NEW YORK (CNNMoney.com) -- Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.
"Banks have ramped up short sale approvals," said Duane Legate of House Buyer Network, which connects short sellers with buyers. "They're hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales."
These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.
And Bank of America (BAC, Fortune 500), the country's largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.
Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. "Bank of America approved it in 24 days," she said. "That flipped me out."
This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.
Beware: You lost your house but still have to pay
"In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete," said Chris Saitta, CEO of Equator, which produces short sale software.
"Things would just fall into a black hole and not come out again," added Weintraub.
And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.
In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there's usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.
But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. "The lenders lose 50% on a foreclosure and only 30% on a short sale," said Glenn Kelman, founder of the real estate Web site Redfin. "And short sales offer a way to get distressed properties off their books quickly."
And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.
Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 "relocation incentive" and servicers will get $1,500 for handling a short sale.
The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.
Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they're willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.
Equator's Saiita anticipates a short sale explosion in response to the new program. "The challenge will be handling all the volume," he said.
The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.
The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.
Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.
Tuesday, March 30, 2010
Tuesday, March 23, 2010
Short-Sale Incentives Start April 5th
Short-Sale Incentives Start April 5th
Potential buyers of short-sale homes might consider waiting until April 5th before making a formal offer.
That’s the date the federal government will begin offering lenders financial incentives to hasten the process. Under the new rules, banks will seek a BPO before the property is listed for sale and let the sellers know a minimum number they are willing to accept. If the sellers bring a buyer with a good offer, the lender must accept it within 10 days.
Not all sellers are eligible for the program, dubbed the Home Affordable Foreclosure Alternatives (HAFA), but enough are that it is probably worth waiting.
Source: The Wall Street Journal, June Fletcher (03/19/2010)
Potential buyers of short-sale homes might consider waiting until April 5th before making a formal offer.
That’s the date the federal government will begin offering lenders financial incentives to hasten the process. Under the new rules, banks will seek a BPO before the property is listed for sale and let the sellers know a minimum number they are willing to accept. If the sellers bring a buyer with a good offer, the lender must accept it within 10 days.
Not all sellers are eligible for the program, dubbed the Home Affordable Foreclosure Alternatives (HAFA), but enough are that it is probably worth waiting.
Source: The Wall Street Journal, June Fletcher (03/19/2010)
Friday, March 19, 2010
Analysts Say Rates Should Remain Low
This is fantastic NEWS!!!!!
Projections about where credit rates will go in the next year vary widely, but most mortgage analysts think the effect of the Federal Reserve’s move away from the market won’t be dramatic.
Analysts at Credit Suisse and FTN Financial Capital Markets predict that mortgage rates will stay between 5 percent and 5.25 percent for the rest of the year. Moody's Economy.com projects about 5.7 percent, and Barclays Capital says 6 percent.
“There is a lot of private money on the sidelines waiting to buy mortgage securities once the Fed stops gobbling most of them up,” says Laurie Goodman, senior managing director at mortgage-bond trader Amherst Securities Group.
Source: The Wall Street Journal, James R. Hagerty (03/13/2010)
Projections about where credit rates will go in the next year vary widely, but most mortgage analysts think the effect of the Federal Reserve’s move away from the market won’t be dramatic.
Analysts at Credit Suisse and FTN Financial Capital Markets predict that mortgage rates will stay between 5 percent and 5.25 percent for the rest of the year. Moody's Economy.com projects about 5.7 percent, and Barclays Capital says 6 percent.
“There is a lot of private money on the sidelines waiting to buy mortgage securities once the Fed stops gobbling most of them up,” says Laurie Goodman, senior managing director at mortgage-bond trader Amherst Securities Group.
Source: The Wall Street Journal, James R. Hagerty (03/13/2010)
Thursday, March 18, 2010
Foreclosures slowing, but still drive marketPhoenix Business Journal
Foreclosures slowing, but still drive marketPhoenix Business Journal
The number of foreclosures may be down in the Phoenix area, but home losses are still driving the region’s housing market, according to the latest Realty Studies report from the W. P. Carey School of Business at Arizona State University.
Foreclosure-related activity represented 65 percent of February sales, says associate professor of real estate Jay Butler, author of the report. That includes both foreclosure sales and the resale of previously foreclosed properties.
More than 3,300 homes were foreclosed on in the Phoenix area in February, however, the number is down from January’s 3,500 foreclosures, and from last February’s 4,300 foreclosures. The overall number of resales increased with more than 4,600 single-family homes sold in February compared with about 4,200 in January. However, the number is about the same as in February of 2009.
The median price of single-family homes also increased. In February, the median was $140,000, up from $136,500 in January and $133,000 last February. Condos resales remain stable at $95,000, the same as in January, but down from $121,000 a year ago.
“The fundamental problem remains that a weak recovery is restricting job growth that could impact the ability of property owners to maintain their homes, and a large number of adjustable rate mortgages are expected to reset in the coming months,” Butler said. “Further, owners, confronted with declining neighborhood values and restrictive debt amounts, could decide to walk away from their homes.”
The number of foreclosures may be down in the Phoenix area, but home losses are still driving the region’s housing market, according to the latest Realty Studies report from the W. P. Carey School of Business at Arizona State University.
Foreclosure-related activity represented 65 percent of February sales, says associate professor of real estate Jay Butler, author of the report. That includes both foreclosure sales and the resale of previously foreclosed properties.
More than 3,300 homes were foreclosed on in the Phoenix area in February, however, the number is down from January’s 3,500 foreclosures, and from last February’s 4,300 foreclosures. The overall number of resales increased with more than 4,600 single-family homes sold in February compared with about 4,200 in January. However, the number is about the same as in February of 2009.
The median price of single-family homes also increased. In February, the median was $140,000, up from $136,500 in January and $133,000 last February. Condos resales remain stable at $95,000, the same as in January, but down from $121,000 a year ago.
“The fundamental problem remains that a weak recovery is restricting job growth that could impact the ability of property owners to maintain their homes, and a large number of adjustable rate mortgages are expected to reset in the coming months,” Butler said. “Further, owners, confronted with declining neighborhood values and restrictive debt amounts, could decide to walk away from their homes.”
Monday, March 1, 2010
Warren Buffett sees housing market bouncing back by 2011
HMMMM Interesting GREAT ARTICLE!
Warren Buffett sees housing market bouncing back by 2011
By Andrew Frye, Bloomberg News
Billionaire Warren Buffett said the U.S. will recover from the residential real estate slump by 2011 as demand for houses catches up with the supply that accumulated during the bubble.
"Within a year or so, residential housing problems should largely be behind us," Buffett wrote Saturday in his annual letter to the shareholders of his Berkshire Hathaway. "Prices will remain far below 'bubble' levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits. Indeed, many families that couldn't afford to buy an appropriate home a few years ago now find it well within their means."
Record foreclosures flooded a U.S. real estate market already glutted with unsold property, causing housing starts to fall.
"People thought it was good news a few years back when housing starts — the supply side of the picture — were running about 2 million annually," wrote Buffett, 79, chairman and CEO of Omaha-based Berkshire. "But household formations — the demand side — only amounted to about 1.2 million."
Buffett built Berkshire into a $198 billion company through takeovers and investments in companies he believes have lasting competitive advantages and superior management.
Berkshire, which has a real estate brokerage, a business that constructs prefabricated houses and units making products used in home building, has suffered in the downturn. Profit at carpet maker Shaw Industries fell 30% last year to $144 million.
He's very deeply invested in this, said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. Across his industrial companies, he's massively poised to gain from a housing recovery, Russo said.
Buffett wrote that his company should have bought more corporate and municipal bonds last year because they were cheap compared with U.S. Treasuries. When it's raining gold, reach for a bucket, not a thimble, he said.
Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. Last year he said the U.S. economy was in shambles after reckless lending.
Buffett said this year that the CEOs and boards of companies that failed during the credit crisis shouldn't be able to pass blame to those below them. Boards should insist on CEOs taking responsibility for risk, he said.
Shareholders weren't the ones who botched the operations of some of the largest financial institutions, Buffett said, yet they have borne the burden, with 90% or more of their holdings wiped out in cases of failure.
Buffett agreed to his largest deal last year when he arranged the $27 billion takeover of railroad Burlington Northern Santa Fe. Berkshire completed the acquisition, which Buffett described as an all-in wager on the U.S. economy, on Feb. 12.
Shares of Berkshire traded at about $15 when Buffett took control in 1965. The class A stock closed yesterday at $119,800, its highest since October 2008. Buffett added class B shares in 1996, and agreed to split them this year to help pay Burlington Northern shareholders.
Warren Buffett sees housing market bouncing back by 2011
By Andrew Frye, Bloomberg News
Billionaire Warren Buffett said the U.S. will recover from the residential real estate slump by 2011 as demand for houses catches up with the supply that accumulated during the bubble.
"Within a year or so, residential housing problems should largely be behind us," Buffett wrote Saturday in his annual letter to the shareholders of his Berkshire Hathaway. "Prices will remain far below 'bubble' levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits. Indeed, many families that couldn't afford to buy an appropriate home a few years ago now find it well within their means."
Record foreclosures flooded a U.S. real estate market already glutted with unsold property, causing housing starts to fall.
"People thought it was good news a few years back when housing starts — the supply side of the picture — were running about 2 million annually," wrote Buffett, 79, chairman and CEO of Omaha-based Berkshire. "But household formations — the demand side — only amounted to about 1.2 million."
Buffett built Berkshire into a $198 billion company through takeovers and investments in companies he believes have lasting competitive advantages and superior management.
Berkshire, which has a real estate brokerage, a business that constructs prefabricated houses and units making products used in home building, has suffered in the downturn. Profit at carpet maker Shaw Industries fell 30% last year to $144 million.
He's very deeply invested in this, said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. Across his industrial companies, he's massively poised to gain from a housing recovery, Russo said.
Buffett wrote that his company should have bought more corporate and municipal bonds last year because they were cheap compared with U.S. Treasuries. When it's raining gold, reach for a bucket, not a thimble, he said.
Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. Last year he said the U.S. economy was in shambles after reckless lending.
Buffett said this year that the CEOs and boards of companies that failed during the credit crisis shouldn't be able to pass blame to those below them. Boards should insist on CEOs taking responsibility for risk, he said.
Shareholders weren't the ones who botched the operations of some of the largest financial institutions, Buffett said, yet they have borne the burden, with 90% or more of their holdings wiped out in cases of failure.
Buffett agreed to his largest deal last year when he arranged the $27 billion takeover of railroad Burlington Northern Santa Fe. Berkshire completed the acquisition, which Buffett described as an all-in wager on the U.S. economy, on Feb. 12.
Shares of Berkshire traded at about $15 when Buffett took control in 1965. The class A stock closed yesterday at $119,800, its highest since October 2008. Buffett added class B shares in 1996, and agreed to split them this year to help pay Burlington Northern shareholders.
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