Bank Foreclosures Information

Buyers who have the cash are in a much better position to get the best REO property listings deals in South Florida. A growing number of traditional homebuyers find themselves losing their desired properties to investors who flood the real estate market with cash offers.

Take for example the case of a couple who made an offer of $70,000 on a repossessed home located in northwest Cape Coral. They lost the deal to a cash offer of $50,000. Between January 1 and May 31, 60 percent of the 6,474 homes sold in Lee County were purchased by cash buyers. And in the case of homes on REO property listings, 64 percent went to buyers who offered cash.

According to industry experts, during the peak of the housing market, only one out of 10 sales deals was cash transaction. Realtors Association of Greater Fort Myers and the Beach President Suzanne Sherer pointed out the irony of the current situation wherein homebuyers who have good credit standing and reasonable income and who qualify for financing are being sideline in lieu of cash offers.

On the part of banks, they prefer to sell homes on REO property listings to cash buyers for a quick turnaround. David Hall, president of First Community Bank of Southwest Florida, explained that if banks sell foreclosed properties, lenders are paying carrying costs. He added that a financed deal may require banks to hold onto properties for months, incurring more costs on insurance, maintenance and taxes.

Another factor that makes cash buyers preferred purchasers of foreclosed properties is they do not have monthly mortgage payments to contend later. However, industry experts pointed out that cash buyers are pushing aside first-time homebuyers and families who want to purchase properties to live in instead of for investment.

Owen Beitsch of Real Estate Research Consultants said that financial obligations are being shifted from bankers to investors. He claimed that this defeats the purpose of finding someone to occupy and live on vacant properties.

Statewide, investment funds with cash to offer are grabbing discounted homes on REO property listings in bulk. Purchasing bulk properties gives leverage to investors to negotiate for even lower prices than originally offered by banks.

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The rise in number of foreclosure sale notices filed in Arizona in May will again add large numbers of repossessed houses to housing inventories in the state.

The expected readjustment of adjustable-rate mortgage loans to their higher rates in the coming months and in the following years will also increase already large numbers of repossessed houses, according to an analysis of foreclosure and real estate records in Arizona.

In May, the number of foreclosure sale notices filed in the state reached 12,404, representing an increase of 26 percent from filings in May 2008 and an increase of 291 percent from filings in May 2007. Notices of foreclosure sale are documents issued by lenders to formally notify borrowers that the houses named in their mortgages are already scheduled to be sold in public auctions.

In the first months of the foreclosure crisis, homeowners who took out subprime loans comprised the majority of borrowers whose home became repossessed houses. In 2007 and in 2008, these types of borrowers were mostly in areas like Maricopa County.

In the first months of 2009, counties which previously had negligible foreclosure rates have been showing increasing rates of foreclosure filings. In Coconino County, the number of foreclosure notices increased in May by 175 percent compared to May 2008 and increased by 395 percent compared to May 2007.

When compared to its neighboring state of Nevada, Arizona is slightly better in terms of foreclosures, but the rising foreclosure pace in counties such as Pima, Yavapai, Navajo and Mohave has been making state and local officials concerned.

While the rise in number of repossessed houses in Arizona is beneficial to some sectors such as renters, investors and homebuyers, the rise in foreclosures has put many families in difficult situations.

One residential real estate business in Arizona said it has more than 95,000 units of homes for sale, with about half as tax sales and the other half consisting of repossessed houses and short-sale properties.

An example of a house for sale that illustrates how steeply home prices have gone down in Arizona is a Navajo house originally priced at $165,000 which is now listed at $129,000. Another is a Scottsdale condo originally priced at $210,000 which is now also listed at $129,000.

With the expected increase in number of repossessed houses, home prices will fall further, providing more opportunities for investors and new homebuyers. Housing analyst hope though that more homeowners are able to get help from the federal foreclosure prevention program.

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Homeowners associations in Las Vegas, Nevada are bent on intensifying their collection of delinquent fees from repossessed homes.

The metro areas of Las Vegas have a population of about 200,000 and one out of every 54 houses or 14,681 are repossessed homes. The May figures were seven times higher than the national average foreclosure rate. Data showed that the region’s foreclosure rate rose by 4 percent from April and 78 percent from May 2008.

As a result of the high foreclosure rate in the region, most homeowners associations are struggling to collect fees from repossessed houses and implement maintenance codes.

RMI Management President Kevin Wallace said that foreclosed homes are thorns on the side of homeowners associations. RMI manages about 230 homeowners associations that represent 75,000 units.

But homeowners associations need not fret anymore because two pieces of legislation can help them deal with neglected repossessed homes.

The Assembly Bill 204 gives homeowners associations extended superiority lien ability. Under the law, homeowners associations have the authority to collect 9 months of delinquent fees. Previous rule allowed associations to collect only six months of unpaid dues. This means that homebuyers are required to pay full association dues before they can get the ownership title.

Meanwhile, Assembly Bill 361 provides homeowners associations the authority to maintain the exteriors of repossessed homes. Most often, lenders neglect to maintain foreclosure homes which led to their deterioration and becoming blights to neighborhoods, dragging down surrounding property values.

The law gives homeowners associations the right to improve exteriors of foreclosed properties in a state of disrepair. Previously, associations could not make any move to repair deteriorating properties because of trespassing issues.

Now, homeowners associations can put fresh paint, drain pools, replace landscaping and do other works that could help prevent the deterioration of distressed properties. All the costs incurred will be passed on to homeowners who will be required to reimburse the homeowners associations before they can gain the ownership title.

Wallace said that foreclosure proceedings could take as long as one year and a half. He explained that the laws could greatly help homeowners associations lessen the devastating effects of foreclosures on neighborhoods.

Nevada is one of the top 10 states with high foreclosure rate. Last May, an increase in the number of bank repossessed homes has helped catapult the state’s foreclosure activity by 5 percent.

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The loan refinancing scheme of the Obama administration’s government foreclosure program was assessed by James Lockhart, oversight board chairman and CEO of the Federal Housing Finance Agency, in his speech at the annual conference of the National Association of Real Estate Editors in Washington, D.C. recently.

Lockhart admitted that the 105-percent loan-to-value limit of the government foreclosure prevention program’s loan refinancing scheme may not work in states where home prices have fallen to the lowest levels, putting many mortgages underwater.

Lockhart said federal housing officials are considering increasing the loan-to-value limit to help underwater borrowers. But he also reiterated that much of the progress of the government foreclosure prevention program depends on the determination of troubled homeowners to save their homes.

The FHFA official said many homeowners have not been replying to their mails and others are refusing to take advantage of the lower mortgage rate, such as the 2 percent rate.

In an effort to explain the slow pace of the loan modification scheme of the government foreclosure prevention program, Lockhart said that mortgage servicers have been overwhelmed by large numbers of applications. He explained that the systems of lenders were not originally designed to service sudden large numbers of loan modification applicants.

Nevertheless, Lockhart said, the current government foreclosure prevention program has shown indications of becoming more successful than previous programs because of the incentives given to both lenders and borrowers to modify loans.

He also added that the Obama program should result in fewer repeat defaults than previous programs.

At the conference, Lockhart also discussed the future roles of Freddie Mac and Fannie Mae, which were taken over by the federal government in September 2008. Lockhart and former Treasury Secretary Henry Paulson crafted the move of the two enterprises into conservatorship to help maintain housing market stability.

Lockhart said that Fannie Mae and Freddie Mac have been recapitalized with more than $900 billion and that the federal government is committed to provide more if needed under the Housing and Economic Recovery Act signed by former President George Bush in 2008.

Among all the proposals submitted by various sectors for the future roles of Freddie Mac and Fannie Mae, Lockhart contends that the best is the house insurance role of the enterprises.

Lastly, Lockhart mentioned that the excessively high homeownership goals of the two enterprises pressured them to take too much risk. He hopes that the two enterprises can later focus on insurance after helping the government foreclosure prevention program achieve its goals.

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According to data from the Federal Deposit Insurance Corp., the foreclosure home inventories of 20 of 24 chartered banks in Saint Louis, Missouri have increased in the first quarter, compared to their foreclosure home inventories in last year’s first three months.

The 24 banks collectively posted $139.4 million in foreclosure home inventories in the first quarter, a 48-percent jump from the $94.2 value in last year’s first quarter.

Also, seven banks posted over three percent of their current loans as nonperforming – three months or more in default. In last year’s first quarter, only two banks posted more than three percent in noncurrent loans.

Truman Bank had the highest percentage of noncurrent loans – 10.42 percent. Following is PrivateBank, with 4.2 percent nonperforming loans. The other five banks, namely Business Bank of Saint Louis, Pulaski Bank, Jefferson Bank and Trust, Bank of Washington and Saint Louis Bank, had a noncurrent rate ranging from 3.08 to 3.41 percent.

Meanwhile, Saint Louis regional, national and community banks performed poorly in their lending in the first quarter. Bad loans originated by 24 community banks jumped by a staggering 282 percent in the first quarter compared to last year’s first quarter. Similarly, bad loans provided by six national and regional banks also increased by a staggering 248 percent.

The community banks collectively posted $41.7 million in bad debts in the first quarter, compared to only $10.9 million in last year’s first quarter.

The national and regional banks operating in Saint Louis collectively had $4.9 billion in nonperforming loans, compared to $1.4 billion in last year’s first quarter.

Additionally, 18 community banks posted more nonperforming loans in this year’s first quarter compared to last year’s first quarter. The six national and regional banks operating in Saint Louis posted more noncurrent loans compared to last year’s first quarter.

In the meantime, Marshall & Ilsley, the Milwaukee-based parent firm of Southwest Bank of Saint Louis, has extended for the second time its foreclosure moratorium by three months to September 30 in an effort to help reduce foreclosure home inventories in Saint Louis.

The bank’s first three-month foreclosure moratorium was launched in December 2008 and was extended at the end of March. Only homeowners staying in their homes are qualified for the moratorium.

Marshall & Ilsley’s Homeowners Assistance Program is a foreclosure home prevention program that should be emulated by other mortgage banks to contain foreclosures not only in Saint Louis but in other cities.

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Harvard University’s State of the Nation’s Housing 2009 report stated that the offspring of baby boomers will play a significant role in the recovery of the country’s housing market which is currently being pummeled with bank owned foreclosures.

According to the report, limits on credit and income are the factors that sustain the already three-year crisis. It also noted that the emerging progress in home sales made possible with the help of the Obama Administration is being derailed by increasing unemployment rate, bank owned foreclosures and strict lending process.

Echo boomers, who are the children of baby boomers of the post-World War II generation, may offer a big source of support for the housing market, according to the report. It explained that echo boomers are on renting ages between 25 and 44 and are entering the height of home buying.

The report said that echo boomers totaled more than five million compared with the number of their parents’ population.

Harvard’s director of Joint Center for Housing Studies Nicholas Retsinas said that with echo boomers’ big population and immigration, the stage is set for a possible housing recovery.

The report said that echo boomers will boost demand for the coming years, thus reducing bank owned foreclosures and stabilizing the housing market.

However, Retsinas pointed out that there are myriad of challenges that have to be faced and overcome before housing market stability could be achieved, adding that there is a need to stabilize the housing finance in the country.

Industry experts said that a healthy and stable housing market is a very important ingredient of the growing economy.

The collapse of the housing market has pressured the economy to remain in a longest recession ever, causing the lost of thousands of jobs which derailed the housing recovery.

Retsinas said that the housing recovery should come from the solutions that would be provided for foreclosures and job losses.

Meanwhile, mortgage interest rates continue to increase despite a federal effort to keep them low. The number of bank owned foreclosures also rose despite government efforts to help distressed homeowners remain in their properties.

It seems that foreclosures could not keep up with the growth of loan failures due to drastic drop of home prices and increasing job losses.

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Option adjustable rate mortgages (ARM) are a type of loan popular among 1 million borrowers who took them out during the peak of the housing market because of their low minimum payments.

Now, these payment-option ARMs are expected to reset higher, either next year or by 2011. The peak of this loan resetting is expected to happen sometime August 2011, when almost 54,000 mortgages recast, and the rise in the number of repossessed house will soon follow.

University of Pennsylvania’s Wharton School real estate finance professor Susan Wachter said that option ARM with high monthly payments is a threat to the repossessed house recovery and the economy.

She explained that the recast of option ARM will push the repossessed house supply to a higher level, undermining both the housing and economic market recovery. She added that the option ARM is partly the reason why the path towards the full recovery of the country’s economy and housing market is slow and time consuming.

Since 2004, over $750 billion option ARMs were initiated in the country. For example, a homeowner took out an option ARM of $315,000 to refinance his first loan on his house. He started his payment at 1 percent or below $100 per month.

Fast forward to today and the homeowner is already paying $3,500 monthly. Data from the U.S. Federal Reserve showed that interest rates on ARMs are usually very low in the first three months upon taking out of the loan.

ARMs usually recast every five years and low payments may end if the loan principal rises to as much as 125 percent of the original loan.

According to the Federal Reserve, option ARMs are usually marketed to borrowers who have good credit scores. Immigrants and older people are also favorite targets of lenders who offered option ARMs.

Meanwhile, refinancing is difficult to have in many states given the drastic drop in home prices nationwide. Also, mortgage rates are increasing from 5.29 percent to 5.59 percent for the period ended June 11.

The median price of a single-family home in California declined by 37 percent in April compared with $256,700 during the same month a year ago.

Industry experts agree that amortizing option ARMs will cause payments to surge and worsen the repossessed house crisis.

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Members of the Florida Minority Community Reinvestment Coalition will stage a protest against the minority lending practices of the Bank of America which they believed contributed to its high bank foreclosure property rate. Coalition President Al Pina is set to stage a hunger strike to protest what he believed to be a lack of transparency by the Bank of America on low-income minorities.

Pina pointed out that the banking institution has a high bank foreclosure property rate, high interest rates for credit card and failed to increase available credit for struggling businesses. All these, Pina said, while the bank is accepting federal bailout funds.

The coalition believed that the lending practices of the Bank of America violated the Community Reinvestment Act of 1977. The law was passed to stop banks from practicing redlining, which means denying loans to borrowers in underserved areas.

A representative of the bank disputed charges of the coalition, pointing out that Bank of America has been the recipient of outstanding Community Reinvestment Act ratings for six consecutive terms.

However, Pina claimed that Bank of America is one of the three major banks in Florida that refuses to accept and follow the rules of transparency. The other two banks are Wachovia and Washington Mutual which were acquired by Wells Fargo and Chase Bank, respectively.

The coalition is convincing minority customers in the state to stay away from the Bank of America and instead, patronize Wells Fargo. In line with this, the coalition launched the Wells Fargo YES-Bank of America No campaign.

Bank of America Florida’s Mike Fields said that the bank is aware of the needs of low-income and minority communities in the state and nationwide. In fact, the bank started delivering its $750 billion investment and community development lending goal in 2005, Fields said.

Meanwhile, Pina pointed out that transparency and accessibility are the biggest problems with Bank of America. He said that some major banks have allowed the coalition to monitor their minority lending practices to prevent high bank foreclosure property rate.

Furthermore, Pina claimed that Bank of America’s sub-prime mortgages, which are the root cause of bank foreclosure property crisis that the housing market is experiencing right now, is worse than Wells Fargo. He said that 65 percent of mortgage loans issued by the bank to Florida minorities in 2005 to 2006 were sub-prime.

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Many homeowners in Nevada were relieved to hear about the state’s foreclosure help program that was passed by the state assembly in June and which will take effect on July 1.

But homeowners need to know that there are restrictions and requirements for participants. They should approach a state HUD-certified foreclosure help counselor or visit the web site of the Nevada Supreme Court and check if they are eligible to participate in the program.

Basically, the program helps homeowners work out an affordable repayment scheme with their lenders through a court-supervised mediation.

Homeowners and lenders will each pay $200 for the mediation process and non-native English speakers need to bring their own translators.

The major limitation of the foreclosure help program is the scope of the program. It applies only to borrowers who receive a default notice starting July 1, which excludes many borrowers who have already defaulted.

Homeowners and advocates are sad about the restriction because many homeowners purposely defaulted when their lenders refused to modify their loans because they have not been delinquent.

In response to complaints about the scope of the program, the state Supreme Court advised homeowners who have defaulted before

July 1 that they can still participate in the program as long as they can get the consent of their lenders.

Bill Uffelman, president of the Nevada Bankers Association, said that many homeowners can still negotiate with their lenders even without the court mediation law.

Another limitation of the foreclosure help program is its application to owner-occupied homes only. Court mediation will not be provided for investors who speculated on home prices.

Unemployed homeowners are also exempted from the program. A bank representative said that any borrower who does not have a job can never be helped by the program. He added that only homeowners who have adequate monthly income and who did not buy houses beyond their financial capabilities will be helped by the program.

The other major limitation of the foreclosure help program is the voluntary nature of the loan modification part of the mediation process. The participation of the lender in the court-supervised mediation process is mandatory, but the achievement of a modified loan is not mandatory. Much of the process still depends on the lenders’ policies and their representatives in the mediation process.

Additionally, homeowners who have already filed for bankruptcy or who have already surrendered their houses to their lenders are not eligible for the foreclosure help program.

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As predicted by critics of California’s government foreclosure prevention program, seven major mortgage lenders in California have just been exempted from the foreclosure moratorium imposed across the state, and more are expected to become exempted.

The first three big lenders to get exemption were Bank of America Home Loans, Carrington Mortgage Services and CitiMortgage.

The law passed by the state in February and implemented in June requires lenders to notify defaulting homeowners and give them at least 90 days to restore their loans to normal status or work out a loan modification or loan refinancing before foreclosing on them.

But the law also provided a way by which lenders can get exempted from the foreclosure moratorium – establish a comprehensive a loan modification program. Since many have already established their loan modification programs, many are already exempted.

The web site of the state’s Department of Corporations has already listed 38 lenders which received temporary immunity from the foreclosure moratorium as their programs are being reviewed.

The other lenders which got exemptions early were EMC Mortgage, Kondaur Capital Corp. and Select Portfolio Servicing.

Among the big lenders who were given 30-day temporary reprieves were Bank of America NA, JPMorgan Chase Bank, Wells Fargo Bank NA, Wells Fargo Home Mortgage, Wells Fargo Financial and America’s Servicing Company.

Some critics said that the government foreclosure prevention law will not be helpful because the three major lenders, which will surely get exemption, are also owners of Wachovia, Washington Mutual and Countrywide Financial, considered the three largest banks that provided toxic home loans.

Other banks that got temporary immunity were GMAC Mortgage, American Home Mortgage Servicing, HSBC Mortgage Services and U.S. Bank National Association.

Meanwhile, the Department of Financial Institutions gave temporary approval for the loan modification programs of seven applicants and the Department of Real Estate approved two applicants temporarily.

Rick Simon, spokesperson for Bank of America Home Loans, said his bank easily got the 90-day exemption because the bank has been a leader in implementing loan modifications under the federal government foreclosure prevention program.

Mark Leyes, spokesperson for the Department of Corporations, said his agency expects hundreds of companies to get involved in the government foreclosure prevention program.
In the past couple of years, California has posted over 365,000 foreclosures listings, with around 37,000 occurring in the Sacramento region.

Despite criticisms of the law passed recently to help facilitate the federal government foreclosure prevention program, California officials expect the moratorium and the loan modification programs of lenders to help more troubled homeowners.

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