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After a flurry of foreclosures over the last 18 months the fallout from toxic subprime loans has started to wain. Foreclosure investments all the rage have impacted REO portfolios held by banks to just under 900k. This fact does not note the second wave of foreclosures to hit the market between 2009 to 2011 expected to be around 4 million.

The reason for the second waive of REO and Foreclosures is the adjustable rate prime mortgages structures on 3, 5, 7 and 10 year fixed periods after which may reset into substantially larger payments based on 1 - 2 percent rate increases or balloon forcing an accelerated payment. While mortgage backed securities typically utilized a 3% default rate for valuations some lenders are finding 12% of their portfolios in some stage of delinquency or foreclosure.

The office of the Thrift Supervision and the Controller of Currency released a 3rd quarter report putting a scare into the already fragile housing market illustrating new findings. The report, which covers the third quarter of the year, was the second such indication of the effectiveness — or lack thereof — of new efforts at foreclosure mitigation. It examined the portfolios of nine national banks and five thrifts, including JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and First Horizon (NYSE: FHN), representing more than 60% of all U.S. mortgages outstanding.

As detailed in the report, the first since the initial tabulation was put out in June, new foreclosure initiatives actually fell by 2.6% to 281,298 in the September quarter (largely due to mortgage relief programs). But a perhaps more important metric, foreclosures completed, increased by 8%, while the total number of foreclosures in process rose by 11% to 617,642.

There was also a disturbing new trend in the report released by Comptroller of the Currency John C. Dugan: More than half of the mortgages modified in the first quarter to benefit struggling borrowers had fallen back into delinquency, once again more than 30 days past due by the end of September.

Real estate investments in the foreclosure and reo space are heating up. For more information on Foreclosure investments contact Stone Equity Group

By DAVE MICHAELS / The Dallas Morning News

WASHINGTON – Even as banks streamline programs to renegotiate troubled mortgages, efforts to help Texas homeowners are being hindered by the state’s fast-track foreclosure process, according to housing counselors and government officials.

In other states, foreclosure can take as long as four months, giving the borrower more time to negotiate a better loan or catch up with missed payments. But in Texas, the process starts sooner and may take as little as 41 days to complete – the quickest in the country, according to a 2006 study by the Texas Department of Housing and Community Affairs.
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“The biggest obstacle we have in Texas is we are a very fast foreclosure process state,” said Linda Davis-Demas, assistant housing director for the Consumer Credit Counseling Service of Greater Dallas, which works with borrowers. “We are always up against the gun in regards to that.”

Texas’ foreclosure laws are so adverse to struggling homeowners that state Attorney General Greg Abbott plans to push the Legislature next month to lengthen the time homeowners have to “cure” a default, from 20 to 45 days.

Under state law, a homeowner who doesn’t catch up on payments after receiving the 20-day notice can lose his or her home.

Mr. Abbott, who obtained a predatory-lending settlement against Countrywide Financial Corp. that could lead to more affordable loans for 30,000 Texans, said the 20-day window is far too short in the current economic environment.

“Twenty days, when you count the fact that people have things going on, that is just real short notice to get anything done,” Mr. Abbott said in a phone interview. “Forty-five days more than doubles the length of time.”

Texas’ residential foreclosure laws haven’t changed since 1984, after state lawmakers decided borrowers should be given 20 days before foreclosure could start, said Judon Fambrough, a lawyer and senior lecturer at Texas A&M University’s Real Estate Center.

Texas mortgage bankers don’t think the law needs to be changed now, said Larry Temple, general counsel for the Texas Mortgage Bankers Association. Mr. Temple said mortgage servicers are “anxious” to help struggling homeowners.

“We believe the time frames now are pretty fair and reasonable,” Mr. Temple said. “It’s after the borrower is in default and has failed to make a payment or two that they are given notice and are in default. If they don’t [cure it], then comes the foreclosure.

“You put all of that together, and in most cases the borrowers are 90 or 100 days delinquent,” he said.

Housing crisis

The housing crisis has been most acute in states such as California and Nevada, where many borrowers took on exotic loans to finance homes that always seemed to appreciate in value.

The foreclosure process takes longer there than in Texas, indicating that more time doesn’t necessarily mean borrowers will find a way to save their homes.

Last week, the Mortgage Bankers Association reported that 11.5 percent of subprime loans in Texas had either started the foreclosure process or were more than 90 days behind in payments. The figure was 9 percent at the same point in 2007, according to the MBA, which says state foreclosure laws can complicate the loan-modification process.

Dallas-Fort Worth had more subprime loans than Houston and San Antonio combined, according to a study by the Federal Reserve Bank of Dallas. Many of the area’s subprime borrowers got adjustable-rate mortgages, whose interest rates reset to much higher levels after two or three years.

Forrest Brannon of Dallas was one such borrower.

Mr. Brannon, a 78-year-old veteran, is running out of time to save his home after he got behind on his monthly payments, which almost doubled in recent months, from $379 to $700.

Mr. Brannon said his finances were imperiled when he and his wife had to spend more money on health care, including a $3,000 bill for dental work. He got behind on his mortgage, then received a notice his home would be sold about a month ago.

First Franklin Loan Services, his servicer, has agreed to work with him, Mr. Brannon said. But he has less than a month to find a solution, he said.

“I can’t hardly write, and now I’ve got to send bank statements and fax forms,” said Mr. Brannon, a former postal worker who lives off disability from an injury he sustained on the job. “I feel I should have more time to get these mortgage payments together. The thing about it is, I could pay a little extra and get caught up.”

Bill Halldin, a spokesman for First Franklin, said he couldn’t discuss Mr. Brannon’s case specifically. But he said the company reaches out to borrowers “dozens of times” before initiating foreclosure. The information includes referrals to mortgage counseling services, he said.

“Unfortunately, often borrowers do not respond to our requests and in some instances [we] are unable to work out a solution,” Mr. Halldin said.

Vexing problem

Mr. Brannon’s experience illustrates a problem that is vexing lawmakers and housing experts. Despite widely publicized efforts to rescue troubled homeowners, foreclosures are rising, and experts are divided over whether loan workouts are working.

A report this week by federal regulators showed that more than half of borrowers whose loans were modified in the first half of 2008 have since fallen behind on payments.

“This raises questions … about what modifications work and what ones don’t work, and what else needs to be done,” said Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency, which regulates national banks.

Federal Deposit Insurance Corp. chairman Sheila Bair, a leading advocate of loan modifications, said many servicers still aren’t changing loans enough to make them affordable.

Sherry Randall, office director of housing for Acorn Housing in Dallas, agreed: “A lot of them are being stuck on repayment plans or given loan modifications, where there are changes but the payments are still high.”

Some are tempting foreclosure even as they wait for new loans. That’s because most servicers are modifying loans for only the most delinquent borrowers – those who are more than 90 days behind. By that time, the foreclosure process could have already started for some Texans.

JoAnn DePenning, statewide coordinator for the Texas Foreclosure Prevention Task Force, said Texas should push to include information about foreclosure-prevention resources with notices that are sent to delinquent borrowers. Mr. Abbott’s recommendation “is the first very strong push to change our process,” Ms. DePenning said. But “if you are just saying we are giving you longer and aren’t changing any other part of the process, you are delaying the inevitable.”

Staff writer Jessica Meyers in Dallas contributed to this report.

By KELLY CURRAN
December 9, 2008
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The nation’s foreclosure hemorrhage has finally slowed — slightly, mind you — from 84,534 REO properties in October to 84,291 in November, according to the 2009 outlook from ForeclosureS.com, released Tuesday. While the decline is largely likely an artifact of a growing push to halt pending foreclosures while lenders and government officials search for solutions to the nation’s housing crisis, Alexis McGee, president at the online foreclosure investing resource says that she sees a significant decline in foreclosures as buyers return in 2009, pushing home prices up and fueling a real estate recovery.

“Recovery is underway. Affordable is back in the housing market,” says McGee. “In 2009, housing will not only recover, but we’ll see buyers leap into this market in droves, depleting our housing oversupply, and actually put higher price pressures on the market.”

That’s a pretty optimistic take, and one that stands in stark contrast to most assessments, given that well-known and respected economists including Mark Zandi at Moody’s Economy.com have suggested that the nation’s housing markets won’t be likely to see a bottom until late next year.

McGee has been preaching a brighter future for the housing market for well over a year, suggesting that investors start buying foreclosures; a cynic might suggest, of course, that she has strong self-interest in doing so.

In June of 2007, she said “the overall economy is sound, and markets will turn around,” in arguing that investors start to buy foreclosed properties. In February of this year, she suggested that investors shouldn’t “be scared off by the gloom and doom talk swirling around housing markets,” and should buy properties that were, in her eyes, on sale.

Obviously, most investors that bought in February have likely seen their investments lose money, given most regional and national home price trends this year. And as recently as November, McGee was suggesting that a drop in pre-foreclosure notices signaled a real estate bottom, rather than the more likely seasonal effect the trend has since been proven to be.

But regardless of a market that seems stubbornly unwilling to follow her predictions, McGee maintains that now is a great time for investors to buy. Low interest rates and the ability to rent out properties for positive cash flow, she says, are strong reasons to invest; of course, she also touts that investors will be able to sell their investments in late 2009 at a large profit.

Which is exactly, in our opinion, what the housing market doesn’t need right now: a swarm of investors with short-term horizons, looking to put properties on the market in late 2009, when most economists are suggesting a more organic bottom for the housing markets.

What the numbers show
ForeclosureS.com found that the number of properties repossessed by lenders following foreclosure in November is off nearly 21 percent from September’s 106,415 REO filings. “Certainly some of the drop reflects growing results of government and private efforts to keep homeowners in their homes,” said McGee, acknowledging the likely strong effect of moratorium and modification efforts.

Still, year to date, however, 12.6 of every 1,000 households nationwide have been lost to foreclosure.

The national pre-foreclosure average isn’t necessarily promising, either. Pre-foreclosures, which include notice of mortgage default and/or foreclosure auction, were up 5.57 percent in November from October’s totals, with 27.1 of every 1,000 households across the country facing some kind of foreclosure action.

McGee said pre-foreclosure numbers are likely to climb in early 2009, albeit at a much slower rate than in 2008. “Too many homeowners already are just too overextended and likely won’t seek help to work out their delinquent mortgages until after a pre-foreclosure filing against their property. That filing, it seems, is the wake-up call for many to get the help they need and sell,” she said.

“What I can tell…is that hardest hit housing markets have already hit bottom and others will follow in 2009,” she argues. “The bottom line to keep in mind: What goes down absolutely positively will go back up again.”

The only question seems to be: when? Timing, after all, is everything.

– Paul Jackson contributed to this report.

Reo Foreclsoures, foreclosures investing is timely for real estate investing.

WASHINGTON (AP) — With job losses mounting and lawmakers preparing to funnel money to Detroit automakers, a top House Democrat said Monday that a new government effort to help borrowers avoid foreclosure will have to wait until after President-elect Barack Obama takes office.

Wall Street rallied for the second straight day with the major market indexes jumping more than 3 percent. The Dow Jones industrials’ nearly 300-point advance gave the blue chips their highest close in a month.

Speaking to reporters during a housing industry forum in Washington, Rep. Barney Frank, D-Mass., said any use of $700 billion in financial industry rescue money to aid homeowners will come after President George W. Bush leaves office next month.

While the Federal Deposit Insurance Corp. has proposed to use $24 billion from the financial bailout to help borrowers, Frank declined to specify how much should be spent but said it won’t require new legislation.

Frank also threatened to tie up the remaining half of the $700 billion financial industry rescue money unless the Bush administration provides some of it for borrowers facing foreclosure.

“They’re not going to get the (money) unless they get very serious about the foreclosure modifications and showing us how we’re going to get some lending out of the banks,” said the House Financial Services Committee chairman. “At this point I don’t see that happening.”

The Treasury Department says $335 billion has been allocated from the first half of the program, which was enacted more than two months ago. Treasury Secretary Henry Paulson, who is overseeing the program, is weighing tapping the second $350 billion. The main goal of the program is to get financial institutions to lend money more freely again.

The Bush administration has focused mainly on voluntary industry efforts to modify loans, and those have not stopped the surge in foreclosures.

“Imagine how many foreclosures we would have if the financial system had been allowed to collapse,” Neel Kashkari, director of the Treasury Department office overseeing the $700 billion program, said at the same conference.

But critics say many in the public — and lawmakers on Capitol Hill — were led to believe that some of the money would go to avoiding foreclosures and are frustrated that it has yet to do so.

In a report to be released Tuesday, a special bipartisan commission chaired by former HUD Secretaries Henry Cisneros and Jack Kemp takes aim at the Bush administration for the current foreclosure crisis, citing its lax enforcement of fair housing laws and lackluster response for problems that have disproportionately hit large poor and minority populations.

Calling the system “broken,” the seven-member panel calls for the creation of an independent agency separate from the Department of Housing and Urban Development to more vigorously enforce fair housing laws.

“The federal government needs to be in the business of getting things done,” said Kemp, who served under President George H.W. Bush. “And right now, fair housing enforcement is not getting done. That’s why we need a new, independent agency that won’t get mired in politics.”

Discussion at Monday’s forum, sponsored by the federal Office of Thrift Supervision, focused on how broad the government’s intervention should be, rather than whether the government should play a role. The U.S. is on track for 2.25 million foreclosures this year, more than double traditional levels.

Mark Zandi, chief economist at Moody’s Economy.com, said the public is likely to be more sympathetic to efforts to assist borrowers, because the link between the foreclosure crisis and the sinking economy is increasingly clear in the minds of most Americans.

“It’s now in every corner of the country,” Zandi said.

However, data released Monday show that more than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year already are in default again.

The data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision.

But the reports aren’t detailed enough to show how well the programs are working or which borrowers have been most helped, said FDIC Chairman Sheila Bair.

The report “raises more questions than answers because it fails to define, in any meaningful way, the modifications that have redefaulted,” she said in a statement e-mailed after the forum. “It’s impossible to make any judgment about the redefault rates of sustainable modifications versus cosmetic modifications that by their nature are more likely to redefault.”

New Jersey Gov. Jon Corzine called for a three- to six-month halt to foreclosures while the government works out a more aggressive plan. “We need a bottom-up approach … by modifying people’s mortgages and helping them stay in their homes,” he said.

The U.S. economic picture has darkened over the past month. One in 10 Americans with a mortgage is either behind or in foreclosure, and more than 500,000 jobs were lost in November.

Unemployment stands at 6.7 percent, and the worldwide credit markets have only improved modestly from the freeze that led Congress to approve a $700 billion bailout before the election.

Investors seeking safety during the ongoing economic and financial peril are pouring money into Treasury securities, driving down rates on short-term bills to record lows. The Treasury Department auctioned $27 billion worth of three-month Treasury bills Monday, fetching a discount rate of 0.005 percent, and another $27 billion in six-month bills was auctioned at a discount rate of 0.300 percent, both all-time lows.

Also Monday, House Speaker Nancy Pelosi said negotiations are continuing with the White House on a $15 billion auto bailout that could go to a vote this week, and three more large U.S. employers announced layoffs.

Dow Chemical Co., based in Midland, Mich., said it will slash 5,000 jobs and shutter 20 plants to rein in costs, Maplewood, Minn.-based 3M Co. is cutting 1,800 jobs in the fourth quarter, while Anheuser-Busch InBev said it would cut about 1,400 U.S. jobs to help save the world’s largest brewer at least $1.5 billion a year. Three-quarters of the job cuts will be at Anheuser’s North American headquarters in St. Louis.

Elsewhere, privately held newspaper publisher Tribune Co. filed for bankruptcy. Tribune, which is controlled by real estate magnate Sam Zell, owns the Los Angeles Times, Chicago Tribune and the Baltimore Sun, plus the Chicago Cubs and Wrigley Field.

AP Writers Jeannine Aversa, Christopher S. Rugaber, Hope Yen and Daniel Wagner contributed to this report.

On Monday we published a letter from the FDIC complaining about our recent editorial on the agency’s mortgage modification plan. Hours later, the Comptroller of the Currency released new data suggesting that the FDIC proposal may be as bad as we feared.

Background Reading

The FDIC wants to pay loan servicers to restructure delinquent loans and then have taxpayers share the losses if the loans fail again after six months. The FDIC did not appreciate that we reported private data showing that more than 50% of modified loans go delinquent again. The agency suggested that 15% might be a better estimate.

That estimate just got a lot harder to defend. Comptroller John Dugan released the default numbers on loans modified in the first two quarters of 2008, based on data from institutions servicing more than 60% of all first mortgages. “What makes these quarterly reports unique is that they are not merely surveys, but instead consist of validated, loan level data,” said Mr. Dugan. “We believe the reports include the most accurate and reliable data on mortgage performance that is available today.”
In today’s Opinion Journal

According to Mr. Dugan, “The results, I confess, were somewhat surprising, and not in a good way.” Of mortgages modified in the early part of this year, more than 35% had gone at least 60 days delinquent again after just six months, and a full 53% were 30 days delinquent or more. By eight months, this default rate had climbed to 58%. Second quarter modifications are on track to be nearly as ugly, with more than 50% of borrowers at least 30 days delinquent at the six-month mark. Come to think of it, these stinkers are going south so quickly that perhaps the FDIC’s plan actually will protect taxpayers — there won’t be much left to insure after these toxic loans blow up in the first six months after modification.

Of course, that would mean that fewer foreclosures would be avoided, which is supposed to be the point of this exercise. For her part, FDIC Chairman Sheila Bair says that “The OCC’s data on redefaults raises more questions than answers because it fails to define, in any meaningful way, the modifications that have redefaulted.” In politics, when you don’t like the data, merely wish it away.

She believes that her formula, which reduces interest rates initially but often creates larger obligations down the road, will yield fewer re-defaults than the industry average. Washington’s housing bubble resulted in many loans going to borrowers who cannot or will not make their mortgage payments. Let’s stop contriving ways for taxpayers to subsidize them.

From WSJ.com

While economists have confirmed we are in a recession based on 2 declining quarters in the GDP and the latest jobs report, I find it important to point out at only a 6.3% unemployment we are far from the 25% rates that plagued our country during the great depression. Unfortunately that seems only temporary. In the latest jobs report an additional 533,000 people have joined the unemployment list and economists are forecasting the potential of an increase touching double digits.

The weak job market is only a component fueling foreclosure-itis, a progressive cycle symptomatically breading itself. It was reported almost 7% of mortgages were in arrears in the third quarter, with an additional 2.9% in the foreclosure process meaning close to 10% of households are at risk of foreclosure. That is staggering.

So how do we stop foreclosure-itis?

While there is no quick fix I have a few suggestions:
1. Eliminate capital gains taxes for real estate investors for 5 years
2. Bring back stated loans for self employed borrowers based on bank statement deposits
3. Demo vacant homes to decrease the oversupply of houses
4. Create low income housing grants that keep mortgage payments at the equivalent of market rent

If I have to pick only one the elimination of capital gains would spur investment into distressed assets and stabilize the real estate market. This in turn would calm the masses and return confidence to main street. The only question is with the Democratic party taking office could they conjure the cajones? ~Joshua Host

Millions are frustrated over the need to shell out $700 Billion to bailout the financial crisis. Barney Frank the Maryland Democrat with over 40 years in public office has led the committee overseeing the bail out and foreclosure crisis.

My concern is the push for over regulation could extend and worsen the lending contraction just like an over correction to avoid a auto accident.

While Frank may see this event as proof that capitalism doesn’t work. That fact is our country became the hegemony it is today and the largest philanthropic supporter of the WORLDS needs through free market capitalism. I agree regulation is needed to avoid repeating this mishap in the future but lets be smart about it Barney. ~ Joshua Host

The House has brought a proposal to the forefront that would insure loans that lenders modified terms, including reducing the interest rates, postponing payments or extending payment arrangements. The proposal would utilize funds from the infamous $700 Billion bailout to help main street and curtail the foreclosure boom. Opponents warn of the moral dangers and potential for an increase in foreclosures because many may seek lower payments offered through the loan modification proposal. The difficulty with this is a stipulation states the borrower must be 90 days late and with only a small percentage qualifying for a loan modification this could cause a spike in foreclosures.
Many states including Ohio have developed and or instituted modification options during the foreclosure process. Based on initial cases opting for modifications roughly 30% qualified for modification. Many have stated this number is exaggerated and point to numbers around 10%.

While loan modifications are an important part of the recovery process it is not a one size fits all for the foreclosure crisis and legislation should be handled with kit gloves. ~ Joshua Host

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After an initial beta period SegAdvisors.tv went live yesterday to continue SEG’s progressive mission to erase retirement poverty. The free site offers financial strategy from leading experts on a wide range of topics delivered in a entertaining, well edited catalog of tv series and live shows. Series and segments can be downloaded to your Ipod to enjoy during a morning run or evening flight. The importance is to increase the financial inteligence in an entertaining format that is enjoyable, not stale and redundant. We are brining on additional advisors to increase topic range and knowledgebase and have a forum to collaborate on real estate investing. Check it out when you have a chance and give us some feedback on how we can improve. jph