Realtor Coaching & Training: Florida
How much underwater does a homeowner have to be before they walk?
In other words…is there a magic number…a number that once reached triggers a strategic default or ‘walk-away’?
Turns out there is.
That number is $70,000 or 25%.
From Diana Olicks blog:
With more and more evidence of more and more borrowers walking away from their mortgage commitments due to overwhelming negative equity, I got to thinking: What exactly is the monetary tipping point for a homeowner, someone occupying the home, hanging pictures on the walls, perhaps raising their kids in the second and third bedrooms, going to the neighborhood block parties…what exactly is the negative equity number that makes them say, “We’re outta here.”
Negative $70,000.
At least according to First American Core Logic. FACL put out its quarterly negative equity report today, showing that the number of “underwater” loans is rising, from 10.7 million in Q3 to 11.3 million in Q4 or 24 percent of all borrowers from 23 percent.
What interested me was a paragraph lower down in the report:
“The rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property values, owners begin to default with the same propensity as investors.”
This behavior is apparently measured by the actual data, that is, the default rates of investors vs.. owners and comparing that to loan-to-value ratios.
Agents, don’t think for a second that homeowners doing strategic defaults is going to be a short term problem.
The mortgage industry/ mortgage lenders are living in fear that this trend will become viral. For example, if you hear your neighbor is doing a strategic default you will at least consider doing one yourself.
We are not advocating agents telling their homeowners to strategically default. We ARE advocating agents leaning how to help homeowners who choose to strategically default to short sale vs allowing the home to go into foreclosure. The advantages to the homeowners for doing a short sale massively out weigh a foreclosure….The New Treasury Departments HAFA Guidelines that take effect April 5th will be the next step in streamlining the short sale process.
Bottom line…
Learn how to become a HREU CDPD (Certified Distressed Property Designation) agent. Watch the FREE Agent Short Sale Secrets video and grab your FREE Agent Short Sale Secrets book.
I asked for a little deeper explanation from their economist, Mark Fleming.
“The closing of the gap between owners and investors represents the change in owners behavior because up to that point investors default at higher rates, but beyond that point owners propensity to default increases to nearly match that of investors. It’s not necessarily strategic default – I don’t even like that term because it can’t be identified – but I would characterize it as the behavior becoming more rational or calculating. Put another way, when someone is 25% or on average $70k in the hole, they know they will not climb out of that hole for some time and they figure that they can default and repair their damaged credit while saving money faster than they can ride out the price recovery.”
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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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The S&P Case Shiller Home Price index was just released. Here are the talking points:
* Home Prices RISE for the 7th straight month in a row!
* Government intervention IS a huge factor. Agents, remember….this ‘intervention’ end this spring AND don’t expect for the buyer credit to be extended.
* Very uncertain what will happen once the government stops buying MBS (Mortgage Backed Securities) and interest rates rise. Higher rates = fewer buyers.
* Added insecurity from the ending of the home buyer tax credit. Dr. Shiller seemed to believe that once the credit expires the market will suffer.
* Home prices are almost at pre-bubble values…2000. So…yeah…if you are going to own your home for a long time…it is indeed..A GREAT TIME TO BUY.
* Double dip in housing can’t be ruled out. Dr. Shiller was concerned that once the interest rates rise, the credit expires there may be a ‘double dip’ in national home values.
* Not optimistic for builders in the short run.
* Housing has no momentum..negative or positive.
* Unemployment rate and consumer confidence
* His bottom line, once the bubble appreciation is completely deflated.
* Long term? Slow…boring…moderate to low (or no) home value appreciation for the long run. Homes are a place to live…NOT and ‘investment’.
Here is a video from CNBC:
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Hello,
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Orlando Realtor, Judy Chapman.
Today’s guest contributor is Judy Chapman. I asked Judy’s permission to repost this article she had originally created on her Active Rain blog. She takes an honest look at the situation that millions of homeowners now find themselves in. I have respect for any agent who is willing to tell the truth…then takes the next step and learns how to help homeowners in hardship.
Thanks Judy for doing your part to be the true Hope for Homeowners.
Maybe the recession is over…maybe sometime next year things will ‘level off’ in the economy. But, as Judy points out in this article, housing…or the idea of ‘home ownership’ has forever been changed……
In a recent post that I wrote called, Do You Have 10 Years to Wait Around for the Housing Recovery?, I put on my analytical hat to illustrate the future of Orlando’s real estate market.
Anyone reading the post or studying the accompanying graph — learned that house prices in the Orlando area are not likely to recover to 2007 levels for 10 years or more — would have been either heartened or devastated.
For optimists, it showed a small light at the end of a dark dark tunnel.
For pessimists (or perhaps realists), only the dark tunnel existed.
In hindsight, I realize the post lacked the human factor.
People who purchased a house in the last 5 years are suffering in many ways — emotionally, financially, spiritually. The real estate market crash has consequences that go deep and strike at the core of who we are as individuals and what the future holds for us.
For many, our illusions have been attacked, our hopes dashed, and our beliefs destroyed. The ground has shifted beneath our feet and thrown us, almost literally, to the ground. A great many of us feel that we’ve been lied to, tricked, bamboozled, misled, conned, and let down … by our government, our politicians, our financial systems and, perhaps, by our own gullibility.
For many, life goes on as usual. Nothing has changed for them.
For others, everything has changed.
Many who purchased a house between 2004 and 2008 — which applies to over 100,000 Orlandoans — may very well be …
Trapped in their own homes!
Yes, the very sanctuary they go to at the end of every long day has become a prison.
The reassurance of familiar possessions and comfortable surroundings is gone.
The place where they know who they are has irrevocably altered.
The rooms where they make plans for a better future have darkened walls.
The very abode where they invested their dreams has turned into a trap.
Think about them for a moment and put yourself in their shoes ~~
What if your employer offers you a promotion, but you’d have to relocate to another city? You’re trapped.
What if you’re an empty nester and you want to downscale to a smaller house? You’re trapped.
What if you’re reaching retirement and you want to relocate to an easier lifestyle? You’re trapped.
What if you and your spouse are having problems and you’re considering a divorce? You’re trapped.
What if you previously relocated to another state but now you’ve decided to go back home to friends and family? You’re trapped.
What if you have dreams of pursuing a different career, which requires you to move? You’re trapped.
What if you’re getting married and starting a new life? You’re trapped.
One of America’s greatest promises has been our freedom to live and work wherever we want.
But now much of America is under house arrest, and parole is a long long way off.
* * * * * *
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Florida Licensed Sales Associate, REALTOR®
Coldwell Banker Residential Real Estate
521 E Mitchell Hammock Road
Oviedo, FL 32765
To put your home on the market, please feel free to reach me direct at (407) 227-7763. Questions about the Orlando real estate market always welcome.
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First, the good news. Mark Zandi, chief economist for Moody’s Economy.com, believes the Great Recession will end this year. If that’s true, that will surely be welcomed by just about everyone. During this difficult economic period, more than 8 million jobs have been lost. Housing starts have dropped to an annualized level of 500,000 units, down from more than 2 million in 2005. Banks large and small have failed. “This recession has been the longest, most severe and the broadest-based than any recession since the Great Depression, hence the moniker ‘The Great Recession,’” said Zandi in a teleconference yesterday on “The State of the Coming Recovery.” But such economic turmoil should end sometime in 2009, he said, thanks to adjustments in consumer spending, the stabilization of the U.S. banking system, and the expected benefits of the federal stimulus package.
What does all of this mean for housing…when will the housing markets finally reach bottom? Watch this video now.
Now the bad news for builders. “Housing will not be an early source of growth in this recovery,” said Zandi. “That’s very different from past recoveries,” when housing has typically been a leading indicator of economic growth. Still, housing represents a major risk to Zandi’s view that the recession—generally defined as two consecutive quarters of decline in real gross domestic product (GDP)—is nearly finished. If home prices continue to fall and foreclosures continue to rise, the recession will linger. “This is the one I am most worried about,” said Zandi, who is concerned that the Obama foreclosure mitigation efforts will not be successful—or successful enough. “I am increasingly worried that these impediments [to refinancing and modifying mortgages] cannot be overcome.”
That would seem to bode ill for places such as California, where housing’s boom has turned into a foreclosure bust. But Zandi, who developed a reputation as a housing bear earlier this decade, sounded more upbeat than one might expect about the Golden State. “California will probably turn with the rest of the United States,” he said. “The housing problems there were much less severe than in Florida, and Californians have been conditioned to believe that if they buy housing at low prices, they will be rewarded over a 10-year period. … They are more willing and able to get into the housing market.” Zandi also had positive words for Texas, which has been a major market for builders large and small. “Texas will recover more quickly,” he said. “It doesn’t have the serious housing overhang that California and Florida have, and energy will be a source of growth for the state.” Floridians, on contrast, should brace themselves for a long, slow walk back to economic health. “Florida will be one of the last states to get out of the recession,” Zandi predicted. It has a serious oversupply of housing, both single-family and condos, particularly in South Florida. “Migration flows have dried up. It’s very reliant on travel and tourism, which will remain impaired [economically].” 
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Harris Real Estate University students……as we have been telling you (warning you) for well over a year……
WASHINGTON — Call it son of subprime. Experts warn that a new wave of mortgage foreclosures may be coming soon and could rival the default rates for subprime mortgages and slow efforts to find bottom in a prolonged national housing slump.
The mortgages in question are $230 billion of option adjustable-rate mortgages, creative lending products that flourished at the height of the housing boom. In an option ARM, a borrower can opt to pay less than his or her monthly balance due, and the difference is tacked onto the outstanding loan balance.
Many experts had expected an explosion of defaults in the springtime on these roughly 564,000 outstanding mortgages. However, interest rates dropped to historic lows, and that delayed the detonation of what many housing analysts still see as a ticking time bomb.
AND….we are talking about Jumbo mortgages. In other words, non-FHA loans…..the hardest to get mortgages in this market that require not only stellar credit but, equity (or money down if its a new loan). How many of these homes will have equity enough to re-fi out of their option ARMs….?
“They’re probably going to default at a rate that makes subprime look like a walk in the park,” warned Rick Sharga , senior vice president for RealtyTrac, a foreclosure research firm in Irvine, Calif.
Option ARMs have triggers that reset to a new interest rate based on either a set timeframe or when debt exceeds some cap above the loan’s value. The spring drop in interest rates allowed many borrowers to escape a day of reckoning because the lower rates prevented a triggering of that cap.
Their rates fell so they didn’t have to re-fi…now that rates are headed up…they will try to re-fi. There are no mortgage products that will allow a non-FHA borrower to borrower more than the homes market value. Thus, more short sales and foreclosures.
That just postponed the problem, however, because most option ARMs have five-year automatic trigger dates. These loans were most prevalent in states such as California , Florida and Nevada , where home prices have sunk so far that many homeowners are underwater: They owe more than their homes are worth.
The bulk of outstanding option ARMs — a product no longer available to homebuyers — were issued between 2004 and 2007. Monthly payments on these mortgages are due to reset to a higher lending rate between 2009 and 2012.
“They’re going to have a loan they cannot afford on a house that’s probably way underwater and not have a lot of good options on how to avoid foreclosure proceedings,” Sharga said.
Re-read that….
While a smaller number than subprime mortgages, option ARMs grew from 3 percent of all mortgages bundled and sold to investors in 2004 to 14 percent by 2007.
They pose risks for the broader U.S. economy because they threaten to add inventory to a depressed housing market and could hasten the blistering pace of foreclosure filings — more than 1 million from March to May alone.
Ya think?
“We can’t rebuild housing values when there’s a serious risk that another set of mortgages is collapsing,” said Elizabeth Warren , a Harvard University law professor who heads a government panel overseeing the spending of Wall Street bailout money.
The Mortgage Bankers Association , representing mortgage lenders, takes a more optimistic view.
“Relative to what the industry was looking at a year and a half ago . . . the recast is not going to be the problem people thought it was going to be,” said Michael Fratantoni , the vice president of research for the MBA.
If the subprime crisis hit like a heart attack, the option ARM problem is more like a worsening chronic illness.
Wow, that has to be the words worst analogy….all be it, true.
In a prescient cover story on Sept. 11, 2006 , Business Week magazine labeled option ARMs “nightmare mortgages” and warned that it “might be the riskiest and most complicated home loan product ever created.”
Subprime mortgages caught the nation by surprise because of their short two-year resets to higher interest rates. Option ARMs reset over a longer horizon and thus are a slowly unfolding nightmare.
“This one, everyone knows it’s worsening. Everyone sees it worsening,” said Sandipan Deb, a credit analyst in New York with Barclay’s Capital, a global investment firm.
This long lead time gives lenders and borrowers time to seek alternatives, MBA’s Fratantoni said.
Analysts put the current default rate on option ARMs at 35 percent or higher.
Most were sold into a secondary market, where they were pooled with other mortgages and sold to investors as bonds or securities. The number of these loans is quantifiable, but banks aren’t required to disclose how many such loans they wrote. It’s unclear how many option ARMs remain on banks’ books and weren’t sold to investors.
Barclay’s Capital estimates that at least 37.5 percent of option ARMs originated in 2005 remain outstanding, as well as 63 percent of those originated in 2006 and 82 percent that originated in 2007. Deb and fellow Barclay’s analysts forecast a 38 percent loss rate for pools of option ARMs originated in 2006 and 48 percent losses for those issued in 2007.
Since option ARMs were most popular in states with the largest home price declines, many borrowers owe 30 percent or 40 percent more than their homes’ current values.
That puts many of the Obama administration’s mortgage relief programs out of reach for them, since these programs aid borrowers by lowering interest rates.
“The problem with these option ARM borrowers is they are already paying a low rate,” Deb said, adding that a sure solution would involve forgiving part of the loan balance, something that most lenders have been unwilling to do.
The Obama administration, however, has offered financial incentives to lenders that are willing to accept a short sale or deed-in-lieu transfers. Both of these options involve a bank taking back an underwater mortgage, freeing the owner from further payment and allowing for a speedy resale of the property, avoiding foreclosure proceedings.
And there ya go. Short sales. Realtors, learn how to do short sales. How much more proof do you really need that if you want to be in real estate that you have to be doing short sales? Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Shortsale Secrets book.
“These are the kinds of properties that are right out of central casting for those types of procedures,” said Sharga, of RealtyTrac.
Source: Yahoo News.
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