The real estate market was boisterous in last half of 2020, which made it easy to predict that once we got past the election and into the new year we’d probably see the Greatest Real Estate Frenzy Ever.
Let’s use February 22nd as the day the frenzy really kicked in.
It was the day that this home was listed for sale, after a troubled past:
2005: $679,000 Sold (vacant lot)
2007: $550,000 Sold (vacant lot)
2008: $2,000,000 borrowed from WaMu
2009: House built
2015: $2,137,500 WaMu/Chase FORECLOSED
2016: $1,930,000 Sold
2018: $2,875,000 listed for sale for the next 18 months
2019: $2,044,000 Borrowed in January
2019: $2,225,000 last list price before FORECLOSED
According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic.
Here’s where these homeowners stand right now:
2,543,000 (39%) are current on their payments and have left the program.
625,000 (9%) have paid off their mortgages.
434,000 (7%) have negotiated a repayment plan and have left the program.
2,254,000 (35%) have extended their original forbearance plan.
512,000 (8%) are still in their original forbearance plan.
116,000 (2%) have left the program and are still behind on payments.
This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:
Almost 30% of borrowers in forbearance are still current on their mortgage payments.
Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
With the significant equity homeowners have today, most can sell their home, rather than get foreclosed.
Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.
Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:
Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.
It’s costing the taxpayers more than $7 billion, but nobody in government wants to be the one who foreclosed or evicted people during a pandemic. I’d guess that a Covid loan-modification program is coming next:
Today, to help borrowers at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) will extend the moratoriums on single-family foreclosures and real estate owned (REO) evictions until at least January 31, 2021. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on December 31, 2020.
“Extending Fannie Mae and Freddie Mac’s foreclosure and eviction moratoriums through January 2021 keeps borrowers safe during the pandemic,” said Director Mark Calabria. “This extension gives peace of mind to the more than 28 million homeowners with an Enterprise-backed mortgage.”
Currently, FHFA projects additional expenses of $1.1 to $1.7 billion will be borne by the Enterprises due to the existing COVID-19 foreclosure moratorium and its extension. This is in addition to the $6 billion in costs already incurred by the Enterprises. FHFA will continue to monitor the effect of coronavirus on the mortgage industry and update its policies as needed. To understand the protections and assistance offered by the government to those having trouble paying their mortgage, please visit the joint Department of Housing and Urban Development, FHFA, and the Consumer Financial Protection Bureau website at cfpb.gov/housing.
Lenders learned their lesson last time – instead of foreclosing on non-payers and risk losing money, it’s better to extend and pretend. There won’t be a time coming where we are flooded with REOs….ever again:
Mortgage forbearances for homeowners affected financially by the pandemic declined slightly over the past week. Black Knight said that there were 200,000 plans scheduled to expire at the end of November, probably accounting for the majority of the 39,000-loan downturn in the various forbearance programs. Another 1 million plans are due to expire at the end of this month.
As of December 1, there were a total of 2.76 million loans remaining in plans, 5.2 percent of the 53 million active mortgages in servicer portfolios and representing $561 billion in unpaid principal. Eighty-one percent of those loans have had their terms extended at some point since March.
The number of GSE (Fannie Mae and Freddie Mac) loans in forbearance dropped by 25,000 during the week, leaving a total of 967,000 homeowners remaining in plans. This is 3.5 percent of the companies’ combined portfolios. FHA and VA loans decreased by 14,000 units to a total of 1.118 million or 9.2 percent of those loans. Loans serviced for bank portfolios or private label securities held steady at 677,000 loans or 5.2 percent of the total. There are 91,000 fewer loans in forbearance plans than one month ago, a 3.2 percent decline.
Hat tip to Susie who sent in this article about a law recently passed in California:
The new rules apply to one- to four-unit properties sold at foreclosure auctions. If an investor wins one of those homes at auction, then people who want to live in it, as well as nonprofit organizations and government entities, get 45 days to submit competing offers.
If the home is a rental, the tenants living there could win by matching the investor’s offer. Other would-be buyers must offer more than the investor.
Known as SB 1079, the law takes effect Jan. 1, 2021.
State Sen. Nancy Skinner (D-Berkeley), the bill’s author, said her goal was to make it easier for individuals and affordable-housing groups to compete with investors.
“Homeownership is the primary way people have to build up generational wealth,” she said. “When we have rules that give advantage to a corporation, then that dream is just not available.”
The manager of the foreclosure auction is required to maintain a website that details the highest bid at the auction and how to submit competing offers.
I don’t know how many amateurs will be paying more than investors for homes sight unseen, and without proper title searches for additional liens. But there will be a few!
It was the last paragraph that was the most intriguing.
The State of California has institutionalized transparency!
Making the highest bid known to the public could revolutionize our business. Can you imagine if Zillow ran a website that openly tracked the offers on their homes for sale – buyers would love the transparency! Then every brokerage would be pressured into doing the same, and boom – no more agent shenanigans!
Are you thinking of selling?
Transparency can help ignite a bidding war, and get buyers to bid up the price because it becomes more about winning, then getting a deal. It’s how I handle my listings – let’s talk about how I can help you!
Here’s the classic courthouse-steps example of how auctions help to drive up the price:
Another story demonstrating how free enterprise is being squeezed:
California is taking steps to avoid a repeat of the conversion of thousands of single-family homes from ownership to rental properties as occurred during the Great Recession. In late September, the state’s governor Gavin Newson signed a bill that will give tenants, affordable housing groups and local governmentsthe first crack at buying foreclosed homes.
As homes were foreclosed by the millions following the housing crisis, Wall Street stepped in and investors, according to Zillow, gobbled up over 5 million homes, turning them into rental properties. They were bought as individual homes, via bulk sales of lender real estate owned (REO), or as distressed loans upon which the investors later foreclosed.
It was expected that these houses would return to owner-occupied status once home prices recovered and the investors, largely big hedge funds, could realize a profit. Instead they have found ways to manage the geographically dispersed properties and continue to hold hundreds of thousands of them.
This has been problematic. While the investor purchases helped put a floor under home prices at a time when there was little appetite for buying distressed properties, it has continued to reduce the inventory of available homes for sale. There have also been many complaints of tenant abuses and deferred maintenance. Many of these were spotlighted last March in a New York Times Magazine article, “A $60 Billion Housing Grab by Wall Street” by Francesco Mari. We summarized her work here.
The California legislation, SB1079, was the brainchild of an activist Oakland group, Moms 4 Housing. It bars sellers of foreclosed homes from bundling them at auction for sale to a single buyer. In addition, it will allow tenants, families, local governments, affordable housing nonprofits and community land trusts 45 days to beat the best auction bid to buy the property. It also creates fines of as much as $2,000 per day for failure to properly maintain properties.
So far, the COVID-19 pandemic has not resulted in massive foreclosures due both to mortgage forbearance programs and a foreclosure moratorium put in place by the U.S. Congress’s Cares Act. Still mortgage delinquencies are rising, and weekly first-time unemployment claims have remained above 800,000 since March. Most forbearance plans are due to expire by next March lacking further government action.
This house has a history – it was once the family compound for Alaska Airlines! It was foreclosed in 1994 when the lender received no bids and took it back for the balance owed of $6,372,931 – and they sold it for $3,350,000 six months later. It was then resold for $4,000,000 in 2001.
At the height of the market in 2007, the former owners of this property took out a mortgage for $8,500,000, but the lender foreclosed in 2014. They finally sold it for $2,437,500 a year ago, and those new owners just flipped it for $2,995,000 or $3,750,000 depending on the data source. This time it was marketed and sold as a vacant lot with approved plans.
Readers have wondered about the story of the billion-dollar property being bought for $100,000. It was the lender (who was the previous owner) who got the property back, and who is now in position to make a tidy profit on their original $45 million mortgage:
On Tuesday, it sold for a mere $100,000 at a foreclosure auction, a fraction of the $200-million loan outstanding on the property.
A markdown of 99.99%, of course, comes with some fine print. Any other buyer would have been on the hook to repay that loan — and this buyer has to eat that loss.
That’s because the buyer is the estate of late Herbalife founder Mark Hughes, which previously owned the property. The estate set this current saga into motion by selling it to Atlanta investor Chip Dickens in 2004.
Dickens borrowed around $45 million from the Hughes estate to buy the property, and that debt has since ballooned to roughly $200 million with interest and fees. Three years ago, Dickens transferred ownership to a limited liability company controlled by his partner on the project, Victor Franco Noval.
Noval is the son of convicted felon Victorino Noval, who pleaded guilty to mail fraud and tax evasion in 1997 and was sentenced to federal prison in 2003.
Unable to pay the debts, their limited liability company, Secured Capital Partners, tried — and failed — to declare Chapter 11 bankruptcy last month, which led the Hughes estate to force a foreclosure auction to either sell the property in hopes of recouping its losses or buy it back, likely losing the $200 million they were owed in the process.
With less than 24 hours to go in the REO auction, it looks like the seller got a little antsy and decided to push the bidding closer to their $1,499,900 list price. Will there be a flurry of activity right at the finish line? We’ll see!