Second Quarter of 2010 Shows Modest Increase in House Prices

August 31, 2010: Data through June 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, show that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter states Case Shiller.

This will no doubt offer some hope for housing bulls, however, it will be undoubtedly be short-lived, similar to the home price gains that were seen last fall that were then followed by declines when the first round of the tax credit expired according to, Tim Lacano of Seeking Alpha.

Shadow Shadow Inventory Growing Larger

ITS SPOOKY OUT THERE
August 26, 2010: There’s “shadow inventory” which are bank owned homes that are just sitting there empty, for now. The bank slowly puts those homes back on the market all the while trying not to flood the market with too many homes too fast and cause a precipitous drop in home prices.

Then there’s “shadow shadow inventory” which are homes owned by regular people who are delinquent or in foreclosure, but those homes haven’t been sold at foreclosure yet, and thus, haven’t gone back to the bank, yet. The bank slowly puts those homes in foreclosure all the while trying not to have too many of those homes go into foreclosure to quickly which will also cause a drop in home prices.

Falling prices could drive more homeowners into foreclosure, which is the last thing most markets need.

According to Housing Wire, the absolute number of households in trouble is sobering. 5.3m households are currently delinquent on their mortgage. Add in the 2.5m that are already going through the foreclosure process, and a total of 7.8m households are in danger of losing their home. As for home-loan delinquencies, Nevada still leads the nation as unemployed and underwater homeowners continue to move into default and toward foreclosure at high rates; a whopping sixteen percent (16%) of Nevada homeowners are late on their mortgage.

Many owe more on mortgages than their homes are worth. Households often opt to stay put rather than default, leaving them trapped in places with high unemployment and unable to move to where jobs are plentiful.

At current low sales rates, it may take a decade to clear the backlog of houses owned by the banks.

The banks are faced with the unenviable task of determining how fast to foreclose on the 7.8 million homes inevitably heading back to the bank. In addition to regulating how fast to force a homeowner into foreclosure, once in foreclosure the bank regulates how fast to foreclose. This strategy is similar to the Wall Street “pump and dump” scheme which involves manipulating stock prices by determining how fast or how slow to release a stock into the stock market. This phenomena probably explains why some homeowners live in their homes mortgage-free for years, while others go into foreclosure within days of not paying their mortgage.

I Just Got Sued For A Deficiency Judgment, Now What?

DEFICIENCY JUDGMENT LAWSUITS ARE SPEEDING UP
August 24, 2010: Lenders are ramping up their efforts to sue former homeowners for deficiency judgments. Lenders are suing homeowners sometimes after foreclosure and sometimes after short sales, on either the first mortgage or the second mortgage or both. If it is the same bank it may combine them into one big lawsuit.

In Nevada, when a homeowner gets sued she has twenty (20) days to respond or otherwise answer the lawsuit. If she doesn’t answer within that time period, the lender can default her. Usually the homeowner or her attorney can talk the lender’s attorney into giving the homeowner additional time (say another 30 more days) to file a responsive pleading to the lawsuit.

One expert estimated that thirty percent of homeowners who get sued for a deficiency judgment walk it down to a bankruptcy attorney and get it virtually discharged on the spot.

Most people will contact an attorney within a few days of getting handed or “served” with the legal documents or “Complaint.” Usually the attorney will try to think of a defense to the lawsuit. When it comes to deficiency judgments, however, there is rarely a defense.

One defense to short sale deficiency judgments is that the homeowner was released from the deficiency judgment or the bank “waived its right” to pursue the homeowner after the short sale. That defense only works for the short sale (not foreclosure) and only if there is evidence the bank forgave the deficiency. Hence, the importance of leaving a “paper trail” while negotiating the short sale!

The other defense is really only a partial defense, and that involves arguing that the fair market value of the house at the time of sale was “more” than what the bank claims, and therefore, the amount the bank is suing for is too much. That is called the “appraisal defense.”

If there is no defense, then the homeowner can always negotiate a settlement lump sum for less than the amount sued upon, or even a promissory note, in exchange for the bank dismissing the suit. If that doesn’t work, an answer should be filed on behalf of the homeowner. Of course, negotiation takes place before, during and after the lawsuit.

Once the answer is filed the lender generally proceeds to get a judgment from the judge on what is called a Motion for Summary Judgment. Once obtained, the judgment is typically sold to a bill collector who garnishes wages or attaches assets, including bank accounts.

If no answer is filed the lender can get a judgment within 60 days or less (sometimes more). If the homeowner answers the suit, the homeowner’s attorney can usually delay the Day of Judgment for at least six months or usually longer (but not always). Those additional several months can be priceless, especially if the homeowner intends to file bankruptcy and simply needs more time to “get her affairs in order” which may mean legally exempting assets into a trust, or whatever. Hiding money shortly before filing bankruptcy, while common, is usually suspect.

If the homeowner needs time, it makes sense to hire an attorney. If the homeowner doesn’t need more time, and/or doesn’t care if they get another judgment against them, then simply ignoring the lawsuit is perfectly acceptable. Just beware of the consequences.

Time for house prices to start falling again

August 24, 2010: The big economic news of the day, and probably the week, was the big drop in existing-home sales in July reported this morning by the National Association of Realtors sates the Washington Post. This was to a certain extent expected after the expiration of the home-buyer tax credit in the spring, allowing NAR chief economist Lawrence Yun to offer up the delightfully sunny spin we have come to expect from NAR chief economists:

Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. … However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.

House prices need to fall some more (in real terms, at least) to lure in enough buyers to pull the housing market out of its depression. So why not accept that reality, and push policies that help people cope with the effects of it, rather than continuing to prolong the inevitable?

Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg states the New York Times.

The Costs of Homeownership Drive First-time Buyers Away

The costs of owning a home can substantially outweigh the benefits because of issues such minimal home equity retention and an owners desire to “flip” a home on the market quickly, researchers Wenli Li and Fang Yang said in their report American Dream or American Obsession? The Economic Benefits and Costs of Homeownership, published Friday by the Federal Reserve Bank of Philadelphia.

“One thing that is certain,” the two analysts said, “is that homeownership is not for everyone, and thus, based on economic benefits, the case for trying to achieve a nation of homeowners needs to be rethought.”

Many borrowers agree with them, especially ones that have never owned a home before. According to a Monthly Survey of Real Estate Market Conditions by Campbell Surveys and Inside Mortgage Finance, first-time homebuyer activity accounted for 39.1% last month, down from a peak of 48.2% in March to the lowest level seen in the past year states Housing Wire.

HAMP IS WINDING DOWN

HAMP borrowers are still up to their eyeballs in debt after the modification.

AUGUST 20, 2010: According to Calculated Risk, About 422 thousand modifications are now “permanent” – up from 389 thousand last month – and 617 thousand trial modifications have been cancelled – up sharply from 521 thousand last month.

•Another large number of trial programs were cancelled. This will mean more foreclosures (or short sales) in the near future.
•A large number of borrowers are still in modification limbo, so there will probably be more cancellations coming.
•The program is winding down quickly.
•The borrowers DTI characteristics are poor – suggesting a high redefault rate over the next year or two.

Las Vegas Short Sales Get Tougher: Permanent or Temporary?

A comparison with previous recoveries is unflattering.
AUGUST 15, 2010: Arguably, short sales have become harder to complete over the past six weeks. Lenders who were (at least occasionally) granting waivers of deficiency judgments, have decided not to do so. But why?

The economic news of late has been dismal. Concern about America’s stumbling recovery has been rising. Americans are inundated with reports of a “lost generation” of young people who dropped out of the job market. And than there’s the infamous double-dip.

Maybe the lenders are taking a pause (after all, lenders are people too). Streamlining the short-sale process is really about two things: Understanding the needs of the servicer and investor, and looking at collateral and making a decision. Performing those two things becomes way more difficult in an economy like the economy of now.

Once the economy does something- anything, even if it goes from today’s bad to a double dip; or the economy moves past the probability of a double dip into stagflation; or people just flat out adjust; we expect that “certainty” should un-paralize the lenders. As a result, they will once again, begin reluctantly approving short sales.

Further Signs The Vegas Economy is Weakening

NEVADA’S UNEMPLOYMENT RATE IS SHAPED LIKE A SNAKE LIFTING ITS HEAD

AUGUST 19, 2010: The unemployment rate in the Las Vegas area in July rose to 14.8 percent, the 19th consecutive month of double-digit joblessness. The number of people employed in government, and hotels and casinos in the Las Vegas area dropped during the month. Statewide, the jobless rate inched up to 14.3 percent, continuing to be the highest in the nation. It was the 16th straight month the rate has increased to a record high according to the Las Vegas Sun.

Losing jobs were the government sector, construction and professional and business services, with the employment-services field in particular cutting posts. Trade, transportation and utilities and mining were among the categories that added positions states the LVRJ.

On the National Level, taken together with new inventory and construction data, this means that the second-quarter growth figure may turn out to have been just 1.2%, rather than the first estimate of 2.4%. And it may be even worse; one Barclays analyst thinks the actual figure could be as low as 0.3%. Forecasts for the rest of the year are also being nudged down as a result. Macroeconomic Advisers adjusted its expected third-quarter growth rate to 2.4% from 3% after the trade data appeared. A double dip into renewed recession still looks unlikely (the chances are perhaps 25-30%, according to a Goldman Sachs estimate), but a slowdown in growth to near 1% is closer to contraction than most would like states the Economist.

In one year, commercial real estate has seen both a drop in prices and a doubling up in delinquency rates, research analytics firms tracking the market find. Price values are down to nearly half the levels seen at the peak of the market, while the risk of default is rising and the commercial real estate foreclosure book continues to add pages claims Housing Wire.