The Market NEEDS Real Estate Investors

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The Market Needs More Real Estate Investors

Below is an article that brings up some great points, by Peter G. Miller, who is syndicated in newspapers nationwide and operates the real estate news and information site, OurBroker.com.

“Investors did it. According to the Federal Reserve Bank of New York, real estate investors had an outsized role in the collapse of the mortgage marketplace and the national economy. Mortgage investors, says a new report from the New York Fed, “played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.”

Oh my. The horror of it.

The conclusion you can reach is plainly summed up by The Washington Post.

“Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession.”

The reality is different. Without real estate investors a lot of people would be living in parks, home prices would be substantially lower and the national economy would be a whole lot smaller. Rather than fewer real estate investors we need more. Here’s why.

The New York Fed’s staff report is curious for several reasons.

First, the New York Fed says the report’s views “do not necessarily reflect the position of the Federal Reserve Bank of New York, or the Federal Reserve System.” Nope, no responsibility there, just four individual authors with email addresses at “ny.frb.org” who perhaps in their spare time managed to write a 50-page study that was published on the New York Fed’s very own website.

Second, the report sorely misses several important points.

Underwriting

When last we looked it was not possible to get a mortgage from an automatic teller machine. Instead, you have to go through a rigorous process — or what should be a rigorous process — called underwriting.
As the Fed report itself explains, “during the early phase of a housing boom, lenders may reduce the required downpayment percentage on new mortgages and begin to relax other underwriting standards due to the strong performance of house prices and low delinquency rates. These actions enable the optimistic buyers to purchase additional housing. The increasing leverage allowed in the market, then, begins to shift the composition of new purchase transactions in the market toward more optimistic buyers who are willing to bid higher prices for houses.”

So — logically — if lenders did not relax underwriting standards they could reduce marketplace “optimism” and thereby crush any trend toward price appreciation.
New Risk

Lenders are supposed to do their due diligence through the underwriting process to protect mortgage investors and their own shareholders. In addition, they have another tool to reduce risk: they absolutely control the nature of the loans they originate. You can only get a mortgage in the lender’s usual form.

The lender makes the rules. If a lender requires you to complete a fully-documented loan application then either you provide the evidence and verifications demanded or you don’t get financing.

However, as the Fed report tells us, “there was a sizeable shift from full-doc to low-doc loans for subprime and especially for Alt-A mortgage loans. By 2006 some 38 percent of newly originated subprime and 81 percent of new Alt-A loans were low- or no-doc loans.”

Alt-A loans include such infamous “non-traditional” mortgage products as option ARMs and interest-only mortgages. The important point is that not only did the use of no-doc loans increase, the world of Alt-A loans grew enormously and fueled much of the foreclosure crisis.

“To put this increase in perspective,” says William A. Frey in his new book, Way Too Big To Fail, “in 2000, Wall Street securitized less than $25 billion of Alt-A assets; by 2005, that number had grown to more than $300 billion.”

Frey is the founder of Greenwich Financial Services, a broker-dealer firm which has structured and sold mortgage backed securities worth billions of dollars — and none with subprime collateral.

“What came to be labeled ‘prime’ in 2005 would not generally have been considered ‘prime’ in 2000,” Frey explains. “What was labeled as ‘subprime’ in 2005 would never have been made at all in 2000. The underwriting standards that dictated these characterizations were being loosened, creating more credit risk per loan concurrently with the increased production of subprime loans.”

In other words, if you dump traditional lending standards you can make more loans and bigger profits. And by selling mortgages in the secondary market you can shift risk from loan originators to investors. You might think that a regulator — the folks we pay to oversee the lending community — would notice such a trend and as overseers of the lending system would put an end to it.

That didn’t happen.

The Federal Reserve could have stopped the mortgage meltdown before it began. Under the Home Ownership Equity Protection Act of 1994 (HOEPA), the Fed can ban UDAP — “unfair and deceptive acts or practices.” Unfortunately, the Fed failed to prevent the origination of millions of “affordability” loan products which are at the heart of the housing crisis.

Why We Need More Investors

“The problem we have with the housing sector is not that we have too many investors it’s that we have too few,” says RealtyTrac spokesman Jim Saccacio. “Home prices are down precisely because supply grossly exceeds demand. The solution to the problem is to generate additional home sales, sales which are much more likely if we encourage more investors to enter the marketplace.”

The National Association of Realtors reports for October that 17 percent of all existing home sales were foreclosures and 11 percent were short sales. Investors accounted for 18 percent of all sales.

October home values were 4.7 percent lower than a year ago according to NAR. Now imagine a housing market with 18 percent fewer buyers. Consider where home prices would be with 18 percent less demand.

It’s simply not possible for home prices nationwide to stabilize — much less increase — as long as a vast inventory of foreclosed properties and short sales remain readily available. The idea ought to be to encourage investors to purchase every distressed home they can find. That would raise local home values, increase the inventory of rental properties, clean up lender books, reduce vacant property issues and perhaps cause local tax revenues to rise along with home prices.

Implying that real estate investors are “largely to blame” for the mortgage meltdown is like demanding that ambulances should be outlawed because they’re loud. It’s an argument that misses the point. ”

Tampa Bay home sales reach highest level since 2006

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Tampa Bay home sales reach highest level since 2006

Existing home sales in the Tampa area exploded last month to the highest levels since June 2006.

The total number of existing single-family sales last month was 3,267 homes, a 17% increase over March 2010.

“This is great news for our local real estate market and economy. Hopefully, we will see some encouraging unempolyment numbers that support this recent rise in home purchases,” said Stephen Scott, President of Tampa Bay Short Sales.

The median sales price of single-family homes was just $112,900 in March, which was less than half of the median sales price back in 2006.

Greenspan says double-dip recession ‘is possible if home prices go down’

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Greenspan says double-dip recession ‘is possible if home prices go down’

Former Federal Reserve Chairman Alan Greenspan says he believes the US economy is recovering, but currently there is a “pause” in that recovery, so it feels like we are in a “quasi-recession.”

Greenspan agrees that long-term unemployment is still holding the recovery back, even as large banks and corporations are doing well.

When asked about the possibility of a double-dip recession Greenspan said “it is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year.”

Most experts agree that the housing market is headed for another considerable price decline, as the nation is on pace for a record 3 million foreclosure filings in 2010 alone. 75 Percent of the nation’s top metro areas posted increasing foreclosure activity in the first half of 2010.

1.65 Million Properties Received Foreclosure Filings in First Half of 2010

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1.65 Million Properties Received Foreclosure Filings in First Half of 2010

Foreclosure filings— default notices, auction sale notices and bank repossessions— were reported on 1,654,634 U.S. properties in the first six months of 2010, an 8 percent increase from the first six months of 2009.

Foreclosure filings were reported on 895,521 U.S. properties during the second quarter, an increase of less than 1 percent from the second quarter of 2009.

Florida suffered the nation’s third highest state foreclosure rate, with 3.15 percent of homes (one in 32) receiving a foreclosure filing during the first six months of the year.

Nevada and Arizona lead in nation in foreclosure rate.

Home prices rise 0.8 pct. in April, but may be headed south

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Home prices rise 0.8 pct. in April, but may be headed south

Home prices in April rose for the first time in seven months as government tax credits bolstered the housing market.

The Standard & Poor’s/Case-Shiller 20-city home price index released Tuesday posted an 0.8 percent gain, after falling for six consecutive months.

Nationwide, prices have risen 3.8 percent from their lowest point in April 2009, but remain 30 percent below the July 2006 peak.

Prices may be headed for another drop in the near future.

New home sales fell in May to their lowest level on record, plunging 33 percent from the month before. That was the slowest sales pace on records dating back to 1963. Sales of existing homes slipped 2.2 percent.

Credit scores can drop after loan modification

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Credit scores can drop after loan modification

Many homeowners who enroll in the government’s mortgage assistance program are shocked to learn that their loan modifications lowered credit scores.

For homeowners who are making mortgage payments on time but are on the verge of default, the Obama administration’s loan modification program can reduce their credit score by as much as 100 points.

Credit counselors and homeowners alike agree that it seems unfair to receive a penalty by enrolling in a government program that is designed to offer assistance.

The Obama administration acknowledges that enrolling in the program can hurt credit scores. Treasury Department Spokeswoman Meg Reilly said that foreclosure “brings far more serious financial consequences for borrowers and their families.”

For homeowners looking for a way out of a bad mortgage, a short sale may be one potential alternative to a loan modification or foreclosure.

2009 Foreclosure trends point toward difficult 2010

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2009 Foreclosure trends point toward difficult 2010

The “Sand States” dominated the nation’s foreclosure rankings in 2009. The 20 worst-hit metro areas were all in Nevada, Florida, California and Arizona.

A total of 632,573 California properties received a foreclosure filing in 2009.

Florida posted the nation’s second largest total, with 516,711 properties receiving a foreclosure filing in 2009. That was a 34% increase from 2008.

Las Vegas had the largest number of foreclosure filings of any city last year, with 12% of its households receiving at least one in 2009. Cape Coral, Fla., was a close second with 11.9% of its households receiving a foreclosure filing.

2010 looks to be another tough year for foreclosure activity, and there’s “no end in sight,” says Rick Sharga, senior vice president of RealtyTrac.

FHA changes policies for 2010

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FHA changes policies for 2010

The Federal Housing Administration insures approximately 30 percent of new mortgages issued in the United States. But as the wave of foreclosures has caused losses to increase, the health of this critical player in the housing market is at stake. FHA reserves have recently dropped below the minimum amounts mandated by Congress.

To address the issues of lost revenue, the FHA has announced several policy changes.

The changes include:

Homebuyers will be required to pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent.

Homebuyers will need a credit score of at least 580 to qualify. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

Government mortgage plan provides little permanent help

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Government mortgage plan provides little permanent help

The Obama administration’s mortgage relief plan has provided permanent help to only 4 percent of borrowers who have signed up.

Bank of America had the worst performance in the Treasury report released Thursday, with just 98 completed modifications out of 160,000 borrowers who had signed up by November 30.

The TOP PERFORMING lender is GMAC with just 7,100 completed modifications.

Approximately 760,000 homeowners have signed up for the program since March. Just over 31,000 homeowners have received permanent loan modifications.

The administration has said it will keep pressure on lenders to make more modifications permanent. Many banks are unable to handle the current number of applications. And many frustrated homeowners are told they do not meet the requirements.

Foreclosures rise 5 percent from summer to fall

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Foreclosures rise 5 percent from summer to fall

The number of households in foreclosure rose more than 5 percent from summer to fall as the federal government’s effort to assist struggling borrowers was overwhelmed by a flood of defaults as rising numbers of people lost their jobs.

Nearly 938,000 properties fell into foreclosure in the July-September quarter, compared with about 890,000 in the prior three months, according to RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit 3.5 million in 2009, up from more than 2.3 million last year.

Unemployment is the main reason homeowners are falling into foreclosure. The unemployment rate is now at a 26-year high of 9.8 percent, and is not expected to peak until the mid-2010.

Last week, the Obama administration hailed a milestone in its mortgage relief effort, reporting that 500,000 homeowners have received help since March. The current rate of defaults is greatly exceeding the number of borrowers getting help.

Because many homeowners are in extreme financial hardship, banks are finding it difficult to create loan modifications that will lower payments to an affordable level.

Florida ranked fourth in the nation in foreclosures, behind Nevada, Arizona, and California.