Loan Mods, Not Foreclosures

Rather than foreclose, they will keep changing the rules. They are creating a ‘Custom’ pool of mortgages to modify the loans again – even if it means extending them for 40 years!

Ginnie Mae sent out a press release last week could create some confusion for those readers who only skimmed the lede. The opening paragraph states that the agency is creating a new pool of mortgages for securitization on the secondary market. The pool, to be known as Pool Type C-ET, will contain loans with terms up to 40 years while the current set of pool types only supports loans with 30 year or shorter terms. It is easy to miss that this special pool is not a new offering for borrowers but is limited to loans that have gone through a loan modification.

It is probable that this pool is being created in anticipation of the number of FHA, VA, and USDA loans that will be coming out of pandemic-related forbearance plans. The latest survey by the Mortgage Bankers Association estimated that 5.13 percent of homeowners with those loans were still in the program as of June 20. Black Knight’s weekly survey estimates the raw number at over 800,000. Many of these borrowers have either entered or will soon enter he last three months of eligibility which is currently capped at 18 months, and most will have significant past due balances.

Borrowers who leave the program are offered several options for paying back their arrearages including several types of loan modifications. Among them is a re-amortization of the loan to spread the amount over the remaining life of the loan, but in many cases this could result in an unaffordable monthly payment.

The new pool type is expected to be available by October, at about the time the 18 month terms begin to expire. It will be a “Custom” pool with a minimum size of one loan and a $25,000 minimum balance. There will be no upper limit on the loan amount as long as the eligible collateral meets the participating agency’s requirements. That collateral will be participating agency modified loans with original terms of 361 months or more, capped at 480 months. All modifications of an included mortgage loan after its origination must have been occasioned by default or reasonably foreseeable default.

“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” said Michael Drayne, Ginnie Mae’s Acting Executive Vice President. “Because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention, we have begun work to make this security product available.”

Drayne noted that the terms and extent of use of the included loans would ultimately be determined by the FHA, HUD’s Office of Public and Indian Housing, VA, and USDA’ Rural Development Program. Their loans are the basis for the Ginnie Mae pools.

“Ginnie Mae has been integral to the interagency actions to prevent foreclosure for homeowners experiencing financial hardship as a result of COVID-19,” said Alanna McCargo, HUD Senior Advisor to Secretary Marcia Fudge. “The challenges of the last year require meaningful solutions to help keep people in their homes, which has been a priority for Secretary Fudge. As interest rates rise, this 40-year feature will enable more payment reduction options to help homeowners.”

Zestimate Accuracy

I have suspected that consumers rely on their zestimate more than we’d like to admit.

It’s been around for ten years, so it’s familiar and easy.  Because there isn’t any other internet tool like it, homeowners follow their zestimate and fantasize about their equity position – and start believing.  Zillow sends regular reminders which reinforce that there might be something to it.

When I’m talking to sellers, if my price is different than the zestimate, I better have a good explanation.  Likewise, I don’t mind when the zestimate is above my list price. If buyers happen to believe in the zestimate’s accuracy, then it helps make my listing look like a deal.

But the truth is that the zestimate is wildly inaccurate and heavily manipulated by Zillow to suit their own needs – especially in their quest to buy homes from coast to coast.

A good friend has been contemplating the sale of this home in Santa Monica.  We have watched the zestimate rise steadily over the years, and once it touched $8,000,000, we thought it would be a good time to put it on the market and hope the zestimate would help propel the sale.

As we prepared to launch the listing, I monitored the zestimate closely:

June 16th Zestimate

The zestimate had gone up $362,339 in the last 30 days, and was well into the $8,000,000s. We planned to list for $6,950,000, which would have looked very attractive, relatively.

The next day, our zestimate got revised.

June 17th Zestimate

Whoa – it dropped $3,284,879 in one day???

We had committed to at least conducting some price discovery, so we listed for $6,950,000 on June 22nd.

What did Zillow do?

  • They changed the zestimate to the EXACT list price,
  • They suggested a sales range evenly around the list price
  • They erased the history of the $3,284,879 drop from five days prior:

June 22nd Zestimate

The zestimate went from $8,195,161 to $4,910,282 to $6,950,000 in less than a week.

You’d be crazy to trust anything they say.

It was the erasing of the previous drop that is the most disturbing – which they have done for years.  If you drop $3 million in one day, then stick with it – don’t recreate history just to make yourself look better.


San Diego Case-Shiller Index, April

San Diego has had positive gains straight through the Covid-19 era, and now we have back-to-back months of +3.3% improvements, which has to be about the max the index can go up in a month.

We are right behind Phoenix, whose non-seasonally-adjusted index in April rose 22.3% YoY to our +21.6%.

Let’s go San Diego, we can take them, and be number one in the nation! Maybe next month!

San Diego Non-Seasonally-Adjusted CSI changes

Observation Month
M-o-M chg
Y-o-Y chg
Jan ’20
Jan ’21

From cnbc:

Home prices in April saw an annual gain of 14.6% in April, up from a 13.3% increase in March, according to the S&P CoreLogic Case-Shiller National Home Price Index.

Among larger cities covered by the index, the 10-city composite was up 14.4% year over year, up from 12.9% the previous month. The 20-city composite was 14.9% higher, up from 13.4% in March.

“April’s performance was truly extraordinary. The 14.6% gain in the National Composite is literally the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.

Not only did home prices rise in all 20 cities, but the price gains accelerated in all as well and were in the top quartile of performance historically.

Five cities – Charlotte, Cleveland, Dallas, Denver and Seattle – saw their largest annual gains ever.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. April’s data continue to be consistent with this hypothesis,” added Lazzara.

Price gains have been expanding for the last eleven months, as buyer demand continues to outstrip supply. The inventory of homes for sale rose slightly in May compared with April, but was still 21% lower than May 2020, according to the National Association of Realtors.

Home sales have been falling for the past few months, due both to low supply, especially at the entry level of the market, and very high prices. Single-family housing starts have also slipped, as homebuilders try to keep up with a heavy backlog of demand amid high prices for land, labor and materials.

There has been growing talk of a price bubble in the housing market, but the fundamentals of today’s market say otherwise.

“Although home price growth is reaching new highs, the risk of price declines has fallen far below pre-pandemic and summer 2006 levels, when homes prices last peaked. This is likely because favorable mortgage rates and income growth continue to keep the ratio of mortgage payments to monthly household income much lower today,” said Selma Hepp, deputy chief economist at CoreLogic.

“Consequently, elevated buyer demand, coupled with lacking for-sale inventories, will continue putting pressure on prices — which are likely to remain at double-digit increases through the third quarter of 2020,” she added.

There is, however, a growing divide between the haves and have-nots in housing.

Sales activity is gaining dramatically on the higher end of the market but falling on the low end as more buyers are priced out. Some blame the Federal Reserve for keeping mortgage rates artificially low, through its bond-buying program. Record low rates last year helped juice the homebuying boom, but those rates, now slightly higher, cannot offset the huge price gains.

“So much for the Fed’s all-inclusive monetary policy where lower income people now can’t afford housing,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.


Inventory Watch

Statistically, the frenzy should continue to be impressive – it’s been red-hot for so long that it could cool off 25% and still be a vibrant marketplace.  It will depend on the flow of homes coming to market, which we’ve had an uptick over the last two weeks – and the pendings have surged right with them (see above).

Here are examples from the weekend:



Renting Out Your Home

A few ways to generate some extra dough with your home. Seen in the lat:

You can earn semi-passive income by renting out all or part of your personal residence.

Let’s say you list your house to rent while you take a two-week vacation. If you list on Airbnb or VRBO, you can charge a nightly rate plus a cleaning fee. Airbnb will deduct a commission to compensate itself for advertising your rental and collecting payment. If you rent out your house for $250 a night after Airbnb costs, that’s $3,500.  This is semi-passive income since there is a bit of work involved. You need to take photos of your home, list it on a website, respond to potential renters and arrange to have housekeepers do the cleaning. All told, that’s likely to take an hour or two per rental.

And you can rent to movie producers and event planners through Giggster, Peerspace and Splacer, among others. These sites encourage you to charge by the hour, which can enable you to earn four to five times what you’d get with Airbnb or VRBO. But there are unique risks with having movie productions and events at your home. Be sure to collect a deposit for potential damage and consult your insurance agent.

If you don’t want to rent out your house but are OK with letting people use your swimming pool, you can sign up with Swimply. The same cautions apply.


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