Housing Debt (MSRs) Fall to Lowest Level in Five Years

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Field Guide to 1031 Exchanges

By Peter G. Miller

It's gotten a lot harder to get a mortgage we're told, something routinely blamed on Wall Street Reform. If only we had less regulation, goes the cry, then lenders could surely make more home loans.

In fact, numbers from the Federal Reserve tell a different story. Residential real estate debt today is actually higher than in 2006 when home prices were soaring. Not only that, loan-to-value ratios have increased substantially, hardly evidence of a credit crunch.

The Federal Reserve says U.S. households had real estate worth $22.687 trillion in 2006, a number that fell to $16.370 trillion at the end of 2010 — a loss of $6.3 trillion during the past five years.

Meanwhile, what about mortgage lending? Surely if asset values have declined lenders must be lending less? That, after all, is the common wisdom repeated almost daily.

Guess what? The Federal Reserve says home mortgage financing has increased — from $9.865 trillion in 2006 to $10.070 trillion in the fourth quarter of 2010.

Loan-To-Value 
A key measure used by lenders to determine if they'll make a mortgage is the loan-to-value ratio. Lenders would like the borrower to put down 20 percent of the purchase price, meaning they will extend mortgages with an 80 percent loan-to-value (LTV) ratio. For those without 20 percent down, they can put down less if they also have third-party backing, say private mortgage insurance or insurance through the FHA or VA.

In 2006 the national residential LTV — the ratio of debt to equity — was 43.48 percent. At the end of 2010 the national LTV increased to 61.51 percent.

So what do these numbers tell us?

1. Households now have more debt and less equity than at the height of the boom market. (RealtyTrac has a system where you can find the estimated equity for homes facing foreclosure based on local market prices.)

2. Lenders continue to make mortgages. That has to be the case otherwise outstanding real estate debt would decline as homeowners move.

3. With less equity the opportunity to have a cash-out refinancing has fallen substantially in many markets.

What About Lender Risk? 
If the national LTV has increased from 43.48 percent to 61.51 percent then lender risk is objectively greater than it was during the height of the real estate boom.

Or is it?

By the numbers, yes, absolutely, lenders have more real estate risk. But that's not the whole story. 
The reality is that lenders are now making better loans — and better loans mean less risk.
 
Since August 2010 when Wall Street Reform was passed, it's become virtually impossible to get a mortgage with a no-doc loan application. Today, everything is verified, meaning lenders have a better idea of borrower finances and the risk they represent.

No less important, you can't get an option ARM. Interest-only financing is rare. Even the mundane ARM is an endangered species — borrowers are going for fixed-rate loans and the certainty they represent.

“ARMs today are financing just 7 percent of new home-purchase loans,” said Frank Nothaft, Freddie Mac's vice president and chief economist. “In June 2004, ARMs hit a peak share of 40 percent of the home-purchase market but by early 2009 that share had fallen to just 3 percent.”
 
Nothaft said ARMs might represent 9 percent of the mortgage marketplace for 2011.

Interest Rates & Inflation 
Despite higher levels of mortgage debt, interest rates remain near record lows. One reason for low rates is the simple matter of cash: The world is awash in dollars, and that cash has to go somewhere.

According to Bain & Company, private equity funds by themselves are holding cash worth $1.5 trillion. Separately, research from Howard Silverblatt with Standard & Poors estimates that U.S. companies have some $1.9 trillion in cash on hand.

Right now the mechanics of the marketplace — supply and demand — hold down rates but that's not a guarantee of low interest levels in the future. A major concern has to be the possibility of inflation.
 
With inflation cash money buys less. The bicycle that used to sell for $100 now costs $120. It's the same bicycle, what's changed is the buying power of money.

“As of January,” said the Wall Street Journal, “the average interest rate paid on relatively safe vehicles such as short-term savings accounts, time deposits and money-market funds stood at only 0.24%. That's one-tenth the level of late 2007 and the lowest on records dating back to 1959. Such depressed rates don't come close to compensating for inflation, which was running at an annualized rate of 5.6% in the three months ended February.” (See: Fed's Low Interest Rates Crack Retirees' Nest Eggs, April 4, 2011.)
 
With inflation, lenders want more interest to preserve the buying power of their dollars. Higher food prices, gas bills, commodity costs and government deficits all suggest that inflation looms.

Alternatively, the Federal Reserve has allowed banks to borrow at rates which approach zero percent. 
The catch is that prices are being forced up in part by events beyond our borders, events which cannot be controlled by the Federal Reserve. People in developing nations want their share of the good life and now compete increasingly for such commodities as oil and grain. Instability in the Middle East and elsewhere also pushes prices higher.

“If inflation does begin to impact the marketplace then mortgage rates will inevitably rise,” said James J. Saccacio, chief executive officer of RealtyTrac. “If you have fixed-rate financing your monthly costs for principal and interest will remain the same because you've locked in the rate — essentially you have a hedge against inflation.
 
“For those with ARMs the story will be different: monthly costs will increase and borrowers will face higher costs. Worse, marginal ARM borrowers may face foreclosure if costs soar.”
 
As an example, a $150,000 mortgage at 5 percent costs $805 per month for principal and interest. Raise the rate to 9 percent — not the highest rate allowed with most ARM contracts — and the monthly cost increases to $1,207. Combine a higher monthly cost with unemployment or fewer hours and many households will be in trouble.

Foreclosures & Cash 
The National Association of Realtors reports that 59 percent of all investment purchases in 2010 were for cash, and that foreclosure or trustee sales accounted for 17 percent of investment purchases.

These numbers suggest that a very large number of foreclosures are being bought mortgage-free, a situation with pros and cons.

The big pro with all-cash purchases is that there are no mortgage worries, no need to qualify with a lender and no loan costs at closing. Cash buyers may be able to obtain lower prices because they have the assured ability to close deals. No less important, if a property is vacant the carrying expenses are a minimal issue without monthly mortgage payments.

The con is that without a mortgage there's no interest write-off, a way to reduce borrowing costs.

A second negative goes like this: Maybe some investors who can pay all cash shouldn't. Maybe they should instead finance with a fixed-rate mortgage.

The reason to get a fixed-rate loan relates to inflation: If inflation hits then cash costs will rise throughout the economy. One likely increase, among others, will be rent. Another is the nominal price of housing. Selected properties in some markets which today are underwater may magically rise to the surface in cash terms should inflation return.

Cash investors with fixed-rate loans now have flexibility. They can pay off the financing — remember these are folks who can purchase outright with a check — or they can simply make their fixed monthly payments and watch as the buying power of the lender's principal erodes.

In effect, a fixed-rate loan can be seen as a guard against inflation — and as a reason to consider financing foreclosures rather than paying cash. 

By RealtyTrac Staff

Average REO Discount 35 Percent; Foreclosure Discount Drops to 9 Percent
Average Time to Sell at 176 Days for REOs; 228 Days for Pre-Foreclosures

IRVINE, Calif. – May 26, 2011 — RealtyTrac® (http://www.realtytrac.com/gateway_co.asp?accnt=137300), the leading online marketplace for foreclosure properties, today released its Q1 2011 U.S. Foreclosure Sales Report™, which shows that sales of bank-owned homes and those in some stage of foreclosure accounted for 28 percent of all U.S. residential sales in the first quarter of 2011, up slightly from 27 percent of all sales in the fourth quarter of 2010 and the highest percentage of sales since the first quarter of 2010, when 29 percent of all sales were foreclosure sales.

The average sales price of properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — was $168,321, down 1.89 percent from the fourth quarter of 2010 and down 1.46 percent from the first quarter of 2010.

The average sales price of foreclosure properties was nearly 27 percent below the average sales price of properties not in foreclosure, unchanged from the 27 percent foreclosure discount in the fourth quarter and up slightly from the 26 percent foreclosure discount in the first quarter of 2010.

Third parties purchased a total of 158,434 U.S. bank-owned homes and those in some stage of foreclosure during the first quarter, a decrease of 16 percent from a revised fourth quarter total and down 36 percent from a revised Q1 2010 total. Bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 176 days prior to the sale, while properties that sold in the earlier stages of foreclosure in the first quarter were in foreclosure an average of 228 days before selling.

“While foreclosure sales continue to account for an unusually high percentage of all residential home sales, sales volume is well off the peak we saw in the first quarter of 2009, when nearly 350,000 foreclosure properties sold to third parties,” said James J. Saccacio, chief executive officer of RealtyTrac. “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery. At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

Foreclosure sales by type
A total of 107,143 bank-owned (REO) residential properties sold to third parties in the first quarter, down 11 percent from the previous quarter and down nearly 30 percent from the first quarter of 2010. REO sales accounted for nearly 19 percent of all sales in the first quarter, up from 17 percent of all sales in the previous quarter and up from 18 percent of all sales in the first quarter of 2010. REOs sold for an average discount of 35 percent, the same discount as in the previous quarter and up from an average discount of 33 percent in the first quarter of 2010.

A total of 51,291 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the first quarter, down nearly 26 percent from the previous quarter and down 45 percent from the first quarter of 2010. Pre-foreclosure sales accounted for nearly 9 percent of all sales, down from 10 percent of all sales in the fourth quarter of 2010 and down from 11 percent of all sales in the first quarter of 2010. Pre-foreclosure sales, which are often short sales, sold for an average discount of 9 percent, down from an average discount of 13 percent in the fourth quarter and an average discount of 14 percent in the first quarter of 2010.

Nevada, California, Arizona post highest percentage of foreclosure sales
Foreclosure sales accounted for 53 percent of all residential sales in Nevada during the first quarter, the highest percentage of any state but down from nearly 54 percent of all sales in the previous quarter and down from 59 percent of all sales in the first quarter of 2010. The average foreclosure sales price in Nevada during the first quarter was nearly 18 percent below the average sales price of homes not in foreclosure. Bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 130 days prior to sale, while properties that sold in the earlier stages of foreclosure were in foreclosure an average of 135 days before selling.

California foreclosure sales accounted for 45 percent of all residential sales in the state during the first quarter, up from 43 percent of all sales in the fourth quarter but down from nearly 48 percent of all sales in the first quarter of 2010. The average foreclosure sales price in California was nearly 34 percent below the average sales price of homes not in foreclosure. California bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 164 days prior to sale, while properties that sold in the earlier stages of foreclosure were in foreclosure an average of 156 days before selling.

Foreclosure sales also accounted for 45 percent of all residential sales in Arizona during the first quarter, down from 50 percent of all sales in the previous quarter and down from nearly 47 percent of all sales in the first quarter of 2010. Arizona bank-owned properties that sold in the first quarter had been repossessed by the bank an average of 129 days prior to the sale, while properties that sold in the earlier stages of foreclosure were in foreclosure an average of 176 days before selling.

Other states where foreclosure sales accounted for at least one-quarter of all sales were Idaho (33 percent), Florida (32 percent), Michigan (32 percent), Oregon (32 percent), Virginia (30 percent), Colorado (30 percent), Illinois (29 percent), Georgia (27 percent) and Ohio (25 percent).

Ohio, Illinois, Kentucky post highest foreclosure discounts 
Ohio foreclosures sold for an average discount of 41 percent in the first quarter, the biggest discount percentage of any state. Ohio’s average foreclosure discount was down slightly from 42 percent in the previous quarter but up slightly from 40 percent in the first quarter of 2010.

The average foreclosure discount in Illinois was nearly 41 percent in the first quarter, up from an average discount of 38 percent in both the previous quarter and the first quarter of 2010.

Kentucky foreclosures sold for an average discount of 39 percent, down from an average discount of 42 percent in the fourth quarter but up from an average discount of 37 percent in the first quarter of 2010.

Other states with average foreclosure discounts of more than 35 percent were Maryland, Tennessee, Wisconsin, Delaware, Pennsylvania, Oklahoma and Louisiana.

Report methodology
The RealtyTrac U.S. Foreclosure Sales Report is produced by matching national address-level sales deed data against RealtyTrac’s foreclosure database of pre-foreclosure (NOD, LIS), auction (NTS, NFS) and bank-owned (REO) properties. A property is considered a foreclosure sale if a sales deed is recorded for the property while it was actively in some stage of foreclosure or bank-owned. The foreclosure discount is calculated by comparing the percentage difference between the average sales price of properties not in foreclosure to the average sales price of properties in some stage of foreclosure or bank-owned. States without sufficient foreclosure sales data to calculate average prices are not included in the report.

Glossary of Terms
Foreclosure (FC) sale: a sale of a property that occurs while the property is actively in some stage of foreclosure (NOD, LIS, NTS, NFS or REO). This includes only sales to third-party buyers or investors not involved in the foreclosure process. It does not include property transfers from the owner in default to the foreclosing bank or lender.

REO sale: a sale of a property that occurs while the property is actively bank owned (REO).

Pre-foreclosure sale: a sale of a property that occurs while the property is actively in default (NOD, LIS) or scheduled for foreclosure auction (NTS, NFS).

Pct. of all sales: total number of Foreclosure Sales (or Pre-Foreclosure Sales or REO Sales) as a percentage of all residential sales during the quarter or year.

Avg. FC sales price: the average sales price of Foreclosure Sales (or Pre-Foreclosure Sales or REO Sales) during the quarter or year, excluding sales with no sales price.

Avg. FC discount: the percentage difference between the average sales price of foreclosure sales and the average sales price of non-foreclosure sales during the quarter or year.

Avg. REO discount: the percentage difference between the average sales price of REO sales and the average sales price of non-foreclosure sales during the quarter or year.

Avg. pre-foreclosure discount: the percentage difference between the average sales price of pre-foreclosure sales and the average sales price of non-foreclosure sales during the quarter or year.

Report License
The RealtyTrac U.S. Foreclosure Sales Report is the result of a proprietary evaluation of information compiled by RealtyTrac; the report and any of the information in whole or in part can only be quoted, copied, published, re-published, distributed and/or re-distributed or used in any manner if the user specifically references RealtyTrac as the source for said report and/or any of the information set forth within the report.

About RealtyTrac Inc. 
RealtyTrac (http://www.realtytrac.com/) is the leading online marketplace of foreclosure properties, with more than 1.5 million default, auction and bank-owned listings from over 2,200 U.S. counties, along with detailed property, loan and home sales data. Hosting more than 3 million unique monthly visitors, RealtyTrac provides innovative technology solutions and practical education resources to facilitate buying, selling and investing in real estate. RealtyTrac’s foreclosure data has also been used by the Federal Reserve, FBI, U.S. Senate Joint Economic Committee and Banking Committee, U.S. Treasury Department, and numerous state housing and banking departments to help evaluate foreclosure trends and address policy issues related to foreclosures.

By: RealtyTrac

Overview

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments and the lender files a public default notice. The foreclosure process can end one of four ways:

1. The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during pre-foreclosure, allowing the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction.

1. Buying during pre-foreclosure (NOD, LIS)
2. Buying at public auction (NTS, NFS)
3. Buying bank-owned properties (REO, GOV)

Read our Foreclosure Overview for more detailed information about the foreclosure process, or go to our foreclosure state laws section.

5 Steps to Buying a Foreclosure

STEP 1. Find a Property

Buying a home in foreclosure can begin with you logging into RealtyTrac and decide where you want to search for property. RealtyTrac allows you to search by county, city or zip code. We recommend starting with a broader search (like county or city) and narrowing the search later if necessary.

Decide the status of foreclosure for which you want to search. You choose the status under Property Status on the Property Search page.

1. Select Pre-Foreclosure for Default Notices or Lis Pendens.
2. Select Auction for Trustee Sales or Sheriff's Sales.
3. Select Bank Owned or Government Owned for REOs (repossessions).

See Step 4 in this guide for more about the different property statuses.

The Advanced Property Search allows you to enter other search criteria, such as price range and number of bedrooms and bathrooms. We recommend that you leave all those other criteria at “no minimum” to “no maximum” when you first search to get the best results. We also recommend you don’t change the Recording Date Range when you first search.

If you use the Advanced Search, leave the search Sort by “Entered On” and the Basic Property Type as “Residential,” unless you are specifically looking for Commercial property.

If you want to receive daily e-mail alerts of new properties posted on RealtyTrac that match your search criteria, follow these instructions.

On the Search Results page, you can sort your results by date, address, price or number of bedrooms or bathrooms. You can also view the results on a map by clicking the "View Map" button at the top of the search results. Click “Get Details” on any property to see the detailed information for that property. On the property details page, you can click the “Save Listing to My RealtyTrac” link to save the property to the My RealtyTrac page.

Property Details

The Property Details page should always include the address of the property and the name of the owner, trustee or lender involved with the foreclosure, depending on the property status. Also included should be an estimate of the unpaid loan balance, which will appear either as the Balance, Opening Bid or First Loan Amount.

The Estimated Property Market Values provided are based on comparable sales. Click on Comparable Sales to view a report that includes up to 15 recently sold neighborhood properties and an analysis of property values in that neighborhood.

The Trans Date and Trans Value represent the date and purchase amount the last time the property changed ownership.

The Balance or Opening Bid provides a good estimate of the amount owed on the loan in foreclosure. The Default Amount (usually only relevant for Pre-Foreclosure properties) is the amount the owner/borrower is behind on payments. Click on Lien & Loan History to view a report that lists additional debts encumbering the property.

The Recorded date is the date when the document with the foreclosure information was recorded with county records. The Entered On date is the date RealtyTrac entered the foreclosure information on the website. You can also click on most of the field names on the Property Details page for a definition.

Some fields of information are missing simply because the field is not relevant to the status of foreclosure. For instance, you will never see a sale date on Pre-Foreclosure properties because the auction date has not been scheduled yet. When the sale date is set, the property will appear with Auction status.

Some fields of information are missing because they were not available from the recorded document that has the foreclosure information. This usually applies to property details such as photo, year built, bedrooms and bathrooms and square footage. RealtyTrac continues to search other data sources to find as much of this information as possible on each property.

STEP 2. Get Financing

Obtaining financing not only gives you an estimate of what you can afford, it also enables you to move quickly once you locate a property that interests you. When you approach a borrower/owner or a foreclosing lender about a property, secured financing will demonstrate that you are a serious buyer and are ready to buy quickly.

You can apply for financing with RealtyTrac’s financing partner. The application is free. Subscribers can click on the Get Financing tab on any member page after you log in or click on financing links on the Search Results or Property Details pages. You will be able to apply online or by phone.

STEP 3. Contact an Agent

If you're a first-time homebuyer and you've never purchased a home, let alone a foreclosure property, it is beneficial to contact a local real estate agent who can guide you through the process of buying a foreclosure. If you work with an agent, make sure they know your priorities. Ask any potential agents if they have experience with foreclosures. Especially for first-time buyers, a good agent can be a comforting and helpful resource.

You can contact an agent using the RealtyTrac Agent Network. There is no cost to contact an agent, although you should ask the agent how much he or she charges for commission. Subscribers can click on the Contact An Agent tab on any member page after you log in or click on any corresponding links on the Search Results or Property Details pages.

STEP 4. Contact Owner

Depending on the property status, the seller will be the owner in default, the trustee or the foreclosing lender. To determine the property status on RealtyTrac, look at the Foreclosure Status gauge on the Property Details page.

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20 percent to 40 percent below market value.

If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

If the lender or government agency takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender usually sells the property to recover the unpaid loan amount. The lender typically clears the title for any buyer, but the potential bargain is often less than a pre-foreclosure or auction property.

Contact Owner: Pre-Foreclosure

When a property is in pre-foreclosure (NOD, LIS), the owner still has a chance to stop the foreclosure process by paying off what is owed or by selling the property. The pre-foreclosure period can last several months, so you may need to be patient when trying to contact the owner in default.

The first step is to call the trustee or attorney listed on the Property Details page to confirm if the property is still in foreclosure. The trustee or attorney has the most up-to-date information if the owner has sold or reinstated the property. The trustee or attorney cannot answer other questions about the property.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.

If the trustee confirms the property is still in foreclosure, and you believe the property could be a wise investment, you should contact the owner in default as soon as possible. The quickest way to make contact with the owner using RealtyTrac is to click on the “Contact Owner” link on any Property Details page to send a postcard to the owner. You can print a postcard and mail it yourself or have RealtyTrac mail a postcard for you. You can choose pre-written wording for the postcard or type your own wording. If you save a property to My RealtyTrac, you will be able to view a record of when you sent a postcard for the property.

If the owner does not respond to a postcard you can try to send another postcard (the owner may have a change of heart as the end of the pre-foreclosure period approaches) or you can wait to see if the property is scheduled for auction and attend the auction.

One option is to call the owner if you can track down the phone number. Another option is to go to the property and try to contact the owner in person, as long as you recognize the ownership rights of the owner. We don’t recommend either of these options if you don’t have previous experience.

Contact Trustee: Auctions

Before the auction, you may have a chance to work out a last-minute deal with the owner in default. Usually a property is scheduled for auction just a few weeks before the auction occurs, so you may have to move quickly if you want to contact the owner.

Auctions can be postponed or canceled anytime, so no matter what the auction date listed on RealtyTrac (even if it’s in the past), it’s always a good idea to contact the trustee or attorney to confirm. We recommend you call when you first locate the property and the day before the property is scheduled for auction. The trustee/attorney has the most up-to-date information if the auction has been canceled or postponed. The trustee/attorney cannot answer other questions about the property.

Some auction properties on RealtyTrac allow you to bid online for the property. If this is the case, you'll see a "Bid Now" button on the search results page and "Bid Now" links on the property details page. Just click on any of those to be taken to a bidding page where you can see more details about the bidding and submit a bid if you wish.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.

If you believe the property could be a wise investment, you can attend the auction to bid on the property. RealtyTrac usually has the auction date, time, location and opening bid. If any of this information is missing, you can often get it from the trustee or attorney. If you’ve never bought at auction before, we recommend you attend several auctions just to observe before you attend an auction to bid.

View our State Foreclosure Laws Overview for more details.

Contact Owner: Bank Owned

If the property is Bank Owned (REO), your first step is to contact the lender, whose information is usually on RealtyTrac's Property Details page. You should contact the lender directly and ask for their REO or asset management department to find out how you can view and possibly make an offer on the property. REO means "Real Estate Owned" by the lender. It's another way to say the property has gone through the foreclosure process and has now been repossessed by the foreclosing lender.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.

Some bank-owned properties on RealtyTrac will give you the option to contact the property's listing agent directly. You'll see a link to do this either at the top of the property details page or in the Contact section of the property details page.

RealtyTrac usually has the name of the lender/bank listed on the property, but if you have trouble finding a phone number or address for them through the Internet or otherwise, below are suggestions for tracking down the lender.

1. Contact an Agent to find a local real estate agent in the RealtyTrac Agent Network who can help you contact the lender and who can check if the property is already listed on the market with a real estate agent.

2. Use the History of Notices tool to check if RealtyTrac has any further information on that property. To use this feature, click on the "History of Notices" link on the Property Details page (under property photo). This feature will give you a list of records RealtyTrac has for the property. Other records may have more information, such as the lender name, address and phone number that was missing on the original property record.

3. You can use RealtyTrac’s Xamine tool to check if the property is listed with a real estate agent. RealtyTrac's Xamine tool can be accessed by clicking "What's Next>Evaluate The Property" on any Property Details page. On the Xamine worksheet, select the MLS tab and click "Search" at the bottom of the page. If the property is not listed with an agent, then you will need to contact the lender directly.

4. You can contact the local property assessor to find out the owner’s name and mailing address. Since the property is bank owned, the property assessor should have the bank or lender listed as the owner. Go to statelocalgov.net to find the local property assessor in your area.

Contact Owner: Government Owned

Many government-owned properties are already listed with a real estate agent, and you should see a link to contact that agent in the Contact section of the property details page. If the listing agent's information is not available, you can contact a local agent using RealtyTrac's Agent Network (click on the "Contact an Agent" tab at the top of any member page on the website). Or you can try to contact the government agency listed directly.

STEP 5. Make an Offer

If you have never purchased a foreclosure property before, we recommend that you have a real estate agent help you prepare and make an offer. Contact an Agent to find a local real estate agent in the RealtyTrac Agent Network.

To get an estimate of the potential bargain for any property, you need to find out the estimated market value of the property, how much is owed on the property and if the owner has any other loans or liens encumbering the property. On the Property Details page, RealtyTrac usually provides the estimated market value and the estimated balance of the loan in foreclosure, called either the Balance, Opening Bid or First Loan Amount.

Click on the Check Loan & Lien History section to view a report that lists additional loans or liens on the property. Click on "Check Comparable Sales" to view up to 15 recently sold neighborhood properties and an analysis of property values in that neighborhood.

Add together any outstanding loans and liens and estimated repair costs and subtract that total from the estimated market value of the property. You can plug the numbers into RealtyTrac’s Xamine tool and it will calculate the potential bargain for you. RealtyTrac's Xamine tool can be accessed by clicking "What's Next>Evaluate Property" on any Property Details page.

Based on your research of the potential bargain, you can make an offer. Usually the offer amount is somewhere below the market value but above the total outstanding liens and estimated repair costs. If the property is a pre-foreclosure or bank owned, you could prepare an offer similar to a typical purchase offer, contingent on a full inspection and title search.

If the property is selling at auction, you will need to make your offer, or bid, at the auction. In many states, bidders are required to pay in cash in the form of a cashier’s check at the auction. You probably won’t be able to conduct a full inspection and title search when you buy at an auction, so it’s important to do careful research before attending an auction.

Are you interested in buy a house? Well, if you are then, here are some pointers that might help you go through the process easily. More and more people are dealing with bad debts these days. This might be a result of over spending and uncontrolled self-discipline. If you are suffering from having bad debt ratings, you probably know that you cannot buy a house if you have a bad debt; they go along together so you cannot buy a house if you have a bad credit rating.

Although there are some instances when people can still apply but this is just under certain circumstances. A lot of homeowners pauses their plan of applying for a mortgage loan because they fear that their debts will prevent them from being approved. This is true at times but there is certain condition that still helps some people to acquire a house. Since you are the bearer of the debts, you are in a better position to tell if you are qualified or not but there are also ways to do that and among those ways is pre-qualifying for it. There is a process one must go through to be able to know if they are qualified or not. This process is called pre-qualification.

Being in this position is not easy. There are some people who go through the same process because they are thinking that they are being prevented from taking a step forward. With all the uncertainties happening everywhere, deciding and asking yourself thousand times will be very helpful in buying a home process. Getting a mortgage loan is not a joke, there are lots of responsibilities accompanied by it so deciding first what will be the best thing you can do to prevent mortgage related trouble will be helpful to you. Here are some helpful tips you can use:

Analyze your debt to income ration –this should be the first on your list to be able to find out what are the risks that are visible. If you are an over spender, you might be using credit cards to shop all the time, chances are you might not be able to pay for your mortgage loan in the long run because of certain debt issues. Checking and noting down the amount of mortgage loan you are seeking and list your income and budget. This way, you will be able to know if you can afford it or not.

Front and back ratio and their difference –analyzing front and back ration is also essential because you will be able to know the right computations regarding your expenses and obligations you must pay regularly. It’s hard to deal with certain issues especially if it is related with money.

Debt income ratio –reducing your debts and being able to qualify for a mortgage is hard to do especially now that there are lots of temptations that are scattered everywhere. Getting another job to fit for your lifestyle is also a solution but you should be able to know that you cannot handle everything so one of the best things to do is to manage your finances appropriately.

By: MARYANN HAGGERTY

FORECLOSED homes don’t show very well — financially strained borrowers may ignore maintenance; lenders turn off the water and power to cut the cost of letting the place sit. A poor appearance can complicate financing, but it doesn’t prevent sales.

Most of what people call foreclosed homes are being sold by lenders saddled with a property because there were no other takers at the foreclosure auction. The borrower on such a house owes more on it than the house is worth. These are known as R.E.O. houses, short for “real estate owned” on a bank’s balance sheet.

Distressed properties — those sold at a discount — made up 40 percent of resales in March, up from 35 percent a year earlier, according to the National Association of Realtors. (That includes not only R.E.O. but also short sales, in which a buyer pays less than the loanbalance, once it gets the bank’s blessing.) Though not a record, it is a huge portion of sales compared with what used to be considered normal.

Where the money comes from depends on the buyer and the property. If a house was in relatively good physical shape — with water and power turned on — it could be eligible for standard financing.

Otherwise, right now, all-cash sales are at their highest level ever — 35 percent of total sales, according to the Realtors. Cash buyers, often investors who don’t plan to live in the home, “are a major player in the R.E.O. market,” said Tom McGiveron of Realty Connect in Hauppauge, N.Y., a real estate agent who specializes in foreclosures on Long Island. “Asset managers want to move their portfolios as fast as possible,” he added.

For would-be owner-occupants without cash, the federally insured 203(k) loan is key, said Mark Yecies, the president of SunQuest Funding in Cranford, N.J. Borrowers can roll projected rehab costs into the loan.

As Mr. McGiveron put it, “Since most R.E.O.’s are as is, and the heat, plumbing and electric are turned off frequently, a 203(k) loan is necessary to cover the borrower and the lender — a lender will not lend money on a home where the major heating and electrical systems are not operable.”

Buyers generally hire an independent consultant certified by the Federal Housing Administration to review contractor cost estimates and architectural plans for things like whether the work will bring the property up to minimum standards while not going overboard on improvements.

“In other words,” Mr. Yecies said, “if you’re buying a home in Newark and you want to put in a Viking range, it’s not going to happen.”

Yet in a higher-priced neighborhood like Short Hills, N.J., he added, you probably would be able to borrow for more upscale appliances. The F.H.A. appraiser takes the consultant’s report into account when reviewing a property and determining how big the loan can be.

Not all R.E.O. properties are eligible, Mr. Yecies pointed out. For instance, a partially built house that has never had a certificate of occupancy requires a construction loan of the kind that a commercial developer would use.

Mr. Yecies estimated that an F.H.A-certified consultant would cost $500 to $1,200, depending on the extent of the repairs and the number of units in a property.

The interest rate on a 203(k) loan is about a quarter of a percentage point higher than on a standard F.H.A.-insured loan, and a buyer also can expect to pay 1 or 2 points, he said. (A point is an upfront charge equivalent to 1 percent of the loan amount.)

As with other F.H.A.-backed loans, down payments may be as low as 3.5 percent, and loan limits apply. Currently, most F.H.A. loans in the area are capped at $729,750. (Energy-efficient rehabs may be eligible for more.)

Despite the extra steps, these loans work, Mr. Yecies said. “We’re doing a half dozen a month here,” he said. “They can be done in a normal period of time, as long as everyone cooperates.”

By ERIC DASH

Published: May 22, 2011

EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.

But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

 “My biggest fear right now is that the supply has been artificially restricted,” said Jayson Meyerovitz, a local broker. “They can’t just sit there forever. If so many houses hit the market, what is going to happen then?”

The major lenders say they are not deliberately holding back any foreclosed homes. They say that a long sales process can stigmatize a property and ratchet up maintenance and other costs. But they also do not want to unload properties in a fire sale.

“If we are out there undercutting prices, we are contributing to the downward spiral in market values,” said Eric Will, who oversees distressed home sales for Freddie Mac. “We want to make sure we are helping stabilize communities.”

The biggest reason for the backlog is that it takes longer to sell foreclosed homes, currently an average of 176 days — and that’s after the 400 days it takes for lenders to foreclose. After drawing government scrutiny over improper foreclosures practices last fall, many big lenders have slowed their operations in order to check the paperwork, and in two dozen or so states they halted them for months.

Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

Realty agents and buyers say the lenders are simply overwhelmed. Just as lenders were ill-prepared to handle the flood of foreclosures, they do not have the staff and infrastructure to manage and sell this much property.

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

The silver lining for home lenders, however, is that the number of new foreclosures and recent borrowers falling behind on their payments by three months or longer is shrinking.

“If they are able to manage through the next 12 to 18 months,” said Mr. Zandi, the Moody’s Analytics economist, “they will be in really good shape.”

by JACOB GOLDSTEIN

Or, to re-phrase the headline in a more boring way: What, if anything, should replace Fannie Mae and Freddie Mac?

It's a hugely important question. The bailout of the two companies has cost taxpayers well over $100 billion.

And the mortgage market is still being propped up by the federal government. For roughly 90 percent of the new mortgages being issued in this country, taxpayers are on the hook if borrowers don't pay.

Specific ideas about what to do next have been scarce in Congress. But a bill introduced today has bipartisan support, and lays out a clear plan.

 The plan resembles the world of Fannie and Freddie in some key ways.

Private companies would buy mortgages from banks, bundle them into securities, and sell them to investors. This is exactly what Fannie and Freddie did, and they were also private companies.

But there would be some important differences as well.

Under the new plan, the mortgage securities would be explicitly guaranteed by the federal government. (Fannie and Freddie didn't have an explicit guarantee, but their implicit guaranteeallowed them to make huge profits.)

The private companies selling the securities would pay into an insurance fund that would cover mortgage losses. So taxpayers would only be on the hook if the insurance fund got wiped out. This is the same model used by the FDIC, which guarantees money in ordinary savings and checking accounts.

What's more, the private companies would be required to hold more capital then Fannie and Freddie — in other words, they'd have a bigger financial safety cushion.

The idea behind the new bill is to split the difference between those who want the government entirely out of the mortgage market, and those who want the government to stay in the market in a big way. It's sponsored by Rep. John Campbell, a Republican from California, and Rep. Gary Peters, a Democrat from Michigan.