A Closet Full Of Wild Cards
Readers suggested a topic on lender owned houses. “What are the dynamics of the bank’s decision to keep a house off market? I’d like to explore the underlying factors that go into a bank’s choice of when to sell a house it owns. Particularly, I’d like to try to quantify these things using parameters and various functional forms to explore possible futures.”
“For example, keeping a loss off its books today might be beneficial even given that depreciation is occurring. However, at some point it could deteriorate to 0 (no upkeep) and eventually the bank will have to realize the loss and then it’s obvious that waiting forever is not the optimal strategy. There is some point in between where it makes the most sense to sell.”
A reply, “If you want to try to fathom insanity, be my guest. The joke’s on us. There are NO logical reasons for any of what’s been taking place. We keep looking for them, but they don’t exist. There used to be, but those days are gone.”
Another said, “They’ll sell when Greece defaults.”
The Wall Street Journal. “Past failures haven’t deterred new attempts to clear the glut of foreclosures weighing heavily on the balance sheets of both banks and the federal government. A Senate subcommittee met in Washington for a hearing to discuss and debate some these new ideas. The hearing was prompted, in part, by the Obama administration asking investors for ideas on how to turn thousands of foreclosed homes owned by the government into rentals.”
“Bob Nielsen, chairman of the National Association of Home Builders urged the GSE’s to avoid a ‘fire sale’ of foreclosed properties so as not to depress prices further. The builders also urged converting foreclosures into rentals in a way that doesn’t concentrate rental properties in to close clusters. The builders also urged a host of modifications to federal programs, including FHA-backed financing, the USDA Rural Development program and the Neighborhood Stabilization Program to be more open to investors. The builders also advocate a lease-to-own scheme.”
The Bay State Banner. “People who have lost their jobs or homes during Obama’s presidency nonetheless say they want him to succeed and, what’s more, they’re working to help re-elect him because of the affinity they feel for him. Democrats acknowledge it could be even worse if not for the high marks Obama gets for who he is compared with the low marks for what he does.”
“‘There are a lot of people out there who like the president, who think he is a good, decent person who is trying hard. They may have issues about the economy. They may have issues about the direction of the country. But there are a lot of voters out there who are giving him the benefit of the doubt,’ said Mo Elleithee, a Democratic strategist in Washington. ‘Heading into the election year being well-liked puts him in a good position as he begins to make the contrast with the other side.’”
“Heather Barr of Phoenix, a 41-year-old real estate agent in Arizona, didn’t volunteer for Obama in 2008. But seeing the housing collapse up close compelled her to get involved this time. She lost her home a month ago and is living in an apartment. She doesn’t blame Obama but rather is giving him the benefit of the doubt. Said Barr: ‘I know things aren’t great. People are concerned, obviously. But what I hear is, people want to give the president more time.’”
The Detroit News. “Greenpath, a nonprofit in Farmington Hills, offers pre-bankruptcy counseling, along with foreclosure prevention and debt counseling. Last year, Michigan had more than 50,000 bankruptcy filings and has already racked up more than 30,000 this year. The rate of foreclosures in the state appears to have improved, but hundreds of thousands of homeowners are still defaulting on their loans.”
“In August 2010, 14 months after the recession technically ended, more than 338,000 homeowners were in some stage of default on their mortgages. If there’s any real slowdown in foreclosures, it’s not showing up at Greenpath. ‘Bankruptcy is down a little bit, and we’re starting to see a little bit of increase in debt counseling,’ said Diane Reichel, who manages financial counseling for Greenpath. ‘But housing counseling has been pretty steady for the last couple of years.’”
The Sun Sentinel. “Q: I own an investment property that I have stopped paying on. I have one mortgage on the property. Recently, the lender filed a lawsuit against me to collect on the note, but it is not trying to take the property back in foreclosure. I have money in the bank and other assets. I called the lender, and it doesn’t really want the property back. I am afraid that the bank will come after my other assets. Can it? – Anonymous.”
“A: Yes. This is getting to be a much more common trend. First mortgage lenders are starting to decide that they really do not want the responsibility of owning the property, especially if it has a low value or is in disrepair. Second mortgage lenders realize that even if they foreclose the property, the first mortgage lender is going to get all of the proceeds from the foreclosure sale, leaving the second mortgage holder with little more than a legal bill.”
“After the lender wins the lawsuit on the promissory note, it will get a judgment that it can execute against your other property, your bank accounts and even your wages. Plus, it still has the mortgage lien against the original property, so it can go back and take that at a later date if it decides to.”
The Bakersfield Californian. “The Central Valley, with its high foreclosure rates, has a massive shadow inventory that homeowners and real estate professionals worry will eventually push down prices, but so far that hasn’t happened. Thus far, banks have been selling off foreclosed properties slowly because they know that dumping them on the market all at once would have a catastrophic impact on prices. But there’s still a ton of inventory to get rid of. In Kern County, more than half of sales are distressed in some way, either sold by a lender that has foreclosed or sold short by the owner.”
“Bakersfield real estate agent Bobby Moreno of Coldwell Banker said the supply of single-family homes in the Bakersfield area is actually down from last year, which is holding prices steady. Moreno said he expects foreclosures to spike again locally as banks try to clear out excessive bad loans. ‘I think supply is expected to go up in the first quarter of 2012, but there should be enough first-time homebuyers to absorb that increase, because that’s the price range we’re looking at,’ he said.”
“Bakersfield’s disproportionate number of lender-owned houses may be helping insulate the local real estate market from price fluctuation. That was the assessment of two California Association of Realtors economists, who on issued the group’s annual California housing market forecast.”
“Banks have been selling off their considerable inventory of foreclosed homes slowly in Kern County and other areas with high foreclosure rates, and that has helped to stabilize prices in regions hardest hit by the real estate crash, said deputy chief economist Robert Kleinhenz. ‘You’re probably going to see more price stability in those areas than some of the other areas with more equity sales,’ he said.”
“‘We have a market that is moving forward very sluggishly, bouncing along the bottom with the understanding that there’s a whole closet full of wild cards that could change things,’ said the association’s chief economist, Leslie Appleton-Young.”
“One of the biggest factors is the unemployment rate, which is holding back the entire state but is especially pronounced in the Central Valley, where so much job growth was tied to real estate and construction. That situation isn’t likely to change any time soon, Appleton-Young said. Kern County’s unemployment rate was 14.4 percent in August, compared with 11.9 percent statewide and 9.1 percent nationally.”
The Visalia Delta. “Realtors said the biggest home sale activity in the county is the sale of homes in foreclosure or short sales, and consumers in the middle-income bracket looking for a home rather than an investment toward accruing wealth. And homes in the $200,000 range in Tulare County are ’selling like hotcakes,’ Lane Fye, community relations director of Century 21 Jordan, Link and Company.”
“Veteran Visalia broker/owner Judi Pirnstill said it’s the equity housing on the local scene that is sluggish. ‘Most, in order to get out of them without going to a short sale or foreclosure, have to offer a price a lot of people aren’t willing to pay.’ Pirnstill said.”
“She said older people who want to downsize in the area want to wait until they get a better price for their house, but really gain nothing.”
The Hi-Desert Star. “Bonnie and Matt Hughes, recently featured in a segment of NBC’s Today Show, are struggling to stay positive in the face of their personal financial meltdown. The family of five is losing the home they purchased in 2009 to foreclosure. Bonnie says she and Matt tried to get their mortgage adjusted, but ended up getting scammed by an illegitimate company for $2,000, with no outcome. When they consulted an attorney, Bonnie said, they spent the rest of their savings to get nowhere. Two agencies told the couple their farm loan could not be modified.”
“Coincidentally, the home’s previous owners were also foreclosed on, which is why the couple decided to purchase the house just two years ago. ‘We were both working. We had one kid and everything was great when we bought our house,’ Bonnie.”
“Bonnie has been unemployed since 2009. Faced with mounting debt, including medical bills, the couple filed for bankruptcy this year. ‘Even not having made our mortgage payment in awhile, we’re still not getting by,’ Bonnie explained.”
‘Coincidentally, the home’s previous owners were also foreclosed on, which is why the couple decided to purchase the house just two years ago. ‘We were both working. We had one kid and everything was great when we bought our house’
A while back I found a report out of Michigan where a guy said he worked on the same houses going back into foreclosure 2 or 3 times. This couple buys a house in 2009 and they have already gone under, in bankruptcy!
Tossing even more good money after bad, encouraging people to buy houses they can’t afford, using the govt as a piggy bank for the whole thing. Meanwhile, affordability, even of rents, has been completely forgotten. How is this helping?
RE the original question:
‘I’d like to explore the underlying factors that go into a bank’s choice of when to sell a house it owns.’
IMO, it’s not that straight forward a question. The ‘banks’ are usually servicing the loan. With the houses they may hire an third party asset manager, and the decisions could be coming from a MBS trust, and who knows how they are represented. There’s a lot of confidentiality in these relationships all the way down to the agent, so you probably won’t see much given away except in generalities via interviews.
Within all that, there are situations that seem baffling, but make sense if you look closely. We’ve all heard about a ‘bank’ rejecting a short sale, only to learn later the house was sold for much less as a foreclosure. My experience with this is it’s the 1st and 2nd leinholders duking it out, or the property is passing to GSEs or HUD (or both?).
I’m sure some of you will say, ‘they are dumping this on the taxpayer!’ That’s not the point; if any of you had the job of deciding to take the loss for your employer or letting the guarantor of the loan eat it, you would chose the latter too. (Or you’d be out of a job the same day.)
Want more complexity? There are 50 states, with different rules that are constantly changing. There are lawsuits, sheriffs who refuse to evict people, squatters, strategic defaulters, people who gut the houses before they leave.
Then there are the politicians, special interest trade groups, ‘consumer advocates’…
Yeah, perhaps I misplaced the decision maker. If the MBS holders are the one who get to make the decision, it may never get made because they don’t even know which homes they own. However, I suspect the servicer is the one who gets to make that call if a home is in default.
The MBS holders are almost certainly not being actively consulted. The decisions are being made based on the instructions put in the servicing agreement which was a slightly modified version of a document that may have been first drafted in the 90’s. That and the servicers trying to make sure that they don’t do things that are radically different than the other servicers so they get sued for not following “generally accepted industry standards.”
‘The MBS holders are almost certainly not being actively consulted’
It would be impossible on a house by house basis. Look at the trustee sales notices posted on doors. It will often say something like HSBC. etc, etc, on behalf of MBS trust # gazillion.
‘…the servicers trying to make sure that they don’t do things that are radically different than the other servicers so they get sued’
If you are worried about getting sued, you’ll probably move slowly. These situations likely allow for modifications, etc. These usually fail, so it goes back into foreclosure mode. Imagine this going on in millions of cases at the same time.
‘they don’t even know which homes they own’
I doubt that. If you were getting a payment, and then the payment stopped, you’d probably know it.
“Bakersfield real estate agent Bobby Moreno of Coldwell Banker said the supply of single-family homes in the Bakersfield area is actually down from last year, which is holding prices steady.”
And where are the jobs and what are the wages? I know someone who just helped their kid get (co-signed) a mortgage after move from LA where he walked from two houses. Energy costs in summer are high with AC. BK has been so over built with housing that I can’t believe that pricing can be held constant without government assistance with the down payment but soon even these recent buyers will be underwater.
Now that Bill Thomas (Chair of House Appropriations Committee,) is gone, so is much of the cheese that kept Bakersplat in sandwiches.
Local banks are paying a 10% commission to real litters who sell their inventory– but no one’s buying except the (highly) subsidized ag workers.
Arvin (farming area adjacent to BK,) is lined with RE signs in Spanish that translate loosely into, “Own now. No money down. 3-2 from $600 a month.”
(highly) subsidized ag workers ??
Another item that needs to be on the chopping block…
Ask Palmy about abuse of this one in FL.
Department of AGRICULTURE subsidizes housing and building loans in rural/farm areas. No down payment, monthly mortgage stipends, 25% reduced principal, outright grants– but it’s only for “workers.” (And their cousins, sister’s boyfriend’s cousins, real estate developer’s cousins, et al, of course….)
One factor that has to go into the decision process is the level of property / holding taxes. If those go up, I would expect a negative relationship to time to sale (and lower sale price).
Same would go for punitive fees (upkeep of property), HOAs, any sort of holding costs.
Another factor has got to be how many competing banks are selling foreclosures.
With a single bank, it can control the supply indefinitely and recover the maximum money on the ride down. With lots of competition, it’s hard to control the ride down.
That’s why I’m think a lot more competition could lead to substantial improvements in affordability.
Gotta love it. There are quite a few pending sales on Redfin.com so in two areas relative to the property listed for sale so I checked on foreclosures in these areas.
1) gate fees are $242 to $270. 13 houses listed for sale with 10 in foreclosure.
2) home owners are forced to pay $175/mo. for front yard maintenance. 31 houses in foreclosure with 9 listed for sale.
@ $60/$10K of mortgage these gate fees are covering $30-to $40K of mortgage payments in a non fee housing area.
I posted this the other day but in this thread it’s more pertinent.
A guy I know is going through BK. He bought his place outside Denver in 2005 for around $480K. He lined up a short-sale last December for $450k but the bank wouldn’t go for it.
http://www.zillow.com/homedetails/2443-Country-Club-Loop-Westminster-CO-80234/12964030_zpid/
Zillow’s been deleting data from this entry, but Redfin shows that the now-REO is pending sale at $375K.
http://www.redfin.com/CO/Denver/2443-Country-Club-Loop-80234/home/34875281
Why did the bank baulk at the $450K short-sale but now has a REO pending at $375K? Considering they probably spent $25K on the foreclosure, they sound like they will lose $100K by waiting it out. Why does this make any sense?
Another friend told me “banks prefer to lose money by foreclosing and selling the REO because some ‘government insurance plan’ will then make them whole”. Is she right? What kind of plan is this?
Thanks for posting this. It’s interesting to me because I used to live very close to there. I would love to see the area fall much further but right now that seems like a pretty good price for that house in that location. I would suspect this was a UHS insider deal unless the place is trashed inside.
I would suspect this was a UHS insider deal unless the place is trashed inside ??
Did you look at the pictures ?? Other than being painted all white its a damm nice house…
Oops, didn’t follow the second link…didn’t realize there were more pictures. Take the prices back to 1997 and I’d consider moving back to that neighborhood…but I’d rather walk to work like I got to do for a few years there.
you should check and see if the house changed hands before the sale.
I bet the real reason here has to do with the fact that it is not one bank, but two—perhaps it was zero down purchase using an 80/20 mortgage split, or perhaps it was a heloc.
The short-sale was likely screwed up by the 2nd lien holder. They held out for too much $$$, and the 1st wanted them to take less.
The 1st mortgage holder then forecloses, because that wipes out the 2nd.
So while the total losses may be higher, the losses for the 1st mortgage holder may have been lower that way.
The idea here is that these homes in limbo will hang over the market for years. According this WSJ article, the same may be said about foreclosures that have already happened.
http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html?mod=WSJ_hp_LEFTWhatsNewsCollection
“Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today’s battered housing market mean that lenders are doing so more and more.”
They are also selling the deficiencies to debt collectors. The bank or the debt collector gets a judgment, and then they have 20 years to collect. But often they just hang back and wait for the ex-borrower to get their live together before sinking them again.
“Silverleaf Advisors LLC, a Miami private-equity firm, is one investor in battered mortgage debt. Instead of buying ready-made deficiency judgments, it buys banks’ soured mortgages and goes to court itself to get judgments for debt that remains after foreclosure sales.”
“Silverleaf says its collection efforts are limited. ‘We are waiting for the economy to somewhat heal so that it’s a better time to go after people,’ says Douglas Hannah, managing director of Silverleaf.”
“Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.”
So there are all these people who, whether they know it of not, have no incentive to save or earn enough to get out of poverty.
WT:
Well…at least not acessable savings they can find……got gold?… Fully fund your IRA… and if they take you to court…..pay off your students loans and CC before judgement day.
————
So there are all these people who, whether they know it of not, have no incentive to save or earn enough to get out of poverty.
It’s a good time to be judgement proof.
“But often they just hang back and wait for the ex-borrower to get their live together before sinking them again.”
A healthy host has much more blood to offer a parasite than a sick one.
A healthy host has much more blood to offer a parasite than a sick one ??
And when the creditors are done with you, then you get to meet the nightmare that never goes away…..Mr. I.R.S….
The ultimate parasite is Uncle Sam’s collection agency.
Or the people who own the paper on your student loans. They never go away either.
Sounds very foolish in one of these states not to file bankruptcy at the time of foreclosure and take your credit hit all at once instead of forever…
+1…
Sounds very foolish in one of these states not to file bankruptcy at the time of foreclosure and take your credit hit all at once instead of forever…
Except it sounds that many of these cases are “strategic defaults” which means the FB owners have money and other assets.
In bankruptcy - it ALL goes on the table for a judge to determine what you get to keep…
Yes, I can see this. Hard to have to go through life with collection agencies on your tail for hundreds of thousands of dollars though. Be best then to strategically get rid of your assets over the couple of years preceding your default… Perhaps take on some lighter lower paying work too…
“However, at some point it could deteriorate to 0 (no upkeep) and eventually the bank will have to realize the loss and then it’s obvious that waiting forever is not the optimal strategy.”
How about waiting until the value deteriorates to $0, then retiring. Lots of multi-million dollar bonuses could get paid between now and when the value is eventually written down to $0.
“The builders also urged converting foreclosures into rentals in a way that doesn’t concentrate rental properties in to close clusters. The builders also urged a host of modifications to federal programs, including FHA-backed financing, the USDA Rural Development program and the Neighborhood Stabilization Program to be more open to investors. The builders also advocate a lease-to-own scheme.”
How many political bribes will it cost the builders to buy all this pork?
“Democrats acknowledge it could be even worse if not for the high marks Obama gets for who he is compared with the low marks for what he does.”
I am not sure how to interpret that pretzel logic. All men are ultimately judged by their actions…
“After the lender wins the lawsuit on the promissory note, it will get a judgment that it can execute against your other property, your bank accounts and even your wages. Plus, it still has the mortgage lien against the original property, so it can go back and take that at a later date if it decides to.”
I’m thinking some folks will end up doing very well in the collection business over the next ten or so years. I rode to Phoenix sitting next to a lady in this line of work earlier this year. My impression was that the Great Recession wasn’t slowing down her business one iota.
I don’t see why the collections business will boom, really. Many of these folks have nothing else to lose, and if they’re smart they will BK-away these judgements. All they need is somewhere between a few hundred and a couple of thousand to pay their BK attorney, and poof—all gone.
On second thought, maybe the collections biz will do well, since many people may not realize that their best course of action is to go BK in that situation.
“People are smart.”
Or there is a 3rd alternative just let them sue you, and let a judge dismiss the case..
Judges here in NYC are issuing continunces and making people comback 6 mos or even a year later in hopes they forget and then will issue a judgement against them, Or if you show up, the judge will dismiss the claim if you still are broke.
Now how does a bunch of dismissals fare on a credit report…..
Hmmm… Anyone have more detail on how this works? Are you basically just showing up and telling the judge that you are insolvent—e.g. judgement-proof?
In other words, is the judge just saving you the trouble of the actual BK?
When I went to small claims to sue an old landlord for my deposit a few years back the judge told the girl ahead of me that she was effectively judgment proof and issued a judgment against her anyway. At some point in the future if she inherits a load of cash etc they will come collect…
There are still plenty playing the game who have enuf assets to make chasing worthwhile and who dont want their games exposed in the full disclosure of a BK court. Lots of BK fraud to try to keep it all afloat.
“Heather Barr of Phoenix, a 41-year-old real estate agent in Arizona, didn’t volunteer for Obama in 2008. But seeing the housing collapse up close compelled her to get involved this time. She lost her home a month ago and is living in an apartment. She doesn’t blame Obama but rather is giving him the benefit of the doubt.”
Sounds like “nothing down” since her feathers aren’t ruffled.
Anyone know if these judgements are released at death or can they be traced to heirs inheritance?
Brandy (You’re A Fine Girl)
Originally performed by Looking Glass, a rock quartet from New Jersey formed in 1969
The song was inspired by a girl in Lurie’s life, but the story is fictional
However, this song was inspired by a girl in E.R. Bradley’s Saloon.
“Each month, Epstein draws a small crowd to her Foreclosure Hamlet happy hour at E.R. Bradley’s Saloon.”
” attracted by a feisty nurse in a cute pink scarf who refuses to surrender.”
There’s a port, on a eastern bay
And it sold a hundred shacks a day
Lonely Deadbeats, pass the time away
And talk about their loans
There’s a girl in foreclosure town
And she works layin’ whiskey down
They say “Feisty, fetch another round”
She serves them whiskey and wine
The Deadbeats say “Feisty, you’re a fine girl” (you’re a fine girl)
“What a good wife you would be” (such a fine girl)
“But my loan is three years delinquent, can`t you see”
Feisty wears a braided chain
Made of finest silver from the North of Spain
Bought, with those refi gains
A game that Brandy loved
He called on a summer’s day
On the phone, from far away
But she made it clear she couldn’t pay
It was a Liar Loan
The Deadbeat said ” Feisty, you’re a fine girl” (you’re a fine girl)
“What a good wife you would be” (such a fine girl)
“But my loan is three years delinquent, can`t you see”
Yeah, Feisty used to watch his eyes
When he told his Deadbeat stories
She could feel the Housing Bubble rise
She saw its ragin’ glory
But he had never told the truth, lord, he was no honest man
And Feisty does her best to understand
At night when the bars close down
Feisty walks through a silent town
Don`t pay her loan, she`s upside down
She still can hear him say
She hears him say ” Feisty, you’re a fine girl” (you’re a fine girl)
“What a good wife you would be” (such a fine girl)
“But my loan is three years delinquent, can`t you see”