The Housing Crisis is Like Hurricane Katrina

There were four back-to-back panel sessions on the topic of Foreclosures at Real Estate Connect this morning. Here are some sound bites and quotes.

There are 25,000 homes per MONTH in California that are going back to the lender.  This is going to create a glut of housing inventory for many months into the forseeable future.  The percentage of loan modifications that are re-defaulting and going into foreclosure is high.  Estimates are 40% or higher.

In Cali, the very low end price range REO homes are now selling to long term investors who are are able to put a renter in that house and make their cash flow goals. 

There are an estimated 400,000 people living in their homes for free in California right now.  Lenders are stalling the foreclosure process because there simply is not enough people working in the loss mitigation departments to process all the paperwork.

There is a huge problem nationwide with listing agents who are taking short sale listings and have no clue on how to help the homeowner navigate through the short sale process.

Quote: “This [the housing crisis] is like Hurricane Katrina.”

Question to the panelists: How can consumers who are facing foreclosure help themselves?
Answer from Frances Flynn Thorsen, “Stay away from Realtors.” 

Jillayne here. That answer brought forth many laughs and suprised blurts of shock.  I personally think this took quite a lot of moxie to say in a room filled with Realtors. The point Frances was trying to make was that not all homeowners who are in default want to sell their home!  When real estate agents stick with only a single mindset that selling is the ONLY option, they are doing a grave disservice to their clients.  Frances said it is imperative that agents connect homeowners with either Acorn or NACA or some other HUD-approved Housing Counseling Agency that can effectively negotiate with the lender, and to make sure the homeowner receives legal counsel from attorneys who specialize in consumer protection law, which is something they can find at NACA. 

There are very few loan modifications being granted if the homeowner is seriously underwater. The example given was $2,000 in monthly income and $11,000 in monthly debts.  No loan mod for that consumer because the chances of re-defaulting are way too high.  This homeowner may be better served through the foreclosure process.

The loan modifications that are granted are often done by lowering the interest rate on the note to say, 3% for a fixed period of time such as three years, but with NO principal reduction. 

Jillayne again.  I say this practice may lead to a build up of shadow inventory that could end up hitting the market in 2011 and further drawing out the housing recession into 2012.

Short sales in Florida are a complete waste of time.  Buyers in Florida are looking at sellers with equity or REOs ONLY.  Banks are only now starting to dump their REOs by lowering the prices in order to get them off their boooks.

Florida should WISH FOR another Florida bank failure because then the other banks will become extremely nervous about the bank regulators poking around and will begin to get real with dropping the prices on REOs in order to clear out their inventory, especially the closer we get to the end of a quarter.

“Real estate agents have a moral and fiduciary duty to our clients.  We have a duty to try and maintain values.  We should be encouraging sellers to help hold the value by offering to “buy down” the interest rate instead of lowering the sales price.”

Jillayne here again.  That quote came from LJ Jennings, a real estate broker/owner.  I’m not so sure that holding prices artificially high could pass a fiduciary test.  This may NOT be in the client’s best interest.

VERY interesting insight from a data analyst. She said some companies would rather stick with data that their analysts have been using INSTEAD OF showing NEW data to their end users….because then their existing analysts would be proven wrong and the company doesn’t want to deal with that. 

Take aways:

  • Banks will begin to “throttle out” their inventory quarter to quarter,
  • A lot more big pools of scratch and dent (loans with problems) loans will start to be sold off in bulk to investors
  • Lenders will slow down the default process for due diligence and accounting reasons
  • In the second have of 2008, 100 billion (correction: dollars) in loans will reset.  If ONLY 13% default, this is a huge number of homes that will impact inventory levels for the years to follow.
  • Hundreds of thousands of Alt A loans will reset in 2009.
  • Foreclosure relief bill is a little too late.  Our problem right now is that lenders are afraid to lend on a declining asset and buyers are afraid to buy.  The bill does more to shore up confidence in Fannie and Freddie than anything else.
  • There ARE options for a homeowner in default who does not want to sell.
  • Foreclosure is only a temporary part of a person’s life.  Life goes on.
  • Loan modifications and short sales are being done faster through banks that have a history of predatory lending (this is a concept I’ve been teaching for 8 years now.)

I have an entire set of notes from the attorney who spoke on the liability issues agents face when listing REO homes. I’ll have to do a separate blog article on that for you. 

Whose priority is it?

During the local evening news, I’ve been seeing what appear to be political ads. What’s strange is that the election ended months ago, so the timing of this multi-media blitz is rather curious. The ads in question, are part of the It’s A Priority media campaign paid for by the Washington Association of Realtors. The ads encourage folks to contact their lawmakers to address the housing crisis in Washington state.

[photopress:ItsAPriority.jpg,full,alignright] At first, I thought it was a public relations / branding effort by the WAR, but I’m seeing the ad way too often for that to be feasible reason. Oddly enough, like our friends in Seattle Bubble land, I can’t help but wonder what the ulterior motive is. Perhaps, I’m confused because the ads don’t really have a clear “call to action”, other than contact your legislator. Most political ads have a clear and simple message (vote No or Yes on this initiative or that candidate) and these ads are rather vague on what they want me to do (other than make this cause a priority).

Here I am thinking the local economy and housing market is healthy, and now I’m seeing ads paid for by Realtors telling me that home prices have gone up too much and that’s not good. I’m confused here, aren’t housing prices supposed to go up? Microsoft, Boeing, and a cast of a hundred start ups are hiring and growing, so by all appearances the local economy doing well enough. Why don’t I see these kinds of ads when I visit California (which would seem to be a more logical place for a housing bubble that might occur)? What’s the real purpose of the ads?

The folks in bubble land believe it’s a ploy to loosen land use restrictions to allow greater density of smaller (i.e., “more affordable”) homes. I suppose that makes as much sense as anything else I’ve heard, but I wanted to get a second opinion before I form my own conclusions.