Tuesday, June 11, 2013

Short Sales Outpacing Modifications

It may come as a surprise to some that banks would prefer that you short sell your property than modify it.  It may also surprise you when I slap that surprise off your face with a little education.  Think of a mortgage as a single share of stock.  At the time that the bank lent the money, it was like a purchase of a stock certificate.  It had a certain value on the market at the time, but the value changes with time.

Like any other stock, speculation has a role to play in "market" value.  In 2007, speculation by both corporate buyers, flippers, and a glut of lending lead to an inflated purchase points.  With the recession, housing, in part because of lousy lending underwriting, took huge losses, some sectors losing up to 70% of value in the matter of weeks.  Bank, though institutional and without flesh and blood personas, are run by humans and the banks did what a lot of investors do at a time of downturn, they sold.

The sale of these mortgages/stocks were done at a fraction of the value that had been paid at the time of lending.  You hear the expression "pennies on the dollar," well that would have been accurate here.  In addition to voluntary sell offs, some banks simply crumpled under the stress.  Lehman Brothers, Wachovia, Washington Mutual, Country Wide were some of the biggest names to blink in the face of the maelstrom that was coming and the assets that represented main street mortgages were purchased pennies on the dollar.

Fast forward about five years and you are contemplating your ability to pay for your home.  It no longer has the value it once did, your interest rate is locked in 2007 purgatory, and you are wondering why you owe more to your new bank than the house is worth.  If I described you with pinpoint accuracy, it is because I write fortune cookies on the side.  The next best option to you is to go to your bank and ask it to modify the loan to a more affordable version for the post-apocalyptic you.

The bank comes back and says no.  It has a myriad of reasons that it hides behind, such as poor DTI, you make too much, or my favorite, your loan doesn't meet investor guidelines.  Let's take a machete and cut through this crap.  What the bank is saying is that because it bought your house for pennies, it can make money simply selling it to whoever is willing to buy it.  If it modifies your loan, then it will have to wait up to 40 years to see a real return on its money.  So thanks for playing but if you don't want to pay, it doesn't care.

In reading through the article linked above, I will admit that my offices have had an above average result in obtaining modifications.  Short sale is usually a secondary option for my clients and the results play out in many modifications.  It has to do a lot with knowing the pressure points, knowing the options, and then being persistent like a Gonzaga Bulldog when it comes to pushing for that outcome.

If modification is something that you crave, there are options available in Washington.  The Foreclosure Fairness Act Mediations provide a terrific forum for us to get results for our clients so that the norm of short sales outpacing mods does not have to be your outcome.

Monday, June 10, 2013

Foreclosure Ninjas and Shadow Inventory

Under the stealth of cloaked balance sheets and un-realized transactions, our nation is being overrun by foreclosure ninja.  It was reported in DS News that between GSEs like Fannie and Freddie and separately by HUD, that 1.7 million properties are in the shadows.  This number is in addition to the nearly 200,000 properties that are held as REO properties ready for sale by the GSEs and HUD.
infiltrated by the shadow inventory of properties held by banks, GSE's and HUD that are more than 90 days in arrears but not yet in foreclosure. 

A corollary article stated that year over year, the Washington market has seen a jump in foreclosures by 67 percent in the Seattle-Tacoma-Bellevue metro area.  If we only worried about the metro, we would be neglecting the fact that foreclosures have reached far into suburbia and the rate for the entire state is 88% above last year's numbers.  Now you may wonder, how in the world could we as Washingtonians be facing such horrendous news when we have clearly seen a year over year increase in values?

The Wall Street Journal on Sunday ran an interesting article that hit on some of the reasons why we are seeing these dichotomous events here in Washington.  Corporate purchasers are entering the market in numbers that belie the significance of the collective impact on the housing market.  Simply put, as that last sentence was full of legal speak, the corporate buyers are only buying a few home, but those purchases are significantly swinging prices.

So what does that mean those that are sitting on a home right now?  It means that in the short term, your home value is going to increase.  It means that in the mid term you could see a dramatic change in value of upwards of 30%.  If you don't believe me, and there isn't really any reason that you should, so check out Mr. Harry Dent, I know I would change my name too.

The recovery that is a buzz in the markets is smoke, the un-foreclosed homes, the shadows, and the ninja silently stalking in and out is a second downturn.  Smart investors, homeowners, and businesses will trim debt while they can, cinch the belt and look for opportunities that will grown in down markets.  Even sneaky foreclosure ninjas can be beat with understanding where the smoke and shadows are and employing a comprehensive strategy for defeating them.