My mother has been here the last couple of days, and we’re off to the airport today. Considering that she lost her husband of 51 years in January, I’m glad to report that she’s in good spirits!
Thanks to Jeeman for carrying the blog over the weekend – let’s expand on a few of his highlights:
1. He only made two offers. Finding a seller and listing agent willing to entertain a lowball offer, let alone make a deal, is rare around the more-elite areas. The combination of lower motivation and stronger kool-aid in the coastal region usually means you’ll have to make several offers before getting an audience.
2. He was willing to buy an ‘updater’. To improve your chances of getting a ‘deal’, be willing to compromise on other aspects. If you are dead-set on stealing a home in perfect condition in a great location, don’t be surprised if other frustrated buyers out-bid you.
3. He was prepared. He had been reading blogs for years, and had several formulas to use when evaluating price/value. When his moment came to buy or not buy, he was comfortable with his price decision because he knew exactly where he stood historically.
4. The deal was “good-enough”. He was willing to buy even though he thought prices in general would still be trending downward. His focus was on this specific deal being right.
5. He had guts. I don’t think many of today’s buyers feel like they have all the answers before they make an offer, or even after they close. There will always be uncertainties to live with, you’ll never have all the answers – heck, you won’t know all the questions until you have lived there a while.
6. He didn’t feel pressured to buy. There will be plenty of opportunity over the next few years, don’t listen to those who try to talk up the market.
Stats for North SD County Coastal detached homes sold between Jan. 1st and March 21st:
Year
Sales
$$/sf
DOM
2001
509
$282/sf
51
2002
718
$287/sf
77
2003
624
$337/sf
61
2004
590
$415/sf
55
2005
570
$462/sf
62
2006
506
$495/sf
65
2007
474
$447/sf
78
2008
359
$454/sf
75
2009
296
$394/sf
80
2010
386
$377/sf
78
Sales are a leading indicator, but with the government bailout in full swing, we won’t know for months if any “improvement” is real or imagined – hang in there, and keep looking!
Jeeman was gracious enough to let us tour his new residence in Rancho Santa Fe – but then he sat down for a conversation about his homebuying experience:
It is rare that anyone will go on camera to talk about their own personal choices and decisions. My experience of Jeeman is that he is a humble guy, yet he was willing to expose himself and describe how he managed buying a home in this uncertain environment – with nothing to gain but the hope of helping others who are grappling with the same decisions.
Jeeman was nice enough to allow bubbleinfo to tour his recently purchased home in the Covenant of Rancho Santa Fe. His purchase is the lowest ranch-style in the Covenant this year – congratulations Jeeman!
From NMN, a summary of HAFA, with doubts (more videos coming!):
As an alternative to foreclosure, the government’s forthcoming program to spur short sales may prove just as ineffectual as the push to modify loans.
In a short sale, the borrower sells the home for less than the amount owed on the mortgage and the lender accepts a discounted payoff. They can be far less costly to the lender than foreclosures.
But experts in such transactions say second-lien holders have scuttled many deals by reserving the right to chase after the borrower for the amount of debt not covered by the home sale in states where doing so is allowed.
“Subordinate lien holders are the biggest obstacle to successful short sales,” said Travis Hamel Olsen, the chief operating officer at Loan Resolution Corp.
The Home Affordable Foreclosure Alternatives program, which starts next month, will attempt to change that. To give junior mortgage holders an incentive to release their liens and waive any future claims against the borrower, the government will offer up to 3% of what they are owed, subject to a cap of $3,000 per home.
But that carrot may not be enticing enough. According to Olsen-whose Scottsdale, Ariz., company specializes in arranging short sales-second mortgage holders have been asking defaulted homeowners to come up with additional funds to bring the payoff on home equity loans to 6% of the unpaid principal.
Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.
Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she’d see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.
The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.
“There was not a chance that house was ever going to be worth anywhere near what my mortgage was,” said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. “I haven’t cheated or stolen.”
Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.
Nearly one-quarter of U.S. mortgages, or about 11 million loans, are “underwater,” i.e. the houses are worth less than the balance of their loans. While home values are regaining ground — median prices rose 10% in Southern California last month to $275,000 compared with a year earlier — they remain far below the July 2007 peak of $505,000.
Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.
Stuck with properties whose negative equity won’t recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it’s smarter to walk away than to stick it out.
“There is a growing sense of anger, a growing recognition that there is a double standard if it’s OK for financial institutions to look after themselves but not OK for homeowners,” said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.
Just how many are walking away isn’t clear. But some researchers are convinced that the numbers are growing. So-called strategic defaults accounted for about 35% of defaults by U.S. homeowners in December 2009, up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago’s Booth School of Business.
He and colleagues at Northwestern University’s Kellogg School of Management reached that conclusion by surveying homeowners about their attitudes and experiences with loan defaults.
They found that borrowers were more willing to walk away if someone they knew had done it, and that the greater a homeowner’s negative equity the more likely he or she was to default, even if the monthly payment was affordable.
An analysis released last year by credit bureau Experian and consulting firm Oliver Wyman estimated that nearly 1 in 5 homeowners who were seriously delinquent on their mortgages in the last three months of 2008 were walkaways.
“The fact that people are strategically defaulting — there is no question,” Zingales said. “The risk that the number of people doing this might explode is significant.”
A flood of walkaways could damage the nation’s fledgling housing recovery by swamping the market with foreclosed properties. Still, some experts are dubious that millions of underwater homeowners will pull the plug as Bloch did. Homeownership remains the cornerstone of the American dream. Moving is a hassle. And the stigma associated with a foreclosure is likely to keep many hanging on for a recovery.
The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He’s convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they’d be better off financially by dumping their homes.
Somebody bought a home there last month at a foreclosure auction for $810,000, and apparently didn’t know that the city of Encinitas has not granted the property a certificate of occupancy, meaning no one can live there. Homes sold at trustee’s sale — usually auctioned off on the courthouse steps — are sold as-is without any of the disclosures you would get if you went to buy a house from a normal seller.
When Barratt submitted plans to build the luxury development, the company signed an agreement with the city of Encinitas to build two price-restricted affordable homes, for sale or rent to a household earning 50 percent or less of the area median income. For a family of five, that’s $44,600.
To make sure they followed through on that deal, the city withheld one certificate of occupancy from the development, meaning Barratt couldn’t sell that one house until it built the affordable unit.
The lot where the affordable units were to be built is owned outright by Barratt, and thus not included in Bank of America’s foreclosure of the remaining lots. Instead, it’s tied up in bankruptcy court.
Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.
One common scenario is when a short sale seller’s senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014).
Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent’s participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.
Agents and their clients are encouraged to file any complaints regarding fraudulent activities to the proper authorities, including the following agencies:
Recent legislation that increased the net operating loss carryback provision to five years from two years added billions of dollars to homebuilders’ earnings reports during their most recent quarters, turning losses into profits for several builders. And according to some industry observers, the provision was so lucrative that it might have kept a pair of weaker builders out of bankruptcy court.
In all, homebuilders recorded $2.30 billion in income tax benefits during their most recent quarters, according to SNL Financial. That figure does not represent the net operating loss carryback benefits alone; rather, it shows all income taxes and benefits combined. It includes some builders that actually paid taxes, such as NVR Inc., which reported a loss during just one quarter in the last three years — meaning the company did not have many losses to carry back.
The tax benefit was so large that it might have been the only reason two builders did not go under, Vicki Bryan, a senior high-yield analyst at Gimme Credit, told SNL.
“This is so important that it might have saved the weakest ones, Hovanian and Beazer. They looked like they were headed to bankruptcy,” she said.
A pair of housing experts in California, home to some of the largest housing crashes in the nation, said the net operating loss carryback extension and expansion will do nothing to mend the housing market.
“Of course not. They’re not building any homes; there’s still too many of them kicking around,” Christopher Thornberg, a principal at Beacon Economics in Los Angeles, told SNL. “Permits, starts are still flat; they’re still at a bottom. It’s a bailout. It’s a bailout for builders. It’s a bailout for Robert Toll. They’re bailing out Robert Toll. Repeat after me, they are bailing out Robert Toll. What’s wrong with this picture?”
When asked whether there were any positives to come out of the net operating loss carryback extension and expansion, Thornberg said, “No, no, no, no, no, no, no. No. Nothing. There’s nothing to build; there’s an oversupply. If anything, they’re making it worse because they’re encouraging construction when we need to burn off our existing supply first.”
Though it might not seem possible, San Diego-based real estate consultant Ramsey Su was even harsher. “It’s a total freebie. It’s one of the worst policies. It’s a total payoff. There was hardly any discussion and it was snuck into that other bill. It just got passed because everybody got paid off,” Su told SNL. “It’s probably the worst act of corruption, but how are you going to show that? If you go near someone, they’re going to say, ‘We have to stimulate construction jobs.'”
The SwapRent concept has been slow to find traction and faces some challenges, but its potential benefits make the case that there may be hope for it yet.
Among a host of benefits that could be realized from its large-scale implementation is its ability to address today’s loan resolution problems, according to creator Ralph Liu, founder/chairman of consultancy Advanced e-Financial Technologies Inc. and a veteran of the derivatives and global financial markets.
SwapRent could allow borrowers to reversibly and flexibly sell some, but not all, of the equity in their property back to the lender in exchange for a reduction in payment.
Although Mr. Liu’s ideas come from the derivative and swaps markets, which have come under fire during the recent financial crisis due to their complexity, in the case of SwapRent the concept is made simple for consumers.
“Everybody understands ‘renting vs. owning,'” he said.
Say a consumer is struggling to meet payments in a market where it costs $3,000 to own and $1,000 to rent. Using SwapRent, consumers could have a third option of making a $2,000 payment in which half the payment would be to rent the property and the other $1,000 would be for the right to 50% of future appreciation. The “temporary rent-own switching” could buy the time needed for a depreciating property to appreciate again, make the property more affordable for the borrower as well as avoid the foreclosure process costs and potential damage to the property.
