May312013

Banks squeeze market supply further to juice prices

Banks are enjoying the market’s recent strength as collateral value returns to back their bad loans. Homeowners who aren’t distressed don’t mind either, but it’s the banks that benefit the most from the current situation of restricted MLS supply. To further restrict supply and really get prices to shoot upward, banks stopped foreclosure processing on May 6, 2013. Ostensibly, they did this for procedural reasons related to new regulations, but this is simply a ruse to cover their real intent of forcing prices to shoot up even more rapidly to help them avoid more losses when they finally do liquidate their bad loans.

3 big banks nearly halt foreclosure sales after U.S. tweaks orders

By E. Scott Reckard — May 19, 2013, 12:04 p.m.

Sales of homes in foreclosure by Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. ground nearly to a halt after regulators revised their orders on treatment of troubled borrowers during the 60 days before they lose their homes.

The banks said they paused the sales on May 6 to make sure that their late-stage foreclosure procedures were in accordance with the guidelines. The banks wouldn’t say exactly which issues had been under scrutiny.

These rules were published far in advance of them taking effect. If they banks really did need to stop to comply, their serving departments are hopelessly incompetent.

Bank of America Corp., by contrast, continued foreclosure sales at a normal pace, apparently confident its procedures met the revised restrictions.

“We manage our mortgage servicing operations in compliance with all laws, regulations and standards for sound business practices,” BofA said Friday in a statement.

Particularly when that compliance benefits them by delaying or avoiding loss recognition.

The halted foreclosures are the latest complication stemming from a settlement between 13 large mortgage servicers and their federal overseers. Banks and regulators also have struggled to distribute billions of dollars in aid to borrowers equitably as required under the settlement.

Chase resumed a normal volume of foreclosure sales last week, saying its practices complied with the latest bulletin from the Treasury Department agency that regulates national banks, the Office of the Comptroller of the Currency, or OCC.

“In response to the OCC guidance and in an abundance of caution, we temporarily halted foreclosure sales where we could to validate that our process covered the guidance,” Chase said in a statement. “We have since resumed sales.”

“In an abundance of caution?” What a thoughtful bank… upstanding and righteous… someone good to do business with…

Wells and Citi were still on hold as of Friday, according to PropertyRadar.com, which tracks foreclosure filings in California, Nevada, Arizona, Oregon and Washington.

“We are in the process of complying and following the directive set forth in the OCC guidance,” Citigroup said.

Wells, saying the latest OCC bulletin had “slight changes from the previous,” declared that it “wanted to be absolutely sure that our interpretation of the language was the same as our regulators.”

“We simply needed to take the time to assure that we can validate and document our compliance,” the San Francisco bank said in a statement.

Perhaps lenders are worried about rising rates or hurting the rally in progress. I think BofA will be happy they took advantage of the lack of supply by their competitors and offloaded a few more properties.

The bulletin, which changed the timing of certain measures aimed at preventing wrongful foreclosures, listed 13 issues for the banks to address — “minimum guidelines” beginning with: “Is the loan’s default status accurate?”

The issues touched on a laundry list of the legal and procedural problem areas in which errors and short-cutting, including the “robo-signing” of court affidavits, were common during the wave of foreclosures that struck in 2009 and 2010.

American Banker, which first reported on the pause in foreclosure sales, called the hiatus “an echo of the 2010 foreclosure halt that kicked off several years of wrenching procedural scrutiny of the mortgage servicing industry.”

wrenching procedural scrutiny? The delays were largely welcomed by the banks who didn’t want to take losses. Plus, in places where their servicing rules and procedures were defective, they should improve them with or without a crisis to force it to happen.

At Wells, the biggest mortgage servicer, foreclosure sales in the five Western states fell to 17 for the week beginning Monday, May 6, from 298 the previous week, the PropertyRadar data showed.

A bank official predicted Wells would soon resume selling the houses of defaulted borrowers. “It won’t be long,” Wells mortgage spokewoman Vickee J. Adams said, although she declined to say exactly when.

When they believe they can sell into the price rally is when they will continue processing foreclosures and selling the REO. This is a great time to be selling real estate. The buyer frenzy is there to absorb many more properties, and with interest rates rising, the banks had better sell a few more now before affordability crumbles and potential buyers can borrow enough to finance peak prices.

Near-peak pricing on REO

The reason the banks are hoping to drive prices up is apparent on REO like today’s featured property. In a supply restricted market, they can sell this REO without losing a great deal of money. Of course, this drags out their liquidations for years, but that doesn’t seem to bother them. Expect these slow liquidations to go on for the foreseeable future.

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[idx-listing mlsnumber=”OC13095044″ showpricehistory=”true”]

16337 SHADBUSH St Fountain Valley, CA 92708

$859,000    ……..    Asking Price
$901,000    ……….    Purchase Price
6/12/2007    ……….    Purchase Date

($42,000)    ……….    Gross Gain (Loss)
($68,720)    …………    Commissions and Costs at 8%
============================================
($110,720)    ……….    Net Gain (Loss)
============================================
-4.7%    ……….    Gross Percent Change
-12.3%    ……….    Net Percent Change
-0.8%    …………    Annual Appreciation

Cost of Home Ownership
——————————————————————————
$859,000    ……..    Asking Price
$171,800    …………    20% Down Conventional
3.77%    ………….    Mortgage Interest Rate
30    ………………    Number of Years
$687,200    ……..    Mortgage
$159,242    ……….    Income Requirement

$3,190    …………    Monthly Mortgage Payment
$744    …………    Property Tax at 1.04%
$0    …………    Mello Roos & Special Taxes
$179    …………    Homeowners Insurance at 0.25%
$0    …………    Private Mortgage Insurance
$0    …………    Homeowners Association Fees
============================================
$4,114    ……….    Monthly Cash Outlays

($739)    ……….    Tax Savings
($1,031)    ……….    Principal Amortization
$217    …………..    Opportunity Cost of Down Payment
$235    …………..    Maintenance and Replacement Reserves
============================================
$2,795    ……….    Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$10,090    …………    Furnishing and Move-In Costs at 1% + $1,500
$10,090    …………    Closing Costs at 1% + $1,500
$6,872    …………    Interest Points at 1%
$171,800    …………    Down Payment
============================================
$198,852    ……….    Total Cash Costs
$42,800    ……….    Emergency Cash Reserves
============================================
$241,652    ……….    Total Savings Needed
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