Bank Logic

the new oxymoron

I have seen some absolute stupidity from the banks and loan holders, but this seriously takes the cake. I am absolutely astonished although it does give me a better understanding of why the foreclosure/REO market is so screwed up.

I recently represented a family in an attempt to either re-work their mortgage or to short sell their home. They were a husband and wife with two small elementary school aged children. They bought their home at the height of the sellers market, so needless to say they were upside down in the house. Unfortunately, the loan they used to purchase the home was an option arm, one of the driving forces behind our current situation. The husband lost his job and was having difficulty finding a new one. The wife was working and trying to support the family until they got back on their feet. She had been trying to re-negotiate the loan for over 4 months. She was told by the bank representative to stop paying her mortgage.....let me say that again....SHE WAS TOLD BY BANK REPRESENTATIVES TO STOP PAYING HER MORTGAGE...so they would see she couldn't make the payments and then would be willing to work with her on re-working the loan...they also told her if she didn't bring the account current, they were going to foreclose on the home....sort of a mixed message if you asked me. It was around this time they contacted me to try and sell the home short (they had a $275,000 mortgage on a home that was now worth about $240,000). We had roughly 2 weeks until the bank was going to sell the home at auction. So at this point the bank knows the home is being actively listed for $250,000.

Here's where it gets good, or bad, or stupid and actually kind of surreal.

We got an offer from a buyer to purchase the home for $250,000 and submitted it to the bank prior to the banks auction date. You would think the bank would be interested in trying to let the house be sold on the open market to minimize their potential loss...of course that does include the word "think" and obviously the mental midget or team of oxen that were assigned to this account really didn't understand that sort of logic.

Three days following our submission of an offer for $250,000, a man knocked on my clients door, told them he bought their home at auction and they had until Friday to be out or the constable would remove them. So at this point my clients, with no place to go, moved to Oregon to be with family.

This scenario is bad enough, but wait there's more.

They received a forwarded letter in Oregon from the bank the week following the foreclosure sale, stating that the bank recognized me as the agent they would be working with on the short sale of their home. I guess they missed the part where they already kicked the family out of their home. Now I'm not a bleeding heart nor do I think people should have free rent or a free ride, but you really have to look at the numbers on this one to get the full understanding of how completely screwed this situation is.

The bank sold the house for $170,000 at auction

remember there was an offer on the table for $250,000

The investor that stole the house for $170,000 (can't blame the investor for taking advantage of a stupid bank) resold the house for $230,000 2 weeks after they bought it.

So to recap, instead of reworking the loan for the family that owned the house initially, which would have kept the original principle amount of $275,000 and adjusted the payments to something they could have afforded (could have been done a couple of ways, first set a lower fixed rate, then extend the length of the term to 40 years from 30 years probably would have done it)

orrrrr to let them sell the house short for $250,000, the bank in its infinite wisdom decided it would be better to evict a family of four, sell the house for $80,000 less than they could have and let an investor make roughly $40,000 to $50,000 by flipping the house and driving the values of the neighborhood even lower!!!

Is it any wonder that the banks are in trouble? Had the bank reworked the loan or allowed the initial short sale to take place, they would have had a much smaller loss on their books. This becomes even more relevant as the government is poised to put money in to the banking system to help them remain solvent. I hope the government has a clause in place that stops our money from going to banks that are obviously TOO STUPID TO BE HELPED!!! I certainly don't want my tax dollars going to help an institution that has no idea of how to minimize losses.

I also have to wonder if there was some sort of collusion from the bank with this investor. It would be very easy for a person in a loss mitigation department, to direct a third party to cherry pick and flip a home. It wouldn't do much for the bank, certainly wouldn't do much for the party being foreclosed on, but as is possible in this situation, if the loss mitigation employee got half of the profit, that wouldn't be too tough on the old wallet in a struggling economy!

Of course that's just my thinking....

Smart money, Dumb investor

I was reading another blog, where a Las Vegas Realtor was writing about the number of buyers and how difficult it is to get offers accepted in the entry level range. I was surprised by the number of "nay-sayers" that were hammering the blog. The following is my addition to the blog...Also, as a heads up, interest rates have jumped dramatically in the last 24 hours, so if you were thinking of locking today, talk to your lender and see if they think things may drop back down after the stimulous package comes out...

What really bothered me was the cynical nature of the posts. I am currently working with 6 buyers right now, one of which is a strict investor, wanting to put a tenant into the home. The rest are people that have been sitting on the sidelines watching the market go down and realizing that real estate is back to being an investment that doesnt move in 6 months. Real estate has historically been a slow growth investment, which is why until recently was a very safe investment. The comments I heard in 05 and 06 about "flipping" have been replaced with "we'll hold on to it for 4 or 5 years then turn it into a rental and move up. Its a different strategy than the get rich quick, instant gratification attitude that contributed greatly to a lot of peoples problems in the market today.

I am currently seeing my buyers put in offers at or above list price and lose the home to buyers putting in offers as high as $50,000 over list for homes. As rental prices rise, which they currently are, people will start to realize they can own for the same price they are renting for, and the elevator will start going back up. Hopefully the loans will be available for the majority of these purchases, but I think the days of being able to get my dog a jumbo loan at 100% are a history!

Buy and Bail Schemes

The buy and bail works like this, you secure a new loan for purchasing a new home. You show that you have tenants for your current home and 75% of your current mortgage on the home you are moving from are covered. You close on the new home, then let the old home go into forclosure before your credit gets trashed from the forclosure.

The reason behind doing this is obvious, homeowners are seeing the value of a home they just purchased drop as much $100, to $200 thousand dollars, they have mortgages adjusting to higher payments they cant afford, and this looks like a golden parachute. Some people are even able to move down the street into the same floorplan they've just jumped out of.

What happens afterwords, is that the value of the neighborhoods this takes place in is going to continue dropping, because the bank now has another forclosed property they need to unload. Personally I dont' agree with it, I totally understand how it can be rationalized, and even see how for the individual it may the only option available, other than being homeless.

Fortunately the lending industry, (about a year late), has seen that they need to add some oversight and regulation that will stop or at least slow this practice. One of the excellent lenders I work with, Aaron Gordon, of Countrywide Home Loans, recently sent me a list of fast facts that I would like to include here:

BUY AND BAIL GUIDELINE FAST FACTS

FANNIE MAE- CONVENTIONAL LOANS INSURED BY FANNIE MAE If the buyer is converting his current primary residence to a rental and he DOES NOT have at least 30% equity as determined by an Automated Valuation Model (AVM) like Zillow.com and others.
has to qualify for both residences with no rental income counted
has to have 6 months reserves for both properties If he has more than 30% equity.
Has to have a rental agreement
Can count up to 75% of the rent to qualify
No additional reserves required FHA LOANS - GOVERNMENT LOANS INSURED BY FHA If the buyer is converting his current primary residence to a rental and he is DOES NOT have at least 25% equity as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
has to qualify for both residences with no rental income counted If he has positive equity but less than 25% equity.
has to qualify for both residences with no rental income counted If the buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance he can proceed on the new purchase with the following:
Has to have a rental agreement with at least one year duration
Can count up to 75% of the rent to qualify
No additional reserves required
evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner may be requested The bottom line is if your buyer is moving today, and he doesn't have at least 25% equity in the home he is moving from, and he is not being transferred for work to a new city, he will want to plan on qualifying for both mortgages.

If you have any questions regarding buy and bail guidelines, please don't hesitate to contact Aaron, he's an excellent lend and is very knowledgable about current market

,Aaron GordonHome Loan Consultant /

Sales ManagerCountrywide Bank, FSB

Cell: (702) 283-2333

I am glad to see that the lending institution is finally doing something to slow these practices down, I only hope they finally realize they need to have a more customer friendly approach to their current mortgage holders. It seems like the loss mitigation departments consider everyone to be dishonest in their need to have skyrocketing mortgage payments re-worked into something affordable.

Foreclosures & Short Sales Need Governance

When an offer is made between a buyer and a non institutional seller, a timeline is set for the expiration of that offer, usually 24 to 48 hours. The seller must respond with one of three responses, acceptance, rejection or counter offer. The sellers agent is responsible to facilitate a timely response, acknowledging that the offer was received, is being considered, countered or rejected. This process allows the buyer to move quickly into purchasing that property, or moving on to another. In reality, the "teeth" in this system is that the seller emotionally involved and has a vested interest in selling the property. The fear of losing the buyer will force them to respond in a timely manner. This is especially true in a buyers market, where the sellers are struggling to get their homes shown, let alone sell for a decent price.

The current situation, where over half of all active properties (single family homes, condominium and townhomes) in the Las Vegas MLS are either completely bank owned from foreclosure, or are dependant upon bank approval as a short sale, do not follow the usual rules. The banks don't seem to have any concern that the buyer might move along to another property, the agents that specialize in these transactions don't have any tools at their disposal to expedite the transactions either, so a typical bank involved transaction can take as long as a month before a definitive answer is given. Then once the transaction is put into escrow, an REO transaction will take at the very minimum 45 days and a short sale will drag on for at least 60 days.

Our current inventory breaks down like this;

20,595 Homes/Townhomes/Condos for sale of which 5,645 are bank owned and 5,645 are short sale homes.

Of the 7,007 homes in contract, 3,589 are foreclosed properties and 2,064 are short sales.

This shows a pretty clear picture of what is "selling" in our market

56% of homes for sale are owned by or dependant upon banks or lending institutions

81% of homes in contract are owned by or dependant upon banks or lenders.

This does not bode well for anyone hoping to sell a "non-distressed" property or to have a purchase happen in anything resembling a timely manner.

A normal transaction between buyer and seller takes typically 3-5 days of negotiation, then 30 to 45 days to close.

A typical REO/Foreclosure transaction takes 14 to 21 days of negotiation then an additional 45 to 60 days to close.

A typical short sale transaction will take 14 to 60 days of negotiation with an additional 45 to 90 days to close.

To put it simply, a foreclosed property is going to take at least a month longer to sell and a short sale will take at least 3 months longer to sell than a regular transaction.

This is the point where I have to ask WHY!!!!!!!!!!!!!!!!! Why should our market be forced to stagnate like this. Shouldn't the banks have an interest in moving the inventory to improve market conditions and create an environment with good consumer confidence? The attitude I see from the banking and lending industry is one in which they will do things in their own sweet time. I believe we have all heard of "bankers hours", I just don't understand how they can drag on for weeks and months at a time. Especially when all that needs be done is to look at the bottom line, and decide yes, no, or how about this price instead. The same way a non institutional seller would. Perhaps the institutions haven't seen the need to designate a decision maker in this process that can actually make a timely decision.

As is I write this, I currently am working with 6 clients buying homes. Between them we have 9 offers on properties on the table. I have had a response from 3 of those offers, one took over a month, 2 responed in 7 to 10 days, the rest are unanswered and are in limbo. Then once my clients have responded back to the institutions, they disappear into the black hole from whence they came and do not correspond until the groundhog sees his shadow, the stars align, or the most common answere, "Monday for sure". My clients are frustrated, and like me are wondering why it is so difficult to get a simple affirmative or negative response.

This is a situation where the Real Estate Division needs to enact a mechanism that would streamline this process with institutional owners. It is blatantly obvious that the institutions themselves have no inclination to move in a timely manner. I am not one that likes a lot of government intervention in the market place, but in a situation like this where our market, is unnecessarily being put through a prolonged period of stagnation due to nothing more than a cavalier attitude towards the situation, I feel it is time for a little intervention. If institutions were to be fined an monetarily for not responding to an offer in a timely manner and that fine were given to the real estate division in the state in which the property exists, there might be a little more attention paid to making a timely response.

I do not suggest that institutions should flatly accept whatever comes down the line, I'm asking for a simple yes, no, or how about this price. This would speed up the time these distressed properties are on the market, would actually benefit the institution holding the note due to the fact that they would be off of their books that much faster, and would also end the stagnation. With inventory being absorbed back into the market at a quicker rate, less product would be on the market (lower supply) and prices might actually have a chance to increase as buyers have less to choose from (higher demand).

I'm not even asking for an unreasonable amount of time, perhaps 5 business days to respond on initial offers and 3 business days to respond to counter offers, as well as setting a 2 business day time limit on final signatures of approval at close of escrow. It is understandable that an institution might need a bit more time in making a decision to accept, reject or counter an offer, but to take weeks and months to respond exacerbates our current situation, by unnecessarily increasing the amount of supply in our marketplace.

Countrywide's Increasing Stupidity

I am completely astounded by a recent transaction that fell apart on a Countrywide owned foreclosed property. Most REO (bank owned) properties will require a pre approval letter as well as addendum's prior to presenting an offer, but countrywide requires a pre approval letter from a countrywide branch office...not a countrywide program that a mortgage broker can provide, but someone who is directly on the Countrywide Payroll. If this isn't a blatant example of a large institution trying to steal loans from smaller lenders, I don't know what is.

Its bad enough that in addition to the lengthy purchase agreement commonly associated with a purchase, Countrywide requires the buyer to agree to a 15 page "addendum" that is actually a purchase contract that rewrites every element of the original contract to the benefit of Countrywide, or that the buyer has to agree to verbal counteroffers that aren't binding until the bank decides whether they want to sell the home...all of which takes an inordinate amount of time, usually 1 to 2 weeks to just get an answer.

A normal transaction has every offer and counteroffer in writing with time tables that have to be adhered to. BUT in addition, if Countrywides loan officer doesn't have a program that will qualify the buyer for the purchase, they wont consider the offer. It doesn't matter that a perfectly good loan and buyer is now going to purchase a home from someone else, for more money than Countrywide will approve them for, and that most likely they will buy from a private party instead of considering a foreclosed property because the Countrywide experience was such an incredible pain in the butt.

Perhaps Countrywide hasn't been watching the news...or maybe they enjoy having more foreclosed properties on their books than any other lending institution. Or, of course there is the fact that our government will spend our money infusing cash available for loans into the economy to make sure lenders like Countrywide have enough money to lend to get more mortgages, so lenders like Countrywide have the ability to be as selective as they want...where is the incentive to actually sell the properties! Of course when you originate 1 out of every 7 loans issued in the US and have borrowed over 14 billion dollars to bail yourself out from the bizarre variable rate interest only mortgages you were issuing to any mammal with a pulse a year ago, I guess normal intelligence and operating procedures just go out the window.

The really ugly thing is that the longer they sit, the worse they get and eventually Countrywide will have to come down even further to get their repos to sell, which in turn will lower the property values of the homes surrounding the home they were too shortsighted to sell to a good buyer.

I mean is it just me, or do other people see that there is maybe something wrong with this picture. I understand their desire to give an incentive to keep the loan in-house by requiring the buyer to qualify with them, but it just doesn't seem right to discriminate against a buyer or a lender they "don't trust". Seriously, isn't that what an earnest money deposit is for? So if the buyer fails to purchase, the seller has some recourse? Why not require a higher earnest money deposit? Or hey here's a novel idea, accept backup offers until closing. Require weekly updates from the lender until closing.

I am trying to imagine what would happen if a private party required all interested buyers to qualify for a loan to purchase their house from the sellers cousin Bubba of Bubbas Loans & Beer Emporium. I wonder what kind of Fair Housing Lawsuit would be brought up if ol Bubba didn't like the lender that the buyer was using and because his bank account was a bit low and his program wasn't able to work for the buyer that Bubba and his cousin with the house said "naw we don't trust that you can close, sooo you can't have this home"...

Maybe I'm just pissed because my client lost a deal and is now discouraged to the point where they feel buying a home is just too much of a hassle...

...or maybe there is just something a bit wrong with a seller be it a bank or a private party being able to dictate who a buyer can use as a lender...

For my part, from this point on I will make sure all my clients know that if there is another option besides a Countrywide owned property they would be very wise to avoid the hassle of dealing with a short sighted organization that is more interested in trying to steal loans from qualified lenders then they are in actually selling houses.

Discount rate doesn't mean discounted consumer loan rates

I recently had a buyer ask why their projected apr wasn't being adjusted down by their lender on a pre approval letter. They had heard about the "Fed cutting the rate" and assumed that meant that loans were going to immediately have lower rates as well.

The rate the fed cut, was the "discount rate" the rate that banks are charged by the federal government. The one to keep an eye on that has direct impact on consumer loans is the Federal Funds Rate. What has recently happened will create a bit more stability in the economy as a whole and may make loans more available, because banks will have more liquid assets to work with. The fed may actually lower the federal funds rate when they meet again in September, but they have held steady now for the last 9 sessions. If they do however decided to drop it, look for a quarter to half percent drop.

Encouraging Statistics for Las Vegas
The annual MLS statistics for homes sold through the Multiple Listing Service (resale homes) shows average prices are up, even though volume is still down. The stats actually show that while peaky, volume in general has increased.

This could be due to investors finally realizing what a great time it is to buy in Las Vegas. Especially if you don't have to SELL an existing home in this market to get the job done.

It is also very nice to be able to point to statistics that clearly show that our market isn't sliding back as far as pricing goes.

We will still see spikey sales prices, especially as more foreclosures come onto the market, but as a whole it seems the Las Vegas Housing Market is reflecting the good health of the Las Vegas Economy as a whole.

I firmly believe that those who see the potential right now and pick up investment properties will really benefit greatly in 2009 when the $30 billion dollars worth of construction is finished on the strip. When you consider that for every hotel room added, 1.5 to 1.8 jobs are created there is going to be a demand for housing and not just home ownership, but rental housing as well.

Again, it's a great time to buy!!!!

Looking for the burst bubble

I have heard and keep hearing about the "housing bubble" followed quickly by "the burst housing bubble"...I've pulled the statistics for Clark County, (basically Las Vegas and Henderson) and I definitely see a rapid increase between 2003 and end of 2005, but I'm having a tough time trying to find the rapid decrease, or that "burst" thing. What I found surprised me, because even though I've never bought into all of the doomsday rhetoric, I have noticed a slow down and a drop off in prices...here's what I found statistically;

I looked up the year end median sold price of detached SFR and Condos;

(Definition: Median is a mathematical result that indicates that one half of the group is higher and one half lower. Median price of 101 sold homes would be that price which is lower than 50 of the prices and also higher than 50 of them.)

Clark County SOLD Median Price

year end 2004

Single Family Detached-$275,000 Condo/Townhome-$170,000

year end 2005

Single Family Detached-$312,500 Condo/Townhome-$204,000

year end 2006

Single Family Detached-$306,100 Condo/Townhome-$196,000

June of 2007

Single Family Detached-$306,000 Condo/Townhome-$194,250

I think if you look at those statistics, you will also be a bit confused about that whole bursting thing...I mean when I eat too much and I "burst" out of my jeans, there is usually a loud ripping noise as the button blows off and of course the inevitable flow of protruding gut over my belt line...what I'm seeing above just makes me think of a slight bulge of gut still trapped behind my jeans after I've eaten a little more than I should. In other words something pretty obvious...picture Rosy O'Donnell in Paris Hilton's bikini...(now that would be a bursting)

Of course generalizing our market like this doesn't necessarily give a clear view for individual areas. There are subdivisions in Las Vegas and housing types that have actually gone up in value this year. The Spanish Trail subdivision is an example of a sub that has gone up, but where we are seeing strong sales right now is in High rise and mid rise living. As a whole though Las Vegas/Henderson has seen big slow downs in SALES VOLUME and a slight decrease in values. The averages I've seen are anywhere from about 2% to as high as 14% depending on sub.

Again, I'm just tired of hearing about how prices have dropped off so dramatically...subdivisions that had incredible increases, will also show more dramatic fall offs, but as whole over the last 4 to 5 years, values will be up. Unfortunately we live in a world where people stand in front of microwave ovens screaming, "Hurry Up, I want in NOW DADDY!!!!" (pardon the Verruca Salt reference) Real estate is an investment that you have to hang onto for about 3 to 5 years, usually, to see dramatic increases in value...Of course if anyone can show me statistical information supporting this bursting thing in Clark County, I'd love to see it....