Another great article - we are not out of the woods yet. This is a great opportunity for buyers.
By: Joseph Pisani
CNBC News Associate
Heated pools, ocean views and media rooms are not what most people would expect to find in a foreclosed property, but more high-end homes—priced over a million dollars—have been falling into the hands of banks this year.
Foreclosures of homes worth over $1 million began increasing at the end of 2009, according to exclusive data provided by foreclosure tracking website RealtyTrac. Foreclosures reached a high in February 2010, the last month data is available, when 4,169 homes were somewhere in the foreclosure process; either having received a foreclosure notice, had an auction scheduled or the lender took ownership of the property. That’s a 121 percent increase from a year ago.
The deterioration comes just as housing experts say that foreclosures in the low- and mid- ends of the housing market are showing signs of stabilization.
“They were able to stave off foreclosure longer,” says independent real estate analyst Jack McCabe, CEO of McCabe Research and Consulting in South Florida. “Lower-end homeowners were the first ones to see the escalating foreclosures because they generally do not have the cash reserves or credit available that the luxury homeowners do. They had the ability to take their credit cards and pull out thousands of dollars while the lower end buyers were already tapped out.”
McCabe expects to see foreclosures in the high-end market to increase into 2011.
Though the RealtyTrac data is not available on a regional or metropolitan basis, anecdotal evidence indicates the problem is cropping up across the country. Of course, the high-end and luxury categories vary widely from market to market. In some suburban areas of the Northeast and California, for instance, million-dollar homes are fairly common, but nationwide, they represent only 1.1 percent of the overall housing stock.
“We have seen an increase, in the million-plus range, of the number of foreclosures and short sales in the greater Chicago area,” says Jim Kinney, vice president of luxury home sales at Baird and Warner.
He says that of the 295 million-dollar, single-family properties sold in the January-April period this year, 37 were either a foreclosure or short sale (when a bank and homeowner agree to sell the home for less than the loan is worth). During the same period a year ago only 10 of 231 fell into those categories.
In the Fort Myers, Fla. area, a second-home market for the wealthy, Mike McMurray of McMurray and Nette and the VIP Realty Group, says he has seen a few foreclosed homes on the market compared to none last year. He’s currently showing a 4,800 square-foot, $3.65 million home on Captiva Island, where foreclosures are usually very rare. The bank-owned home has five-bedrooms and access to 150-feet of Gulf coast beachfront.
“There are more we see coming down the pipeline,” McMurray says.
Data shows that that may be the case around the county. The 90-day delinquency rate on home loans worth over a million dollars hit a high in February at 13.3 percent, higher than the overall rate of 8.6 percent, according to real estate data firm First American CoreLogic. Foreclosure proceedings generally begin to start after a homeowner has been at least 90 days late on a mortgage payment, experts say.
One difference in the high-end market is that lenders are willing to do more to head off a foreclosure by either renegotiating the loan or accepting a short-sale transaction, which is essentially a last-ditch effort.
“Lenders are far more likely to go the short sale route,” says Andrew LePage, an analyst at real estate research firm DataQuick. “There’s a lot more money at stake, and maintenance can be high if a foreclosure just sits there.”
A $1.15 -million condominium in Chicago in the landmark Palmolive Building started was initially offered as a short sale but , after a buyer did not materialize, is now owned by the bank , says Janice Corley, founder of Sudler Sotheby’s International Realty who’s currently listing it. The condo has lake views and a long list of luxury-building amenities including a steam room, doorman and gym.
The rise in foreclosures has one Las Vegas real estate agent flying prospective buyers into the city via private jet for free. Luxury Homes of Las Vegas and JetSuite Air teamed up to offer the complimentary trip for buyers flying from Los Angeles to view three foreclosed homes priced between $4.9 and $6.1 million.
Agent Ken Lowman said he gave three tours over a one-week period and hopes to expand the offer to buyers from other West Coast cities.
There’s just too much competition, says Lowman. “It takes an innovative approach like this to get results.”
Tuesday, May 25, 2010
Thursday, May 20, 2010
Nine Years to Dig Out of Home Foreclosure Inventory
It may take nine more years for banks to dig out of the current home foreclosure backlog.
At this point there are so many bank-owned foreclosed homes that it would take almost nine years to clear out the housing inventory. That time frame doesn’t even begin to take into consideration the additional homes that are likely to also enter the backlog while the current inventory of foreclosed homes gets cleared out.
“How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.
“As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
“Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years.”
As we already know, this predicament already includes the government programs at work to artificially improve the situation. For example, the Home Affordable Modification Program, or HAMP, was shown a recent report from the Special Inspector General for the Troubled Asset Relief Program to be operating because, “supporting home prices is an explicit policy goal of the Government.” When this support slows down, and stops altogether, the foreclosed inventory could end up taking a lot longer than nine years to clear out.
At this point there are so many bank-owned foreclosed homes that it would take almost nine years to clear out the housing inventory. That time frame doesn’t even begin to take into consideration the additional homes that are likely to also enter the backlog while the current inventory of foreclosed homes gets cleared out.
“How much should we worry about a new leg down in the housing market? If the number of foreclosed homes piling up at banks is any indication, there’s ample reason for concern.
“As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.
“Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years.”
As we already know, this predicament already includes the government programs at work to artificially improve the situation. For example, the Home Affordable Modification Program, or HAMP, was shown a recent report from the Special Inspector General for the Troubled Asset Relief Program to be operating because, “supporting home prices is an explicit policy goal of the Government.” When this support slows down, and stops altogether, the foreclosed inventory could end up taking a lot longer than nine years to clear out.
Wednesday, May 19, 2010
Dropouts rise in White house loan modification program
The number of homeowners dropping out of the Obama administration's main mortgage assistance plan is growing, and is now almost equal to the number who have received permanent relief.
More than 299,000 homeowners had received permanent loan modifications as of last month, the Treasury Department said Monday. That's about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.
However, the number of people who started the process but failed to get their mortgages permanently modified rose dramatically in April.
To complete the program, borrowers must make at least three payments on time. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. That's up from about 155,000 a month earlier.
Many borrowers are still stuck in limbo, unable to complete the process and caught up in a bewildering bureaucracy, housing advocates say.
"These mortgage companies have to get it together," said Henrietta Thompson, housing coordinator with United Family Services in Charlotte, N.C. "We're not getting anything done."
Most analysts say the administration's program has yet to make a dent in the foreclosure crisis, and critics say it is merely delaying an inevitable surge in foreclosures. But officials insist the program is helping the housing market turn around.
"The number of homeowners receiving significant relief through a mortgage modification continues to rise," Phyllis Caldwell, chief of Treasury's homeownership preservation office said in a statement.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Mortgage companies get up to $75 billion taxpayer incentives to reduce borrowers' monthly payments.
But there have been problems from the start. One of the big ones: Initially, borrowers were able to state their income verbally and provide proof of their income later. That jammed up the system as many borrowers didn't provide a complete set of documents, and some complained that their information was lost.
Treasury officials have directed lenders to shift to a new system. Starting with loan modifications that go into effect June 1, they are required to collect two recent pay stubs at the start of the process. Borrowers will have to give the Internal Revenue Service permission to provide their most recent tax returns, rather than submitting the returns themselves.
Among those who have completed the program, 3,744 borrowers, or 1.3 percent, have dropped out, up from about 2,900 a month earlier. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.
Borrowers who don't get help will likely end up losing their homes. That can happen through foreclosure. Another option is a short sale, which is when banks agree to let borrowers sell their homes for a reduced price if they owe more than it's worth.
To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.
Mortgage companies will now have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it. That's a big change from current practice. Lenders generally don't calculate how much money they are willing to accept until they have an offer in hand, causing long delays.
The new program will boost short sales this year, but 80 percent of distressed sales this year are still likely to be foreclosures, estimates Celia Chen, senior director of Moody's Economy.com.
More than 299,000 homeowners had received permanent loan modifications as of last month, the Treasury Department said Monday. That's about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.
However, the number of people who started the process but failed to get their mortgages permanently modified rose dramatically in April.
To complete the program, borrowers must make at least three payments on time. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. That's up from about 155,000 a month earlier.
Many borrowers are still stuck in limbo, unable to complete the process and caught up in a bewildering bureaucracy, housing advocates say.
"These mortgage companies have to get it together," said Henrietta Thompson, housing coordinator with United Family Services in Charlotte, N.C. "We're not getting anything done."
Most analysts say the administration's program has yet to make a dent in the foreclosure crisis, and critics say it is merely delaying an inevitable surge in foreclosures. But officials insist the program is helping the housing market turn around.
"The number of homeowners receiving significant relief through a mortgage modification continues to rise," Phyllis Caldwell, chief of Treasury's homeownership preservation office said in a statement.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years. Mortgage companies get up to $75 billion taxpayer incentives to reduce borrowers' monthly payments.
But there have been problems from the start. One of the big ones: Initially, borrowers were able to state their income verbally and provide proof of their income later. That jammed up the system as many borrowers didn't provide a complete set of documents, and some complained that their information was lost.
Treasury officials have directed lenders to shift to a new system. Starting with loan modifications that go into effect June 1, they are required to collect two recent pay stubs at the start of the process. Borrowers will have to give the Internal Revenue Service permission to provide their most recent tax returns, rather than submitting the returns themselves.
Among those who have completed the program, 3,744 borrowers, or 1.3 percent, have dropped out, up from about 2,900 a month earlier. Most of those borrowers likely defaulted on their modified loans, but a handful either refinanced or sold their homes.
Borrowers who don't get help will likely end up losing their homes. That can happen through foreclosure. Another option is a short sale, which is when banks agree to let borrowers sell their homes for a reduced price if they owe more than it's worth.
To encourage more of those sales, the Obama administration is giving $3,000 for moving expenses to homeowners who complete such a sale or agree to turn over the deed of the property to the lender.
Mortgage companies will now have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it. That's a big change from current practice. Lenders generally don't calculate how much money they are willing to accept until they have an offer in hand, causing long delays.
The new program will boost short sales this year, but 80 percent of distressed sales this year are still likely to be foreclosures, estimates Celia Chen, senior director of Moody's Economy.com.
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