More minorities leaving Detroit

West Bloomfield Township — Tired of seeing metal detectors in his children’s Detroit schools, Edward Minneweather decided last year to move his wife and five children to West Bloomfield Township.

“My wife and I said, ‘We have to find a better way of getting our kids taught,’ ” Minneweather, 37, said.

The Minneweathers are among the droves of African-American families who have left Detroit since 2000 for the comfort of quieter suburbs and higher-performing schools.

The city has experienced such an exodus since the 1990s. And the outmigration has not abated, according to census data released Monday.

Population estimates for 2008 indicate the number of African-Americans in Macomb County has nearly tripled since 2000; Oakland County saw a 22 percent increase. Wayne County, meanwhile, had a drop of 9 percent. read article here

Home sales surge may signal rally

Sales of new homes surged 9.6% in July, another sign the housing market is climbing back from the historic bottom it reached early this year. Driven by falling prices, the fourth-straight monthly increase was greater than expected.

In a kind of cash-for-clunkers effect, homebuyers are rushing to take advantage of a federal tax credit that covers 10% of the home price, or up to $8,000, for first-time owners. Home sales must be completed by the end of November for buyers to qualify. read article here.

New Policy on Short Sales Could Reduce Foreclosures

Trying to cut its losses, Bank of America Corp. has changed its policy on short sales, making it easier for borrowers to sell their homes instead of going into foreclosure.

Until a month ago, B of A and its Countrywide Financial Corp. had required that 10% of a home’s sale price go toward paying off home equity lines of credit before they would agree to a short sale. But Terry Francisco, a spokesman for the Charlotte company, said Monday that it changed its policy last month, agreeing to accept 5% of the sale price when there is no equity available to holders of the first or second liens.

The new policy “is based on the assumption that it is in the best interest of all parties involved to accept a short sale, as opposed to proceeding to a foreclosure,” Francisco said. “We believed that the previous policies set an arbitrary amount that did not take into account the savings derived from proceeding with a short sale.”

B of A expects the change to increase the number of short sales, he said, and even though it is releasing the liens, it reserves the right to pursue deficiency judgments against borrowers.

With foreclosure moratoriums being lifted in the past month, bankers are looking for ways to deal with an anticipated flood of distressed properties and are trying to determine which borrowers will get loan modifications and which will go into foreclosure.

Experts on short sales say they have been difficult to negotiate with lenders that are often reluctant to accept discounted payoffs when a home is sold for less than the balance due on the mortgage. But losses on foreclosures can be as much as 30% higher than on short sales, and housing prices are still falling, so servicers are slowly starting to change their policies, experts said.

One critical issue is second liens, particularly home equity lines of credit; these lenders are even more loath to permit a short sale, knowing that the primary lien will likely receive almost all the sale price, leaving little or nothing for holders of secondary notes.

Raffi Tal, chief operating officer at IShortSale Inc. in Woodland Hills, Calif., said holders of second liens are often offered payoffs of $1,000 to $3,000 in short sales, and many such deals are held up because the lenders refuse to accept these payoffs.

“The banks are holding short sales hostage,” Tal said. “They don’t care that a year from now they will have to take over the property and sell it for 30% less when they could have sold the property in a short sale in 30 to 90 days.”

Experts have long complained that the largest lender-servicers — B of A, Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. — are also the largest holders of second liens.

The four largest banking companies own 52% of residential revolving lines of credit, or $441 billion of loans in the second lien position, according to Laurie Goodman, senior managing director at Amherst Holdings LLC’s Amherst Securities Group LP. That includes $92.6 billion of second liens on their balance sheets, she said.

Tom Kelly, a spokesman for Chase Home Finance, said it has a “disciplined process” for handling short sales with HELOCs.

The process includes determining if the offer is at fair market value, which may require a new appraisal, requiring that borrowers submit hardship information to determine their ability to contribute to the shortfall and investigating for misrepresentations and “non-arm’s-length transactions,” Kelly said. “This doesn’t happen overnight.”

Norm Miller, a professor of real estate at the University of San Diego’s Burnham-Moores Center for Real Estate, said 77% of foreclosures in California have second mortgages, most of them HELOCs, which often scuttle short sales.

There are other factors holding up short sales, including the commissions paid to real estate agents and mortgage insurance.

Some servicers have cut real estate commissions on short sales from the standard 6% to 3% or less, experts said. To combat that practice, Fannie Mae adopted a policy March 1 saying the sales “may not be conditioned upon a reduction of the total commission” paid to real estate agents.

Matt McCabe, the president of Loan Resolution Corp., a Scottsdale, Ariz., company that helps lenders resolve defaulted loans, said servicers “put themselves in a position” to get a short sale rejected. “Some realtors were shying away from short sales because it takes so long and commissions were being cut, even though it saves lenders a lot of money.”

Rich Rollins, the president and chief executive of National Quick Sale LLC, a Jacksonville, Fla., start-up that specializes in short sales, said mortgage insurance companies also are holding up the process, because the insurers take the first 25% loss on a short sale.

Experts agree that many servicers are ill-equipped to handle the negotiations that typically involve several lenders, a defaulted borrower and a willing buyer, who typically waits months before a package is approved. In some cases, short sale offers are rejected because the calculation for the property’s fair net value does not match the buyer’s offer — even if that offer is higher.

“Short sales have always been the last tool that servicers ever use, because they have to coordinate with too many stakeholders in the loan, and it takes a lot of follow-up,” said Cheryl Lang, the president of Integrated Mortgage Solutions, a Houston consulting firm.

Servicers typically have a small staff with knowledge of short sales working out of the loss mitigation department, which is separate from real-estate owned specialists with expertise valuing properties. Many servicers “just don’t have the technology and infrastructure to deal with short sales,” Lang said.

Because the majority of short sales involve multiple lien holders, a buyer often waits at least 90 days before getting a response from a lender on an offer. In a rapidly changing housing market where prices are falling every month, many buyers are unwilling to wait that long and often walk away.

“The banks really need to get short sales done faster,” McCabe said.

Some specialists said the government should not have given the largest lender-servicers money through the Troubled Asset Relief Program, because they were then unwilling to accept short sale offers and are waiting for the housing market to recover.

Commercial Loan Defaults Rising Faster Than Projected

Commercial real estate loans are going into default at a rapid rate.  Deutsche Bank, has been generally very pessimistic about the condition of the real estate markets. Recently they had to revise their projections even further downward as a result of their latest quarter.  Deutsche Bank is now projecting that the delinquency rate for commercial loans will now reach somewhere between 6-7% by the end of 2009, up from their previous estimate of 3.5%.

Interestingly enough, the worsening problems on the commercial side seem to have more to do with the fledgling economy that has reduced rents and caused many business to break leases and less to do with the lack of liquidity that most analysts believed would be the root of the problem.

As a result, defaults are occurring sooner than expected because the defaults are now a result of the inability of borrowers to make mortgage payments and not the inability of borrowers to refinance upon maturity which was the original concern.

Regardless, lenders are going to have to start addressing the commercial real estate market and are going to have to do it soon.  It will be interesting to see if they learn from the residential meltdown or if they will make the same mistakes before they begin further embracing the loan modification concept that salvaged what was left of the residential market.  Many banks have already seen the light, now it’s time for the rest to follow suit.

Activist Financier ‘Terrorizes’ Bankers in Foreclosure Fight

Neighborhood Assistance Corp. of America, has emerged as one of the loudest scourges of the banking industry in the post-bubble economy. It salts its Web site with photos of executives it accuses of standing in the way of helping homeowners — emblazoning “Predator” across their photos, picturing their homes and sometimes including home phone numbers. In February, NACA, as it’s called, protested at the home of a mortgage investor by scattering furniture on his lawn, to give him a taste of what it feels like to be evicted.

Bruce Marks doesn’t bother being diplomatic. A campaigner on behalf of homeowners facing foreclosure, he was on the phone one day in March to a loan executive at Bank of America Corp.

“I’m tired of borrowers being screwed!” Mr. Marks yelled into the phone. “You’re incompetent!” Before hanging up, he threatened to call bank CEO Kenneth Lewis at home to complain about the loan executive. read more here

Investors vs Agents for Short Sales

Should homeowners who need a short sale hire a real estate agent / Realtor® or an investor for their short sale?  I have a unique, balanced and unbiased perspective on this subject. 

In just the past few years, short sales have become such common place that the National Association of Realtors® recently noted that “short sales and foreclosures represent the new ‘traditional’ real estate transaction.”  With nearly half of all residential real estate transactions in America either a short sale or a foreclosure, real estate agents have quickly adjusted their positioning.  Now, thousands of Realtors® trumpet themselves as short sale specialists.  But the question remains, are real estate agents the best option for handling homeowners who desperately need a short sale?

Since licensed real estate agents and Realtors® handle the vast majority of real estate needs, one would assume that they are the obvious choice for homeowners to handle their short sale.  Unfortunately for agents, investors are the far better choice for homeowners principally because agents have some massive disadvantages when it comes to short sales.  This is NOT to say that Realtors® are less capable or less knowledgeable or anything of the sort…certainly not.  It’s just that with short sales specifically, agents have their hands tied behind their backs and investors don’t.  I’ll explain.

Only Offers Start the Short Sale Process

The short sale process with the lender does not begin until an offer is made on the property.  Homeowners and agents may feel as if they are making progress by sending the bank their financials, a hardship letter or any other hardship package document, but the fact of the matter is that the lender will not recognize the file as a short sale until an actual offer is sent to them for review.  For the homeowner who simply wants to get rid of their property prior to a foreclosure, what they need more than anything is an offer.  Agents do not provide offers, investors do.  Agents provide the service of trying to locate a buyer who can possibly make an offer by marketing the property on the MLS, on the web, in newspapers and in other publications.  Those services are terrific in most situations, but as you are about to see, they are almost always useless when it comes to a short sale.  Investors make offers and therefore provide the EXACT service a short sale homeowner needs.

The Phrase “Short Sale” on a Listing is the Kiss of Death

A story will best illustrate this extremely important point.  I have some close friends from my church small group who asked me to be their Realtor® and help them purchase their first home.  Like most buyers, they have a time limit within which to buy this home.  October 8th to be exact.  The first home they fell in love with was the home next door to their friend’s house.  It had all the characteristics of the perfect home.  They asked me to help them put an offer on it.  Just before starting the process of drawing up the offer, I noticed it was a short sale.  I called them back and said, “N-E-X-T.”  Puzzled, they asked, “why?”  I told them it was a short sale and that they had to be in a home by Oct. 8th and that short sales take several months to complete, sometimes longer.

Still not totally understanding, they took my word for it and moved on.  A less experienced agent may have pressed forward and made an offer on that short sale, only to end up 5 months later with a houseless, devastated buyer who was unable to take advantage of the $8000 tax credit and further, a damaged, if not ruined, friendship.  I’m sure many agents reading this either know of a story similar to this or have experienced it themselves.

Why would I recommend that my clients not make an offer on a short sale listing?”  My answer to that is, short sales are not for most homebuyers.  Most buyers do not have the time, the flexibility or the patience to purchase a short sale.

If  I would not embark on a short sale for my close church friends, can you imagine how most buyer’s agents out there feel about showing their clients to short sale listings?  You guessed it…they don’t show them!  Buyer’s agents in this country are not showing short sales to most of their buyers and for very good reason.  It’s irresponsible!  Buyers that need to purchase a home now should not have to wait 3 to 6 months or more before the closing.

They shouldn’t have to be incredibly stressed by the fact that they will have no idea when the closing is, how to alert their landlord when they are moving out, and every other detail in transitioning to a new home.  Smart and responsible buyers’ agents avoid short sale listings at all costs for the majority of the buyers they represent.  In fact, in Las Vegas, there is an underground, unspoken rule amongst agents, that short sale listings are to be avoided.

That is why the phrase “short sale” on a listing is the kiss of death.  Nothing will scare a buyer’s agent more than “short sale” on the listing description.  So hiring a listing agent not only requires a buyer to bring forth an offer, they are also handicapped by the fact that buyers’ agents are not showing short sale listings.

Hopefully it is now clear why an investor is the best choice for a homeowner who needs to do a short sale.  It’s not that agents are less qualified, it’s that they have two major disadvantages inherent in their role in the real estate industry which block them from being the best option:

# 1 – Listing Agents don’t make offers, investors do and short sales don’t start until an offer is made.

# 2 – Short Sale Listing Agents have a very hard time obtaining offers because buyer’s agents avoid bringing their clients to short sale listings.

For homeowners, I hope this helps you decipher between working with an agent versus using an investor.  Go with an investor…preferably someone I or my staff have personally trained.  For agents, I encourage you to learn the investor side of this business so you can help upside down homeowners.  For investors, if you aren’t already making a fortune, it’s time to get started…the world is your oyster!

Short Sales Are In

The term short sale is being used frequently in  today’s real estate articles and discussions. A short sale is a strategy to stop the foreclosure of a home if all parties agree to this type of real estate transaction.  So here is more information on what a short sale is and why it’s become a widely used real estate transaction.

What is a short sale?
Wikipedia says …”When the proceeds of a real estate sale fall short of the balance owed on the property. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. A short sale typically is executed to prevent a home foreclosure.”

For example – If a borrower owes $200,000 on a mortgage and is in default. The lender may be willing to accept $170,000 for full payment of the $200000 mortgage. Why would a bank agree to this type of sale? The bank/lender can save money by accepting less money now compared to possibly losing more money using the foreclosure process.

So why is a short sale transaction happening more often?

• 1 out of 5 Properties are in distress.
• No market level is immune. The $1 Million + price range is the fastest growing segment for foreclosures.
• Defaults for sub-prime loans issued in 2007 hit 11% (and this
  was before the first reset).
• One out of two mortgages that reset (ARMS) are going into
  default.
• 7% of prime mortgages are not making payments.
• 6.35% of sub-prime loans are in foreclosure nationally and 1 in 5 are not making payments.
• Nationally, 2.2 million homeowners are in foreclosure and 8.8 million are in default (30 days late with a payment) adding up to 11 million distressed properties.
• Potential payment increase on an “Option ARM”will be 63%.
• 7 out of 10 homeowners go into foreclosure without visible intervention (i.e. they don’t try and sell their home).

Foreclosure vs. Short Sale

• A homeowner who loses a home to foreclosure is ineligible for a Freddie Mac/Fannie Mae backed mortgage for 5 years.
• A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
• On any future 1003 loan application a prospective buyer will have to answer YES to the question “have you had a property foreclosed on.?” This will affect future rates of the borrower.
• There is no similar disclosure or question regarding a short sale.
• A foreclosure will lower a credit score any where from 250 to over 300 points, typical affecting the score for over 3 years.
• Only late payments on the mortgage will show after the sale. Mortgage will be reported as paid or negotiated. This will lower a score as little as 50 points if all other payments are being made.
• A short sale effect can be as brief as 12 to 18 months.
• Foreclosure will remain as a public record on a credit history for 10 years or more.
• Short sale is not reported on a credit history. The loan is typically reported “paid in full”.
• An employer has the right to and is actively checking the credit history of employees in sensitive positions. A foreclosure can be grounds for termination or reassignment.
• A short sale is not reported on a credit report.
• In 100% of foreclosures (exception some states) the bank has the right to pursue a deficiency judgment.
• In a successful short sale, it is possible to convince a lender to give up the right to pursue a deficiency judgment.

If you want more information about a short sale or want to discuss a possible short sale type transaction for your home or apartment building, please contact us.

Short Sales may be the most Effective Form of Loss Mitigation

Loss mitigation is a method homeowners can use to stop the foreclosure of their home. Falling back on repaying a mortgage loan can happen due to several reasons. It can be due to some unexpected expense or some unforeseen situation that requires spending lots of money. For the hundreds of thousand of Americans who have lost their homes to foreclosure recently, a huge increase in their payments is to blame.

Whatever the reason may be, home owners who fall behind on their payments should immediately seek a specialist’s assistance. In some cases mortgage companies may be willing to work out an affordable payment plan. This sort of debt negotiation could make all the difference for homeowners to keep their homes. If this isn’t an option, there’s always the prospect of making a short sale.

A “short sale”, which is real estate jargon for selling a mortgage in the pre-foreclosure stage, can benefit everyone involved. A distressed homeowner can move on with their life without the burden of a foreclosure on their credit. Investors get great property at low cost by working with a lender to find an acceptable compromise on a price. Plus lenders recoup money that they otherwise might have had to wait months or even years to recover – if they ever recovered it at all!

Investors who master the art of negotiating short sales have a permanent source of revenue to rely on. This can be used as supplement income or even become a career. Short sale deals require the ability to factor in specific aspects of a property to determine an acceptable purchase offer. Not all offers will be accepted, and some tempting deals will be too risky but once an investor knows how to spot a good deal and negotiate successfully for it, their potential is limitless!

If you are facing foreclosure and would like the assistance of a skilled negotiator to work out a short sale with your lender, contact us now.

Delinquent Mortgages Not Being Cured…

Fitch Ratings (a financial/credit market analysis firm) has released a very disturbing alert – and it’s one that I think you and I as real estate investors can almost certainly profit from.

This news concerns the “Delinquency Cure Rate”.  Here’s what that means:  If a person with a mortgage starts to get behind on their payment, that mortgage is described as “delinquent”.  Then if that person later brings all of their payments current before foreclosure, that loan is said to be “cured”.

Well, here’s the problem:  According to Fitch Ratings, the cure rate in the years of 2000-2006 was 45%.  This means that for that time period, nearly half of every home owner who fell behind in their payments ultimately got caught up.

But that number has changed dramatically. Presently, the default cure rate is 6.6% – this means that far less than 1 in 10 people who fall behind on their payments are able to bring their loan current and keep their property out of foreclosure.

This is a bad, bad statistics – it means that not only is our national foreclosure rate at historically horrible levels, but those people who fall into foreclosure seem to have a near zero probability of escaping that problem.

However, this appears to me to be an opportunity for savvy real estate investors.  One idea I have for capitalizing on the current environment featuring high foreclosure rates and low cure rates is to focus more on loan modifications.

I do think it’s worthwhile for us to have a way to profit from them, such as offering loan modification solutions to the foreclosure victims we encounter so regularly in our business.

What do you think?  What are some good ways to capitalize on the current market circumstances?  Share your thoughts with us in the comments area below!