Tag Archives: foreclosures

More foreclosures on the way in 2012?

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While many might hope for economic progress during 2012, some are suggesting that another wave of foreclosures will hit during 2012:

In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur…

Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).

One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times…

Is this the final wave?

If it is primarily “hardworking, everyday Americans” who bear the brunt of the 2012 foreclosures, will the coverage of foreclosures and the proposed remedies change? In previous years, it has been easy for some to suggest that those who made and accepted subprime mortgages deserved what they had coming as they extended their credit and debt too far. If this year’s foreclosures are now occurring to people who didn’t overextend themselves yet still fell prey to the economic crisis, will the narrative change?

Banks are foreclosing on more churches

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Houses aren’t the only structures being foreclosed on during this economic crisis. Churches have been hit hard in recent years:

Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.

In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before…

“Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler…

Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs.

Several things strike me here:

1. It would be interesting to talk with banks about how they negotiate this situation where they don’t want to appear heavy-handed with churches and yet still need to profit off their mortgages. Where is the line – is it just about the amount of money involved or does the possible response from the congregation also factor in? The article hints that these aren’t strictly business decisions but include consideration of cultural and moral values.

2. While the article suggests these foreclosed on churches are often bought by other churches, what kind of market is there for people to buy former churches who want to use the existing building? I’ve seen some interesting pictures over the years of churches that are converted into residential spaces (either large homes or multi-family units) but this requires the extra time and resources for rehab. I assume newer, auditorium-type churches might be more attractive here.

3. Will there be any extra indignation about churches outspending their means and not being able to meet their mortgage obligations?

The wealthy “walking away from the McMansions”

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One commentator suggests the number of wealthy homeowners walking away from their large mortgages is on the rise:

Nationwide, foreclosures on loans over $1 million are up nearly 600 percent since 2008…

Walking away has even become something of a boast among the more-or-less wealthy – a solution with few downside risks that also marks the walker as a smart player.

That’s because California is one of a small number of “non-recourse” states. Here, the mortgage lender cannot recover the full value of the loan if the homeowner defaults; the lender can only recover the house, not the owner’s other assets.

The effect is producing a death spiral for loaded McMansions in some upscale neighborhoods. When owners default, they expand the inventory of over-priced houses, undercutting the value of similar homes in the neighborhood, lowering their resale value and prompting a new round of “strategic defaults” by other owners.

I wonder how lenders are responding to this issue. Would they move more or less quickly since these homes are worth more and the bank could make more money (though they might lose more on the mortgage)?

Another issue: how much does walking away from a large mortgage hurt someone who was able to get such a large loan in the first place? While foreclosures for “average homeowners” are often portrayed as huge problems (looking for somewhere to live, a hit to their credit rating), is this as much of an issue for those with bigger mortgages? According to this look at Beverly Hills, this decision is being made by some who can pay the mortgage but don’t want to deal with the decreased value of their homes:

Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so…

She said she had seen in Beverly Hills a big increase in “strategic defaults,” in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble…

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage – even though he could easily afford it – when the value of the property had dropped to $2.5 million.

“They were able to comfortably cover the loan,” Bremner said. “They were just no longer willing to see the value of the property drop.”

If more wealthier homeowners are walking away from their mortgages, is there anything that should be done? Should they have harsher penalties if they have other assets to cover the mortgage? Should we be concerned that the Beverly Hills housing market is having difficulties, i.e. does this effect other housing markets or is it simply an issue between wealthy players?

It would be nice to have some exact numbers on how much this is happening across the country…

Turn your house into a billboard

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Perhaps you have seen cars or trucks that have been turned into a billboard but what about a house? A marketing company thinks there is a niche here, particularly with homeowners who need some extra cash:

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Judge rules against man who wanted to claim Texas McMansion through adverse possession

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Last July, I wrote about a Texas man who claimed he could occupy an abandoned McMansion and then claim possession of the home after a certain amount of time. His “adverse possession” case has moved forward as a judge ruled that the bank can indeed remove him from the home:

Anyone who was rooting for the man who used Texas’ adverse possession law to snag a McMansion for only $16 will be bummed to hear that he’ll be forced to leave the home after Bank of America claimed ownership of it. Drat!

Kenneth made waves in Flower Mound, Texas in July when he claimed the right to take over a $340,000 home in suburban Dallas, after filing a simple document and paying $16 to the city. He cited a law which said he could legally take possession of the house after living there for three years. His neighbors grumbled while he watered the lawn and paid utility bills, and now a judge says he has to move by Valentine’s Day.

The Associated Press says Bank of America can boot Kenneth, as they hold the lien on the house. Foreclosure was completed last month, says BOA, and now it’s time for Kenneth to vacate the premises…

“I’m just thankful for Flower Mound and Denton County for following the proper lawful procedures,” [Kenneth] said. “I went in doing this strictly by following a lawful process.” And now that the process has played itself out, he says, “I’m neither happy nor disappointed.”

I would venture to guess that Bank of America and some other people paid special attention to this case in order to forestall efforts by others who might be interested in using adverse possession to claim homes.

It would be helpful to have more information here:

1. Are the neighbors now happy that the home has officially gone through foreclosure? Did Kenneth make peace with any of the neighbors?

2. Does Bank of America have a quick timetable for moving this house to the market and selling it or will it be another home that languishes while the bank decides whether to accept offers?

3. Has Flower Mound changed its rules yet, like perhaps upped the $16 application fee, in order to avoid cases and attention like this in the future?

4. Where will Kenneth live next?

Worst year ever for sales of new homes

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Here is another indicator that the American housing market has a long way to go before it is fully turned around: 2011 was the worst year for new home sales with records dating back to 1963.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record…

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage.

While several experts are quoted in this story suggesting this likely means the housing market has bottomed out, I am interested in whether this will become the “new normal.” In other words, perhaps we won’t ever get back to the level of new homes sales that we have seen in the past. This could take place for several reasons:

1. These foreclosures clogging up the housing market will continue to take years to clear.

2. There is less demand for new homes from consumers who decide to do other things with their money.

3. Policy makers turn their attention away from new homes and instead promote renting or rehabbing older homes.

4. Population growth is relatively small, driving down demand throughout the housing market.

The assumption I’ve seen from a number of commentators is that the housing market will bounce back at some point. Is this such an inevitable event?

Six predictions for American suburbs in 2012

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Since this is the time of year for predictions, here are my six broad predictions for American suburbs in 2012:

1. The suburbs will continue to be the space of choice for Americans even as critics argue they are bland, environmentally untenable, and ultimately unsustainable.

2. At the same time, because of the economic crisis, continuing trends in design, and different tastes among Millennials and retiring baby boomers, suburbs will be pursuing denser projects with more certain long-term outcomes.

3. Many suburbs and other local taxing bodies (school districts, etc.) will struggle to find revenue. The budget deficits at the federal and state levels will continue to trickle down. Many communities will struggle to fund basic services.

4. Minorities, immigrants, and lower-class residents will continue to move to the suburbs and more strongly challenge the image of suburbs as lily-white havens. Some suburbs will struggle to adapt. Wealthier suburbs will continue to look for ways to limit these changes.

5. The issues of funding and revenues will trump concerns like providing social services for new populations, being environmentally-friendly, and providing affordable housing. Some will argue these communities would likely stonewall these concerns regardless.

6. Regarding single-family homes: McMansions will continue to be disparaged, the size of the average new home will drop again, the problems with foreclosures will continue, the President and Congress will continue to express how the single-family home is the foundation of the American Dream, and affordable housing will still be unpopular.

(Note: I’ve written about these trends throughout 2011 and I plan to keep writing about them in 2012. While these predictions are somewhat vague, it is difficult to describe trends across all suburbs as they are a varied lot.)

Occupy Wall Street to move into foreclosures?

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As Occupy Wall Street moves forward, here is one of the next steps is to move into foreclosures:

Occupy Wall Street has left the street and gone legit. They’ve rented office space in the Financial District and meet daily at a public atrium inside Deutche Bank.

“We’ve managed to, in basically two months, propel the issues of inequality and social justice to the top of our national discussion,” said one Occupier.

In various cities today there were marches on a variety of issues, but the movement plans new tactics. On Tuesday around the nation, it plans to occupy foreclosed homes. In mid-January, a call to pitch tents outside of Congress.

Foreclosures have generally taken a back seat recently to issues like jobs, stock markets, and Republican presidential nominees. Can OWS turn attention back to housing? It will be very interesting to see where they occupy homes (the worst areas like Merced, California or Las Vegas?), how they sustain their collective energy if they are more indeed spread out, and how neighbors respond.

Some recent polls on the most important issues in the minds of Americans:

–PwC Health Research Institute in mid-November: job creation is most important and healthcare and the deficit are tied at number two.

–Gallup in early November: the economy leads the way but there is no mention of housing or foreclosures.

–Rasmussen Reports in mid-October: economy leads by wide margin with 84% saying it is “very important.” No separate category for housing so hard to parse out jobs, stock market, housing.

Perhaps there aren’t many people tracking dissatisfaction with housing in recent months?

If these polls are correct, should the OWS focus on job creation and the economy rather than branch out into foreclosures/the housing market?

Forecast: US homeownership rate to hit low of 62% in 2015

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One forecast suggests that homeownership rates in the United States will drop to a low in 2015 before rising by 2025:

All this could push home ownership down to levels not seen at least since before the Census began tracking this data in 1963. Home ownership soared to 70 percent in 2005, but it could fall to 62 percent by 2015, according to the number crunchers at John Burns Real Estate Consulting. They suggest that the effect of foreclosures drops home ownership 5.6 percent, and cyclical trends, like poor consumer confidence, tightening mortgage credit and the weak economy drop it 3 percent. Positive demographic trends would only offset that by 0.7 percent…

Burns believes home ownership will return by 2025 to around 67 percent, as previously foreclosed borrowers return to the housing market, cyclical trends improve and positive demographics start to carry more weight.

This is quite an extended process that first requires foreclosed and underwater loans to get off the books before the homebuyers turn the numbers again. It is interesting that there is little political discussion about the length of this process – does it benefit any current politician to be forthright about how long it might take to turn the housing market around? Do people care that much about homeownership while issues like jobs and debt are also concerns?

If the process does take this much time, it could also lead to a long-term reassessment of real estate. I doubt that people will no longer value owning a home or that homeownership will disappear from the cultural image of the American Dream as some have hinted. However, there is less of a chance it will be considered an investment and people will be more careful with their purchases, particularly paying attention to being able to pay for it even in rough patches.

College students rent cheap but luxurious McMansions

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Here is another use for McMansions (and much better than one California option from last week): rent them to college students.

While students at other colleges cram into shoebox-size dorm rooms, Ms. Alarab, a management major, and Ms. Foster, who is studying applied math, come home from midterms to chill out under the stars in a curvaceous swimming pool and an adjoining Jacuzzi behind the rapidly depreciating McMansion that they have rented for a song.

Here in Merced, a city in the heart of the San Joaquin Valley and one of the country’s hardest hit by home foreclosures, the downturn in the real estate market has presented an unusual housing opportunity for thousands of college students. Facing a shortage of dorm space, they are moving into hundreds of luxurious homes in overbuilt planned communities.

Forget the off-to-college checklist of yesteryear (bedside lamp, laundry bag, under-the-bed storage trays). This is “Animal House” 2011.

Double-height Great Room? Check.

Five bedrooms? Check.

Chandeliers? Check.

Then there are the three-car garages, wall-to-wall carpeting, whirlpool baths, granite kitchen countertops, walk-in closets and inviting gas fireplaces.

This article provides an overview of an interesting situation but asking a few more questions would reveal a lot more:

1. If students live in such nice homes during college, what does this do to their expectations when they return home or after they graduate? If you are used to living in a nice McMansion, how do you move up after that?

2. In what condition do these students leave these McMansions?

3. The story paints these students as helping desperate homeowners. At the same time, homeowners in nice suburban subdivisions may not always look favorably at college students who can tend to be loud and unruly. Are all the town and gown relationships here all good as the story suggests?

4. Might some of these students stick around in these neighborhoods after college? If so, how would this change the neighborhoods?

To sum up, is this a long-term solution or a temporary solution to issues in one of the foreclosure capitals of the United States?