Marc's Mortgage Matter's

I just got off the phone with a friend living in North Dakota near the Canadian border.

She said that since early this morning the snow has been nearly waist high and is still falling. The temperature is dropping way below zero and the north wind is increasing to near gale force. Her husband has done nothing but look through the kitchen window and just stare.

She says that if it gets much worse, she may have to let him in.

Wednesday’s Wall Street Journal looked at how one private-equity firm is making a bet on renting out single-family homes acquired through foreclosure. In the coming weeks, federal policy makers could roll out pilot programs to further test the concept. Here’s a look at what’s involved:

What is the government considering?

Government officials solicited more than 4,000 comments from the public last year on potential initiatives that would take foreclosed properties off the market and rent them out. The initiatives are likely to focus only on loans backed by federal entities Fannie Mae, Freddie Mac, and the Federal Housing Administration.

There are two different types of programs that officials are likely to consider. Under the first, the FHA could sell properties in bulk to investors who agree to rent them out. Bulk sales have been rare largely because investors tend to demand deep discounts that sellers haven’t been willing to accept.

A more likely option for Fannie and Freddie, if they move forward with any pilot programs, would be to set up pools of properties in which third-party investors would take a stake. Investors could be responsible for handling maintenance and day-to-day operation of the rental pool, with the mortgage-finance giants sharing in some of the returns.

How many homes are we talking about?

Fannie and Freddie held around 180,000 homes at the end of September, down from around 235,000 one year earlier. The FHA held around 35,000 homes at the end of November, down from 55,000 one year earlier.

The drop figures to be temporary because many loans backed by the FHA have fallen into foreclosure, but banks have been slow in taking back homes after they were caught fabricating documents in order to quickly repossess homes.

Why does the idea of renting out homes have appeal?

Officials like the idea for three reasons. The first is that a backlog of foreclosures estimated in the millions could roll onto housing markets in the coming years. The New York Fed estimates that banks and mortgage companies could take back 1.8 million properties in each of the next two years, up from 1.1 million in 2011 and 600,000 in 2010.

Second, there are signs that home prices of traditional homes are stabilizing in some parts of the country, even as distressed sales drag down property values. The gap between prices of traditional home sales and distressed home sales has widened in recent months. For the year ending in November, home prices were down by 4.3% as measured by real-estate firm CoreLogic. But prices were down by 0.6% when distressed sales are excluded.

Third, this is attractive because rents in many parts of the country are beginning to rise.

What parts of the country could see these types of programs?

In a white paper released by the Federal Reserve last week, officials identified 60 metro areas where federal entities have at least 250 foreclosed properties for sale — a scale that could be large enough to justify a rental program. The largest concentrations of foreclosures held by these entities were in Atlanta, with 5,000 units, followed by Chicago, Detroit, Phoenix, Los Angeles, and Riverside, Calif., which each have between 2,000 and 3,000 units.

While not all of these properties are good candidates for conversion to rental, preliminary estimates from the Fed suggest that around two-fifths of Fannie’s foreclosed properties could generate yields of 8%, which could be enough to warrant renting rather than selling the property.

Why can’t the private sector do this on its own?

Certainly, private investors have been building up operations in the rent-and-hold arena, and it’s possible that these types of rental transactions could happen anyway without any government involvement.

But there are two main obstacles facing investors: financing and scale. Most foreclosure investing has been done by local investors. But these outfits have faced challenges getting financing to buy enough homes to scale up a viable rental model. Institutional investors, meanwhile, have deeper pockets but banks have largely resisted big bulk sales of homes, making it harder for them to assemble big pools of homes.

Will this program have any impact on home prices?

To do so, the program would need to be quite large, and that isn’t likely to happen for some time. Michelle Meyer, an economist at Bank of America, says the proposed programs run the risk of being too small to have much impact.

Economists at Goldman Sachs estimate that moving all foreclosed properties from the for-sale market to the rental market would increase home prices nationally by around 0.5% in the first year and 1% in the second year. Of course, no one is talking here about moving all properties from the for-sale market to the rental market, so this shows the maximum effect of such initiatives. The real effect figures to be far more modest.

 

Report from the trenches: It really is tough to get a loan these days
 

A reader recently emailed me his story on getting a loan on a property. I know first-hand how tough the banks are making it to get a loan, but mine are investment property loans, and they should have more scrutiny. I am always suspect when I hear complaints about the tougher underwriting standards because most people compare today’s standards with the non-existent standards of the bubble. However, hearing stories from very well qualified borrowers having troubles does make me pause and wonder if perhaps we have gone a bit too far tightening standards.

I am writing to provide you with a data point and possibly an idea for a blog entry. We are about to close on a 2/2 condo in Woodbridge, a short sale held by B of A. After several offers back and forth we eventually settled on $296,000 as an all cash deal to B of A. For the size I think the price is still high in historical terms, but it’s a 33% percent haircut off the last sale in 2006, and this is to keep the mother in law from moving in, so worth it to me…… J We are a 2-physician family, enough cash on the sidelines to do a cash deal, zero debt other than the mortgage on our primary residence, 810+ credit scores, etc.

The story gets amusing in late September when our financial advisor suggests applying for a loan since we don’t really want to 100% own this depreciating-asset condominium with Woodbridge carrying costs…. So we submit a modification and a loan app with the bank my wife’s practice banks with. (We figured that we have a good rapport with them- at least we thought we did). We provided them with the litany of documentation requests, and so on. The deal on buying the condo was inked on November 1st or so, so we had until 12/15 to close. I figured 45 days ought to be enough to get a loan together since we’re willing to put down 30+% to ease things along, and they’d had the initial application for a month already by that time . We sent many additional documents to a temp employee at the bank, who midway through the process announced she was leaving. Her replacement waited 9 days before requesting many of the same docs that we’d already sent.

Long story short, on December 14th the bank came back with a loan offer- a 5 year balloon mortgage for $175,000 with over $8300 in origination fees, and a request for at least 40% down. And they hadn’t even submitted the loan application to their underwriters yet. At which point the selling agent advised that B of A was going to start a $100/day penalty for missing the closing deadline. The earliest the bank indicated they’d have a decision is mid-January. So after some quick calculations about long term costs of various options, we just elected to pay cash and tell ‘our’ bank to pound sand. We’re waiting today to hear whether B of A will accept what we’d agreed on in the first place…

All of this is to say either A) ‘our’ bank REALLY doesn’t want to be in the residential mortgage business, B) no one wants to write fixed interest 30 year loans at ~4% interest, C) they’re just incompetent and can’t follow through on a loan application, and/or D) we’re naïve knife-catcher idiots who have been played into doing a cash deal. Or some mix of all of these J

In any case, to me this all begs the question: If a highly qualified buyer can’t get a reasonable loan from a bank they do $10M+ a year of business with, on a condo with 10+ weeks’ advance notice, then who IS getting loans right now? And how much is this contributing to slowing the recovery, as it were? Some food for thought for you. My apologies if you’ve already written about this subject and I’ve missed it.

This buyer did finally close on the deal — all cash. He emailed me a follow up which said the bank charged him $900 for the back HOA fees at closing despite clear language in the contract that he would not be responsible. You have to love the banks. They can’t even follow their own written agreements.

Whether the U.S. or Israel bombs Iran’s nuclear facilities, one way to overthrow Ahmadinejad is to destroy the Iranian economy, and nothing is nearly as destructive as runaway inflation. Inflation in Iran is running at 20% a month (a month!), and since December 1, the Iranian Rial currency has declined 40% against the dollar on the black market. Let’s hope the CIA is flooding Iran with counterfeit currency to further worsen the problem. Economic sanctions seem to be working, and when you get right down to it, the average Iranian probably cares a lot more about taming inflation than whether or not they have a nuclear bomb!

Acquitted murderer, convicted felon, former actor, former sportscaster and former All-Star football player O.J. Simpson is losing his south Florida home to foreclosure.

According to Miami-Dade court records, a JP Morgan Chase process server recently attempted to serve foreclosure papers upon Simpson at his Miami home located at 9450 SW 112 Street, Miami, Fla. 33176.

Having been convicted in 2008 of kidnapping and armed robbery, Simpson is currently serving a 33-year prison sentence at the Lovelock Correctional Center in Nevada. He is not eligible for parole until 2017.

According to Jose Lambiet at GossipExtra.com, JP Morgan Chase initiated the foreclosure process after Simpson accumulated hundreds of thousands of dollars in mortgage debt on his former suburban Miami home.

The now imprisoned felon purchased the one-story house in September, 2000 taking out a $575,000 mortgage for the $522,000 home.

The 4,233 square foot home south of Miami has four bedrooms, four baths, a pool, and a guest house set on a two acre plot.  In 2010, it was assessed by the Miami-Dade County property appraiser at $478,953.

According to GossipExtra.com, Simpson now owes $724,354.15, including principal, interest, attorneys fees and penalties.  Originated through Washington Mutual Bank, the imprisoned Simpson stopped making mortgage payments in 2010.

Though Simpson was found not guilty in 1995 of murdering his ex-wife Nicole Brown and her friend Ron Goldman in a Los Angeles courtroom, he was found liable in a civil action brought by the deceased’s families in 2007.

"Service of process at the property location is standard in a foreclosure action," stated Carlos Reyes, a Fort Lauderdale foreclosure defense attorney.  "Unlike Casey Anthony, most of the world knows that O.J. Simpson is securely locked away in a Nevada prison."

Simpson’s lawyer, Leonardo Starke, is contesting JP Morgan Chase's foreclosure action calling their filing "ambiguous and vague."  Also party to the foreclosure lawsuit is the estate of Ronald Goldman and satellite television provider DirecTv.

According to court records, Simpson recently failed to participate in a Florida Supreme Court mandated Residential Mortgage Foreclosure Mediation Program aimed at saving homes to foreclosure.

Low and stable mortgage rates and a modestly improving economy are starting to produce positive effects on the nation's housing market. While starting from extraordinarily low levels, and though improvement are still of course tenuous, there have been accumulating signs of improvement for months. If the economy can continue to nudge forward for a while longer without some new or already-known catastrophe to derail it, we just might have ourselves a housing market worth talking about when Spring rolls around.

Are we really on a path to housing recovery, finally? Arguably. By no means yet at a breakeven level, let alone healthy, the indicator of builder sentiment from the National Association of Homebuilders continues to rise. The reading of 25 for January was about half the neutral level of 50, but almost double the 13 seen as recently as June. In fact, the overall reading was the highest in four years. Sales of single-family homes, traffic in showrooms and sales offices and expectations for sales over the next six months are all on the rise. Even if there is a long way to go, that we are moving in the right direction is a welcome sign of recovery.

But, with an 8.5% unemployment rate, we have a long way to go to say that labor markets are healed. However, some progress has been made in retreating from the high-water marks of both layoffs and unemployment, and improvements in hiring have been noted in recent months. There is a beneficial loop which occurs when a job is created; it creates spending, which in turn helps a job to be created, and so on. Rising asset prices can also contribute to this, too, as the wealth effect promotes purchases (the reverse is also true, as seen over the past couple of years).

At least a few headlines were made by the 23% increase in mortgage applications reported by the Mortgage Bankers Association of America for the week ending January 13. While of course welcome, our experience is that such a flare is typical for the first full week of January, as some pent-up demand occurs during the busy holiday season. Typically, if interest rates have remained favorable from about Thanksgiving to New Year's Day (and they are certainly all of that at the moment) borrowers finally get a cleared spot on their calendar to execute a transaction. Such application increases probably won't persist, but instead may be replaced with more modest but steady gains in the coming weeks.

Yields on 10-year Treasuries finished last week on a downward note, and rates were at record lows again through into Wednesday morning. However, the reverse is true this week, with Treasuries ending on a high note, and nudging rates off record lows. While some of this increase in underlying costs will probably be absorbed into still-wide spreads, a bit of it may make its way into rates next week, which would mean a further slight move away from record low levels. No real movement, but probably a couple of basis points upward is to be expected, based on where we are at the moment.

The Fed meets next week to discuss policy and communication strategies. It's a two-day affair, finishing on Wednesday. Expect no change to policy, perhaps some more frank discussion about where rates are expected to be going, a more upbeat assessment of the economic situation and a cautiously hopeful tone overall.

Jumbo Loans, specifically to $3 Million can now be done on a case by case - definently worth contacting me if you have something in mind. Yes, you need major income and assets to support it. Only 1 Family properties or condos, owner-occupied or 2nd home/Vacation home in various select states.

 

 

A woman and her 10 year old son were riding in a taxi in downtown USA. It was raining and all the prostitutes were standing under the awnings.
"Mom," said the boy, "what are all these women doing? "
"They're waiting for their husbands to get off work," she replies.
The taxi driver turns around and says, "Geez lady, why don't you tell him the truth? They're hookers, boy! They have sex with men for money."
The little boy's eyes get wide and he says, "Is that true mom?"
His mother, glaring hard at the driver, answers in the affirmative.
After a few minutes, the kid asks, "Mom, what happens to the babies those women have?"
"Most of them become taxi drivers," she said.

Posted by Marc (Moshe) Preger on January 21st, 2012 8:21 PMPost a Comment (0)
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