Realtor Coaching & Training: fannie mae
Interesting perspective on housing from a true real estate billionaire Mort Zuckerman.
Mr. Zuckerman made his money…in real estate. So,it would be safe to assume he would do his best to be a real estate cheerleader.. to talk up real estate…vs what he seems to do in this blog post.
Read what he has to say…and understand the ramifications of his comments…
America’s housing crisis has not gone away. If anything, it is getting more severe. Today, median single family house prices nationwide are down by slightly more than 30 per cent from their early 2006 peak. Fusion IQ, the research group, estimates that excess inventories will push prices down by a further 10 per cent. This is a critical issue because home equity was for years the largest asset on the balance sheet of the average American family.
The sheer number of empty homes overhanging the residential property market points to lower prices. There are an estimated 7m homes empty today, and an estimated 7.7m houses and condominiums behind on their mortgage payments. This is tantamount to a shadow inventory.
Agents, his estimates for potential upcoming foreclosures are the same as we have reported on this blog…15,000,000. Can there by any doubt that its NOT TOO late for you to become a REO Listing Agent? Take action now and watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book. Learn how to become a HREU RSD and get the jump on the next wave of foreclosures!
More than 4m of those are now delinquent and going through some form of foreclosure or related procedures that will put them on the market in the next year or two. Fannie Mae’s 90-day delinquency rate is now roughly 5.5 per cent, double that of a year ago.
Home sales are depressed, too, by competition from some 6m rental vacancies, or 11 per cent of total rental supply. Median asking rents have been declining by an estimated 3.5 per cent over the past year – and that is accelerating.
There is no cheer in the new residential numbers either. January’s new home sales plunged by more than 11 per cent month-on-month to an annual rate of 309,000 units, the weakest on record. It now takes a record 14.2 months to sell a finished house. In the boom years, it took about three.
Even worse, the median price for new homes sold was $203,500, almost a seven-year low, and that for existing single-family homes fell 3.5 per cent month over month to $163,600, a new eight-year low. Inventories rose to a 9.1 month supply, which on top of the shadow inventory of unsold houses and those in the foreclosure pipeline does not bode well for homebuilders or housing. Neither does the sharp decline in mortgage applications to the lowest levels since May 2007 and the rise on the 30-year mortgage rates to more than 5 per cent.
Roughly one in four mortgages today exceeds the house’s value – approximately 10.7m homes. American Corelogic, the research provider, estimates an average deficiency per home of $70,700 or an aggregate of about $800bn.
OK, this is scary. If you will recall, last week in this blog post we shared with you the new research that proved that homeowners will do a strategic default at considerably higher rates when they are…$70,000 or 25% upside down. Using Corelogic’s numbers this would result in 10.7 million potential strategic defaults!
An additional 2.3m homes had less than 5 per cent equity. The remaining equity for many other homeowners is at historic lows. With declining prices beginning to hit the middle to higher ends of the housing market, we are looking at another foreclosure wave.
….and that is what we have been predicting for over a year….agents, if even half of what this blog post were to come true..what would that mean to your real estate market…and your real estate business? Are you ready…have you learned the new 2010 Short Sale Guidelines? Hopefully you know by now that the Obama administration is focusing on making short sales the solution to the inevitable massive increase in foreclosures. Watch the FREE Harris Real Estate University CDPD Short Sale Secrets video now…and grab your free short sale book.
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More on the just released Case Shiller Home Price Index:
* US Home Prices have been rebounding since April 2009.
* Shadow Inventory…bank owned homes….are going to be a huge problem.
* Many buyers entering the market now because many people simply…feel better…more confident.
* Dr. Shiller thinks the banks Shadow Inventory could reverse the positive trend and there will be another 10% of home value loss in the next 24 months.
Agents, read this post about how to become a REO Listing Agent:
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We have been hearing from HREU Students for well over a year about this housing trend…Multi-Generational house holds.
In Europe this is normal. Travel to Italy and you will find that most families live together, sharing a home. Will be interesting to see if this is a real estate trend….due to the Great Recession…or if this is a real estate Mega Trend signifying a lasting shift in housing.
From a cultural and real estate perspective, this trend is a good thing for our country. Generally speaking, closer relationships with your family is a beneficial. If we look at this trend from a real estate perspective it makes sense that multi-generational house holds will need more space…more space means larger homes. So, there could be a light at the end of the tunnel for the savagely beaten down McMansion/ Luxury type properties. Maybe the next wave of buyers for these types of homes isn’t the traditional ‘move up buyer’ but, a multi-generational house hold buyer.
Agents, what are you experiencing? Are you working with buyers who are buying for more than just their immediate family?
More generations are living under the same roof and the trend will deepen as U.S. families grappling with near double-digit unemployment share expenses, a study showed Monday.
Demand is escalating for multi-generational housing as buyers scale down during the deepest housing crisis since the Great Depression, according to a survey by Coldwell Banker Real Estate in Parsippany, New Jersey.
Thirty-seven percent of the company’s real estate agents polled in January said that in the past year, buyers were increasingly shopping for homes that fit more than one generation.
Almost 70 percent of the agents said they expect economic conditions will drive still greater demand for this type of housing over the next year.
“More buyers are pooling investments, considering bringing mom and dad into it,” said Diann Patton, a Coldwell Banker real estate consumer specialist based in Grass Valley, California, in an interview with Reuters.
Buyers were primarily driven by financial concerns when deciding to combine generations in a household, the survey found. Health concerns were the second most common reason and strong family bonds a distant third.
Patton said one of her clients sought to bring her mother out of a health care facility. The mother and daughter pooled resources, buying a house with separate entrances with units for each and room for a caregiver.
This shift in homeownership comes as unemployment hovers just under 10 percent and many consumers are being dealt wage cuts. College graduates unable to get jobs are often returning to their parents’ homes.
Merging generations under one roof could foster more demand in the struggling move-up market, with families buying together to get larger homes than the entry-level houses some might otherwise be able to afford. Some current supports for buyers will soon end.
Borrowers eligible for a $6,500 federal tax credit aimed at move-up buyers, as well as the $8,000 first-time buyer credit, need to sign contracts by April 30 and close on loans by the end of June before these programs expire.
Downsizing also comes on the heels of massive overbuying during the housing boom earlier this decade. Many consumers bought more house than they could afford, spurring a tidal wave of late payments and foreclosures.
The government has been compelled to spur lenders to modify mortgage terms for struggling borrowers still occupying their homes. But so far, lenders have been unable to keep pace with the number of mortgages that are failing.
On the plus side, houses are more affordable after prices toppled about 30 percent, on average, from 2006 peaks and with 30-year loan rates holding near record lows under 5 percent.
Coldwell Banker, a unit of Realogy, based its online survey of multi-generational home trends on responses from 2,360 of its real estate agents.
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Looking for a clear sign that the banks are preparing for the next surges in foreclosures?…look no futher.
The lenders are living in fear that the foreclosures waves will continue for at least the next 3-5 years….and the rate of strategic foreclosures (and short sales) will only worsen the housing market. Read about the epic increase in the so-called strategic defaults here.
In addition to what you are about to read in this post..here are other ‘ideas’ we know the lenders are testing across the nation to get the previous owners to move out (or their tenants)
1) 1% cash for keys offers…and more. For example, the foreclosure amount was $500,000. The initial cash for keys offer will be for $5,000…and if the current occupant still won’t move…expect the lender to INCREASE their cash for keys offer to $10,000.
2) Freddie Mac is experimenting with mortgage reinstatements. For example, someone ‘loses’ their home to foreclosure. So, legally its no longer their home. Normally, the move out and the home becomes a REO listing. As we reported several weeks ago Freddie Mac is now offering mortgage re-instatements to those defaulted borrowers. They are able to immediately secure another mortgage FOR the foreclosed amount…and the prevailing FHA rate. Yes, this means a just foreclosed on borrower can in essence keep their home with all the negative equity (and back taxes, HOA etc) wiped clean.
3) Fannie Mae has been quietly experimenting with leases offers. Allowing the former owner to lease the home back at market rates.
Seeking alternatives to the nation’s struggling foreclosure prevention efforts, federal and mortgage industry officials increasingly are looking for ways to get distressed borrowers to leave their homes voluntarily, without going through the expensive foreclosure process or a messy eviction.
Citigroup, for instance, plans to announce a pilot program on Thursday that would allow delinquent borrowers who don’t qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition. The bank estimates that up to 20,000 borrowers in Texas, Florida, Illinois, Michigan, New Jersey and Ohio could be eligible.
I doubt if this will work. Ohio for example…a homeowner can now stay in their home for 1-2 years WITHOUT making a payment. Ohio laws (plus the huge back log of foreclosures) work to the benefit of those who can’t make their house payments. What the lenders want to do is make it so the homeowners won’t stay as long as they can….in other words, the offer to stay an additional 6 months for a Ohioan is actually not as appealing as their current options.
The program is just the latest amid a growing acknowledgment that foreclosure prevention efforts will fail to reach millions of borrowers over the next few years.
“This is a graceful way to move on with their lives instead of being foreclosed on and being evicted from their homes,” said Sanjiv Das, chief executive of CitiMortgage.
Agents, what you are reading is a crafty way for the banks to…save money. This has very little true benefit to the homeowner. Read into what is going on here…the lenders are offering homeowners….a DIL, Deed In Lieu Of Foreclosure. DILs have been an available option for borrowers but, lenders have been trying to force borrowers to apply for a loan mod etc. Agents, what lenders are doing is following the HAFA guidelines that take effect April 5th of this year….listen to the free 90 minute teleconference replay to learn about the new HAFA Guidelines NOW.
The Citigroup plan attempts to address some common industry complaints, including borrowers who leave their homes in disarray after foreclosure, requiring lenders to spend thousands of dollars fixing up the property before putting it on the market. Also, homeowners who owe far more than their homes are worth increasingly are choosing to “strategically default,” even though they can afford to pay their mortgage. The new program gives CitiMortgage more control over when distressed homes are put up for sale, bypassing clogged courthouses that have slowed the foreclosure process in many parts of the country.
Agents, lenders are offering this because of the new HAFA guidelines….be clear on that. Listen to the replay of the 90 minute Short Sale HREU CDPD teleconference now.
By avoiding a glut of foreclosures that could hit the housing market within the next 16 to 18 months, the program — if it is replicated throughout the industry — could help prevent another dip in home prices, Das said.
It would be a more orderly process “than if all of the foreclosed properties came crashing at some point in the cycle,” he said.
This means more REO listings. So, how exactly will this really do anything to prevent a glut of foreclosures? It won’t. Lenders are simply waving the white flag and accepting that the foreclosures are coming. Now, they are trying to save money. Remember, the average foreclosure costs the lender $50,000! Agents, learn how to become a REO listing agent. Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book. Earn your HREU RSD now.
Other initiatives have also emerged for borrowers likely to lose their homes. Fannie Mae and Freddie Mac, the mortgage financing companies, developed programs allowing former homeowners to become renters after a foreclosure or other proceedings. As part of its federal foreclosure prevention program, known as Making Home Affordable, the Treasury Department announced late last year that lenders would be eligible for $1,000 in exchange for allowing borrowers to sell their home in a short sale. In such deals, the borrower sells the home for less than the outstanding mortgage, and the lender forgives the difference.
Moody’s Economy.com has forecast that the number of short sales and transactions in which borrowers surrender their deed in lieu of foreclosure will increase more than 50 percent, to about 490,000, this year. That is just a fraction of the 1.9 million homeowners Moody’s has forecast will lose their homes to foreclosure this year, up from 1.7 million last year.
Yep, thats why we have been calling 2010..’The Year Of The Short Sale”. Agents, learn how to help others and make money now. Watch the FREE Harris Real Estate University Short Sale Secrets CDPD video and download the FREE Short Sale Secrets book.
But lenders have struggled to make many of these programs effective. The short sale is often lengthy and cumbersome for homeowners. In some cases, borrowers have second liens on the property, which can hang up the process. And lenders are sometimes suspicious of the potential for fraud if the home is sold cheap to a friend or family member of the borrower.
It’s unclear how rental programs for former homeowners are working. Fannie Mae launched its “Deed for Lease” program in November, offering borrowers a 12-month lease in return for turning over the keys to their former home and maintaining the property. A company spokeswoman said that it was too early to judge the program’s success, but that former homeowners who surrender their deed to avoid foreclosure — numbering nearly 2,000 through the third quarter of last year — would be eligible. Freddie Mac’s year-old program targets former homeowners after their foreclosure, offering them a month-to-month lease. It has not released specific data on how many homeowners have chosen this option.
Citigroup’s program goes further. It targets delinquent homeowners who do not qualify for mortgage relief. During the time the borrower is still in the home, they must continue to pay utilities, but in some cases, the bank may help cover some of the taxes, insurance or homeowner association fees. The borrower would also be eligible for transition counseling to help find a new home, and a minimum of $1,000 to help offset moving costs.
If there is significant demand for the program, Citigroup will expand it, Das said. “There might be complications that we haven’t thought about,” he said. “What happens if they don’t turn over the keys after six months or they don’t maintain their house like we would like them to maintain their house?”
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Ok, let me start by assuring you that what you are about to read is real….and is happening now.
Here goes, servicers are testing a program to literally PAY homeowners NOT to default. Lenders are terrified that national trend to do a strategic short sale or foreclosure will increase as more borrowers lose faith that their homes will be worth what they owe.
(We have been reporting on strategic walkaways since 2007 and expect that folks ridding themselves of their own toxic assets will create yet another surge of defaults.)
From the LVG site:
Loan Value Group has built a multi-factor loan-level econometric model to assess the risk of strategic default. While the model takes into account many relevant variables, ultimately the key driver of strategic default is the borrower’s response to negative home equity.
- Once home equity becomes hopelessly negative, the borrower loses the rational incentive to continue paying, whether he can afford to or not. Some of these borrowers then default
- 29% of all US mortgages have negative equity today, representing 15 million homes
- Analysis suggests that over 10 million mortgages are at significant risk of strategic default
Default is rational for many borrowers: while they forfeit their home, they rid themselves of a mortgage liability of even greater value. Since the homeowner has negative equity in the home, it is not worth continuing to make mortgage payments.
“Surprisingly, strategic defaulters with good credit scores who remain current on their other credit lines can quickly rehabilitate their credit scores after foreclosure — faster than many realize, according to Sarah Davies, a senior vice president at VantageScore, a credit scoring and consumer analytics firm owned jointly by the nation’s three major credit reporting agencies. ‘You can pull yourself out of any major impact from foreclosure in 24 months,’ she said.” (source: Homeowners Walking Away from Underwater Mortgages, Miami Herald, October 24, 2009)
Ok, I will translate. They have created some sort of formula to identify the homeowners they deem most likely to do a strategic default or short sale. Next, they proactively contact the borrower and offer them mula to stay put. As in here is a check to stay…The payments would be on average less than $10,000, but LVG believes this is enough to keep borrowers from becoming “walkaways.”
Again, from their site:
Since Mortgage Default Risk is a discretionary, rational decision made by the homeowner, an effective solution must provide incentives for the homeowner to choose not to default, rather than subsidies to enable him to make payments.
Since this decision to default is driven by negative equity rather than the loan’s affordability, the solution must target the homeowner’s balance sheet rather than income.
Harris Real Estate University students…will this program work? Do you think upside down homeowners will keep their homes if offered $10,000 in cash?
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Freddie Mac is buying back the loans they have sold off to investors…when the borrower has missed 4 payments.
Here is how the process traditionally works:
Home buyer needs a mortgage——-> Loan Officer who works for ABC Mortgage originates a Fannie Mae mortgage for buyer/ borrower. ——–> ABC Mortgage has to follow the Fannie Mae lending guidelines in order for the loan to be a Fannie Mae loan. ———-> ABC Mortgage originates and closes the loan for the buyer. ———> ABC Mortgage becomes the servicer for the new FHA Mortgage. They collect the payments etc. ————> Loan is sold off to the secondary market.
Obviously, this is an over simplification. But, this is the process. Now, the problem comes in when ABC Mortgage didn’t follow the FHA Lending guidelines and issued a mortgage to a borrower who didn’t truly qualify. If the loan goes bad (4 payments) because ABC Mortgage’s not following the rules…then the Fannie and Freddie will force the originator (ABC) to literally buy the loan back. Remember, this is a ‘non-performing’ loan…no money is being collected.
(Lenders, feel free to post comments if my details are wrong)
We have also heard that Fannie Mae has hired hundreds of new auditors to ‘audit’ mortgages originated over the last 3-5 years. When they discover the originator (as in the back that originated the loan….) issued a mortgage and didn’t follow the Fannie guidelines…the originator is going to be forced to buy back the loan.
Think about all of this for a moment….all the flaky origination that has happened over the last few years may result in the originating mortgage companies actually being forced to buy back the loan they sold to Fannie Mae! How many of these lenders can afford to cover these bad loans?
Here is the story from CNBC.com
Government controlled mortgage finance company Freddie Mac says it will buy back troubled loans contained in securities it has already sold to investors.
The McLean, VA-based company said Wednesday it would repurchase mortgage loans in which borrowers have missed at least four months of payments. It did not disclose how much it would spend.
Freddie Mac guarantees the mortgage securities it sells. The company said buying the delinquent loans back would cost less than making those guarantee payments.
Freddie Mac and sibling company Fannie Mae have been run under tight government oversight since they almost collapsed in September 2008. They have required $111 billion in federal aid to stay afloat.
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Harris Real Estate University Students….watch this story.
One of the emerging Mega Trends in real estate is the very real possibility that Fannie Mae and Freddie Mac will be simply shut down…meaning, the governments role in mortgages would come to an end.
Do you think private investors (banks etc) will be jumping in to fill the void once Fannie and Freddie are abolished? Do you think that IF they do enter the market they will have easier or tougher lending standards?
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