Real Estate Journal Online

Thanks to the massive foreclosure slow-downs brought on by last fall’s robo-signing fiasco, the shadow inventory is still, well, lingering in the shadows and bringing down the housing market, reported Lawrence Yun, the National Association of Realtors (NAR)’s chief economist today[1]. Yun cited this pervasive shadow inventory as a major reason that the housing market has not yet recovered even though other aspects of the economy are stirring and showing signs of life. Yun addressed the commercial market’s relatively superior recovery by pointing out that a lack of construction in that sector has “essentially fixed the supply of available space… [meaning] vacancy rates could fall quickly from any increase in demand”[2]. Thanks to the shadow market in the residential sector, however, the glut of available space is so great that movement in this arena is likely to remain sluggish and demand is likely to remain low.

With the entire residential market still hanging on many factors like rulings dealing with robo-signer-plagued banks and legislation to handle how foreclosures must be processed in the future, it seems unlikely that the shadow market will come out of the shadows any time soon. Do you think that this will permanently change the face of residential real estate in this country?

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Let us know how you are dealing with the shadow market in your business in the comments below.

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[1] http://www.ibtimes.com/articles/117045/20110228/housing-shadow-inventory-real-estate.htm

[2] http://www.consumeraffairs.com/news04/2011/02/will-2011-be-the-year-of-the-real-estate-rebound.html

Last week, President Obama and his administration proposed a plan to settle with banks plagued by robo-signer concerns. Among other things, the settlement included an agreement on the part of the lenders saying that they would either pay around $20 billion in civil fines or that they would fund a comparable amount of loan modifications, including reducing principal on those loans[1]. Not only do lenders say that this settlement will “bring…enormous costs that would far outweigh any potential benefits,” (according to BofA mortgage strategist Chris Flanagan), but they also believe that in the grand scheme of things, that $20 billion “would accomplish little” in dealing with the $744 billion dollars in underwater mortgages around the country.

Unfortunately, lenders do not appear to have a return proposal that is a viable solution to the massive lack of trust – and the lost faith on the part of the consumers and investors – in today’s housing and lending markets. While the Obama administration’s proposal is fraught with perils – attorney Gloria Einstein points out that “requiring banks to eat the loss and at the same time allowing them to administer the program is a recipe for a program that will not do anything except raise people’s expectations and frustrate them,” just for starters – lenders are going to have to deal with the myriad problems that permeated the lending industry for years prior to the housing crisis and that were brought to light last fall. Do you think that the administration’s plan is workable? Is it even enough?

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Let us know your feelings about conventional lending below.

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[1] http://online.wsj.com/article/SB10001424052748703905404576164870685407618.html?mod=googlenews_wsj

In Arizona, previously-common lending practices that led to the robo-signer fiasco last fall could now lead to impossible foreclosures and voided foreclosure sales. The state Senate has passed a bill, SB 1259, requiring that lenders provide a complete list of any previous owners of a mortgage note before they can foreclose on that note[1]. Failure to do so not only sets the lender up for a lawsuit including damages and foreclosure reversal, but can also void a foreclosure sale. The bill has not yet passed the Arizona House of Representatives.

Essentially, the bill requires that before a lender forecloses, a “full chain of title for the property” must be produced and filed[2]. While Arizona is the first to set such a law in motion, similar legislation is also being considered in New York, Oregon and Virginia. Lenders would be required to list all former owners of the deed and detail how ownership was transferred from one owner to the next. Lenders who fail in this face a voided foreclosure sale and can be sued for failure to comply and forced to not only provide compensation to the foreclosed homeowner, but also pay for “other provisional remed[ies] related to the claim.”

Lenders are warning that states with this type of legislation will make lending in these areas much more difficult and that it could become difficult to even get a loan in these states. Do you think that this bill is worth it?

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Let us know what you think of these new lending laws below.

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[1] http://nationalmortgageprofessional.com/news23802/arizona-senate-passes-bill-would-void-foreclosures-lacking-title-history

[2] http://www.totalmortgage.com/blog/mortgage-rates/arizona-bill-would-make-it-more-difficult-to-foreclose/10452

In an effort to “clarify and streamline” the foreclosure mediation process in Nevada, the Nevada Supreme Court has updated the rules of the Nevada Foreclosure Mediation Progam (FMP)[1]. Chief Justice Michael L. Douglas emphasized that “periodic revisions…have always been anticipated…to ensure that the program works for those who need it and use it – both homeowners and lenders.” The rules changes include clarification on forms to be provided, deal with how temporary modifications are handled and require that homeowners be given a date to vacate the premises when they agree to relinquish a home. Furthermore, homeowners can now sign over power of attorney to someone who is representing them.

Nevada’s FMP has been controversial from the start, and one state attorney has filed an appeal for his client, claiming that state judges have “made a mockery of the FMP” by “predetermining” the outcome of cases and settlement talks before ever entering the process. Some judges have stated publicly that they will not modify loans from the bench even when lenders may have negotiated those loans in bad faith. The original 2009 Nevada FMP legislation gives judges the authority to do this if lenders “fail to abide by Nevada FMP guidelines”[2]. By refusing to make modifications from the bench, the attorney in the appeal says that essentially the outcome of the mediation is predetermined if the lender fails to behave ethically and in accord with FMP requirements, leaving the homeowner with no recourse. Some judges consider the idea of modification from the bench not only distasteful, but illegal since “giving judges unlimited authority to modify loans could intentionally or inadvertently harm lenders financially,” which would be a violation of due process, explained UNLV law professor Thomas McAffee.

The modification timeline has also been expanded to 30 days.

Do you think that judges should be able to modify from the bench?

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Let us know what you think about loan modifications and forced modifications below.

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[1] http://www.mortgageorb.com/e107_plugins/content/content.php?content.7871

[2] http://www.lvrj.com/news/judges-accused-of-predetermining-foreclosure-cases-116525958.html

According to LPS Applied Analytics, the average borrower in foreclosure spends 17 months in the foreclosure process, up six months from 2009’s 11 months. Furthermore, this is probably not the end of the extension process, said Herb Blecher, senior vice president of LPS, citing “huge volumes of defaulted mortgages,” “time-consuming reviews for loan modifications and additional delays that followed revelations late last year about improperly filed foreclosure documents”[1]. Before the housing crash and subsequent foreclosure crisis, the average foreclosure took about 250 days. Now, says Blecher, “loans are spending longer in the process.”

Interestingly, this constantly-extending delay could artificially inflate prices in some markets as local inventories shrink, removing the massive foreclosure glut from the equation – temporarily. However, emphasize experts, this is nothing but a trade-off for improvement now and more pain later since “ultimately, these units have to be foreclosed” and when they are, they will weigh on the housing market when they become available, says Beacon Economics analyst Christopher Thornberg. Additionally, some lenders may be deliberately slowing foreclosures to keep their books balanced and avoid tanking delicate local markets.

To make matters even more confusing, many experts and analysts – and now government officials as well – fear that the current administration’s strategies for dealing with the foreclosure problem are “broken.” Neil Barofsky, special inspector general for the TARP bailout program, has announced that he will be stepping down from his post in March 2011 at least in part because “many of the people it’s [Home Affordable Modification Program] supposed to be helping are now in a far worse place than they would have been had this program not existed”[2]. While many people have been saying this literally since the inception of the program, if it is eliminated (which seems unlikely) banks will once again have to revisit the entire foreclosure and modification process and homeowners and investors will once again face uncertainty as they wait for the “new rules” of foreclosure.

Do you think longer foreclosure timelines are a good thing for the market? For homeowners? How can lenders appropriately handle this issue?

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Please let us know what you think about the foreclosure crisis and the Home Affordable programs below.

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[1] http://www.usatoday.com/money/economy/housing/2011-02-21-unpaidmortgages21_ST_N.htm

[2] http://www.npr.org/2011/02/18/133839730/tarp-watchdog-says-foreclosure-plan-is-failing

Equifax is going to distance, literally, to help lenders evaluate the likelihood of mortgage default. It’s new metric, “default distance,” is designed to measure the time lapse between a borrower’s initial default on any revolving debt such as a credit card or a car loan, and when that borrower enters the foreclosure process[1]. In a recent study, Equifax measured the efficacy of its new measurement, finding that “revolving debt defaults consistently occur before first mortgage loan defaults with the timespan between them decreasing over time”[2]. Essentially, the closer together the revolving debt defaults, the more likely a mortgage default is on the horizon. However, strategic defaults may be skewing the perceived “distance” somewhat.

Default distances are shortest in states hardest hit by the recession and the housing market collapse, making Florida, California and Michigan the states with the shortest default distances (less than five months). Texas and South Dakota came in with the longest distances of about 15 months. Interestingly, high credit scores do not necessarily mean long default distances because “in general, borrowers [with high credit scores] consistently pay all their credit obligations on time, [but] many of them end up defaulting on multiple other accounts at the same time.”

Do you think that default distance should play a role when lenders evaluate applicants for mortgages?

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Please leave comments below and explain how you would feel about this potential change to the credit rating system.

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[1] http://shortsaledailynews.com/equifax-gives-lenders-tool-to-measure-mortgage-default-likelihood/

[2] http://www.housingwire.com/2011/02/07/equifax-introduces-default-distance-to-measure-likelihood-of-mortgage-default

In an effort to make up for mistakes on military foreclosures, JP Morgan Chase announced yesterday that it is going to “significantly enhance its programs to help military and veteran customers”[1]. In a statement from Jamie Dimon, the company’s chairman and chief executive, the lender expressed regret for “the mistakes we made on military foreclosures,” calling the incidents a “painful aberration on [our] track record [of honoring military and veterans].” The lender admitted before a congressional committee last week that they foreclosed on homes of active-duty personnel who should have been exempt from foreclosure under the Service Members Civil Relief Act (SCRA)[2]. The bank also charged some armed forces personnel interest rates of more than 6 percent, which is in violation of the act also. The violations affected some 4,500 service members, 18 of which lost their homes. $2 million has been dedicated to paying back over-charged military members, and Chase is rescinding sales of foreclosed homes not already sold and forgiving the remaining mortgage debt on those homes.

As part of its initiative to demonstrate commitment to the U.S. military, Chase has also announced new programs to “begin a new way forward with the military and veteran community.” Programs include initiatives to keep rates for military members on active duty low and a special military modification program that will exceed HAMP requirements and could lower rates on second mortgages as low as one percent. Furthermore, Chase will no longer foreclose on “any currently deployed active military personnel.” Lenders are only required by SCRA to forebear from foreclosure if military borrowers took out loans prior to going on active duty. As part of its new military outreach program, JPMorgan Chase will also donate 1,000 homes to military members and veterans over the next five years, host 10 borrower outreach events near large military bases and open five new Chase Homeownership Centers near large military bases.

Officially, Chase blamed internal breakdowns for the problematic foreclosures, but former employees of foreclosure law firms have testified that military checks are sometimes falsified in order to take advantage of active-duty loan perks and privileges. During hearings on the subject, industry leaders suggested that Chase’s problems were not unique to that lender, but likely industry-wide and one employee of a Florida foreclosure law firm claimed to have been fired after refusing to fake military checks.

Our military deserves our support every step of the way and Chase clearly violated existing laws and regulations governing how military families and their mortgages are handled. Do you think that these new programs make up for the transgressions?

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Please leave comments and questions below.

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[1] http://nationalmortgageprofessional.com/news23648/jpmorgan-chase-announces-new-programs-military-and-veterans

[2] http://www.palmbeachpost.com/money/foreclosures/jpmorgan-chase-vows-to-fix-mistakes-on-military-1257148.html

Juan Rangel of California was heartless when it came to taking money from his victims, and he would get it nearly any way that he could think of. Rangel operated a $30 million Ponzi scheme in California targeting Hispanic investors and also managed to talk many of them into signing over title to their distressed properties as well[1]. He has been in court on multiple charges since 2008 and finally was sentenced yesterday as part of a plea agreement in which he pled guilty in exchange for 15 years in prison. A judge added seven more years because of the “devastating impact Rangel’s actions had on his victims.” Those victims number more than 500[2].

The two-part scheme involved promising to pay investors high returns on investments – often as high as 60 percent – by placing their money in real estate and lending situations that would realize high profits. In reality, Rangel simply took new money to pay off old investors and also bought a mansion and a Lamborghini. He also targeted Latino homeowners in preforeclosure, taking title to homes, draining equity and selling the properties without the owners’ knowledge to a number of straw buyers. These straw buyers then were used to apply for more loans on the home, few or none of which were ever paid.

While all this is bad enough, Rangel had a completely “callous disregard” for his investors, said the court. One victim testified that she had invested all the money she received after her son, a marine, was killed in Iraq. He also did everything possible to scare his investors away from putting money in banks and recommending that they give all funds to him instead.

It seems like every day a new mortgage fraud story breaks. Do you think that new mortgage regulations will help this situation? Have you personally encountered this type or a similar type of fraud?

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Leave your comments and questions below.

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[1] http://nationalmortgageprofessional.com/news23646/california-man-gets-22-year-sentence-leading-ponzi-scheme-and-mortgage-fraud-scam

[2] http://www.businessweek.com/ap/financialnews/D9LDAOA80.htm

In Illinois, tax lien auctions will now be taped as part of an initiative to “guarantee fairness” at local tax auctions. The bill, proposed by state senator Bill Haine, includes legislation to require that all tax sales be videotaped and that will prevent bidding from culminating in a tie[1]. Illinois auctions have faced scrutiny recently due to practices that allegedly “discouraged free bidding at lower rates.” Lawmakers are concerned that there is no policy in place permitting auctions to be reviewed, and believe that the mandatory tapings could help resolve the issue.

The impetus for the bill is a controversial investigative report by the Bellville News-Democrat that alleged that a former county treasurer was conducting tax auctions in such a way that liens could be arbitrarily awarded to bidders at higher interest rates than might have been appropriate[2]. In Illinois, bidders “bid down” the interest rate on the liens and the lowest bidder gets the lien. However, in Madison County, Fred Bathon allegedly was simply starting the bidding and then awarding liens to whomever appeared to have shouted out “18 percent! [the max interest charged in Illinois on tax liens]” first.

Interestingly, in addition to increasing transparency of the process through taping, the new legislation allows for taxes to be “forfeited” if there is a tie between two bidders.

Do you think that this is a good bill or should the Madison County case be handled individually rather than through statewide legislation?

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Please leave your comments and questions below.

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[1] http://www.bnd.com/2011/02/11/1586935/legislation-seeks-to-tighten-up.html

[2] http://www.bnd.com/2011/02/10/1585369/reporters-to-receive-award-for.html

Just when you thought that you had a handle on the scope of the problems presented by 2010’s robo-signer debacle and subsequent ForeclosureGate, turns out that the paperwork fiasco is also contributing to the growth of negative equity around the country[1]. According to a report from Zillow, “Accelerating home value declines, as well as a slowdown in the nation’s foreclosure rate following the late-2010 robo-signing controversy, contributed to an increase in negative equity.” Basically, when foreclosure delays started to pile up, more and more borrowers went “underwater” instead of ending up in foreclosure. Since the entire process stalled, those homes were not liquidated during the foreclosure process and the negative equity nationwide piled up. Should foreclosures start to increase in 2011, then this may cause negative equity to fall.

However, according to recent reports on January numbers, fewer homes in the United States entered the foreclosure process in January than at any time in the past three years[2]. Additionally, scheduled foreclosure auctions have hit a two-year low. Do you think that the extension of the foreclosure process – deliberate or otherwise – is a good thing for homeowners in the long run? How about for the housing market?

Thank you for being part of REJournalOnline’s Investor Academy!

Please leave comments and questions below.

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[1] http://www.dsnews.com/articles/dip-in-home-values-and-robo-signing-pushes-more-borrowers-underwater-2011-02-10

[2] http://www.businessweek.com/ap/financialnews/D9L9NE9O0.htm