Real Estate Information

As reported in DSNews.com, 4/1/11

(NO, this is NOT an April fools joke)

TransUnion credit bureau conducted a study recently which shows that when choosing which bills they can afford to pay, consumers are more likely to pay their credit card obligations and fall behind on their mortgage payments.

"Not surprising," according to the Chicago-based company. TransUnion says this trend has continued for the past three years, and while the number of consumers current on credit cards but delinquent on their mortgage has declined slightly, it is more than 70 percent higher than it was at the beginning of the “Great Recession.”

“The percentage of consumers current on their credit card payments and delinquent on their mortgages first surpassed the percentage of consumers current on their mortgages and delinquent on credit cards in the Q1 2008,” the company said in a statement. “Although many industry analysts believed that a reversion to the conventional payment hierarchy would ensue once the recession had concluded, this has not been the case.”

Instead, the number of borrowers delinquent on mortgages and current on credit cards was at 7.24 percent in the last quarter of 2010, which was a slight drop from 7.4 percent in Q3. The percentage of consumers who are delinquent on credit cards but current on their mortgages dropped to its lowest level in Q4 2010, to 3.03 percent.

TransUnion says that the current economic and housing environment has consumers reevaluating their priorities.

“The reversal of the traditional payment hierarchy was driven in large part by home value depreciation and rising unemployment, both of which speak to consumer willingness and ability to pay their mortgages versus their credit cards,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.

What is surprising is that when polled, consumers claim if they could only make one payment in a month, they would chose to pay their mortgage over their credit cards.

In a February study commissioned by TransUnion, 79 percent of adults said they would rather be delinquent on their credit cards than their mortgages. Despite this, TransUnion reports that of the consumers who defaulted in Q4 2010, 52 percent defaulted on their mortgages and kept their credit cards current, compared with 22 percent who defaulted on their credit cards but kept their mortgage current.

Per DSNews.com, data released early this week shows an increase in mortgage related fraud in areas with high rates of foreclosure activities and underwater borrowers.
According to the report, the most risky states were Nevada, Arizona, California, Michigan, and Florida, which are all states that experienced high unemployment and foreclosure rates, as well as extreme drops in property values over the past few years.

Nevada and Arizona have fraud risk index values of 247 and 222, respectively. These two states also had the highest levels of foreclosure sales, at 57 percent of all sales for Nevada and 49 percent of all sales for Arizona.

The nation’s fraud risk index value is 144.

“The correlation between mortgage fraud risk and level of foreclosure sales is consistent with the increase in fraud schemes that seek to take advantage of opportunities presented in distressed markets, such as “flopping” (deflating short sale values in order to generate a profit margin on a subsequent flip at an increased value), and foreclosure rescue-related schemes,” the report said.

According to the analysis, repeat sales with large positive price movements over a short period of time are strong indicators of illegal flopping.

California’s overall risk index value actually decreased to 180 points, from 222 in 2009. According to California-based Interthinx, this can be explained by a migration of fraudulent criminals to more vulnerable areas, such as Nevada, which saw its overall risk index value increase more than 30 points last years.

The report also highlights a risk in “for property” fraud, in which borrowers committed fraud through stated income loans and no-document loan programs. Though many lenders, experts and even the Federal Bureau of Investigation consider “for profit” fraud more of a threat, the Interthinx report shows that “for property” fraud is what helped bring about the current housing situation, as many borrowers who had committed “for property” fraud to obtain homes during the boom began to default.

“As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” said Kevin Coop, president of Interthinx.  He continued, “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them. Most disturbing is the link between foreclosure activity and mortgage fraud. It’s critical that we, as an industry, tirelessly keep our guard up and think as creatively as the criminals.”

As reported by DSNews.com 3/25/11

A demand for loan servicers to implement principal write-downs and provide screening for as many modification options as possible before proceeding to foreclosure has been met with stiff resistance from servicers and some lawmakers.

Meanwhile, the number of loan modifications pales in comparison to the number of foreclosures.

Foreclosure prevention programs have found themselves on the chopping block due to low and poor performance, and servicers have said the risk of borrowers who receive modifications falling behind again is pretty high.

But new data suggests that modifications and even write-downs in certain cases might actually be more beneficial to investors as well as struggling borrowers.

A report released recently by the Center for Responsible Lending (CRL) says even when taking into account borrowers who re-default and the fact that lower principal balances result in less money for investors, loan modifications are often more profitable to investors than foreclosures are.

And according to Dallas, Texas-based lawyer Talcott Franklin, investors are beginning to push for modifications over foreclosures.

Franklin talked with the St. Petersburg Times and said investors and servicers are having trouble reaching agreements.

“If modification makes sense, all investors I’ve talked to say, ‘Do it.’ The banks and the servicers want to promote this myth that investors don’t want modifications,” he said. “But that’s not accurate in terms of the investors I’ve talked to.”

The report talks about the net present value (NPV) calculations that servicers use to determine whether a modification or foreclosure would ultimately be more beneficial to investors. Servicers are supposed to make their decisions on modification and foreclosure according to the NPV.

In a simulation study by the CRL, results showed that NPV ranks modifications as more profitable for investors.

“When we compare our results with actual market conditions, we find that the NPV test should favor a much higher proportion of payment-reducing modifications than are currently occurring,” the report said.

Based on the results of its study, the CRL says that it is clear the low levels of modifications are not due to servicers using the NPV to determine what actions are in the best interest of investors.

“Potential reasons for this failure could be the lack of capacity in mortgage servicing companies, misalignment of incentives due to the servicer compensation structure, lack of investor involvement, borrower confusion, and/or poorly designed program eligibility criteria,”
the report said.

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As reported by DSNews.com, March 18, 2011

Home value losses from foreclosed homes in California have cost a minimum of $632 billion, and could end up costing as much as $1 trillion, according to a community advocacy group in California

The Alliance of Californians for Community Empowerment (ACCE) released a report on Thursday detailing the cost of the foreclosure crisis in California.

California is considered one of the “hardest-hit” states in the country, and according to the report, one in every five foreclosures in the United States is in California. Nearly a third of mortgages in California are underwater, and there have been 1.2 million foreclosures in the state since 2008.

The alliance says the loss in property tax revenue is nearing $4 billion, amounting to a $2,058 property tax loss per foreclosure. Not only that, the group estimates that foreclosure-related costs that get kicked back to the government amount to $17.4 billion, or more than $19,000 per foreclosure.

A proposal which would force lenders to pay $20,000 for each home foreclosure they initiate in California is being sought by ACCE along with a California assemblyman, Bob Blumenfield (D- San Fernando Valley) who stated that the money would go to local schools, fire departments, and other community services, in an effort to make up for lost property taxes and other state expenses that arise from foreclosures.

According to the ACCE report, 53 percent of property taxes are allocated to school districts and community colleges. The other 47 percent is allocated to community services through special districts, cities, and counties.

The group said there was an estimated $627 million loss in property taxes in California during the 2009-2010 fiscal year.

The Federal Reserve stated that the economic recovery is on “firmer footing” with conditions in the labor market “improving gradually.” This statement was issued Tuesday following its regular monetary policy meeting.

The Fed’s view of the economy was noticeably more upbeat compared to its assessment in previous months that the recovery was simply “continuing,” but that optimism stopped short when the discussion turned to housing.

With property values still sliding, a ballooning foreclosure pipeline, and a shadow inventory of distressed REOs that experts say could take more than three years to clear, housing remains the biggest drag on the economy’s healing process. The Fed said bluntly in its statement Tuesday, “the housing sector continues to be depressed.”

While progress in the residential real estate market is lagging, improving economic indicators at the macro level led the U.S. central bank to stick to its guns on policy direction.

The Fed board voted to proceed ahead as planned with regard to its decision last November to expand its securities holdings.

The central bank is maintaining its existing policy of reinvesting principal payments from mortgage-backed securities previously purchased from Fannie Mae, Freddie Mac, and Ginnie Mae. Officials also reiterated their goal of buying another $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

The Federal Reserve board once again voted to keep the target range for the central bank’s benchmark federal funds rate – the rate at which banks lend to one another – at 0 to 0.25 percent.

The central bank has maintained that level for over two years now, and it once more indicated that economic conditions are likely to dictate an “exceptionally low” rate target for an “extended period.”

The Fed noted, “The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.”

As reported by DS News, 3/9/11

94% of Realtors surveyed by the California Association of Realtors (C.A.R.) participated in a short sale transaction during 2010, demonstrating the growing presence of short sale listings in today’s distressed real estate environment.

Despite increased market interest in the short sale as an alternative to foreclosure, C.A.R.‘s study found that fewer than three out of five actually close in California. The trade group says this glaring fact illustrates “the complexity and difficulty of navigating lenders’ and servicers’ short sale procedures.”

Beth L. Peerce, president of C.A.R., called the ‘three-in-five’ success rate “disappointing.” She said, “Many underwater homeowners who have been hit by the recent economic crisis can no longer afford to stay in their home and just need to sell their home as expeditiously as possible are unable to largely because of the complex and cumbersome short sale process.”

While 10 percent of the California Realtors surveyed said closing their most recent short sale transaction was “easy” or “extremely easy,” nearly three-fourths (70 percent) said it was “difficult” or “extremely difficult.”

According to C.A.R., the most frequent problems Realtors cited in working with lenders and servicers on a short sale included unresponsiveness, onerous procedures, and long processing delays.

“The lack of standardization, long approval process, and lack of lender approvals are hampering what should be a 45-day short sale process,” Peerce said. “Instead we’re hearing the typical response time for lenders is at least 60 days, and in many instances, their response time exceeds six months.”

More than half (63 percent) of Realtors said that lenders took more than 60 days to return a written response of the approval or disapproval of the short sale agreement submitted. Only 4 percent said they received a written response in less than 14 days.

“The survey results show that the short sale system is clearly flawed and must be standardized and streamlined to reduce the inventory of foreclosures,” Peerce said. “Increasing the number of successful short sale transactions is one important way we can help California families avoid foreclosure and move our economy closer to recovery.”