Tsunami of Foeclosures Coming

So much for all the “good” news coming out of  D.C. Goldman Sachs, JP Morgan Chase, B of A are all happy campers with their billions in profits, while the rest of us lose our jobs and watch our state sink into bankruptcy. No one ever mentions that, besides the TARP money since repaid,  Goldman Sachs got $12 Billion from AIG to cover hedge fund losses. And, of course, where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from tax payers…So, it’s kind of an endless circle of taxpayer funds creating “wealth” for these jokers while the rest of us starve. That’s capitalism, right?

But, back to real estate…What does all this have to do with real estate. Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgage loans and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. Could that have anything to do with the also rising unemployment rate now over 10% in 30 states and 12.6% in California last time I checked. Here, even the “good” state jobs are now at risk and going down the tubes faster than your 5-year-old at Raging Waters.

With no job or prospect of a job, when underemployed or working only part-time or sporadically, home owners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated that by now, after more than a year of record foreclosures and drops in home values, 27% of all California home owners are under water, that is, they owe more than their homes are worth. Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it, but once the underwater mark hits 30% loss of equity, it really makes more sense to let it go. It will be years before that equity returns given the numbers involved.

home floating on waves

What about the refi program discussed in a previous post? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify.  If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do pobably have a better rate and more managable payments, but, the debt is still there.

What about the loan mod program also discussed in a previous post? Well, there we’re back to these big banks, Chase, B of A, Wells Fargo and all the rest. These banks do most of the loans in the country, so borrowers  have to apply to these banks to get  loan mods.  Obama’s Homeowners’ Stabilization program, announced amidst much hopeful optimism in March, has proved less than effective, shall we say. Chase trumpets that it has modified 138,000 loans since April. That sounds reasonably good, but the program was supposed to modify more than 4 million in 3 years…Not much of a start, so far…

Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY.  Think about this: California ALONE had 135,431 notices of default [NODs] send out from January through March of this year. B of A and its newest acquisition, failed California-based Countrywide, probably account for at least 30% of those loans or 40,000 loans. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. And, remember 27% of California homeowners are under water and so need to have their loans modified. How many actual borrowers would that be? I don’t know, but we have 35 million people, so that’s got to be in excess of 1 million loans….Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.

What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners?  Not bloody likely. Digging deeper into the trough of public money is more apt  to be that bank’s continuing attitude.  Just try to do loan mods with Countrywide and B of A or short sales. They take forever–4 months is the minimum; there is no maximum time.  The paperwork demanded is just stunning. B of A NEVER, to my knowledge, forgives even one penny of any under water loan balance as some banks actually are doing.   Its idea of what it owes to the common good is EXACTLY ZILCH, NOTHING, NADA.

So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refis and loan mods, will come onto the market, especially here in California.  Last summer, foreclosure sales statewide hit a high of 26,500 a month.  Before this year is out, we may well beat that record. I am one of many real estate brokers who supply lenders with estimates of value or broker price opinions [bpo] and I can say, anecdotally, that I am very busy, often doing 3, 4 or even 5 every day.  If  I am that busy, so are the others who do this work. That means so many foreclosures looming…

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Dealing With the Devil: Countrywide aka B of A

These file photos show a Bank of America branc...
Image by AFP/Getty Images via Daylife

Ok, I admit it–THIS IS A RANT. This is more than a pet peeve. This is a full on rant.
For the past 8 months–count’em 8–I’ve been trying to do a short sale with a Countrywide loan. Actually, the property has two Countrywide loans, a first and a second.
The house is cute. It’s in Pasadena, in a good location and has attracted lots of attention. I’ve gotten lots of offers. In fact, the first offer was sent in with “the package” in October. The package means all the seller’s financial information, hardship letter, bank statements, tax returns–the lot. And, of course, the offer goes in with that.

Fast forward two months with no response from the bank. The buyers bail…No problem, I’ve got a backup offer. That buyer hangs on for two months and then decides not to buy a house after all. No problem, I’ve got a backup. Two more months flash by and the bank accepts their offer!! Oh happy day–you think? The very day before, the buyers–you guessed it–had bailed because, having to leave their apartment, they really had had to buy a house.

Now, if I can get the same amount, I shouldn’t have any problem, right? So, we wait a month, rejecting lowball offers until we get one in the right ballpark, send it in and then…wait and wait and wait.

Two weeks go by until Countrywide finally declares they’ve got the offer in the system. Then, they start talking about doing a BPO or mini-appraisal. We’ve already had two of those two months ago and this offer is about the same with prices still falling, so really why? But, OK…The BPO will come in 5 days, no 13 days, no 15 days…They will assign a negotiator. The BPO is ordered; no it’s not ordered. Only the negotiator can order it. No, the BPO is in the system…Do I have any hair left to pull out?
This house originally sold for $500,000. Countrywide put up $430,000. Our first offer was in the $360,000 area last fall and now is at least $50,000 less. You do the math. In the meantime, the seller hasn’t paid the mortgage since October. Add in another $20,000 in lost revenue. Is it any wonder that the banks are going bankrupt?
Countrywide now aka B of A has not changed one iota. It has the worst reputation for dilly dallying in the short sale process. That’s great for the sellers who get 6, 8, 10 months free rent. One sympathetic agent told me he had a Countrywide short sale hanging on for 16 months!

The moral of this story is–if you have a Countrywide loan and want to do a short sale, get ready to live rent-free for a long, long time…

How To Buy A Repo

Elden P. Bryan Residence
Image by Floyd B. Bariscale via Flickr

Everybody wants to buy a repo? What’s a repo? It’s a lender-owned home, a repossession. What’s so special about a repo, you may ask?  Main difference is the price, the price, the price. Lenders have no emotional attachment to a property. They just want it off their books as quickly as possible. To that end, repos are frequently, but not always [pay attention: NOT ALWAYS] priced below market.

So, that’s good, right? What’s not to like? Buyers get a below-market home. Lender/seller gets the property off its books. What’s the problem here?

There are a few issues when buying a repo.. Here are a few for buyers to consider.

Condition

By law, lenders are not required to offer the usual transfer disclosures required in California and most other states in which the seller discloses all the material facts about the home, including any known defects.  Why do lenders not have to disclose? Because the bank has never lived in the home and, in fact, most likely knows nothing about it or its history.

Buyers of repos get none of the detailed information sellers love to impart to buyers about what was done to the house, by whom and when.  Frequently, repos are not in great condition, truth be told, though most of them will have been cleaned of debris and tidied by the listing agent’s cleaning crew.

Remember: the former owners lost the house because they couldn’t make the payments. More than likely, they couldn’t pay for furnace cleaning or roof leak repairs or any of the multitude of tiny and large repairs that homes we live in get from us every day. This deferred maintenance  can cause hidden damage.

Remedy: Get a thorough home inspection from a competent home inspector. If further inspections are suggested in the report–plumbing, HVAC, roof or whatever–get them. This property may be offered as a  may be a bargain price, but it’s still a lot of money. It may wind up as no bargain if the pool equipment is broken or the roof leaks.  Do yourself a favor and spend the money to get the suggested inspections.

The Negotiations

Another area of difference concerns the actual negotiations in purchasing the home. Normally, you make an offer, submit it to the seller, get an acceptance or a counter offer and then go into escrow. The procedure for a repo is relatively the same except the seller is a faceless bureaucracy and usually you and your agent have no communication whatsoever.

It’s often even difficult to get in touch with the “listing” agent because frequently these “agents” are faceless themselves, communication through websites, email and voice mail.  These companies often list   hundreds of repos,   each one as lovingly treated as a disposable fork on a picnic.

Each bank and each “agent” has a different technique in negotiating with buyers. And the strategy also depends on the property. If the property is among hundreds of other repos, as in, say, Moreno Valley or Fontana, it’s all about the numbers and getting a buyer quickly if at all.  If it’s a desirable property in a good area of Arcadia, for instance, it’s a different story, though, again, it’s really about the amount of money involved.

So, for some repos, you make your offer, the agent submits it to the bank quickly, it’s accpeted, and escrow begins. For others, many offers are received, so then the agent ,in consultation with the bank,  takes one of the offers and works with it, going straight to escrow. Sometimes in this scenario, the agent comes back with a multiple counteroffer from the bank asking all buyers for their “highest and best offer”. Then, from  those that come back, the bank selects the best and opens escrow.

What to beware of here? The auction effect…we all became familiar with this during the boom market and it’s far from dead. Buyers will always vie to get a good property at a good price. Prevent yourself from paying too much by keeping your emotions out of it, if possible, and setting a price beyond which you won’t go, no matter what. That will immunize you against the auction effect.

Financing

Is financing any different for a repo? Will I have to use the bank which owns the house? The short answer here is NO and No. Some banks will require that you pre-qualify with a specific lender in order to have your offer considered, but no one can require you to use that lender. As with new homes, though, sometimes the lender will offer more favorable terms just to have control of  the situation. Should you do it? By all means…more favorable terms are always good.

Repos are a bit different as far as the transaction goes. Many banks require their own forms which, of course, are there to minimize the bank’s liability.  California, in particular, has many buyer-protection laws. Banks cannot require you as part of the transactions to give up your rights.

But, the bank may require a shorter inspection term [the normal is 17 days] or provide stringent conditions if the buyer’s loan isn’t funded in the agreed-upon number of days, especially if the buyer is not using the bank’s lender.  That’s not so bad. It may keep your lender and your agent on their toes.

Another issue is termite inspection. Many buyers assume that a termite clearance is required by law. Not so–it’s often required by the terms of the buyer’s loan, but many loans don’t require it.  Many repo listings specifically say that the bank-owner will not provide a clear termite. In this case, it’s up to the buyer to get a termite inspection and pay for any damage.

Got your heart set on a repo? Get over it. Set your heart on a good deal whether it ocmes from a bank or a short sale or even a savvy seller. In fact, buying from a seller who prices his home to sell quickly is the best way to go. At least, that seller isn’t going to walk off with the kitchen faucet or leave a big hole punched in the bedroom door…

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Bankophobia: Don’t Let the Banks Give You a Bad Deal

Countrywide Financial
Image via Wikipedia

It seems I’ve developed a bad case of bankophobia lately. Clients are screaming about their miserable experiences trying to refi. Experts like William K. Black on Bill Moyer’s Journal, a formner regulator, reveal the Big Bankers are actually fraudsters and they know it. Almost everything I’m reading about the bailout of these pernicius institutions is making steam come out my ears.

Really, I  am a naturally optimistic person.  I rarely think ill of anyone without, of course, proof positive. I do exempt  Bernie Madoff, naturally; he’s pretty clearly nothing but a thief. Then, there’s Ken Lewis, CEO  of Bank of America–he’s a regular snake. Not only does he grab all the dough he can get from the tax payers, but he turns around, giving billions in bonuses to his cronies all the while trying to pull the rug out from regular working Americans who might try to level the playing fied by joining a union. That really steams me! These–hogs is the only term I can think for them–can never have enough for themselves, but they put up every barrier they can think of to prevent others from even having a steady income or a potential retirement. Maybe we should bring back the guillotine…Just kidding.  Then, there’s John Thain, lately CEO of Merrill Lynch, who gave out billions to his cronies with the connivance of Ken Lewis just before B of A took over his company.

This whole affair is sickening. The little that the present administration is doing for actual citizens includes The Making Home Affordable Plan offering 105% refis. These loans are now available and even some in the Southland could take advantage of the now amazingly low rates to do a refi. Don’t bet on it because these very same banks who received bailout money apparently don’t want you to get any advantage whatsoever. Sounds to be like Ken Lewisism gone amok. Here’s just a few examples of how hard they are making it.

First, many banks are applying super-tough appraisal conditions so homes don’t qualify.” Nope–we see your home as worth $310,000, not $312,000 so you don’y qualify. Next.”   Then, there’s the private mortgage insurance premium sticking point. Got PMI? Lenders like Wells Fargo and Countrywide won’t touch your refi. Together, they probably have half the loans in the country. Maybe later…they say.

If you have PMI with MGIC and it’s one of the biggest, if not the biggest PMI company, then you must refi with your current lender. That’s MGIC’s rule, not the program’s. Don’t like your current lender? Tough tiddlywinks to you. MGIC owns you.

Loan fees–be sure to get a GFE–good faith estimate–in writing because some banks are making hay while the sun shines–what else is new?-and charging exorbitant fees. This is a federal law, so if  you can’t or don’t get one right away, walk right on by no matter how good the deal seems. Because–it isn’t. This is one of the oldest tricks in the lending business: promise them everything, but never put it in writing.

Here’s another sticky wicket: HELOCs–equity lines of credit. Either the bank issuing the HELOC refuses to subordinate, though it’s already subordinate, or the new bank says, “Oops, with the new loan combined LTV [loan to value] is too high. Can’t do it.” This is a variation on the appraisal gambit.

Then, there’s credit. You don’t have a 740 FICO? You’re out. And, you better have a job because you will have to qualify and you will have to reveal your entire financial picture. These last are not so bad to mymind. Now, at least we’re returning to sanity and trying to lend only to qualified borrowers. Trouble is Obama’s program is supposed to be helping”potentially troubled”  homeowners stay out of trouble.

Last but not least is the most infuriating and frustrating aspect of the whole process…Actually, this one has two intertwined parts. The first is the incredible voice maze you must navigate to talk to your bank. The unconscionable hold times we are all subject to these days. And, then, after waiting 45 minutes on hold, you get to speak to Joe Moron who tells you all kinds of false and crack-brain stuff–“You must be behind in your mortgage to do a refi”–Huh? “We’ve never heard of Obama’s plan. Making Home Affordable Plan? Never heard of it? We live on Planet Pluto.”  Sometimes you get to chat with a dingbat in the Phillippines or maybe Bangalore–always nice, always out to lunch.

If all else fails–somehow–you get disconnected.

These are a few of the reasons I’ve developed a bad case of bankophobia.

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Lose Your Home: Lesser Known Ways

Half million dollar house in Salinas, Californ...
Image via Wikipedia

Nowadays, we face a gigantic wave of foreclosures, the likes of which we haven’t seen since the Great Depression. Most of these foreclosures, maybe 99%, occur because the borrower did not make the mortgage payments, often over a long period of time.  When faced with a choice of making mortgage payments, paying property taxes or  homeowner’s insurance, many distressed homeowners don’t know which to choose.  Really, though, you can lose you home if you fail to pay any of these.


Let’s take property taxes, for instance. Most boroweers have impound accounts which collect a portion of the taxes and insurance each month and then pay them when they are due. If the borrower fails to make the mortgage payments, eventually the mortgage holder will pay the taxes and insurance and, of course, add the cost to the borrower’s loan.

But what if you don’t have an escrow account? In that case, failing to pay property taxes makes the taxes a lien against the property. This lien has priority over even the first mortgage. The tax assessor will inform the mortgage holder of the debt. With this information, the bank now has the right to foreclose as his secured loan is in jeopardy. Non-paid property taxes could become a huge burden on the property, eventually shutting out the lender. Before that happens, banks often foreclose.

What happens if you do not pay property insurance or fire insurance?  Again, the unpaid insurer will inform the bank. Insurance does not become a lien. But now the lender’s security for the loan is in jeopardy. What if the house burns down or suffers a major catastrophic event? The lender as well as the homeowner would have no financial protection. Unpaid insurance, then, will cause the lender to supply it by placing another policy on the property. The cost will, of course, be added to the loan and in this way become a lien on the property.

Reading you loan docs–boring, boring I know–brings many other surprises. If you allow the house to deteriorate, your lender has the right to foreclose. Or, if you make major additions or renovations without the lender’s “permission”, the lender has the right to foreclose. These, of course, are rarely if ever enforced, but do exist in most loan documents. Very few homeowners, I would hazard, run to get their lender’s permission to add a bathroom or renovate the kitchen.

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