Real Estate

10 Jan, 2014

Borrowers possibly elude foreclosures

Thousands of defaulted borrowers across Florida could benefit from the state’s five-year statute of limitations on redressing debts, the Palm Beach Post reported.

The state’s common contract law says a person has five years to sue on a debt, with the right to collect that money expiring at the end of the time period. The state’s application of this law in foreclosure cases is unclear, the Post said, but in recent cases, judges have favored borrowers.

In Palm Beach County, there are more than 1,500 cases that are five years or older still in the system, according to the newspaper.

“These cases are out there, and we are educating our clients,” Hollywood-based attorney Ronnie Bronstein, who represents homeowners associations, told the Post.

In May, the firm won a $1 million condo for one of its clients because the bank missed a filing deadline by less than two weeks. The bank filed for foreclosure Nov. 8, 2007. When the lender failed to show up for trial in 2011, the case was dismissed.

Citing a lapsed statue of limitations, Palm Beach County foreclosure judge Rodger Colton ruled last month in favor of convicted fraudster and one-time condo king Bill Lilly and former fitness instructor Valerie Kaan, allowing them to keep their $8.4 million estate in the Sanctuary section of Boca Raton, as The Real Deal previously reported. [Palm Beach Post] — Emily Schmall

10 Jan, 2014

Under Water Homes are still rampant in S. Florida

One-third of homes in region worth 25% less than mortgage. Home prices are rising and foreclosure filings are dropping, but South Florida still has plenty of homeowners who are underwater on their mortgages.

The latest report from Irvine, Calif.-based RealtyTrac shows 33 percent of mortgaged residences in the tri-county area were considered “deeply underwater” in December 2013, the Miami Herald reported. The deeply underwater designation is for homes worth at least 25 percent less than their mortgages. South Florida ranked fifth nationally in the category.  This provides plenty of opportunities for today's investors.

28 Mar, 2012

Wanted: Young, Hip, Homebuyers

The flip is back. Despite a sluggish housing market and tight credit, hordes of short-term investors are once again raking in the profits, after scooping up, sprucing up and reselling properties. But this time, these sales aren't so quick, and investors are doing a lot more work to earn their cash.
     Unlike the quick-turnaround sales made during the housing bubble, which most experts blame for inflating it, today's flips require more than just a fresh coat of paint and new landscaping to justify a much higher price.
In many cases, investors are practically rebuilding severely damaged foreclosures and other distressed properties to guarantee a return. In the process, they're restoring some credibility to an investing niche that had become a dirty word during the bust.
"It's not like it was before, when you could buy something, sit on it for six months and make a profit," says Matt Manner, owner of Extraordinary Real Estate, an investment firm in northeastern Los Angeles. Now, he says, he spends three to six months actively fixing up a property to get the 20% return he's after.

For the past two and a half years, the boyish, Prius-driving 35-year-old and his financial partners have been scooping up dingy properties — such as the 400-square-foot shack with dangling fixtures and weed-choked front yard they recently acquired on Bank Street in northeastern L.A. — and turning them into three-bedroom, two-bath Craftsman bungalows with chic décor and modern, horizontal fencing that sell for between $400,000 and $500,000.
Manner and other flippers have "raised the bar on what things should look like," Los Angeles real-estate agent Tracy King says. "It's having an effect on regular sellers. They are really needing to step up." On our blog, 'Listed': The future of housing may be in your basement
Where do they find their bargains?
Manner and other investors, with names such as Better Shelter, Modern Bungalow and Urban Element, comb through listings in a particular area looking for a house with the right location, lot and structure to improve. Most concentrate on one area that they can get to know well, so they don't overspend on purchases or renovations.
While many of the homes they purchase are foreclosures, short sales and trustee sales, they also purchase badly beaten-up standard sales — properties that are so outdated and dingy that they can't find a buyer willing to take them on.
Find bargain homes for sale
"Most buyers can't see the potential of these houses," Manner says. "I can. I can take something and make it cool."
Most of these properties aren't in prime neighborhoods with award-winning schools and chic restaurants but are in emerging neighborhoods that are a short drive from employment centers and entertainment and that may have higher crime rates, says Steve Jones, owner of Better Shelter, which used to employ Manner as an agent. "My real-estate agent, Courtney (Poulos), who conducts the open houses, tells me, 'I don't have to sell the houses, what I'm selling are the neighborhoods,'" Jones says.
Indeed, for some of their clients, it's the first time they've heard of many of these neighborhoods, let alone thought of purchasing homes in them.
When Mike Van and his wife bought one of Manner's flips in the Glassell Park neighborhood of Los Angeles last year, they weren't familiar with the neighborhood, having rented in pricier areas near the beach and in Hollywood.
"I had lived in L.A. for 12 to 15 years and had never been to this part of town," says Van, 35, a digital advertising sales representative. "We knew that this was an area that was changing and shifting."
He also says the neighborhood had a gang problem before the city stepped up law enforcement in gang-heavy areas.
But, he says, "It reminds me of the way Venice used to be" before it was gentrified with tony restaurants and shops.
The buyers
Van is a perfect example of the buyer whom this new breed of flippers is targeting in Los Angeles and many other markets, including Phoenix, South Florida and Houston. These buyers want a home that looks as if it was ripped from the pages of a magazine, Manner says, but at a price well below what it would cost to purchase in a more established neighborhood. These are the early adopters, who are ready to move in and wait on the trendy restaurants and shops.
"I think who's buying our houses are people who have a proclivity to our design and have been priced out of the market for such homes," says Jones, a former store designer for surf company Quiksilver who is known to hit flea markets to find just the right casually chic objects and midcentury modern décor to stage his homes. "I mean, where else can you find a house that's done, done, done in the $400,000 range (in this area of L.A.)?"
On a recent day, Manner and his staff brought in 300 of these buyers to an open house, by pricing one of his made-over bungalows at a gimmicky $99,000 — well below his purchase price and less than a fifth of what he hopes to get for it. The taco "dude" catering the open house ran out of supplies in an hour, he said, and there were 12 offers on the property. The property, which was eventually relisted at $525,000, received three offers and is now in escrow for more than that amount, Manner says.
msnNOW: Are Americans becoming less polite?
Another spruced-up property went into escrow recently without hitting the multiple-listing service, despite its location next to a city sanitation facility.
Still, Manner's investments are not without risk. He lost money on two of the 17 properties that his firm rehabbed and flipped in the past year, and there have been delays that have cost him some of his profits. But he said the rewards generally greatly outweigh these risks.
Manner and his team of architects reach their hip, style-conscious buyers by restructuring the design of some older, cramped bungalows, putting in additions and other features that buyers can't or won't do themselves.
After taking a survey on social media, Manner added a walk-in closet and bigger bathroom to one of his properties in L.A.'s Highland Park neighborhood. "I think this is the biggest closet in Highland Park," he says, walking through the rehabbed house recently.
Other buyer must-haves in this creative area include home offices or studio space. And often, flippers such as Jones or Manner will create a larger master bedroom or knock down walls and put in more windows and French doors to create a brighter, more open floor plan than the home had previously.
Short-term investors such as these succeed, Los Angeles stager Michelle Drewry says, because they do what buyers think is impossible.
"Buyers don't really want to do a lot of work," she says. "If everything they see isn't how they would like, they think it's going to cost them three times as much (to change) as it probably would."
That's true, Van says. "As a first-time buyer, you don't know what the scale of work is going to be. It's very intimidating. These are turn-key homes."
After the makeover is complete, many flippers bring in a stager to add the art, couches, tables and other little touches that will sell the lifestyle, because staged homes can look bigger than an empty space, Drewry says.

02 Mar, 2012

Fannie Mae's rental partnership program

The Miami Real Estate Club learned that Fannie Mae waded further into the foreclosure pool on Monday as it released new details on its plan to sell its repossessed homes as rental properties.

The pilot program, first announced in August as an effort to clear the mortgage giant's backlog of foreclosures, is launching with an initial offering of 2,490 residential properties in some of the hardest-hit markets. The largest percentage of homes (23 percent) is located in Atlanta, with Los Angeles/Riverside and West Florida rounding out the top three. (View a breakdown of the properties below.)

Buyers can include corporations, investment trusts and even individuals, so long as they meet eligibility requirements and agree to rent the properties for a set number of years.

An Underwhelming Debut?

But after months of anticipation from REO investors and market analysts, some experts were unimpressed by the program's first offering.

An analysis of the available properties by analytics company Capital Economics found that 85 percent of the units are already occupied.

"Frankly, it doesn't really address what we hoped the REO scheme would address," Capital Economics analyst Paul Dales told AOL Real Estate. Namely, he said, their goal should be twofold -- to reduce the number of vacant homes on the market, which drive down home values, and to help lower the cost of renting by providing new rental units to the market. Neither of which is really tackled by the initial REO offering.

He does give the program the benefit of a doubt, though -- they may be trying to sell off the low-hanging fruit first. Selling properties with tenants already in them ensures a steady stream of income for the investor. Dales says that he suspects the strategy will shift toward moving more vacant properties, as soon as the program feels out its investor base.

Will Investors Bite?

Donna Robinson, an Atlanta-based REO specialist and consultant, doesn't think offering occupied properties is necessarily a bad thing -- it just leaves a lot of unanswered questions for investors.

"Most landlords aren't big, highfalutin investors," Robinson said, but those who do qualify for the program will have several questions about the quality of their inherited tenants, and the terms on the leases. And for those purchasing larger pools of properties, trying to standardize lease terms only becomes more involved as the distance between properties and the number of tenants grows.

The FHFA said it will make more details available -- presumably answering some of the above -- to prospective investors who pass through a "rigorous" qualification process and sign a confidentiality agreement.

What remains to be seen is the typical size of the foreclosure pools that the program hopes to unload on investors, and at what rate of discount. The nearly 2,500 properties released for sale in the initial offering represents only about 1 percent of all foreclosures owned by the government sponsored enterprises, which include Fannie Mae and Freddie Mac, according to Capital Economics. In August, there were nearly 250,000 foreclosures owned between Fannie Mae, Freddie Mac and the Federal Housing Administration.

Even under optimal conditions, an analysis of the program by Goldman Sachs suggested that the project would have "positive but modest" effects, with maybe a 0.5 percent increase in home values within the first year.

But if more buyers share the same zeal for the prospect of single-family investing as renowned investor Warren Buffet, the program could be off to a great start. Buffet recently told CNBC that he would buy up "a couple hundred thousand" single-family homes if it were practical, and for the right price, going so far as to say that houses are a better investment than stocks at the moment.

Whether or not his peers will pony up to clear the more-than-200,000 inventory of FHFA-managed home foreclosures remains to be seen, but the market waits for no one. The New York Federal Reserve Bank predicted another 3.6 million foreclosures nationwide over the next two years.



 

19 Feb, 2012

Housing prices post steep decline

Home prices posted a steep, month-over-month drop in November, falling 1.3%, according to the latest S&P/Case-Shiller 20-city report. Prices fell in 19 of the 20 cities the index covers.

Prices are down 3.7% from a year ago, and off 32.8% since they peaked in the summer of 2006. The index is currently only 0.6% above its March, 2011 low.

"Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall," said David Blitzer, spokesman for S&P.

Phoenix, one of the hardest hit metro areas in the country, was the only place to record a gain in November. Prices there rose 0.6% month-over-month but are down 3.6% from a year ago.

Home prices in Chicago posted the steepest decline of any city on the index, falling 3.4% month-over-month. Atlanta prices were down 2.5% and Detroit prices fell 2.4%.
Has Obama's housing policy failed?

The drop in home prices was more than housing bear Peter Morici, professor at the University of Maryland Smith School of Business, anticipated. He had forecast a 0.8% drop.

"We've had more robust sales activity in the housing market lately," he said.

Morici thinks recent home price weakness stems at least partially from the fact that more sellers have accepted the weak market conditions and are putting their homes up for sale. Retirees and other home owners had postponed sales, trying to wait out the decline.

"Sooner or later, you have to get rid of that house," he said.
Steal this house: 7 great foreclosure deals

Pat Newport, a housing market analyst for IHS Global Insight, agrees that's part of the story.

"People are a lot more flexible on price than they were three years ago," he said. "They're willing to lower their asking prices to move their houses."

He thinks a bigger contributor to the market malaise is sales of properties in foreclosure. Many homes sold these days are either short sales or homes that were repossessed from mortgage borrowers who could not pay their loans.
Foreclosures: America's hardest hit neighborhoods

"That probably explains the steep declines in Atlanta," said Newport. "That city has a large number of foreclosed properties."

Atlanta continues to be a standout for price drops. Its 2.5% November fall followed a 5% drop in October, a 5.9% plunge in September and a 2.4% slide in August. It also posted the weakest annual return, down 11.8%.

Other poor performers over the 12 months ended in November were Las Vegas, where prices were hard hit by foreclosure sales and fell 9.1%, and Seattle, which recorded a 6.3% decline. Detroit, up 3.8% and Washington, with a gain of 0.5%, were the only cities in positive territory for the past 12 months.

19 Feb, 2012

Believe it or not Sub-Prime bonds becoming desirable again

The Miami Real Estate Club found that investors' belief that the worst is over for the U.S. housing market is fueling renewed interest in once-toxic mortgage bonds that were at the heart of the financial crisis.

Prices of some distressed bonds backed by subprime home loans—those issued before the crisis to borrowers with sketchy credit histories—have chalked up double-digit percentage gains this year, with one prominent market index rising 14%.

The rally has drawn investors back to a corner of the credit markets that was pummeled from 2007 to 2009 and has been volatile since.

The latest upswing has some money managers setting up investment funds dedicated to buying beaten-down mortgage bonds, hoping to reap fat yields while waiting for the housing market to turn.

The recent resurgence in battered mortgage bonds that were left for dead during the crisis reflects how investors' appetite for risk is returning, even after many banks and hedge funds lost money last year on similar assets.

But this time around, investors say many subprime bonds are looking attractive because their prices reflect a doomsday scenario that may not materialize, even though the housing sector remains in the doldrums.

Market prices of subprime bonds reflect "extremely harsh assumptions for how borrowers will behave," said Jeffrey Wheeler, a portfolio manager at Smith Breeden Associates in Durham, N.C. Bonds that are yielding 7% to 9%—strong returns amid today's low interest rates—reflect very high default and delinquency expectations, and the actual outcome may not be as bad, he said.

The Federal Reserve Bank of New York recently sold subprime bonds it took on in the 2008 bailout of American International Group Inc., whose bets on mortgage debt brought the insurer to the brink of collapse. The New York Fed sold bonds with a face value of more than $13 billion to two Wall Street dealers via large-scale auctions, fetching more than $6 billion in cash. The banks—Goldman Sachs Group Inc. and Credit Suisse Group AG—in turn have been reselling the bonds to investors including hedge funds, insurance companies and pension funds looking to lock in high yields over the next several years.

The latest bounce in prices of risky mortgage debt comes amid strong rallies in stocks and corporate bonds, underpinned by investors' optimism that European governments and banks will work through their debt woes without destabilizing global financial markets.

To be sure, some observers warn that subprime bonds abruptly plunged last year and could again, particularly if the outlook for the U.S. economy deteriorates or the European debt crisis intensifies. "This market was the hardest hit last year," notes Chandra Bhattacharya, a Credit Suisse strategist who specializes in residential mortgage-backed securities.

Bonds like those sold by the New York Fed are backed by payments from large pools of home loans originated at the height of the U.S. housing boom to individuals with poor credit. Many of these borrowers have fallen behind on their loan payments or defaulted over the past few years. Some loan pools already have seen default rates exceeding 40%, a big reason many subprime bonds trade at a fraction of their face value, and their holders won't recover their full principal balance, despite the recent rally.

Still, at current prices, investing in certain subprime bonds carries "limited downside and possibly substantial upside," said Joe Walsh, president of Amherst Securities Group, a broker-dealer that focuses on mortgage debt. Since the start of the housing downturn, U.S. home prices have slumped nearly 33%, and many economists expect declines of as much as 5% more.

"The probability of a collapse in housing or another significant leg down has diminished," says Joshua Anderson, a portfolio manager at Pacific Investment Management Co. The Newport Beach, Calif., firm, a unit of Allianz SE, has some funds that hold residential mortgage bonds.

Canyon Partners LLC, a money manager founded by bond experts from the former "junk"-bond shop Drexel Burnham Lambert, and CQS, a London hedge-fund firm founded by U.K. millionaire Michael Hintze, recently launched new investment funds to take advantage of bargains in distressed mortgage debt. Canyon, in a recent report, said some mortgage bonds with "20%+ return potential" have very low risk of losses and high yields, and could chalk up gains as more investors recognize value in the bonds. A spokeswoman for the firm declined to comment.

Market prices for individual subprime bonds are difficult to track, because there are thousands of securities with varying characteristics, and most don't trade often. Many traders follow an index of credit default swaps that tracks values of subprime debt. That index, known as the ABX, is up 14% this year, after dropping 30% from March to November 2011, and recently traded at about 50 cents on the dollar, according to data provider Markit.

"The price reflects the risk" that defaults among loan pools backing some bonds could be as high as 60% or 70%, said Steven DeLaney, a managing director and mortgage-debt analyst at JMP Securities in Atlanta.

But the prices of many bonds haven't kept pace with the index in recent months, a reason many investors see value. According to Amherst data, a generic subprime bond issued in 2006 would fetch about 33 cents on the dollar lately—down from 45 cents in the spring of 2011, but up from 30 cents at its trough last year.

27 Jan, 2012

The proposed real estate transfer tax that was in the Obamacare bill may not be what it was first thought

Shortly after the federal government enacted sweeping healthcare reform earlier this year, there was considerable concern over a last-minute addition to the legislation: a 3.8 percent tax on investment income of upper-income households to help shore up Medicare. The tax takes effect in 2013.

Among the concerns expressed among consumers and business people, including real estate professionals, both then and today, is that the tax amounts to a transfer tax on real estate. Not true, NAR Director of Tax Policy Linda Goold says.

Here’s how the tax works. For individuals earning $200,000 a year or more and married couples earning $250,000 a year or more, certain investment income above these income levels might be subject to the 3.8 percent tax on a portion of that income. I say “might” because whether the tax applies or not depends on many factors having to do with the kind and amount of the investment income the household receives.

Investment income includes capital gains, dividends, interest payments, and, for those who own rental property, net rental income.

Importantly, the $250,000 (for individuals) and $500,000 (for married couples) capital gain exclusion on the sale of a principal residence remains in place. So, if you’re a married household that sold a house for a $500,000 gain (that’s gain, not sale proceeds), that amount remains excluded from your income calculation.

Let’s take a look at a married couple that has $325,000 in adjusted gross income (AGI), plus $525,000 in capital gains from the sale of their house.

This household would be considered upper-income by most standards. Not only is their income relatively high, at $325,000 (adjusted gross income, or AGI), but they’re receiving a $525,000 gain on their house sale. Presumably, they bought their house years ago and it’s appreciated over the years, so upon selling it, their gain is a relatively high $525,000.

For this household, only $25,000 in investment income would be subject to the 3.8 percent tax. That would amount to $950. That’s because it’s the $25,000 over the $500,000 capital gains exclusion that’s taxable.

Before they would know that, though, they would have to do a calculation that involves their adjusted gross income. They would have to add their capital gain of $25,000 to the amount of their income above the $250,000 income trigger (for married couples).  Since their income is $325,000, they would add the $25,000 to $75,000 ($325,000 – $250,000), which would equal $100,000. Then they would compare the $25,000 to that $100,000, and apply the tax to the lesser of the two, which is the $25,000. Thus, $25,000 x 3.8%  = $950.

So, you have a household that had income of $850,000 for the year, and its tax on investment equaled $950.

This is a simplification. Other tax issues could come into play. But it shows that the tax applies to just a portion of investment income for certain upper-income households and that the capital gains exclusion remains untouched.

Nobody likes taxes, and this tax was inserted into the legislation at the 11th hour as a “pay-for,” that is, as a revenue generator to help offset some of the costs of the reform. It’s expected to generate $325 billion over eight years.

NAR has prepared a brochure that looks at how the tax might apply under eight income scenarios: 1) sale of principal residence (which we just looked at), 2) sale of a non-real estate asset, 3) gain, interest, and dividend from securities, 4) real estate investment income, 5) rental income as sole source of earnings, 6) sale of second home with no rental use, 7)  sale of inherited investment property, and 8. purchase and sale of investment property.

 It’s written in plain language and I think you’ll find it organized efficiently, so you can see at a glance the potential considerations for the different scenarios. Of course, it’s just guidance: each household’s situation will be different, so you would want to suggest to your customers and clients that they consult with a tax advisor to make sure the tax is applied correctly in their case.

02 Jan, 2012

Mortgage rates end the year under 4%

The Miami Real Estate Club learned that the average fixed mortgage rates in the U.S. over the past week finished the year near all-time lows, with the 30-year home loan at 3.95%.

According Freddie Mac's weekly survey of mortgage rates, the rate for a 30-year fixed-rate mortgage has been at or below 4% for the past nine consecutive weeks and only twice in 2011 did it average above 5%.

The 30-year fixed-rate mortgage averaged 3.95% for the week ended Thursday, up from 3.91% the previous week and below 4.86% a year ago. Rates on 15-year fixed-rate mortgages averaged 3.24%, up from 3.21% last week and below 4.20% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.88%, up from 2.85% yet below 3.77% of a year ago. One-year Treasury-indexed ARM rates averaged 2.78%, up from 2.77% in the prior week and below 3.26% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required payments of 0.7 percentage point and 0.8 percentage point, respectively. Five-year and one-year adjustable rate mortgages required an average payment of 0.6 percentage point. A point is 1% of the mortgage amount, charged as prepaid interest.

02 Jan, 2012

Leaders speak up regarding Miami's commercial real estate market

The Miami Real Estate Club read that there is an overall sense of growing optimism, including leaders in real estate.

In 2011, San Antonio-based The Lynd Co., which has offices in Miami and Doral, bought $400 million in distressed real estate notes including a 490 unit apartment building in Miami Gardens.

The company, which has owned 34,000 residential units and 10 million square feet of commercial, will continue to look to invest in distressed assets in 2012 in all areas including multifamily, student housing, condos, hospitality and other commercial real estate, said A. David Lynd, President/COO of Lynd.

Lynd said he expected to grow its construction division next year and plans to open a new office in California in 2012.
Stanley Tate and Sergio Rok

Lynd isn’t the only company looking to distressed assets for opportunity: Stanley Tate and Sergio Rok, which sold their stake in the Omni Center in 2011 for more than $160 million, plans to continue their distressed asset investment strategy.

“We will continue down the same path whereby we source deal flow from our current stream of institutional relationships and then carefully select one-off transactions that afford us the ability to professionally perform our due diligence prior to closing the transactions,” the partners said in response to emailed questions. “This format has allowed us to acquire over 10 assets in two-plus years. We see no slow down for 2012. In fact , we anticipate a large surge in opportunities from the CMBS markets.”
Michael Internoscia, Pordes Realty

Commercial development, especially multi-family assets, were some of the first to recover from the recession and will continue to be a hot sector for institutional buyers, investors and developers in 2012.

The interest is part of the reason Pordes Realty, which has operated as a residential brokerage, launched a commercial division in 2011.

Michael Internoscia, senior VP of Pordes Realty, said 2012 will focus in part on establishing and growing that commercial business through careful broker-relationship management.
James C. Roberts III, Jim McDonald, Suddath

Industrial is another sector that was very active especially toward the end of 2011, with existing assets traded and lots of new products announced. Positive growth in the industrial sector and commercial overall are some of the variables spurring moving company Suddath to position itself to hire additional drivers, movers and warehouse personnel in the coming year in South Florida, said James C. Roberts III, manager, marketing and communications for Suddath.

“We budgeted for a minimum 15 percent increase in business in 2012,” said Jim McDonald, senior VP of branch operations and current interim GM/president of South Florida branches.

19 Oct, 2011

REO Sales may not peak till 2013

The Miami Real Estate Club learned that the sale of properties repossessed through foreclosure may not peak until 2013, keeping home prices from a meaningful recovery for some time, analysts estimated Monday.

Nearly half of the more than 552,000 REO properties liquidated in the first half of 2011 were held by private banks. In the years ahead, the government — including the Department of Housing and Urban Development, Fannie Mae and Freddie Mac — will begin taking a majority of the activity.

In 2013, REO sales could reach 1.48 million properties, according to estimates from Bank of America Merrill Lynch analysts, a 10% increase from projected amount in 2012.

"We do not expect to see anywhere near the downward pressure on home prices that we had back in 2008, since the expected percent changes in liquidation volumes are so much smaller," BofAML analysts said. "But home prices are starting from a negative point, so the implication is that home prices will continue to decline as the foreclosures transition through the pipeline."

Most of the projected increase will come as the government begins to unload its backlog. The government-sponsored enterprises and HUD, analysts estimate, will liquidate roughly 595,000 properties in 2013 alone.

Total REO liquidations wouldn't drop below 1 million until 2015, according to BofAML.

The Obama administration began work last month developing new strategies for selling this mass of properties, which may involve renting more of them. The Federal Housing Finance Agency is also working on a way to refinance more underwater borrowers to entice them from walking away.

"I would essentially rent the house back to those who are living in them now," said Susan Woodward, an economist with Sand Hill Econometrics. "I don't think it makes a lot of sense to push 4 million people out of their homes when they're victims of a slower economy they had nothing to do with."

Other analysts were skeptical of anyone who could predict accurately what the GSEs or Washington would do, especially after the elections in 2012.

"Do they really think that the government under any administration would let 500,000 homes hit the market and crash prices all over again, six years after the first crash?" said Scott Sambucci, chief analyst at Altos Research.

He said even if unemployment improved by a full percentage point or two — which he said would be a stretch — the market would still struggle to meet such a supply influx.

"It would crash the market, so no, it'll never happen," Sambucci said.

Daren Blomquist at RealtyTrac, which monitors foreclosure filings across the country, said the sale of REO is on track to reach 825,000 by the end of 2011.

"We do expect the REOs to pick back up in 2012 as lenders push through some of the foreclosures delayed by processing and paperwork issues," Blomquist said, adding the inventory needed to be sold could reach well into the millions.

If half of the 800,000 mortgages currently somewhere in the foreclosure process and another half of the 1.5 million loans in serious delinquency end up REO, it could mean an additional, 1.15 million properties that would need to be liquidated — not including new foreclosures that enter the process, according to RealtyTrac.

"That's very possible given continued high unemployment rates and high underwater rates," Blomquist said. RealtyTrac estimates roughly 27% of all outstanding mortgages are worth more than the underlying property.

Woodward said refinancing borrowers, in negative equity or not, down to current market rates could result in a total savings for U.S. households at $250 billion annually. When asked if private investors would return to fund the future mortgage market after such a radical change, she said they would.

"I think the whole world would see this as a one-time fix. We did similar extreme things during the Great Depression," Woodward said.

Investors themselves, though, showed little confidence they would take on such a risk again. In fact, most are trying to keep the government involved in the housing market for the future, to keep risks as low as possible. Otherwise, foreign investors would flee.

While the estimates on how many REO will be sold in the future are extremely difficult to nail down, the size of the best projections share a common and threatening scale. Analysts said major refinancing schemes or new strategies for liquidating REO on a local level would need to be completed soon to rescue house prices from the still increasing pressure of mounting foreclosures.

"The need for policy support would therefore be considered urgent," the BofAML analysts said.

18 Oct, 2011

Investor's can't find houses here's why

The Miami Real Estate Club has discovered that the housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory.

The report is the latest sign of how the U.S. housing market can't seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn't the case right now.

Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today's discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn't driving up prices because demand is soft.

Yet there is still a substantial "shadow" supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls.

The decline in inventory also suggests that there are fewer opportunities for buyers and sellers to strike deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about underpricing their homes.

"The inventory is low, so it's hard for buyers to find their dream home," said Joan Downing, a real-estate agent in Bloomfield Hills, Mich., a suburb of Detroit. "That's been our challenge more than anything: finding the inventory for the clients. Nobody's complaining about the pricing or the interest rates."

In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.

"On paper, all of the conditions are great for buying, but the reality doesn't seem to match that," said Ross Kutash, a 37-year-old attorney who has looked at more than three dozen homes in different suburbs of Los Angeles. "I wouldn't describe it as a buyer's market so much as no market at all."

Mr. Kutash and his wife, who recently had a baby, are looking to move out of their one-bedroom apartment in West Hollywood. "For our sanity, we're in a hurry," he said.

The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don't include unsold homes listed as "for sale by owner" or other properties that don't find their way onto the multiple-listing services.

The National Association of Realtors calculated that there were 3.58 million single-family homes, townhouses and condos for sale at the end of August, down 28% from a year earlier, though still above levels seen in the first quarter of 2011. The calculation differs from Realtor.com's because it estimates the entire universe of single-family homes for sale. The NAR is in the process of recalibrating its methodology. Both sets of data show housing inventory at a historic low.

Mortgage rates have fallen to their lowest levels in decades, but demand remains weak and credit standards tight. Mortgage applications for home purchases were 3% below year-ago levels during the first week of October, according to the Mortgage Bankers Association.

Industry executives say shortages of well-priced and attractive homes are a bigger drag on sales than sluggish demand.

"As weak as demand is, inventory has been weaker," said Glenn Kelman, chief executive of Redfin Corp., a Seattle real-estate brokerage firm that does business in 13 states. "Right now, the absence of inventory is the limiting factor on sales volume."

16 Oct, 2011

10 Tips for High Value Home Appraisals

The appraiser was due in an hour. The beds were unmade, breakfast dishes in the sink and toys scattered about the playroom. Would she care?

I got moving—and cleaning. At 34 weeks pregnant, that’s not so easy.

After all, I know lowball appraisals can kill deals, something I’ve written about for The Wall Street Journal.

They can also kill a refinancing application, which we are in the midst of for our 1920s Georgian-style house in Queens. If it comes in too low, it’s not worth refinancing or you might need to put in a whole lot more equity.

We don’t know how ours turned out yet but after talking to a handful of appraisers, I felt great regret at not doing more to plan and prep. Here are some tips based on those conversations.

Caution: Some of the advice—like home valuations themselves these days—might feel contradictory. But what they all agree on is to keep the look, feel and condition of the property as updated and cared for as possible. Here are the 10 tips from the Miami Real Estate Club.

1. Spruce the house up. But appraisers caution that you don’t need to deep clean under couches and that a few dirty dishes won’t hurt your value. Rats, cockroaches and that car you’ve been tinkering on might… “Things like overgrown landscaping, soiled carpeting, marks on walls — those do affect value and are part of the property’s overall condition rating,” said Dean Zibas, the president and chief appraiser for Zibas Appraisal in San Clemente, Calif. In other words, think broom clean, not set design for a home-decorating magazine.
2. Curb appeal also matters so mow the lawn, hack those weeds and trim those hedges. This can also help offset your house from unfair comparisons with foreclosures nearby. “In today’s climate I can’t stress enough condition, condition, condition,” said Doreen Zimmerman, an appraiser in Paradise, Calif. “An hour or two, for the most part, will set your home apart in the actual picture that the lender gets from the appraiser vs. the actual picture that the appraiser will provide of the (foreclosure) down the street.
3. Keep a list of all the updates you’ve made and be ready to hand it over; a sketch plan of the house indicating square footage also helps. “Have a list of updating done within the past 15 years. Itemize each update with the approximate date and approximate cost. Also highlight the notable features of the property,” says Matthew George, the chief appraiser of Eagle Appraisals Inc. in Denver, Colo. Remember the items that an appraiser might not notice, like a new roof or insulation. Don’t forget the minor items. For example, I mistakenly told the appraiser we hadn’t updated one bathroom but actually we had installed a new sink and had the tub sealed. That counts, according to the experts.
4. Have comps on hand. Yes, you say this is the appraiser’s job but every little bit helps, “especially if they are aware of a property that sold without the aid of a Realtor (i.e. for-sale-by-owner),” says Mark T. Smith, the owner and president of Smith Appraisal Services in St. Augustine, Fla. That can mean it wasn’t posted on the Multiple Listing Service, and result in other delays by the time it gets posted through other government data sources.
5. Be mindful of peeling paint. Government-insured loans such as FHA and veterans’ loans will require peeling paint to be removed in houses built before 1978. But don’t worry too much about a child’s scrawling on his bedroom wall, unless it’s going to require a whole new paint job.
6. Focus. “Don’t spend money that won’t yield a return on the investment. The best expenditures for most markets are paint, carpet, light and plumbing fixtures,” says Denver’s Mr. George. Prioritize what you do; if you’re the type of homeowner who has upgraded and fixed items as they broke, you should be fine.
7. Location still matters. If there have been changes to the neighborhood, mention them, from a new playground to a new Whole Foods. If the area’s just been declared a historic or landmark district, let the appraiser know.
8. Keep the $500 rule in mind. Appraisers often value houses in $500 increments so if there’s a repair over $500 that can or should be made, it will count against the property. Fix leaky faucets, cracked windows, missing hand rails and structural damage.
9. Also remember the concept of “effective age,” the age the appraiser can assign to a home after taking into consideration updating and condition. “Say you have a cracked window, thread-bare carpet, some tiles falling off the shower surround, vinyl torn in the laundry room, and the dog ate the corner of the fireplace hearth, these items could still add up to an overall average condition rating as the home is still habitable, however your effective age will be higher resulting in comparables being utilized which will have the same effective age and resulting lower value,” says Ms. Zimmerman, who wrote the book “Challenge Your Home Appraisal” and runs a web site by the same name.
10. Lock up Fido and Fifi. Appraisers say they get annoyed enough by homeowners following them around but a snarling, growling dog is even worse. Along the same lines, try to make the appraiser comfortable — if it’s cold out, put the heat on; hot out, the air conditioning. “If it’s 100 degrees out and you never put the air conditioning on, put it on for the appraiser so they don’t question that your unit is broken,” says Ms. Zimmerman.

With those things in mind, let the appraiser do his or her job. “Questions and banter may make the inspection go slow or make the appraise miss something,” said James R. Gerot, a residential appraiser in Ottumwa, Iowa. “My inspections have a rhythm to them so once I get started interruptions are just that. Save questions until after.”

16 Oct, 2011

The case against color

The Miami Real Estate Club's read that pulling the decorating trigger would be much easier if I removed seven of the nine major color options. Left with just black and white, raging indecisiveness would give way to calculated precision. The tough calls could be solved with a coin.

Pale rooms, sucked free of distracting reds, blues and yellows, are having a moment. A few months ago at a trends seminar at the Decoration & Design Building in New York, super-decorator Miles Redd showed slides of crème colored rooms. Gasp. Even the king of saturated hues was hankering for something more soothing.

PALETTE CLEANSE: A bit of the rough anchors a floaty white bedroom by Anouska Hempel.

"Occasionally I get a client who doesn't want color," Mr. Redd explained to me. "Most recently I worked for a woman with very edited taste, and her directive was to keep it calm. We conjured up rooms in the palest blonde and ice—what became interesting was how shape, texture and paint finish were the strong cards." Becoming more enthusiastic about the subject, Mr. Redd went on to describe, in hilarious detail, his imaginary "total black and white apartment" featuring, "an under-furnished ballroom with chalky plaster walls, an ivory terrazzo floor with a small black star in the center, three pairs of leaded French doors and four Jean-Michel Frank club chairs on a lambskin rug."

  HIGH CONTRAST: From Celerie Kemble's new book 'Black White,' a salt-and-pepper wallpapered room and stairwell and mismatched china that hangs together thanks to an ebony-and-ivory theme.

Call it a trend. Celerie Kemble—the neotraditional decorator to the jet set known for Palm Beach brights—has just come out with a book called "Black & White (and a bit in between)" (Clarkson N. Potter). In it, she catalogues some of the finest no-color work she and her peers have done, listing a million reasons why going color-free is painless, stylish and timeless, even dragging in literary masters to elevate the sell. "Shakespeare constrained himself to a limited meter, and in it, wrote the world's greatest plays," she argues. "By narrowing the mission, you can concentrate your energies, focus your embellishments, and multiply your opportunities."

Ms. Kemble's book is not unlike an ink-blot test, a window into what you are all about. Looking at the range of styles she presents, reduced to black and white, one can zero in on a higher design truth: What style of room you find most appealing. Do you prefer crisp Hollywood high gloss or rough-hewn organic minimalism? You may find your id more easily without all the color noise.

 

Ms. Kemble's book got me daydreaming about the plaster-y white rooms 1970s decorator John Dickinson swore by. Pale slipper chairs against burnished vanilla walls—everything white right down to the silverware. His was a modernized version of the creamy 1920s sleekness of decorator Syrie Maugham (Somerset's wife). Like Syrie, I've had my fill of overly stuffed and colorfully decorated. Her sophisticated cool with a touch of dark complication is right for the times.

Further evidence of a movement toward starkness: Design editrix Linda O'Keeffe singles out the joys of going all white in her newest book, "Brilliant: White in Design" (The Monacelli Press). For whatever reason—lean economic times or overstimulation—Ms. O'Keeffe joins the white party with a gallery of sumptuous rooms and plentiful evidence to solidify the campaign for a non palette. I ran into the author on the street and didn't even recognize her—Ms. O'Keeffe's signature red do had gone completely silver fox.

You can't help but feel good about all this palate-cleansing decorating. To quote Ms. O'Keefe quoting Elsie de Wolfe, "I believe in plenty of optimism and white paint."

14 Oct, 2011

Is it Time to Refinance? Think again

The Miami Real Estate Club read that mortgage rates have been hitting historic lows for five weeks in a row. But that doesn't mean you should refinance your mortgage just yet.

The average rate for 30-year-fixed-rate mortgages fell to 3.94% for the week ended Oct. 6, according to mortgage-finance giant Freddie Mac—the lowest on record. Rates on 15-year loans, meanwhile, have fallen to a record low of 3.28%.

While mortgage rates vary by region even among the nation's biggest lenders, they are down throughout the country for borrowers with excellent credit. Citigroup, the third-largest U.S. bank by assets, is pitching a 4.193% rate on 30-year-fixed loans and a 3.806% rate for 15-year-fixed mortgages. EverBank Financial of Jacksonville, Fla., is offering Cincinnati-area residents a 3.89% rate on 30-year fixed-rate loans.

Steve Walsh, who heads mortgage lender Scout Mortgage in Scottsdale, Ariz., says he has seen a surge in interest among borrowers looking to take advantage of low rates. "There's a feeling that rates are basically at the lowest they can get," he says.

But are they?

No one can predict the future, of course, but policy makers seem intent on pushing rates down even further.

The Federal Reserve, for example, is trying to move rates lower by buying more mortgage-backed securities. And Obama administration officials are talking to lenders about ways to reinvigorate the Home Affordable Refinance Program, a government initiative to help borrowers refinance even if they have little or no equity left in their homes.

The goal for both: to get rates low enough so that more people will find it beneficial to refinance. If people start doing it en masse, it could help the economy.

"In the short term, rates could fall," says Brad Hunter, chief economist for Houston-based Metrostudy, a housing-market research firm. "In the longer term, rates will rise as the economy starts to strengthen."

If that were to play out, then refinancing now, with rates still around 4%, could be a mistake. That's because the chances are good that if you own a home, and have significant equity in that home and good credit, you already have refinanced in the past few years. Because refinancing involves costs—typically 2% of the mortgage value—it often doesn't pay to refinance every time rates tick down, tempting though it is.

"Don't become a refinance junkie," says Greg McBride, a senior financial analyst at Bankrate.com, a consumer-information site. "You pay for it later in the form of closing costs."

So how far do rates need to fall before it makes sense for you to refinance? Economists at the University of Chicago have tried to answer the question.

The ideal refinance rate must factor in closing costs, marginal tax rates, the number of years left on the mortgage and other factors, the economists say. Homeowners often make decisions based on faulty assumptions about rates, says David Laibson, an economics professor at Harvard University and one of the Chicago study's authors.

"Mortgage rates follow what we call a random walk, and don't bounce back from lows like most people assume," he says.

In other words, what goes down could keep going down—even if it goes up for a little while first. If you catch the first big dip, you can miss later ones that offer even better opportunities.

The economists produced an online calculator, at zwicke.nber.org/refinance/, that distills their theory into a tool that calculates how far interest rates need to fall for homeowners to derive value from refinancing—the "optimal" refinance rate.

For example, their formula suggests that a homeowner with a $400,000 mortgage with 25 years left on a 30-year-fixed rate mortgage at 4.75% shouldn't refinance until rates fall to below 3.51%, assuming 2% closing costs.

The risk of waiting for a lower rate, of course, is that it will never come. If you are unwilling to take the gamble, your best bet is to negotiate hard on fees.

The conventional wisdom is that it doesn't make sense to refinance unless you can shave at least a point off your interest rate. That's because you don't want your "break-even" point—when your savings exceed your refinancing costs—to be longer than two years or so.

But if you can persuade your lender to waive the fees, or most of them, you might need only a half-point of savings to make a deal worthwhile, says Bankrate.com's Mr. McBride.

Last week, Michael Allison refinanced his $417,000 mortgage on a three-bedroom California Ranch-style house in Santa Barbara, Calif. The 41-year-old fitness-center owner says he will save $200 a month by switching from a 30-year fixed-rate mortgage at 4.87% to one at 4.25%.

"It's an absolutely great deal and didn't cost me anything," Mr. Allison says. His lender, Provident Savings Bank in Pleasanton, Calif., covered the closing costs after his real-estate agent made some calls to the firm.

With a little negotiation, homeowners can persuade lenders to cover their fees. "It's not a free lunch," Mr. McBride says, because borrowers get slightly higher rates in exchange—but it is a good way to minimize your upfront costs.

Another option that's growing in popularity: refinancing a home at a shorter term—say, 20 or 15 years. If you can find a rate that keeps your monthly payment about the same as you were paying on your old 30-year loan, the decision is a no-brainer, says Mr. Walsh of Scout Mortgage.

Lloyd Qualls, a 57-year-old accountant in Mesa, Ariz., decided to do just that. Last month he ditched his 30-year fixed-rate loan at 4.875% for a 15-year fixed-rate loan at 3.375%. While that boosted his payments by $89 a month, it will shorten his payment period by 13 years and save him $104,233 on interest over the life of the loan.

04 Oct, 2011

Want to buy shoe magnate Donald Pliner's house?

Designer Donald J. Pliner has listed his Miami Beach home for $19.9 million.

On just under an acre, the Moroccan-style home has four bedrooms, 8½ bathrooms and maid's quarters. There is a saltwater pool, a gazebo and extensive gardens. The property has an outdoor kitchen as well as 100 feet of waterfront with docking for boats. Inside, there are 30-foot ceilings, marble floors and several hand-painted murals. The home is on Star Island, which has been home to such celebrities as Shaquille O'Neal, Gloria Estefan and Rosie O'Donnell.

Lourdes Alatriste of Engel & Volkers and Sylvia Fragos of Great Estate International Realty have the listing. Ms. Alatriste says Mr. Pliner is selling because he's looking to relocate to Los Angeles for business.

04 Oct, 2011

Want to buy Alonzo Mourning's house?

Retired Miami Heat player Alonzo Mourning and his wife, Tracy, have put their Coral Gables, Fla., estate on the market for $14.5 million.

Photos: Private Properties

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Retired NBA star Alonzo Mourning's home in Coral Gables, FL is listed at 14.5 million dollars.

Located in a gated community called Coral Gable Estates, the home, built in 2004, is on ¾ of an acre of waterfront on the bay, on a cul-de-sac. The 13,000-square-foot house overlooks the water and has eight bedrooms and 8½ bathrooms. There's also a library, a gym and a four-car garage. Outside there's a kitchen and dining area and an infinity pool.

Mr. Mourning's NBA career lasted 15 years, most of which he played with the Heat. He retired in 2009 and is currently focusing on charitable work.

Mr. and Mrs. Mourning, who bought the home in 2005, are selling because they're looking to downsize, says William Meyersohn of Coldwell Banker Previews International, who shares the listing with Michael Williams, also of Coldwell Banker.

04 Oct, 2011

Foreclosure cases to be reviewed. Is yours one of them?

Millions of current and former homeowners will have a chance to get their foreclosure cases examined to determine whether they should be compensated for banks' mistakes, under a wide-ranging review being planned by federal regulators.

The review process, which could be unveiled in the next few weeks, will be open to borrowers who were in some stage of foreclosure in 2009 or 2010. Estimates prepared by the Office of the Comptroller of the Currency, which will oversee the review, indicate that 4.5 million borrowers could be eligible for review.

John Walsh, acting head of the OCC, unveiled some aspects of the plan in a speech last month to banking executives, when he said the agency was exploring "the best means of ensuring that injured homeowners had the opportunity to seek relief," when they were harmed by lender improprieties.

WSJ's Nick Timiraos has details of a plan by which 4.5 million homeowners who faced foreclosure in 2009 and 2010 could face a review of their foreclosure procedures due to errors by banks. Photo by John Moore/Getty Images

The process will include a broad public-outreach campaign, including direct mail to eligible borrowers and a single website and toll-free number. The reviews will be conducted by independent third-party companies that were hired earlier this year by 14 banks that signed consent orders in April with the OCC and the Federal Reserve. The regulators had to sign off on the selection of these companies.

"It's a substantial undertaking at great expense to the banks," said Tim Rood, a partner at Collingwood Group, a housing-finance consulting firm.

Borrowers who are determined to have suffered "financial injury" could be eligible for compensation that would be determined on a case-by-case basis by the third-party firms. Borrowers will have to request reviews before a cutoff date, likely to fall near the end of the first quarter of 2012. It hasn't been determined whether borrowers that accept restitution would have to agree to surrender related legal claims.

Regulators declined to provide estimates of the amount of money that injured borrowers might receive or how much the program might cost lenders.

However, few if any borrowers are expected to have foreclosures overturned.

The review process is one of several continuing efforts to address disclosures that surfaced a year ago over banks' use of "robo-signers," bank employees who signed off on huge numbers of legal foreclosure filings daily and falsely claimed in the documents to have personally reviewed each case. The disclosures prompted some judges to question the veracity of other bank foreclosure practices.

The process is separate from the months-long talks between federal agencies, state attorneys general and banks to reach a multibillion-dollar settlement over foreclosure abuses. That effort took a big step backwards Friday, when California Attorney General Kamala D. Harris called the deal "inadequate" and pulled out of the settlement talks.

The loss of California could cripple any settlement because the state has among the nation's highest volumes of foreclosures. Banks are less likely to agree to the $25 billion price tag pushed by federal and state officials without the participation of California. Banks, federal officials and state attorneys general are set to resume meetings in Washington on Tuesday.

Representatives for both sides said they still hope to reach an agreement despite Friday's setback. The banks "remain committed to the dialogue and continue to believe that a global settlement would be an effective means of supporting the recovery of the housing market and helping to strengthen the economy," said one person familiar with the banks' thinking.

"We are still full-steam ahead," said a spokesman for Iowa Attorney General Tom Miller, who is spearheading the 50-state negotiations. "With or without some states, we are still moving forward."Borrowers who suffered 'financial injury' could be eligible for compensation. Here, a foreclosure sign hangs in front of a house in Canton, Mich., in March.

In the OCC review process, financial injury could cover a wide range of misrepresentations or errors committed by mortgage companies, according to people familiar with the process.

Banks could be liable if they miscalculated mortgage payments or applied impermissible fees or penalties. A handful of borrowers have alleged that mortgage-servicing companies, for example, improperly placed expensive insurance coverage onto their mortgage, pushing them into default and preventing them from becoming current with their payments.

Borrowers may be able to receive compensation if the review finds that the bank moved a borrower to foreclosure while the bank was receiving partial payments as part of a trial or permanent loan modification. Compensation might also be due if borrowers provide evidence that they provided the necessary documentation required to qualify for a modification but were denied the modification.

A separate report to be released on Tuesday raises new questions over Fannie Mae's oversight of the attorneys that conduct foreclosures on its behalf. The report, from the inspector general for the Federal Housing Finance Agency, faulted Fannie for inadequate oversight of those firms

Since 2008, Fannie has required its mortgage servicers to use designated law firms that are part of its "retained attorney network." The network arrangement allows Fannie to negotiate discounted rates with approved firms, which in turn can lock in business from the nation's largest mortgage investor.

The report said that in June 2010, the FHFA conducted a two-day field visit to Florida, where it found that "documentation problems were evident and law firms…were not devoting the time necessary to their cases due to Fannie Mae's flat fee structure and volume-based processing model."

FHFA staff subsequently informed senior Fannie officials that its attorneys were "increasingly unprepared when they enter the courtroom," leading to a larger backlog of foreclosures.

Fannie Mae declined to comment on the report.

12 Sep, 2011

Buying Rentals! 6 mistakes investors make.

The Miami Real Estate Club read that traditional investments are delivering low returns, and home prices are at bargain levels. Is it time to consider buying some rental housing?

Investing in real estate right now can be surprisingly profitable, if everything goes well. Rents are climbing in many areas, and more properties may be coming on the market. Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae's and Freddie Mac's bulging inventories of foreclosed homes into affordable rentals.

Investors used to aim for rents that were 1% of the purchase price, or $1,000 a month for a $100,000 home—an annual gross return of 12%—says Michael McCreary. His firm, McCreary Realty, manages about 300 properties in the Atlanta area. Today, he says, some of his investors are getting as much as 2% of the purchase price.

In general, though, average returns after expenses are far less, more like 5% to 6% of the property value, says Ingo Winzer, president of Local Market Monitor, a real-estate forecasting firm. But that still is well above what many other investments yield.

Before you start scouring for deals, keep in mind that owning rental properties is time-consuming, expensive and fraught with challenges, and many investors lose money. You will want to avoid falling into one of these common traps.

• Mistake 1: Confusing a cheap deal for a good deal.

It is true that you can buy some homes for ridiculously low prices—but that doesn't mean you can rent them out. Homes in deserted subdivisions aren't any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.

Investors from the San Francisco area often look at the Sacramento market assuming they can get Bay Area-like rents, and end up overpaying, says Robert A. Machado of HomePointe Property Management. He uses several resources, including the website FinestExpert.com, to estimate rents. Other experts suggest canvassing apartments nearby to see not just their rates, but whether they are offering special deals, like a couple of months of free rent.
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• Mistake 2: Overlooking key costs.

Knowing the potential rent isn't enough. Before you buy a property, you should also factor in closing costs of 3% to 6%, the costs to fix up the place and maintain it, and your holding costs. Then add the profit you expect to make (and more closing costs, if you intend to turn around and sell it). Only then can you figure out what you can afford to pay.

• Mistake 3: Forgetting that time is money.

In real estate, "time is your biggest enemy," says David Hicks, co-president of HomeVestors of America, a franchiser whose motto is "We Buy Ugly Houses." You lose money when your property is empty, whether you are painting it or between tenants. You also lose if you buy in the fall and can't replace the roof until spring. You may be better off accepting a lower rent than waiting for a higher-paying tenant.

• Mistake 4: Assuming you will sit back and watch the rent roll in.

"When you become a landlord, you become a rent collector," says Mark Kreditor of Get There First Realty, which manages 1,600 rentals in the Dallas-Fort Worth area.

Just like homeowners who can't pay the mortgage, tenants lose their jobs and stop paying the rent. Evicting them can take several weeks, and some steal appliances or other property. Mr. Kreditor says that once or twice a month, a tenant removes a home's copper tubing on the way out the door to sell the copper for its meltdown value.

You will need to screen prospective tenants carefully—or pay someone to do it for you.

• Mistake 5: Underestimating repair costs.

As with all homes, you will be making lots of repairs. You may find wood rot or mold when you remove that cracked bathtub. Carpet in rental homes typically must be replaced every five years, and you may have to repaint after every tenant. Tony A. Drost, president of the National Association of Residential Property Managers, or Narpm, suggests setting aside six months of expenses so that you will have funds if a major repair is needed.

• Mistake 6: Assuming that owning a rental is the same as owning a home.

You might put up with flaws in a home that a renter wouldn't tolerate. In addition, many states and communities have strict (and complex) laws for landlords, even if you own only one property. A property manager can handle most of the headaches, but you should expect to pay one up to a month of rent for finding and screening tenants—and up to 10% of the monthly rent for management fees.

You can find property managers through the websites of trade groups Narpm and the Institute of Real Estate Management. In addition, many communities have local Real Estate Investor Associations, which can provide support.

25 Aug, 2011

Cash is King for S.W. Fl. real estate

25 Aug, 2011

Low Appraisals Affect U.S. Housing

When Sean McGowan signed a contract to buy a New Jersey home in November, he didn't expect he'd still be living with his parents nearly a year later.

The deal fell through after two appraisals came in tens of thousands of dollars below the contract price, part of a wider trend of differences over property valuations that is compounding the U.S. housing crisis.

"It was very frustrating. We really wanted to move in," said McGowan, a 31-year-old real estate lawyer.

Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.

Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can't agree on how to make up the difference with an original deal price.

"It's hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue," said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.

Sixteen percent of Realtors reported contract cancellations in July, matching June's level, which was the highest since March 2010, when the National Association of Realtors began collecting data.

Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.

Appraisers in the United States have long been used to controversy for their role in the country's housing market.

The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.

Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.

"The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago," said Rick Sharga, senior vice president of data firm RealtyTrac.

APPRAISER PURSES PINCHED

In the run-up to the housing crisis, appraisers were accused of inflating home values to get work with realtors and mortgage brokers.

Mortgage finance agencies Freddie Mac and Fannie Mae have barred brokers and Realtors from any role in selecting appraisers since 2009. The Federal Housing Authority, which plays a key role in the U.S. housing market by insuring loans for low- and middle-income Americans, adopted a similar ban.

The three agencies together owned or insured around 90 percent of mortgages issued in the first half of the year.

As a result, 300 to 400 appraisal management companies (AMCs) have sprung up, mostly since 2009, to act as intermediaries between appraisers and lenders, according to the Appraisal Institute, an industry association.

AMCs hire contractors to provide 70 percent of residential appraisals, while the appraising arm of banks perform the rest, according to the same group.

Realtors and mortgage brokers, upset that their deals are often stymied by low valuations, say AMCs are to blame in large part for the conservative estimates. Some appraisers also resent the loss of high fees they used to receive.

"They are hiring these young guys and it's all based on price and not expertise," said Mike Evans, an appraiser and former president of the American Society of Appraisers, a trade organization.

"Some guy blows in from 300 miles away and grabs three comps that may not be in the right area, and leaves," he said, using the industry jargon for comparable sales that are used to evaluate a property's value.

Appraisers in Mexico, Britain and other countries are typically more educated than U.S. appraisers and work at small firms, according to David Bunton, President of the Appraisal Foundation.

AMCs and appraisal arms of banks take a cut of the appraisal fee which averages around $400, according to Evans. That leaves appraisers pushing for volume, not quality, he says.

"Because they don't want the scrutiny, they don't want to seem like they are going high, they just grab the three lowest sales" as comparables, said David Demuro, a residential appraiser in Florida.

Demuro mostly works for AMCs that pay at least $275 per job, but says some appraisal fees are as low as $150. Demuro averages 15 to 35 appraisals per month.

Industry insiders say fear among overworked appraisers of being sued if buyers default on properties they valued too highly, combined with anxiety about being blacklisted by banks and AMCs, keep them cautious.

Not all contract cancellations are linked to differences over appraisals. Tight lending rules that deny would-be house buyers a mortgage and inspections that reveal something wrong with the house are common causes too.

Federal agencies will not begin to regulate the companies until at least January 2013 under the Dodd-Frank Act though AMCs are already required to pay "reasonable and customary" fees to appraisers.

Dennis Blanton, a Coldwell Banker realtor in Myrtle Beach, South Carolina had a buyer agree to purchase a vacation home for $77,500, before the appraisal came in at $50,000.

"It takes the wind out of the sails of the buyer," said Blanton. He noted the appraiser used short sales -- whereby home-owners are forced to sell a home often at discounts of around 20 percent discount to normal sales -- for comparison. His buyer is no longer looking for homes in the area.

Others argue that the move to put AMCs at the heart of buying and selling homes has been healthy for the industry.

"Appraiser independence is a piece of the solution to the mess we are in right now," said Austin Christensen, president of AMCLINKS, a national appraisal company, who says appraisals were too high before AMCs were in the picture.

"Now that you have no pressure on appraisers to arrive at the appraisal, I think they are coming up with accurate values, more so than ever before."

Demuro agrees. He says that five or six years ago, if he couldn't bring in a high appraisal, the realtor or mortgage broker would not give him work again.

That doesn't happen any more, he says.

"I don't have the added stress of thinking about, 'I may lose this client. I may not be able to pay my bills next month because this appraisal is not going to come in and they're going to get upset'," he said.