their sovereign funds, which are funded by proceeds from oil sales.
8.12.2008
The next wave of mortgage defaults
NEW YORK (CNNMoney.com ) -- Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.
The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogic that compiles and analyzes residential mortgage statistics.
Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.
And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.
"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.
Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.
Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.
Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.
"Home prices will drop for quite a while - maybe several years," he said.
Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.
And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.
"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."
More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.
Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.
About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.
That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."
While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.
"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."
But there will probably more hard times ahead before markets come back into balance and recovery begins.
The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogic that compiles and analyzes residential mortgage statistics.
Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.
And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.
"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.
Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.
Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.
Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.
"Home prices will drop for quite a while - maybe several years," he said.
Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.
And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.
"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."
More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.
Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.
About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.
That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."
While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.
"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."
But there will probably more hard times ahead before markets come back into balance and recovery begins.
Nearly One-Third of All Homeowners Who Purchased in Past 5-yrs Underwater…Best Case
Zillow just reported that according to new data, that nearly one-third of all US homeowners who bought in the past 5-years are in a negative equity position meaning they owe more than their home is worth.
However, this is a best-case scenario, as it is widely thought the Zillow valuation estimates are high because they do not take in account many of the actual foreclosure related sales that made up some 42% of all sales in the state of CA last month and even a larger percentage in other ‘bubble states’.
This massive flood of foreclosed properties coming back on the market at discounts to recent comparable sales is in part responsible for the 32% median price decline in CA in the past 14 months.
• Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages.
• Second-quarter home prices fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity
• For those who bought at the 2006 peak of the housing market, 45 percent are now underwater.
• Almost one-quarter of U.S. homes sold in the past year were for a loss.
• “For homeowners who need to sell, this is a gravely serious situation,” Humphries said in an interview. “It can also be harmful to communities where the number of unsold homes adds more to inventory and puts downward pressure on prices.”
• The highest percentages of homeowners with negative equity were located in California. In four of the state’s metropolitan areas - mortgage debts exceeded the values of their properties topped 90 percent,
• In five more California areas - the percentages were more than 80 percent.
• Prices fell on a year-over-year basis in 140 out of 165 markets,
• The Zillow Home Value Index is the median valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period, the company said. The index at the national and metropolitan area levels is calculated using a weighted average of the median home value for each county, Zillow said.
However, this is a best-case scenario, as it is widely thought the Zillow valuation estimates are high because they do not take in account many of the actual foreclosure related sales that made up some 42% of all sales in the state of CA last month and even a larger percentage in other ‘bubble states’.
This massive flood of foreclosed properties coming back on the market at discounts to recent comparable sales is in part responsible for the 32% median price decline in CA in the past 14 months.
• Almost one-third of U.S. homeowners who bought in the last five years now owe more on their mortgages.
• Second-quarter home prices fell 9.9 percent from a year earlier, giving 29 percent of owners negative equity
• For those who bought at the 2006 peak of the housing market, 45 percent are now underwater.
• Almost one-quarter of U.S. homes sold in the past year were for a loss.
• “For homeowners who need to sell, this is a gravely serious situation,” Humphries said in an interview. “It can also be harmful to communities where the number of unsold homes adds more to inventory and puts downward pressure on prices.”
• The highest percentages of homeowners with negative equity were located in California. In four of the state’s metropolitan areas - mortgage debts exceeded the values of their properties topped 90 percent,
• In five more California areas - the percentages were more than 80 percent.
• Prices fell on a year-over-year basis in 140 out of 165 markets,
• The Zillow Home Value Index is the median valuation for a given geographic area on a given day and includes the value of all single-family residences, condominiums and cooperatives, regardless of whether they sold within a given period, the company said. The index at the national and metropolitan area levels is calculated using a weighted average of the median home value for each county, Zillow said.
8.11.2008
How to buy a foreclosed home
NEW YORK (CNNMoney.com) -- Hoping to score a house on the cheap by buying a foreclosed property? There are good deals out there, but the process is complicated and risky. Here's what you need to know.
There are certainly plenty of foreclosed homes on the market. In California, 40% of existing homes sold in the second quarter were foreclosures, according to DataQuick, a provider of real estate information, compared with 5.4% a year earlier.
Indeed, Fannie Mae CEO Daniel Mudd said Friday that the company is pushing hard to sell more foreclosed properties, to get them off the books. "I don't think this is a time to be holding onto REOs and hoping for a better day," he said.
Steve Dexter, author of "Prospering in the Rising Wave of Foreclosures," has bought dozens of foreclosed homes and thinks now is a good time to dive in. "It's the best way to buy, and it's time to buy again," said
There are three different stages of foreclosure, each of which presents different opportunities for buyers. The first step is to figure out which one makes the most sense for you.
Pre-foreclosure
A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.
Buyers can find pre-foreclosures by poring over the delinquency notices that lenders file with county courthouses when a borrower misses a payment.
Armed with prospects, buyers should go scouting. If they see homes they like, they should contact the owners to see if they want to sell.
"You call them or knock on their doors and say, 'I know you're having a problem and I think I can help you,' " said Alexis McGee, co-founder of Foreclosures.com.
McGee only buys when she figures she can make a profit of 30% or more; marketing and other expenses wipe out about half that by the time she resells. But people buying a house to live in might be happy with a 20% discount from market value.
Cold calling and making low-ball offers on people's homes can be difficult: Some owners are emotional, even angry. Many are trying to hold onto their houses and don't appreciate what they consider scavengers sniffing around.
"But you're not taking advantage of these homeowners," said Duane LeGate, president of HouseBuyerNetwork.com, which puts together buyers and sellers of distressed properties. "All many of them want is financial relief from bad mortgages, and you're offering it."
Indeed, some owners are open to doing what's called a short sale, which is when a buyer pays less for a house than the mortgage that is owed on it. Lenders must agree to a short sale, and will then forgive the rest of the debt.
Often, banks are reluctant to do such deals, since it requires them to take a loss. It can take months and a lot of badgering before a deal goes through, and not every buyer is up for that kind of hassle.
But as the housing market deteriorates, lenders are warming up to short sales, according to Foreclosure.com founder Brad Geisen. "It makes a lot more financial sense for them to liquidate early rather than go through the foreclosure process," he said, which can cost lenders about $50,000.
Gabe Cera recently bought one through an associate of LeGate, Raul Pineyro, owner of Cacophony Group Real Estate Services in Dade County, Fla. Cera purchased a four-bed, three-bath in Miami for about $60,000 less than what the owner's mortgage was worth.
"I'm very satisfied," Cera said. "The transaction was very smooth and quick and I think I saved a lot of money."
In buying any pre-foreclosure, LeGate advises buyers to not be turned off by dirty carpets or ugly paint jobs. That's where the best deals are.
"Anybody can go the Home Depot (HD, Fortune 500) and buy some paint and a new rug," he said.
Sheriffs' sales
In the next stage of foreclosure, homes in default are auctioned off on the county courthouse steps. These homes can be real bargains, but the process is a crap shoot.
Bidders can't inspect the property, so there's no telling how much work it needs. And there is also no telling what kind of liens there are against the home, due to unpaid taxes and so forth, which can also jack up the cost of these homes. Finally, Buyers need to come with cash, ready to put 10%-20% down on the spot, and able to pony up the rest in a matter of days.
"If you want to buy on the courthouse steps," said LeGate, "you'd better be a pro."
Even after a purchase, a deal can fall through if the current owner can come up with enough cash to repay the buyer the amount of the winning bid.
LeGate himself has bought several homes at auction, with mixed results.
"The first time, I bought, renovated and sold the house all within 29 days and made a killing," he said. "I thought I was a mini-Donald Trump. The second time, the previous owner poured cement into the pipes before he left and when I turned on the water, it clogged everything. I lost more on the second house than I made on the first."
Post-foreclosure
After a lender takes back a house, the property goes back on the market as what's called an REO (real estate owned) property. These are treated like ordinary sales, listed with a broker. Typically, bargains are not as sharp.
Author Steve Dexter advises house hunters to go to the Web sites of all the major lenders and look for REOs in their communities. Alternatively, "Get a young, hungry real estate agent who's screening REOs all the time and put them to work for you," he said. Foreclosures for sale may also be found on the sites of Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500), as well as eBay (EBAY, Fortune 500).
Dexter prefers to buy REOs because the process is so clean; the title is clear and the property is delivered vacant, even if the prices aren't as good. He says one bank manager told him he usually sells REOs for 95% of listing prices, on average.
"You might not think that's too great for buyers," said Dexter, "but the listing prices are lower [than market value]," usually by 10% or more. The total discounts often exceed 15%.
Another way to buy an REO is through an REO auction. As bank portfolios of these properties have swollen, they've started to unload them en masse. Pam McKissick, chief operating officer of Williams & Williams, an auction company based in Tulsa, said her company buys big portfolios of post-foreclosure properties from lenders and then auctions them to individual buyers.
The REOs that Williams & Williams pick up are usually sold within 30 days; successful bids can be quite low. "It's a very rapid process," said McKissick, " You want to put a family back into a home quickly and bring the neighborhood back. This does that."
There are certainly plenty of foreclosed homes on the market. In California, 40% of existing homes sold in the second quarter were foreclosures, according to DataQuick, a provider of real estate information, compared with 5.4% a year earlier.
Indeed, Fannie Mae CEO Daniel Mudd said Friday that the company is pushing hard to sell more foreclosed properties, to get them off the books. "I don't think this is a time to be holding onto REOs and hoping for a better day," he said.
Steve Dexter, author of "Prospering in the Rising Wave of Foreclosures," has bought dozens of foreclosed homes and thinks now is a good time to dive in. "It's the best way to buy, and it's time to buy again," said
There are three different stages of foreclosure, each of which presents different opportunities for buyers. The first step is to figure out which one makes the most sense for you.
Pre-foreclosure
A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.
Buyers can find pre-foreclosures by poring over the delinquency notices that lenders file with county courthouses when a borrower misses a payment.
Armed with prospects, buyers should go scouting. If they see homes they like, they should contact the owners to see if they want to sell.
"You call them or knock on their doors and say, 'I know you're having a problem and I think I can help you,' " said Alexis McGee, co-founder of Foreclosures.com.
McGee only buys when she figures she can make a profit of 30% or more; marketing and other expenses wipe out about half that by the time she resells. But people buying a house to live in might be happy with a 20% discount from market value.
Cold calling and making low-ball offers on people's homes can be difficult: Some owners are emotional, even angry. Many are trying to hold onto their houses and don't appreciate what they consider scavengers sniffing around.
"But you're not taking advantage of these homeowners," said Duane LeGate, president of HouseBuyerNetwork.com, which puts together buyers and sellers of distressed properties. "All many of them want is financial relief from bad mortgages, and you're offering it."
Indeed, some owners are open to doing what's called a short sale, which is when a buyer pays less for a house than the mortgage that is owed on it. Lenders must agree to a short sale, and will then forgive the rest of the debt.
Often, banks are reluctant to do such deals, since it requires them to take a loss. It can take months and a lot of badgering before a deal goes through, and not every buyer is up for that kind of hassle.
But as the housing market deteriorates, lenders are warming up to short sales, according to Foreclosure.com founder Brad Geisen. "It makes a lot more financial sense for them to liquidate early rather than go through the foreclosure process," he said, which can cost lenders about $50,000.
Gabe Cera recently bought one through an associate of LeGate, Raul Pineyro, owner of Cacophony Group Real Estate Services in Dade County, Fla. Cera purchased a four-bed, three-bath in Miami for about $60,000 less than what the owner's mortgage was worth.
"I'm very satisfied," Cera said. "The transaction was very smooth and quick and I think I saved a lot of money."
In buying any pre-foreclosure, LeGate advises buyers to not be turned off by dirty carpets or ugly paint jobs. That's where the best deals are.
"Anybody can go the Home Depot (HD, Fortune 500) and buy some paint and a new rug," he said.
Sheriffs' sales
In the next stage of foreclosure, homes in default are auctioned off on the county courthouse steps. These homes can be real bargains, but the process is a crap shoot.
Bidders can't inspect the property, so there's no telling how much work it needs. And there is also no telling what kind of liens there are against the home, due to unpaid taxes and so forth, which can also jack up the cost of these homes. Finally, Buyers need to come with cash, ready to put 10%-20% down on the spot, and able to pony up the rest in a matter of days.
"If you want to buy on the courthouse steps," said LeGate, "you'd better be a pro."
Even after a purchase, a deal can fall through if the current owner can come up with enough cash to repay the buyer the amount of the winning bid.
LeGate himself has bought several homes at auction, with mixed results.
"The first time, I bought, renovated and sold the house all within 29 days and made a killing," he said. "I thought I was a mini-Donald Trump. The second time, the previous owner poured cement into the pipes before he left and when I turned on the water, it clogged everything. I lost more on the second house than I made on the first."
Post-foreclosure
After a lender takes back a house, the property goes back on the market as what's called an REO (real estate owned) property. These are treated like ordinary sales, listed with a broker. Typically, bargains are not as sharp.
Author Steve Dexter advises house hunters to go to the Web sites of all the major lenders and look for REOs in their communities. Alternatively, "Get a young, hungry real estate agent who's screening REOs all the time and put them to work for you," he said. Foreclosures for sale may also be found on the sites of Freddie Mac (FRE, Fortune 500) and Fannie Mae (FNM, Fortune 500), as well as eBay (EBAY, Fortune 500).
Dexter prefers to buy REOs because the process is so clean; the title is clear and the property is delivered vacant, even if the prices aren't as good. He says one bank manager told him he usually sells REOs for 95% of listing prices, on average.
"You might not think that's too great for buyers," said Dexter, "but the listing prices are lower [than market value]," usually by 10% or more. The total discounts often exceed 15%.
Another way to buy an REO is through an REO auction. As bank portfolios of these properties have swollen, they've started to unload them en masse. Pam McKissick, chief operating officer of Williams & Williams, an auction company based in Tulsa, said her company buys big portfolios of post-foreclosure properties from lenders and then auctions them to individual buyers.
The REOs that Williams & Williams pick up are usually sold within 30 days; successful bids can be quite low. "It's a very rapid process," said McKissick, " You want to put a family back into a home quickly and bring the neighborhood back. This does that."
Fed sees credit crisis crimping lenders
WASHINGTON (AP) -- More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy.
The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.
The new survey, conducted in early July, found that about 75% of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60% in the previous survey.
The Fed's July survey covered 50 banks which hold about 80% of the residential mortgages on the books of all commercial banks.
Out of this group of 50 banks, 32 said they were still originating so-called nontraditional home mortgages. Among these 32 banks, about 85% said they had tightened their lending standards, up from 75% who said they were tightening lending standards for nontraditional mortgages in the April survey.
The Fed defines nontraditional mortgages as interest-only loans and "Alt-A" mortgages that required limited verification of income.
The survey found that many banks had reported tightening their lending standards and terms on all major categories of consumer and business loans over the past three months.
About 65% of domestic banks - more than double the roughly 30% in the April survey - reported that they had tightened lending standards on credit card loans.
The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.
The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.
The new survey, conducted in early July, found that about 75% of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60% in the previous survey.
The Fed's July survey covered 50 banks which hold about 80% of the residential mortgages on the books of all commercial banks.
Out of this group of 50 banks, 32 said they were still originating so-called nontraditional home mortgages. Among these 32 banks, about 85% said they had tightened their lending standards, up from 75% who said they were tightening lending standards for nontraditional mortgages in the April survey.
The Fed defines nontraditional mortgages as interest-only loans and "Alt-A" mortgages that required limited verification of income.
The survey found that many banks had reported tightening their lending standards and terms on all major categories of consumer and business loans over the past three months.
About 65% of domestic banks - more than double the roughly 30% in the April survey - reported that they had tightened lending standards on credit card loans.
The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.
8.07.2008
Foreclosure crisis: The $4 billion fix
NEW YORK (CNNMoney.com) -- City officials and community activists can't wait to get their hands on nearly $4 billion the federal government is about to inject into blighted neighborhoods suffering from record foreclosures.
Opponents of the measure say the paltry sum won't do much good considering the number of vacant homes on the market - one million families are expected to lose their homes this year - and will more likely turn into a political boondoggle.
It remains to be seen which side is right. But the program - part of the massive housing rescue bill Bush enacted last month despite his own misgivings - will serve as one test of Washington's ability to mitigate the foreclosure crisis.
The U.S. Department of Housing and Urban Development is expected in late September to come up with a formula for how to distribute $3.92 billion to states and cities nationwide to turn foreclosed property to affordable housing for sale or rent.
The funds are intended to help communities deal with the flood of vacant homes, which drain public resources and drag down property values of neighboring houses.
"This money will help get neighborhoods hard hit by foreclosures back on their feet again," said Jeff Falcusan, policy advisor for the National Association of Housing and Redevelopment Officials, a trade group.
Congress mandated that the money be allocated based on the number and percentage of foreclosures, homes financed with subprime loans and homes in default or delinquency in the community. Once the formula is set, HUD has 30 days to dole out the funds. Government officials then have 18 months to put the money to use in their neighborhoods.
In addition to buying and fixing up homes, municipalities can use the money to demolish blighted structures and redevelop vacant land. The foreclosed property must be bought at a discount from its current appraised value to avoid bailing out the lenders.
Local governments could rehab the properties on their own or with the help of public housing authorities. They could also partner with community groups.
The program is also designed to increase the affordable housing stock in the community. The law mandates that the homes be sold or rented to families at or below 120% of the area median income, with one-quarter of the funds set aside for families at or below 50% of median income.
Communities "will have the opportunity to put these houses back into productive use," said Steve Adamske, communications director for the House Committee of Financial Services.
Vacant homes = trouble
Vacant properties can cause big problems for municipalities. As the number of abandoned homes multiplies, property tax revenues fall. Yet, the vacant houses often require more public resources, including frequent visits by police, health department and code enforcement officials. And they hurt property values of surrounding houses.
In Tucson, Ariz., which has been hit hard in the housing slump, abandoned pools have been a particular concern because they attract West Nile-carrying mosquitoes, said Emily Nottingham, the city's community services director. Neighbors also complain about dilapidated houses and overgrown gardens.
"It can really become an eyesore for a neighborhood," she said. Vacant houses "can attract squatters and if the weeds are overgrown, it's harder for adjoining houses to be sold. Pools turn green and attract mosquitoes."
Foreclosures are a widespread problem in Tucson. It already has 4,000 foreclosed properties on the market and is expecting the number to grow. The city is projecting 8,000 homes to enter foreclosure this year - some of which are already up for sale - and another 8,000 in 2009.
The key to using the federal funds most effectively is concentrating efforts in particular neighborhoods rather than scattering the money around town, experts said.
"Target neighborhoods where it can make a difference," said Buzz Roberts, senior vice president for policy at Local Initiatives Support Corp., a national non-profit group which focuses on rebuilding low-income communities.
Local rehab efforts
Rehabbing blighted communities is nothing new for many municipalities and community groups, experts said. Numerous efforts are underway to address the mess left behind in the foreclosure crisis, said Ali Solis, vice president for public policy and industry relations at Enterprise Community Partners, a non-profit group that develops and finances affordable housing.
For instance, Living Cities, a collaboration of corporations and philanthropies, is doling out $10 million in grants to renovate foreclosed properties. The initial recipients include Dallas, Detroit, New York and Washington, D.C.
In Cincinnati, local officials are hoping to use the federal funds to augment a $1.25 million revitalization effort already in the works, said Michael Cervay, director of community development.
The funds should allow the city to demolish or fix up hundreds of vacant homes. The city has about half of the 5,600 homes that went into foreclosure in Hamilton County in 2007. Even more foreclosures are expected this year.
"It will make a significant impact on the problem in Cincinnati," he said.
A drop in the bucket
Some foreclosure experts, however, said that the funding is too little to have any real effect, especially in the hardest hit areas. California, for example, had 209,000 homes go into foreclosure over the past year, said Sean O'Toole, founder of foreclosureradar.com, a foreclosed properties website for real estate professionals.
"$4 billion is kind of a meaningless sum," O'Toole said. "It can't possibly make a difference. You've brought a pistol to a nuclear war."
Converting foreclosed houses into livable homes may prove a big challenge for many municipalities, said David John, senior research fellow at the Heritage Foundation, a conservative think tank. He foresees a lot of the funding going to waste in poor planning or fraud.
Also, because of the weak housing market, local officials might find themselves unable to unload the houses once they are renovated at a price the recoups the repair costs, he said.
"The money could be better used for other purposes," John said. "State and local government have a rather bad record of managing this kind of activity. They don't really have much expertise in retail housing."
Opponents of the measure say the paltry sum won't do much good considering the number of vacant homes on the market - one million families are expected to lose their homes this year - and will more likely turn into a political boondoggle.
It remains to be seen which side is right. But the program - part of the massive housing rescue bill Bush enacted last month despite his own misgivings - will serve as one test of Washington's ability to mitigate the foreclosure crisis.
The U.S. Department of Housing and Urban Development is expected in late September to come up with a formula for how to distribute $3.92 billion to states and cities nationwide to turn foreclosed property to affordable housing for sale or rent.
The funds are intended to help communities deal with the flood of vacant homes, which drain public resources and drag down property values of neighboring houses.
"This money will help get neighborhoods hard hit by foreclosures back on their feet again," said Jeff Falcusan, policy advisor for the National Association of Housing and Redevelopment Officials, a trade group.
Congress mandated that the money be allocated based on the number and percentage of foreclosures, homes financed with subprime loans and homes in default or delinquency in the community. Once the formula is set, HUD has 30 days to dole out the funds. Government officials then have 18 months to put the money to use in their neighborhoods.
In addition to buying and fixing up homes, municipalities can use the money to demolish blighted structures and redevelop vacant land. The foreclosed property must be bought at a discount from its current appraised value to avoid bailing out the lenders.
Local governments could rehab the properties on their own or with the help of public housing authorities. They could also partner with community groups.
The program is also designed to increase the affordable housing stock in the community. The law mandates that the homes be sold or rented to families at or below 120% of the area median income, with one-quarter of the funds set aside for families at or below 50% of median income.
Communities "will have the opportunity to put these houses back into productive use," said Steve Adamske, communications director for the House Committee of Financial Services.
Vacant homes = trouble
Vacant properties can cause big problems for municipalities. As the number of abandoned homes multiplies, property tax revenues fall. Yet, the vacant houses often require more public resources, including frequent visits by police, health department and code enforcement officials. And they hurt property values of surrounding houses.
In Tucson, Ariz., which has been hit hard in the housing slump, abandoned pools have been a particular concern because they attract West Nile-carrying mosquitoes, said Emily Nottingham, the city's community services director. Neighbors also complain about dilapidated houses and overgrown gardens.
"It can really become an eyesore for a neighborhood," she said. Vacant houses "can attract squatters and if the weeds are overgrown, it's harder for adjoining houses to be sold. Pools turn green and attract mosquitoes."
Foreclosures are a widespread problem in Tucson. It already has 4,000 foreclosed properties on the market and is expecting the number to grow. The city is projecting 8,000 homes to enter foreclosure this year - some of which are already up for sale - and another 8,000 in 2009.
The key to using the federal funds most effectively is concentrating efforts in particular neighborhoods rather than scattering the money around town, experts said.
"Target neighborhoods where it can make a difference," said Buzz Roberts, senior vice president for policy at Local Initiatives Support Corp., a national non-profit group which focuses on rebuilding low-income communities.
Local rehab efforts
Rehabbing blighted communities is nothing new for many municipalities and community groups, experts said. Numerous efforts are underway to address the mess left behind in the foreclosure crisis, said Ali Solis, vice president for public policy and industry relations at Enterprise Community Partners, a non-profit group that develops and finances affordable housing.
For instance, Living Cities, a collaboration of corporations and philanthropies, is doling out $10 million in grants to renovate foreclosed properties. The initial recipients include Dallas, Detroit, New York and Washington, D.C.
In Cincinnati, local officials are hoping to use the federal funds to augment a $1.25 million revitalization effort already in the works, said Michael Cervay, director of community development.
The funds should allow the city to demolish or fix up hundreds of vacant homes. The city has about half of the 5,600 homes that went into foreclosure in Hamilton County in 2007. Even more foreclosures are expected this year.
"It will make a significant impact on the problem in Cincinnati," he said.
A drop in the bucket
Some foreclosure experts, however, said that the funding is too little to have any real effect, especially in the hardest hit areas. California, for example, had 209,000 homes go into foreclosure over the past year, said Sean O'Toole, founder of foreclosureradar.com, a foreclosed properties website for real estate professionals.
"$4 billion is kind of a meaningless sum," O'Toole said. "It can't possibly make a difference. You've brought a pistol to a nuclear war."
Converting foreclosed houses into livable homes may prove a big challenge for many municipalities, said David John, senior research fellow at the Heritage Foundation, a conservative think tank. He foresees a lot of the funding going to waste in poor planning or fraud.
Also, because of the weak housing market, local officials might find themselves unable to unload the houses once they are renovated at a price the recoups the repair costs, he said.
"The money could be better used for other purposes," John said. "State and local government have a rather bad record of managing this kind of activity. They don't really have much expertise in retail housing."
June pending home sales tick up 5.3%
NEW YORK (CNNMoney.com) -- The number of pending homes for sale rose in June, a rebound from the previous month, according to a report released Thursday.
The National Association of Realtors' Pending Home Sales Index rose 5.3% in June to 89 from a downwardly revised reading of 84.5 in May.
The index remains 12.3% below its level in June 2007, when it stood at 101.4, but it's at its highest point since October 2007, when it was at 89.9.
The number of homes under contract for sale fell more than expected in May, after a surprising spike in April.
However, this month's report isn't necessarily good news for the average home seller. That's because many of the pending home sales are for foreclosed properties being sold at a steep discount by lenders, according to Mike Larson, a real estate analyst at Weiss Research.
"It's bad news if you're a regular home seller because you're competing against institutions that are willing to undercut you - in some cases, by a large margin," Larson said in a statement.
The report shows that housing markets picked up in every U.S. region.
The pending home sales index for the West coast climbed 4.6% in June. "You're seeing some sort of rebound in California. Not only are sales picking up, but permit numbers are leveling off, meaning we may see a bottom for housing starts in the west," said Patrick Newport, an economist at Global Insight.
In the South, the index jumped 9.3%, while it increased by 3.4% in the Northeast, and by 1.3% in the Midwest.
Home sales may get a boost in 2009 thanks to the government's housing stimulus bill.
"With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," said Lawrence Yun, NAR chief economist.
Indeed, NAR raised its existing-home sales outlook for 2009 by 7%, saying it now expects sales of 5.51 million next year, up from an expected total of 5.15 million this year.
Additionally, NAR projected that existing home prices will rise by 4.4% in 2009 to $215,800, according to a spokesman.
However, new-home sales in 2009 are forecast to drop 8.8% to $464,000, down from $509,000 this year.
The trade group launched the Pending Home Sales index in 2001, and a reading of 100 is equal to results that first year.
The index is considered a more forward-looking indicator of home sales than the NAR's closely watched existing home sales report. Unlike existing home sales estimates, pending home sales are usually counted a month or two before a closing contract is signed.
The National Association of Realtors' Pending Home Sales Index rose 5.3% in June to 89 from a downwardly revised reading of 84.5 in May.
The index remains 12.3% below its level in June 2007, when it stood at 101.4, but it's at its highest point since October 2007, when it was at 89.9.
The number of homes under contract for sale fell more than expected in May, after a surprising spike in April.
However, this month's report isn't necessarily good news for the average home seller. That's because many of the pending home sales are for foreclosed properties being sold at a steep discount by lenders, according to Mike Larson, a real estate analyst at Weiss Research.
"It's bad news if you're a regular home seller because you're competing against institutions that are willing to undercut you - in some cases, by a large margin," Larson said in a statement.
The report shows that housing markets picked up in every U.S. region.
The pending home sales index for the West coast climbed 4.6% in June. "You're seeing some sort of rebound in California. Not only are sales picking up, but permit numbers are leveling off, meaning we may see a bottom for housing starts in the west," said Patrick Newport, an economist at Global Insight.
In the South, the index jumped 9.3%, while it increased by 3.4% in the Northeast, and by 1.3% in the Midwest.
Home sales may get a boost in 2009 thanks to the government's housing stimulus bill.
"With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," said Lawrence Yun, NAR chief economist.
Indeed, NAR raised its existing-home sales outlook for 2009 by 7%, saying it now expects sales of 5.51 million next year, up from an expected total of 5.15 million this year.
Additionally, NAR projected that existing home prices will rise by 4.4% in 2009 to $215,800, according to a spokesman.
However, new-home sales in 2009 are forecast to drop 8.8% to $464,000, down from $509,000 this year.
The trade group launched the Pending Home Sales index in 2001, and a reading of 100 is equal to results that first year.
The index is considered a more forward-looking indicator of home sales than the NAR's closely watched existing home sales report. Unlike existing home sales estimates, pending home sales are usually counted a month or two before a closing contract is signed.
Long-term mortgage rates hold steady
NEW YORK (CNNMoney.com) -- Interest rates for long-term mortgages held steady this week as the troubled housing market continued to weigh on the nation's economy, Freddie Mac reported Thursday.
The government-backed mortgage finance giant said rates for 30-year fixed-rate mortgages averaged 6.52% for the week ending Thursday, unchanged from last week.
The recent average remains lower from the same time last year when rates for 30-year fixed-rate mortgages averaged 6.59%.
The news came as the housing market - with record foreclosures and sinking home sales prices - continued to take a toll.
"The housing market is continuing to act as a drag on the economy," Frank Nothaft, Freddie Mac's vice president and chief economist, said in a statement. "Residential fixed investment subtracted 0.6 percentage points off second-quarter growth in real GDP."
Inventory still high. Mortgage applications increased slightly for the week ended Aug. 1, but were still much lower compared with the same week last year, the Mortgage Bankers Association said Wednesday.
The MBA said its Market Composite Index -- a measure of mortgage loan application volume -- was 432.6, up a seasonally unadjusted 2.4% compared with the previous week and down 33.7% from a year earlier.
"Although showing some initial signs of improvement, the inventory of unsold homes remains at historically high levels," Nothaft said.
There was some promising housing news on Thursday, however. The number of pending homes for sale rose 5.3% in June, a surprise rebound from the previous month, according to the National Association of Realtors. However, sales are still down 12.3% from last year. (Full story)
The country's homeownership rate, meanwhile, essentially held steady during the second quarter of this year, compared to the previous quarter and second quarter of 2007, according to the U.S. Census Bureau.
Rates for other types of mortgages were mixed.
Freddie Mac (FRE, Fortune 500) said 15-year fixed-rate mortgages this week had rates averaging 6.10%, an increase from last week when they averaged 6.07%. A year ago, the 15-year mortgages averaged 6.25%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.05% this week, down from last week when they averaged 6.07%. A year ago, the 5-year ARM averaged 6.33%, Freddie Mac said.
One-year Treasury-indexed ARMs averaged 5.22% this week, down from last week when it averaged 5.27%. A year ago, the one-year ARM averaged 5.65%.
The government-backed mortgage finance giant said rates for 30-year fixed-rate mortgages averaged 6.52% for the week ending Thursday, unchanged from last week.
The recent average remains lower from the same time last year when rates for 30-year fixed-rate mortgages averaged 6.59%.
The news came as the housing market - with record foreclosures and sinking home sales prices - continued to take a toll.
"The housing market is continuing to act as a drag on the economy," Frank Nothaft, Freddie Mac's vice president and chief economist, said in a statement. "Residential fixed investment subtracted 0.6 percentage points off second-quarter growth in real GDP."
Inventory still high. Mortgage applications increased slightly for the week ended Aug. 1, but were still much lower compared with the same week last year, the Mortgage Bankers Association said Wednesday.
The MBA said its Market Composite Index -- a measure of mortgage loan application volume -- was 432.6, up a seasonally unadjusted 2.4% compared with the previous week and down 33.7% from a year earlier.
"Although showing some initial signs of improvement, the inventory of unsold homes remains at historically high levels," Nothaft said.
There was some promising housing news on Thursday, however. The number of pending homes for sale rose 5.3% in June, a surprise rebound from the previous month, according to the National Association of Realtors. However, sales are still down 12.3% from last year. (Full story)
The country's homeownership rate, meanwhile, essentially held steady during the second quarter of this year, compared to the previous quarter and second quarter of 2007, according to the U.S. Census Bureau.
Rates for other types of mortgages were mixed.
Freddie Mac (FRE, Fortune 500) said 15-year fixed-rate mortgages this week had rates averaging 6.10%, an increase from last week when they averaged 6.07%. A year ago, the 15-year mortgages averaged 6.25%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.05% this week, down from last week when they averaged 6.07%. A year ago, the 5-year ARM averaged 6.33%, Freddie Mac said.
One-year Treasury-indexed ARMs averaged 5.22% this week, down from last week when it averaged 5.27%. A year ago, the one-year ARM averaged 5.65%.
8.06.2008
Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals
Aug. 6 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.
Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.
Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.
``Morgan Stanley periodically reassesses client property values and risk profiles,'' said Christine Pollak, a Morgan Stanley spokeswoman in Purchase, New York. ``A segment of clients was recently notified of a change in the status of their home- equity line of credit, or HELOC, due to a change in the value of their property and/or their credit profile.''
Pollak declined to specify the dollar amount of the frozen credit lines. The firm's global wealth management division, which doesn't disclose how many clients it serves, had 8,350 advisers managing $739 billion of customer assets at the end of May, according to its second-quarter earnings report.
No Recovery Seen
``It's evidence that they don't think the economy is going to recover quickly,'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Morgan Stanley shares ``outperform'' and who owns some of the stock. ``The fact that they're trying to get ahead of the problem is very good.''
Morgan Stanley has already taken about $14.4 billion of losses related to leveraged loans and collateralized debt obligations. The clampdown on home-equity loans mirrors similar efforts by commercial banks, said David Hendler, an analyst at Credit Sights Inc. in New York.
``All consumer lenders and home-equity lenders are reassessing the environment given the pressure on housing and the economy,'' Hendler said.
JPMorgan Chase & Co., the second-biggest U.S. bank by market value after Bank of America Corp., has notified 150,000 customers about changes in their home-equity lines of credit since March, said Christine Holevas, a Chicago-based spokeswoman.
Changes Made
In some cases the lines have been reduced and in other cases they've been suspended, depending on the change in home values, she said. The changes affect about 15 percent of JPMorgan's home- equity credit customers, Holevas said.
Bank of America and Washington Mutual Inc. are among the other lenders that have frozen home-equity credit lines this year.
``Morgan Stanley customers are typically coming out of their wealth management side, so typically a high net worth customer,'' said Christopher Whalen, co-founder of Institutional Risk Analytics in Torrance, California. ``This shows you they are under the same pressures as everybody else.''
Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.
Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.
``Morgan Stanley periodically reassesses client property values and risk profiles,'' said Christine Pollak, a Morgan Stanley spokeswoman in Purchase, New York. ``A segment of clients was recently notified of a change in the status of their home- equity line of credit, or HELOC, due to a change in the value of their property and/or their credit profile.''
Pollak declined to specify the dollar amount of the frozen credit lines. The firm's global wealth management division, which doesn't disclose how many clients it serves, had 8,350 advisers managing $739 billion of customer assets at the end of May, according to its second-quarter earnings report.
No Recovery Seen
``It's evidence that they don't think the economy is going to recover quickly,'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Morgan Stanley shares ``outperform'' and who owns some of the stock. ``The fact that they're trying to get ahead of the problem is very good.''
Morgan Stanley has already taken about $14.4 billion of losses related to leveraged loans and collateralized debt obligations. The clampdown on home-equity loans mirrors similar efforts by commercial banks, said David Hendler, an analyst at Credit Sights Inc. in New York.
``All consumer lenders and home-equity lenders are reassessing the environment given the pressure on housing and the economy,'' Hendler said.
JPMorgan Chase & Co., the second-biggest U.S. bank by market value after Bank of America Corp., has notified 150,000 customers about changes in their home-equity lines of credit since March, said Christine Holevas, a Chicago-based spokeswoman.
Changes Made
In some cases the lines have been reduced and in other cases they've been suspended, depending on the change in home values, she said. The changes affect about 15 percent of JPMorgan's home- equity credit customers, Holevas said.
Bank of America and Washington Mutual Inc. are among the other lenders that have frozen home-equity credit lines this year.
``Morgan Stanley customers are typically coming out of their wealth management side, so typically a high net worth customer,'' said Christopher Whalen, co-founder of Institutional Risk Analytics in Torrance, California. ``This shows you they are under the same pressures as everybody else.''
Mortgage applications rise 2.8%
WASHINGTON (AP) -- Mortgage application volume rose 2.8% during the week ending Aug. 1, according to the Mortgage Bankers Association's weekly application survey.
The MBA's application index rose to 432.6 from 420.8 a week earlier, which was the lowest reading of the year.
Refinance volume increased 4.4%, while purchase volume grew 1.8% during the week. Refinance applications accounted for 35.9% of all applications during the week, compared with 35.2% during the previous week.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 432.6 means mortgage application activity is 4.326 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume rose from its 2008 low as interest rates were mixed. The average rate for traditional, 30-year fixed-rate mortgages fell to 6.41% from 6.46% during the prior week.
The average rate for 15-year fixed-rate mortgages - often a popular option for refinancing a home - rose to 6.02% from 5.98%.
Rates for one-year adjustable-rate mortgages fell to 7.17% from a 2008 high of 7.25%.
The MBA's application index rose to 432.6 from 420.8 a week earlier, which was the lowest reading of the year.
Refinance volume increased 4.4%, while purchase volume grew 1.8% during the week. Refinance applications accounted for 35.9% of all applications during the week, compared with 35.2% during the previous week.
The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.
An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 432.6 means mortgage application activity is 4.326 times higher than it was when the MBA began tracking the data.
The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50% of all residential retail mortgage originations each week.
Application volume rose from its 2008 low as interest rates were mixed. The average rate for traditional, 30-year fixed-rate mortgages fell to 6.41% from 6.46% during the prior week.
The average rate for 15-year fixed-rate mortgages - often a popular option for refinancing a home - rose to 6.02% from 5.98%.
Rates for one-year adjustable-rate mortgages fell to 7.17% from a 2008 high of 7.25%.
Pay Option ARMs - Up to 48% Default Rate!
The Wall Street Journal just came out with a story about how First Federal has been hurt badly due to the POA. It has already been a leading contributer in the take-down of American Home, IndyMac, Countrywide and arguably Bear Stearns. If not for this loan WaMu, Wachovia, Lehman, Downey Savings, Bank United and Capital One would be in much better shape than they are today.
• Forty percent of its borrowers became at least 30 days delinquent after the payments on their adjustable-rate mortgages were recast.
• The number of foreclosed homes held by the bank doubled in the second quarter from the first quarter.
• the Los Angeles bank (First Fed) is on the front lines of what could be the next big mortgage debacle: payment option mortgages.
• These loans went mainly to people with good credit, but they are likely to experience defaults that are nearly as high as — in some cases higher than — those for subprime.
• Barclays Capital estimates that as many as 45% of option ARMs originated in 2006 and 2007 could wind up in default.
• UBS AG, suggests that defaults on option ARMs originated in 2006 could be as high as 48%, slightly higher than its estimate for defaults on subprime loans.
• FirstFed’s experience highlights the challenges lenders face as option ARMs recast.
• FirstFed is a relatively small lender, with just $7.2 billion in assets.
• option ARMs were “a very good loan for the borrower and the bank” for more than 20 years. But that changed, she said, when investment-banking firms entered the industry and set lower lending standards, which FirstFed and others followed.
• As long as interest rates were flat or falling, the minimum payment was enough to cover the interest due, making the option ARM equivalent to an interest-only loan in the early years of the mortgage.
• As competition increased, lenders dropped the introductory rate on option ARMs to 1% or even lower and made more loans to borrowers who didn’t fully document their income or assets.
• Rather than shut its doors, FirstFed joined the crowd and business boomed.
• borrowers making the minimum payment weren’t covering even the interest due.
• Others lenders are seeing borrowers fall behind even before recasts.
• FirstFed is scrambling to modify the loans of borrowers who can’t afford the higher payments.
• Instead of waiting for borrowers to fall behind, the company sends borrowers letters as their loan balances swell, offering them a chance to modify their mortgages. From January through June, the company had modified 705 loans totaling $345 million.
• Many borrowers took out home-equity loans with other lenders after getting an option ARM from FirstFed.
• Many borrowers submitted loan applications that overstated their financial condition. ”You expect a 20% fudge. You don’t expect 500%.”
• Forty percent of its borrowers became at least 30 days delinquent after the payments on their adjustable-rate mortgages were recast.
• The number of foreclosed homes held by the bank doubled in the second quarter from the first quarter.
• the Los Angeles bank (First Fed) is on the front lines of what could be the next big mortgage debacle: payment option mortgages.
• These loans went mainly to people with good credit, but they are likely to experience defaults that are nearly as high as — in some cases higher than — those for subprime.
• Barclays Capital estimates that as many as 45% of option ARMs originated in 2006 and 2007 could wind up in default.
• UBS AG, suggests that defaults on option ARMs originated in 2006 could be as high as 48%, slightly higher than its estimate for defaults on subprime loans.
• FirstFed’s experience highlights the challenges lenders face as option ARMs recast.
• FirstFed is a relatively small lender, with just $7.2 billion in assets.
• option ARMs were “a very good loan for the borrower and the bank” for more than 20 years. But that changed, she said, when investment-banking firms entered the industry and set lower lending standards, which FirstFed and others followed.
• As long as interest rates were flat or falling, the minimum payment was enough to cover the interest due, making the option ARM equivalent to an interest-only loan in the early years of the mortgage.
• As competition increased, lenders dropped the introductory rate on option ARMs to 1% or even lower and made more loans to borrowers who didn’t fully document their income or assets.
• Rather than shut its doors, FirstFed joined the crowd and business boomed.
• borrowers making the minimum payment weren’t covering even the interest due.
• Others lenders are seeing borrowers fall behind even before recasts.
• FirstFed is scrambling to modify the loans of borrowers who can’t afford the higher payments.
• Instead of waiting for borrowers to fall behind, the company sends borrowers letters as their loan balances swell, offering them a chance to modify their mortgages. From January through June, the company had modified 705 loans totaling $345 million.
• Many borrowers took out home-equity loans with other lenders after getting an option ARM from FirstFed.
• Many borrowers submitted loan applications that overstated their financial condition. ”You expect a 20% fudge. You don’t expect 500%.”
8.05.2008
Hello World!
This is my first blog about real estate. Feel free to learn some valuable information. Press the subscribe button to get daily updates on how to maximize your real estate power in today's market.
Calvin Bui
Certified Mortgage Planner
Managing Director / CFO
Affinity Lending Group
2501 Cherry Ave. Suite 160
Long Beach, Ca 90807
Office: 562-685-8159
Fax: 562-595-7334
Learn more about who I am and what I do @ www.CalvinBui.com
Calvin Bui
Certified Mortgage Planner
Managing Director / CFO
Affinity Lending Group
2501 Cherry Ave. Suite 160
Long Beach, Ca 90807
Office: 562-685-8159
Fax: 562-595-7334
Learn more about who I am and what I do @ www.CalvinBui.com
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