Get started
Aug. 19, 2011, 6:54 a.m. EST CALIFORNIA ATTORNEY GENERAL SUES LAWYERS FOR DEFRAUDING TROUBLED HOMEOWNERS |
Jan. 22, 2010, 12:01 a.m. EST
Loan modification? Good luck with that
One reader details his nightmarish experience with bank
By Lew Sichelman
WASHINGTON (MarketWatch) -- I am departing from my regular question-and-answer format this week to bring you an email from a reader, J.N., in Richmond, Va. I am running it in full, with a bit of editing, because it details in excruciating pain the trials and tribulations home owners are experiencing in trying to convince their lenders to work with them to modify their mortgages.
I receive many similar letters, but this is one of the best I've seen in explaining the difficulties owners are running into.
Obama's plans for financial reform
"It's a never-ending game that banks are playing with customers," J.N. said. "If all banks are doing this, I'm surprised most folks haven't just given up and let their homes go into bankruptcy."
J.N. also sent the letter to the Senate Banking Committee, before which his lender testified earlier this month. The lender spoke about offering 600,000 trial modifications, but never once mentioned the folks like J.N. who they run through the wringer. "Didn't hear the word approval anywhere in his statement," J.N. points out.
I have chosen to omit the name of the institution because I don't think it's necessary to single this lender out from the others. Judging from the emails I receive, most are guilty of the same shenanigans.
Homeowner's horror story
With that, here's the letter:
I'm a frustrated consumer who has an FHA-insured loan through a large national bank. Back in April of last year (around the first of the month), I applied for a home modification because my wife lost one of her jobs and we had some unexpected medical expenses that were causing us to barely keep our head above water.
After I submitted all paperwork that was required, I waited for someone from the bank to call, email or send a notice that they had at least received our application. About mid-May, I got very frustrated and sent an email to the CEO and all board members complaining that their loan-modification process was very poor and that this was no way to treat customers, especially those who are having major problems. While I didn't expect to get an answer to my email, I was frustrated and wanted to vent at those in charge.
On May 27, 2009 I got an email reply that basically said they appreciated my letter and that my information had been passed on to the "Executive Resolution Group." I was told I should be receiving an email/call from them within one to two business days.
As promised, within two business days, I had a call from someone within the resolution group who had been assigned my case. I thought I was on the way to happiness, but as it turns out, my elation was short-lived.
I was told they never received the original package that I sent and that I should resend it. I faxed over another copy of the application/forms/paperwork as instructed and waited for a reply. After several days of not hearing from them, I called my contact at the bank and was told that it takes two to three weeks before it actually gets delivered to the assigned worker. So I asked if I could scan everything and send to them as a PDF file and was told yes, that would be allowed. After emailing all paperwork, I waited a couple of days before checking to make sure my package had been received. Within a few hours, I received a reply saying that my package had been received.
I was informed that it would take between six to eight weeks to verify everything and that my contact would stay in touch with me during the process. But it was I who had to stay in contact with them with emails and phone calls. About mid July, I started emailing to find out the status of my application and was told that it hadn't been assigned to a processor yet. That didn't make me feel like a very good customer of the bank. About a month later, I was informed by telephone that I did not qualify for the normal modification but that the bank would continue to look at other avenues for me. I wasn't exactly sure what "normal modification" meant, but at least it sounded like the bank wanted to work with me.
Approved, or not?
On Aug. 28, I was inform that I had been approved for a modification and that my loan would be reduced to $1,508.34 per month for a three-month trial period before it would become a permanent monthly mortgage payment. I was told our monthly mortgage was going to be due on the 24th of each month starting in September and that the paperwork would be sent out for our signatures. My wife and I were very excited over this news, but our jubilation was again short-lived.
As mid-September rolled around, we still had not had seen any of the paperwork, so I started to email and call about every other day. I finally got fed up with no response and sent my original contact an email detailing my frustration with the process. I said I hoped they didn't treat all their customers like this, but I was beginning to think they actually do. The following day, I received a call and was informed that the processor who had been assigned my case had been out sick which is why paperwork hadn't been sent out.
To help eliminate my stress and fears, I was told that yes, I was still approved and that my approval had even been verified with the processor's supervisor. It was also stated, again, that the payments would start on Sept. 24 in the amount of $1,508.34 for a three-month trial period and that I would receive the paperwork as soon as the processor returned from sick-leave.
However, by the anointed date, still no paperwork, so I made a payment of $1,510. I continued to email and phone my processor, and on Oct. 1, I got an email from her stating that there seemed to be an issue with "additional income" which caused a surplus. Needless to say, I was very upset and confused. There wasn't any additional income on my end of things; otherwise, we wouldn't have started this process to begin with.
I felt like we had an agreement on the modified payments, both verbal and electronic, and wanted the bank to honor it. But the bank contended that there was no agreement and wanted me to start making the full payment plus make up for the difference between what I had paid in September and the original mortgage amount. I told them that there was no way I could come up with the difference and if they wanted the house, come get it. As you can see, I was tired and fed up with the run around.
Payment disagreement
At that point, I was told the bank would continue to work on a solution for me but that I should be prepared to start paying the original monthly payment. On Oct. 7, I received an email with a new modification proposal in the amount of $2,320 for 360 months, basically a refinancing at a lower interest rate. While this did lower our payment by $300, I still wanted the bank to honor the first offer. I countered Chase's offer by asking for an interest-only payment for the next 24 to 36 months, after which I would once again begin making full payments. I was just looking for a way to get payments down to the $1,700 to $1,800 range for a while to allow me to get caught up on some past debt. The bank replied that there was no negotiating on this -- take it or leave it!
The new offer was to be effective as of Jan. 1, 2010 and would include any interest that I had missed and the loan term was increased to 360 months. The paperwork did arrive the week of Thanksgiving. Both my wife and I signed the papers, enclosed a check for $1,510, which just happened to be the same amount of what I paid for the first modification loan payment, and put the package in the mail the day before Thanksgiving. It was received the Friday after Thanksgiving.
We were all set, at least we thought we were all set. But on Dec. 22, we received our new mortgage statement and to our surprise, the payments had jumped back up to the $2,620 range, which is just $19 less then what we were paying before the modification request started. The interest rate and the principal amount looked to be correct and matched what was on the modification letters, but the escrow amount had increased dramatically.
We could not figure out what happened between Nov. 24 and Dec. 22 that would cause the escrow to increase like that. So I called the bank right after the Christmas weekend to find out what was going on. After waiting on hold for a while, I was passed from one person to another before finally being told that because of the high volume of calls, they wouldn't be able to answer my questions. They hung up before I could say another word. At that point, I was so fed up that I didn't want anything else to do with the bank, so I just put it aside until after the New Year.
On Dec. 28, we received another notice regarding our loan-modification application. It basically stated the bank was still reviewing the papers and that we should continue to make our trial payments under the modification agreement. This is why I believe we had an agreement with bank on the original modified payment, and I still contend that was the case before we were bullied into making a larger payment.
It shouldn't take someone eight months or longer to get a modification. Customers shouldn't be jerked around, getting their hopes up and then thrown down and stomped on by the banks. There are thousands of families that have stories just like mine regarding my bank alone. ... A news segment last month [talked] about a person who had something very similar to my experience regarding my bank. In fact, she was notified the same week I was that she had been approved for a modification before being told, no, she wasn't.
Seems to be a pattern with my bank and its loan-modification program where they get customers and families hopes up before they slam them into the ground. I do apologize for the length of this letter but wanted you to know how the banks are treating their customers regarding loan modifications. Granted, we were given a modification. But we are not totally happy about it, and I can only imagine the folks who are still stuck in "loan-modification hell."
Tax Hits on Property Short Sales
Wall Street Journal - Smart Money
By BILL BISCHOFF
APRIL 30, 2009
It's not so unusual these days to have mortgage debt that exceeds the current value of your principal residence. If you hang on to the property long enough, you have a reasonably good chance of riding out the storm with little or no harm done. On the other hand, if you have to sell now, you face what's called a "short sale" -- which means selling for a net sales price (after subtracting commissions and other closing costs) that's less than the outstanding mortgage debt.
What are the tax consequences of a short sale? The easiest way to explain it is with some examples.
Tax gain on a short sale. Say you paid $200,000 years ago for a principal residence that you could now sell for a net sales price of $300,000. Unfortunately, you also have $350,000 of first and second mortgages against the property because you took out a big home-equity loan a couple of years ago at the top of the market when the home was worth $500,000.
Believe it or not, you'll have a $100,000 gain for tax purposes if you sell. Why? Because the net sales price exceeds the tax basis of the home: $300,000 sales price minus $200,000 basis equals a $100,000 gain. (Your tax basis equals what you paid for the property plus the cost of any improvements made over the years, minus any past depreciation writeoffs if you rented the property out or used part of it for deductible business purposes.)
While it doesn't seem fair that you could have a $100,000 tax gain from a sale that leaves you $50,000 in the red with your mortgage lenders, that's the way the law works. Mortgage debts don't enter into the gain-on-sale calculation.
Now for the good news: You'll probably be able to exclude the $100,000 gain for federal income-tax purposes, thanks to the federal home-sale-gain exclusion break. If so, you won't have to report the $100,000 gain on your Form 1040. You may or may not qualify for the same favorable treatment on your state income-tax return.
Tax loss on short sale. Of course, you can also have a short sale where the net sales price is less than your tax basis in the property.
Say you paid $415,000 for a principal residence that you could now sell for a net sales price of $300,000. You also have $350,000 of first and second mortgages against the property. For tax purposes, you'll have a $115,000 loss if you sell because the sales price is lower than your tax basis in the home: $300,000 sales price minus $415,000 basis equals a $115,000 loss.
Will the IRS let you claim a writeoff for that loss? Nope. You can only claim a federal income tax loss on investment or business property. A loss on a personal residence is considered a nondeductible personal expense. Most states follow the same principle.
Excess debt. In both the preceding examples, the mortgage debt exceeded the net sales price by $50,000. If the lender won't let you off the hook for any of that excess, you'll have to figure out a way to pay it, and you won't get any tax break for doing so.
If you're more fortunate, the lender will forgive some or all of the excess $50,000. To the extent debt is forgiven, you have so-called debt-discharge income, or DDI. The general rule is that DDI is taxable income. For the year that DDI occurs, the lender should report the amount to you (and to the IRS) on Form 1099-C. Happily enough, there are some taxpayer-friendly exceptions to the general rule that DDI is taxable. Here they are:
Up to $2 million of DDI from mortgage debt that was originally taken out to acquire, build or improve the borrower's principal residence is tax-free (you must reduce the basis of the residence by the tax-free amount). This super-favorable rule is not available for DDI from debt that was not used to acquire, build or improve the principal residence, such as DDI from a home-equity loan used for other purposes.
If the borrower is in bankruptcy proceedings when the DDI occurs, the DDI is tax-free.
If the borrower is insolvent (that is, has debts in excess of assets), the DDI is tax-free as long as the borrower is still insolvent after the DDI occurs. If the DDI causes the borrower to become solvent, part of the DDI will be taxable (to the extent it causes solvency). The rest will be tax-free.
To the extent DDI consists of unpaid mortgage interest that was added to the loan principal and then forgiven, the forgiven interest that could have been deducted (had it been paid) is tax-free.
If the DDI is from seller-financed mortgag
e debt owed to the previous owner of the property, it's tax-free. However, the basis of the property must be reduced by the tax-free DDI amount.
The important thing to understand is that a real-estate short sale can potentially result in a taxable gain and/or taxable DDI. Thankfully, you can probably exclude the gain from taxation under the federal home-sale-gain exclusion deal, and you might be able to exclude some or all of the DDI, too, under the favorable exceptions explained above.
Bill Bischoff, the tax columnist for SmartMoney.com, has been a tax specialist and licensed CPA for 25 years.
Housing Bubble and Real Estate Market Tracker
Quote of the Week
"I think we are in for a recession, probably. How bad it will be, I don't know. But I think there's a lot more bad news to come...
It always starts with housing booms and it takes some time, a year or two, for an economy to come right through it, probably five or six years for the real estate market to come through it.”
- Rupert Murdoch, media tycoon and new owner of the Wall Street Journal
Economists say home prices yet to bottom out
Associated Press
Published on: 06/18/08
Washington —- U.S. home prices are only about halfway through their decline, and most of the further erosion should occur this year, major bank economists said Tuesday.
The 10 economists, including those from Wells Fargo Bank and JPMorgan Chase & Co., also cited the negative overall tone of the economy, with consumer spending curbed, spiking fuel and food prices, tight credit and relatively high unemployment.
"There are a number of head winds that consumers are dealing with," said Peter Hooper, chief economist at Deutsche Bank Securities and head of the American Bankers Association's economic advisory committee. "There's plenty for consumers to feel gloomy about."
The group —- which also includes economists from Northern Trust Co., SunTrust Banks Inc., PNC Financial Services Group Inc. and Huntington Bancorp —- met with officials of the Federal Reserve on Monday.
It expects "sluggish growth, picking up moderately next year," Hooper said at a news conference.
The economy will experience an "unprecedented" type of recession —- the first one without a significant quarterly decline in the gross domestic product, he said. That indicates that factors other than GDP, such as income and employment levels, are important shapers of recession.
Additional declines in average U.S. home prices of around 15 percent between now and late 2009 "clearly will be a drag on consumer spending," the engine of economic growth, Hooper said.
About two-thirds of the economists in the bankers' group don't expect the Federal Reserve to begin raising interest rates until next year, while the others believe the central bank could do so this fall amid growing concern over inflation.
"There's some scope for the Fed to be patient for a while," Hooper said.
Many economists believe the Fed will hold interest rates steady at 2 percent, a four-year low, when it meets next week.
Fed Chairman Ben Bernanke and his colleagues have signaled that the Fed's rate-cutting campaign, which started in September to shore up economic growth, was over because of growing concerns about inflation.
Real Estate Sales and House Prices
Mortgage delinquency on the rise Outlook for delinquencies worsens as lower home prices create cycle of increasing defaults.
By Ben Rooney, CNNMoney.com staff writer
May 12, 2008: 3:48 AM EDT
NEW YORK (CNNMoney.com) -- Mortgage delinquencies will continue to rise over the next six to 12 months as home prices decline and economic conditions remain difficult, according to one forecast released Monday.
The Core Mortgage Risk Monitor (CMRM), an index of foreclosure risk compiled by real estate data analyzer First American CoreLogic, increased 16% compared with the same period last year.
CoreLogic analyzes house price trends, foreclosure rates, economic health factors and fraud propensity to predict the chances that future mortgage delinquencies will occur.
The index, which has increased over the last four quarterly reporting periods, is now 47% higher than it was in the first quarter of 2002 when the last recession was winding down.
Nationwide, the markets with highest levels of delinquency risk also had double-digit declines in home prices and weakening labor markets.
"House price depreciation factors are now outweighing economic stress factors," said Mark Fleming, CoreLogic's chief economist.
Of the top 10 markets with the highest risk of delinquency, eight are in California and two are in Florida. Previously, markets in states like Michigan and Ohio, where the labor market has been weak, dominated the list of most delinquency-prone markets.
But rapidly declining home prices, particularly in places like California and Florida where speculative buying drove prices up during the housing boom, are causing a shift in the nation's mortgage delinquency trends.
CoreLogic forecasts delinquency-risk to be worst in California's Inland Empire region, where home price appreciation has declined more than 21%. Elsewhere in the golden state, the Los Angeles and Sacramento areas are considered high risk for delinquencies.
Meanwhile, urban centers in Texas are expected to have a low risk of delinquency. The Dallas-Fort Worth area tops the list, followed by Tulsa, Okla.
During the same time period last year, Detroit, Mich., led the nation in delinquency risk. In Ohio, Youngstown, Dayton and Toledo were also on the list of high-risk markets. Conversely, Phoenix, Ariz., and West Palm Beach Fla., were among the cities with the lowest risk of delinquencies last year.
"High house price markets are now high risk markets," said Fleming.
Falling home prices have created a vicious cycle: Lower prices lead to more defaults, resulting in excess inventory, which causes demand to fall, bringing home prices even lower, leading to more defaults.
This downward cycle puts pressure on the broader economy, with declining home prices impacting personal wealth and consumer confidence.
California Faces Harsh Realty
AS THE HOUSING BUBBLE CONTINUES to burst, 2007 is expected to be the first year where national home prices will see a year-over-year decline. Ten states reported year-over-year home price declines in the third quarter, with the largest declines in Michigan (down 4.0%), California (down 3.8%), Massachusetts (down 2.6%), Rhode Island (down 2.4%), Nevada (down 2.0%), and Florida (down 1.5%). This compares to the U.S. year-over-year increase of 1.8%.
Since many of our banks have exposure to the California market, we decided to take a closer look there.
California home prices are falling for the first time since 1996, and the rate of depreciation accelerated significantly in September and October.
The housing correction has had varied impacts on different markets. Areas, such as Santa Clara, San Francisco, and Ventura County have not felt the same pain in declining housing prices as overbuilt areas such as Sacramento and the Inland Empire.
Existing home sales are down 40% year-over-year, across all segments of the market.
Unsold inventory has skyrocketed to 16.3 months in October, nearing the peak of 18.8 months in the last credit cycle.
Delinquency and foreclosure rates are already at or nearing the last cycle peaks, driven by years of easy credit.
There is concern that the housing sector, to which 25% of total job growth was tied over the last few years, will lead to higher unemployment rates.
In a worst-case scenario, we estimate that home prices need to fall by another 36% in California, versus an 8% decline for the U.S., to reach an affordability index that pares down inventory levels.
A prolonged housing slump is expected to adversely affect the commercial sector, particularly those areas that have supported the buildup of residential housing.
Pain Street USA: '08 housing outlook
The forecast is for a longer, deeper home-price slump than previously expected, with double-digit declines in many markets.
By Les Christie, CNNMoney.com staff writer
December 21 2007: 4:56 PM EST
NEW YORK (CNNMoney.com) -- The United States is deep in its worst housing slump since the Great Depression, and according to a new report, it's not going to get better any time soon.
In a new survey, Moody's Economy.com says many metro areas will record losses of 20 percent or more during the downturn, with the national median price for single-family homes dropping 13 percent through early 2009. Factoring in discount offers from sellers, the actual price decline would be well over 15 percent.
Eighty of the 381 metro areas covered by the report will record double-digit losses, according to the report. Most of the worst-hit markets are in once high-flying areas, such as California and Florida.
The steep losses were bound to arrive sometime. Throughout the housing slump, which began in the summer of 2006, experts kept expecting prices to tumble, but it wasn't until recently that they dropped substantially, according to Mark Zandi, chief economist for Moody's Economy.com.
"There has been a sea change in seller psychology since the sub prime shock this summer," he said. "Sellers now realize they have to drop their prices to make a sale and prices are coming down very rapidly in some markets."
One such place is Punta Gorda, Fla. In Moody's outlook, prices there will undergo the steepest correction of any U.S. market. From their peak during the first three months of 2006, to their bottom, forecast for the second quarter of 2009, prices will decline 35.3 percent. That's in nominal dollars; adjusted for inflation, the loss will be even greater.
Other metro areas expected to go through crushing price drops include: Stockton, Calif., where prices are forecast to drop 31.6 percent, Modesto, Calif. (-31.3 percent), Fort Walton Beach, Fla. (-30.4 percent) and Naples, Fla. (-29.6 percent).
The worst hit market outside the Sun Belt is expected to be Ocean City, N.J. where prices will fall 24.9 percent, according to Moody's. Prices in St. George, Utah (-21.8 percent), Grand Junction, Colo. (-18.9 percent) and Atlantic City, N.J. (-18.6 percent) will also suffer. In the Washington, D.C. metro area, Moody's forecasts a decline of 18.4 percent.
Home prices are being pulled down by an even more severe decline in home sales, which Moody's expects to bottom out in early 2008, when unit sales will be down more than 40 percent from their peak.
Home builders continued to add to inventory even as the slump got well under way, contributing to what is now an 11-month back-log of homes for sale, according to the National Association of Realtors.
Many of these homes are sitting completely empty: The Census Bureau reported a total of 2.1 million vacant homes for sale. Vacant homes add pressure on prices because owners of these houses are usually more willing to slash prices to move the properties. They cost out-of-pocket cash each month while providing neither income nor shelter.
Even though home construction has now contracted severely - the Census Bureau reported Tuesday that new housing starts were down to an annualized rate of 1.187 million units in November, the lowest in 16 years - it will take time to work through the excess inventory.
The housing slump will have a substantial impact on the overall economy, according to Moody's, which says it will depress real gross domestic product by more than a percentage point this year and by 1.5 percentage points in 2008.
Speculative investment in the mid-2000s helped fuel the current slump. Zandi pointed out that 16 percent of mortgage originations during 2005 were for non-owner-occupied housing, twice the number of a few years earlier.
"And that's a very conservative estimate of investor demand," he said. "Many home buyers lied on their mortgage applications." That's because interest rates are lower for owner/occupied dwellings.
Buying for investment was especially prevalent in many resort areas, such as Ocean City, N.J. Many buyers were betting they could hold onto the property for a short time and sell it for a quick profit, a difficult feat to finesse, considering the high transactional costs. Many speculators came late to the party and got caught in the slump. Now their properties are adding to mountainous inventories.
Another factor was excessive new home construction, especially in once hot markets. As prices skyrocketed, builders rushed to take advantage of the increases, contributing to the now high inventories.
Also adding homes to markets was the increase in foreclosure filings. When lenders take back properties, they put them back on the markets. Foreclosures have just about doubled this year.
For the slump to end, much of the excess inventory will have to be worked through. Zandi doesn't envision that happening much before 2010, which he forecasts to be a very modest recovery year with low, single-digit growth.
Countrywide faulted over sub prime loans, foreclosures
By Emmet Pierce
UNION-TRIBUNE STAFF WRITER
November 22, 2007
Nearly 50 sign-waving demonstrators chanted and marched outside the Countrywide Financial office on Frazee Road yesterday to protest the way the firm has handled soaring foreclosure rates in San Diego County.
JOHN GASTALDO / Union-Tribune
Nativo V. Lopez (left) and Nanshi Ignacio, who holds a sub prime home loan, affixed signs to the doors at Countrywide Financial's offices on Frazee Road as a group staged a protest of the company's handling of soaring foreclosure rates in San Diego County.
Countrywide, the nation's largest mortgage lender, has become a target for complaints about the risky sub prime loans widely used in the nation's hot real estate markets during the recent housing boom.
Protesters yesterday said Countrywide and other lenders had steered many borrowers into sub prime loans when they could have qualified for cheaper, conventional mortgages.
S&P say mortgage problems to rise in 2008
Posted Nov 14th 2007 4:35AM by Douglas McIntyre
Filed under: Analyst reports, Forecasts, Economic data, Housing, Federal Reserve
Ah, for some good news about the housing market. But, not today.
S&P said in a report yesterday that the mortgage markets in the US will only get worse in 2008 and that earnings at companies with exposure to these markets will worsen. "Negative home price trends, the shutdown of the sub prime mortgage market and the continued weak state of the mortgage capital markets all translate into lower growth for the mortgage industry," said Victoria Wagner, a credit analyst with S&P.
CNN Money says that "loose lending standards, especially to people with shaky credit, are at the heart of the problem."
The trouble is something that the American psyche rejects, a problem without a solution. Even if the Fed drops rates sharply right now, too many people are behind on mortgages and face higher prices in arenas like energy. These consumers might well not be able to make lower payments. For banks, cutting payment requirements for many customers might mean further write-downs.
It is an ugly play that simply has to limp to the last act. Unfortunately, no one knows when the show will be over.
Fannie Sees Continued Housing Turbulence
Friday November 9, 3:48 pm ET
Fannie Mae Foresees Continued Rocky Housing Market Into Next Year
WASHINGTON (AP) -- Mortgage finance giant Fannie Mae, which posted a big loss in the third quarter, foresees continued financial difficulties next year due to persistent housing market turmoil.
Government-sponsored Fannie Mae, the largest U.S. buyer and backer of home mortgages, reported Friday its results for the first three quarters of the year. Its loss in the July-September quarter more than doubled to $1.4 billion, or $1.56 a share, reducing profits for the nine months by more than half.
Fannie Mae said it expects the housing downturn to continue into 2008, shrinking home prices by 4 percent and weakening demand for mortgages.
"The company believes the continued downturn in housing will lead to further declines" in new mortgages written this year and next, Fannie Mae said.
An estimated 2 million to 2.5 million adjustable-rate mortgages, worth some $600 billion, are "resetting" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes.
Fannie Mae said that as of July 31, it estimates there were about $185 billion in adjustable-rate mortgages tied to high-risk, sub prime securities scheduled to reset next year. "These resets could result in a further sharp increase in delinquency and foreclosure rates," the company said.
BB&T sees 12-18 months more in real estate slump
NEW YORK, Oct 18 (Reuters) - BB&T Corp (BBT.N: Quote, Profile, Research) Chief Executive John Allison said on Thursday he expects the U.S. residential real estate downturn to continue another 12 to 18 months and said the housing slump has affected the bank's ability to acquire community banks.
On a conference call, Allison said Winston-Salem, North Carolina-based BB&T is "for all practical purposes out of the community bank acquisition business." He said prospective targets are seeking excessive prices, and because community banks are often "residential real estate lenders of last resort," it's hard to conduct due diligence to ensure that the risks BB&T would assume in an acquisition are appropriate.
A Real Estate Speculator Goes From Boom to Bust
Mark Schiefelbein for The New York Times
Todd Haupt, 33, whose real estate fortunes soured, outside the million-dollar home he once owned in Josephville, Mo.
Published: November 9, 2007
ST. CHARLES, Mo. — The home foreclosure business was very good to Todd Haupt. He started buying and flipping foreclosed houses in 1994, when he was 20, and by 2000 he graduated to building homes.
At 32, with just one semester of community college, he owned a BMW, a Corvette and a 5,000-square-foot house worth $1.2 million. He was a creation of the boom. “I was on top of the world,” Mr. Haupt said recently.
Then, last May, the real estate market stopped booming.
Now Mr. Haupt’s house is in the hands of his creditors, as are the cars, three small office buildings and 89 lots he bought in a subdivision in neighboring Lincoln County.
He owes about $6 million in personal and business debt, and as Mr. Haupt’s fortunes soured, so have those of plumbers, electricians, framers, landscapers, supply stores and others that relied on his business, which he estimated at $300,000 per month.
Mr. Haupt is one of thousands of Americans who jumped into the raging housing market of the last decade, which was heralded in stories of neighbors’ windfalls and reality television shows like “Flip That House,” “Flip This House” and “Flipping Out.”
- Sales Of Pre-Owned North Texas Homes Fell About 13 Percent In October (Dallas Morning News, Nov. 8th): "North Texas Real Estate Information System and Texas A&M University's Real Estate Center: Pre-owned North Texas home sales fell 13% in October vs. October 2006, with 6,378 homes sold... Pre-owned home sales are down about 7% year-to-date in 2007 from the same period in 2006... The median price of homes sold in October was $146,000 – up 2% from a year ago... [In] October, there was about 6.4 months' supply of homes on the market in North Texas... On average, it took 75 days to sell houses in October. There are about 48,000 pre-owned single-family NT homes [and 4,250 condos] for sale."
- Slumping in Seattle (Columbian.com, Nov. 8th): "For the first time since the early 1990s, the median price of homes sold in King County declined last month compared with a year ago, The Seattle Times reports. The Seattle area's median price in October was $387,500, down 1% from $391,300 a year ago. The number of homes and condos on the market has jumped to 14,240, up 40% from 2006, according to figures gathered from the Northwest Multiple Listing Service."
- From RealEstateJournal. Borrowers find help only after falling behind on mortgages
Struggling homeowners seeking mortgage relief from their lenders say they are hearing a tough message: We can't help you unless you first fall behind on payments. That is putting borrowers in a bind, given that defaulting on a mortgage triggers all kinds of headaches.
Affordability Problems
- As A 'College Town,' Honolulu Is Pricey (Pacific Business News, Nov. 6th): "Coldwell Banker Real Estate study: Honolulu ranks among the priciest college towns...With an average home price of $843,750, Honolulu, home to the University of Hawaii-Manoa, ranked seventh on the list of the 10 most expensive college markets. Palo Alto, Calif., home to Stanford University, topped the list, with an average home price of $1.7 million. Next on the list were Chestnut Hill, Mass., where Boston College is located, and Los Angeles, home to the University of Southern California and the University of California-Los Angeles. Muncie, Ind., home to Ball State University, was most affordable, with an average home price of $150,000."
Real Estate Investment and Sentiment
- GE Real Estate Launches Green Initiative (CNN Money, Nov. 7th): "GE Real Estate today announced a new initiative to green its real estate investment business, a global business that generates more than $30 billion in annual transaction volume across 28 countries. Sustainability will be embedded into its existing investment processes, from origination of investments to underwriting, due diligence and asset management in an effort to improve the environmental performance of assets, to positively impact the health of tenants, and to improve the value of the properties."
Mortgages and Real Estate Lending
- Price Is (Not) Right: Appraisals Now Sink Sales (Boston Herald, Nov. 8th): "Desperate homeowners trying to unload properties face a new obstacle: Appraisers who are increasingly coming in with lower-than-expected estimates of home values. The low estimates are leading to last-minute nixing of some sale deals and putting even more downward pressure on home prices in a tight housing market. Home appraisers, whose estimates are key to the issuance of mortgages, say market forces are ultimately the cause of falling home values. But they acknowledge that loan underwriters... are now more cautious about depreciating home prices... underwriters don’t want to get stuck holding loans for homes whose values will [later fall.]"
- Applications Decrease Slightly (Originator Times, Nov. 7th): "The Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending November 2, 2007: Mortgage loan application volume was 670.6, a decrease of 1.6% on a seasonally adjusted basis from 681.7 one week earlier... The Refinance Index decreased 3.2% to 2176.1 from 2249.0 the previous week and the seasonally adjusted Purchase Index decreased to 412.7 from 412.9 one week earlier... The seasonally adjusted Conventional Index decreased 2.3% to 960.0 from 982.2 the previous week, and the seasonally adjusted Government Index increased 4% to 188.0 from 180.7 the previous week."
- Mortgage Brokers Fear 'Extinction' If New Bill Passes (Mortgage 101, Nov. 7th): "National Association of Mortgage Brokers: "Mortgage brokers are facing extinction. The U.S. House of Representatives is considering a bill (H.R. 3915) that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law. Additionally, we fear that all sub prime lending will cease to exist due to excessive lender liability... A controversial section of the legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. However, individual investors in these securities would not be liable."
- Brokers Slam AG (Boston Herald, Nov. 7th) Massachusetts: "Mortgage brokers are in an uproar over Attorney General Martha Oakley's proposed regulations for the industry, saying her plans would gut how they’re paid and potentially lead to thousands of job losses. The head of the Massachusetts Mortgage Bankers Association will meet with officials from Oakley's office this Friday in an effort to head off a potential confrontation. The group, which represents both mortgage brokers and lenders, is threatening legal action to block Oakley's new rules, which are set to take effect Nov. 15."
- Should You Buy Indymac On The Capitulation This Morning? (FIG Trader in Seeking Alpha, Nov. 7th): "Indymac Bancorp (IMB), has substantial upside, once the short covering gathers speed... One dividend cut is priced in, and even if they lost money in Q4 and cut the whole dividend, the stock will be much higher in 2008... The rolling capitulation sector-wide among financials is probably 80% done, and perhaps even more so among the mid and small caps. The near term upside is awesome, as seen in the bond insurers since the lows Monday. SEC filings for Q3 are due next week [and] most of the bad news... is priced in. The next big move is up (through Q4 earnings)."
Global Sub prime Fallout or Global Housing Slump?
- UK Housing Market Hit Unevenly By Credit Crunch (Reuters, Nov. 8th): "Credit information firm Experian: Britain's housing market will become a direct casualty of the credit crunch with the pain felt unevenly across the regions. Experian predicted house prices over the next two years would record the lowest annual increases since the mid-1990s, while repossessions would reach 15-year highs. Experian: "Modest declines in house prices are predicted in the South East and the East of England, while values fall much more sharply in the South West. By contrast, Greater London, where overvaluation is less severe than in the rest of the south, has the UK's strongest short-term outlook after Scotland."
- HSBC Ends Sales of Mortgage-Backed Securities in U.S. (Bloomberg, Nov. 8th): "HSBC Holdings Plc, the biggest U.K. bank, said it stopped sales and trading of mortgage-backed securities in the U.S. after the collapse of the sub prime market forced it to close down two origination units. About 120 securities jobs will be cut globally, including 20 in the U.K... HSBC has also ceased investment-banking coverage of healthcare in the U.S.... The five-month rout in the $6 trillion market for U.S. home-loan bonds has eroded the value of assets including securities backed by sub prime loans and debt guaranteed by government-linked organizations such as Fannie Mae.
- China Limits Foreign Investment In Real Estate, Other Key Areas (Int'l Herald Tribune, Nov. 7th): "China's economic planning agency has issued restrictions on foreign investment in real estate and other industries... Many of the restrictions match a list issued by the NDRC in 2004... suggesting that some [reiterated rules], such as limits on foreign investment in real estate, were not adequately enforced... Apart from the ban on investment in golf courses and in real estate agencies, the list matches current regulations. Foreign direct investment in China rose almost 11% in January-September over the year before to US$47.2 billion. Of that total, foreign investment in property development accounted for 42.3B yuan (US$5.7B)."
Subprime Fallout
- Morgan Stanley Marks Down $3.7 Billion, Cuts Outlook (Bloomberg, Nov. 8th): "Morgan Stanley joined Merrill Lynch & Co. and Citigroup Inc. in booking losses on sub prime mortgage- related assets and said the outlook for credit markets is bleaker than in September. The second-biggest U.S. securities firm by market value after Goldman Sachs Group Inc. said it lost $3.7 billion in the two months through Oct. 31. Prices for securities linked with home loans to risky borrowers sank further than traders expected, cutting fourth-quarter earnings by $2.5B. The figure may change by the end of the month."
- Contemplating Life Without Guarantors (David Merkel in Seeking Alpha, Nov. 8th): "Financial guarantors have had a tendency to reinsure each other. MBIA (MBI) reinsures Ambac, and vice-versa. RAM Holdings (RAMR) reinsures all of them. The guarantors provide a type of “branding” to obscure borrowers in the bond market. Rather than put forth a costly effort to be known, it is cheaper to get the bonds wrapped by a well-known guarantor; not only does it increase perceived ccredit worthiness it increases liquidity... [Carefully] evaluate guaranteed investments both ways. i.e., ABC corp guaranteed by GUAR corp, or GUAR debt secured by an interest in ABC corp. This is a situation where simplicity is rewarded."
- Stock Market Mayhem And Bush's Moral Swamp (Online Journal, Nov. 8th): "Short-term" asset-backed commercial paper has shriveled by $275 billion in the last 10 weeks leaving the banks with gargantuan liabilities... Bloomberg: "Banks shut out of the market for short-term loans are finding salvation in a Great Depression-era government lending program... Countrywide Financial Corp. (CFC), Washington Mutual Inc. (WM), Hudson City Bancorp Inc. (HCBK) and hundreds of other lenders borrowed a record $163B from the 12 Federal Home Loan Banks in August-September as interest rates on asset-backed commercial paper rose as high as 5.6%. The government-sponsored companies were able to make loans at about 4.9%, saving the private banks about $1B in annual interest."
- AIG Profit FallS 27 Percent (WJLA/ABC News, Nov. 8th): "Losses in AIG's investment portfolio, credit-swap portfolio and mortgage-insurance business added up to about $1.4 billion, and caused net income to fall by 27% compared with last year's Q3... Back in August, AIG called exposure to sub prime debt "minimal." AIG's $872.3 billion-investment portfolio lost $864 million, its credit-swap portfolio lost $352 million, and its mortgage-insurance business lost $215 million... AIG's investment portfolio does include some collateralized debt obligations... But the exposure is smaller than that of banks such as Citigroup Inc. and Merrill Lynch & Co., which have written down big losses on their CDO investments."
- Jim Cramer's Mad Money In-Depth, 11/7/07: The Gisele-Cuomo Selloff(Miriam Metzinger in Seeking Alpha, Nov. 8th): "Andrew Cuomo, the New York Attorney General, issued subpoenas to FNM and FRE to give information on loans they purchased from WM... Concerning Cuomo’s inquiry, Cramer said, “There's only one way out of the mortgage morass. We need to see lower down payments." Cramer is concerned government regulators may scare lenders out of lending. Cramer concluded the stories bringing down the market are temporary and urged investors not to panic.
- SIV Managers Don't Expect Model to Survive Slump (Bloomberg, Nov. 8th): "Managers of structured investment vehicles don't expect their business model to survive as the value of assets shrinks and the companies struggle to borrow, Moody's Investors Service analysts said today. "Some managers hold the view that the short-term debt market for SIV paper has been permanently disrupted and the SIV model will not survive in its current form,'' Paul Kerlogue, a senior credit officer at Moody's in London, said on a conference call. The net asset value of SIVs has fallen to 71% of initial capital from 102% in June."
- Fannie, Freddie, WaMu Tumble on Expanded Probe (Seeking Alpha, Nov. 7th): "Government-sponsored mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) received subpoenas from NY Attorney General Andrew Cuomo concerning their due diligence practices and about loans they bought from Washington Mutual and other banks. Cuomo says he uncovered a "pattern of collusion" between lenders and appraisers [to] inflate appraisal values. If decided that they own or guarantee mortgages with inflated appraisals, company policy dictates that the lenders buy back the loans. Last week Cuomo sued the appraisal unit of First American Corp., the number-one U.S. title insurer, for inflating home values under pressure from WaMu... WaMu is Fannie's third-largest loan provider, selling it $24.7B in 2007, and $7.8B to Freddie in 2007."
Foreclosure Data
- Closure Call (NY Post, Nov. 8th): "RealtyTrac: In Queens, foreclosures were up nearly 70% in Q3'07 vs. Q3'06... Foreclosure tracking site PropertyShark.com: "There are more people talking, more people investigating..." Many foreclosure hunters... are waiting for the moment when banks get desperate and slash the prices they are willing to accept. Greg Fonti, an auction referee... pointed to the late 1980s as historical precedent: "The last time this happened was back in '88... The banks were closing and were getting pressured by FDIC regulators to move these properties off their books. Will the banks start selling them for cheaper? Yes, I have no doubt.
