Last week, we explained that the National Mortgage Settlement gave banks a roadmap showing them how to proceed with the backlog of foreclosures (known as shadow inventory) that has been hanging over the housing market for more than a year. We believe that understanding this dynamic is crucial in determining home prices as we go through the year. We believe the number of houses sold will grow somewhat dramatically in 2012. However, the increase in demand will be offset by an increase in supply of distressed properties that sell at a discount.
Others also feel there will be an increase in foreclosures as we move through the year.
“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”
Brandon Moore, chief executive of RealtyTrac
“The settlement sets forth clear guidelines for lenders and servicers to follow when foreclosing, which should allow them to push through some of the delayed foreclosures from last year.”
Susan Wachter, professor of real estate and finance, University of Pennsylvania’s Wharton School
“There remains a danger that ‘a wave of foreclosures’ may destabilize the housing market. The logjam has to be unleashed – [the settlement] will do that.”
Mark Zandi, chief economist Moody’s Analytics
“I think there’ll be more price weakness, because we’ll see the number of distressed sales pick up. But I think the price declines will be modest.”
What does ‘modest’ mean? Celia Chen, Moody’s Analytics suggests:
“The latest settlement will hasten the pace of filings and push up the distress sale share of total sales over the next several quarters, driving national house prices down another 3%.”
The increase in supply will cause prices to soften even though we will see an increase in demand. Check with a real estate professional to help you understand how this will impact your local market.
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Last week, the Federal government and 49 state governments (Oklahoma being the exception) agreed to a $25 billion settlement regarding robo-signing and the challenges it created in the foreclosure process. We want to give a synopsis of the settlement and some perspective on what effect it will have on the housing market in 2012.
The $25 billion in funds will be dispersed as follows:
$17 Billion National Commitment to Foreclosure Relief Efforts The servicers collectively agree to commit a minimum of $17 billion directly to borrowers through foreclosure relief effort options, including principal reduction for qualifying borrowers, short sales, anti-blight measures, and enhanced homeowner transition programs.
$3 Billion National Commitment to Underwater Mortgage Refinancing Program The servicers collectively agree to commit $3 billion to refinance “underwater” homes (when a homeowner owes more on a mortgage than a home’s current market value). To qualify, borrowers must be current on their mortgage payments on a mortgage owned by one of the five banks.
$5 Billion Payment to States and Federal Government The servicers’ $4.25 billion payment to the states includes $1.5 billion for payments to borrowers who lost their home to foreclosure by one of the five servicers…$750 million of the state-federal payment will go to the federal government to resolve federal claims.
For further details on the settlement you can go to the official website.
Probably not. Though it is a step in the right direction, it may be too little too late. Here are some opinions on the settlement:
“Like many previous plans to stem foreclosures, this agreement will help at the edges. The problem is too big for it to have a large impact, however…This agreement will help the housing market move ahead in 2012 in a small way. But it is hardly a game changer.”
“While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little.”
“While it is good that the settlement has been finalized and will offer principal reductions and refinancing schemes to borrowers, the bigger picture is that the settlement is not large enough to dramatically alter the outlook for the housing market or the wider economy.”
The settlement did bring clarity to one major issue – foreclosures. Banks have been holding off the foreclosure process on millions of homes over the last 18 months as they waited for the particulars of the settlement. They now know how they can move forward without penalty. The result will be an increase in foreclosures coming to the housing market.
“It will speed up processing, and perhaps mean that foreclosures that have been waiting around since robo-signing came to light in 2010 will now gain legitimacy.”
“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”
“The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures…Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With yesterday’s agreement, banks are likely to resume property seizures.”
“Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.”
If you want more information on how this settlement might impact foreclosures in YOUR area, join our FREE webinar on February 23rd.
Shadow Inventory: How to Explain the Impact it Will Have on YOUR
I have great respect for Suze Orman. She has dedicated her life to educating consumers on financial matters and has built a sensational personal brand along the way. I don’t always agree with her advice but can always see the logic in her position. However, she said something last Friday evening that was absolutely wrong.
Ms. Orman appeared on HBO’s Real Time with Bill Maher and addressed the housing market in this country. Her comment:
“We now have an America that doesn’t even think that they want to own a home anymore; they’re under water in their homes, and they are praying that somebody will just take it off of their hands so that they can rent.”
Her statement shocked me. I realize that there are many individual cases that are nothing less than tragic. I understand that there are some families trapped in a house they cannot sell. To say that Americans no longer believe in homeownership, however, is just not true. If you go to Orman’s own site and search the words ‘home ownership’, it sends you to FannieMae’s website for infomation.
What makes this ironic is that, on FannieMae’s website, you can find the National Housing Survey which is done quarterly. This survey asks Americans how they feel about housing. Here are a couple of findings from the most recent survey:
Suze Orman may believe that families in this country now prefer renting over owning. Surveys say the exact opposite. Americans still very much believe in owning their own home.
Given that it’s Superbowl Week (Go Giants!), I thought we might go with a football theme today. I can’t tell you how many different people I hear proclaim that they are the quarterback of the real estate transaction – the agent, the loan officer, an attorney, accountant or financial planner. But for goodness sake, the buyer/borrower had better be the one calling the shots. Not that everyone else doesn’t play an important role, but the buyer/borrower is the one most impacted by the choices made.Here’s my opinion of how the team works best:
As with any team, communication is the most important component to getting the desired results. Being the center of the action on the field, the quarterback (you) needs to honestly talk with your coaches and coordinators, so they can help direct you on the proper play calling. Simultaneously, you need to heed the feedback from your offensive line, running backs, and receivers to filter wise advice from emotion. Be the quarterback of your own home-buying process and you’ll be more likely to realize your dreams (and not the dreams of someone else).
For the longest time, I have listened to other loan officers talk about why people should do business with them; and 95% of the time their presentations boil down to three things – price, product, and service. On the pricing front, they talk about low interest rates and/or closing costs; on the product side, they position themselves as experts in a particular loan program (like a 203K or reverse mortgage); and on the service side, they discuss turnaround time or how available they are.
Let me just say that, in today’s marketplace, virtually every lender (and therefore, every loan officer) has very similar pricing, pretty much all the same products, and service is difficult to prove until you give them a loan to work on. My point being is that the changing lending landscape (tougher underwriting guidelines, loan officer licensing, stricter appraisals, and such) has eliminated virtually 70% of loan officers in America. The remaining people have been vetted and represent a very high quality group of professionals. (Not that there aren’t always a few bad apples, but there truly are very few.)
So, when borrowers shop for loans on the old “price/product/service model”, how does a consumer differentiate between loan officers?
Many of the criteria for choosing a loan officer are less tangible than the old “price/product/service model”, but frankly, they may prove more valuable over time. Happy searching!
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