Delinquencies on the Decline!

Today it was reported by Freddie Mac that they have seen a decrease in the number of loans that are more than 90 days delinquent on their payments for the third consecutive month.  In case you think that this is just a temporary lull, they also showed decreases in 90+ day delinquent loans in 9 of the last 12 months (yes…for the skeptics of statistics…the 9 months of decline were far greater than the 3 months of increase!)
If the number of delinquencies decreasing wasn’t good enough news on its own, Freddie Mac also reported that they are working to increase the number of loans that they modify rather than foreclose on. 

Fewer delinquencies and more modifications mean fewer foreclosures, fewer forclosures mean less low end supply dragging our market down as a whole, and of course, as I have said many times before housing is one place where the laws of supply and demand still apply to their fullest.  When supply is low and demand is high, buyers fight over houses (even bad ones) driving prices up.  The past 5 years we have seen high supply and a low demand (fueled by a largely fearful and un-qualified under the new lending rules public) which has, predicably, driven prices down.  Maybe with less low-end inventory coming onto the market we can at least finally reach that balance point of an even supply to demand ratio…giving us that bottom to the declining market we have all been waiting for, or maybe even see things start to increase at a “normal” rate again in the near future.

Read the source article if you are interested, comment, share, and of course, Keep Dreaming!  http://www.dsnews.com/articles/freddie-macs-delinquencies-decline-for-fourth-straight-month-2011-04-26

A Stock Broker’s Analysis of Real Estate

So today I was pointed to an article on why it is a good time to buy a home.  I’m used to seeing most of these articles written by people who work in the housing industry, like myself.  We fervently believe its a good time to buy, but since we have a vested interest in persuading people that we are right, its often hard to take our word for it as a member of the general public…I get that.  What made this article different was that it was written by a stock broker who did a statistical analysis of how many homes have been going to foreclosure, how many are currently vacant, how many are coming up on balloon payments or adjustements to their interest rates, and several other factors which may contribute to the rise or fall of housing prices over the next few years.  It is his opinion that it is a good time to invest in housing (though apparently in the not to distant past he held the opposite view).
He took this stance due to a combination of low numbers of people coming due on balloon payments in the next year and a increase in the affordability of housing compared to current income levels.  He also noted that fewer people who had balloon payments due in the last year were foreclosing on their homes since they were either better informed about them when they took those loans or that the banks were now more willing to accept adjustments to the payment terms on loans to avoid foreclosure. 

Read Jim Nelson’s article on his blog by clicking the link here and see his analysis for yourself.  I think he’s spot on and I hope you enjoy the read just like I did!
http://pennysleuth.com/why-its-time-to-buy-a-home-or-this-home-stock/

Should Foreclosures Be Usable in Appraisal Values?

Currently 3 states, Illinois, Nevada, and Missouri, are proposing legislation that would completely ban all foreclosures from being usable by appraisers when they attempt to determine the values of homes in a neighborhood. 

Why would this legislation be good?  Well, first off the prices at which foreclosures are selling has been acting as a dead weight anchor on housing prices for the last 3-4 years.  Foreclosures regularly sell for 10-20% less than the average sales price of non foreclosure homes in similar condition in the same neighborhood.  Banks need to get these properties off their books to free back up their capital and lower their carrying charges (cost accumulated on a home that you are holding for no purpose) so they try to price them low in order to get offers faster.  Typically, foreclosures are not in good shape as either the previous owner stopped caring for the home when their money ran out, so they can sell for even lower than that 20% below market value when they need a lot of work. Once a foreclosure is sold at one of these much lower price levels, it becomes a “comp” which is Real-Estate-ese for a comparable home that is used to help determine other homes values. 

If an appraiser uses a foreclosure as part of their selection of “Comps” it is going to reflect negatively on the value of those other regular sale homes that are in better condition, often pulling those home’s values down in the eyes of the appraiser.  If the appraiser decides that the foreclosure lowers the value too much, they can “under appraise” the home, or give it a value lower than the sales price.  This usually results in the sale of that home falling apart.  If the sale does go through at the lower price, that reduced value on the regular sale is now a “comp” too, meaning that all other regular sales are reduced to that level for future sales as well.

Under the current rules of appraising it isn’t considered a bad thing for an appraiser to under appraise a home (only if they over appraise a home do they usually get criticised for their appraisals by the banks/review boards that hire them), so if given the option, most appraisers will continue to use foreclosures in their comps which will continue to hurt values of homes for the foreseeable future.

If it is made illegal to use foreclosures in appraisals there would at least be one less factor exerting negative pressure in our property values, meaning that values of homes would function more as a result of supply and demand like they are supposed to again.  It will still be hard to get an appraiser to agree with a purchase price that would show an increase in value (even if it is justified), but at least it won’t give them as much of an excuse to push the values down more. 

The negatives on doing this…I really can’t think of any…in fact I would go a step further if I was proposing the bill and put Short Sales (pre-foreclosure sales) on the list of types of sales to ban from being used as comps as well! They usually are selling for about the same price range as foreclosures these days and cause the same problems, so why only eliminate half the issue? 

Will it happen in any of these states?  Who knows, but its a good idea if you actually believe in protecting the values of homes in a way that makes total sense and harms no-one. 

Maryland, my home state, had proposed similar legislation, but decided instead to debate making trans-sexuals a protected class in Maryland this past week, so they removed this bill from the dockets (I wish that this was a joke, but yes, debating cross dresser and cross gender issues was more important to MD’s legislature this past week than dealing with the economy and real estate…not that those people don’t deserve rights, but was it really the right order to be dealing with these issues in? Moving gets tempting on days like this…)

For the source article related to this subject, go to http://www.dsnews.com/articles/three-states-move-to-ban-foreclosure-sales-from-appraisal-values-2011-03-30

Keep Dreaming!

Election Results and Real Estate

Well, with all of the politicians being too busy campaigning to do anything either useful or damaging related to real estate in this last week it has been a slow week news wise for my subject matter.  With a lack of any real news to share at the moment, I’m going to take a shot at doing what the rest of the blogosphere usually does, wildly prognosticating about the future with nothing more than my own opinons as the basis!  For today, I will attempt to gaze into the crystal ball in front of me (no wait that’s my monitor glowing) and see if I can predict what this past Tuesday’s election results are going to mean for our real estate market over the next two years.

Attorney Generals Unite! No not to save the nation, just the deadbeats!

All 50 states Attorney Generals have now issued statements indicating that they are going to prosecute banks who used “robo-signers” to complete foreclosure processes rather than processing each file independently and reading all files in their entirety as they are supposed to.  They are all pushing for a freeze to all foreclosures both currently on the market and in process until these cases have been completed.   Beyond being great publicity for their re-election campaigns this will not do anything to really help our nation’s foreclosure crisis.  While I completely agree that the banks need to find better ways to handle situations where people are delinquent with their payments, and should be punished for fraudulently creating documents to complete the foreclosure process in many cases, this freeze will NOT do our nation any good…Heres WHY…

Common Foreclosure ‘Faux-Pas’

If I were a bank selling a foreclosure, my top priority would be to keep the home in as good of shape as possible to get it sold quickly and for top value so I would see less losses from it.  Unfortunately, I am not a bank, or an agent that lists that many foreclosures (just sells them all the time) and their real philosophy is quite different.  Banks constantly try to cut costs where ever they can.  They turn off all power and water to the homes, shut off heating and cooling systems, and often do little beyond removing the previous owner’s left behind junk (if they even do that) to help the home look good for potential buyers.  This “strategy” may save them a few bucks while trying to find a buyer for the home, but often costs them thousands more in the end.  Read below for the ways these strategies can hurt them and the future buyers.

Dennis Cardoza (D-CA), What are you THINKING?

So today I am out doing my research and come across information that there is a bill floating around (The Home Act: HR 6218) proposed by Representative Dennis Cardoza of California (D) to bring back some of the extremely loose lending practices that got us into the financial mess a few years back.
Dennis is proposing to have a No Documentation, No Credit, No Appraisal re-fi program available for people who currently have government backed (Fannie and Freddie) loans to allow them to re-finance into a fixed program at today’s rates.  Wait a second…did we all read this right…NO documentation or credit needed?  Isn’t that what got us into this mess in the first place?  Lending to people who didn’t have the income or the credit to afford the homes?  Mr. Cardoza *THWACK* that’s me trying to smack some sense into you!
First, Fannie and Freddie already have a rate relief program in place to refinance people up to 125% of their home’s current value.  It requires some documentation to make sure they aren’t delinquent and about to be foreclosed on (though even here exceptions are made if they can afford the reduced payment but not the current payment) but is generally pretty easy to get through, according to my wife who is a mortgage processor. 
Next, if we aren’t checking these people out to make sure they can afford the new payments we are just delaying the inevitable foreclosure that will STILL happen, even with this refinance.  Why waste people’s time doing something that won’t actually do a darn thing? 

To be honest, I would whole heartedly support this if it were changed in one little way, requiring a certain basic standard for income and credit, but waive the appraisal on the home (maybe also make it available for FHA/VA since they don’t have a rate relief program available now like Fannie and Freddie already do).  In THIS format we would only be modifying the loans for people that would be able to keep their homes at this reduced rate.  They could free up a little extra of their income to go back into the economy in other spending.  It would also lower the rate of strategic foreclosures (where people walk away from homes they are underwater on and cannot reduce rates on), as these people may decide at today’s rates their home is still an investment worth keeping over time. 

Instead, we get this…redundant, un-neccessary, and ill conceived idea to fix our mortgage woes.  If this is what got us in trouble (sub-prime no doc lending) how is it going to be what gets us out of trouble, Mr. Cardoza?  It won’t but it sure does make you look insane (Insanity: Doing the same thing over and over and expecting a different result despite getting the same results every time). 

Thanks for reading, you can find the source bill I am discussing at Htt p://cardoza.house.gov/uploads/The%20HOME%20ACT.pdf.  See you tomorrow and Keep Dreaming!

Bernanke Weighs in on Housing Market and the Future

Chairman of the Federal Reserve Board, Benjamin Bernanke spoke last week at a conference of Economists in Jackson Hole, Wyoming (a much better place to visit in winter when its ski season, I might add) to discuss the economy and the challenges facing us moving ahead.    While there he took a few moments to prognosicate on the future of the housing market in this country.  Read his quote below the jump.