By the Santa Clarita Signal Staff
Posted: June 27, 2008 1:54 a.m.
Sales of existing single-family homes in the Santa Clarita Valley continued their rebound in May with more than 200 homes closing escrow, according to a Thursday report from the Southland Regional Association of Realtors.
Despite the improvement for single-family home sales, condominium sales remain slow while the inventory of homes for sale is dropping and inching closer towards a balanced market between buyers and sellers.
During the month of May, Realtors closed escrow on 220 homes, a 22.9 percent increase from a year ago and a 23.6 percent jump from April, according to the association. May represents the fifth consecutive month of gains in home sales for the Santa Clarita Valley.
May also marks the first time since June 2007 that more than 200 homes sold in a single month.
"Sales activity is picking up," Doreen Chastain-Shine, president of the association's Santa Clarita Valley division said in a statement. "Agents are reporting that a lot of people are coming through open houses, a lot of people are looking for a home."
The median price of the single-family homes sold during May fell by 14.1 percent from a year ago to $450,000. April's median price was $480,000.
The condominium median price of $305,000 was down 14.1 percent from a year ago, but up 9.3 percent from April's median price of $279,000, according to the association. The group called condominium sales for May "sluggish" because they believe that buyers are focusing on purchasing single-family homes that are being offered at favorable prices.
The association explains that while home loans are available, most loans require a down payment and borrowers must show proof of income and the ability to repay the loan. This means that the pool of qualified buyers is limited.
"Buyers should not turn their backs on traditional buyers thinking that a foreclosure or short pay always offers the best opportunity," Link said. "Traditional sales can be completed faster, buyers have more ability to request repairs, and sellers typically are more willing to negotiate."
Pending sales, which the association uses as a future resale activity, increased 19 percent from a year ago to a total of 339 open escrows. Despite the increase from 2007, pending sales fell 11 percent from April.
A total of 1,946 properties were listed for sale throughout the Santa Clarita Valley at the end of May, which is down 13.1 percent from a year ago and 3.4 percent lower than April.
The inventory represents a 6.6-month supply. The association believes a balanced market is when the inventory is between a 5 to 6 month supply.
"Despite media reports suggesting otherwise, we're not seeing a flood of inventory locally," Chastain-Shine said. "I really do believe the worst is past."
Friday, June 27, 2008
Are your property taxes current?
The Los Angeles County Tax Collector operates on a fiscal year that begins on July 1st.
Delinquent property taxes that are not paid by June 30th, will incur significant penalties and fees.
Delinquent property taxes that are not paid by June 30th, will incur significant penalties and fees.
6 Clues a Lender is a Predator
Help protect yourself by being aware of activities that might indicate a predatory lending practice.
Here are some tips from the NAR brochure "Are You Having Trouble Paying Your Mortgage?"
~~Excessive service fees. Lender fees of 1 percent are common on many mortgages — significantly higher percentages may be a red flag.
~~Teaser rates and balloon payments. Borrowers must understand what their payments will be when the rate is raised.
~~Delayed closing. Unscrupulous lenders may delay a closing so that a more favorable loan rates expires.
~~Overinflated appraisals. Higher values allow for higher fees to the lender and added cost to the borrower.
~~Prepayment penalties and other barriers to refinancing. Penalties for prepayment try to make it too costly for borrowers to get another loan at a more favorable rate.
~~Unexpected settlement costs that make the fees charged at closing significantly higher than those disclosed earlier.
Here are some tips from the NAR brochure "Are You Having Trouble Paying Your Mortgage?"
~~Excessive service fees. Lender fees of 1 percent are common on many mortgages — significantly higher percentages may be a red flag.
~~Teaser rates and balloon payments. Borrowers must understand what their payments will be when the rate is raised.
~~Delayed closing. Unscrupulous lenders may delay a closing so that a more favorable loan rates expires.
~~Overinflated appraisals. Higher values allow for higher fees to the lender and added cost to the borrower.
~~Prepayment penalties and other barriers to refinancing. Penalties for prepayment try to make it too costly for borrowers to get another loan at a more favorable rate.
~~Unexpected settlement costs that make the fees charged at closing significantly higher than those disclosed earlier.
Renegotiating a Troubled Mortgage
If you are facing a potential foreclosure, help yourself by assembling the following, as suggested by the Federal Housing Administration.
1. Loan number and recent payment history.
2. A brief explanation of their circumstances. Are their financial problems temporary (for example, a cut in job hours or the illness of a family member) or permanent?
3. Recent income documentation, including pay stubs or tax returns.
4. A list of household expenses — utility bills, food, insurance.
5. A list of other debt obligations — credit cards, car loans.
Call your lender and ask for the 'Work Out' department. They will connect you to the department in charge of adjusting your loan terms, or approving a short sale.
1. Loan number and recent payment history.
2. A brief explanation of their circumstances. Are their financial problems temporary (for example, a cut in job hours or the illness of a family member) or permanent?
3. Recent income documentation, including pay stubs or tax returns.
4. A list of household expenses — utility bills, food, insurance.
5. A list of other debt obligations — credit cards, car loans.
Call your lender and ask for the 'Work Out' department. They will connect you to the department in charge of adjusting your loan terms, or approving a short sale.
Thursday, June 19, 2008
FBI Arrests Hundreds In Mortgage Fraud Case
Losses Total About $1 Billion
POSTED: 7:10 am PDT June 19, 2008
The FBI said Thursday that it has arrested more than 400 real estate brokers since March -- including dozens over the last two days -- in its crackdown on incidents of mortgage fraud that have contributed to the country's housing crisis.
One law enforcement official put the losses to homeowners and other borrowers who were victims in the schemes at more than $1 billion. The Justice Department and FBI announced the recent arrests at a news conference Thursday afternoon in Washington. Apprehensions were made in Chicago, Atlanta, Miami and suburban Maryland.
"Operation Malicious Mortgage" resulted in 144 mortgage fraud cases in which 406 defendants were charged. On Wednesday, 60 arrests were made in mortgage fraud-related cases in 15 districts. Charges were brought in every region of the United States and in more than 50 judicial districts by U.S. Attorneys’ offices based upon the law enforcement and investigative efforts of participating law enforcement agencies.
"Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation's housing market and to the peace of mind of millions of American homeowners," said Deputy Attorney General Mark R. Filip. "'Operation Malicious Mortgage' and our other mortgage-related enforcement actions demonstrate the Justice Department’s commitment and determination to combat these criminal schemes, hold their perpetrators accountable and help restore stability and confidence in our housing and credit markets."
FBI Director Robert Mueller said that the FBI will continue to direct resources to prosecuting mortgage fraud.
"This operation is an example of our unified commitment to address this significant crime problem," Mueller said. "The FBI will continue to direct investigative and analytic resources towards mortgage fraud and corporate securities fraud that threaten our nation's economy."
Also a part of the operation was the indictment of two former Bear Stearns managers in New York, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market.
Ralph Cioffi and Matthew Tannin, who have been the target of a probe by Brooklyn federal prosecutors, are suspected of misleading investors about the risky market.
Houston Arrests
A group of Houstonians are accused of defrauding banks and stealing $24 million in a fraudulent mortgage scam, KPRC-TV in Houston reported. Six defendants are suspected of recruiting people with good credit to act as buyers in fraudulent mortgage deals, prosecutors said.
Federal agents began making arrests early Wednesday morning, delivering defendants to the federal courthouse who are alleged to have operated the massive mortgage fraud ring. Officials said they were identified as mortgage loan officers or straw buyers who defrauded lenders of $24 million. The defendants were charged with conspiracy, fraud and money laundering. Named in the indictment were Latasha Bellow, Frankthea Williams, Ishmael Laryea, Charles Joseph Deshawn Wilson, Kristen Way and Robert Stanley.
The indictment alleges phony buyers were recruited to apply for loans to buy pricey condominiums in Houston and surrounding suburbs. The loan applications allegedly used fraudulent information to obtain millions of dollars that the defendants then pocketed, the indictment said.
Attorney Ed O'Suji represents Williams. "She's not guilty. She's been in real estate for the last five to six years. This is something she makes a living off of like any other real estate agent or broker," O'Suji said. Williams and two other defendants made federal court appearances Wednesday. Their bond was set at $50,000.
The remaining three were scheduled to appear in court on Thursday.
[All we can say is: It is about time! This mortgage fraud business was widespread and has significantly contributed to the housing crisis in general, and problems in our own little corner of the Universe in Santa Clarita. If some really high profile action were taken locally against some of these crooks, the real estate and mortgage business would improve their practices immediately!]
We were sent this article from NBC News by our favorite inspector team, John and Linda St George. Thanks!
POSTED: 7:10 am PDT June 19, 2008
The FBI said Thursday that it has arrested more than 400 real estate brokers since March -- including dozens over the last two days -- in its crackdown on incidents of mortgage fraud that have contributed to the country's housing crisis.
One law enforcement official put the losses to homeowners and other borrowers who were victims in the schemes at more than $1 billion. The Justice Department and FBI announced the recent arrests at a news conference Thursday afternoon in Washington. Apprehensions were made in Chicago, Atlanta, Miami and suburban Maryland.
"Operation Malicious Mortgage" resulted in 144 mortgage fraud cases in which 406 defendants were charged. On Wednesday, 60 arrests were made in mortgage fraud-related cases in 15 districts. Charges were brought in every region of the United States and in more than 50 judicial districts by U.S. Attorneys’ offices based upon the law enforcement and investigative efforts of participating law enforcement agencies.
"Mortgage fraud and related securities fraud pose a significant threat to our economy, to the stability of our nation's housing market and to the peace of mind of millions of American homeowners," said Deputy Attorney General Mark R. Filip. "'Operation Malicious Mortgage' and our other mortgage-related enforcement actions demonstrate the Justice Department’s commitment and determination to combat these criminal schemes, hold their perpetrators accountable and help restore stability and confidence in our housing and credit markets."
FBI Director Robert Mueller said that the FBI will continue to direct resources to prosecuting mortgage fraud.
"This operation is an example of our unified commitment to address this significant crime problem," Mueller said. "The FBI will continue to direct investigative and analytic resources towards mortgage fraud and corporate securities fraud that threaten our nation's economy."
Also a part of the operation was the indictment of two former Bear Stearns managers in New York, becoming the first executives to face criminal charges related to the collapse of the subprime mortgage market.
Ralph Cioffi and Matthew Tannin, who have been the target of a probe by Brooklyn federal prosecutors, are suspected of misleading investors about the risky market.
Houston Arrests
A group of Houstonians are accused of defrauding banks and stealing $24 million in a fraudulent mortgage scam, KPRC-TV in Houston reported. Six defendants are suspected of recruiting people with good credit to act as buyers in fraudulent mortgage deals, prosecutors said.
Federal agents began making arrests early Wednesday morning, delivering defendants to the federal courthouse who are alleged to have operated the massive mortgage fraud ring. Officials said they were identified as mortgage loan officers or straw buyers who defrauded lenders of $24 million. The defendants were charged with conspiracy, fraud and money laundering. Named in the indictment were Latasha Bellow, Frankthea Williams, Ishmael Laryea, Charles Joseph Deshawn Wilson, Kristen Way and Robert Stanley.
The indictment alleges phony buyers were recruited to apply for loans to buy pricey condominiums in Houston and surrounding suburbs. The loan applications allegedly used fraudulent information to obtain millions of dollars that the defendants then pocketed, the indictment said.
Attorney Ed O'Suji represents Williams. "She's not guilty. She's been in real estate for the last five to six years. This is something she makes a living off of like any other real estate agent or broker," O'Suji said. Williams and two other defendants made federal court appearances Wednesday. Their bond was set at $50,000.
The remaining three were scheduled to appear in court on Thursday.
[All we can say is: It is about time! This mortgage fraud business was widespread and has significantly contributed to the housing crisis in general, and problems in our own little corner of the Universe in Santa Clarita. If some really high profile action were taken locally against some of these crooks, the real estate and mortgage business would improve their practices immediately!]
We were sent this article from NBC News by our favorite inspector team, John and Linda St George. Thanks!
Wednesday, June 18, 2008
Mortgage Rates Are Rising: Real Buyers Take Action
Recent indication is that first time home buyers are getting tired of sitting on the sidelines. According to a recent online poll taken by the National Apartment Association, 17 percent of renters plan to make the jump to home ownership in the next year; 41 percent of the 2,041 respondents planned to be home owners within two years. Only 31 percent planned to still be paying rent five years from now.
Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, "Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation." We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, "Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases ... were also up last week."
Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, "Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation." We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, "Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases ... were also up last week."
Monday, June 16, 2008
FHA waiting period change intended to help lenders get REOs off the books
In an attempt to help lenders speed the process of getting real estate-owned
properties off their books, the Federal Housing Administration will temporarily
lift a 90-day waiting period for property resales financed by FHA-guaranteed
loans.
The 90-day waiting period -- instituted in 2003 to counter predatory lending
and house flipping -- never applied to properties sold by Fannie Mae, Freddie
Mac, or state- and federally chartered financial institutions.
But it can be hard to determine which lenders are exempt from the rule, and
many who are exempt prefer to transfer title to REO properties over to property
disposition firms that are not exempt, FHA officials say. Because a glut
of foreclosed and abandoned homes harms neighborhoods and delays a community's
recovery, FHA will lift the waiting period for one year.
"The action we take today will allow home buyers to purchase these homes
in much greater numbers and ease the excess supply of unsold homes in neighborhoods
across the country," said Federal Housing Commissioner Brian Montgomery in
a statement announcing the change.
But because FHA also requires that homes purchased with loans it guarantees
to be in "safe, secure and sound" condition, lenders still won't be able
to resell many of the homes they've foreclosed on to FHA-eligible buyers
until they make the repairs needed to bring them up to FHA standards.
"It's not going to have as much an impact as one would assume, because most
of the properties aren't going to meet FHA standards," said Glen Daniels,
director of real estate-owned properties for the distressed and foreclosed
property listings site, Foreclosure.com.
Daniels -- who once managed $243 million in REO properties for Ocwen Financial
Corp. -- said that if the previous owner of the house was unable to make
the mortgage payments, the chances are good that he or she was not keeping
up with maintenance.
Lifting the 90-day waiting period does give lenders more incentive to repair
REO properties, Daniels said. Under the old standard, lenders that chose
to renovate a property would still have to wait 90 days to sell to a buyer
using FHA loan guarantee programs.
With FHA loan programs accounting for a growing share of mortgage lending,
"I assume a lot more lenders will take that option, to rehabilitate a property,
bring it into FHA compliance, and sell to a home buyer" who is eligible for
an FHA-backed loan, Daniels said.
According to the Census bureau, there were 129 million housing units in the
United States, and 18.6 million were vacant during the first quarter. Those
vacancies include 4.1 million rentals, 2.3 million for-sale homes, and 7.5
million "vacant for a variety of other reasons" that include foreclosure.
While Daniels doesn't see FHA's new policy having a big impact in the short
run, it might help stabilize property values in the long run. That's because
if lenders choose to rehab properties before selling them, they won't discount
their asking price as much.
In justifying its waiver of the 90-day waiting period, FHA said it would
reduce the impact foreclosures can have on the value of adjoining and nearby
properties.
When FHA announced the 90-day waiting period in May 2003, it said the most
egregious examples of predatory lending were often seen on "quick flips,"
in which homes sometimes resold within a few days.
The rule, "FR-4615 Prohibition of Property Flipping in HUD's Single Family
Mortgage Insurance Programs," also requires lenders to obtain a second appraisal
on properties resold within 91 and 180 days if the resale price exceeds the
previous sale price by 100 percent or more (see letter to lenders).
FHA officials say the threshold was set relatively high to allow legitimate
rehabilitation efforts while deterring unscrupulous sellers, lenders and
appraisers from defrauding home buyers
But one veteran property rehabber told Inman News that convincing the FHA
that a property wasn't an illegal flip after the 90-day waiting period expired
could be "a nightmare."
"We would take a shell and turn it into a castle," said Duane LeGate, president
of HBN Interactive. "Half of the potential buyers couldn't qualify for my
properties because of the rule. Even when the 90 days expired, you had to
show FHA before-and-after pictures, full documentation of all work done to
'prove' that the property wasn't an illegal flip."
properties off their books, the Federal Housing Administration will temporarily
lift a 90-day waiting period for property resales financed by FHA-guaranteed
loans.
The 90-day waiting period -- instituted in 2003 to counter predatory lending
and house flipping -- never applied to properties sold by Fannie Mae, Freddie
Mac, or state- and federally chartered financial institutions.
But it can be hard to determine which lenders are exempt from the rule, and
many who are exempt prefer to transfer title to REO properties over to property
disposition firms that are not exempt, FHA officials say. Because a glut
of foreclosed and abandoned homes harms neighborhoods and delays a community's
recovery, FHA will lift the waiting period for one year.
"The action we take today will allow home buyers to purchase these homes
in much greater numbers and ease the excess supply of unsold homes in neighborhoods
across the country," said Federal Housing Commissioner Brian Montgomery in
a statement announcing the change.
But because FHA also requires that homes purchased with loans it guarantees
to be in "safe, secure and sound" condition, lenders still won't be able
to resell many of the homes they've foreclosed on to FHA-eligible buyers
until they make the repairs needed to bring them up to FHA standards.
"It's not going to have as much an impact as one would assume, because most
of the properties aren't going to meet FHA standards," said Glen Daniels,
director of real estate-owned properties for the distressed and foreclosed
property listings site, Foreclosure.com.
Daniels -- who once managed $243 million in REO properties for Ocwen Financial
Corp. -- said that if the previous owner of the house was unable to make
the mortgage payments, the chances are good that he or she was not keeping
up with maintenance.
Lifting the 90-day waiting period does give lenders more incentive to repair
REO properties, Daniels said. Under the old standard, lenders that chose
to renovate a property would still have to wait 90 days to sell to a buyer
using FHA loan guarantee programs.
With FHA loan programs accounting for a growing share of mortgage lending,
"I assume a lot more lenders will take that option, to rehabilitate a property,
bring it into FHA compliance, and sell to a home buyer" who is eligible for
an FHA-backed loan, Daniels said.
According to the Census bureau, there were 129 million housing units in the
United States, and 18.6 million were vacant during the first quarter. Those
vacancies include 4.1 million rentals, 2.3 million for-sale homes, and 7.5
million "vacant for a variety of other reasons" that include foreclosure.
While Daniels doesn't see FHA's new policy having a big impact in the short
run, it might help stabilize property values in the long run. That's because
if lenders choose to rehab properties before selling them, they won't discount
their asking price as much.
In justifying its waiver of the 90-day waiting period, FHA said it would
reduce the impact foreclosures can have on the value of adjoining and nearby
properties.
When FHA announced the 90-day waiting period in May 2003, it said the most
egregious examples of predatory lending were often seen on "quick flips,"
in which homes sometimes resold within a few days.
The rule, "FR-4615 Prohibition of Property Flipping in HUD's Single Family
Mortgage Insurance Programs," also requires lenders to obtain a second appraisal
on properties resold within 91 and 180 days if the resale price exceeds the
previous sale price by 100 percent or more (see letter to lenders).
FHA officials say the threshold was set relatively high to allow legitimate
rehabilitation efforts while deterring unscrupulous sellers, lenders and
appraisers from defrauding home buyers
But one veteran property rehabber told Inman News that convincing the FHA
that a property wasn't an illegal flip after the 90-day waiting period expired
could be "a nightmare."
"We would take a shell and turn it into a castle," said Duane LeGate, president
of HBN Interactive. "Half of the potential buyers couldn't qualify for my
properties because of the rule. Even when the 90 days expired, you had to
show FHA before-and-after pictures, full documentation of all work done to
'prove' that the property wasn't an illegal flip."
Monday, June 02, 2008
Foreclosures Cost Lenders, Homeowners, the Community, and You Big Bucks
Earlier this month a reader, Pamela Norvell, wrote a suggestion for lessening the foreclosure crisis. She suggested a freeze and/or a rollback of interest rates to their original levels. In making her suggesting Ms. Norvell wondered what it was causing lenders to foreclose on properties rather than do a workout or a restructure. Made us curious too.
The cost of a foreclosure, it turns out, is pretty staggering and we wonder why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300.
The cost of preventing a foreclosure is not easily categorized. We assume that it includes the staff costs of talking to the borrower, collecting financial documents (a task we have noted seems unreasonably difficult for the borrower) reviewing the documents, ordering and reviewing the appraisal, the cost of that appraisal (more likely to be a less expensive brokers price opinion or BPO) and the preparation of a justification to decision makers for any workout plan.
We have seen figures from non-profits that the cost of averting a foreclosure through the use of credit counseling from a non-profit agency approved by the Department of Housing and Urban Development can range from a bit under $1,000 to $14,000 and we don't quite know what to do with that large and disparate range. We do know that counseling programs vary greatly and we assume that those on the high side include programs that provide emergency funds to homeowners to bring loans current while those on the low side are primarily advising and educating their clients.
But the $77,934 cost to foreclosure figure seems fairly easy to document and, compared to others that are widely bandied about - from $58,000 to 30 percent of the pre-foreclosure value of the house - seems reasonable.
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we'll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor's share of the costs should be higher as they absorb increased tax levels.
Also, while the cities and towns are permanently losing some income from fees such as trash pick-up and water and sewer charges, if and when the house is sold they will collect back property taxes or, if they remain unpaid, they will become the owners of the property through tax title. (That opens a whole new area of concern, but one for discussion on a different day.)
That leaves us with total costs of $50,000 for the lender under the numbers produced by the Joint Economic Committee of Congress. The Committee does not break out these figures but a new study from Standard & Poor's (S&P) does. While there is not a total match between the two sets of data, they are close enough.
The Committee includes the following in its list of pre-and post-foreclosure expenses:
Loss on property/loan
Property maintenance
Appraisal
Legal fees
Lost revenue
Insurance
Marketing
Clean-up
And S&P breaks them down as follows:
The largest component of the $50,000 is cash loss on the property. S&P pegs this number at $40,000 for a typical loan of $210,000. Investors who buy short sales tell us that the big lenders are unwilling to sell property or take payoffs for more than a 15 to 20 percent discount so these numbers are closely in sync. S&P however includes only the actual decline in property values in that 19 percent loss figure.
S&P assigns a staggering 26 percent of the loan amount for the costs of foreclosure. This category wraps up the remainder of the list above and include paying property taxes (3 percent, although many ignore this obligation, hoping to pass accrued taxes on to the eventual buyer), maintaining hazard insurance, legal fees (1 percent), an appraisal (although most lenders are choosing the far less expensive alternative of a brokers price opinion or windshield appraisal,) lost revenue (an estimated 13.6 percent of the loan amount) 6 percent marketing fees (broker's commission) and 3 percent spent on home maintenance.
There is a figure that is usually not taken into account - cash reserves. Bank regulations require that lenders put aside a percentage of their capital to cover potential losses. That amount, whether $100,000 or $500,000 is that much less that the bank has to loan to others and means more lost revenue.
It is obvious that no one is a winner in the foreclosure game. But we wonder if lenders and their real estate agents are not exacerbating the situation for all involved through their property management and marketing policies. A look at that later in the week.
from mortgagenewsdaily.com
The cost of a foreclosure, it turns out, is pretty staggering and we wonder why lenders and the investors they represent aren't jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible.
According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300.
The cost of preventing a foreclosure is not easily categorized. We assume that it includes the staff costs of talking to the borrower, collecting financial documents (a task we have noted seems unreasonably difficult for the borrower) reviewing the documents, ordering and reviewing the appraisal, the cost of that appraisal (more likely to be a less expensive brokers price opinion or BPO) and the preparation of a justification to decision makers for any workout plan.
We have seen figures from non-profits that the cost of averting a foreclosure through the use of credit counseling from a non-profit agency approved by the Department of Housing and Urban Development can range from a bit under $1,000 to $14,000 and we don't quite know what to do with that large and disparate range. We do know that counseling programs vary greatly and we assume that those on the high side include programs that provide emergency funds to homeowners to bring loans current while those on the low side are primarily advising and educating their clients.
But the $77,934 cost to foreclosure figure seems fairly easy to document and, compared to others that are widely bandied about - from $58,000 to 30 percent of the pre-foreclosure value of the house - seems reasonable.
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.
Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.
The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we'll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor's share of the costs should be higher as they absorb increased tax levels.
Also, while the cities and towns are permanently losing some income from fees such as trash pick-up and water and sewer charges, if and when the house is sold they will collect back property taxes or, if they remain unpaid, they will become the owners of the property through tax title. (That opens a whole new area of concern, but one for discussion on a different day.)
That leaves us with total costs of $50,000 for the lender under the numbers produced by the Joint Economic Committee of Congress. The Committee does not break out these figures but a new study from Standard & Poor's (S&P) does. While there is not a total match between the two sets of data, they are close enough.
The Committee includes the following in its list of pre-and post-foreclosure expenses:
Loss on property/loan
Property maintenance
Appraisal
Legal fees
Lost revenue
Insurance
Marketing
Clean-up
And S&P breaks them down as follows:
The largest component of the $50,000 is cash loss on the property. S&P pegs this number at $40,000 for a typical loan of $210,000. Investors who buy short sales tell us that the big lenders are unwilling to sell property or take payoffs for more than a 15 to 20 percent discount so these numbers are closely in sync. S&P however includes only the actual decline in property values in that 19 percent loss figure.
S&P assigns a staggering 26 percent of the loan amount for the costs of foreclosure. This category wraps up the remainder of the list above and include paying property taxes (3 percent, although many ignore this obligation, hoping to pass accrued taxes on to the eventual buyer), maintaining hazard insurance, legal fees (1 percent), an appraisal (although most lenders are choosing the far less expensive alternative of a brokers price opinion or windshield appraisal,) lost revenue (an estimated 13.6 percent of the loan amount) 6 percent marketing fees (broker's commission) and 3 percent spent on home maintenance.
There is a figure that is usually not taken into account - cash reserves. Bank regulations require that lenders put aside a percentage of their capital to cover potential losses. That amount, whether $100,000 or $500,000 is that much less that the bank has to loan to others and means more lost revenue.
It is obvious that no one is a winner in the foreclosure game. But we wonder if lenders and their real estate agents are not exacerbating the situation for all involved through their property management and marketing policies. A look at that later in the week.
from mortgagenewsdaily.com
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