Realtor Coaching & Training: Los Angeles
Many agents are still confused about commissions when it comes to short sales.
Here is what is important:
1) If the INVESTOR is Fannie Mae or Freddie Mac the commission can’t be any greater than 6%.
2) There is an appeals process if you have any (or had any) issues collecting your commission as a result of the servicer (or more traditionally called ‘the Bank/ Lender/ Mortgage company etc) not paying you 6%. (this is assuming the listing contract that the seller signed was for 6%)
3) To learn if its a Fannie/ Freddie loan go here: http://www.makinghomeaffordable.gov/loan_lookup.html
As you know we have been offering short sale training for years and years now. We were the first national coaching company to teach agents how to do short sales…and we are by far the largest. Thousands of agents have received their HREU CDPD* (Certified Distressed Property Designation). We have made it easy for you to learn everything you need to know to easily list and sell short sales. Watch the FREE Short Sale Secrets video and grab your FREE Short Sale Book. If you would like to go ahead and enroll now for only $97 call 1-866-422-9497 or sign up here
Fannie Mae Confirms Short Sales Commissions Policy and Establishes Appeals Process
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001In discussions between NAR and Fannie Mae, Fannie Mae has reconfirmed its short sale commission policy
and established a process for REALTORS® to follow if issues arise. On February 24, 2009, Fannie Mae sent
Announcement 09?03 to its servicers instructing them not to negotiate commissions on short sales below
the amount negotiated by the listing agent, unless the commission exceeds 6 percent.Private mortgage
insurance companies and second lien holders may still seek to reduce commissions. In response to
concerns raised by NAR that some servicers of Fannie Mae loans are unaware of this policy or believe it is
not binding, Fannie Mae has established a process for NAR members when short sale commission issues
arise.Step 1: Determine whether the loan is owned or guaranteed by Fannie Mae. Only the holder of the loan is
allowed to do this, so do so in the presence of your client or after obtaining their written permission.Use this website: www.fanniemae.com/loanlookup, or
If you don’t have convenient internet access, call: 1?800?7FANNIE (8am to 9pm Eastern Time)
Step 2: If the servicer is unaware of or disagrees with the policy, provide a copy of Announcement 09?03 to
the servicer and negotiate an appropriate commission based on the listing agreement (up to 6 percent).Step 3: Contact Fannie Mae if the dispute is not resolved directly with the servicer. Be prepared to provide
the property address, name of owner, and Fannie Mae loan number (if available):Call: 1?800?7FANNIE (8am to 9pm Eastern Time), or
Email: Resource_center@FannieMae.com.
Fannie Mae Announcement 09?03 (2/24/09)
https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0903.pdf
AND FreddieMac’s Commission Guidelines….
Freddie Mac Issues Written Short Sales Commission Policy
National Association of REALTORS® Government Affairs Division
500 New Jersey Avenue, NW, Washington DC, 20001On August 20, 2009, Freddie Mac confirmed in writing that its servicers are not allowed to renegotiate short sales commissions. According to the policy, as a condition of the servicer’s acceptance of a short sale offer, servicers cannot renegotiate the sales commission below the amount agreed to by the real estate broker and the seller/borrower. However, if the negotiated commission exceeds 6 percent, servicers are required to limit it to 6 percent. This Freddie policy is consistent with Fannie Mae’s policy. Private mortgage insurance companies and second lien holders may still seek to reduce commissions.
NAR has asked Freddie to establish an appeals process for cases when servicers refuse to comply with Freddie Mac’s policy.
Freddie Mac Single-Family Seller/Servicer Guide Bulletin 2009-22 (August 20, 2009)
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0922.pdf
Fannie Mae Short Sales Commissions Policy and Appeals Process
http://www.realtor.org/wps/wcm/connect/4fb4f4804e824cf0a6e8e696c79aa288/government_affairs_fannie_short_sales_policy.pdf?MOD=AJPERES&CACHEID=4fb4f4804e824cf0a6e8e696c79aa288
NAR’s Short
Popularity: 3% [?]
In case you were thinking that only ‘normal’ folks were effected by the busting of the real estate bubble…..
Nicolas Cage who was a well known collector of fine cars…..lavish homes…has hit his own financial wall because the massive losses of his 15 personal homes. The last section of this article from CNN Money talks about his financial issues being directly tied to his many homes being upside down in value…
Any HREU Certified Short Sale Listing Specialists available to list 15 mansions….agent must be willing to travel…homes are located all over the world!
(Julie and I know several people who are friends with Mr. Cage. All report that he is a genuine guy with a good heart. I am sure that he will get back on his feet and be stronger than ever. We take no pleasure in hearing of others falling on hard times…no matter how far they have fallen.)
Nicolas Cage brought about his own financial ruin with a spending spree that included two castles, 15 palatial homes, a flotilla of yachts and a squadron of Rolls Royces, his former business manager said.
Samuel Levin, responding to a lawsuit Cage filed against him, said he warned the Oscar-winning actor that he could face bankruptcy unless he scaled back his lavish lifestyle.
Cage, one of Hollywood’s highest-paid movie stars, sued Levin in October, charging that he “lined his pockets with several million dollars in business management fees while sending Cage down a path toward financial ruin.”
“Cage discovered that he is now forced to sell major assets and investments at a significant loss and is faced with huge tax liabilities because of Levin’s incompetence, misrepresentations and recklessness,” Cage’s lawsuit said. He asked the Los Angeles Superior Court for $20 million in damages from Levin.
Levin filed a counter-complaint this week demanding $129,000 owed to him by Cage for recent work on his tax returns. The filing also argued that Cage was “deeply in debt” when he started working for him in 2001 because Cage had “already squandered tens of millions of dollars he had earned as a movie star.”
Levin said he warned Cage, whose given name is Nicolas Coppola, that he needed to earn $30 million a year “just to maintain his lavish lifestyle.” He urged Cage to save “a cash cushion” of at least $10 million “to alleviate the financial pressure to take film roles that might be detrimental to his career,” Levin’s response said.
Several of Cage’s recent movie roles have been seen by critics as “paycheck gigs” taken only because of his pressing debt.
Levin’s filing claimed that starting in 2005 and then “with increasing urgency” over the next two years, he “implored Coppola to stop buying real estate and urged him to reduce his real estate holdings, warning Coppola that the financial press was filled with references to a ‘real estate bubble.’ ”
He countered Cage’s claim that the actor was left in the dark about his finances.
“Levin repeatedly warned Coppola that he was living beyond his means, urged him to spend less, and warned him that financial disaster loomed if he continued to spend uncontrollably,” Levin’s filing said.
“Levin described the folly of several other well-known entertainers who compulsively overspent their way into bankruptcy, and warned Coppola ‘it could happen to you,’ ” the filing said.
Cage should have known about his debt because “he signed every check for every monetary transaction throughout the relationship,” Levin said.
“Instead of listening to Levin, cross-defendant Coppola spent most of his free time shopping for high ticket purchases, and wound up with 15 personal residences, most of which were bought against Levin’s advice,” Levin’s complaint said. “Likewise, Levin advised Coppola against buying a Gulfstream jet, against buying and owning a flotilla of yachts, against buying and owning a squadron of Rolls Royces, against buying millions of dollars in jewelry and art.”
Cage’s four yachts included one each for the Caribbean, the Mediterranean, Newport Beach, California, and Rhode Island, Levin said.
In 2007 alone, Cage’s “shopping spree entailed the purchase of three additional residences at a total cost of more than $33 million; the purchase of 22 automobiles (including 9 Rolls Royces); 12 purchases of expensive jewelry; and 47 purchases of artwork and exotic items,” Levin’s filing said.
“Coppola also spent huge sums taking his sizable entourage on costly vacations and threw enormous, Gatsby-style parties at his residences,” it said.
Levin’s warnings that Cage was living beyond his means were not just ignored, but “at times Levin was rebuked for trying to restrain the outflow of cash,” he said.
“The pinnacle” of Cage’s spending spree was the purchase of two castles — in England and Germany — which Levin warned “were decrepit and needed huge expenditures,” he said.
Cage’s financial collapse came in 2008 when real estate values plunged and most of his residences turned “upside down, just as the global credit crunch made it impossible to cover Coppola’s endless cash calls by borrowing more money,” Levin said.
The case of Nicolas Cage versus Samuel Levin is set for a hearing in a Beverly Hills, California, courtroom on February 3, 2010, according to court records.
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Being a Certified Short Sale Specialist is more important NOW than ever…..
As we reported over 2 years ago the number of homeowners choosing to de-leverage their own ‘toxic asset’ would only increase. In the past there was significant moral and social stigma associated with someone ‘walking away’ or doing a strategic default. Now, that has all changed.
For agents who were lead to believe that being a Certified Short Sale Specialist was optional…you need to rethink that mindset.
Its become very clear that there will be no ‘V’ shaped recovery…and certianly no fast recovery for housing. As you will read in this article, in some parts of the country it will take 10+ years for homes to return to peak bubble prices. With that in mind, millions of homeowners are considering a strategic default.
Disclaimer: We are not here to be the ‘moral’s police’. This is a very important and personal decision. As a Realtor, we don’t think its ethical for you to be advising your sellers to participate in strategic defaults.
Clearly, homeowners are coming to the decision to ‘walk-away’ on their own.
Where do you, a real estate professional fit in?
Simple, a Short Sale is by far a better alternative vs a foreclosure or a deed in lieu of foreclosure. The initial credit hit is roughly the same. But, the lasting effects of a Short Sale vs a Foreclosure are dramatically different. For example, according the FHA guidelines someone can qualify for a new FHA backed mortgage 24 months after a Short Sale. Much longer vs a Foreclosure.
Agents, learn how to become a Certified Short Sale Specialist. There is no question that knowing how to do a Short Sale….how to list it, sell it and get it closed in less than 45 days…IS the opportunity in this market. In come markets 75% of all homeowners are upside down…if they want to sell and avoid foreclosure they will need the services of an Short Sale Listing Specialist. When would NOW be the right time for you to learn how to do Short Sales….Watch the FREE Agent Short Sale Secrets video now…then grab your FREE Agent Short Sale Secrets book. Do this NOW.
Here are excerpts of the article from SeattleTimes.com
Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it’s worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their payments are weighing whether to sell and pay the difference, stick it out until housing prices recover or walk away.
In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for Deutsche Bank Securities. In parts of California, Florida and Nevada, it’s as high as 75 percent.
Realtors, did you catch that…..in some markets 75% of all homeowners are upside down! Staggering.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian, a credit-checking company, and Oliver Wyman, a New York consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
“You’re looking at an extremely long horizon in order to see a return of home values to where they were at their peak,” said Stan Humphries, chief economist for Zillow.com, the Seattle real-estate data service. “It could be 15 to 20 years in some markets.”
Trickle for now
Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, Calif.-based RealtyTrac, an online seller of real-estate data.
Re-read that. Proof positive that this trend is just getting started. Learn how to become a HREU Certified Short Sale Specialist. Watch the FREE Short Sale video and grab your FREE Short Sale book NOW.
In San Diego, home values are down about 40 percent since March 2006, according to the S&P/Case-Shiller monthly index. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom.
Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.
“You have to ask yourself: ‘Are you just renting the home from the bank?’ ” said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. “Would it be cheaper to walk away and rent across the street?”
Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000.
Conroy said he and his wife are trying to save, knowing they may have to move to a bigger place within 18 months to start a family.
“We’ve given up on this dream of having equity in our home. We don’t expect to walk away with cash in hand; we expect to pay.”
More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than in other parts of the country, said Sharga.
Ten states are so-called non-recourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the Boston-based National Consumer Law Center. The bank can repossess your home in those states, not other assets, to settle the debt.
In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth-advisory firm Blankinship & Foster. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the New York law firm Guzov Ofsink.
In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with Bankrate.com.
In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.
Tax break
A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.
The lender’s willingness to negotiate varies and depends on the loan balance, condition of the property, location and resale opportunities, said Alberta Hultman, CEO of USFN, an association of mortgage-banking attorneys based in Tustin, Calif.
Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.
A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as two years if bills are paid on time, according to FICO.
Popularity: 3% [?]
In case you missed the Emergency Short Sale teleconference today…..
Here is the replay.
Listen NOW to FREE Agent Short Sale Secrets Replay.
Why do you need to listen to this Short Sale Secrets replay?
Simple…..there are massive…evolutionary…rule changing new laws and regulations happening now with Short Sales.
As we discussed in a previous blog post the entire Short Sale process is about to change…
For example:
1) Treasury (as in the US Government) will release a new Short Sale (and deed in lieu) program…this month. Literally, days away.
2) The new program will simplify and speed-up the Short Sale process. Yes, the streamlined Short Sale is finally here!
3) This new program will ‘encourage’ more servicers and borrowers to participate…in other words, expect the Fed to put pressure on lenders/ servicers to push their borrowers to do Short Sales vs Foreclosures.
4) The entire Short Sale process is going to be standardized. You read that correctly, a new national standard for the entire Short Sale process!
5) The new program will force banks to reduce the time to close Short Sales.
Listen NOW to FREE Agent Short Sale Secrets Replay.
Now, for California agents….
When you listen to this FREE replay you will hear directly from one of our guest speakers….. as he shares with you all the details on the NEW LAW that forces lenders to respond the all Short Sale offers within 21 days. AND if they offer includes a HUD…the new law requires lenders to respond within….4 days.
All of this information is subject to changes but, you get the idea.
Short Sales must be a focus of every Realtor.
If the co-CEO of RE/MAX and the Founder of Keller/ Williams didn’t convince you that Short Sales are the make money now opportunity for every agent…then the info you are about to learn from this Emergency Short Sale Teleconference will…
Listen NOW to FREE Agent Short Sale Secrets Replay.
Popularity: 5% [?]
This is a great testimonial from a Harris Real Estate University Student…
Rodney started with HREU by enrolling in Agent Short Sale Secrets. Watch the FREE Agent Short Sale Secrets video and then grab your FREE Agent Short Sale Secrets book.
Here is the video…
Popularity: 1% [?]
In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term.Properties in several areas are selling for less than they did 20 years ago, and that’s not even counting the effects of inflation.
To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn’t worried about price swings.
“I always knew real estate goes like this,” said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph.
But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That’s just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.
Beatrice’s 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid.
Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002.
But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.
That means thousands of homes in those neighborhoods — even houses barely 20 years old and in decent shape — have lost every dime of their appreciation, giving back not just the gains of the recent bubble but steady increases logged over a generation.
Realtors, in this market knowing how to do a short sale is mandatory. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book, Do this NOW.
The April median price in Beatrice’s Lancaster ZIP Code of 93535, for example, was $87,000. That’s down 74% from a $334,500 peak price in 2007. Even worse was the 92410 ZIP Code in the city of San Bernardino, which covers several older neighborhoods. Its $61,000 April median represents an 84% drop from the peak of $370,000 in 2007.
Prices also tumbled below 1989 levels in neighborhoods in Palmdale, Hemet, Barstow, Desert Hot Springs, Victorville, Highland, Santa Ana and Oxnard, according to DataQuick. Several other inland communities, including parts of Moreno Valley, Banning and Rialto, had median prices that were only slightly above 1989 levels and below the April 1990 median.
The median price is the point at which half the homes sell for more and half for less.
Losing two decades’ worth of gains in a single downturn “has never happened,” said UCLA economist Edward Leamer, who has studied local areas during booms and busts. “You’re seeing something that’s abnormal.”
What’s abnormal this time, Leamer and other analysts said, is the easy credit that pumped up demand and inflated home prices in those communities to unprecedented highs.
Armed with risky subprime mortgages and fearful of being priced out of the market forever, buyers flocked to the outer reaches of the Antelope Valley and Victor Valley. Those distant suburbs became the only option when areas closer to job centers soared out of reach, said John Husing, an economist who specializes in the Inland Empire.
“The families who were buying out there were the ones who couldn’t get in anywhere else,” Husing said. “They were paying stupid prices.”
They were among the first to default when the economy crumbled, bringing real estate prices crashing down. Demand for those far-flung houses vanished when prices dropped for homes closer to workplaces. Riverside and San Bernardino counties have registered more defaults and foreclosures per capita during this downturn than other Southern California counties, according to ForeclosureRadar, an online seller of default data.
These foreclosures, sold at cut-rate prices by banks eager to be rid of them, represent the bulk of the sales activity in some communities.
In the 1990s housing bust, “you had a foreclosure here, a foreclosure there. You did not have almost entire neighborhoods being foreclosed,” UCLA’s Leamer said.
The fire sales have stoked demand. In April, 237 homes sold in Beatrice’s ZIP Code, more than in any other area in Southern California. Most of those properties were foreclosed.
Stable homeowners such as Patricia Hynes have watched their hard-won equity rise and fall, leaving them roughly where they started a generation ago.
Hynes bought her three-bedroom home in Lancaster brand-new for $119,000 in 1989, when Milli Vanilli was riding high on the charts. The poplar, willow and ash saplings she planted in front now tower over the lawn, shading her home from the desert sun.“It’s my little oasis,” said Hynes, a 62-year-old public health nurse.
Nearby, a four-bedroom, 2,100-square-foot home sold in May for $89,000. That’s less than the construction costs of $100 to $125 a square foot, according to Patrick S. Duffy, principal of Metrointelligence Real Estate Advisors in Los Angeles.
The retro prices are attracting a new wave of speculators. In April, investors bought nearly 1 in 5 homes purchased in Southern California, according to DataQuick. That figure is around 30% in some inland communities.
Mohammed Hafeez, 52, a Culver City electrician, has bought four houses in Lancaster since January.
Hafeez said he paid $49,000 for the least expensive house and $70,000 for the priciest of his investments. He’s now renting them for $1,000 to $1,300 a month, and all four houses are occupied and generating positive cash flow, he said.
Still, he’s holding off on more purchases. Rents are falling along with home prices as investors like him snap up foreclosures and turn them into rentals.
“I don’t know how much or how far down it will go,” he said.
He has reason to worry. Another tsunami of foreclosures is threatening to swamp an already saturated market. In Palmdale and Lancaster, 903 homes were sold in April, but according to ForeclosureRadar, more than 7,500 are in some stage of foreclosure.
Some buyers who thought they were getting bargains didn’t. In Lancaster, Beatrice’s eldest son, Daniel, bought a house near his father’s for $175,000 in April 2008; comparable properties are now selling for about $95,000.
To home buyer Al Rossi, timing isn’t everything. The 59-year-old bought his first house in February in Lancaster for $140,000. An administrator at the Los Angeles Mission downtown, he wanted a roomy place where he could live with his son-in-law and two grandsons. His mortgage payment on the four-bedroom house is $1,050, just slightly above the $900 a month he was paying for a one-bedroom apartment in Norwalk.
The house was in good shape when Rossi bought it, though the lawn had died. The family will be planting new greenery soon. They’ve just installed a new hot tub and bought a gas barbecue grill as well.
Realtors, in this market knowing how to do a short sale is mandatory. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book, Do this NOW.
If neighborhood property values fall further, so be it, Rossi figured. The improvement in his quality of life is gain enough.
“I did not buy a slot machine,” he said. “I am not an investor.
“That’s what got us into this mess — greed,” he said of the housing crash.
“Greed messed everything up.”
Article Source: Peter Y Hong, LATimes.
Realtors, in this market knowing how to do a short sale is mandatory. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book, Do this NOW.
Realtors, in this market knowing how to do a short sale is mandatory. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book, Do this NOW.
Her home is an island in a sea of repos. Houses on both sides have fallen into foreclosure; one is priced $10,000 less than the amount she paid 20 years ago.
Popularity: 1% [?]
Luxury, Highend Foreclosures
We have been warning all of you that the no price segment or region of the country would go unaffected by this housing correction/ recession/ depression….whatever you want to call it. Now, the high end homes are experiencing the harsh realities of this market….
With the U.S. economy and financial markets showing signs of life, optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.
But housing can’t revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It’s not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down by a dangerous cycle of rising unemployment and falling home prices. That is going to prolong the foreclosure crisis and, inevitably, inhibit the recovery of the rest of the economy.
Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. “For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures,” the bankers said. The grime in prime was responsible for the worst performance on record for the U.S. mortgage sector in the first quarter: Nearly 13% of loans were delinquent or in foreclosure, the most since the bankers started keeping tabs in 1972. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.
The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom, according to data from Standard & Poor’s/Case-Shiller home price indexes. But that’s cold comfort to people who haven’t managed to sell at all. According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months’ worth of demand at the current rate of sales. That’s four times the rate of oversupply in the housing market as a whole.
Realtors, learn how to become a REO Listing Agent. BE the agent with all the buyer baited REO Listings. Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book now!
Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor’s degree or more may not sound too high at 4.4% in April given the overall April jobless rate of 8.9%. But it’s more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can’t cover the mortgage when even one spouse is out of work.
Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn’t enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations. They listed the house last year for an “optimistic” $875,000 but didn’t get any takers. After months of price cuts and threats of foreclosure from the bank, they’re days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. “We had no expectation things would come crashing down as fast as they did,” says Stephanie. “We had no one to blame but ourselves. We didn’t have a backup plan if he lost his job.”
The economics at the top of the market aren’t as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can’t purchase a home without selling property they already own. What’s more, financing is far costlier, if it’s available at all, because private investors have lost their appetite for big mortgages. Rates on “jumbo” loans—that is, those too big to be purchased by Fannie Mae (FNM) or Freddie Mac (FRE)—are roughly a percentage point higher than those for loans that conform to Fannie and Freddie’s purchase limits. (Those limits range from $417,000 to $730,000, depending on local housing costs.)
An inflation panic in the fixed-income market is the latest blow to homeowners who are trying to sell to avoid foreclosure, because it’s pushing up mortgage rates and pushing potential buyers out of the market. Rates on 30-year fixed, conforming mortgage loans jumped nearly half a percentage point, to 5.25%, in the week ended May 29 from a week earlier, according to the Mortgage Bankers Assn. Meanwhile, the market is unlikely to get much help from the Obama Administration’s foreclosure-prevention program. Although it’s somewhat more ambitious than the Bush Administration’s program, it is voluntary for lenders and is off to a slow start since its March inception.
Why are some agents struggling in this market while others are making a fortune? 2 words: Short Sales. Learn NOW how to easily list and sell short sales. Watch the FREE Agent Short Sale Secrets video and download the FREE Agent Short Sale Secrets book.
When will this second wave of foreclosures crest? David Crowe, chief economist of the National Association of Home Builders, doesn’t see the peak coming until 2011, later than most other experts predict. Foreclosures typically top out after unemployment does, and Crowe doesn’t expect that to occur until late this year. After that, Crowe says, more people will lose their homes because of upward resets on adjustable-rate mortgages. Credit Suisse says mid-2010 is the peak for scheduled resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars’ worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There’s an even more alarming $2.5 trillion in “alt-A” loans, which are between prime and subprime and include a big chunk of the mortgages that required little or no proof of income or assets. Most of these loans were issued to people with relatively good credit who were buying more expensive homes.
A key unknown is how many middle- and upper-income homeowners will simply walk away from homes that are worth less than the mortgages on them. So far few have. Whitney R. Tilson, managing partner of New York investment firm T2 Partners and co-author of the book More Mortgage Meltdown, expects the ranks of walk-aways to increase, exacerbating foreclosures. But Rick Sharga, senior vice-president of RealtyTrac, a foreclosure data specialist, disagrees. “To sign a contract for a house and then walk away from it runs counter to everything we were taught,” says Sharga, who predicts foreclosures will dip slightly in 2010.
Even if foreclosures don’t rise, the rate is already so high that it will put considerable pressure on the national housing market for at least two more years, says Mark Hanson, managing director of Field Check Group, a Menlo Park (Calif.) research firm.
While forecasts differ in detail, the clear message is that foreclosure is going upscale. And that means the housing bust won’t end anytime soon.
Source: BusinessWeek.
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