Tuesday, July 22, 2014

Ex-Lender Gets Prison Time for Short-Sale Payoffs

A U.S. district judge in Los Angeles has sentenced a former Bank of America mortgage employee to 30 months in prison for taking $1.2 million in payoffs to approve sales of distressed properties for far less than their actual value, the Los Angeles Times reports. Attorneys say such cases became widespread during the housing crisis.
Kevin Lauricella, the former Bank of America employee, pleaded guilty in January to accepting bribes and falsifying bank records. Assistant U.S. Attorney Ranee A. Katzenstein says plea agreements were filed by at least three other defendants following Lauricella's arrest, which indicated the problem had become widespread.
"It's part of a large, ongoing investigation," Katzenstein said. "There are a large number of related cases."
Lauricella worked for Bank of America in 2010 and early 2011, when a high number of delinquent home loans were hitting the market. He was accused of collecting bribes from flippers who sought to purchase a distressed home and then quickly resell it for a profit. Lauricella approved short sales that were far below the fair market value. Bank of America fired Lauricella in 2011 while an investigation was launched.
The homes involved in such cases are often sold to good-faith buyers, who become the victims because they face litigation over whether the sale was valid, Katzenstein says.
"The banks suffered losses, of course," she said. "But a lot of other innocent parties suffer as well when it winds up that the title is clouded on what they thought were their dream houses."
Source: “Former BofA Short-Sales Employee Gets Prison Term for Taking Bribes,” Los Angeles Times (July 21, 2014)

Thursday, July 17, 2014

Decline in Foreclosures Reaches 'Important Milestone'

Foreclosure activity in June was down 16 percent from a year prior, marking the lowest level since July 2006 — before the housing bubble burst — according to RealtyTrac's Midyear 2014 U.S. Foreclosure Market Report. The report showed a much-improved picture: Foreclosure filings, which include default notices, scheduled auctions, and bank repossessions, were down 19 percent in the first half of 2014 compared to the previous six months and 23 percent from year-ago levels.
Ten states in June reached their lowest level of foreclosures since 2006, including Texas, Georgia, Colorado, Tennessee, Arizona, and Nevada.
"Nationwide foreclosure activity in June reached an important milestone, dropping to levels not seen since before the housing-price bubble burst in August 2006," says Daren Blomquist, vice president at RealtyTrac. "Over the next six to nine months, nationwide foreclosure numbers should start to flatline at consistent historically normal levels."
Not all states are out of the woods yet. For example, nine states saw foreclosure activity rise during the first half of 2014 compared to a year ago, such as New Jersey (up 54%); Maryland (up 18%); Iowa (up 10%); Massachusetts (up 4%); and Connecticut (up 4%). The states with the highest foreclosure rates in the first half of 2014 remained Florida, Maryland, Illinois, New Jersey, and Nevada, according to the report.
"While it's important that any remaining foreclosure infection is addressed promptly to keep it from festering, foreclosures are no longer a widespread contagion threatening to derail the housing market's return to full health," Blomquist says.
The metros with some of the largest decreases in foreclosure activity in the first half of 2014 compared to a year ago included Chicago (down 30%); Miami (down 30%); Houston (down 29%); Dallas (down 28%); and Los Angeles (down 20%). 
Source: RealtyTrac

Monday, July 14, 2014

Dept. of Justice settles with Citigroup for $7 Billion

Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Monday, July 14, 2014
Justice Department, Federal and State Partners Secure Record $7 Billion Global Settlement with Citigroup for Misleading Investors About Securities Containing Toxic Mortgages
Citigroup to Pay the Largest Penalty of Its Kind - $4 Billion
The Justice Department, along with federal and state partners, today announced a $7 billion settlement with Citigroup Inc. to resolve federal and state civil claims related to Citigroup’s conduct in the packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) prior to Jan. 1, 2009.  The resolution includes a $4 billion civil penalty – the largest penalty to date under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  As part of the settlement, Citigroup acknowledged it made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitized in RMBS.  The resolution also requires Citigroup to provide relief to underwater homeowners, distressed borrowers and affected communities through a variety of means including financing affordable rental housing developments for low-income families in high-cost areas.  The settlement does not absolve Citigroup or its employees from facing any possible criminal charges.

This settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered $20 billion to date for American consumers and investors. 

“This historic penalty is appropriate given the strength of the evidence of the wrongdoing committed by Citi,” said Attorney General Eric Holder.  “The bank's activities contributed mightily to the financial crisis that devastated our economy in 2008.  Taken together, we believe the size and scope of this resolution goes beyond what could be considered the mere cost of doing business.  Citi is not the first financial institution to be held accountable by this Justice Department, and it will certainly not be the last.”

The settlement includes an agreed upon statement of facts that describes how Citigroup made representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors.  Contrary to those representations, Citigroup securitized and sold RMBS with underlying mortgage loans that it knew had material defects.  As the statement of facts explains, on a number of occasions, Citigroup employees learned that significant percentages of the mortgage loans reviewed in due diligence had material defects.  In one instance, a Citigroup trader stated in an internal email that he “went through the Diligence Reports and think[s] [they] should start praying . . . [he] would not be surprised if half of these loans went down. . . It’s amazing that some of these loans were closed at all.”  Citigroup nevertheless securitized the loan pools containing defective loans and sold the resulting RMBS to investors for billions of dollars.  This conduct, along with similar conduct by other banks that bundled defective and toxic loans into securities and misled investors who purchased those securities, contributed to the financial crisis.
                                   
“Today, we hold Citi accountable for its contributing role in creating the financial crisis, not only by demanding the largest civil penalty in history, but also by requiring innovative consumer relief that will help rectify the harm caused by Citi's conduct,” said Associate Attorney General Tony West.  “In addition to the principal reductions and loan modifications we've built into previous resolutions, this consumer relief menu includes new measures such as $200 million in typically hard-to-obtain financing that will facilitate the construction of affordable rental housing, bringing relief to families pushed into the rental market in the wake of the financial crisis.”

Of the $7 billion resolution, $4.5 billion will be paid to settle federal and state civil claims by various entities related to RMBS: Citigroup will pay $4 billion as a civil penalty to settle the Justice Department claims under FIRREA, $208.25 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $102.7 million to settle claims by the state of California, $92 million to settle claims by the state of New York, $44 million to settle claims by the state of Illinois, $45.7  million to settle claims by the Commonwealth of Massachusetts, and $7.35 to settle claims by the state of Delaware.

Citigroup will pay out the remaining $2.5 billion in the form of relief to aid consumers harmed by the unlawful conduct of Citigroup.  That relief will take various forms, including loan modification for underwater homeowners, refinancing for distressed borrowers, down payment and closing cost assistance to homebuyers, donations to organizations assisting communities in redevelopment and affordable rental housing for low-income families in high-cost areas.  An independent monitor will be appointed to determine whether Citigroup is satisfying its obligations.  If Citigroup fails to live up to its agreement by the end of 2018,  it must pay liquidated damages in the amount of the shortfall to NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development. 

The U.S. Attorney’s Offices for the Eastern District of New York and the District of Colorado conducted investigations into Citigroup’s practices related to the sale and issuance of RMBS between 2006 and 2007.

“The strength of our financial markets depends on the truth of the representations that banks provide to investors and the public every day,” said U.S. Attorney John Walsh for the District of Colorado, Co-Chair of the RMBS Working Group.  “Today's $7 billion settlement is a major step toward restoring public confidence in those markets.  Due to the tireless work by the Department of Justice, Citigroup is being forced to take responsibility for its home mortgage securitization misconduct in the years leading up to the financial crisis.  As important a step as this settlement is, however, the work of the RMBS working group is far from done, we will continue to pursue our investigations and cases vigorously because many other banks have not yet taken responsibility for their misconduct in packaging and selling RMBS securities.”

“After nearly 50 subpoenas to Citigroup, Trustees, Servicers, Due Diligence providers and their employees, and after collecting nearly 25 million documents relating to every residential mortgage backed security issued or underwritten by Citigroup in 2006 and 2007, our teams found that the misconduct in Citigroup’s deals devastated the nation and the world’s economies, touching everyone,” said U.S. Attorney of the Eastern District of New York Loretta Lynch.  “The investors in Citigroup RMBS included federally-insured financial institutions, as well as a host of states, cities, public and union pension and benefit funds, universities, religious charities, and hospitals, among others.  These are our neighbors in Colorado, New York and around the country, hard-working people who saved and put away for retirement, only to see their savings decimated.”

This settlement resolves civil claims against Citigroup arising out of certain securities packaged, securitized, structured, marketed, and sold by Citigroup.  The agreement does not release individuals from civil charges, nor does it release Citigroup or any individuals from potential criminal prosecution. In addition, as part of the settlement, Citigroup has pledged to fully cooperate in investigations related to the conduct covered by the agreement.

Michael Stephens, Acting Inspector General for the Federal Housing Finance Agency said, “Citigroup securitized billions of dollars of defective mortgages, after which investors suffered enormous losses by purchasing RMBS from Citi not knowing about those defects. Today’s settlement is another significant step by FHFA-OIG and its law enforcement partners to hold accountable those who committed acts of fraud and deceit in the lead up to the financial crisis, and is a necessary step toward reviving a sound RMBS market that is crucial to the housing industry and the American economy.  We are proud to have worked with the Department of Justice, the U.S. Attorneys’ Offices in the Eastern District of New York and the District of Colorado. They have been great partners and we look forward to our continued work together.”

The underlying investigation was led by Assistant U.S. Attorneys Richard K. Hayes, Kevin Traskos, Lila Bateman, John Vagelatos, J. Chris Larson and Edward K. Newman, with the support of agents from the Office of the Inspector General for the Federal Housing Finance Agency, in conjunction with the President’s Financial Fraud Enforcement Task Force’s RMBS Working Group.

The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.  The RMBS Working Group brings together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, 10 U.S. Attorneys’ Offices, the FBI, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Federal Reserve Board’s Office of Inspector General, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network, and more than 10 state Attorneys General offices around the country.

The RMBS Working Group is led by its Director Geoffrey Graber and its five co-chairs: Assistant Attorney General for the Civil Division Stuart Delery, Assistant Attorney General for the Criminal Division Leslie Caldwell, Director of the SEC’s Division of Enforcement Andrew Ceresney, U.S. Attorney for the District of Colorado John Walsh and New York Attorney General Eric Schneiderman.

Learn more about the RMBS Working Group and the Financial Fraud Enforcement Task Force at: www.stopfraud.gov 

Sunday, July 6, 2014

How Deft Bid-Riggers Harmed Ex-Owners of Foreclosed Homes

Jennifer Baires and Stephen HobbsSan Francisco Chronicle
June 6, 1014

It was noon on a fall day in Oakland. Heat radiated off the white concrete steps and picnic tables out front of the Alameda County Courthouse where a band of would-be home-buyers gathered.

Robert Kramer, a regular at the daily foreclosure auctions, joined the crowd, sporting a safari hat and an unkempt white beard. He greeted many in the crowd by name, ribbing them with playful banter, as he settled himself at one of the concrete tables. He paused for a moment, taking in the scene.

"Kramer, what are you looking around for?" yelled a man from across the steps, laughing. "The FBI?"

"They already found me," he deadpanned.

In 2011, Kramer, 66, was caught in a nationwide FBI and Department of Justice investigation into bid-rigging at foreclosure auctions. He pleaded guilty to colluding with other bidders to suppress the sale prices of the foreclosed houses that came to market during the mortgage crisis. They then held private illegal secondary auctions where they resold the properties and split the profits. Across the state, similar schemes played out. Those who have pleaded guilty face up to 10 years in prison and fines of $1 million for bid-rigging.

An investigation by the UC Berkeley Investigative Reporting Program, relying on thousands of property records, court documents and dozens of interviews with bidders, provides a behind-the-scenes look at the murky world of foreclosure auctions, where intimidation was commonplace and millions in cashier's checks were exchanged daily.

A windfall amid recession

For some local real estate investors, the collapse of the housing market wasn't a tragedy; it was one of the greatest windfalls in real estate history. Between 2007 and 2012, banks foreclosed on nearly 150,000 homes in the Bay Area, according to Property Radar, a real estate tracking company.

At least 25,000 of those houses were purchased at auctions across the region's nine counties, according to an analysis of property records, attracting bidders with plenty of cash to scoop up deals by the score. More than $7 billion in foreclosed property sold over the six-year span, records show. The FBI sweep in 2011 revealed that some of these purchases were made illegally.

To date, 46 Bay Area real estate investors have pleaded guilty to rigging foreclosure auctions in Alameda, Contra Costa, San Francisco and San Mateo counties. The FBI said those investors spent more than $200 million on the properties and collectively gained as much as $34 million from private auctions held exclusively for members within their circle. The number of properties they purchased is likely much greater, but it's unknown, because many were purchased in the names of clients.

Greg Casorso, a frequent bidder at the courthouse steps in Alameda County, described investors who perfected a system of buying houses at public auction. He said he saw newcomers discouraged from bidding through a variety of tactics, including the presence of "thugs."

Casorso also acknowledged buying properties at a minimum asking price and then holding private auctions called rounds, where bidders flipped the properties and kept the profits from the banks - but he said he believed he was not doing anything illegal by doing so.

He described a lawless environment.

"Down here, there's hundreds of millions of dollars being transacted and no security, no management, no nothing," Casorso said.

Called collusion

According to property records provided by CoreLogic, the average price of homes purchased by the 46 investors who have pleaded guilty was roughly $225,000, compared with an average of more than $275,000 for all houses purchased at auction across the Bay Area between 2007 and 2011.

David J. Johnson, special agent in charge of the FBI San Francisco field office, said any agreement made by individuals to limit competition at public auctions is a form of collusion, a violation of federal antitrust laws.

Bid-rigging impacts not only the essence of a free market but also the legitimacy of home buying, which is one of the pillars of the American dream," he said.

The FBI confirmed that the investigation is continuing but declined to comment further.

All of the individuals charged in the Bay Area have pleaded guilty and are awaiting sentencing. Among them is Kramer, who is able to continue to buy homes at foreclosure auctions through his Oakland real estate investment company, Robert Kramer & Associates, in the meantime. His sentencing hearing is set for Oct. 29.

San Joaquin County scheme

The FBI investigation, while focused on the Bay Area, has reached across California. Many of the records in the 46 guilty-plea cases remain sealed because of the ongoing investigation, Department of Justice officials said. But in a similar scheme, two real estate investors from San Joaquin County went on trial this year, and a jury found them guilty of bid-rigging. Their counsel said they plan to appeal the decision.

The investors, working with other bidders, called themselves "the Group." Their approach was to buy homes for as little as possible and then flip them among each other at second private sales, called rounds or round robins. The Department of Justice accused them of participating in more than 300 illegal round robins.

In one case, a home on Stefano Drive in Stockton sold for a penny over the $142,000 opening bid price. Six bidders later took part in a round robin, where the property was resold for $166,300. The $24,300 difference was divided among the Group.

Federal authorities compared the crime to a heist.

"When four men go into a bank with masks over their faces and duffel bags, and demand cash from the teller, it's not complicated; it's a bank robbery. And so is this," U.S. prosecutor May Lee Heye told the jury in Sacramento during a March trial for two of the buyers. "This bank robbery required paperwork. It required keeping notes of the take. But make no mistake about it, it was a bank robbery. It was stealing."

The foreclosed homeowners are the ultimate victims of the bid-rigging, federal investigators said. Any money earned at auction beyond the debt owed on the house is supposed to be returned to the former owner. By bidding up the properties in a private auction, the participants kept that money for themselves.

But Casorso saw it differently. In the absence of clear laws, he said, it was up to the bidders to make their own rules at the auctions.

"Here you are handling hundreds of million dollars every day, and there is not a single announcement about what constitutes legal or illegal behavior," he said.

Described as good business

Though he has not been charged, Casorso readily admits to participating in the secondary auctions, which he said are just good business deals.

Casorso was a bidder at foreclosure auctions for Community Fund LLC in San Leandro, the largest purchaser of homes at foreclosure auctions in the Bay Area from 2007 through 2012, according to property records.

Michael Marr, the head of Community Fund, declined to respond to repeated requests for comment, and it is unclear whether Casorso still works for Community Fund.

Casorso said he started buying homes in 2009, when dozens of newcomers showed up on the courthouse steps in what he described as "a shark feeding frenzy."

For years, foreclosure auctions were a small, niche market, but the mortgage-lending crisis changed everything. In 2007, there were about 13,400 foreclosures in the Bay Area. The next year the numbers rose 180 percent to more than 37,500 foreclosures, according to Property Radar.

As banks felt the burden of holding so many homes, they held a fire sale and began asking even less than what was owed on the properties. In 2009, the average asking price dropped 57 percent below what was owed on the homes, according to Property Radar. These heavily discounted homes flooded the auctions.

"You had this uptick in supply," said Paul Staley, vice president of the Self-Help Community Development Corp. in Oakland. "But you also had a corresponding uptick in the amount of money at the courthouse steps. So you created this opportunity for a whole lot of more shenanigans."

Casorso spoke of investors physically closing off the circle to potential buyers and bidding up other investors before suddenly pulling out, a practice he called "pump and dump." It was all just part of the gamesmanship on the courthouse steps, he said.

Auctioneers, or criers, as they are often called, are supposed to finalize the sales immediately after the close of bidding, according to California civil code. But Casorso said he and other bidders would pay some auctioneers to hold off completing the purchases so properties could be vetted. Amid the confusion of the foreclosure crisis, Casorso said, sometimes the crier did not even offer the correct address.

The secondary rounds often occurred on the courthouse steps. Casorso described about a dozen bidders circling up. Bidding continued until someone emerged a winner, who later handed the auctioneer a new cashier's check for the same dollar amount as the initial sale. The winning bidder then paid the difference in price to the pot, which was split among the participants.

"Everyone made money and everyone came back the next day and did it all over again," Casorso said. "The money was very circular in the fact that it is supporting the auction process, day after day after day."

The investigation

On the morning of Jan. 11, 2011, Casorso said, he was returning home from a golf driving range when two FBI agents approached him on the sidewalk outside his former home in Oakland.

They were fanning out to the homes and offices of key players across the area in an operation called Crier Blind.

Casorso said the agents told him they knew all about illegal activity at the courthouse steps, said it was the "biggest open secret there is," and that it was in his best interest to talk.

"I was stunned," Casorso said, "I mean, you don't have anything better to do?"

He said he rejected their offer, and more than three years later, he still is waiting to be charged. He denies that he broke the law. The secondary auctions, if anything, he said, stimulated bidding by creating a less risky environment for investors.

FBI officials declined to confirm whether Casorso, along with his employer, Community Fund, is under investigation.

Nevertheless, Casorso said the FBI investigation is "on everyone's mind." The regulars, he said, are keeping their heads down while authorities continue to poke around. They are no longer holding secondary rounds, Casorso said. Auctioneers are more diligent about recording sales immediately after the bidding ends.

The banks, however, have not gotten any better at cleaning up the process, he said. Buying foreclosed homes remains a perilous business with no more oversight than when he began. He said he expects the rounds to return once the FBI investigation blows over, "because it's just too dangerous to be buying these properties this way."

Meantime, he said, he has more pressing worries. As the economy has improved, the flood of homes at the auctions has slowed to a trickle.

"We're more concerned right now with the sluggishness, the fact that there are hardly any sales," he said. "That's more troubling."

This story was a project led by Matt Isaacs of the Investigative Reporting Program at UC Berkeley. It was made possible by a grant from the Knight Foundation.

Tuesday, July 1, 2014

10 States Reach New Home-Price Highs



Home prices, including distressed sales, posted an 8.8 percent rise in May compared to year-ago levels, with 10 states soaring to new home-price highs, according to CoreLogic’s Home Price Index for May, released Tuesday.
  1. Alaska
  2. Louisiana
  3. Oklahoma
  4. Nebraska
  5. Iowa
  6. South Dakota
  7. North Dakota
  8. Colorado
  9. Texas
  10. New York
When excluding distressed sales, all 50 states as well as the District of Columbia showed year-over-year home-price appreciation in May, according to CoreLogic’s report.
“Home prices are continuing to climb across most of the country which has both positive and negative implications for the housing market,” says Anand Nallathambi, president and CEO of CoreLogic. “While the rapid rise in prices over the past two years has lifted many home owners out of negative equity, it has also become a negative factor in buying decisions for prospective purchasers weighing affordability concerns. As we move ahead, a moderation in home-price increases over the next twelve months should help cool things down a bit and keep the housing recovery going.” 
Source: CoreLogic

Friday, June 13, 2014

Housing Bubble Fears Brew Overseas

The International Monetary Fund says that several global housing markets are overheating, even in the U.S. – which is still digging itself out of a housing bubble that popped in 2008. Most of the warnings, however, have been issued for overseas.
Economists are warning countries like China, Sweden, the United Kingdom (particularly London), and Canada that after years of rising housing prices, their housing markets may be overheating. In Sweden, housing prices have tripled over the past 10 years. In Canada, prices have been rising for years and some economists have speculated a housing crash is inevitable later this year.
But China has many economists particularly worried that its property market is overheating,  ignited by the widespread availability of cheap credit. Pan Shiyi, CEO of Soho China, even compared the market to the sinking of the Titanic: “After hitting the iceberg, the risks will not be in the real estate sector,” Shiyi notes. “The bigger risk will be the financial sector.”
IMF policy makers are paying closer attention to the global housing market. Over the past year, 33 out of 52 countries in the IMF’s Global House Price Index have posted rises in home prices, even when the economies in the countries have been slowing down.
In the U.S., home prices have risen by about 5 percent on a yearly basis ending 2013. However, the economy has grown by about half that amount. Markets growing by the largest amounts on an annualized basis – more than 9 percent – were the Philippines, Hong Kong, and China, IMF notes. Economists say that home prices, rents, and incomes should move in tandem with the economy. When they get out of alignment, a housing bubble can form.

Tuesday, June 3, 2014

Home Owners Doing Record Number of Cash Deals

A record number of home owners are using the increased equity in their current homes to buy their next homes in cash and avoid the mortgage process altogether, Bloomberg reports.
About 29 percent of non-investment buyers used cash to fund their housing transactions in the first quarter of this year — the highest level on record, according to data compiled by Bloomberg.
Baby boomers make up a large bulk of these all-cash deals, says Lawrence Yun, chief economist for the National Association of REALTORS®. 
"Cash purchases are on the rise because older home owners who have decades of home-equity accumulation don't want the hassle of a mortgage," Yun says. "With the economy improving and the stock market at record highs, boomers are the ones who are driving the market."
Meanwhile, the share of investors — who usually use cash — is dwindling, dropping in the first quarter to the lowest level since 2010. 
"The whole investor class, the ones doing most of the cash purchasing until now, is stepping back," Yun says. "Baby boomers are taking their place."
Baby boomers have more equity than previous generations because they may have owned a home during a 30-year "housing bull market." In April, the median price of an existing-home was $201,700 compared to $67,800 in 1982, when many boomers had purchased their first properties, Bloomberg reports. 
What's more, about 16.3 million Americans older than 60 owned their homes outright in 2012, up from 12.1 million in 2009, according to Census data. 
Baby boomers are expected to remain a strong presence in the housing market much longer than previous generations, too. 
They "will be buying and selling well into their 80s because they are going to be active and healthier for a lot longer than their parents," says John McIlwain, a senior fellow at the Urban Land Institute in Washington. "They are a rebellious generation, and they're not going to go along with the idea of traditional retirement."
Source: “Cash Property Deals Reach Record with U.S. Boomers Retiring,” Bloomberg Businessweek (June 2, 2014)

Tuesday, May 20, 2014

"I'm too afraid to sell my home"

  @CNNMoney May 20, 2014: 12:17 PM ET

In hot real estate markets all over the country, homeowners are feeling stuck: They know they can get top dollar if they sell their home, but fear they will have no place to go if they leave.

The concern: An ongoing shortage of available homes for sale in cities like San Francisco, Los Angeles, Boston, New York and Washington, D.C., has made it extremely difficult for buyers to find homes they want to move into -- or can afford.

"One of the things we hear all the time is, 'I'm afraid to sell my house because I can't find another one," said Glenn Kelman, CEO of real estate brokerage firm Redfin.

And the competition for the homes that are available is so intense that buyers need to bring plenty of cash to the table. In fact, all-cash deals hit a record 43% of home sales in the first quarter of this year, according to RealtyTrac.

Tim Trampedach, a 36-year-old business owner who lives in San Francisco, has seen his home's value soar from $1.2 million to $1.6 million in the past three years. He and his wife want to move into a bigger place, but there are simply no homes within their price range in their Portrero Hill neighborhood.

"My wife and I are effectively locked into the house," he said. "We can't sell because we can't afford anything else nearby."

San Francisco is one of the most extreme examples. The number of homes for sale fell by more than 8% year-over-year in March, while listing prices soared 11.5% to a median of $867,000.

When inventory shrinks and prices move higher, it makes it even more difficult for a buyer to upgrade to a larger home. And if they can't buy, they can't sell, reducing the number of lower priced, starter homes.
"It's people like us, who live in a fully turnkey home, who can't supply homes because we have nowhere else to go in the city," said Trampedach.

Three thousand miles away, Kathleen Jackson has wanted to sell her South Boston home for three years. With two young children and a third on the way, her family has outgrown their small two-bedroom home.

But she has found few listings, even outside of Boston.

In fact, demand is so high that real estate agents are actively seeking people who are willing to sell. "You get letters in the mail asking if you're interested in selling," said Jackson. "People knock on your doors."

In mid-April she got an enticing, unsolicited offer on the house, which Zillow estimates to be worth $420,000.

"My husband and I talked it over," she said. "We hemmed and hawed. It was too good to be true, but we worried: Would we find a house we wanted?"

The buyer agreed to give the couple until October to find a new place, so they took the offer.

One way sellers can protect themselves is to make the sale of their home contingent upon their ability to find another one to move into.

Patrick Matson and his fiance, Margarita Munoz, insisted on such a clause when they put their Anaheim, Calif. home up for sale. Up until last Friday they had an offer on their home, but their own search did not go well.

The couple had made offers on two homes in La Mirada, where they liked the school district for their four-year-old son. But both offers were rejected.

The homes they looked at were between $430,000 and $480,000, but were no bigger or better than their current place, which they listed for $415,000.

Discouraged, the couple decided to reject the offer and take their home off the market.
"It was not an easy decision to make, provided that we knew the folks who had an offer in on our home were going to be disappointed and it wasn't what we wanted either," said Matson.

The couple plans to make some upgrades to their current place and will try again in a year or two, he said. "Hopefully the market won't be so competitive by then." 




Home-Price Appreciation to Slow Down Through 2016

Home values are expected to appreciate by 4.4 percent on average through the end of the year, but that rate will slow to 3.8 percent in 2015 and 3.4 percent in 2016, say 106 economists, real estate experts, and investment and market strategists surveyed by Pulsenomics LLC.
After a sharp double-digit percentage increase in home values last year, the rollback in appreciation would put them more on par with historical norms. Prior to the housing bubble years of 1987 to 1999, home values averaged 3.6 percent growth per year.
The majority of economists surveyed say they expect median home values to exceed their pre-recession peaks by the first quarter of 2018. They cited the following as the most common concerns for declining housing affordability: income growth (28%); abnormally high rates of home-price and rent appreciation (27%), and an abnormally low supply of homes for sale or rent (21 percent).
“Time will tell whether Washington’s unfolding plan to expand mortgage credit will have a durable, positive impact on home values, housing confidence, and market expectations,” says Terry Loebs, founder of Pulsenomics.

Tuesday, April 15, 2014

Mortgage Delinquencies Creep Up Again


Reports are surfacing again of more home owners falling behind on their mortgage payments, a reversal from the dropping numbers seen over the last several quarters. Delinquency rates are also on the rise for credit card and auto loan borrowers, according to the Experian-Oliver Wyman Market Intelligence Reports.

More mortgages were 30 to 59 days past due in the fourth quarter of 2013, rising to 2.13 percent from 2.05 percent at the end of 2012, according to the report.

A new survey by FICO reports that nearly half of bank-risk professionals expect delinquency rates on all consumer loans to reach their highest levels this year since late 2011.

"We've seen concerns about delinquencies creeping up for a few quarters," says Andrew Jennings, FICO's chief analytics officer. "These numbers mean more people are gaining access to credit, but we need to keep a close eye on the risk levels of these new loans. If delinquencies reach an uncomfortable level, we may see lenders pull back again."

Source: “Missed Mortgage Payments Are Back on the Rise,” Credit.com (April 14, 2014)