For years now we have been harping on how distressed home sales put downward pressure on home prices all around them.

Close to twelve million borrowers are now in a negative equity position on their homes because so many other borrowers were unable to afford their mortgages. The logical assumption would then be that as foreclosures ease, organic home prices will rebound.

But what if the current, unique state of the housing market turns that assumption on its head?

Foreclosure sales now make up a full one third of the market nationally and far higher percentages in states like California, Florida, Nevada, and Georgia.

The supply of these properties has actually been dropping, pushing prices higher, even in the distressed category. There is huge investor and first-time home buyer demand for distressed properties at the low end of the market, and that has helped stabilize prices.

“We believe the distressed part of the housing market has already bottomed,” said Morgan Stanley analyst Oliver Chang on CNBC’s Squawkbox. “The bid that we see from the investor is the reason for this bottom.”

He sees further declines in organic home prices.

Why?

Banks have been very slow to release their repossessed (REO) inventory onto the market, not to mention that foreclosure processing delays have literally millions of properties still sitting in foreclosure limbo.

There is a dwindling supply of foreclosures and rising investor demand. Analysts keep pointing to overall falling inventories, but the current existing home sales pace doesn’t account for that drop.

The fact is that with so much of the supply distressed, and so few organic sellers putting their homes up for sale, the inventory drop is artificially skewed to the recent lack of movement in foreclosures and a crisis of confidence among potential organic home sellers.

Okay, so what about the fact that banks are ramping up the process now, which could put more properties on the market? That could boost supply, were it not for a new government program to sell foreclosures in bulk to large investors.

Chang says over $1 billion in investor capital has been raised over just the past six weeks to take advantage of this new program, and he claims this could add up to 1.8 million jobs. Property managers, renovators, rental agents, he says would benefit from these bulk rental investments.

Mortgage analyst Mark Hanson, however, disagrees.

He claims that individual investors will likely spend more on upgrades/renovations than bulk investors and will then sell to owner-occupants at a higher price, thereby not only stabilizing but increasing overall home values, while also juicing jobs.

“Due to epidemic effective negative equity (not having enough equity to pay a Realtor and put a down payment on a new house) the repeat buyer cohort has been cut in half since 2007. They now make up the minority of national resales,” says Hanson.

“Investors and first-time buyers ARE the real estate market,” he adds. “Investors and first timers want REO and short sales. Anything done to prevent the flow of distressed property will hurt the volume of existing home sales and all of the economic benefit that comes along with them. An REO-to-rent program will bring about record lows in monthly existing home sales volume. And volume precedes price.”

Hanson believes that when the distressed supply is choked off, by selling REO in bulk to rent, not re-sell, then the only thing you have left is meager organic sales.

“The housing market will implode,” he adds.

Yes, lower supply, in a normal market, would generally mean a return to home price appreciation, but that’s not the way today’s market is working because organic demand is still so weak and is hampered by tight credit.

There is even less demand for mid- to higher-priced homes.

“$200K to $300K is the new normal for home builders,” says Rick Palacios of John Burns Real Estate Consulting. “Since new home prices peaked in 2007, new single-family sales of over $500K have been more than cut in half, dropping from 13% to just 6% of all new home transactions.

The existing home market is much the same, with the bulk of sales and demand in the very low price tiers. It just goes to show that in the historic recovery from an historic housing crash, the usual rules just don’t apply.

If you have any questions about this or any other mortgage questions, please call or text Scott Groves at (818) 679-5188

The Consumer Financial Protection Bureau has developed a proposed standardized mortgage servicer statement designed to provide clear information about the loan on a single page.

The prototype released Monday included a breakdown of how much of the monthly payment went to principal, interest and escrow. The form also detailed the outstanding principal, maturity date, prepayment penalty and, for adjustable-rate mortgages, the time when the interest rate could change.

The agency posted a working draft of the standardized statement on its website, http://www.consumerfinance.gov

If you have any questions please either call or text Scott Grovesat (818) 679-5188

 In an effort to cut their losses, banks are paying some struggling homeowners as much as $35,000 to sell their homes before they end up in foreclosure.

The deals are aimed at incentivizing homeowners who owe more on their home than it is worth and who are seriously delinquent on their payments to sell their homes in a short sale.

This new approach by the banks has startled plenty of homeowners, according to Elizabeth Weintraub, a Sacramento-area real estate agent who specializes in short sales.

“Initially, the homeowners are skeptical,” she said. “The bank may have already turned down their request for a modification. Then, one day, they call and say, ‘Let us give you some cash.’”

When Chase Mortgage (JPM, Fortune 500) told Angelique Pierce, that she would receive a check for $25,000 if she sold her house, she couldn’t believe it.

“I got the offer in the mail,” said the Rancho Cordova, Calif. resident. “I called my bank to ask if it was real.”

After Pierce became disabled a few years ago and had to stop working work, she fell behind on payments on both her first and second mortgages, valued at $250,000 and $50,000, respectively.

Now, she’s trying to sell her three-bedroom ranch for just $95,000 — almost half of the $179,000 she paid for the place in late 2002.

From the bank’s point of view, the offers make sense, according to Tom Kelly, a spokesman for Chase Mortgage, who would not comment on Pierce or other individual cases. “The first choice is a modification but if that’s impossible than a short sale is a faster, more efficient solution,” he said.

For the banks, foreclosure has become an increasingly difficult and expensive option. Homeowners have learned to fight the banks tooth and nail, dragging out cases for years.

And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they’re out tens of thousands of dollars.

“I’ve seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again,” said John Hayton, a short sale specialist in Orlando, Fla, who has had a number of clients receive offers from the banks.

Short sales also command higher prices than foreclosed homes. In December, foreclosed properties sold for an average of 22% less than conventional sales, while the discount for short sales was only 14%, according to the National Association of Realtors.

All that has been true for years, but it is only lately that these outsized incentives, which Bloomberg recently reported on, have surfaced.

Sellers are more cooperative when they’re going to receive a five-figure check for their troubles.

Nick Chaconas, an agent with discount broker Redfin, wondered why one seller was so anxious to sell their home. “Since I represent the buyer, I didn’t even know about the incentive until the closing,” he said.

It turned out that the seller’s bank was writing her a check for $30,000.

Whether sellers can expect incentives from their banks depends on multiple factors, including where they live.

Wells Fargo (WFC, Fortune 500) limits its offers to certain states, such as Florida, where the foreclosure process can be lengthy, according to spokeswoman Veronica Clemons. The bank has paid $10,000 to $20,000 to borrowers who short sell or transfer their title to Wells via a deed-in-lieu.Bank of America (BAC, Fortune 500) had a pilot program in Florida that paid incentives of $5,000 to $20,000 for sales that were initiated between Sept. 26, 2011 and Nov. 30, 2011 and close by the end of this August. The amount of the incentive is based on 5% of the unpaid balance, with a $5,000 minimum and $20,000 maximum.

If you have any questions, please call or text Scott Groves at (818) 679-5188

Homeowners would have to be current on their mortgage payments for the last six months and have missed no more than one payment in the previous six months. Homeowners also would need a credit score of at least 580. Also, homeowners would have to be no more than 40% underwater on the loan, owing, say, $140,000 on a home now worth only $100,000. Obama also proposed that Congress set new guidelines for loans that are more deeply underwater.

To speed approvals, lenders would need only to confirm that the homeowner has a job. Borrowers would not need to submit tax returns or get a new appraisal of the property. Unemployed homeowners also would be eligible for the refinancing plan, but would be required to provide more detailed financial information.

The program would be open only to mortgages below the FHA’s conforming loan limits, which are $271,050 in low-cost areas and $729,750 in Southern California and other high-priced markets. By refinancing, borrowers would save an average of $3,000 a year. The cost of the program would be to cover the increased risks for the FHA, which would back the refinanced loans.

I don’t know what the outcome of this plan is going to be but needless to say this is already a huge topic for the upcoming elections.

If you have any questions about refinancing, please call or text Scott Groves at (818) 679-5188

The Federal Housing Finance Agency (FHFA) announced the first step of a Real-Estate Owned (REO) Initiative targeted to hardest-hit metropolitan areas announced in August 2011. Investors interested in participating may “pre-qualify” to establish eligibility to bid on transactions in the initial pilot phase as well as subsequent phases.

The REO Initiative will allow qualified investors to purchase pools of foreclosed properties with
the requirement to rent the purchased properties for a specified number of years. This rental
period could provide relief for local housing markets that continue to be depressed by the
volume of foreclosed properties, and provide additional rental options to certain markets. Prequalification ensures investors will have the financial capacity and operational expertise to
manage properties in a way that is conducive to the stabilization of communities hard hit by the
housing downturn.

The REO Initiative was developed in conjunction with the Treasury Department, Department of
Housing and Urban Development, Federal Deposit Insurance Corporation, Federal Reserve,
Fannie Mae and Freddie Mac. The Initiative was informed by meetings with stakeholders and
review of more than 4,000 responses to a Request for Information (RFI) seeking input on
options for selling single-family REO properties held by Fannie Mae, Freddie Mac, and the
Federal Housing Administration.

“This is an important step toward increasing private investment in foreclosed properties to
maximize value and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “I
am grateful for the collaborative effort by the many stakeholders including investors, nonprofit
organizations, and state and local government officials, who have worked together on this
Initiative.”

During the pilot phase, Fannie Mae will offer for sale pools of various types of assets including
rental properties, vacant properties and non-performing loans with a focus on the hardest-hit
areas. The first transaction will be announced in the near-term. The pre-qualification will require those interested in receiving information regarding specific pilot transactions to meet certain minimum criteria including, but not limited to, (a) financial wherewithal to acquire the assets; (b) sufficient experience and knowledge in financial and business matters to analyze and bear the risks of the investment opportunity; and (c) agreement to keep certain information about the REO and related matters confidential.

Interested investors can register at FHFA’s REO Initiative page to pre-qualify. FHFA is also looking at ways to improve REO sales to homeowners and small investors, enhancing the existing retail sales strategy at Fannie Mae and Freddie Mac. Both companies sell the majority of their REO properties to owner-occupants at close to market value. The purpose of the pilot phase will be to examine investor interest in various types of assets, including the location, size, and composition of pools of assets; the ways in which investors maximize the participation of experienced local firms and organizations that can provide the types of services and support needed to ensure community stabilization; the types of structures and/or financing that improve returns to the sellers as well as home values in impacted markets; and the process by which investors are qualified to and ultimately participate in the sales transactions.

If you have any questions please call or text Scott Groves at (818) 679-5188

 Though its demise drew little attention because of the partisan year-end brawl over the payroll tax cut extension in Congress, a key mortgage financing benefit disappeared at the end of December: the ability of large numbers of home buyers and owners to write off the premiums they pay for mortgage insurance.

The loss of that tax deduction — plus mandatory new fees imposed by Congress on all new conventional and FHA loans — could effectively increase the costs of homeownership this year.

The expiration of mortgage insurance deductibility will hit many low-down-payment conventional loans originated since 2007, plus virtually all new mortgages closed this year whose down payment is less than 20%. Though industry experts do not have precise numbers, their estimates range into the millions for existing owners and new buyers potentially touched by the deductibility termination. Borrowers using guaranteed veterans (VA) and rural housing loans, whose down payments can drop to zero, also are affected.

The change in the law took effect Jan. 1 along with the expiration of 58 other tax code benefits that Congress failed to renew, such as credits for home energy improvements, credits for builders of energy-efficient houses and deductions for state and local sales tax payments. They were all components of what would have been an annual “tax extenders” bill authorizing continuation of relatively noncontroversial expiring benefits for another year or more. Congress could still reauthorize all or some of the write-offs retroactively this year, but the political atmosphere on Capitol Hill raises doubts about the timing of that scenario.

The mortgage insurance premium deduction dates to legislation enacted in 2006. It allows buyers and refinancers who use either private mortgage insurance or federal insurance or guarantees, and who itemize on their federal tax returns, to write off their premiums. Borrowers who are single or married and filing jointly with adjusted gross incomes of $100,000 or less can write off 100% of their annual mortgage insurance premiums. Married homeowners filing singly can write off 50% of premiums. Borrowers with incomes above $100,000 may qualify for partial deductions on a sliding scale.

In many cases, the post-tax savings for these borrowers are significant. New buyers with an income around $100,000 and a mortgage of $200,000 would save between $600 and $1,000 a year, depending on their credit score and loan-to-value ratio, according to MGIC, one of the largest private mortgage insurers in the country. For households with lower incomes, the effect would be less, depending on their marginal federal tax brackets.

David Stevens, who served as Federal Housing Administration commissioner and is now chief executive of the Mortgage Bankers Assn., says the loss of deductibility of mortgage insurance hits a segment of consumers — middle-income and first-time buyers — “where affordability is especially important.”

But mortgage insurance was not the only housing-related casualty of the pre-Christmas skirmishing. As part of the temporary extension of the payroll tax cut, negotiators tacked an unusual provision that raises fees on most conventional mortgages — those originated for sale to or guarantee by Fannie Mae and Freddie Mac.

Starting in April, Fannie and Freddie will impose a surtax on the guarantee fees they charge private lenders equal to one-tenth of 1%. Lenders are virtually certain to pass those fees to consumers in the form of a higher note rate or loan charges upfront. Industry estimates suggest that the surtax could add an eighth of a percentage point to rates and raise costs to borrowers over the life of the loan by more than $4,000 on a $200,000 mortgage.

Unlike standard guarantee fees, which are used by Fannie and Freddie to defray loan-default expenses, the new funds will be sent directly to the Treasury to help pay for the $36-billion cost of the temporary payroll tax cut. FHA loans also will be hit with a fee increase by the payroll bill, raising the annual premiums the FHA charges new borrowers by one-tenth of a point.

At a time when the Federal Reserve is warning that there can be no broad economic improvement until housing recovers, it may strike the public as odd policy to raise costs for home buyers and refinancers to fund unrelated, temporary tax relief. But that’s not the way they saw it on Capitol Hill in the rush to holiday recess.

Bottom line: The mortgage insurance deductibility problem may disappear if mortgage insurance gets included in an election-year “extender” package. But the fee hikes on most new mortgages are here for the foreseeable future, so factor them into your housing budget.

If you have any questions feel free to call or text Scott Groves at (818) 679-5188

 Metlife’s mortgage division closed their doors last week.  Most of the 4,500 employees with Metlife will be losing their jobs in the next 90-180 days.   Apparently they will continue to take rate-locks and new submissions until Friday January 13^th and have promised to close out their existing pipeline in a timely manner.

 However, it appears that all pre-approvals and files not locked or submitted by last Friday will be voided. 

You can find the entire story here:

http://www.chicagotribune.com/business/sns-rt-us-metlifetre80929q-20120110,0,5164614.story

http://www.businessweek.com/news/2012-01-10/metlife-exits-mortgage-business-most-of-4-300-will-lose-jobs.html

 I’m always upset to see any company within my industry fail.  However, I can’t help but find these events to be a testament to the sound business practices of my company and the financial strength of our parent company.  Additionally, there are several lenders I know at Metlife that may be migrating over to our company and we welcome these producers with open arms.

 Furthermore, yesterday, B of A announced to their staff that they will no longer be accepting applications for cash-out refinances.  This is just another example of how our competitors are attempting to shrink their mortgage business.

 If you have any questions about these developments, please don’t hesitate to call Scott Groves (818) 679-5188

1. The home will be sold “as is.” Unlike a traditional home purchase, you can’t necessarily expect a foreclosed upon home to be well maintained. It takes some time for homeowners to default on their mortgage, and generally their finances have been strained for some time prior to the foreclosure. That means they may not have had the funds necessary for maintenance. Also, there have been some (relatively rare) instances of “foreclosure rage,” wherein the defaulting owner leaves the house a mess for the bank and new owner. Once the home is bank owned, the bank may not spend its money on repairs, no matter how badly they are needed. This also means that you cannot expect to get any money from the bank toward necessary repairs (though you can sometimes negotiate for a lower purchase price).

When buying any home, you owe it to yourself to get a home inspection, but it is particularly important when purchasing a foreclosure. The inspection will give you a clear-eyed view of how much work you are getting into by taking over the home.

2. There is a great deal more red tape and paperwork than in a traditional sale. Closing on a foreclosure could take a great deal longer than you might expect if you have only ever made traditional home purchases. First, the bank does not have the same motivation to close quickly that a homeowner does, as it does not need to move in time for the next school year or to avoid carrying double mortgages. So your closing may be held up by a backlog of foreclosures sitting on a bank manager’s desk. Second, it’s vital that you take the time to investigate all liens on the foreclosed property. While this will protect you from nasty surprises (like owing back taxes!), it also lengthens the process of purchasing the home.

Due to the possibility of liens, it is vitally important that buyers of foreclosures acquire title insurance to protect themselves.

3. Remember that the word foreclosure doesn’t mean bargain. Depending on the circumstances behind each sale, you may not be getting the steal you may think you are. Banks want to recoup as much money from the sale of the house as possible, so they will not let the house go for a song if they can help it. It’s important to research the houses in the surrounding area to know what the market value is and if the area has become depressed due to high foreclosures. It’s also important to factor in the cost of repairs and catching up on deferred maintenance into the amount you save by buying a foreclosed home.

Purchasing a foreclosure can be a path to home ownership that will save you money, but it’s vital that prospective buyers keep their eyes open throughout the process.

If you have any questions about foreclosures, please call or text Scott Groves at (818) 679-5188

Metlife’s mortgage division is closing their doors. Most of the 4,500 employees with Metlife will be losing their jobs in the next 90-180 days. Apparently they will continue to take rate-locks and new submissions until Friday January 13^th and have promised to close out their existing pipeline in a timely manner.

 However, it appears that all pre-approvals and files not locked or submitted by this Friday will be voided.

 You can find the entire story here:

 http://www.chicagotribune.com/business/sns-rt-us-metlifetre80929q-20120110,0,5164614.story

http://www.businessweek.com/news/2012-01-10/metlife-exits-mortgage-business-most-of-4-300-will-lose-jobs.html

I’m always upset to see any company within my industry fail.  However, I can’t help but find these events to be a testament to the sound business practices of the company I work for. Additionally, there are several lenders I know at Metlife that may be migrating over to my company and we welcome these producers with open arms.

 If you have any questions about these developments, please call or text Scott Groves at (818) 679-5188

This has been talked about since back in August, when the Federal Housing Finance Agency, the Treasury Department and the U.S. Department of Housing and Urban Development announced they were seeking suggestions on ways to dispose of repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.

In addition to getting the properties off the government’s books, officials are hoping putting the homes back into productive use will stabilize neighborhoods and housing values. Also, it is looking to expand the supply of rentals, which are increasingly in demand. As of right now Administration officials are still trying to iron out the program, stay tuned.

If you have any questions about foreclosures, please call or text Scott Groves at (818) 679-5188