May312012
Banks cannot force a short sale
Banks cannot force a short sale. So what, you say? Well, this simple fact has eluded the banks and the pundits who believe banks can simply shift their liquidation efforts from REOs to short sales.
The major banks in the settlement deal want to complete more short sales to reach their write-off quotas. Short sales count toward their settlement amount, and foreclosures do not. This explains much of the recent dramatic shift away from foreclosures. However, foreclosures are within the control of banks; they can force foreclosures. Short sales are not within the banks control. Sure, they can approve more short sales, and they have over the last few months, but they can do nothing to force delinquent mortgage squatters to sell if they are committed to enjoying the free ride. This creates a huge problem for the banks.
Are delinquent mortgage squatters motivated to sell?
Why would someone getting a free ride want to move out and start paying rent? The incentive is to stay until forced out rather than go through the hassle of a short sale. So how are loan owners responding to this incentive?
According to Foreclosure Radar, in Orange County there are about 11,000 delinquent mortgage squatters who have been served with either a Notice of Default or a Notice of Sale. This doesn’t include the other 15,000 or more who have not yet been served notice. Of the 11,000 that have been served notice, only 720 are listed for sale. That’s about 7%.
According to Redfin, there are about 7,000 active listings in Orange County. If you exclude short sales, the number drops to 6,000. So there are only 1,000 short sale listings in the entire county. So of the 25,500 delinquent mortgage squatters in Orange County, only 1,000 of them are trying to sell their house. That’s about 4%.
What about the other 24,500? Well, they are looking to continue the free ride. Loan owners are not listing their properties for sale because their incentive is to stay put and pay nothing.
With no inventory, sales will plummet
With the slowdown in foreclosures and the increase in approvals of existing short sales, inventory has all but evaporated. Banks hoped loan owners would step up and list their homes for sale. That isn’t happening. In fact, there is so little for sale on the MLS right now that sales volumes are likely to plummet, and the spring rally is going to flop. Perhaps prices may go up a little as people overpay for inferior homes, but with nothing to buy, potential buyers will sit and wait.
Since banks can’t force loan owners to list their properties, and since banks want to complete more short sales, they are now creating incentives for loan owners to list their homes.
BofA Offering Up to $30K in Relocation Assistance for Short Sales
05/18/2012 By: Esther Cho
Just days after Bank of America officially announced its nationwide program offering up to $30,000 in relocation assistance for short sales, a Massachusetts-based real estate company revealed in a blog that one of its clients was approved to receive $10,000.
Relocation assistance? Bullshit. This is a bribe, a payoff to get squatters to leave voluntarily.
I thought the rationalization for completing short sales rather than foreclosing was that it cost the banks less money. What good does it do the bank to get a higher sales price if they have to pay the delinquent mortgage squatter $30,000 to leave the house?
“We knew this client was eligible for some relocation assistance but we did not realize it would be this much. It was a welcome surprise for our client who is having a hard time coming up with money to move,” said Anthony Lamacchia, owner and broker of Mcgeough Lamacchia Realty. “I think [BofA] is making many improvements across the board, and I applaud them for it.”
This implies squatters don’t move because they can’t afford a few hundred dollars for a mover. More bullshit. Squatters don’t want to move because they have free housing where they are now. Once they move, they will have to start paying rent. Who wants to volunteer for that?
BofA posted the announcement in a statement Tuesday. In order to be eligible for the relocation assistance, BofA stated that the short sale must be initiated by the end of this year and close by September 26, 2013. Also, sellers must do their part and work proactively with the bank to obtain a preapproved sales price before submitting a purchase offer.
Banks are smart enough to realize most will play the short sale game to extend their free stay. Who wouldn’t? By demanding the seller cooperate to get paid, they may complete a few more transactions or at least make it more obvious as to who is gaming them for a free ride.
The carrot and stick approach is the best method for getting more short sales approve. The carrot is now the promise of a $30,000 payoff. The stick is the threat of foreclosure if the borrower does not cooperate. This new policy will get the banks through 2012. By 2013, they will be forced to ramp up foreclosures once again to force out the squatters committed to game the system through a foreclosure.
The relocation expenses are offered at closing and can range from $2,500 up to $30,000, and the amount offered is determined on a case-by-case basis, with variables such as the value of the home and amount owed factored into the equation.
When the deal gets to closing the hopes of a $30,000 payoff will quickly fade to a $3,000 boot in the ass. The $30,000 number gets attention and headlines, but nobody will actually get that amount. Most will get the minimum. Of course, the headline is what matters. The banks want loan owners to reach out to them to start the short sale process. It’s a classic bait-and-switch sales technique.
“This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home,” said Bob Hora, home transition services executive for BofA.
Notice the careful language in this statement. Mr Hora describes a “transition from ownership” but doesn’t mention what ownership transitions to. Apparently stating loan owners are about to become renters is taboo.
… In addition to the cash assistance offer, BofA also recently announced in April that it’s trimming response times for short sales down to 20 days. However, real estate professionals must do their part and submit five documents for a complete short sale package when initiating the process.
The five documents are a purchase contract including Buyer’s Acknowledgment and Disclosure HUD-1; IRS Form 4506-T; Bank of America Short Sale Addendum, which includes the Agent Certification form; and Bank of America Third-Party Authorization Form.
According to a BofA statement, the bank has completed 200,000 short sales in the last two years and another 30,000 in the first quarter of 2012.
The banks are serious about completing more short sales. The basic dynamics of the transaction haven’t changed as second mortgage holders will still hold up most short sales, but at least the banks are motivated now. Because of the complexity of short sales and the disincentives of both sellers and second lien holders to completing a sale, I don’t see short sales as being a panacea for bank liquidations. Ultimately, banks will fall short of their short sale goals, and they will resume foreclosures to finally clear out the trash.
Reality check…
for those who believe another ‘bubble’ is going to be reflated…. keep dreaming!
http://static6.businessinsider.com/image/4fc6addaecad04f26700000f/iamge.png
As expected, the lack of inventory is causing sales to crater. Withholding supply does not force prices higher. It merely causes sales volumes to drop.
Pending Home Sales Index Slips Badly in April
The Pending Home Sales Index (PHSI) gave back its entire March increase in April, falling to 95.5 from 101.1 one month earlier, the National Association of Realtors reported Wednesday. The March index was revised downward from the originally reported 101.4, adding to the gloomy report.
Economist had expected the index to increase 0.5 percent from March.
Even with the decline though, the index is up 14.4 percent since April 2011, but is now at its lowest level since December, dampening expectations at the onset of the home-buying season.
Pending home sales are counted when sales contracts are signed and are viewed as a leading indicator of existing home sales; recent reports suggest that home re-sales should be a bit stronger over the next couple of months but at a level that is still fairly subdued. April pending sales would be included in the home sales report for June.
The PHSI in February – which translated into reported sales (closings) in April – had been 97.4, up 0.4 percent from 97.0 in January. April existing home sales, as reported, were up 3.4 percent from March.
In percentage terms, the month-month 5.5 percent decline in the index was the steepest since April 2011 when the index dropped 7.7 percent month-month.
The decline was the first in four months and was widespread. The index fell in three of the four census regions, improving only in the Northeast, and there by a modest 0.9 percent. The index plunged 12.0 percent in the West to 94.9, its lowest level since March 2011.
The PHSI has been drifting upward, albeit modestly for most of the past two years. The April drop coming at the beginning of the traditional home buying season is a disappointing signal tempered further by the reality that a substantial number of sales contracts are failing to meet underwriting tests and/or other loan standards.
Lawrence Yun, NAR chief economist offered a positive spin on the disappointing report saying a one-month setback in light of many months of gains does not change the fundamentally improving housing market conditions.
“Home contract activity has been above year-ago levels now for 12 consecutive months. The housing recovery momentum continues,” he said.
The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
10 Year Treasury Note currently trading at 1.60%. Just wow.
PS 15 year mortgages broke the 3.00% barrier. Average is now 2.97%
Lenders are trying to get more short sales…
Short Sales of U.S. Homes on Track to Exceed Foreclosure Deals
Short sales of U.S. homes rose to a three-year high in the first quarter as banks agreed to let more borrowers unload property at a loss, putting the transactions on pace to surpass deals for foreclosures, RealtyTrac Inc. said.
Sales of homes in the pre-foreclosure process increased to 109,521, up 25 percent from a year earlier and the most since the first three months of 2009, the Irvine, California-based data service said today. Most of those transactions were short sales, in which the lender agrees to a price that’s less than the mortgage balance. The number of bank-owned homes sold during the quarter fell 15 percent from a year earlier to 123,778.
“By next quarter nationwide, we’re actually going to see the number of pre-foreclosure sales outnumbering bank-owned sales,” Daren Blomquist, RealtyTrac’s vice president, said in a telephone interview. “It’s a paradigm shift in the way lenders are dealing with their distressed loans.”
Lenders are stepping up short sales to reduce losses, take advantage of government incentives and avoid legal challenges to foreclosures as they struggle with non-performing mortgages, he said. The transactions, which peaked at 128,000 in the first quarter of 2009, declined after President Barack Obama’s administration pushed loan modifications to help borrowers keep their houses, according to Blomquist.
Pre-foreclosure homes, or those that had received a default or auction notice, sold for an average $175,461 in the first quarter, with an average discount of 21 percent compared with properties not facing seizure, RealtyTrac said. The average discount was 16 percent a year earlier.
[MORE]…
If there is any one group ‘in-the-loop’ who fully understands there are only x number of life-boats, it’s bankers.
Looks like they’re are beginning to get a tad…. nervous.
There is a perfect storm for squatters right now. Banks trying to do Short Sales and/or modifications as opposed to foreclosures, legislative action to prevent dual track action by the banks, etc. I suspect the $30k “bribe” is not be enough when you could legitimately squat for a couple of years and bank your monthly nut instead (and, that $30k may be the pot of gold at the end of the squatter’s rainbow anyway).
Where is the squatter’s motivation to SS? Foreclosure seems like an emppty threat if the banks/servicers can’t proceed with a foreclosure if you are “trying” to modify the loan and/or short sell the house.
Exactly. 2012 through 2014 will be looked back on as the golden age for delinquent mortgage squatters.
I spoke with a listing agent in Las Vegas last weekend, and he told me the most difficult part of getting a short sale listing is convincing the loan owner that selling is preferable to squatting. Most loan owners in Las Vegas have simply stopped making payments, and they fully expect to squat for at least two years if not more.
Right now, the only motivation to sell in 2012 is to take advantage of the tax break for debt forgiveness, but when pressed with this one, most squatters assume the government will extend this benefit again or grandfather in all buyers with mortgages from the housing bubble era.
In other words, motivation to sell is near zero.
What will maximum years for these long squatters? 4 years? 5 years on multi-million dollar homes?
If the banks maintain their current course, these squatters will be allowed to stay as long as it takes for prices to come back, decades possibly.
Instead of debt clock we need a squat clock.
1463 days and still squatting…
“potential buyers will sit and wait.” exactly what i’m doing…
You’re not alone. There are a few falling for the bullshit urgency to buy now or miss their chance to own, but most people are sitting back and waiting for the banks to release product. Move-up buyers need an active market to complete the sale of their house when they buy another, but since there is no move-up market, the lack of product doesn’t create any urgency for buyers. First-time buyers have more leeway as to when they buy because they don’t have to sell anything to move.
I’m in the same boat. 250K down payment, excellent credit, steady employment…just being patient and waiting. Buying now is not in your best interest (no pun intended regarding rates). If anything, wait until the slow season to see if more inventory is available.
I think even the housing bulls have come to the conclusion that housing will grind on the bottom for years to come (probably the rest of the decade). When you look at all the facts (super low rates, massive shadow inventory, shaky economy, etc)…nobody is going to be priced out if you don’t buy today. I’m just sitting back waiting for the right property at the right price…and in the meantime my down payment grows every month and we get closer to some type of bottom.
Single? Spouse?
I’m asking because the only people I know who’ve had the capacity and desire to purchase a home, but have not due to the bubble, are non-married people or guys who have subservient low-earning wives who don’t contribute to the family finances discussions. Just my experience…
I’m in almost the exact same boat as Beef (lots of cash for down payment, excellent credit, steady employment). I am married (no kids – maybe soon).
I sit and wait and watch… patiently as possible.
The wife has a great high paying job as well and yearns for a house but I just get her to read this blog as much as I can to give her some perspective.
She gets it – but still can get emotional sometimes. Same here once in a while…the interest rates are enticing and I’d like some hard asset real estate diversification in my portfolio.
I’m refinancing my townhome into a short-term and lower rate. However, I’m hoarding cash for a down payment when the market bottoms with increasing interest rates…when ever that happens.
Yup, single. The great part is that my girlfriend already owns a house and has lots of equity.
Renting gets old after a while, but then again I remember all the homeownership headaches. No real hurry to buy, just like the idea of having my own place. Not sharing walls, having your own garage, own washer/dryer and customizing to your own tastes is definitely worth something. Don’t think it’s worth jumping into the current market at this point.
I’d guess you’re single, or if married, you’re the primary breadwinner by far who makes most of the financial decisions, yes?
Banks may not be able to force a short sale, but if you’re a US Senator, and your bank is JP Morgan Chase, the bank is more than willing to accommodate you.
http://www.huffingtonpost.com/rj-eskow/the-senator-and-jpmorgan_b_1551561.html
It’s a creative offer, and I would not be surprised if some people fail to do basic addition in their brainand just fall for it. They’ll have a check for $2,999 and “what the hell just happened to me?”-look on their faces. Again.
Do you get the sense that banks are becoming more anxious?
If there is a change in bank actions caused by this new anxiety, as other banks may not toeing the line, do you think that builders in OC are making a smart move building out more supply (in Lake Forest, for example)?
By the time some of these projects are developed and homes are built out, banks will probably be in full-bore foreclosure mode. How in the hell can Toll Brothers seriously get $700K priced SFH sales in 2014/2015? There are a lot of qualified buyers out there right now, but at those price points in Lake Forest (SVUSD, etc.)?
I don’t know man.
.
The builders are enjoying the current shortage of MLS supply, but that will change, and when more foreclosures hit the MLS, builder sales will suffer once again. It’s one of the many reasons we would all have been better off if the banks had cleared out their inventory and been done with it.
I had to think on this for a while, can’t remember the dates or exact information, but IR has pointed out short sales motives and behaviors (or not) of the banks from the start of the collapse. Briefly, that the banks made it impossible and for very good reasons to discourage short sales. Banks are exposed to massive fraud in short sales. Non-defaulters would be rushing to get out of the debt treadmill and stop all payments (most underwater “owners” are still in pay status!). I further think that IR figured out that if just a fraction of present non-defaulters switch over to grab advantageous short sales, and the banks experience losses from the usual fraud etc, the banks would lose a LOT more than they do by slowly grinding out foreclosures (since those in default status will likely not care, as IR points out). I bet enterprising real estate brokers (who need business as listings are down) will be quickly doing mass or targeted mailings…a slick one page brochure showing a handsome homedebtor and his beautiful adoring wife and two darling children, smiling broadly with his hands in a pile of money and a new home behind him just bought…with blue ink headlines underlined in red wavy lines, saying “I was desperate, now look at my cash and NEW HOME and 2% mortgage!” “Short sale now or be forever frozen out from the tax deadline advantages, lowest interest rates in history, and CASH CASH CASH”. (That realtor may get two transactions out of each responder, too!) “BUT time is almost up, call NOW!”
You mean like this? (This was a flyer we received in the mail)
http://deannarehnert.com/2012/04/huntington-beach-man-avoids-foreclosure-and-walks-away-with-33000-cash/
“After spending over 2 years of being upside down on his mortgage, unable to make payments on his loan, and after multiple frustrating attempts at loan modification, something very interesting happened. Shortly after calling us, we met and discussed all of his options, including how we might best help him avoid foreclosure and help him get a new start.
We were able to complete a short sale on his home, he was able to avoid a deficiency judgment, and walk away from a property that he was upside down in.
And the best part? The bank wrote him a check at the close of escrow for $33,000”
[…] We will see more short sales this year, but as I pointed out in a recent post, banks cannot force a short sale. […]