Archive for 'Foreclosed Homes'

Many Americans have been asking if the Obama administration’s Making Home Affordable program which was launched to address the problem of large numbers of foreclosed homes nationwide is working.

Critics have been complaining that the program has not made a dent on foreclosures, particularly after the release of data showing that foreclosure filings in May still surpassed the 300,000 level.

But federal housing officials, several housing organizations and supporters of President Obama have been insisting that the program has prevented huge increases in foreclosed homes, citing figures of homeowners helped in the thousands.

Since there is no mechanism yet established to monitor the results of the Obama program to contain foreclosed homes, personal stories of those who applied for the program can perhaps give a glimpse of how the program is working.

A home loan consultant in Phoenix, Arizona lost his mortgage consulting business when the subprime crisis began. Last year, he applied many times for the Hope for Homeowners program but was rejected every time.

In February this year, he wrote to his primary lender, Aurora Loan Services, and his second mortgage holder, Washington Mutual, and told them he could no longer afford to pay his loan. Surprisingly, Washington Mutual wrote him back, telling him it would lower his rate from more than 11 percent to 5 percent.

Later, Aurora Services also wrote back and agreed to reduce his monthly payment from $2,000 to $1,400. This loan consultant is grateful that he was able to modify his loan under the government program and prevent his house from being added to long lists of foreclosed homes.

In Manchester, Connecticut, a quality analyst applied for refinancing for his $352,000 loan to cut his 7-percent interest and save at least $600 a month. His loan was originated by Countrywide, which was later acquired by Bank of America.

To this analyst’s frustration, Bank of America customer service agents were not helpful as he expected.

A computer program in New Cumberland, Pennsylvania wanted to refinance his primary loan of $260,000 and his second mortgage loan of $90,000, hoping to reduce his six-percent mortgage range to the four-percent range.

After months of talking with agents over the phone, he was finally turned down because his home equity is not enough to qualify for a refinanced loan.

The Obama program has been assessed differently in the past months. Over time, the number of Americans who have saved or not saved their houses from becoming foreclosed homes will tell whether the program has been successful or not.

What years of lobbying by consumer groups have not accomplished; the devastating effects of foreclosed home auction events have easily achieved.

The Senate on Tuesday overwhelmingly passed the credit card reform legislation that would control increases in interest rates and provide more protections for users of credit cards. The senators voted 90-5. A similar bill in the House has already been approved.

The credit card reform legislation would require the credit card industry to comply with a list of unprecedented requirements that include provision of advance notice for increases in interest rates, prevention of high charges for over credit limit expenses and the prevention of the practice called universal default, which allows lenders to raise rates when a credit cardholder is past due on another debt.

A similar bill was passed by the House earlier this May. The two versions will be combined and then sent to President Obama for signing. The bill rode to approval on a wave of anger over difficult times caused by foreclosed home auction events and perceived greed by large financial companies.

Banks, credit card issuers and other financial firms historically have been powerful in Washington, but during the debates on the credit card issue, senators condemned them for their exploitative practices. Surely, the economic effects of foreclosed home auction events have helped pushed the senators to support the bill.

Senator Christopher Dodd, who co-sponsored the reform bill, said that the practices of the credit card industry are abusive and they need to be stopped.

Democratic Senator Claire McCaskill also explained that thousands of emails have been received by her office in the past several months all complaining about abusive credit card practices.

McCaskill spoke before fellow senators last week and reiterated that the credit card legislation is the most important bill that affects consumers directly, especially during these times when hundreds of thousands of Americans have lost their houses to foreclosed home auction events.

Another Democratic legislator, Senator Tom Udall, also supported the bill by saying that credit card issuers that are fair to consumers have nothing to worry about.

In a public meeting last week in Albuquerque, President Obama again expressed his support for the bill, criticizing credit card ads that offer low rates but do not inform consumers that the rates can increase anytime.

According to White House reports, current overall credit card debt is $963 billion, an increase of 25 percent over total debt 10 years ago. The average household credit card debt in 2007 was $7,300.
Credit card debts are among the debt burdens of many homeowners who have lost their homes to foreclosed home auction events.

As the number of foreclosed homes for sales increase, a rising number of small investment firms and individual investors are traveling across the country buying foreclosed homes at auctions and from banks.

Some of the buyers are former top executives at financial companies who have discovered good profits that can be found from buying and selling foreclosed homes for sales.

One of these investors is Matthew Cooleen, a former managing director at Deutsche Bank, who formed his own Connecticut-based investment firm HudsonCross Financial to buy foreclosed homes for sales in battered states like Arizona, Florida, Nevada and California. Cooleen expects to earn much because he says he is paying bargain prices for good homes. Since the launching of his firm, he has spent around $30 million in acquiring foreclosure homes from banks.

Another investor is a former executive director at Morgan Stanley who has formed his own company in San Francisco to buy and sell foreclosed homes for sales mostly at auctions. He has purchased four homes for 75 percent less than their prices four years ago. He is also raising another $6 million to buy other properties.

The third investor is former D.R. Horton division president Mark Allen who has partnered with Oregon-based Gorilla Capital to buy foreclosed homes for sales in Phoenix. He said he has been buying foreclosure houses at court auctions with money from Gorilla Capital. He reiterated that buying foreclosure homes is the best way to profit from Phoenix’s housing market during the downturn.

Realtors in many housing markets said that investors backed by investment firms have been outbidding first time buyers and other types of buyers because they bring loads of cash with them.

Some of the investors are even so lucky because they profited during the housing boom and are now again profiting from the housing decline. In contrast to their comfortable executive offices, some are staying in lodging houses looking for bargains in suburbs and courthouse auctions.

Home purchases by small investment firms are often not tracked by real estate research firms, but their purchases can be determined by the number of cash purchases.

In Phoenix, about 38 percent of all single family houses sold were paid in cash. In Punta Gorda in Florida, about 67 percent were cash sales and in Las Vegas, almost 40 percent were cash sales.

Buying foreclosed homes for sales, rather than apartment complexes, fit small investment firms because small investors are knowledgeable about local submarkets.

A three-month drop in the number of foreclose homes in Colorado is expected to come to an end now that the Legislature has approved the House Bill 1276 and Governor Bill Ritter is planning to sign it.

During the first quarter, Colorado experienced a significant drop in foreclosures filings and sales, which the Division of Housing hailed as a positive development for the state’s economy.

For the first three months of this year, newly filed foreclosures totaled 10,745, a drop of 8 percent from the 11,634 posted in the same period last year. Foreclosure filing is the first step of the foreclosure process. Meanwhile, actual foreclosures for the first quarter totaled 4,354, a drop of 26 percent from 5,889 in the same quarter the previous year.

However, the number of foreclose homes is expected to rise again with Ritter’s plan to sign the bill that will provide a 90-day delay in foreclosures. Industry experts believed that lenders will try to cram as many foreclosures as they could before the bill takes effect on July 1. They anticipated around 900 to 1,000 foreclosures per week before the implementation of the bill.

The bill, which is known as the Foreclosure Delay Act, provides lenders and distressed homeowners 90 days to prevent foreclosures by working with HUD-certified mortgage counselors.

The bill, which Ritter is scheduled to sign on June 5, requires that within 20 days after the borrower received a notice of foreclosure, he must contact a certified counselor who will assess his debts and financial situation. If the counselor’s assessment showed that the borrower deserves a loan deferment, he will be given additional 90 days to negotiate with the lending institution or bank.

The loan holder will be notified that the borrower is eligible to have his loan deferred. Upon receipt of the notification, the loan holder must delay the repossession for 90 days. During the deferment period, the borrower is required to make partial payments amounting to two-thirds of the total monthly payment unpaid prior to delinquency, plus the insurance and taxes equal to one-12th of the total annual amount due.

Homeowners who do not want their properties to become foreclose homes have until July 2011 to avail of the 90-day delay option.

Mortgage brokers and appraisers have been opposing the mandatory new real estate appraisal code launched by Fannie Mae and Freddie Mac. They said that the new appraisal system will increase the mortgage costs paid by buyers of homes, including a buyer of a forclosure for sale.

The appraisers and brokers also claim that the mandatory appraisal system will give most appraisal work to large management companies, which are typically run by the nation’s largest lenders like Wells Fargo and Bank of America.

The Appraisal Institute, comprised by 20,000 appraisers; the National Association of Realtors, comprised by many members who are also appraisers; and the National Association of Mortgage Brokers have criticized the new appraisal code.

The appraisers are particularly critical of the expanded role of management companies in the new appraisal system. The appraisers claim that the management companies pay low professional fees to appraisers and that they add about 30 to 50 percent extra charges to buyers of homes, even to a buyer of a forclosure for sale.

They cite the case of an appraiser who usually gets paid $325 for an appraisal ordered by a mortgage broker or a lender, but who will be paid by only around $175 to $200 by a property management company for the same kind of appraisal work.

Additionally, the buyer of a home, including the buyer of a forclosure for sale, will be charged with about $400 for the appraisal. The buyer is also required to pay the appraisal cost upfront through cash or a credit card. Before the implementation of the code, the appraisal fee is paid during closing.
The appraisers and brokers have also received information that the new code is being applied to FHA mortgage despite the exclusion of FHA from the new appraisal system.

The National Association of Mortgage Brokers started documenting the implementation of higher appraisal charges and other problems associated to the new appraisal code. One documentation involved large lender EverBank, which has already distributed its brochure on new appraisal fees that would be collected from home buyers, including any buyer of a forclosure for sale. EverBank even promotes its electronic appraisal system as an added benefit to buyers of homes, and even to a buyer of a forclosure for sale.

Appraisers and brokers have been warning buyers of homes, including a buyer of a forclosure for sale, about the increased appraisal fees.

As the oversupply of forclosure homes for sale pushed the jobless rate to its highest point in decades, consumer credit declined in March by a record $11.1 billion, nearly 3 times more than expected and the highest level since credit records were compiled in 1943, according to a report from the Federal Reserve.

The current consumer credit level declined to $2.55 trillion, a drop of 5.2 percent at an adjusted annual rate, the biggest drop since 1990. Consumer credit in February also fell by $8.1 billion, again more than what was previously estimated.

The record decline reflects efforts by both lenders and consumers to strengthen their financial situations as the effects of foreclosed homes continue to have recessionary effects. Lenders have been tightening credit despite efforts by the Treasury and the Fed to boost credit available, such as purchasing over $200 billion banking shares.

Richard Yamarone, head economist of New York City-based Argus Research Corp., said record job losses translate to record drops in consumer spending and other economic activities. Since the recession began in December 2007, largely caused by an avalanche of foreclosed homes, 5.1 million jobs have been lost, with the current unemployment rate soaring to a record 8.5 percent.

Many economists expected consumer credit to decline in March by only $4 billion, the median resulting from the 26 estimates gathered by Bloomberg News in its survey of consumer activities during difficult times, largely caused by foreclosed homes. Estimates from the economists ranged from a decline of $7 billion to a $1.5 billion jump. The Fed’s forecast for consumer credit in February was a decrease of $7.5 billion.

In the first quarter, consumer spending, which comprises about three-fourths of the national economy, increased at an adjusted annual rate of 2.2 percent, the highest rise in 2 years. This rate is expected to increase as banks resume their lending activities and as some signs of recovery from the effects of foreclosed homes start to appear. Treasury Secretary Timothy Geithner has just finished the government stress tests for the largest U.S. banking firms, saying the results are reassuring.

Meanwhile, credit card debts declined in March by $5.41 billion. Mobile-home loans and auto loans also declined, pushing down the total of all non-revolving consumer loans to $5.69 billion. These declines reflect efforts by consumers to minimize their debt problems as they go through the recession largely caused by a glut of foreclosed homes.

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The three-month delinquency rate on homeowner association dues in 260 homeowner associations run by Merit Property Management in California has increased to 5.3 percent in March from the 2.8-percent delinquency rate in June 2008. The rate could be a precursor of another wave of foreclosed homes in the state.

In the first quarter, California had 230,915 foreclosure filings, 45,784 of which are real estate owned homes, based on a report from RealtyTrac.

According to Merit Property, HOA delinquencies began to rise in December 2007, when it increased significantly from only 0.8 percent in March of the same year.

The delinquency rate for HOA dues is significant because it is a concrete indication of financial hardship for homeowners, since homeowners default on their HOA dues first before defaulting on their monthly mortgage payments. HOA delinquencies which are not resolved can lead to pre-foreclosure notices and ultimately to lists of foreclosed homes.

In March, notices of pre-foreclosure increased in California after the state suspended filings that could lead to more foreclosed homes during the first months of the year.

Andrew Schlegel, vice president for finance at Merit Property, said that delinquency rates have increased to 15 percent in some Merit homeowner associations. Schlegel contends that the rise in notices of pre-foreclosure and HOA delinquency rates may usher a new wave of foreclosed homes in California.

Homeowner associations, which are a group of condos, townhouses or other residential developments, operate like small municipalities. They charge HOA dues to pay for common services such as security, landscaping and other association services.

Around 60 million families reside in homeowner associations, which have already reached 300,000 in number around the country. When mortgage lenders write mortgage loans for homes in community associations, they first ask the HOA’s management company for the HOA’s delinquency rate.

For prospective home buyers, it is advisable to ask HOA delinquency rates before buying a property in community associations.

Renters of homes in community associations are also advised to check their lease contracts if they are obliged to pay HOA dues, so they can compute their total monthly rental costs.

Owners of homes in an HOA cannot exclude themselves from the community association because their homes are within the jurisdiction of the HOA and they are obliged to comply with the HOA bylaws. Refusal to pay HOA dues and comply with bylaws can lead to legal action.

Managers of HOA communities have been warning homeowners to pay their HOA dues as they modify or refinance their loans to prevent their homes from becoming foreclosed homes. They are reiterating that HOA can still pursue foreclosure proceedings if they continue to ignore their HOA dues.

The nationwide crisis of real estate foreclosure houses may be nearing its end, according to Federal Reserve Chairman Ben Bernanke who testified in Congress on Tuesday about the state of the economy.

Bernanke said that the recession would end in 2009 as long as the credit markets sustain improvements in lending and as long as price declines for homes, including foreclosed homes, continue bottoming out.

In March, the Fed Chairman compared the rate of the country’s recovery to green shoots, but on Tuesday, he confidently talked about elements coming together to drive recovery. Nevertheless, he admitted that economic growth would be slow and that the unemployment rate will continue to rise.

He also described results from the stress tests for the country’s 19 largest banks as reflections of the banks’ financial positions. He said those banks needing more buffer money should obtain additional funding from private sources. He pointed out that President Obama’s administration is not expecting to ask for more bailout funding from Congress.

He reiterated the importance of the gradual revamp of the financial sector, which many housing analysts blame as the cause of the subprime crisis that started the avalanche of foreclosed homes.

In the past weeks, stock indexes rallied, with the S&P 500 index rising by 35 percent from its lowest level in March. The stock resurgence is being seen by economists as a sign that consumer spending is stabilizing and that the harsh effects of foreclosed homes are declining.

The Fed decreased benchmark overnight rates to nearly zero in December, and last week, it reiterated it would try to hold interest rates at a low level for a longer period to help push economic recovery.

He also assured legislators that the Fed will soon release more detailed information on how it spent the bailout money, including financial companies which were given loans and the collaterals that were used.

Bernanke said he is cognizant of the Fed’s obligation to be transparent to the public and Congress about how tax money is being used by the agency, including how it is using the money to solve the problem of foreclosed homes. The Fed bailout issue has been a source of controversy after the Fed provided billions of loans to banking firms and other financial companies which have not previously asked financial help from the Fed and after many of those bailed-out banks refused to modify loans to help cut down the number of foreclosed homes.

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Hopes that the problem of foreclosed homes is getting nearer its resolution has rekindled Wall Street activities, pushing up stock indexes on Monday to their highest levels in several months.

The rise of the National Association of Realtors‘ pending home sales index by 3.2 percent from February stepped up Wall Street hopes that the housing market downed by foreclosed homes is on its way to recovery.

The Dow Jones industrial average rose by 2.6 percent to 8,426.7 points, its highest level in nearly 4 months. Similarly, the S&P 500 index increased by 3.4 percent to 907, the first time it went past 900 since January 8.

The Nasdaq reached its highest point in 6 months when it increased by 2.6 percent to 1,763.6.

Kevin Mahn, managing director for Hennion & Walsh, said that it is encouraging that reports of recovery in the housing sector, which was battered by foreclosed homes, has spurred Wall Street activity. He also added that if the contention that the worldwide economic downturn arose from foreclosed homes in the U.S., then reports of the start of housing recovery are inspiring.

Mahn also credited Warren Buffett’s remarks at his Berkshire Hathaway’s annual meeting on the positive Wall Street response. Buffett predicted that the recession, largely caused by the avalanche of foreclosed homes, is nearing its end and that no U.S. major bank will collapse. He also asserted the continued strength of Wells Fargo, one of the largest portfolios held by Berkshire, and stated that Berkshire will report an operating profit in the first quarter.

The stock indexes also had strong surges in April, with the S&P 500 jumping by 9.4 percent, the Dow index rising by 7.3 percent and the Nasdaq soaring by 12.3 percent. The Nasdaq increased for the past 8 consecutive weeks while the Dow index and S&P 500 increased in 7 of the past 8 weeks.

The indexes are showing positive signs, but analysts are still waiting for some more signs that much of the problems largely caused by the glut of foreclosed homes have been resolved.

Harris Private Bank’s chief investment officer Jack Ablin said the stock market needs another major push for it to have the elements of a bull market.

The federal government is expected to release the results of its stress tests on financial companies this week and initial reports said the major banks need to raise additional capital.

Even so, stocks of Wells Fargo, Bank of America, Citigroup and other banks rallied, raising hopes that the crisis which arose from the flood of foreclosed homes is nearing its end.

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Now the extent of the effect of foreclosed homes can also be measured by mosquito control professionals, entomologists and mosquito fish producers through the number of ditched pools that they treat with mosquito fish and other kinds of remedies.

The number of abandoned pools covered by algae and hosting mosquitoes is increasing across the country as the number of foreclosed for sale continues to increase.

In Phoenix, the number of deserted pools has risen to over 9,100 in 2008 from 6,000 in 2007, according to John Townsend, manager of the Maricopa County Vector Control. Townsend the number could increase to 14,000 if the number of foreclosed homes continues to rise.

In New Orleans, Greg Thompson, an entomologist working for the New Orleans Mosquito, Termite and Rodent Control Board, said abandoned ponds and swimming pools became mosquito breeding pools after Hurricane Katrina inundated the city and demolished over 100,000 houses in 2005.

Thompson said the swimming pools cannot be drained enough to make them so dry no mosquito egg can survive. The pools would always have water either from the rain or from the ground.

The rising number of foreclosed homes has worsened the situation. Cities across the nation struggle to look for solutions to mosquito and blight problems arising from deserted swimming pools.

Last month in New Orleans, Thompson held a session for about 50 of the 900 professionals who attended the meeting of the American Mosquito Control Association.

In Los Angeles County, the number of ditched pools that need to be treated rose by 40 percent in 2008 from 2007 levels because of the rising number of abandoned foreclosed homes.

In March this year, the Los Angeles Vector Control District treated 364 swimming pools and received 202 requests for mosquito treatment, compared to 162 pool treatments and 58 requests in March two years ago and 481 pools treated and 216 requests in March 2008.

In Fairfax County, Virginia, there are about 11,000 backyard swimming pools, according to the county’s West Nile virus project manager Jorge Arias. He said about 2,000 of the pools were in foreclosed homes.

In Lee County, Florida, mosquito control manager James Burgess uses helicopters to find deserted swimming pools.

Meanwhile, mosquito fish farmers and dealers said sales were rising, but not as fast as others think. Mosquito fish reproduce quickly, so once pools are seeded with the fish, they do not need replenishment.