Amherst Securities Group issued a report suggesting that programs designed to support short sales could be the most effective loss mitigation approach, as they minimize loss severity. “In all cases, the loss severity on the short sale is 15-20% less than on the foreclosure sale,” Amherst researchers reported. Amherst researchers also said the Hope-for-Homeowners (H4H) program is a “powerful alternative” to the Home Affordable Modification Program (HAMP). Amherst researchers point to H4H’s ability to mimic the impact of short sales, such as a one-time loss on the loan, which provides a softer loss severity than foreclosure sales.
Borrowers completing the H4H program become re-equified and refinanced into a new Federal Housing Administration-insured mortgage, while HAMP provides capped incentives to servicers to modify mortgages in danger of foreclosure. The US Treasury Department then adjusts the HAMP incentive caps based on the level of actual participation. Plans for the “new and improved” H4H program could be released within the next two months, resolving enough issues to maximize the net present value of loans in bank portfolios but “unlikely” to be used for loans in private label securitizations, according to the report.
Fannie Mae speeds up cash to lenders
Fannie Mae will expedite its help to warehouse lenders that provide funding to small lenders. “We’re providing faster funding to lenders so that they get cash immediately after closing to continue funding loans,” Fannie president and CEO Michael Williams said in a speech to the Exchequer Club. Fannie Mae purchases loans from small lenders and packages them into mortgage-backed securities, but it has traditionally taken a month or longer for the lender to get the funds from that sale. With Fannie providing the payment immediately, the lender can turn around and extend more loans to consumers faster.
Today Fannie, along with its government-sponsored enterprise brother Freddie Mac provide about 70% of the mortgage market’s total liquidity, with the Federal Housing Administration (FHA) providing an additional 20% and private institutions take care of the rest. Williams said it’s reasonable to expect an increase in foreclosures later this year as those suspended by the various moratoria resume and the backlog of foreclosures continues to be worked out, and that when modification isn’t an option, Fannie will make it easier to process short sales and deeds in lieu of foreclosure for distressed borrowers.
FDIC encouraging banks to lower payments on unemployed
The Federal Deposit Insurance Corp. said on Friday it is encouraging banks to reduce mortgage payments for the unemployed or underemployed for at least six months. The move would only apply to a handful of institutions that bought failed banks and participate in loss-share agreements with the FDIC. In these deals, the agency covers some of the losses incurred on the assets of the failed banks. Some 53 institutions, mainly regional or community banks, have entered into those arrangements since January 2008.
Economist claims more banks will fail and housing prices decline
Economist Nouriel Roubini, chairman of RGE Monitor and economics professor at New York University's Stern School of Business, says the economy faces a threat of a "double-dip" recession and at best a slow-growth U-shaped recovery. It's going to be death by a thousand cuts…the financial system is severely damaged, and it's not just the banks." Roubini predicted more than 1,000 financial institutions could fail before all is said and done, and that housing prices are likely to fall another 12 percent in the next year – 40 percent overall since the market began its steep decline – leaving about half of all homeowners owing more on their mortgages than their houses are worth. "The gap between supply and demand is so huge we could stop producing new homes for a year to get rid of all the inventory," he said. "This price adjustment, in my opinion, is going to continue for another year."
Another speech tonight
U.S. President Barack Obama will entertain us tonight – again – in a wide-ranging speech in which he will try to reinvigorate stalled legislation on regulatory reform. An administration official said it would also include a call for global coordination to prevent future financial crises. "President Obama will discuss the administration's plan to wind down government involvement in the financial sector, lay out a strong case for immediate action on regulatory reform and reiterate the importance of global coordination in preventing future crises. He will also urge the financial community to take responsibility, not only to support reforming the regulatory system but also to avoid a return to the practices on Wall Street that led us to the financial crisis, and to recognize their obligation to help produce a wider recovery on behalf of the American people."
Now on to our real estate education section...
Time
Ticking away the moments that make up a dull day
You fritter and waste the hours in an off-hand way
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way
Tired of lying in the sunshine staying home to watch the rain
You are young and life is long and there is time to kill today
And then one day you find ten years have got behind you
No one told you when to run, you missed the starting gun
And you run and you run to catch up with the sun, but its sinking
And racing around to come up behind you again
The sun is the same in the relative way, but you’re older
Shorter of breath and one day closer to death
Pink Floyd
Stop & Ask…Are You More Wealthy Today than Yesterday? What about a year ago? Do you have more time and money? How are you really doing in this race we call life?
According to a Census report released a few weeks ago, most Americans are not better off than they were a few years ago…in fact, the median family income fell by over $2,000 annually.
What’s even worse, this news reflects census data from 2007 – the most recent data the government has compiled. Stop and allow this to sink in a bit; median household income actually fell by $2,000 during a relatively steady and prosperous economic era. Once you factor in inflation, the number was even worse…bringing the typical family down to pre-1998 levels. Just imagine what is taking place after the recent rise in unemployment, downsizing and other cut-backs.
Here are a few relevant facts every short sale investor should keep in mind:
U.S. GDP shrank well over 2% while unemployment races toward double-digits.
The median household income – not adjusted for inflation – fell to $50,300 in 2007 and is expected to drop substantially more once data for the current economic downturn becomes fully available.
Over 13% of Americans lived in poverty by 2008...a point higher than during 2007 and expected to climb substantially during 2009. For those fortunate souls that don’t know what the official poverty level is...hold on to your hat; it’s a mere $22,025 per year for a family of four! Yes, you read that right…for a family of four persons.
Should you fall on tough times, what type of help can you expect to receive from your good old Uncle Sam? Maybe $400 in unemployment benefits for a few months but even those will be reduced by any amount you make by working. Ditto goes for food or other forms of assistance assuming you can even qualify. The simple truth of the matter is that many people fail to “qualify” for any form of assistance even during a desperate downturn in their own personal financial situation.
On the other hand, many short sale real estate investors never need to worry about a government sponsored safety net or jumping hoops trying to get by on meager subsidy payments because they have created their own source of income via real estate. Whether buying to hold for the long term or flipping for a fast profit, short sales have generated substantial income potential far above and beyond that of the typical American family. Case in point, the average rent for a 3 bedroom home is $820 per month or $9820 per year. Just five paid in full properties could generate nearly enough rental income to equal the median household income exclusive of price appreciation. Better yet, that same income does not require getting up five days a week to spend most of your time in a cubicle or other 9 to 5 grind plus provides distinct tax advantages.
Take stock of how you are spending your time…it is productive and leading to the creation of real wealth that allows you sufficient time and income to enjoy life or are you merely getting by while growing older, broke and one day closer to death?
Why wait any longer when you have finally found the source of inspiration and information capable of showing you a new and better way? Try it and see for yourself or fall in line behind the rest of the crowd seeking solace from their own quiet desperation.
Moody’s Commercial Property Price Index down
According to the Moody’s REAL Commercial Property Price Index (CPPI), commercial real estate property prices slipped 5.1% in July, down 30.8% from the same time last year. The month’s decline put values 38.7% below the October ‘07 peak, and sales counts also declined from the previous month, with just over 300 transactions totaling $3.6bn in July. The Eastern region is holding up better than the rest of the nation in apartment prices, but are at their lowest recorded level in the Southern region. San Francisco’s office property market was hit the hardest, declining 27% over the past year. Florida’s apartment index continues to fall, already down nearly 50% from its peak. The deteriorating commercial property prices come at the same time a Moody’s Economy.com analyst projects at least another decade will pass before housing prices return to peak 2006 levels.
Commercial mortgage-backed securities rally
The market for commercial mortgage-backed securities (CMBS) rallied last week following new guidelines addressing loan modifications within real estate mortgage investment conduits (REMICs). The new tax rules may increase modifications within CMBS by lifting a tax penalty on changes made to commercial mortgage pools after their inclusion in a securitization vehicle. The reach of the new rules may not go very deep, and won’t likely help some underwater borrowers, according to researchers at Bank of America Securities - Merrill Lynch (BAS-ML). “[O]ur view is that for loans that are deep underwater, and there are many of these, the new guidelines would not help,” BAS-ML researchers said in market commentary. “Loans where the borrower is already turning over the keys and not even attempting to initiate discussions with the servicers come to mind.”
SSA raises verification fees – encourages fraud?
The Social Security Administration (SSA) plans to raise its fees for verifying mortgage borrowers’ identities, from $0.56 to $5.00 per verification on October 1. While this may seem to be simply another one of the cash squeezes on the private sector, Rep. Kay Granger (R-Texas) pointed out in a letter to SSA commissioner Michael Astrue that the fee increase has the potential to discourage lenders from using the administration’s Social Security Number Verification Service (SSNVS), and open the door for mortgage fraud abuse. Jay Meadows, CEO of Rapid Reporting agrees: “With lower loan production and lenders’ increased focus on cutting costs, this fee increase could have a highly detrimental impact on the mortgage industry, as well as the US and global economies. While unfortunate, it’s a definite possibility that lenders will avoid using these higher priced CVSB-based Social Security number authentication, even though it’s a reliable way to protect against ident
ity fraud.”
Unemployment driving foreclosures, but personal debt down
Data from the Equifax credit bureau suggests that high unemployment is pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures. A record 7.58 percent of homeowners with mortgages were at least 30 days late on payments in August, up from 7.32% in July. August saw the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace. By comparison, 4.89% of mortgages were 30 days past due in August 2008, and in August 2007 the rate was 3.44%. The rate of subprime mortgage delinquencies is now above 41%, up from about 39% in each of the prior five months. August bankruptcy filings were up 32 percent from a year earlier, compared with a 35 percent year-over-year increase in July.
At the same time, however, the proportion of credit card accounts at least 60 days past due was down in August for the third straight month, while subprime card delinquencies also fell. The improvement in delinquency rates partly reflects risk-aversion among issuers, which have cut the number of cards by 82 million, or 19%, over the past year, while slashing credit limits by $721 billion, to about $3.6 trillion. Total consumer debt is down more than $300 billion, or almost 3 percent, from its peak in September 2008, said Dann Adams, president of Equifax's Consumer Information Solutions group, while the savings rate is nearing 5 percent, "a level we haven't seen in years."
Unemployment benefits extended
Over the past year, Congress has twice voted to extend unemployment benefits, and it looks like it’s going to extend them again as the recession wears on and unemployment continues to rise. Under a bill the House is set to take up today, more than a million people, living in states with jobless rates higher than 8.5%, could receive an additional 13 weeks of unemployment benefits. The extended benefits would apply to an estimated 314,000 people about to exhaust their benefits by month's end and to more than a million who will stop getting checks by the end of the year, according to the House Ways and Means Committee.
And it may not stop there...workers in other states could qualify if their state is expected to hit an 8.5% unemployment rate soon or meets other criteria. In most states, unemployed people receive 26 weeks of state-funded benefits, but depending on where they live, they will get federally funded extensions for a total of 79 weeks. The bill will be fast-tracked though the House, where it is expected to pass easily. Who is going to pay for it? The cost will be offset by extending, for one year, an employer-paid federal unemployment tax that has been in place for the past three decades, and by requiring that newly hired employees are reported with a start date, which would reduce unemployment insurance overpayments.
Now on to our real estate educational section...
Are You Living a Financial Fairy Tale?
Once upon a time, there lived a red-blooded American who was taught to study, work hard and save money in order to succeed. Assured that health, wealth and happiness would soon follow he set out to earn his way in the world with a blushing bride and bouncing baby by his side.
On the path to progress he found it increasingly more difficult to accommodate the ever changing workforce but thanks to modern machinery, his blushing bride was able to join him in the work force while leaving the baby with relatives. Their combined income was sufficient to take an annual vacation, send junior to summer camp and still have enough remaining for a few luxuries now and then.
But alas, all was not well in the land of the red, white and blue. Each year taxes took more of the combined household income while the cost of living continued to rise. The “tax free” date moved from March to April and eventually to the end of May before the average American began to earn money that would not go toward paying taxes. The husband and wife worked harder than ever as they were forced to become more productive and do the job that used to take two or even three workers. Left to his own, Junior skipped school, didn’t do his homework and routinely got into trouble. The once happy household was left tired, tense and terrified of their financial future….but why? Simple. They failed to understand the changes taking place in the world around them.
Find out if you are living a financial fairy tale or truly understand the economic reality surrounding you and your family with these simple questions:
1. Do you have more than one source of income that is not based upon working for a living?
2. Are you financially dependent upon two or more people in the household earning an income in order to pay your basic bills and set aside funds for investing?
3. Do you regularly sit down and calculate the tax consequences of working over-time, accepting a promotion or other “wage increase”.
4. Are you properly positioned for defensive economic earnings should the government increase taxation or withholding on benefits like health insurance, 401k or other long term investments?
5. Do you regularly calculate the cost of inflation five, ten and even twenty years into the future when establishing your savings and investment goals?
6. Are you hedged against liability, lawsuits and the threat of loss for both your personal and private investments?
7. Do you understand the “need for speed” when it comes to investing in tough times? Remember, the time value of money changes...make sure your investment methodology does too.
Short sales can help you achieve financial self-sufficiency without working yourself into an early grave. It’s one of the last remaining avenues available to average Americans searching for sensible investments in uncertain times.
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