Saturday, December 6th, 2008 at 5:51 AM
Non-Owners Deserve a Break?
from Investors Business Daily:
Investors struggling to make mortgage payments get little help staving off foreclosure, while strapped primary-home borrowers receive more — including unsolicited loan-modification offers.
Lenders and government agencies have started a number of programs to make loans easier to afford. Yet every plan has the stated goal of helping just homeowners borrowing for “owner-occupied” properties.
Investors are never mentioned, but own nearly a third of homes in the foreclosure process, data on default and auction-sale notices, bank repossessions and the like suggest.
It has led some observers to question whether the foreclosure tide can really be tamed, absent some aid to investors.
Players Sidelined
Rick Sharga, senior vice president at foreclosure marketplace RealtyTrac, thinks all borrowers should be eligible for loan modifications.
“I can’t think of a single reason that you wouldn’t extend these loan-modification programs to investors,” he said. “Why not extend the net out as broadly as possible, rather than flood the market with more bank repossessions?”
The latest RealtyTrac data show that in October, U.S. foreclosure filings rose 25% from a year ago to 279,561. Of those, 86,664, about 31%, were on investor-owned properties.
But investment properties are apt to comprise more like half of home foreclosures, in the view of mortgage auditor Moe Bedard, president of Loan Safe Solutions, in Corona, Calif. That’s because, he says, many borrowers don’t tell the lender that a property is an investment.
A few lenders offer to do short sales and deeds-in-lieu (of foreclosure) for some investment-property owners, says homeowners’ loan consultant Eric Rice, chief executive of DyerBeech Enterprises, in San Diego. But he says loan modifications — such as reducing an interest rate or extending the term — have been rare and slow to proceed.
Out of 100 housing investors looking for loan modifications, he says maybe 15 will receive them and it usually takes “five to six months.”
“It’s not helping anyone by not helping everyone,” he said.
But Mark Leyes, spokesman for the California Department of Corporations, says the foreclosure problem is so large, lenders and government agencies have had to focus their approach. The department has been working with 10 California lenders to encourage loan modifications.
“It’s not escaped our notice (that investors aren’t addressed), but our focus has been on owner-occupied properties. We’re trying to preserve people’s homes,” Leyes said.
Sharga thinks some lenders have wrongly shunned investors as scapegoats for housing’s bubble and bust.
The Federal Deposit Insurance Corp.’s primary focus has been on helping borrowers who are owner-occupants, thus “stabilizing neighborhoods,” according to Andrew Gray, a spokesman for the agency.
“These loans are well-suited for a streamlined process where the borrower’s income and property value can be readily documented,” he said. Investment homes “require more attention on a loan-by-loan basis.”
Numbers Game
In the view of some loan-modification specialists, halting as many foreclosures as possible is the best way to address the slide in real estate prices, and collateral damage such as reduced property-tax rolls, underfunded schools and destroyed neighborhoods.
Rice, for instance, says when an investor loses a home to foreclosure it hurts two parties — the renter who gets evicted from it and the investor.
He suggests that lenders temporarily reduce installment amounts investor-owners pay. “A permanent change isn’t deserved, but a three- to five-year plan would make sense to get payments down to a break-even level (with rents) while we get through this crisis,” he said.
Sometimes, getting borrowers to come forward and seek a loan modification can be a problem because they don’t want to admit they’re in trouble, says Salvatore Buscemi, managing director of Dandrew Capital Partners, a distressed-real-estate investment fund in New York.
Treading Water
Buscemi buys defaulted paper and repossessed properties from lenders. He says he’ll negotiate with any owner on a mortgage he holds — an investor or primary resident. But he says investors walk away more often than owner-occupants, as “it doesn’t hurt them emotionally.”
Bedard, who has many investor clients, calls aid bias toward owner-occupants unfair. Many investors “just want to work it out to where they’re not underwater,” he said.
An investor might hold five or 50 homes, he says, so saving those can have more market impact than saving one primary residence.
Investor Jae Kim, with four Arizona homes, is working with Bedard’s firm to seek aid. Four months into negotiating with his lenders, he still can’t tell if his loans will be modified.
“I think every borrower should be treated the same,” he said. “They’ve all put their hard-earned money in, whether it’s for a retirement home, investment or primary home.”
Posted on Saturday, December 6th, 2008 at 5:51 AM in Uncategorized | 36 Comments » | 
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I see no reason why government money should not make whole players who ran into a string of bad luck at the black jack and craps tables in Vegas. They made sensible investments but through no fault of their own lost considerable sums.
FOTFLMAO!!!!
Downturn | December 6th, 2008 at 5:59 amI rent and “investors” bid me out on many properties. Now just like I predicted then “investors” are going broke.
It’s time to cut all the BS bailout talk out of the equasion and let supply and demand take effect.
shadash | December 6th, 2008 at 6:35 amAll your equity belonging to us first. Then we talk bailout. If we are saving investors then we look at their entire portfolio not individual units. There’s several reasons for this. Most important is I suspect that the Casey Serins of the world are net so far underwater there is no saving them. They might have 1-2 properties with enough unencumbered value to and manageable debt to save but unless we know the whole picture that relief would only encourage more ongoing leveraged speculation.
Too harsh? Then a compromise; guaranteed favorable loan modifications for every outstanding balance after careful review for loan origination fraud with a mandatory law enforcement referral. Step right up, don’t crowd,… where’d everybody go? Oh well, I guess they don’t really need mods.
Rob Dawg | December 6th, 2008 at 6:40 amThank You – Look at Barratt American, whose CEO is whining about how B of A screwed them on projects in Carlsbad and Escondido, and is let the bank foreclose because B of A wouldn’t renegotiate their deal.
In the meantime, Barratt is sitting on a couple thousand acres called Fanita Ranch in Santee.
The assets Barratt American has available to sell to raise cash include land and a water company it owns. Pattinson also believes that his company can weather this latest storm because “we don’t have a lot of standing inventory [33 homes when he was interviewed] and don’t have a lot of land that’s underwater.”
Jim the Realtor | December 6th, 2008 at 6:46 amWhat if we don’t help any of them; investors or homeowner/occupants?
Stephen Waits | December 6th, 2008 at 7:06 amWhat if we don’t help any of them; investors or homeowner/occupants?
That’s not only vindictive but counterproductive. No, instead we need a mechanism to orderly straighten out these financial messes as fairly and equitably as possible for all involved. We can call this novel and new process bankruptcy.
Rob Dawg | December 6th, 2008 at 7:10 amForeclose on them all.
They out bid people that could afford them.
Let them go back to the bank and then people that CAN AFFORD them, will by them.
For those not paying attention, that would be the people out bid by the ‘investors’ and ‘owners’ that aren’t making their payments.
No Such Reality | December 6th, 2008 at 7:15 am*sigh* Oh please. Should we bail out everyone who lost money in the stock market next? My 401(k) was down some 35% over the year. When can I get my check from the government?
An investment is an investment. It’s not designed to never fall. Besides, foreclosure is healthy. Most of these foreclosures are getting bought by…you guessed it…investors! Sure, the renter has to move out. So they find another place, and in a few months the original place is back on the market because another investor has bought it. No one really loses…except the first investor, who bought property because it “can only go up!”
I’m not particularly in support of anyone getting a loan mod, since I have patiently waited this entire bubble out and STILL do not think housing prices are cheap enough to warrant buying. (I can still rent for far less than a mortgage payment in most places.) But if anyone does get a loan mod, it should certainly not be investors.
By the way, I have high 6 figures invested — not in real estate — but in assets that may lose value. That’s life! That’s investing!
-Erica
Erica Douglass | December 6th, 2008 at 7:57 amThis loan mod stuff isn’t only rewarding failure, it’s also bad business. Who is more likely to default again, the defaulting borrower who isn’t paying his mortgage, or a new buyer with a downpayment and some skin in the game? The bank is better off wiping their hands.
I don’t think there will be widespread principal reductions unless there is serious govt money thrown at it. And so far there doesn’t seem to be a real effort at principal reduction from the govt, yet.
Jakob | December 6th, 2008 at 8:03 amWho is more likely to default again, the defaulting borrower…..
Chrysler, for one example. But they promise, this is it this time!
Jim the Realtor | December 6th, 2008 at 8:07 amBecause the world would be such a poorer place without Cerberus/Chrysler or aggressive overleveraged speculative investors who don’t know how to correctly value what they are buying. Oh, wait I repeated myself.
Rob Dawg | December 6th, 2008 at 8:14 amNobody should be receiving a bailout, and especially not housing speculators. If a bank on its own feels that its in their financial interests to renegotiate a mortgage with a deadbeat borrower, that’s their own business.
The thing that all these pundits seem to be missing is that the foreclosures are the SOLUTION to the problem of prices temporarily being bubbled up by the unintended side effects of bad public policy. Anything done to slow down the correction will extend the period of time over which it happens. Only after we have a price correction will normal buying and selling resume.
If a renter has to move its no big deal, his only skin in the game was a month’s rent, BFD. The neighborhood benefits from foreclosures because its helps everyone’s house adjust to the long term sustainable valuation. It frees these borrowers from the fantasy that they have more money than they really do and this prevents them from make ill advised purchases.
Jay Jay | December 6th, 2008 at 8:16 amIf the intent of all this foreclosure avoidance is to attempt to prop up home prices, then it makes sense to “help” all owners avoid foreclosure, even investors, because prices won’t be “propped” if there continue to be a lot of investor foreclosures.
I don’t think that’s what we (and I say “we” because it’s our tax money that’s being blown on this boondoggle) should be doing, but if they’re not going to listen to us here, that’s what it’ll take for their effort to have any chance of succeeding.
GeneK | December 6th, 2008 at 10:27 amwhy can’t people just let supply and demand take place? It’s going to happen anyway all the bailout does is delay true prices from being realized.
shadash | December 6th, 2008 at 11:09 amEven if they earmark an additional $1 Trillion dollars for buying up everyone’s bad loan it won’t stabilize house prices in the long term. They can’t put the toothpaste back in the tube, the new buyers are the ones that would be needed to stabilize prices and unless they are going to bring back easy credit, the prices are going to continue to decline. All these programs will do is slow it down (ie kick the can down the street). It’s over, prices are going to trend lower, they really can’t stop it short of giving every new home owner a huge tax credit or have a government agency insure no money down, negative amortization loans.
These guys aren’t idiots, they know they can’t turn the housing market around, they just want to slow the carnage on their watch. It’s all about some sort of containment right now, and all the implementation of these programs is going to do is make it harder for future generations to deal with it.
It looks to me like they are following the Japanese Model. I’m not so sure that worked out too well.
This time we’ve got the perfect storm of unemployment and a recession to deal with; they might be able to print themselves out of one crisis, but 3?
SD_Coastal | December 6th, 2008 at 11:33 amMr Sharga
I know you cannot think of one reason not to help out investors but let me volunteer one for you. If the goal is to make sure people own a home in their community then letting an investor get foreclosed upon, creating a price someone can afford, and then letting a young family purchase the home seems to make perfect sense to me.
Why is this such an anomaly for you?
LV Renter | December 6th, 2008 at 11:34 amI think Mr. Sharga, finding himself at the helm of a successful very visible company, he’s playing by the rules of political speech and saying whatever the politically correct thing is that he needs to say. He wouldn’t want to be accused of dancing on the graves of moron real estate speculators, so he says stuff like he does there. Behind closed doors he’s probably saying “Eat it suckas!”
Jay Jay | December 6th, 2008 at 12:23 pm“Rice, for instance, says when an investor loses a home to foreclosure it hurts two parties — the renter who gets evicted from it and the investor.” Ummm, ummm…. how about the lender? Ya know, the investor loses his zero down payment, no big deal, the renter has the inconvenience of moving out, no big deal either, while the lender loses a couple of hundred thousands…
Oh, yes, the investor is truly the victim here! Cry me a river…
Daniel | December 6th, 2008 at 1:27 pmHi –
Buyers look at the last few sales, not whether the homes were owned by investors or residents, so the question should be how to reduce inventory, not who owns what. As long as REO inventory levels remain high, local home prices will be depressed. Preventing investor foreclosures helps reduce REO numbers and, silly or not, that’s good for local home values.
Peter
Peter G. Miller | December 6th, 2008 at 2:02 pmOurBroker.com
*Nobody* in DC believes in letting a free market or supply and demand work. DC is divided into two basic groups: one sincerely believes that free markets and supply and deman are relics of an exploitive feudal system that needs to be destroyed for the good of humanity; the other pays lips ervice to free markets and supply and demand but really sees the economy as an enormous Sims game to which they and their buddies hold the cheat codes. I don’t know which of these yahoos I think are the most dangerous, but if they ever manage to put aside their differences and work together in “bipartisan cooperation,” the resulting economic apocalypse will make what we’re seeing now look like a walk in the park.
GeneK | December 6th, 2008 at 2:06 pmIf we are going to consider bailing out investors along with home-debtors, then I think we should bail out renters as well. I would have bought a house, but prices were ridiculous, bid up by people who did not consider whether they were making a sound investment. Now, those same foolish people are on the line to Washington for my tax dollars. THEY ALREADY GET A TAX SUBSIDY!!! Now they are going to get a stupidity subsidy as well.
Rational expectations | December 6th, 2008 at 2:57 pm“I think every borrower should be treated the same,” he said. “They’ve all put their hard-earned money in, whether it’s for a retirement home, investment or primary home.”
Ummm.. on LTV > 100%.. cash back??? What hard earned money. As someone else mentioned.. their stock investment portfolios are down.. so are mine.. and that was 100% from hard earned money, no loans there.
ucodegen | December 6th, 2008 at 3:49 pmguaranteed favorable loan modifications for every outstanding balance after careful review for loan origination fraud with a mandatory law enforcement referral. Step right up, don’t crowd,… where’d everybody go? Oh well, I guess they don’t really need mods.
Rob Dawg | December 6th, 2008 at 6:40 am
How about we apply this not just to “investors” but also to “owner-occupants”
NSR is da man: kill them all, let god sort them out.
FreedomCM | December 6th, 2008 at 5:51 pmUNBELIEVABLE!!! The government doesn’t make money or have any money. The taxpayer does. No bailouts of any kind!!!! Not with my money… they don’t repay bailouts and I want my money… if I didn’t want it I wouldn’t work for it.
I can’t believe this whole thing. How about solving the whole thing by removing all of the subsidies… not interest write-off for home loans or any other reason.
- Start by removing all write-offs for non-owner occupied property.
- Require all non-owner occupied property taxes to be paid monthly.
- Lower owner-occupied property taxes and raise non-owner occupied property taxes.
- Go after fraud hammer and tongs and fine them our of all their ill-gotten gains and 20% more.
- Each month raise the non-owner occupied property taxes 1% and lower owner-occupied taxes by the amount raised.
- Equalize the income and capital gains tax rates.
- Increase the standard deductions.
- Lower all government employees salaries by 1% a month and the legislature and governor’s by an additional 4% a month until they balance the budget.
- If the budget isn’t balanced, all elected officials’ terms are up at the next election and they a prohibited from running for any office for 2 election cycles.
- No government account insurance for any institution that has bad loan practices.
- Charge the banks interest that increases monthly on borrowed taxpayers’ money.
Congress, the Treasury, the Fed, and the Executive branch have abused the trust of the people, the Constitution, and their offices. Replace them all and prohibit any of them from every again serving in any government capacity.
No bailouts!!!
Robert | December 6th, 2008 at 6:18 pm“…halting as many foreclosures as possible is the best way to address the slide in real estate prices, and collateral damage such as reduced property-tax rolls, underfunded schools and destroyed neighborhoods.”
How can anyone with a basic understanding of the real estate market say such a thing? The slide in real estate prices is a correction. It’s a GOOD thing. It needs to run it’s course. And the collateral damage? Destroyed neighborhoods? Give me a break. Neighborhoods will be better off when the people living there can actually afford to own the house they live in.
Simone | December 6th, 2008 at 7:58 pmThe mentioned in the article named Moe Bedard from Loansafe Solutions is wannabe consumer advocate like no other.
He fronts Loansafe.org as this non-profit website, but in reality it is a lead generation site for loan modification sharks.
The DRE needs to take a close look at his company because they take money, but give no results. Their customer service is horrible, they never call back when they are supposed to.
Loan Pro | December 6th, 2008 at 8:18 pmPeter,
What are you talking about REO’s depressing prices, prices are correcting to historical ratios. The REO’s are the mechanism by which the bad investments of the previous bubble are liquidated. The faster we get these past the bubble, the sooner the market will be healthy and sustainable. With all due respect, I think you’re under the mistaken impression that the market of the previous 5 years was normal, and somehow we gotta get back there.
And when you say supressing REO’s is “good for values”, to whom do you refer? The buyer or the seller?
Jay Jay | December 6th, 2008 at 9:15 pm“I think every borrower should be treated the same,” he said. “They’ve all put their hard-earned money in, whether it’s for a retirement home, investment or primary home.” Investor Jae Kim
What hard-earned money with all the zero down loans? If a so-called investor purchased with no down and then paid based on a teaser 1% rate, interest only (or less) and (probably)didn’t pay the prop tax, the gross rent offset probably put the “investor” in a positive cash flow position.
“If a renter has to move its no big deal, his only skin in the game was a month’s rent, BFD.” Jay Jay | December 6th, 2008 at 12:23 p.m.
Sorry Jay Jay, it is a big deal and more than a month’s rent. There are utility deposits, paying to get the furniture and household goods moved, time missed from work etc. Finding out your landlord is in default triggers major stress and costs for the renter.
My daughter called me tonight because she received a certified (no return receipt) letter from Wamu Home Loan for her landlord. I’ve been telling her that the landlord will default on her Tustin Ranch condo as the price when purchased at the peak was approx $340K and a similar REO just closed at $180K. I guess I’m just a bit aggravated tonight because my daughter is apprehensive and flummoxed about what she should do. Because she has some scruples, she won’t open the letter; she will forward it to her landlord. I will ask a friend at an escrow company to run a check Monday to see if there is an NOD filed.
I guess I am just a bit angry tonight. My daughter has paid the rent faithfully, but I’m willing to bet the landlord hasn’t paid the mortgage for 3 months. I already know the taxes are in default. Of course the landlord didn’t have the courtesy to tell my daughter that the mortgage wasn’t being paid and that perhaps she should find another place to live.
no_techie | December 6th, 2008 at 11:09 pmSorry to hear about the situation with your daughter. I was mainly emphasizing that the scale was much smaller for the renters than it was for the lenders because politicians have on occasion said that foreclosures even hurt renters, so they should try all manner of market manipulations to prevent them. This would be the some of the same renters that were waiting patiently to get their chance later when the house of cards collapsed. So wanted the politicians to know they aren’t doing renters any favors by taking our taxes to artificially prop up this particular asset class.
Jay Jay | December 6th, 2008 at 11:55 pmFirstly, I love Robert’s ideas!!!
Secondly, no_techie makes a good point, too. Renters are the only victims when a rental house is foreclosed on, because the lenders and borrowers both made stupid mistakes for which they should have to pay.
The renters usually have no idea what the financial circumstances of the LL are, so they should either be entitled to moving expenses, plus additional money for the time and stress they have to endure as a result…
OR…
They could offer the renters a deal if their home is about to be foreclosed on. Basically, the right of first refusal at the courthouse steps…and they are 100% informed every step of the way during the foreclosure process, so they know exactly what the minimum bid will be, and perhaps they could be offered financing, if they qualify.
This would solve the problem of blight and vacant homes, and it would help keep unnecessary inventory off the market, and the renter would be able to stay in his/her home. A win-win deal, if you ask me.
CA renter | December 7th, 2008 at 12:02 amClearly since all these stuck homedebtors are willing to repudiate their responsibility for asset loses then they won’t mind giving up any potential gains as part of any assistance. Show me the homemoaner willing to forego future appreciation and they have my blessing for a bailout. Of course any rework will involve careful review of the original loan agreement to weed out any potential fraud and refer those to law enforcement. What’s that? Nobody interested anymore? Well, I guess they don’t really need a bailout then.
Rob Dawg | December 7th, 2008 at 7:47 amYes, non-owners deserve a break.
Non-owners. Not housing speculators.
Foreclose on them all and let non-owners buy at reasonable prices.
W.C. Varones | December 7th, 2008 at 8:28 amThanks W.C. for that, I try to avoid using realtor-speak as much as I can, but I didn’t catch that one. ‘Non-owners’ being the nickname for those who are not owner-occupiers. (Non-Owner-Occupied).
I did hear from someone yesterday who got approved for a loan modification on an investment property financed with Countrywide.
C-wide told them they’d waive December’s payment, and tack it on to the balance.
Jim the Realtor | December 7th, 2008 at 8:53 amIf “investors” are going to get bailed out I’m going to stop even trying to buy a house.
shadash | December 7th, 2008 at 10:36 amLET US DEFINE INVESTOR VS. SPECULATOR.
I’m an investor with a few rental properties. We have built this portfolio up over the years (since 1987) and we stair stepped our way to each one. Not using equity from a home we just purchased 3 months ago.
As investors, we are not having any financial woes and we have had good renters because we take our time to rent to people with good credit. Our rental rates are fair and we are good landlords that keep the places looking nice. We never intended to flip any of the places (although tempting in 2004- 2005). We know that real estate prices can go up and come down but you always buy rental properties on cash flow.
Now let’s define the speculators that this article is talking about that in many ways created this problem. People looked at making a quick buck by flipping homes. They called themselves investors but just like the great Gold Rush or the Tulips in Holland it was pure greed driving their decision and a lack of understanding about being an investor in real estate.
I do not want bailouts for these “speculators” that bet the farm on making a quick buck. They created the mess and just like my parents told me… you make the mess, you clean it up and live with the consequences.
I want the speculators to fail quickly, file bankruptcy, and never to speculate again so that the market returns to a normal growth curve. People like myself and others I know are not strapped, worry about if we can cover the mortgage… we look at this time in the market as with all great bubble bursts as a buying opportunity coming in a few more months.
Home prices are approaching the positive rental cash flow point with 20 – 25% down which is where is should be.
I have a hard enough time helping individual home owners that took out interest only, adjustable loans on homes they could not afford. But Speculators using the same crying story… enough
Randy | December 7th, 2008 at 1:15 pmUnfortunately, I think recent events have probably permanently changed the common usage of “investor” to equal “speculator” as it applies to real estate. People operating rental properties who are in it for the long term might be better off referring to what they do as “running a small business.”
GeneK | December 8th, 2008 at 7:28 am