Next Up: Selling REOs to Investors

If they make it a condition of sale that the investors have to rent the REOs they purchase, and can’t sell them, then this idea won’t have much impact on the resale market. Selling bank-owned properties out of the shadow inventory and then designating them for rental properties means the shortage of well-priced inventory for the end buyers will continue. From HW:

While the Obama administration may be pondering the idea of helping underwater homeowners through principal write-downs, Federal Housing Finance Agency Director Edward DeMarco said there is no current consideration for principal write-downs on underwater home loans.

DeMarco told C-SPAN in an interview that the FHFA has already assisted borrowers through principal forbearance programs and loan modification tools that have helped borrowers reduce their monthly payments. He said the other balance the FHFA has to strike is making sure home aid efforts do not afflict taxpayers with additional losses since public funds hold up the quasi-federal housing agencies. He placed write-downs on principal in this camp and suggested the FHFA is not going in that direction.

“Principal forgiveness does not accomplish our conservator mandate,” DeMarco said on CSPAN while speaking to reporters from Reuters and the Wall Street Journal. He added,”the borrower still has a responsibility and an obligation for the repayment of the loan.”

DeMarco said the FHFA sees the next housing initiative being one that focuses on offloading GSE properties to investors who can buy the REO properties in bulk and turn them into rental properties.

To date, the FHFA has received 4,000 comments from interested parties who submitted feedback on the proposed REO bulk sales program.

“Now that we have the HARP announcement out, we are turning to this as the next priority,” he said.

The FHFA said earlier this month that it would lower barriers to refinancing, allowing more underwater borrowers to qualify for the government’s HARP refinancing program.

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Rick Sharga and Carrington are already jockeying for position, trying to run off competitors here.  Who ends up getting what, and for how much, should be quite a spectacle, unless it’s all done in secret, behind the usual closed doors.

REO Sales to Peak Someday

REO sales will peak when the banks decide to peak them.  From HW:

The sale of properties repossessed through foreclosure may not peak until 2013, keeping home prices from a meaningful recovery for some time, analysts estimated Monday.

Nearly half of the more than 552,000 REO properties liquidated in the first half of 2011 were held by private banks. In the years ahead, the government — including the Department of Housing and Urban Development, Fannie Mae and Freddie Mac — will begin taking a majority of the activity.

In 2013, REO sales could reach 1.48 million properties, according to estimates from Bank of America Merrill Lynch analysts, a 10% increase from projected amount in 2012.

“We do not expect to see anywhere near the downward pressure on home prices that we had back in 2008, since the expected percent changes in liquidation volumes are so much smaller,” BofAML analysts said. “But home prices are starting from a negative point, so the implication is that home prices will continue to decline as the foreclosures transition through the pipeline.”

Most of the projected increase will come as the government begins to unload its backlog. The government-sponsored enterprises and HUD, analysts estimate, will liquidate roughly 595,000 properties in 2013 alone.

Total REO liquidations wouldn’t drop below 1 million until 2015, according to BofAML.

The Obama administration began work last month developing new strategies for selling this mass of properties, which may involve renting more of them. The Federal Housing Finance Agency is also working on a way to refinance more underwater borrowers to entice them from walking away.

“I would essentially rent the house back to those who are living in them now,” said Susan Woodward, an economist with Sand Hill Econometrics. “I don’t think it makes a lot of sense to push 4 million people out of their homes when they’re victims of a slower economy they had nothing to do with.”

Other analysts were skeptical of anyone who could predict accurately what the GSEs or Washington would do, especially after the elections in 2012.

“Do they really think that the government under any administration would let 500,000 homes hit the mark and crash prices all over again, six years after the first crash?” said Scott Sambucci, chief analyst at Altos Research.

He said even if unemployment improved by a full percentage point or two — which he said would be a stretch — the market would still struggle to meet such a supply influx.

“It would crash the market, so no, it’ll never happen,” Sambucci said.

Daren Blomquist at RealtyTrac, which monitors foreclosure filings across the country, said the sale of REO is on track to reach 825,000 by the end of 2011.

“We do expect the REOs to pick back up in 2012 as lenders push through some of the foreclosures delayed by processing and paperwork issues,” Blomquist said, adding the inventory needed to be sold could reach well into the millions.

(more…)

Can-Kicking

Another example of how the REO business is working.

This took 5+ months to get to market (it was assigned to us on March 11th), and it still doesn’t look very appealing. 

If the banks were taking a while because they were spending the right money to fix them up to sell for retail price, it might be understandable.  Or if they were watching the calendar, and pushing to get the cheesey ones on the market during the summer selling season, it would be smart too.

But we didn’t get either: 

Buying A House Sight Unseen

In the comments of the last post, we were discussing the thought of making an offer on a house that you haven’t seen.  It is definitely more personal when you are looking at a primary residence – so let’s start with an investment property!

The intent of this video is to give you enough ingredients to be able to calculate the cost of repairs, and hopefully determine if this property pencils out for you, prior to visiting in person.  Buyers are checking comps in advance, and just need to estimate repair costs on any property, right?

As the listing agent, do I worry about verifying that buyers have seen the property? 

On vacant properties – No. 

Why?

Because on vacant houses, listing agents don’t know if ANY of the offerors have seen it – unless I stake out the property, slumped down in my car across the street, Rockford-style.  Yes, I would prefer if buyers have seen it, but when asked, every buyer’s agent says, “of course”.

I’m going to assume that NONE of them have seen it, and instead I’ll provide ample evidence to give everyone the most thorough experience of what you are buying, before you go.

Try it out for yourself – those who follow the blog have already seen this house a few times, here is the final cut – plus for those who need to see it, we’ll make that easy too, by conducting open house late in the afternoon during the first day on the market (in effect, our actual stake-out!):

Federal Share of REOs is Rising

In trying to keep my promise to post only NSDCC-related data, here’s a national article from G-S, with NSDCC relevance at the bottom. Hat tip to Aztec for sending this along:

As of 1Q, the number of seriously delinquent federally backed loans surpassed the number held by banks and private label securitizations and now accounts for the majority of seriously delinquent mortgages (seriously delinquent mortgages comprise loans in the foreclosure process as well as loans that are 90-plus days delinquent but not yet in foreclosure).

This shift is due to the persistently elevated level of seriously delinquent loans among Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), in contrast with private-label and bank-held loans, where serious delinquencies peaked in 2009 and have declined significantly since.

The chart below shows the number of seriously delinquent mortgages backed by federal entities and the total mortgage market; the right axis shows seriously delinquent loans as a share of the total.

The federal share of REO property is also rising.

(more…)

Foreclosure Cruise

Thank you to those who made the ultimate sacrifice for their country, and to those who served.

The previous generation was proud to serve – My dad was a ROTC second lieutenant in the U.S. Army, and my two uncles served as well – Tom was in the Navy, and John was in the Army too.  All three served between Korea and Vietnam, so they didn’t face any live fire, but their contribution is worthy.

My Uncle John passed away last night, after a bout with Parkinsons.  He was a great man, and we’ll miss him dearly – RIP.

(this video was done yesterday)

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