BluefoxToday blog : January 2010

Mortgage lenders and servicers have been reluctantly doing loan modifications mainly by paring back interest rates and stretching terms, thereby managing to reduce borrowers' monthly payments to some degree. But obviously that strategy is not working as well as many had hoped for. Restructured home loans keep defaulting at an alarming rate.

DBRS, a debt rating agency, now figures that more than half of them are two or more months behind or sink into foreclosure inside six months from the mortgage modification. Clearly, that's hardly the way to resolve the home loan mess. To get to the core of the problem a new direction in thinking has to be found. Actually a doable solution has been debated for some time now, but mortgage lenders haven't put their arms around the idea much. It's called principal reduction.

Home loan providers and servicers have been pulled kicking and screaming into looking at the idea again, and slowly they seem to be warming up to it. Recent statistics prove that. In the first quarter of 2009 3% of mortgage loan modifications included principal cutbacks, reports confidently DBRS. In the second quarter the number grew to 10% and in the third it stood at 13%. The trend is obvious. It appears the mortgage industry is finally seeing the light, but it sure took them a long while to get there.

Las Vegas valley - including Henderson, Mountains Edge, Silverstone Ranch, Rhodes Ranch, Summerlin and Spanish Trail - mortgage recipients are glad to see this development. Scores of them are seriously underwater and without principal cutbacks they would have little incentive to make payments even if they could afford them. To many it just doesn't add up to keep pouring hard-earned money into a losing asset. If the mortgage lenders here bring the loan balance all the way to market, they'd have a lot of eager homeowners sending payment checks in. And the currently high foreclosure rate would be drastically improved. If they do so only part way, it would predictably still prevent a host of mortgage borrowers from going into default.

Should this trend continue it would begin turning the pummeled mortgage and real estate markets in Las Vegas and nationally around in a decisive manner. At this stage in the game this is about the best way to go about it.

Silverado Ranch December 2009 Real Estate Resale Market Report (Homes For Sale, Pending, Sold):

• Listings (1/15/2010):  153
• Under Contract (1/15/2010):  226
• Sold December 2009:  70
• Month's Inventory:  2.2

Since last month:  Listings are UP +18, Under Contract DOWN -32, Sales are UP +8

Read Last Month's Report Here

House honcho Barney Frank feels that it's time to let these two GSEs, the home loan superstars that have for a long time dominated the secondary mortgage market, expire. Instead of trying to fix them, they should be strapped down and given some liquid that puts them to sleep.  

Fannie Mae and Freddie Mac, in all honesty, have had their problems lately. Years ago they were rocked by management shenanigans, including cooking the books to allow top leaders pocket fatter bonuses. Sounds familiar? More recently they have suffered heavy losses as the real estate market flew right over the cliff and were eventually taken over by the government. But just about every mortgage lender or investor out there is taking it to the chin now, so it's quite common these days.

Regardless, debate has been underway for a while about the future of these important mortgage organizations and now it may be coming to a head. One way or another. There is quite a bit of support in Washington and elsewhere for their outright dismissal. Frank wants nothing less than wipe them off the face of the mortgage scene and bring in a brand new replacement structure. Okay. Perhaps everyone ought to take a deep breath and think this thing through before rushing into anything totally new.

See, the management problems occurred because the governmental oversight by HUD and the Congress was lax. The housing market was doing just peachy early in the decade, actually too peachy, so everybody basically left them alone to knit their little accounting schemes. When the cat is away the mice dance on the table. Tighter supervision would've kept Fannie Mae and Freddie Mac on the straight road. This is hardly a good reason to dismantle these firms. Perhaps the oversight segment should be looked at, and possibly replaced.

Same thing goes for the recent losses. Some realistic red flags were raised by industry experts as the real estate market accelerated toward the pinnacle, but these GSE's, like most private mortgage lenders, ignored sound lending practices and are now paying the price. Like the entire nation is. Again, the oversight was inadequate, missing the boat.

Fannie Mae and Freddie Mac do need some changes to meet requirements of today's difficult housing and mortgage markets. They don't have to be boarded up.  Combining might be the ticket, bring them under one roof. Even if they were tossed by the wayside, the spanking new entity would still need a strong oversight function to do any better. That's the key.

Lenn gives must-read advice to home buyers about the financing contingency that usually is part of a Contract of Sale. Don't sign anything until you read this blog.

Desert Shores December 2009 Real Estate Resale Market Report (Homes For Sale/Under Contract/Sold):

• Listings (1/15/2010):  57
• Under Contract (1/15/2010):  81
• Sold December 2009:  28
• Month's Inventory:  2.0

Since Last Month:  Listings are UP +8, Pendings are UP +15, Sold Units are UP +2

Last Month's Report

Click here for Most Recent Desert Shores Market Report

Click here for More Information on Desert Shores Lake Living.

FHA just relaxed the anti-flip underwriting guidelines for purchasing a home.  You can read about it here (Nevin Williams) and here (Esko Kiuru). 

This is not an "informational piece" on how FHA has relaxed the guidelines.  This is in depth real estate chat for:  "Why did they do this and why did they do it for only 1 year?"

Basically true REO were exempt from the rule before (when a house went "back to the bank") but third party or private party investors who purchased property at the trustee's sales were not exempt.  Read about the flipper and trustee sales if you aren't following me here.. 

For the Trustee Sale Flipper:  this kept a solid 30% of their buyers out of the game.  I have also been watching the sales types (trustee sale flips) gain steam through my BPOs. 

What's going on here?  Are the banks getting ready to dump some of that infamous "shadow inventory?" 

Clearly this strategy of opening up 30% of the market to "The Flippers" will create furious bidding wars at the trustee sales thus driving up auction sale prices for the bank.  

The banks would be able to completely dispose of their inventory and be done with it.  This would, in turn, leave investors holding the bag this time around for declining market scenarios (falling prices.)

Banks will take their cake and eat it too.  Screw the little guy.  What a perfect set up, if shadow inventory does exist.

What say you? (fyi, this is not a "Republican" or a "Democrat" scenario, both love to enable big corps)

Las Vegas Area January 15, 2010 Active Listings by Type

• REO:  2137 (21%)
• Short Sale:  4735 (45%)
• All Other:  3552 (34%)

December 2009 Sales by Type:

• REO:  2548 (62%)
• Short Sale:  794 (19%)
• Other:  793 (19%)

This is just a guide for consumers to see what types of properties are closing vs what is listed.  Currently we have the most closes in the REO sector and the least inventory in the REO sector and it is an extreme seller's market.

Click here to see last month's Listing and Sales Type Report

Click here to view the most recent stats (scroll to bottom)

Southern Highlands December 2009 Real Estate Resale Market Report (Homes For Sale/Pending/Sold):

• Listings (1/15/2010):  198
• Under Contract (1/15/2010):  238
• Sold December 2009:  76
• Month's Inventory:  2.6

Since Last Month:  Listings are UP +10, Pendings are UP +20, Sold Units UP +30.  I do plenty of community market reports and I must say that Southern Highlands saw one of the biggest changes in the last several months of any of the communities I watch!!

Last Month's Report

For More Las Vegas Communities and Reports Click Here

Southern Nevada - with communities of Summerlin, Henderson, North Las Vegas, Mountains Edge, Silverstone Ranch, Spanish Trail and Charleston Heights - real estate arena is showing some green sprouts coming up from the soil that has been pretty dormant for a long while. So, there is hope. Quite affordable mortgage money and shamefully low prices are largely behind the modest trend to turn things around. But a potential obstacle to the budding recovery could derail a promising start.

The lately much-discussed words shadow inventory are back on the lips of housing observers in Las Vegas and throughout. Shadow, or phantom, inventory entails foreclosed homes mortgage banks keep in their books while they try negotiate loan modifications and short sales. Or they may not do any of that, instead have decided to hold back and wait for the market to one day get better.

One of the leading mortgage providers, Bank of America, is planning to unload roughly 6,000 foreclosed properties to the Nevada real estate market this year, predictably most of it here in Las Vegas. That means about 500 new listings per month. These are considered part of the shadow inventory. Nationwide, First American CoreLogic estimates there to be 1.7 million of them, while Amherst Securities puts that number close to 7 million.

Since Southern Nevada is winning hands down the top contender honors in mortgage foreclosures, it's fair to assume that the shadow inventory here is one of the highest around. BofA dumping around 500 of them a month in itself wouldn't spell disaster, as it would only cover a small proportion of the good-size real estate market. However, if other home loan operators entertaining a large phantom inventory in their toxic books choose to do the same, then seat belts should be fastened pronto. The following firestorm would quickly wipe out those green shoots, leaving them charred and lonely. Prices that for now appear to have stabilized would head further down, spreading more housing agony across the valley for years to come.

How this shadow inventory release plays out depends largely on how rationally mortgage banks act in doing it. If they can pull it off in a balanced manner, no problem. If a stampede sets in, well, buying a one-way ticket to the sunny Caribbean might become appealing.  

It now appears that the recession may compel more homeowners to downsize. With a growing number having difficulty paying for and maintaining their McMansions, some are looking for smaller more energy efficient homes in an attempt to reduce both their monthly housing expenses and the physical effort required in taking care of larger homes.

Recent studies seem to indicate that both young and old are willing to give up the prestige associated with large, expensive homes in order to gain financial security and personal time. In just the past two years the median home size has decreased by almost 10%. With home sizes having grown by about 50% since the 1970s, many consumers now realize that they really don’t need the extra space; but what they are demanding is a more efficient use of the space they purchase.

And while the increase in first-time buyers and the scarcity of move-ups has skewed the house size numbers, the reality is that the change is likely to remain. Rising interest rates and tightened lending rules will force many buyers to spend less; and the continued concern about rising energy and maintenance costs will result in the production of homes with fewer rooms, less wasted space, more dual function areas, and the elimination of rarely used “formal” areas. Buyers will demand efficiency and practicality, but will also expect imaginative use of space that emphasizes both style and comfort.

Click HERE to view several appealing and efficient home plans and more news on downsizing.  The plan shown includes 3 spacious bedrooms in less than 1900 sq. ft.

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