Nation Doomed To 2 Million Foreclosures
Jun 10, 2007, 12:02 pm PDT
A second study forecasting millions of foreclosures sweeping the nation in the next few years, says it won’t matter what the Feds do to fix the problem.

“Foreclosures Will Affect 2 Million Homeowners,” by upstart housing market researcher HomePredictor.com says subprime mortgages are the culprit.

Among the independent researcher’s findings:

• More than 2 million homeowners will face foreclosure in next two and a half years, due largely to loans written that shouldn’t have been.
• Most, 76 percent of recent foreclosures resulted from high-interest rate subprime loans made to borrowers who could not otherwise qualify for a loan.
• Another 15 percent of the failed loans were made with conventional mortgages, but many contained risky low- or no-down payment terms.
• The remaining 9 percent of foreclosed loans studied included no- and low-documentation loans that get approved with little if any verification of income.
• More than 50 percent of all home mortgages made in 2006 were written with 5 percent or less down.

“The figure is particularly significant since mortgages like this were nearly impossible to obtain except by those with excellent credit histories and strong incomes until two years ago,” said Mike Colpitts, editor of HomePredictor.com.

Colpitts says the study is based on a survey of 100 real estate market’s public records and interviews conducted by researchers.

Late last year, the five-year-old Center for Responsible Lending’s report on the matter, “Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners” used a proprietary loan-level dataset of more than six million securitized subprime loans and determined 2.2 million homeowners have either already lost the farm or will by 2008, due to subprime loans.

The center has long called for stiffer federal rules to govern the risky loans.

Rebutting the Losing Ground study, “U.S. Mortgage Borrowing: Providing Americans with Opportunity, or Imposing Excessive Risk?” a study by the four-year oldCenter for Statistical Research (CSR) says stiffer rules could push from 580,000 to 1.1 million borrowers out of the market and leave as much as $188 billion in mortgage money in the bank.

The CSR study used mortgage origination data from “several major financial institutions” and was funded by the American Financial Services Association (AFSA), a group of industrial banks, auto finance institutions, mortgage lenders, finance companies, credit card issuers and others providing credit to consumers and small businesses.

“There is some evidence that if the Fed doesn’t drop rates by the end of the year, we’ll be in a crisis,” Colpitts said.

The Fed is busy with regulatory matters.

• The Federal Reserve Board has set June 14 for fifth public hearing on the Home Ownership and Equity Protection Act (HOEPA) frequently called upon to curb abusive lending practices.
• The hearings come after months of related testimony before Congress from industry and government officials, as well as consumer advocates.
• Also making the rounds, is the “Proposed Statement on Subprime Mortgage Lending” by the same group of federal monetary regulators that rewrote the rules on nontraditional home loans and equity loans.
• Those rules, “Interagency Guidance on Nontraditional Mortgage Products” and “Credit Risk Management Guidance For Home Equity Lending” were years in the making and some lenders not federally regulated slipped under the radar.

Less regulated state level lenders are, in part, why there’s more regulatory action to attempt to manage the mortgage morass.

Colpitts says it won’t matter if stiffer rules are written or if no rules are written.

“The consensus among economists is that the Feds just haven’t acted fast enough to do anything. If they do anything, it will be too little too late,” he says, comparing the current home loan landscape with the savings and loan scandal of the late 1980s and early 1990s.

But comparing the bail out then with the fury of foreclosures now is a lot like comparing prime mortgages with subprime mortgages.

There are a few similarities between the two events, but they include fraud, foreclosures and an economic drain.

Today, by and large, the soaring rate of foreclosures is more directly associated with poorly underwritten loans.

According to “An Examination of the Banking Crises of the 1980s and Early 1990s” by the Federal Deposit Insurance Corporation, which was spawned of another era of bank failures, during the bailout, layers upon layers of bad investing and poor banking habits were exacerbated by true real estate depressions in the Southwest, California, Florida and the Northeast.

One of the first responses to the problems then actually came with deregulation, not more regulations, as are on the drawing board now.

And, with the current administration and U.S. Congress preoccupied with a national election, immigration and a war potentially costing the economy more than $2 trillion, failing lenders will be hard fought to find anotherhalf trillion dollar bailout cache — the estimated cost of the bailout.

Most Resilient U.S. Real Estate Markets

By Matt Woolsey, Forbes.com

June 11, 2007

When it comes to real estate, the questions on everyone’s lips are: How low is low, and when’s the perfect time to buy back in?

That moment has passed in Seattle and Charlotte–both metros hit bottom in the first quarter of 2006 and have since posted price gains of 12.3% and 6.3%, respectively, according to National Association of Realtors (NAR) data.

Ripe for investment? Philadelphia and New Orleans. Based on housing inventory and local economic conditions, both should hit price troughs by year’s end and bounce back with moderate gains around 4% in 2008.

In Pictures: America’s Most Resilient Real Estate Markets

In markets expected to recover more slowly, such as Boston and Denver, low buyer confidence coupled with a surplus of housing stock has lengthened the slump. NAR chief economist Lawrence Yun points out that buyers are looking for clear signs of a market bottom and are content to wait on the sidelines until then.

It’s easy to see why. Most of the country’s real estate markets are feeling the effects of overproduction. A strong market hovers near a 1.5% vacancy rate, but the national average currently stands at 2.8% and in cities such as Miami, Atlanta and Denver, figures hang around 3.5%. In addition, every nugget of good news (a May Commerce Department report said that new-home sales are at a 14-year high) comes with bad news (median price growth is at a 10-year low).

So which other metro area markets stand the best chance of recovery, and when will that upturn occur?

Behind The Numbers

Market corrections follow three basic recovery patterns. A V-shaped recovery where a market experiences a sharp, fast decline but comes out strong once it hits bottom; a U-shaped recovery, where prices decline gradually and recover slowly; and an L-shaped curve, a hard, fast fall with paltry price bounceback following the market trough.

The differences between a V-shaped market and a U-shaped one has to do with barriers to growth. High vacancy rates and high investor share can hurt a market, but if the local economy remains strong and housing stock affordable it’s only a matter of how long it takes to absorb the excess inventory.

Tampa is a perfect candidate for a V-shaped recovery, according to research from Moody’s Economy.com, an economic analysis, forecasting and credit risk firm. The local economy remains strong, and subprime lending is relatively low. Tampa’s problem? A high investor share that lead to high vacancy rates. When the market turned sour in 2005, more than 25% of Tampa homes were owned as investment properties. Investors are quicker to flee during a downturn, thus creating a glut of available housing stock. In Tampa’s case, vacancy rates now stand at 3.5%.

“As investors exit, the market revives,” says Mark Zandi, chief economist at West Chester, Pa.-based research firm Moody’s Economy.com, as fewer speculative buyers results in a more stable market. “Tampa’s a pretty affordable market and first-time buyers can come in once prices fall.”

In the market for a seven-figure home? How much domain your dollar will net depends on where you look. Based on Moody’s Economy projections, Tampa should burn off its excess inventory and hit a price trough in the first quarter of 2008, at which point prices are expected to increase by 10.6% the following year.

These projections take into account housing affordability, vacancy rates, the strength of the local economy and job market, investor share in 2005 and the share of subprime mortgages. Data comes from Moody’s, the Bureau of Labor Statistics and the Federal Reserve’s Home Mortgage Disclosure Act.

Predicting the bottom of any asset market, especially real estate, is a difficult thing. While these projections are based on sound data and advanced modeling by Moody’s, no one can predict futures markets with absolute certainty.

Other Bounce Backs

Like Tampa, Phoenix is similarly afflicted by high investor share (26.1%) and it has a vacancy rate over 3%. Good affordability rates and a surging job market suggest that once Phoenix bottoms out, price growth will be strong. Moody’s projection model has Phoenix reaching its price trough in the fourth quarter of 2008 and then growing by 7.7% the following year.

Slower recovery rates are expected in markets such as Minneapolis and Boston, where a slumping local economy, slow job growth and negative migration numbers hamper long term prospects. Along with other U-shaped markets like Sacramento, that have double-digit subprime lending share, Zandi says it’s going to be harder for these markets to get going again.

That doesn’t necessarily mean V-shaped markets are in the clear. The labor markets in cities such as Las Vegas, Phoenix and San Diego, whose future economic success will be critical to recovery, are heavily in housing-related industries, according to Moody’s. So long as those economies can weather their respective corrections, they should be all right.

“These markets are going to experience more substantial declines in the coming year,” says Zandi. “Gauging the bottom is a very intrepid affair and the job market is very important to recovery.”

Dean Foust

Anyone have an agent horror story like this one?

It is very easy to make mistakes when selling your home, but taking the proper precautions can result in, more money in your pocket. Don’t take my word for it…read this story to get an inside look at how a bad realtor can take money out of your wallet.

t’s been more than eight years since my wife and I sold our house in Alexandria, Va., and moved to Atlanta, where we still live. And I still seethe over the agent who sold our house. It was the first time we’d ever sold a house — this was our starter home, a 2,700-square-foot center-hall colonial — and I still vividly remember the night we received our first formal offer. It was our starter home (for which we’d paid $216,000, back when you could still do that in Washington D.C.), the local market had flat-lined during the seven years we’d owned it, but we still felt confident we’d get close to the $235,000 we were asking.

Our first formal offer came from a junior NATO officer on the very day after we listed it. His agent showed up at 7 p.m. that night, settled in at our dining room table, made his spiel and then offered…$226,000 and the buyer wanted us to cover $6,000 in closings costs to boot. If we didn’t accept it, he said his client was prepared to simply walk away and bid on a house in Burke.

My wife and I were dejected at the price, but when the agent walked outside, our agent turned to us and pressed us hard–really hard–to take the offer. “I think we need to work with them,” he implored. “Don’t let them walk away. Let’s work with them.” The other agent returned, and my agent–in front of the other agent–pressed us hard to take the offer. “You’re starting your new life in Atlanta in a few weeks and you should take their offer so you can wrap things up here,” he said in front of the other agent. So much for out agent representing our interests.

We got the buyer to nudge his price up by $2,000, but we ‘d never done this before. I had that small pang that maybe this WOULD be the only offer we got and in the end, we capitulated.

And the next morning I had seller’s remorse. Another agent dropped by that afternoon after seeing the “For Sale” sign in the yard, we told her the price we’d accepted but still let her look around. After a walk through she said, “Oh honey, you just GAVE your house away. You should have gotten $250,000. Your decorating is fabulous.”

In hindsight, I felt that I’d been negotiating against three people–the buyer, his agent AND MY OWN AGENT….

I fumed, but I’d already signed the contract. I turned my anger against my own agent. I concluded that he was one of those agents that made a fat income by maximizing “turns”–squeezing his client to take a quick offer so he could flip the house in less than a week and move on to another client. (Adding to our angst is the fact that the Washington market took off like a rocket in 2000 and similar houses on our old street now go for upwards of $650,000 or $700,000. I’ve gotten over it but my wife hasn’t.)

When our agent called us in Atlanta (when we were on our own house hunting trip) a couple days later after the home inspection and rattled off a list of a half-dozen minor repairs and improvements the buyer was demanding–which collectively, would add up to more than a thousand bucks–I said, “Pay for it all yourself. And frankly, I hope you don’t, because I’d like the contract to fall through so I can fire you and hire a new agent.” And I hung up on him. I contemplated taking the sign he hung out front of homes he’d just gotten a contract for, which said, “(His name) SOLD ANOTHER ONE!” and defacing it to read, “(His name) DUMPED ANOTHER ONE!”

Our agent paid for the repairs out of his own pocket to save the deal–and his commission. So I had to honor the contract. But to this day, I still can’t see straight when I think of him. When our family vacationed at Sea Pines in Hilton Head a couple of years ago, I discovered that he’d bought a three-bedroom townhouse two doors from the one we were renting, and he was there with his family (the personalized plate on his car was the giveaway). My wife stopped me from going over and giving him a piece of my mind. “We’re on vacation, let it go,” she said.

Am I being irrational? Yeah, probably. Admittedly, over a lifetime of home ownership and investments, $10,000 or $20,000 will be a mere rounding error in our net worth. And I realize I’m going to get no sympathy from those many homebuyers who have seen their homes drop by $25,000, $50,000 or even $100,000 from what it was worth a year ago. And some homeowners now own a home that is worth less than they paid for it.

But to me, it was the principle of the matter. Our agent wasn’t intent on getting me the highest price possible–as was his fiduciary obligation–he was hell-bent on flipping a house within 24 hours after he listed it so he could move on quickly to his next client.

Anyone else have any agent horror stories? I created this thread to give fellow homeowners a place to vent, so have at it. Consider this a form of group therapy, so you too can excise your own real estate demons along with me.

And to give equal time to agents–just so you think I’m allowing our readers to take cheap shots without giving you equal time–feel free to post the habits that drives you crazy about buyers or sellers. Maybe creating a dialogue here will help us all find common group. Maybe all this therapy will help me get over my experiences with that agent from eight years ago. Heck, maybe an agent will tell me to just shut up and get over it.

“Green” Garden Adds Value to Your Home
by Phoebe Chongchua

Spring is in the air, at least out here in sunny San Diego, California. And that has homeowners thinking about a landscaping makeover. A tastefully landscaped yard can not only create a soothing environment for you but also add value to your home when it comes time to sell. And there’s yet another landscaping benefit that’s richly improving yards and our environment.

“It is becoming so mainstream to do composting. People of all ages are doing it,” says Joni Gabriel, composting program manager at Solana Center for Environmental Innovation in Encinitas, California.

The concept is catching on the same as more green-built homes are being produced these days by builders. The driving force is the fact that landfills are in some areas overflowing with garbage that could have been recycled and put to good use. Composting takes what otherwise would have wound up in landfills and repurposes it in residential yards.

“Compost needs four ingredients for the process to be successful: it needs a good supply of carbons or what we call browns, a good supply of nitrogen or greens, and then it needs air and water,” says Gabriel.

There are two styles of composting: active or passive. Much like the way money works, if you are actively pursuing it and working at it you are likely to produce more, however, passive money streams eventually add up too! In the case with composting, if you are actively out in your yard putting food scraps and other biodegradable materials in it, adding leaves, keeping the pile moist, and turning the entire concoction, then in a matter of two to three months you’ll produce beautiful soil to use in other areas of your garden.

The passive style is, of course, less work. It involves setting up a composting area or purchasing a bin to place your scraps and other materials inside and then simply making sure that there is enough air, water, and leaves to keep the decomposing process going. However, this method will take approximately six to nine months or more before the contents have broken down and you actually have a rich soil amendment to use.

Whether you use a compost bin or you set aside a portion of your yard to start the process, Gabriel says the benefit is highly rewarding. She also believes that should you decide to sell, a compost area is a benefit not a drawback.

“People who compost really get into it and get attached to their bins and often when they [move] they take their bins with them, but there are those who build areas in their yards that are specifically for composting. They’re areas that are more permanent — and to have a compost site left could be something that would be desirable to somebody who moved in, especially because the compost saves people money,” says Gabriel.

She says over time if the buyers kept up the composting it would help to offset the costs of purchasing soil amendments and fertilizers.

It doesn’t matter whether you own a single-family home, a condominium, or even an apartment complex. As the adage goes, “where there’s a will there’s a way” — so it is with composting. Many cities and states across the country are helping to facilitate the process by offering low-cost composting bins. Some bins are actually tumblers that have a hand crank to make turning the concoction easier. Still others might be on wheels to move the compost around your yard or even some disguised to look like a dog house. All have easy ways to put the materials inside.

In fact, according to Gabriel, areas such as New York City are leading the way in composting programs; California actually lags behind a little. Yard space is not an absolute necessity.

“What people typically do when they’re in an apartment, a condo or a high rise is they do worm composting and I know that sounds really icky and creepy but it’s not,” says Gabriel.

The mere thought of worms is enough to make some people not want to compost. But give Gabriel a chance to explain how much this method can help improve your landscape and save you money. Most gardeners are likely familiar with Black Gold or worm castings to help support and nourish their gardens. It’s just one expense that adds up but Gabriel says a better solution is to do worm composts and produce your own castings, “Maybe for $10 a pound you would buy worm castings whereas if you make one investment in worms for $10 or $15, you can be producing your own castings.”

Lest you think this is something only for the purest environmentalists, Gabriel is quick to point this out, “People are really doing this. This is no longer a kooky marginal thing. There are office buildings in Los Angeles, some city office buildings, where employees have worm bins sitting right by their desk.

So whether it’s your home or your office, there’s nothing wrong with a few worms hanging about.

Phoebe is writer, speaker, and author. She is the Director of Business Development for Quality Service Certification and a trainer in customer service for the real estate industry. She is a Realtor with The Guiltinan Group, a division of Prudential California Realty.

Her articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, and Rancho Santa Fe Review in San Diego. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe’s writing is also featured in Donald Trump’s book: The Best Real Estate Advice I ever Received. She is the author of If the Trash Stinks, TAKE IT OUT! 14 Worriless Principles for Your Success available at Barnes&Noble.com, Amazon.com, and at PhoebeChongchua.com.

Contact Phoebe at: 858.259.3646 or email her at mail@phoebechongchua.com for more information.

When Your Neighbor’s Trees are on Your Property
by Stuart Lieberman

Do you know where your property line is located? If your property was surveyed correctly and you have markers in the ground, you probably know.

But if you don’t have the property lines marked — how do you really know?

If your neighbor has a fence, don’t assume that the fence is on the property line. It may be on the line. It may also be a few inches into your neighbor’s property.

Or your neighbor’s fence may be partially or entirely located on your property.

The same applies to trees and landscaping at the end of your property. What if they are on your neighbor’s property, but have grown onto your property? What if the tree that you thought was on your neighbor’s property, is half on your property and half on his or her property? And what if is diseased, or needs pruning, or needs to be cut back?

These issues re-occur all of the time. Property lines exist on maps, not in real life. So people often make innocent mistakes in placing landscaping and fencing. These overlaps are called encroachments.

What should you do about the encroachment? First and foremost, you generally should take some action.

In some states, the neighbor can actually secure real title to your property if he can prove you knew about the overlap for a specified period of time (often around 21 years) and took no action. A neighbor’s successor (the next owner) may also have this legal right.

So at a minimum, you may need to take some kind of action to demonstrate that you are not foregoing ownership and that your kind attitude should not be confused with acquiescence or not caring.

Very often, there are cooperative ways of addressing these issues. For example, in the case of tree encroachments, you may not have to cut or move the tree.

Trees are usually good things and cooperative arrangements can be simply made to secure the well being of the tree. This includes maintaining the tree and pruning, etc. It’s a kind of tree joint custody arrangement.

The same applies to fencing and to areas of over pavement. While the ownership problem must be acknowledged, and while the parties should agree on actual ownership, the resolution does not have to be destructive.

In certain instances, when appropriate, an easement can be prepared which allows one neighbor to continue to use and benefit from the encroached property. Sometimes money is exchanged for the easement (perhaps enough for taxes, maintenance and insurance).

In certain instances, lot lines can be changed to eliminate the problem altogether.

This is an area where you should consult with a local lawyer, one that understands property law in your state.

Often solutions are easy and inexpensive. Sometimes they are more involved.

Almost always, a peaceful solution is available that does not have to be destructive. And it does not have to turn a good neighbor relationship into something less than desirable.

However, where amicable solutions are not apparent, courts will entertain and resolve these issues. From a personal standpoint, I believe that neighbor to neighbor court disputes should always be avoided.

But if that is not feasible, courts will provide finality in these areas.

Stuart Lieberman, Esq. writes about environmental issues. He was a New Jersey Deputy Attorney General assigned to the State Department of Environmental Protection from 1986 - 1990. Currently he is a shareholder in the environment law firm of Lieberman & Blecher, P.C., located in Princeton, New Jersey. He can be reached at slieberman@liebermanblecher.com.

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Home’s Value Helps Owner with Financial Planning
by M. Anthony Carr

It’s the illusive question for many a homeowner in today’s market. “What is my home worth?” Homeowners need to know this information for many reasons. While there may not be a primary purpose, determining the value of your house can be useful in many financial decisions you’ll make in the future.

The value of the house determines your buying power, tax bill, insurance premium and other financial planning aspects of your life. Let’s look at each of them separately.

1. Real estate investing: When a homeowner wants to sell the house, it’s not just that he wants to walk away with the most money and win the “I sold my house for more than you” award. It’s mainly so he or she can move up to another property with as small an increase in monthly payment as possible. If you’re scaling back, it would be wonderful if the price of your house, and the profit made from it, would actually pay for a home outright.

If the seller is moving up, he or she obviously wants as much from the transaction as possible to help with the down payment, closing costs and possibly even various debt reduction of other liabilities — auto loans, school expenses, consumer debt, etc. In addition, if you want to start investing real estate, a line of credit from your equity could be an option.

2. Your tax bill: The value of the house will also affect how much a homeowner will pay in taxes over the next year. This tax assessment process, however, is different jurisdiction to jurisdiction. For the Washington, D.C. area, it is assessed nearly every year. However, some jurisdictions across the country don’t get assessed for years, therefore, the tax bill is stable for that time period.

In today’s leveling home prices, the value of a house will save homeowners money each month on their mortgage payment since it means a lower tax bill, and thus, a lower monthly escrow payment.

3. Insurance purposes: If your house burns down, Lord forbid, you’ll need to know the value of your house for rebuilding purposes. This number is more than likely going to be different than the “market” value of a house. The cost to rebuild your house will usually be lower than the amount a homeowner could clear from the sale of the house. Nevertheless, it’s a good idea to periodically call your insurance company to make sure you are insured enough to rebuild or repair your house in case of damage or destruction.
4. Cash-out refinancing: Many refinancing programs allow homeowners to use equity from the house for cash. You may want to remodel or finish the basement, build an add-on to the structure, consolidate debt, send a kid to college or even retire, but that money coming back to you at settlement will depend, first of all, on the value of your house. Then, it will depend on your income and ability to repay the lender for the cash-out from the mortgage. Some people have a lot of equity in their house but will never be able to gain access to it until they sell the home because to borrow the equity in a mortgage is prohibitive since they don’t have the income to qualify for a higher payment.

For those who are nearing retirement, they could consider a reverse mortgage where the lender pays them in monthly payments for the equity (ergo, reverse mortgage); and then the mortgage is paid off once the house is sold, just like a traditional mortgage. Thus, the value of the house will help determine the annuity payout for the homeowner.

Finally, the equity in your house can be used to help determine your net worth. Your assets minus your liabilities determine your net worth. With that in mind, it’s important to remember that every time you pull cash from your equity, you’re depleting your net worth.

Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: http://commonsenserealestate.blogspot.com.