RealtyTrac: Share of Foreclosure Home Sales Declines, Discounts Deepen

RealtyTrac has released its year-end 2010 foreclosure sales report, which shows that foreclosure homes accounted for nearly 26 percent of all U.S. residential sales last year, down from 29 percent of all sales in 2009 but up from 23 percent in 2008.

The tracking firm defines a foreclosure sale as the sale of a property that occurs while the home is actively in some stage of foreclosure, including a pre-foreclosure short sale, a home sold to a third party at foreclosure auction, or an REO sale. It does not include property transfers from the owner in default to the foreclosing bank or lender.

RealtyTrac’s report also shows that the average sales price of these foreclosure properties was more than 28 percent below the average sales price of properties not in the foreclosure process – up from a 27 percent average discount in 2009 and 22 percent in 2008.

According to the company’s analysis, a total of 831,574 U.S. residential properties either owned by banks or in some stage of foreclosure sold to third parties in 2010. That’s down 31 percent from the number of foreclosure homes sold the year prior. Meanwhile, RealtyTrac says the sales volume of non-foreclosure properties in 2010 decreased nearly 19 percent from 2009.

Foreclosure sales during the final part of last year were impacted by robo-signing issues and the foreclosure moratoriums that followed from several major servicers. RealtyTrac reports that 149,303 foreclosure sales were

recorded in the fourth quarter of 2010, down 22 percent from the previous quarter and down 45 percent from the fourth quarter of 2009. That comes despite a 21 percent monthly uptick in foreclosure sales volume in December.

James Saccacio, RealtyTrac’s CEO, points out that fourth-quarter foreclosure sales volume hit its lowest level since the first quarter of 2008, and in addition to the foreclosure paperwork controversy that hit at that time, he attributes the decline to stifled demand from the expired homebuyer tax credit.

Still, Saccacio notes that foreclosures continue to represent a substantial percentage of all U.S. residential sales. “The catch-22 for 2011 is that while accelerating foreclosure sales will help clear the oversupply of distressed properties and return balance to the market in the long run, in the short term a high percentage of foreclosure sales will continue to weigh down home prices,” he said.

Breaking down foreclosure sales by type, RealtyTrac reports that a total of 512,886 REO properties sold to third parties in 2010 at an average discount of 36 percent. REOs accounted for 16 percent of all sales last year.

A total of 318,688 pre-foreclosure properties — in default or scheduled for auction — sold to third parties last year, with an average discount of 15 percent. Pre-foreclosure sales accounted for nearly 10 percent of 2010 home sales.

Nevada (57 percent), Arizona (49 percent), and California (44 percent) posted the highest percentage of foreclosure sales in 2010.

Other states where foreclosure sales accounted for at least one-quarter of all sales were Florida (36 percent), Michigan (33 percent), Georgia (29 percent), Idaho (28 percent), Oregon (28 percent), Illinois (26 percent), Virginia (25 percent), and Colorado (25 percent).

Ten states posted foreclosure discounts of more than 35 percent, led by Ohio, with an average discount of nearly 43 percent, and Kentucky, where foreclosures sold for an average discount of 40 percent. The eight other states are: Tennessee, California, Pennsylvania, Illinois, New Jersey, Michigan, Georgia, and Wisconsin.

Bank of America Establishes New Unit to Handle Defaulted Loans

Bank of America announced Friday that it has set up a new operational division to deal with problem loans and resolve investors’ mortgage repurchase claims.

The newly formed unit, which the company has labeled Legacy Asset Servicing, will service all defaulted loans and discontinued residential mortgage products. It will be led by Terry Laughlin.

Laughlin will oversee the bank’s mortgage modification and foreclosure programs, in addition to his existing duties of resolving residential mortgage representation and warranties repurchase claims.

In addition, Laughlin is charged with leading BofA’s borrower outreach program to include more than 400 housing rescue fairs in 2011, building additional homeowner assistance centers in communities across the country, and expanding partnerships with nonprofits.

The decision to establish a new, separate division to handle the company’s problem loans came out of the North Carolina bank’s very recent, and very public, robo-signing

quandary, which prompted reviews of hundreds of thousands of case files and a nationwide suspension of all Bank of America foreclosures and REO sales.

The bank said in a statement that the issues that came to light in September and October of last year led the company to initiate a “self-assessment of default servicing.”

“While the review of the foreclosure process found that the underlying grounds for foreclosure decisions has been accurate, Bank of America implemented a series of improvements – including staffing, customer impact, and quality controls,” the company said.

Barbara Desoer, Bank of America Home Loans president, will continue to oversee the servicing of the company’s more than 12 million mortgage customers who remain current on their accounts, as well as the mortgage origination side of the business.

“This alignment allows two strong executives and their teams to continue to lead the strongest home loans business in the industry, while providing greater focus on resolving legacy mortgage issues,” said Brian Moynihan, BofA’s president and CEO. “We believe this will best serve customers – both those seeking homeownership and those who face mortgage challenges – as well as our shareholders and the communities we serve.”

Bank of America also said Friday that it is exiting the reverse mortgage origination business, citing “competing demands and priorities that require investments and resources be focused on other key areas of our business.”

Bank of America Home Loans will continue to serve the needs of existing reverse mortgage customers and those with loans in process.

GSEs’ Foreclosures Outnumber Modifications More than 2 to 1 in Q3

For every home loan held by Fannie Mae and Freddie Mac that was modified during the third quarter, 2.3 loans were foreclosed on during the same period.

The GSEs’ regulator, the Federal Housing Finance Agency (FHFA), released its quarterly foreclosure-prevention report to Congress on Tuesday. The document showed that together, Fannie and Freddie initiated foreclosure on 339,000 home mortgages during the July to September timeframe. Loan modifications completed in the quarter totaled 146,500.

Foreclosure starts and completed foreclosure sales increased 23 percent compared to the previous quarter. Loan modifications declined 14 percent, with the majority of modifications completed through non-HAMP [Home Affordable Modification Program] programs.

Despite the falloff in the number of loans modified, FHFA sees improvement in the companies’ efforts. The regulator

says loans modified in 2010 are performing “substantially better” than loans modified in earlier periods. According to the report, less than 10 percent of loans modified in the last three quarters were 60-plus-days delinquent three months after modification.

FHFA points out that the performance of modified loans is driven by the size of borrowers’ monthly payment reductions. More than half of the borrowers that received loan modifications in the third quarter had their monthly payments lowered by over 30 percent.

All the GSEs’ foreclosure prevention actions – including loan mods, as well as short sales, deeds-in-lieu, repayment plans, and forbearance – totaled 227,300 during the quarter.

Total activity was down 16 percent from the second quarter, driven primarily by decreases in loan modifications and repayment plans. Short sales and deeds-in-lieu held steady quarter-over-quarter, at 29,500 and 1,700, respectively.

The number of loans the GSEs refinanced rose sharply in September, as mortgage rates plunged to historic lows. The two companies refinanced nearly 45,000 loans through the government’s Home Affordable Refinance Program (HARP) and nearly 90,000 through other streamlined refi programs during the month.

Of the 29.9 million home loans held within Fannie Mae’s and Freddie Mac’s active books of business at the end of the third quarter, 2.2 million were delinquent, with nearly 1.3 million falling into the seriously delinquent bucket of 90 or more days past due or already in foreclosure.

Defaulted Borrowers File Lawsuit Against Wells Fargo

By: Joy Leopold Printer Friendly View

The law firm of Harwood Feffer, LLP announced last week that it has filed a class action lawsuit against Wells Fargo Bank and its servicer, America’s Servicing Company (ASC).

The lawsuit was filed in the United States District Court for the Northern District of California.

The case alleges that ASC induced borrowers to default on their mortgages by telling them they would not be eligible for a loan modification if they were current on payments.

Harwood Feffer claims ASC induced borrowers to default on their mortgages in order to charge penalty and fees associated with the late payments.

“As a loan servicer, ASC generates a significant portion of its revenue from fees, penalties, and interest collected on the non-performing loans it services,” said Harwood Feffer in a statement.

The statement continued, “Consequently, it is in ASC’s financial interest to avoid, delay, and deny loan modifications and to pursue foreclosures because doing so will lead to increased revenue.”

According to the Home Affordable Modification Program guidelines, a borrower who has not defaulted but is distressed and believed to be facing imminent default may be eligible for a loan modification if financial hardship can be demonstrated.

“By making loan default a prerequisite for modification, without regard to whether a borrower otherwise qualified for a modification due to financial hardship, ASC caused borrowers to unnecessarily suffer ruined credit and subjected them to significant fees, penalties and interest,” alleged Harwood Feffer.

A spokesperson for Wells Fargo said he could not comment specifically on the lawsuit as it is currently under review, but said, “We believe, as we have from the beginning of this crisis, that it is in our customers’ and the country’s best interests to assist customers who can afford their homes – with some help – to remain in them. And, it is our goal to exhaust all options before moving a home to foreclosure sale.”

How Rising Interest Rates Will Impact Affordability


on November 11, 2010

In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today’s record-low interest rates made this the best time to buy homes in fifty years. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”  Why should we care what Paulson thinks? Well, he was among the few to accurately predict the subprime collapse and, while no one has a crystal ball, a closer look at the numbers supports his call to action.

Historically low interest rates are the key…and they aren’t likely to hang around for long.

As we wrote in SHIFT, buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.

To figure out which was a smarter bet–counting on home prices to fall further or interest rates to rise–our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here’s what we found:

  1. A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
  2. A one percent rate increase more than offsets a ten percent reduction in home prices.
  3. When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
  4. The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.

Interest rates have dominated the news in recent months as we’ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy, trade up, or invest, our current market presents a lifetime opportunity.

This Month in Real Estate

This Month in Real Estate

With Millions of Foreclosures on Horizon, Should States Mandate Mods?

BY: Carrie Bay

The foreclosure crisis is far from over. According to figures released by the Center for Responsible Lending (CRL), since the crisis took hold, 2.5 million homeowners
have already lost their homes and another 5.7 million are at imminent risk of foreclosure. Looking ahead, the nonprofit research group says it’s projected that between 10 and 13 million foreclosures will have occurred by the time this crisis abates.

The federal government has implemented a mixed bag of foreclosure-prevention programs over the past two years in the hopes of stemming the tide, even incentivizing all parties involved, from lenders and servicers, to investors and the homeowners themselves. But housing analysts, watchdog groups, and industry insiders agree, they’ve yet to hit on a silver bullet solution.

CRL argues that the power to stop unnecessary foreclosures and stabilize local housing markets lies with state legislatures. With exclusive control over their state-specific foreclosure laws, the Center says lawmakers should impose mandatory loss mitigation standards for all servicers prior to foreclosure.

A recent study by the State Foreclosure Prevention Working Group found that “nearly three years into the foreclosure crisis…more than 60 percent of homeowners with seriously delinquent loans are still not involved in any loss mitigation activity.”

In a report written by Sara Weed, a policy attorney at CRL, and Sonia Garrison, a senior researcher for the organization, the Center outlines its proposal for state policymakers to apply “common sense standards to any actor pursuing foreclosure.”

The authors argue state legislatures should mandate that mortgage servicers assess whether foreclosure is in the financial interest of the investor before proceeding to foreclosure.

To be effective, CRL says this mandatory loss mitigation standard should be combined with a requirement that the foreclosing party provide homeowners with a loss mitigation application in tandem with any pre-foreclosure notice or pre-foreclosure communication.

If after the loss mitigation assessment the servicer opts to move forward with foreclosure, the authors recommend states institute a requirement that the foreclosing party

submit an affidavit disclosing their specific reasoning for the denial of a loan modification, including the inputs and outputs of any loss mitigation calculations.

In addition, homeowners should be granted a defense to foreclosure (or equivalent right in non-judicial foreclosure states) based on failure of the foreclosing party to engage in a “good faith review” of foreclosure alternatives, according to CRL.

“The reality is that many of these foreclosures can and should be avoided. All too often, troubled mortgages are sent to foreclosure, driven by a system biased in favor of foreclosure sales over sustainable loan modifications, even when foreclosure is more costly,” the authors wrote.

The report notes that borrowers seeking a loan modification are often told that they have been denied due to “investor restrictions.” However, a recent CRL research report points out that modification is more often than not a win-win for the investor and the borrower.

The Center says in fact, investors themselves often claim that they are not standing in the way of modifications and have voiced concerns that servicers are not acting in their best interest either.

According to the authors of the report, “spillover” costs extend throughout the neighborhood and the larger community. CRL estimates that by 2012, the foreclosure crisis will strip neighboring homeowners of $1.9 trillion as foreclosures drain value from nearby homes, pushing even more borrowers underwater on their mortgage.

Meanwhile, state and local governments continue to be hit hard by declining tax revenues coupled with increased demand for social services, according to CRL. The Urban Institute estimates that a single foreclosure costs $79,443 after aggregating the costs borne by financial institutions, investors, the homeowner, their neighbors, and local governments. But the Center says even this number understates the true cost, since it does not reflect the impact of the foreclosure epidemic on the nation’s economy.

“We cannot afford to wait any longer for the housing market to stabilize itself. If implemented quickly, states can prevent unnecessary foreclosures before it is too late,” authors Weed and Garrison said in the CRL report.

The recent news of some servicers circumventing state laws to push foreclosures through quickly has brought every attorney general in the country together and pitted them directly against the servicing community as one powerful and determined force.

Some attorneys general have come out and said mandated loan modifications may be considered as part of a settlement with servicers who’ve filed improper foreclosure affidavits. But such a stipulation would only apply to those foreclosure cases where documentation was found to be defective, and it’s expected servicers will put up a strong fight against such terms.

How the foreclosure mess may affect homeowners, buyers and sellers

By Kenneth R. HarneyOctober 17, 2010

Reporting from Washington —

You’ve probably seen the headlines about the fast-spreading foreclosure mess — moratoriums on home sales, calls for congressional investigations, and state and federal litigation in the wings.

But what could all this mean to you as a homeowner, buyer or seller? It all depends on your situation.

For example, although you might not be delinquent on your mortgage, the bank-owned house down the street that has been sitting vacant and in poor maintenance for months may not be resold for an extended period to new owners who would make needed repairs. If the house becomes a long-term eyesore, this could negatively affect neighborhood property values.
In fact, it’s possible the evicted former owners are hiring a defense attorney to look through documents for evidence of irregularities in processing by the bank that could throw the entire foreclosure into question and stall any resale for additional months.

“The phones are ringing off the hook,” said Ronald Scott Kaniuk, a foreclosure and bankruptcy law specialist in Boca Raton, Fla. “People know that the banks haven’t been playing fair” on foreclosures and have cut corners through mass “robo-signings” of documents rather than proper reviews, he said. The coming tidal wave of private and public litigation against banks could stall foreclosures indefinitely, Kaniuk believes.

The sheer numbers of houses and families potentially affected are huge. According to data researcher RealtyTrac, lenders filed for foreclosure on about 339,000 homes nationwide in August alone. During the same month, banks took back about 95,000 homes for eventual resale. Roughly 5 million households are somewhere in the foreclosure process, according to industry estimates — they’ve received notices of default and are on the conveyor belt to foreclosure and eviction.

Even without mass litigation gumming up past and future foreclosures, the process often is not a speedy one, especially in the 23 states where courts must approve each foreclosure. In the slowest states, the full cycle can take more than 500 days from the first filing to the sale.

Based on conversations with legal, banking and real estate experts, here are some of the potential scenarios and issues emerging from the national foreclosure mess. Say you fit into one of these categories:

Recent buyer of a foreclosed home. There’s a chance that the bank’s foreclosure processing could be found to have been improper or that the bank did not adequately document its legal title to the house. What does this mean for you? First, , did you take out title insurance? If you financed the purchase, it’s virtually certain the mortgage company required at least a lender’s policy that covers title issues affecting its collateral. The title insurance underwriter will go to court, if necessary, to defend the lender’s interest and compensate it for any legitimate losses. But if you did not take out an owner’s policy, or bought for all cash, you could find yourself defending your investment on your own.

Financially distressed homeowner who recently received notice of a foreclosure filing from the bank. What to do? Peter J. Henning, a professor at Wayne State University Law School, says now more than ever it is crucial to ask an attorney to review all documents you receive. Henning says that banks have been sloppy in their high-volume processing of foreclosures. “They often seem to have sort of a ‘good enough for government work’ approach,” he said, “because they assumed nobody was watching.” The foreclosure crisis, which Henning calls “hydra-headed” in its wide-ranging effects, should force banks to be more careful in future foreclosures, he said.

Homeowner behind on payments but has not yet received a foreclosure notice. According to Ira Rheingold, executive director of the National Assn. of Consumer Advocates, which provides support to foreclosure legal assistance programs, this may be a propitious time to demand a loan modification — even a substantial principal reduction — from your loan servicer. The nationwide foreclosure mess “might shake up the banks enough to convince them to finally become real partners” in devising workable solutions for distressed borrowers — “forcing them to deal with the reality they’ve created,” Rheingold said.

For their part, some of the country’s largest banks insist that their foreclosures have been proper and that foreclosed borrowers typically are severely delinquent. Bank of America says that its average customer who goes to foreclosure has not made mortgage payments for 18 months.

Real Estate: Is It a Renters’ Market or Time to Buy?

By JANET MORRISSEY Janet Morrissey Wed Oct 13, 11:10 am ET

The stalled economy, expiration of homebuyer tax credits, marked-down home prices, stubbornly high unemployment and concerns about a double-dip recession all leave prospective homebuyers wondering if now is the time. Is it time for renters to convert to buyers and for existing owners to grab that dream home on the cheap? Or will housing get even cheaper?

Home prices have plunged about 30% from their mid-2006 peak on average, with some areas, like Las Vegas, seeing prices plummet in excess of 60%. At the same time, foreclosures have continued to rise in 2010 from their 2009 historic highs and have pressured prices further. (See high-end homes that won’t sell.)

Buyers who are eyeing condos and townhomes in particular might want to check out Trulia’s latest rent-vs.-buy index, which tracks 50 of the country’s largest markets. It offers a breakdown on cities that offer the best buying opportunities and those that are still renters’ markets.

According to Trulia, a real estate search engine, the best markets for bargain condos are Arlington, Texas; Fresno, Calif.; and Miami. Others in the top 10 include Mesa, Ariz.; Phoenix; Jacksonville, Fla.; Detroit; Columbus, Ohio; El Paso, Texas; and Nashville. Some of these cities are among the markets hit hardest by the boom-and-bust phenomena, foreclosure crisis and job layoffs, says Tara-Nicholle Nelson, consumer educator at Trulia.

The firm calculates the price-to-rent ratio by comparing the average listing price of a condo or townhome with the average rental rate of two-bedroom apartments and condos on Trulia. Basically, the calculation takes the median price of the condo in a market and divides it by the annual rental payments generated on a similar property.

When it comes to renting, New York City real estate ranked first on the list as being cheaper to rent than to own although rents there have been on the rise recently. The Big Apple was followed by Seattle and Forth Worth. Rounding out the top 10 renters’ markets are Omaha; Sacramento; Kansas City; Portland, Ore.; San Diego; San Francisco; and Boston. (See pictures of Americans in their homes.)

Nelson says she was particularly surprised that condos in Omaha, Fort Worth and Kansas City were more expensive to own than to rent. She attributes this to lower unemployment rates and affluent families paying up, which kept condo prices up. Some cities avoided the housing bubble, she says, another reason prices have held.

Still, even if the broad rent-vs.-buy ratio favors renting, prospective buyers should take into account other factors, such as how much prices have fallen from their peak, potential tax advantages and the length of time the buyer plans to live in the property, Nelson cautions. For someone who isn’t looking to flip the property for a quick buck – those days are over, aren’t they? – and plans to stay in a home for 10 years or until they’re hauled off to the grave, buying now could make financial sense even in some of the renters’ markets, she says.

In recent months, there have been signs that housing may finally be bouncing along the bottom. The Standard & Poor’s/Case-Shiller composite home-price index shows prices rose, albeit modestly, for the past few months, and some major lenders, such as Bank of America, GMAC Mortgage and JPMorgan Chase, have put foreclosures on hold in 23 states over record-keeping issues. All of this indicates price declines may stall – at least temporarily.

But Alex Barron, founder of Housing Research Center LLC, remains bearish on buying. He expects prices to fall another 10% to 30% before the sector bottoms out. Inventory has increased since the expiration of the homebuyer tax credit, he notes. Barron speculates that once mortgage rates start ticking up, home prices will likely tumble. “Prices will correct 10% for every one percentage point the mortgage rate goes up,” he says.

Foreclosures are also pressuring prices. Barron notes that bank repossessions totaled 718,000 in the first eight months of 2010, up 23% from the record 584,000 during the same period a year ago. He speculates that once the current foreclosure suspension is lifted, a flood of foreclosures could hit the market. That added supply will likely cause another correction in home prices.

Industry Completes 149,000 Permanent Loan Mods in August: Report

New data released by the HOPE NOW Alliance Thursday shows that during the month of August, mortgage servicers completed approximately 116,000 proprietary

loan modifications for homeowners and 33,000 mods under the Home Affordable Modification Program (HAMP), for an estimated total of 149,000.

Of particular note in the August report, is that 91 percent of all proprietary loan modifications for the month – 105,000 – included a reduction of borrowers’ monthly principal and interest payments.

According to HOPE NOW, this statistic indicates that the vast majority of loan modifications are being structured to make mortgages more sustainable for homeowners.

Based on the organization’s market data, mortgage servicers have completed 1.3 million loan modifications so far in 2010, and almost 3.7 million since 2007.

Faith Schwartz, senior advisor for HOPE NOW, commented, “HOPE NOW is encouraged by the ongoing efforts of its servicing members to seek and provide workout solutions for distressed homeowners. Homeowners and loan servicers are using all available avenues for preventing foreclosures, including utilizing a combination of forbearance, HAMP modifications, proprietary modifications, and even short sales and deed in lieu efforts.”

Additionally, HOPE NOW’s data continues to see declines in 60-day-plus mortgage delinquencies, which has been a positive trend showing up in the monthly report since January 2010.

As of the end of August, there were 3,256,682 mortgages at least two months past due, according to HOPE NOW. That’s down from 3,298,236 in July.

The report also shows that foreclosures are continuing to increase, despite the strides made in foreclosure prevention efforts.

HOPE NOW reports that foreclosure starts increased from 226,664 in July to 245,015 in August. Completed foreclosure sales were up from 97,951 to 101,780 for the month.