Bay Area Real Estate Trends

Fat Tuesday Reading

Greg Fielding — Tue, 21 Feb 2012 18:09:14 +0000

Housing

Foreclosure Auction Buyers Are Breaking and Entering Into Homes – Patrick.net

http://pastebin.com/KrnzPYjH

-Before you go to auction you need to actually scout the houses. Its common for previous owners to gut the house or completely remove the kitchen. It was my job to drive to these houses and asses them, damage, repairs cost ect… Part of this was getting into the house witch were many times locked, so we would B&E all day, every day. If you could gain access a lot of times we would try and block as many windows and secure the house as much as possible. If I could block any view of the kitchen, other competitors will have to assume another 10K in cost because they cant verify an intact kitchen.

Quelle Surprise! Servicers Rip Off Investors as Well as Homeowners - Yves Smith

For Women, Is Home Really So Sweet? – WSJ

Just as the “marriage crisis”—the fact that we are marrying later and less—has given us the opportunity to rethink traditional marriage as society’s highest ideal, the housing crisis is our chance to reconsider the centrality of homeownership to the national psyche. Buying a home still works for many people, but it should no longer be taken as the embodiment of the American dream.

Home Depot shines as warm winter helps sales – Reuters

The world’s largest home improvement chain also gave a better-than expected profit forecast for the year, just days after a report showed U.S. homebuilder sentiment had risen in February to its highest level in more than four years. That report raised hopes that the housing market was stabilizing.

Massachusetts Home Seizures Threatened in Loan Case – BusinessWeek

The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.

“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.

Economy & Europe

What Austerity Hath Wrought – The Atlantic

The Greek Debt Deal is Done … For Now - Tim Iacono

The improbable Greece plan – Felix Salmon

More to the point, the plan assumes that Greece’s politicians will stick to what they’ve agreed, and start selling off huge chunks of their country’s patrimony while at the same time imposing enormous budget cuts. Needless to say, there is no indication that Greece’s politicians are willing or able to do this, nor that Greece’s population will put up with such a thing. It could easily all fall apart within months; the chances of it gliding to success and a 120% debt-to-GDP ratio in 2020 have got to be de minimis.

Europe’s politicians know this, of course. But at the very least they’re buying time: this deal might well delay catastrophic capital flight from Greece, and give the Europeans more time to work out how to shore up Portugal if and when that happens. Will they make good use of the time that they’re buying? I hope so. Because once the Greek domino falls, it’s going to take a huge amount of money, statesmanship, and luck to prevent further dominoes from toppling.

Surging gas prices threaten to derail economic recovery – LA Times

Misc.

Happy Late Birthday Ansel Adams (Feb 20th)

Envisioning a Post-Campus America – Megan McArdle

Dead for 32,000 Years, an Arctic Plant Is Revived – NY Times

2012 James Beard Award Semifinalists announced, with lots of Bay Area faces - SF Gate

If I saw an REO I really liked….

Tom Stone — Tue, 21 Feb 2012 01:26:30 +0000

I might well do a little homework and make an offer. I’d take a look at the methodology Aequitas used in their SF audit and the Methodology McDonnell Property Analytics used in their Massachussets Audit and then look at the paperwork at the county Recorder’s office. Since 84% of the foreclosures looked at in SF did not comply with California Foreclosure Law I have a very good chance of finding something that looks ugly. I’d pay for copies if I did, talk to a lawyer about the cost of a “Quiet Title” action and the probability of success in this particular case ( I might run a background check on the foreclosed party as well to see what shape they are in). At that point, if things looked good I’d send an offer to the listing agent, a LOW offer. And I would include what my research had revealed about the problems with the foreclosure…once the listing agent is aware of a material fact they must disclose that information to any potential buyer. The bank would certainly want me to sign an agreement to hold them harmless in the event of any irregularities with the foreclosure, but if the price is good enough and the odds of prevailing in a “Quiet Title” action high enough it would be something to consider. I wouldn’t mention what I thought the odds were of prevailing in a “Quiet Title” action to the listing agent, I would simply mention the cost, time involved and uncertainty. Is it a gamble? yes. But it would be a very good gamble in some cases. It’s risk rather than uncertainty, but it is not the kind or amount of risk that is appropriate for most people.

A few comments on Short Sales

Tom Stone — Tue, 21 Feb 2012 01:10:39 +0000

My first listing was a short sale, I was smart enough to colist with an agent in my office who had a lot of experience doing them. I was Mr outside and she was Ms inside. It worked well and we got the deal through in pretty good time. These days I would probably just refer the Short Sale to her as most agents in my office do, even agents with decades of experience. Short Sales are a different kind of deal and experience counts. If you are considering doing a Short Sale, please use someone who has experience, it increases the probability of getting the deal done substantially. And please don’t wait until a week before the home is due to be auctioned, I get those calls and the chance of getting the auction delayed is small. When I look at a Short Sale for a Buyer I can sometimes get a feel for how experienced the listing agent is by the information provided in the remarks on the MLS. If the remarks say whether there is one loan or two, mention whether the list price has been approved by the lender (s) and the commission field states that “Commissions shall be reduced equally between listing and selling offices if the lenders reduce the commissions to be paid” I am likely dealing with an agent who has some idea of what they are doing. When I call the listing agent I’ll ask whether a Notice of Default or Notice of Trustee’s sale has been recorded, ask whether the listing agent has been in touch with the lenders and so on. This gives me a good idea about whether this is a doable deal and worth pursuing or a waste of time for my buyer. If the listing agent is competent it also establishes that I am familiar with the process and likely to be someone they can work with. Short Sales are being dealt with much more efficiently in 2012 than they were in 2010, frequently closing in 60 days or less. I am much more comfortable with Short Sales than REO because the degree of risk is much smaller and easier to gauge.

CURRENT WORLD RECESSION: THE BIG PICTURE

c21terry — Mon, 20 Feb 2012 19:50:48 +0000

This week I attended a webinar sponsored by a major investment firm. One of the company’s chief advisors, with 33 years of experience, gave his thoughts on where the world economy is right now and what might happen in 2012. I am certainly not an economist. And not all economists are in agreement as to what is happening right now. That said, what I heard was clearly a cautionary tale. Here are some of the highlights:

-The governments of the world are drowning in debt. In 2003, worldwide government debt was about 73% the the gross domestic product (GDP). At the start of 2012, government debt stands at 106% of GDP. (Anything over 90% is a real danger signal.) This represents a debt increase of 45% in just nine years. Not good. We are on the verge of seeing countries declare bankrkuptcy.

-Government debts are increased by the printing of money. The European Community has been printing euros at an unprecented rate. There has been a 44% increase in euros in circulation from June 2011 to December 2011! There will be another “gusher” of a printing by the end of February 2012. If you combine all central banks (except forGreat Britain), the world money supply has increased from $5 trillon in 2006 to $15 trillion in 2011. The use of money to hide current world economic problems is called quantitative easing. Frankly, it is a technique associated with “banana republics”. This technique is being used to distort the current recession to make it appear smaller. The long term effect of printing money will be big time inflation.

-The prices of commodities are going up faster than the cost of making products. This is very bad for companies that produce things. It now costs more to make many things that what the consumer pays for the product. Companies are losing money and this cannot go on indefinitely.

-Consumers are making less money and spending more money. By the end of 2011,U.S. consumer spending (year over year) was up 6% while disposable income was down 3%. So how did consumers achieve the monetary slight of hand? From 2006 to 2011, personal savings were down 50%. We are drawing on our investments and retirement accounts to keep our consumer spending habits the same. Our government is also helping. Remember all that printed money. In 1960, government subsidies to Americans represented about 6.6% of each American’s disposable income. These subsidies include everything from unemployment compensation to social security to Medical. The list is huge. In 2011, government subsidies represent about 20% of disposible income. This is an example of how quantitative puts a band aid on the current economic troubles.

-Past recessions indicated that we have not bottomed out in the current recession. In each of the last three recessions (1901-1920, 1929-1949, and 1966-1982), there were three major shocks within each recession. In the current recession, there has only be one shock (2007 banking crisis). History indicates that there are still some big bumps in the road. If you plot the last five recessions and overlay the current recession, the similarity of the figures is almost scary. What is even more scary is that in only one of the previous five, would we be at the ending point of the recession right now. The other four indicate that there more economic hard times ahead.

-What happens if future quantitative easing is not possible? There are three scenarios which could end the use of quantitative easing. 1) Inflation really gets on a roll (literally a roll of bread could cost $100), 2) The market refuses to buy government bonds because they are too risky or 3) Through the election process (many big countries have national elections scheduled for 2012), the new governments decide not to print any more money (don’t bet on this one to happen!) If government does not use subsidies make up the gap between what consumers spend and what they earn, there will be major repecussions to the entire economic system.

-What does 2012 look like economically? There is a pretty good chance that the world economy will muddle through 2012. Truckloads of money will be printed which will be a problem of future generations and we will see what happens next. There is a chance for some positive economic news in theU.S. for 2012. We are already seeing some good signs in the job market. This is the area to watch. Jobs lead to income which reduces the need for government aid. InEurope, things will not be so good. Several countries (Greece, Portugal etc.) are very shaky. It is probable that countries will leave the European Union. They will forsake the euro, and starting printing their own money again (and lots of it!). While it is uncertain what the full impact will be, it doesn’t seem like it will be a good thing.

On a positive note, historically the best time to do well financially as an individual is when the big picture looks so bleak. Individual ingenuity, creative thinking and a positive attitude can turn a societal problem into an individual triumph. Think for yourself. There are huge financial opportunities inside the current system for those willing to think things through.

Tagged: Banking and Finance, Consumer Spending, GDP, National Debt, Quantitative Easing, recession recovery

Presidents’ Day Links

Greg Fielding — Mon, 20 Feb 2012 19:43:58 +0000

Housing

San Francisco Foreclosure Audit Elicits Predictable Responses from Securitization Mess Deniers - Yves Smith

Shocking Economic Insight – Mass Foreclosures Will Drive Down Home Prices - Yves Smith

BLAIR NICHE PROJECT – Dwell

At just $167 per square foot, this high-design, low-cost barn in rural Wisconsin is an American idyll.

Mortgage Delinquencies by Loan Type - CR

Foreclosure process is ‘utterly broken’ - OC Register

Economy & Europe

Germany drawing up plans for Greece to leave the euro – Telegraph

Why Greece Must Exit the Eurozone, How it Will Happen (and Why Portugal and Spain Will Follow) - Mish

UH OH: Gas Prices Are Getting Close To The Magic Freak-Out Point – Business Insider

Misc.

John Galt Is A Crybaby And So Are You – Our Future

Brown Pins Legacy To California’s High-Speed Rail Plans – CBS 5

How a Man Survived Without Food For Two Months in a Snow-Buried Car – Gizmodo

The key is the accompanying drop in temperature. When the body gets cold, its core temperature—right inside your torso, the temperature at which your vital organs operate—drops in order to slow your metabolism. If you get hypothermic, your heart rates slow, and your body uses less energy and oxygen.

Will it get harder to finance Bank owned Homes?

Tom Stone — Mon, 20 Feb 2012 18:17:47 +0000

I corresponded with several Real Estate Attorneys a couple of years ago when the language in CLTA and ALTA title insurance policies changed to exclude defects in the chain of title due to an improper foreclosure and was told it was no big deal because foreclosures were routine procedures in california and the likelihood of an improper foreclosure was low. The results of SF Assessor/Recorder Phil Ting’s audit of foreclosures changed that perception. The statement by the spokesman for Aequitas that banks are routinely inserting a “Hold Harmless” agreement in their sales contracts for REO is a big red flag. If I were on a risk management board or had any responsibility for underwriting I wouldn’t loan a dime on an REO with such a “Hold Harmless” clause. Why not? The collateral is impaired at the least. The Attorney I spoke to about this new development teaches classes in Real Estate Law and is very sharp and very ethical. His advice to me was “Tom, if you see a “Hold Harmless” clause like this tell your clients to run away!”. Does this mean you shouldn’t consider an REO? Not at all, just be aware of the risks. REO from Portfolio lenders are less likely to have problems. Even in cases where there has been egregious wrongdoing there is little likelihood that those who were illegally foreclosed on will pursue legal remedies, they lack the financial and emotional resources to do so. If you already have purchased an REO and are concerned that there may be a problem with your title you can have a competent attorney file a “Quiet Title” action on your behalf. It takes a little time and the quotes I have heard run from $10-$15k and about 6 months in time. It would be nice if corporations were held to the same standard of conduct that other “Persons” are, perhaps if enough of us make a stink they will.

What inning is it for the housing market recovery?

Jay Wiedwald — Sun, 19 Feb 2012 03:14:10 +0000

Some recurring questions in the residential real estate story are, “How far along are we? When will the housing market be “normal” again?” Well, we could debate the meaning of “normal” forever and a day, but one way to add to our knowledge is to estimate how many mortgages are yet to default, or homes lost via short sales.

Since this is a local blog based in the SF Bay area and focused primarily on the East Bay, I have been collecting some data that will hopefully be relevant. For the past seven years I’ve been using public records to track foreclosures in Alameda County. Not tracking by borrower or location, but by the date the loan (the Deed of Trust) was filed. So we can get a picture of how loans have performed by their vintage, and perhaps project into the future.

One way to look at this is cumulative foreclosures as a percentage of loans made, which is shown below.

Probably the first thing to note are the trends. We can see that there was essentially exponential growth until late 2008, then a bit of a lull followed by rather steady trends since then. Each vintage, however, seems to have its own “personality.” For the time-being let’s remove 2004 and 2008 from the discussion. Both are minor contributors, and while 2008 has the potential to grow it is a long way from matching the damage that 2005-2007 loans have, or likely will, make. [Besides, there weren’t many loans made in 2008.]

Although the 2006 vintage may be losing some steam, the trend of foreclosure rates for those 2005-2007 loans is still substantially positive.

Now for some details and caveats. A cumulative foreclosure rate of 8% may not seem very frightening, but this is the percentage of all secured real estate loans that were recorded by the county. These include second mortgages and home equity loans, which are not likely to be foreclosed on as they are behind any vulnerable first mortgage. There was also a lot of refinancing activity during that period, and while some used the opportunity to take cash out of their homes, most long-term home owners were simply seeking a lower interest rate without increasing their debt. In short, the importance of the absolute value of the foreclosure rate is difficult to evaluate.

The trends are more interesting, but there are caveats there as well. But first, let’s look at the same data, this time displayed as a percentage of homes sold.

Suddenly the foreclosure percentages get our attention! The number of 2006 Alameda County loans that have been foreclosed is 56% of home sales that year!

Of course, it isn’t just purchase loans on 2006 home sales that have been foreclosed; some of those foreclosures were the result of cash-out refinancing of homes bought previously, sometimes by more than a decade. Statistics from city of Oakland foreclosures indicate that about 1/3 of foreclosures have been on refinanced loans. If that fraction holds for the county, then 37% of homes bought in 2006 have been foreclosed; and 2005 and 2007 loans are not far behind.

But there is another factor to be reckoned with: short sales. These don’t show as foreclosures, but have the same effect in that they remove that loan from the still vulnerable pool. I haven’t been tracking short sales county-wide, but in Oakland there has been about one short sale for every two foreclosures. Furthermore, the ratio of short sales-to-foreclosures has been steadily climbing, and was particularly high the last quarter of 2011. This may explain the apparent “tapering off” of the foreclosure rates in the charts, they’re being replaced by short sales.

The bottom line…well, I’ll leave much of that to you. But my succinct interpretation/guess is that while the rate of foreclosures (plus short sales) will gradually taper off, ultimately 40%-50% of loans made during 2005-2007 are yet to fail, but fail they will.

In baseball terms, we’re in the fifth or sixth inning.

Finding a good agent

Tom Stone — Sat, 18 Feb 2012 05:03:14 +0000

I would have no hesitation referring a buyer or seller to Greg, or to Andrew Jeffrey. I have corresponded with them enough to know that they are competent professionals. I would tell the person I sent their way to talk to them at enough length to see if they are compatible. Ask your friends and relatives who they used and how happy they were with the service that was provided. If you get a name, talk to the agent about the neighborhood and the kind of home involved and get a feel for how knowledgeable they are and whether your styles are compatible. However you get the name, take the time to really get a feel for the agent you are considering, do they listen well? Ask intelligent questions? Respond to your questions in a thoughtful and knowledgeable way? All good agents remember that they are agents and that they have a duty to put the interests of their principal before their own. The best business I get is from word of mouth referrals and that is true for most agents. Over the last few years I have had people say to me “Tom I prefer to deal with a woman, do you know someone?”, “Tom, I have always dealt with (Name a brokerage) and I want to keep doing that, can you recommend someone there?” and “Tom, I want to deal with a small local outfit, not a big operation like yours, who do you recommend?”. I give them a name or two and build a little goodwill which is always a plus. If you spend half an hour talking to someone you should get a good feel for their character and their knowledge of the market.

REO nightmare

Tom Stone — Fri, 17 Feb 2012 16:03:33 +0000

http://aequitasaudit.com/images/aequitas_sf_report.pdf If the link did not work you can find a discussion of the audit commissioned by Phil Ting at “Credit Slips” or “Naked Capitalism. The SF chronicle covered this story and according to their reporter there were some paperwork problems with foreclosures done over the last few years in SF, no big deal, move along. I read it and disagree. This was a random sampling of 382 foreclosures and 84% had serious flaws, in 46% of the cases possession of the property was taken by someone who was a stranger to the title. Think about that for a minute. The study describes those 46% as void foreclosures meaning they had no legal effect. And those houses were resold. There were more than 3,000 foreclosures completed during the time period this study covers….For simplicities sake call the void foreclosures 50% of the total, the number of foreclosures 3,000 exactly and assume every sale was $500k. $750 Million down a black hole. People who “Bought” these homes did not get valid title because they bought from someone who did not own or have a right to sell them. Can they sue the banks and lenders who “Sold” them these homes? It depends on the language of the contract the buyer signed, if there was a “Hold Harmless” agreement in there tough luck. How about the title insurance company ? The language in title policies changed a couple of years ago and as I understand it you are not covered (I am not a Lawyer, have a competent attorney review the policy). How about suing your agent? that probably won’t fly either, the language was in a contract you voluntarily signed and claiming you did not understand it…..good luck. Would I personally buy an REO? Yes, if it was from a portfolio lender, maybe even one that had been taken back by a major bank if it did not have a “Hold Harmless” agreement. What about those roughly 1500 people in SF who bought homes from someone who had no right to sell them?? No clue, it’s a mess. They might try filing an action to quiet title, spend $10-$15k and 6 months. It’s worth a shot if you put $100k down and borrowed $400k to buy a home you don’t have clean title to. Think about the nightmare if someone comes along who DOES have a legal right to the home and tries to enforce it. Oh, this is the FIRST audit of an assessor’s files to be done in California. For some reason none of the county DA’s have had the resources to look into this little problem and neither has the State Attorney General Kamala Harris. It may be a coincidence that Kamala Harris became comfortable signing the Mortgage Fraud Settlement without doing any investigation shortly before she became a frontrunner to be appointed to the Supreme Court.

Stop Complaining! Mortgage Standards are NOT Tight

Greg Fielding — Thu, 16 Feb 2012 20:15:10 +0000

I’m tired of NAR and the rest complaining that lending standards are tight. And that a housing recovery is being held back by unnecessarily-tight lending standards.

Phooey. Thanks to the FHA, people with mediocre credit and hardly an cash can still borrow obscene amounts of money.

In the Bay Area for example, to purchase a $700,000 home with an FHA mortgage, a buyer would need:

$24,500 down-payment (which could be a gift from Mom & Dad)
$14-$15,000 for closing costs and prepaid expenses (which could also be a gift from Mom & Dad or credited from the Sellers)
A mid-FICO score of 640 (the middle score from the 3 credit bureaus)
2 months of reserves in the bank ($9,485)
All collections issues cleared up on their credit (harsh, I know)
2 years employment at the same job, but there could be some flexibility
A back-end Debt-To-Income ratio of up to 50%, meaning:
- if the monthly PITI (plus mortgage insurance) for this purchase is: $4,742.52.
- then the gross monthly household income needs to be $9,500 – or $114,000 per year.
- (If there are car payments, student loans payments, or regular revolving credit card payments, then those amounts would be added to the $4,742.52 and income would need to be a little higher to achieve the same 50% back-end ratio. For example, if there were $500 monthly student loan payments, monthly income would need to be $10,500.)

Here’s the calculation breakdown:

Loan amount of $682,255 (includes 1% FHA fee)
Interest Rate of 4%
Monthly payment is $3,289.76 plus:
- $75 insurance
- $729.17 property taxes
- $648.59 in FHA mortgage insurance

So with as little as $9,485 in the bank, a 640 credit score, and a gross household income of $114,000, you can buy a $700,000 home in the Bay Area.

Please stop whining about how restrictive lending standards are today.

Tagged: Debt-to-Income, FHA, fha mortgage insurance, Lending Standards