Next Up: McMansion REOs!

HREU Students, many of you who sell in higher end areas are now experiencing the full blunt of the housing crash. Here is a great article from Bloomberg.com that describes what is going on in two of the countries most prestigious places to live…Newport Beach California and The Hamptons.

Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, California, in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

“It’s just wait and see right now,” Dayton said.

Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

‘Trickle Up’

“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Connecticut. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”

Jumbo loans are larger than what government-controlled Fannie Mae and Freddie Mac will buy or guarantee, currently $417,000 in most areas. Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.

Subprime loans were made available to borrowers who never proved they could make monthly payments on time. The loans accounted for more than 20 percent of the U.S. mortgage market in 2005, up from less than 8 percent in 2003, according to Inside Mortgage Finance.

Subprime Implosion

Defaults by subprime borrowers began rising in 2007. Since then, financial institutions that had bet on earning cash flow from home loans packaged into securities have announced credit- market losses and writedowns of almost $1.4 trillion, data compiled by Bloomberg show.

Among all homeowners, 21.8 percent were underwater in the first quarter, Seattle-based real estate data service Zillow.com said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.

The U.S. government has lent banks $392 billion to stem the losses through its Troubled Asset Relief Program. Another $12.4 trillion was spent, lent or guaranteed by the government and the Federal Reserve to stop the longest recession since the 1930s.

Loan Losses

About $500 billion of prime-jumbo mortgages are bundled into bonds, according to Memphis, Tennessee-based FTN Financial. In February, JPMorgan Chase & Co. analysts John Sim and Abhishek Mistry in New York almost doubled their projections for losses on those mortgages to as much as 10 percent because of increasing defaults.

Foreclosures have come to the Hamptons, the beach towns about 100 miles east of New York City on Long Island, where homeowners have included Blackstone Group LP Chief Executive Officer Stephen Schwarzman, hedge fund manager John Paulson and Goldman Sachs Group Inc. CEO Lloyd Blankfein.

Almost 90 borrowers entered the foreclosure process in the towns of East Hampton and Southampton in the first 10 weeks of 2009. That compared with 109 in the same period last year and 73 in the first 10 weeks of 2007, according to the Real Estate Report in West Islip, New York.

Hamptons Sales Fall

Home sales in the Hamptons fell 67 percent in the first quarter from a year earlier, the most since records were first kept in 1982, according to Town & Country Real Estate of the East End LLC. The median sale price slid 28 percent from a year earlier.

Rule changes spurred by rising defaults now require lenders to work with delinquent New York homeowners before beginning the foreclosure process, said Pat Ammirati, president of the Real Estate Report.

“There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” said Andrew Laperriere, Washington-based managing director at research firm International Strategy & Investment Group. “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”

Short Sale?

Dayton said he financed the purchase of his home, 40 miles south of Los Angeles in Orange County, with a payment-option adjustable-rate mortgage now serviced by JPMorgan’s Washington Mutual. The option allowed him to pay less each month than the interest on the loan, with any unpaid amount added to his debt.

Realtors, the best solution for homeowners like Mr.Dayton is often a short sale. Learn how to easily list and sell short sales. In every market across the US knowing how to do short sales is no longer optional. Watch the FREE Agent Short Sale Secrets video and download the FREE Agnet Short Sale Secrets book NOW.

Dayton refinanced in February 2007 with a $1 million loan from Washington Mutual, and used some of the proceeds for business expenses, said Robin Milonakis, his agent at Altera Real Estate in Dana Point, California. He also took out two private mortgages and now has a balance of $106,000 on those loans, she said.

Dayton went into default on Jan. 29 and owes $46,584 in delinquent payments and penalties, according to First American CoreLogic, a Santa Ana, California-based mortgage data firm. Dayton said he’s found a buyer willing to pay $950,000.

The foreclosure process typically takes about a year. That means jumbo-loan defaults, which are climbing at the fastest pace in at least 15 years, will increase over the next year, according to LPS Applied Analytics in Jacksonville, Florida.

Goodbye Jumbo

President Barack Obama’s Homeowner Affordability and Stability Plan has no provision to help jumbo mortgage borrowers. The plan focuses on shoring up home loans eligible to be bought by Fannie Mae and Freddie Mac, also called conforming loans.

“The government has thumbed their noses at people who have jumbo mortgages,” said Steve Habetz, president of Threshold Mortgage Co. in Westport, Connecticut.

The share of U.S. homes in the foreclosure process that are valued at more than $729,750 increased to 2.83 percent this year through March 10 from 2.21 percent in the same 10 weeks of 2008, according to RealtyTrac. In the same 10-week period, the share of homes valued at $417,000 or less in foreclosure fell to 87 percent from 89.7 percent in 2008, RealtyTrac said.

Price Slump

California is hardest hit by luxury-home foreclosures. More than 1,500 borrowers with properties in the state that once sold for more than $1 million defaulted on their mortgages in February, said Mark Hanson, managing director of the Field Check Group, a real estate company in Palo Alto, California.

About 3 percent, or 254,745, of the state’s 8.5 million houses are assessed for more than $1 million by county assessors, according to San Diego-based MDA DataQuick, a real estate monitoring company.

While sales for all homes in the state increased 2.5 percent last year from 2007, sales of homes valued at more than $1 million declined 43 percent to the lowest since 2003, MDA DataQuick reported. Part of the reason is falling prices as California’s median home price dropped 41 percent in February to $247,590, according to the state’s Association of Realtors.

Another explanation may be stricter lending guidelines, Hanson said.

“You have to have income of $250,000, a 20 percent down payment and near perfect credit to buy a $1 million home now, so the number of buyers isn’t what it was,” Hanson said. “There just aren’t enough buyers to sop up supply. We’re seeing the collapse of the high-end market.”

‘What to Do’

Values have taken longer to decline in more affluent areas, taking some homeowners by surprise, said Philip Tirone, president of Los Angeles-based Mortgage Equity Group Inc.

“People are coming to me to do a refinance or buy another property, and what they thought they had in the equity of the home they don’t have and they don’t know what to do,” Tirone said.

Delinquencies are caused by people who owe more on their mortgages than their houses are worth, said James McLauchlen, a broker and appraiser in Southampton, New York, for James R. McLauchlen Real Estate Inc. and Hamptons Appraisal Service Corp.

“They throw their hands up and say I’m not going to kill myself trying to take care of this debt,” McLauchlen said. “Some folks work hard to make payments. Others just can’t pay. They offer a deed in lieu of foreclosure and off they go.”

Dayton said he doesn’t know when he’ll restart his drywall business, which he shut down in November for lack of work.

“This market is not even close to bottoming out, in my opinion,” Dayton said. “It continues to drop.”

Source: Bloomberg

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Harris Real Estate University.

HREU Students and future students….don’t say we didn’t tell ya so!

Breaking News: A new report was just released that disclosed the results of the much applauded Hope For Homeowners program. Harris Real Estate University students have been hearing from their coaches for months that the only true hope for homeowners is…..fellow Realtors.

No government program is ever going to replace the relationship between the homeowner and the Realtor. Realtors must do everything in their power to learn now what this market demands……so they can be the real….Hope For Homeowners.

Here is the article from CNN Money.

If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

“As it stands now, we’ve only gotten 752 applications,” said Federal Housing Authority spokesman Brian Sullivan. “And only insured one loan. Needless to say, the program isn’t working terribly well.”

Rep. Michael Castle (R – Del.), who sits on the House Financial Services Committee, agreed, calling HOPE “one of the most failed programs we’ve had in a long time.”

Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama’s Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.

Will more government programs make a difference? Have they so far, NO. Realtors are the only true hope for homeowners. Learn how-to help homeowners avoid foreclosure. Watch this free Agent Short Sale Secrets video now. Learn how to easily list and sell short sales.

Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D – Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.

The Senate is expected to vote on the bill in the next few weeks.

The original program called for lenders to voluntarily refinance delinquent mortgages by reducing the principal balance on loans to 90% of a home’s current market value. The new 30-year, fixed-rate loans would then be backed by the FHA. Under the new plan, lenders would only have to write it down to 93%.

Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That’s a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000.

Lenders simply won’t do that very often. They prefer to use term extensions or interest rate reductions to help make mortgage payments affordable for at-risk homeowners. As a result, most of the big lenders refused to participate in the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations.

“Writing down principal is the last thing you want to do because you have to realize the loss immediately,” said Paul Leonard, a spokesman for the Housing Policy Council, a coalition of mortgage lenders.

The program has also failed, Leonard added, because of the conditions and limits the program imposed. Borrowers, for example, had to agree to pay the government 50% of any future profits they made from selling the property. Under the new version of HOPE, borrowers would no longer have to split any earnings with Uncle Sam.

Other changes include incentive payments to servicers of $1,000 to induce them to participate.

The Congressional Budget Office now projects that HOPE for Homeowners could help just 25,000 mortgage borrowers over the next 10 years at a cost of $675 million.

Despite those modest numbers, Leonard said that the members of Housing Policy Council want to keep HOPE for Homeowners on the table even though the administration’s Homeowner Affordability and Stabilization Plan does much more than HOPE.

Besides reducing mortgage payments through interest rate reductions or term extensions, HASP provides for lowering mortgage principals – the only thing that HOPE offers.

Still, the tool would be in the box even if “the administration’s plan would be the first thing [lenders] look at,” Leonard said. 

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Dear Tim and Julie

Thanks to the coaching calls and the Agent REO Secrets Coaching class I am still working hard!

I have a seller who wanted to wait until January to put her property on the market, Harris Real Estate University gave me the push to get it listed now and not to wait until the holidays were over.

Good thing because their is already alot of interest in the home by buyers. It is motivating me to try to get 2 more listings that the sellers are also waiting until after the holidays! I hope it all works out and that December becomes my best money month!
Thanks,
Michelle Lussier
Prudential Prime Property

Michelle Lussier
Realtor , Reo Specialist
Thank You for you Referrals
Helping people buy or sell a home in Massachusetts,Rhode Island, and
Connecticut
–
Michelle Lussier REALTOR
Certified REO

Prudential Prime Properties
971 Providence Road, Whitinsville, MA 01588
508-612-5144 Direct  *  Office Fax  *  508-234-0005

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For those Realtor Coaching Students who have high end sellers…this article is for you.

As you know, many higher end seller think their properties are immune to the housing crisis….Not SO!

Here is a great article from Bloomberg that you should share with your higher end selllers…maybe this will help them to see the light.

The U.S. housing crisis arrived on July 14 at Stonebrook Court, the 26,000-square-foot Tudor-style home of California venture capitalist Kelly Porter. On that day, four months after putting the house on the market, he cut the price by $7 million.

It’s still for sale.

The mansion sits on 7.5 acres in Los Altos Hills, a Silicon Valley town where Yahoo! Inc. co-founder and Chief Executive Officer Jerry Yang also lives. It boasts a wine cellar, Venetian- inspired ballroom, Italian statuary and swimming pool. At the reduced price of $38 million, the property is a bargain, the owner says.

“It’s worth every bit of $45 million, and I reduced it reluctantly,” said Porter, 45, a partner at Woodside Capital Partners LLC in Palo Alto, in an interview. “We touched up every square inch.”

The pain of the worst housing slump in a quarter century is reaching the highest end of the market as owners of luxury homes from California to Florida, New York and Connecticut slash list prices by millions. In the broader market, home sales plunged to a 10-year low in the second quarter and median house prices fell 7.6 percent, according to the National Association of Realtors.

“The upper end is not immune to this decline,” said Kenneth Rosen, chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley. A worsening economy means “these people will have less wealth and they will spend less.”

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Lower List Prices

A 10,340-square-foot home in San Francisco’s Pacific Heights neighborhood is for sale at $14.8 million, 17 percent below last year’s asking price. A 153-acre property with a vineyard near the Napa Valley sold in February for $14.7 million, 8 percent off the price last year. A home in Marin County’s Tiburon, a town where tennis star Andre Agassi used to live, was acquired in August for $900,000 less than the $7 million list price in 2007.

Tightening Standards

The same tightening of lending standards that has made it harder for ordinary Americans to finance and purchase property has also affected those who don’t need a mortgage, said David Lichtman, 45, chief credit officer of First Republic Bank, a San Francisco-based private bank and unit of Merrill Lynch & Co.

“You have smart buyers seeing a softer market, looking to negotiate a good price,” Lichtman said. “Nobody wants to overpay.”

Luxury home prices in the second quarter fell 3.8 percent in Los Angeles and 7.8 percent in San Diego from a year earlier, while gaining 0.2 percent in San Francisco, according to a First Republic property index. The measure tracks a group of houses costing more than $1 million in the three areas.

High-end sellers must lower asking prices by 20 percent compared with a year ago, when initial listing prices didn’t reflect stricter credit conditions, said James Chalke, a broker at Nelson Shelton & Associates in Beverly Hills.

Trump’s Price Cut

An 11-bedroom property in the Bel Air section of Los Angeles, the neighborhood where actor Leonardo di Caprio and actress-singer Jennifer Lopez live, didn’t attract potential buyers until the asking price dropped by $10 million, to $35 million, Chalke said.

Donald Trump’s Palm Beach, Florida, estate, originally listed at $125 million, sold for $95 million in July, the Palm Beach Post reported July 16. Trump, 62, paid $41.35 million in 2004 and renovated the property, according to the newspaper.

Charles Prince, 58, former chief executive officer of Citigroup Inc., sold his five-bedroom home in Greenwich, Connecticut, for $5.2 million, 15 percent less than the original asking price of $6.15 million. The median price in the town fell 2 percent in June to $1.95 million, according to Prudential Connecticut Realty.

Sales of luxury Manhattan apartments are down 25 percent in the third quarter compared with a year ago, and “no one’s sure where prices will go” as Wall Street firms cut jobs, according to Hall Willkie, 59, president of the Brown Harris Stevens brokerage.

Free Bentley

The economic slowdown led Olivia Hsu Decker, of Decker Bullock Sotheby’s International Realty in Tiburon, to organize a five-day tour of 20 unsold properties in the San Francisco Bay Area that began Sept. 1. More than 100 potential buyers from the U.S., the U.K., France, Switzerland, Taiwan and Macau are attending parties and opera and symphony performances as part of the event, she said.

Decker said she will throw in a $174,100 Bentley sedan for the buyers of Porter’s Los Altos Hills property and of a 10,000- square-foot home on the tip of Belvedere Island with views of the Golden Gate Bridge, listed for $65 million. Owner Robert Friedland, chairman of Vancouver-based Ivanhoe Mines Ltd., bought the place, known as Locksley Hall, in 1995 for $5.5 million and spent $34.5 million on renovations, Decker said.

Haan, founder of the Haan Foundation for Children, spent three years redoing the six-bedroom house in Pacific Heights.

“I’m ready to let go now,” Haan said. “I’m ready to sell.”

Source: Bloomberg.

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HREU Students….we have been telling you for over a year that short sales were going to become easier and there was going to be a ‘Stream lining’ of the process….well, here it is. Also, pay special attention to the last section of this

article…’20% of all closings in last quarter were short sales’.

Here is the article…

Fannie Moves to Facilitate Short Sales

By Kate Berry (thanks Kate…Great artcle)

Fannie Mae plans to roll out a new program in the next few months to encourage short sales of delinquent borrowers’ homes, a move that shows mortgage investors may be willing to make further concessions as housing prices fall and the inventory of foreclosed properties continues to grow.

As the holder of credit risk, Fannie take losses on homes that sell for less than what is owed on the mortgage, but generally the loss is not as big as it would be if the home went into foreclosure.

Many loan servicers and some brokers of “real estate owned” — properties that have been repossessed by a lender — say the number of short sales has increased significantly in the past few months, largely because more foreclosed homes have flooded the market.

Jason Allnut, a vice president for credit loss management in Fannie’s Dallas office, said the government-sponsored enterprise is looking at ways to persuade servicers and REO brokers to do short sales while streamlining the process. “We want to incentivize the borrower with a program of preapproved short sales,” Mr. Allnut said Monday at a conference in Indian Wells, Calif., sponsored by REOMAC, a trade group. That statement drew applause from the audience of about 1,700 default servicing professionals.

Many REO brokers complained that servicers typically cut the broker commissions on short sales, compared with a 4% to 5% fee on foreclosure sales. But Mr. Allnut said: “Fannie is telling servicers not to cut broker commissions.”

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Kevin Kanouff, the president of the fixed-income services unit of Clayton Holdings Inc., a Shelton, Conn., due diligence, surveillance, and loan servicing company, said short sales used to be an “afterthought” for banks but are increasingly seen as a practical alternative to foreclosure.

Clayton has noticed “a significant increase in the number of short-sale liquidations in the past year” by clients, because servicers are getting more borrower requests to effect such sales, he said. Second liens that have negative equity positions are typically getting $1,000 to $3,000 from short sales after the senior liens are paid off, he said.

A nationwide survey of real estate agents conducted last month by Campbell Communications Inc. of Washington found that 20% of all completed home sales in the fourth quarter were short sales or preforeclosure sales. The survey, which was published this month in the newsletter Inside Mortgage Finance, found that about two-thirds of pre-foreclosure and short sales are initiated by homeowners, the rest by servicers. In all, the real estate agents surveyed said about one-third of borrowers signed short and pre-foreclosure sale deals that fell through; the most common reasons were home inspections and property damage, a refusal by sellers to sign “deficiency notes,” and sellers’ inability to pay closing costs.

In February, Freddie Mac expanded a short-sale program to include more loans with a higher likelihood of loss, said Brad German, a spokesman for the GSE. The program lets servicers submit short sales with few documents from the borrower. Late last year, Freddie authorized its Tier One servicers — those that have shown “superior performance” — to accept short sales at bigger discounts and to pay out more to junior lien holders, Mr. German said. As a result of these changes, short-sale approvals nearly doubled last quarter from the previous quarter, and closings of such sales increased by more than half, he said.

Learn How To Do Short Sales Now. Free 7 Part Short Sale Crash Course. Click HERE NOW

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