Distressed Homeowners’ Option to Rent Foreclosed Houses

The increasing number of abandoned and vacant foreclosed houses is lowering property values in neighborhoods. These foreclosure properties that remained unsold and unoccupied become eyesores in neighborhoods.

Center for Economic and Policy Research co-director Dean Baker has proposed to allow distressed homeowners to remain in their houses by renting the foreclosed properties to them. He said that his Right to Rent proposal would help eradicate the blight in neighborhoods and preserve community and family stability.

Under Baker’s proposal, former homeowners would be allowed to stay in their homes, after they have been foreclosed by lenders, for as long as 10 years. The leasing of the bank foreclosed homes would be handled by a judge.

Lenders may sell the foreclosed houses but buyers are required to honor the existing lease agreement. Rents are subject to annual increase, based on the consumer price index of the U.S. Department of Labor.

Baker explained that the plan to allow former homeowners to lease their foreclosure homes would benefit them and their communities. He pointed out that in some areas of the country, renting is still cheaper than homeownership.

In areas of Tampa-St. Petersburg-Clearwater in Florida, the average monthly market rent is $946 while homeownership costs are between $1,102 and $1,496.

Meanwhile, there are so many issues that need to be considered before a standard plan could be adopted for the proposal to rent foreclosed houses to former owners. In Virginia, all rights to possessions for both tenants and former owners are terminated when the property is under foreclosure. By virtue of foreclosure orders, leases are automatically voided.

In Maryland, a foreclosure sale terminates any leases entered by homeowners after they obtained a mortgage. A commercial lease agreement typically includes a clause of non-disturbance, under which lenders who foreclose agree not to disrupt the lives of existing tenants.

On the other hand, the government-sponsored enterprise, Federal Home Loan Mortgage Corp. established the REO Rental Initiative. Under the initiative, homeowners who want to remain in their properties by leasing them are required to submit proof of income to show that they can afford to pay monthly rentals. Furthermore, owner-occupants must allow prospective buyers to view the foreclosed homes that they are renting.

However, Freddie Mac has yet to determine the duration of stay of homeowners. This means that when the foreclosed home is sold, tenants will have no choice but to vacate the property unless the buyers are investors who would allow them to continue leasing the foreclosed house.

Go to Source

Share This

Bank Foreclosed Homes Overtake Loan Modifications

Early this year, President Barack Obama launched the Home Affordable Modification Program (HAMP) aimed at helping as many as 9 million homeowners avoid foreclosures. The initiative is backed by the $50 billion grant from the bailout fund of the financial industry.

So far, the program has failed to make a dent on the spreading foreclosure problem in the country. Industry experts pointed out that the impact of HAMP is far behind the original projections of the Obama Administration to modify 4 million troubled loans and refinance 5 million mortgages.

Counties in North Florida can attest to the slow progress of the HAMP as the number of bank foreclosed homes greatly outnumbered loan modification figures. Early data on the HAMP status showed that the first batch of homeowners who applied for the loan modification program on April 1, 2009 has yet to complete the process. Local bankers believed that the number of loan modifications will increase after borrowers finish the probation period.

According to court records, nearly 1,063 loans were modified in the counties of Clay, Duval, St, Johns and Nassau as of July 21. The figures included completed and filed loan modification documents.
Vystar Credit Union leads the most number of loans modified with 8 percent out of the over 1,000 mortgage modifications. VyStar President Terry West said that a mortgage modification is handled on a case-by-case basis. He added that when credit union members are having difficulty paying their mortgages, VyStar examines the causes of their financial problem and tries to determine if the situation is temporary or not.

He pointed out that even if the troubled loans are modified, homeowners still need money to ensure that they remain in their homes.

But some distressed homeowners are complaining on the difficulty of getting help from lenders despite the voluntary compliance of banks with HAMP. Many large banks such as JPMorgan Chase have worked with the U.S. Department of Treasury since the program’s inception. Some of these banks have even established their in-house initiatives to boost their loan modification efforts.

However, some homeowners are facing difficulties of obtaining the funds despite meeting the requirements because banks are swamped with the large volume of people who want to save their properties from foreclosures.

To avail of HAMP, borrowers are required to have mortgage payments not more than 31 percent of their total gross income, must be owner-occupant of the distressed properties and have an outstanding loan balance of not more than $729,500.

Go to Source

Share This

Goldman Sachs to Survive Commercial Real Estate Meltdown

Unlike other regional banks which have substantial exposures to the commercial real estate market, Goldman Sachs Group has been able to cut down its exposure to commercial mortgage loans and commercial property mortgage-backed securities.

In the last months of 2007, Goldman had around $16.27 billion in commercial mortgage loans. In the second quarter of 2009, total commercial loans have been cut down to $6.4 billion.

In 2007, it had accumulated $15.1 billion in CMBS and it was seventh in a chart showing the top financial firms investing in CMBS. At the end of 2008, Goldman was able to reduce its commercial portfolio to $10.9 billion. In the second quarter, its CMBS was down to $1.6 billion.

Goldman said it cut down its exposure to commercial securities by selling mortgage securities to other financial institutions and to investors.

Nevertheless, Goldman has made substantial write-downs on its commercial mortgage portfolio, writing down more than $3.5 billion since the start of the foreclosure crisis. Its commercial real estate losses had been higher than its residential real estate losses.

Analysts expect the commercial real estate to suffer more loan defaults and declines in property values. For several quarters already, banks have been posting losses in the commercial lending market.

To enhance its preparation for a meltdown in the commercial real estate sector, Goldman wrote down its commercial mortgage portfolio by almost 50 percent in the second quarter.

In the second quarter, it reported a loss of $700 million on commercial mortgage loans within its commodities, currencies and fixed income group. It also posted $500 million in losses in equity investments in commercial real estate that had dropped in value.

In contrast, banks which have larger percentages of exposure to the commercial mortgage sector made lower levels of markdowns.

Financial analysts said Goldman can afford to make bigger write downs on its commercial mortgage portfolio because of its less exposure to the commercial mortgage market. Besides, its $950 billion balance sheet and its gains in stocks, bonds and commodities are providing Goldman with the power to absorb write-downs and related losses.

All in all, Goldman Sachs is poised to survive further declines in the commercial mortgage market. It would also gain a lot if the market does not decline as steeply as it predicted as it would mark up the mortgages it had written down.

Go to Source

Share This

$18M Initiative to Trim Foreclosed Homes Listings

Around $18 million is allotted to be used by the city of Boston, Massachusetts to help distressed homeowners avoid foreclosures and for potential buyers to purchase properties on foreclosed homes listings.

The one-year Homeownership Stabilization Campaign aims to help neighborhoods in Boston severely affected by high foreclosed homes listings.

The two-part initiative will give equity to distressed homeowners, help stabilize home prices and strengthen the housing market in neighborhoods with high repossession rates. The program will give assistance to new buyers in acquiring properties.

Out of the $18 million funding, $10 million was provided by the U.S. Department of Housing and Urban Development (HUD), $4 million from the Massachusetts Department of Housing and Community Development and the remaining $4 million from the city government.

The funds are 200 percent larger compared with the 2008 homeownership budget. The additional amount for this year is made possible by the $8.2 million funds provided under the Neighborhood Stabilization Program that the city received to help stem the tide of properties on foreclosed homes listings.

Additionally, the city is also lining up for a $39 million federal grant from the HUD as part of the Neighborhood Stabilization Program 2.

Mayor Thomas M. Menino announced that the city has nearly 928 foreclosed properties in Dorchester, East Boston, Roxbury, Mattapan and Hyde Park. He explained that the goal of the initiative is to make sure that distressed properties are redeveloped. So far, the city has acquired 12 foreclosed homes and is planning to buy 90 additional bank-owned properties.

Out of the $18 million funds, $11.6 million are allocated for the renovation of repossessed properties bought by the city of Boston, provide funding to new homeowners for rehabilitation of foreclosed properties and down payment assistance for buyers of foreclosed homes.

The funds will also provide subsidies for nonprofit and private developers to rehabilitate foreclosed properties and will offer home equity mortgages to homeowners.

Furthermore, the program will provide about $6 million for current homeownership initiatives that offer repair assistance to older homeowners, lead paint abatement and home buying education.

Meanwhile, properties on foreclosed homes listings accounted for 6.5 percent of the total sales of single-family homes in Massachusetts in the first half of this year. In Boston, property prices dropped by 19 percent since the housing market boom in September 2005.

Go to Source

Share This

Lifelines for Homeowners Facing Foreclosed Homes HUD

As home values continue to slide in New York, and so in other areas across the country, many homeowners find themselves owning more than their properties are worth. Foreclosed homes HUD prevention programs are available for borrowers whose properties are worth less than their mortgages and for homeowners who are struggling to pay their Federal Housing Administration (FHA)-guaranteed mortgages.

The Federal Housing Finance Agency’s Home Affordable Refinance Program encourages lending institutions to offer new loans to borrowers who have not missed any loan payment. Borrowers whose property value exceeds by 25 percent their total mortgage amount can avail of the foreclosure prevention program.

Terms under the initial program allows lenders to refinance a loan only if the total mortgage of homeowners does not exceed 5 percent of the values of their properties. The new version of the program would give borrowers interest rates that are a little higher than the best loan rates in the market.

Meanwhile, some changes will be made to the foreclosed homes HUD prevention program designed to help homeowners who are facing payment difficulties with their FHA-guaranteed mortgages.

The original version of the loan modification program of the FHA provides financial incentives to lenders to encourage them to modify mortgages to affordable payment terms.

Data from the LPS Applied Analytics showed that about 14.2 percent of FHA loan borrowers are at risk of turning their properties into foreclosed homes HUD. FHA Commissioner David Stevens explained that changes in the loan modification program would help distressed homeowners remain in their houses, make affordable payments and defer loan payments until property values have improved.

The FHA program allows reduction of loan payments to 31 percent of the homeowners’ monthly income. However, the adjustment will focus on the principal amount of the loan and not on the interest rate. This means that lenders may lower the outstanding loan principal to allow borrowers to make payments of as much as 30 percent.

Reduced payments will be made by borrowers on their FHA-guaranteed loans but they will be required to pay off the entire loan amount if they sell their properties or if the loans will be refinanced.

And unlike in the previous program wherein distressed homeowners have to miss three mortgage payments, the revised foreclosed homes HUD prevention program allows homeowners to receive a mortgage modification after missing only one loan payment.

Go to Source

Share This

T. Rowe Price Saved from Foreclosed Homes Auctions Trouble

Baltimore-based investment firm T. Rowe Price was able to save itself from financial difficulties related to large volumes of properties in foreclosed homes auctions because one of its credit analysts made a correct analysis of the housing market and the subprime lending boom in 2004.

Before the subprime market caused the collapse of the housing sector and the frenzy of foreclosed homes auctions in 2007, T. Rowe has already cut down its investments related to subprime lending.

It was Susan Troll, one of the firm’s credit analysts, who warned colleagues and the company about the danger of investing in mortgage securities backed by subprime loans in 2004. She did not know yet at that time that subprime loans would put a lot of homes into foreclosed homes auctions just a few years after.

Troll related that she felt her first doubts about the ultimate consequences of the boom in subprime lending and the soaring home prices when she attended a conference held by the biggest subprime mortgage servicers in California.

During the meetings, Troll and the other investors were given opportunities to observe service calls between mortgage servicers and borrowers. Troll was able to realize that borrowers were confused about the structure of their home loans and why interest rates would reset to higher rates after a couple of years.

When somebody remarked that the loans were not really mortgages but bridge loans, something clicked with Troll.

Troll realized that lenders were offering adjustable-rate home loans that have low fixed rates during the first 2 or 3 years and that would reset to much higher rates after the low-rate period.

What was stunning was that lenders told borrowers that they can refinance to lower rates after 2 or 3 years if they make their monthly payments on time and thereby improve their credit records. The borrowers got only the first concept – that they can refinance to lower rates. They never thought they would see their homes go to foreclosed homes auctions.

Troll explained that one of the errors of Wall Street, ratings agencies and other financial firms was that they did not have a model for home price declines. They were all forecasting home price increases.

By 2006, T. Rowe stopped buying subprime mortgage securities. When 2007 came and record numbers of homes were being sold through foreclosed homes auctions, T. Rowe has already cut down its exposure to the subprime sector.

Go to Source

Share This

Foreclosed Rental Properties Rising

The growing number of foreclosed rental properties in the country is starting to be noticeable. Industry experts said that many landlords, who are facing property tax increases, are wary of increasing rents because they know that they would lose a significant number of tenants.

Foreclosed rental properties happen when revenue losses were incurred which led subsequently to mortgage default because of owners’ inability to make payments. Some experts said that rental property owners could not pass on the real property tax increase because the apartment price is determined by the market.

They said that owners who would think of incorporating the property tax increase on rents would surely find themselves owning an empty apartment, and subsequently, a foreclosed rental property.

Bridgeport, Connecticut acting assessor Elaine Carvalho said that all residential properties in the city were appraised at 70 percent of the market value. She added that the revenue generated by apartment buildings and large residential properties are factored into their assessment.

She explained that city residents who own income-producing properties are required to submit an expense and income report annually. She added that her office will use the old property assessment if the owner fails to submit a new report.

Meanwhile, Connecticut Coalition of Property Owners Association President Richard DeParle said that raising rents at this time when the rental market is languishing is the worst move that a property owner can do. The move will just turn away tenants, result in lost income and a foreclosed property.

DeParle said that some owners have even lowered their rents in order to attract tenants. He pointed out that it would be easy to absorb utility or tax increases or settle for a low rate of return than lose tenants.

Northbrook Apartments manager Michael Jacques said that he was forced to increase rents by almost 7 percent in 2008 because of high property assessment, insurance costs and utility bills. However, he would not consider increasing rents this year because majority of his tenants have lost their jobs and struggling to pay their rents.

The Helping Families Save Their Homes Act provides that tenants living in a foreclosed property must be allowed to stay for at least 3 months or until the lease expires.

Go to Source

Share This

Texas Upscale Properties on Foreclosure Listings Increasing

The overflow of the foreclosure problem from the residential real estate market to the commercial real estate in North Texas has worried industry experts who are expecting a surge of upscale properties on foreclosure listings in the coming months.

According to experts, eight commercial properties, with total value assessed at around $10 million, were posted on foreclosure listings for sale in an auction next month. They noted a significant increase in the volume of foreclosure postings on commercial properties appraised at $10 million and above in the period of three months from June.

They said that the quality of properties being put into foreclosure is getting better and more expensive. Market data showed that postings for commercial property foreclosure in August totaled 271, representing an 83 percent rise compared with 148 buildings posted on foreclosure listings in the same period last year.

A statistical report also noted that from January to July this year, about 1,245 notices of foreclosures were filed on commercial properties in the counties of Collin, Dallas, Denton and Tarrant. The filings, which included undeveloped land, represented a 12 percent rise from the nearly 1,116 notices of foreclosures served in the first seven months the previous year.

Meanwhile, Cawley Partners Chief Executive Officer Bill Cawley said that he expects more upscale commercial property foreclosures to happen soon as the economic downturn and financial crisis continue to batter the country, in addition to more refinancing failures.

He said that many owners of high-valued commercial properties are starting to experience the market problems, adding that if lenders are not willing to work out debt solutions with them, they have no option to save their properties from foreclosures.

Meanwhile, some industry experts said that they expect the number of high-end commercial property foreclosures to continue to increase for the remaining months of this year until the whole of 2010. They said that one of the biggest problems facing landlords are maturity defaults due to difficulty in refinancing their commercial mortgage.

On the other hand, some foreclosures occur when commercial loans convert to interest and outstanding principal from interest only, which is very similar to teaser rates in the residential real estate.

They believe that the only way to prevent a surge of upscale commercial properties on foreclosure listings is a government intervention to help lenders clear their books of non-performing and non-profitable real estate properties.

Go to Source

Share This

Transparency for TARP and Funds for Foreclosed Properties

A bill calling for a higher level of transparency in the disbursement of trillions in Troubled Asset Relief Program funds and the disbursement’s ultimate effects on the federal program to contain foreclosed properties has been launched in the House by Special Inspector General Neil Barofsky and has been supported by a group of lawmakers.

Barofsky said that the Treasury Department has failed to allocate TARP funds with the level of transparency and accountability satisfactory to the public.

Critics of how TARP was implemented also said that the U.S. Treasury and Federal Reserve granted trillions in taxpayer money to big banks and corporations without reporting details to the public.

New York Democrat Edolphus Towns, chairman of the House Committee on Oversight and Government Reform, called on the Treasury to put more detailed information on its official web site. Towns even warned that Secretary Geithner can be called upon by the House committee to explain if he does not provide details on how TARP was spent. Lawmakers also want to know how the disbursements helped facilitate the federal program to address foreclosed properties.

When Federal Reserve Chairman Ben Bernanke spoke before a House Committee recently, Florida Republican Representative Bill Posey remarked that Americans have the right to know 100 percent of how the TARP funds were being spent.

Bernanke reported that all the actions carried out by the Federal Reserve in the past several months helped prevent the total collapse of the American and global financial systems. He said the economic problems faced by the U.S. in September and in October last year were the worst combination of problems since the recession in the 1930s.

Bernanke said the Fed granted a total of $1.5 trillion in short-term emergency loans in 2008 to the country’s largest banks and other financial corporations to prevent the financial sector’s total collapse. But he emphasized that the current level of loans to the big banks has now gone down to $600 billion.

Bernanke also acknowledged that problems remain because of the rising unemployment rate and the continued rise in foreclosed properties.

He also admitted that credit remains tight and this has led to a rising number of foreclosed properties in the commercial real estate sector.

Additionally, Barofsky said his office examined 360 banks to check how they spent their TARP allocation and found out that most of them used the money to pay debts and buy other banks instead of opening up lending to troubled business owners and homeowners to help contain the effects of foreclosed properties.

Go to Source

Share This

Low Home Prices Blamed on Foreclosed Homes Foreclosure

Last month, home sales in Tampa Bay, Florida jumped by 21 percent, but prices were still down because of the increase in the number of foreclosed homes foreclosure on the market.

According to industry experts, home sales in the area rose to 21 percent compared to the same month last year. But they also pointed out that the increase is brought about by the low home prices which they blamed to the unfair dumping of foreclosed homes foreclosure on the market by banks.

Data showed that home sales improved from last year’s 2,346 to 2,848 for June. Last month’s figures were the 10th consecutive month that home sales rose in the area. The highest June house sales was reported in 2005 for a total of 5,230.

When it comes to home prices, they remained steady since bottoming at $121,000 earlier this year. However, property prices are still down by 22 percent compared to last year. The median home price in June 2008 was $139,400.

Industry experts said that home prices in the area would have improved or gone higher if banks did not dump cheap foreclosed homes foreclosure on the market for almost half the price from their original value.

Data showed that sales of pre-foreclosure and foreclosure properties accounted for 37 percent of the total home sales last month.

Industry experts have blamed banks for prolonging the mortgage and housing crisis by overloading the market with cheap foreclosure properties. They said that the Obama Administration’s bailout program had only encouraged banking institutions to sell foreclosed houses at prices they want because they know that the federal government is covering their financial losses.

Experts also said that lenders are now the most influential sector in the housing market. They noted that instead of learning some lessons from the residential real estate boom and collapse and acting responsibly, lenders and banks are now selling foreclosure properties at prices below the market value that the sector is single-handedly working on the drop of Tampa Bay property values.

But industry experts conceded that these cheap foreclosed homes foreclosures are driving home sales in the area, citing the $8,000 tax credit given to first-time homebuyers as a big contributor to the sales turnaround.

Go to Source

Share This