Lenders say there is an untapped market among borrowers with good credit scores like self-employed workers who don’t have proper income documentation, or for responsibly made loans to borrowers with credit problems that have had bankruptcies in the past or had to sell their home for less than it was worth.
If they are successful in recruiting brokers, lenders believe the market potential for both types of loans could reach $200 billion annually.
A big hurdle: finding the right kind of brokers and instructing them in the lost art of making a subprime loan. Some are returning to the industry for the first time since the crisis. Others like Mr. Boyd have never been in it.
“I knew a mortgage was a loan for a house,” said Mr. Boyd, who was recruited by his boss, Jon Maddux, after selling him a Calvin Klein suit at a local outdoor mall. “I came in just a blank slate.”
Before he co-founded Drop Mortgage, the parent company of FundLoans, in 2014, Mr. Maddux ran the website YouWalkAway.com between 2008 and 2012. The site charged homeowners on the brink of foreclosure $995 to learn how to leave their debt behind.
Mr. Maddux said his experience advising down-and-out homeowners is today helping him pitch them loan products. Drop Mortgage and FundLoans made about $200 million in subprime and alternative documentation loans in 2016, funding them by selling them to hedge funds and other Wall Street investors.
“I’ve seen what caused these people to walk away and I don’t want to be a part of that,” he said.
Subprime mortgages are typically made to borrowers with a credit score of around 660 or lower, at interest rates ranging from 6% to 10%. Alternative documentation loans, or Alt-A loans, are made to borrowers with higher credit scores but who use bank statements or other less conventional ways to prove their income.
Housing foreclosure authorities LoanSafe.org and YouWalkAway.com have created a new website to help people re-enter the housing market after having been through a previous foreclosure. The website is called AfterForeclosure.com and helps those most affected by the housing crisis take charge of their financial future and own their own home again.
In the San Diego-Carlsbad area, 11.4 percent, or 66,899, of all residential properties with a mortgage were in negative equity as of the third quarter 2013, according to CoreLogic. It was a slight improvement from 2Q13, when 13.6% of all mortgaged properties were in negative equity.
While great efforts must be taken to avoid a future crisis and bailout the SIGTARP says, we cannot lose sight of the current TARP bailout. Wall Street may have recovered but Main Street has not. TARP was always intended as a bailout of the financial system to protect American families. Business and homeowners are still feeling the effect of the crisis and still need help from TARP.
“In its March 2013 TARP report, Treasury writes, ‘Thanks to TARP…struggling homeowners have seen relief, and credit is more available to consumers and small businesses. ‘” SIGTARP says of this, “Lost in this statement is the unfortunate reality that this improvement is only a fraction of what TARP could and should have done, and in many ways still can do.”
As of March 31, Treasury had spent less than 2 percent ($7.3 billion) of TARP funds on homeowner relief programs including HAMP and the Hardest Hit Funds while spending 75 percent to rescue financial institutions. “Treasury pulled out all the stops for the largest financial institutions, and it must do the same for homeowners.”
Treasury also has a responsibility to insure the help it does provide is sustainable.
In order to avoid foreclosure through HAMP a homeowner must remain active in a permanent mortgage modification and only 862,279 homeowners are in one, about half of which were funded with TARP money.
Now many homeowners are defaulting on these modifications, more than 312,000 to date. SIGTARP is concerned that these defaults are increasing at an alarming rate. As of March 31 the oldest modifications, done in Q3 and 4 of 2009, are defaulting at respective rates of 46.1 and 39.1 percent.
The report says Treasury should work to curb redefaults, which often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due. SIGTARP recommended this month that Treasury conduct research to better understand the causes of redefaults and work with servicers to develop an early warning system so they can intervene before problems occur.
As regards Wall Street, the report says too big to fail is not just about size, it is about the interconnections the largest financial firms have to each other and to American households.
Regulators were shocked, in 2008, to find how these large institutions were tied to each other and to counterparties so that if one went down it pulled other down with it. Even the institutions themselves did not realize the extent to which they were linked. Nor did they realize their exposures to short-term funding counterparties which, as Treasury Secretary Geithner said, “can flee in a heartbeat”, bringing the system down. While the financial system is more stable now, ending too big to fail is critical to its safety.
Because their lender is applying pressure to either make payments, short-sale, or be foreclosed. At least that is the old-fashioned way of banking.
It’s possible that, after months or years of delinquency, some might start making their payments again if they receive that magical loan-mod/principal reduction package. I just haven’t met anybody who has.
Maybe I’m a skeptic, but these stats make it appear that the banks aren’t applying much pressure – distressed listings are 1/3 of last year’s total:
NSDCC Detached-Home Listings, First Quarter
It might make sense for banks to be lenient in depressed areas where sales and prices are struggling, but around here we are starved for inventory. The policy is working so well that it may last a long time – the ultimate can-kicker!
Meanwhile, another 85 new listings hit the MLS since our last reading, and we had 81 new pendings with a few cancelled/withdrawns – demand is raging:
NSDCC Active Listings
Avg. LP $$/sf
This is the most important indicator to watch – if the active inventory starts to grow, it means buyers are backing off.
Scroll over areas to see Zillow’s estimate of those underwater, and the percentage of those that are delinquent. Even in the worst-affected areas, the vast majority of underwater homeowners are making payments.
For those who are wondering, 42 homes have been foreclosed this year in NSDCC, an area of 100,000+ homes.
Andreea Stucker thought she made a good investment when she bought a Huntington Beach condo with her boyfriend in December 2005.
But then she and her boyfriend split up. He moved out just as the housing market crashed, leaving Stucker broken-hearted, and broke.
With her own income down at least 60 percent, the real estate agent was unable to make the $4,400-a-month mortgage payments on her own, even after taking in room-mates.
“I begged the bank for over seven months to grant me a loan modification to reduce my payments, because I was rapidly going through my savings,” Stucker, 34, recalled. “I ended up completing a short sale on my home, and my credit took a huge hit.”
Three years later, Stucker has mended both her heart and her credit score. She has a new husband and, “miraculously,” a new house.
Stucker is among the emerging ranks of boomerang buyers — people who bounce back from foreclosures or short sales to become homeowners again.
Generally, buyers must wait at least three years after a foreclosure or short sale to qualify for a government-backed Federal Housing Administration mortgage. It can take seven years to get a conventional loan backed by Fannie Mae or Freddie Mac.
It’s been 4 1/2 years since the foreclosure crisis peaked, and real estate industry observers say they have seen boomerang buyers gradually returning to the Orange County market for at least a year.
After 3 ½ years, Stucker still cries at the memory of losing her Huntington Beach condo. She and her ex-boyfriend paid $613,000 with no money down for a two-level condo with cathedral ceilings and skylights, two bedrooms, two bathrooms and a spacious loft less than two miles from the beach.
They spent $40,000 more installing granite countertops, hardwood and travertine floors, new bathroom vanities recessed lighting and other upgrades.
But it turns out that the real estate game isn’t just about location, location, location. It’s also about timing.
By December 2005, Orange County home sales had just headed into a three-year nose dive. Home prices soon would follow.
Stucker’s income as a real estate agent dropped. Her boyfriend moved out after five months. Eventually, she depleted $29,000 in savings, then quit making house payments.
Unable to get a loan modification she could live with, Stucker sold the condo in May 2009 for $425,000 — $188,000 less than what she owed on two mortgages.
Her credit score went from 798 in December 2005 to the low 500s by May 2009.
“It was probably nine months that I fought for that home,” Stucker said. “I loved my house, and I wanted to stay.”
In hindsight, she says she should have cut her losses before dipping into her savings. But she kept thinking the market would turn around, and she’d be able to afford the home again.
“It’s like getting kicked when you’re down,” Stucker recalled. “You’re going through this awful breakup with this person you thought you had a future with, (and) your income is crap even though you’re working full time. … It was tough.”
Those who are underwater aren’t “trapped” in their homes, they are free to move.
The system has been very generous, and even if the Congress doesn’t extend the debt-tax relief, the banks will be processing short sales to enable the underwaters to move – without having to repay the debt.
The homeowners that choose the short sale – it is a choice, you can always pay it down – will probably have their credit banged up along the way and won’t be purchasing a home concurrently. But that’s OK, with the the supply-and-demand curve around here needing more supply and less demand, we welcome the sell-only short sellers.
However, as the media keeps hyping the real estate comeback, the underwater homeowners who can make their payments will be more inclined to not default/short-sale, for these reasons:
There aren’t cheaper alternatives in the same area.
Let’s wait a little longer, equity might be right around the corner.
Save face, and credit.
Those who have waited this long will continue to ride it out, and short-selling should diminish in the areas that see real appreciation happening. So charts like these below shouldn’t cause a lot of alarm in the NSDCC, where there are only 398 SFRs with NODs and NOTs on file currently, and half of those are in Carlsbad.
Let’s note that 91% of the San Diego homeowners with negative equity are making their payments!
The fate of the mortgage-debt tax relief? It’s going to be decided in a lame-duck session, and there doesn’t seem to be enough politicians willing to create a big fight – an excerpt from the latimes.com:
One key strategy question: Could the Family and Business Tax Cut Certainty Act of 2012 — which passed the Senate Finance Committee in August and includes mortgage forgiveness relief and other housing-related tax extensions along with alternative minimum tax relief, research-and-development tax credits and dozens of other targeted tax benefits — be treated as a stand-alone bill? If not, there’s a strong risk of it getting caught up in the much larger partisan fights over spending, the federal debt ceiling and the whole fiscal-cliff debate.
Senate Democrats reportedly were prepared to bring the bill to the floor for a vote before the election recess, but it never happened. Now the fate of the legislation appears to be up in the air, and House leaders may come up with their own version.
Here’s a quick overview of what’s at stake for homeowners:
• Mortgage-debt tax relief. Besides the Senate Finance Committee’s bill awaiting action in that chamber, there are at least four bills that have been introduced in the House that would extend the law. Rep. Jim McDermott (D-Wash.) is sponsoring a bill that would extend the mortgage forgiveness relief through 2015. Rep. Charles Rangel (D-N.Y.) wants to extend it through 2014. Both McDermott and Rangel are members of the tax-writing Ways and Means Committee. Rep. Dan Lungren (R-Calif.) is pushing for a three-year extension, and Rep. Tom Reed (R-N.Y.) favors a one-year extension, through 2013.
The fact that there is significant bipartisan support for an extension in the House greatly increases the odds that mortgage forgiveness tax relief in some form will pass before the end of the session. One housing lobbyist gives it a 60% chance of passage, even better if post-election lame ducks and victors find ways to compromise on the bigger issues. The main obstacle to an extension: the cost to the federal government.
• Mortgage insurance premium deductions. Under tax code provisions that expired in December, buyers and refinancers who pay either private or government mortgage insurance premiums could write them off subject to household income limitations. The Senate Finance Committee bill would reauthorize these deductions retroactively to Jan. 1, 2012, and extend them through the end of 2013. Because this would cost the government an estimated $1.3 billion over 10 years and has not attracted as intensive a lobbying effort as mortgage debt forgiveness, it may be more vulnerable if negotiators are looking for ways to boost revenue to pay for other cuts or extensions.
• Energy-efficiency improvements to homes. The Senate Finance Committee-passed bill would extend for two years — through 2013 — tax credits for installation of energy-conserving windows, doors and other improvements. The Senate’s bill would also extend credits available to builders of energy-efficient homes. These have a reasonable shot at extension, given strong support from home builders and product manufacturers.
Bottom line: On issues such as tax-system support for financially distressed households and energy conservation, the November elections are important in the long run, but the decisions made during the lame-duck session will have an immediate effect on thousands of homeowners.
The gap between SD distressed and non-distressed pricing appeared to be widening yesterday.
Can we get a glimpse of what to expect for the rest of the year by analyzing the current pendings and contingents? How do they look around North SD County’s Coastal region?
We only have the list prices to consider, but you can see that the gap is substantial.
Detached-Home Pendings and Contingents in NSDCC
Town or Area
# of Non-Dist.
LP Avg. $/sf
# of Distressed
LP Avg $/sf
Will lenders ramp up their short-sale approvals to close out the books for the year?
It would make sense, especially with the California Homeowners Bill of Rights taking effect on January 1st, which will give homeowners (and their attorneys) more tools to fight. If you are selling, it would be a great time to lower your price to sell now, before nearby distressed-sales start closing around you.
For those who have specific concerns about where these properties are located, here are the lists of detached short sale and REO listings that are pending or contingent. Note that the days-on-market meter does not stop running until a contingent listing is put into pending:
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