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New evidence is out from RealtyTrac (and CNBC) that the banks ARE sitting on homes that…in a normal world…would of been long since been sold as REOs. In other words, the ‘Shadow Inventory’ is growing….

Nationwide the average defaulted owner is staying in their home, PAYMENT FREE for 400 days. Lets be clear what this really means. Non-paying owners are keeping possession of their homes (safe to assume they are living in these homes) for 400 days after the NOD is filed. What isn’t known is how many months of payment free living they have enjoyed leading UP TO the NOD being filed. We hear from HREU students nationwide that they have owners who have made NO payments for 12+ months even before the NOD is filed. All in, that means the scrappy defaulted owner can live payment free for 500+ days.

No wonder that we are hearing from HREU students that owners are refusing lenders offers for cash at close of their short sale. Defaulted owners have done the math. They know that they can live for months…even years…in these properties without making payments. Just this morning I received 2 emails from students telling me that they had owners refuse bank offers of  $20-30,000 in exchange to list and sell their homes as short sales.

In some states, its even more dramatic. New York and New Jersey defaulted owners keep their homes for 900 days (remember, this doesn’t include the pre-NOD ‘free time’.) Readers, that is at least 2.5 years of living in a home for FREE. Florida its a little over 600 days and California 330 days.

Last year we coined the term…The Constipated Python. That metaphor is a great way of explaining the mess the housing industry is trying to ‘digest’.

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Can new home buyers afford a 20% down payment? Could you? Can you envision what this will do to limit the buyer pool  if new regulations governing Qualified Residential Mortgages (QRM) take effect this year?

Neither can we. And neither can many elected officials in Congress who did not intend for these regulatory provisions to be so narrowly defined. We must continue our efforts to explain how detrimental the new QRM rules would be to the ongoing housing and lending crisis in America.

According to NAR Research, 60% of recent home buyers made less than a 20% down payment, and it would take 14 years for a typical person to save up a 20% down payment to buy a median-priced home.

Please contact Congress today and ask them to make it clear to the regulators that this proposed regulation was not their legislative intent and to instead implement a more reasonable Qualified Residential Mortgage (QRM) that will keep credit-worthy buyers in the market and able to acquire a loan.

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May 16, 2011

Guest post from Sean O’Toole, ForeclosureRadar.com

Over the past month we noticed that Bank of America has been resuming foreclosures on loans originated by Countrywide. As you may recall in October BofA voluntarily imposed a foreclosure moratorium following the robo-signing scandal. We actually expected an increase in activity as lenders began to catch up after these delays and were instead surprised to see foreclosure activity drop in April.

Even more surprising is just how old some of the foreclosures being resumed are.

In Contra Costa alone there are 123 homes now scheduled for trustee sale, with loans originated by Countrywide, where the foreclosure process began in 2008.  That is 3 years of missed payments, interest and fees. In just this one county that totals $71.5 Million in original loans with balances now nearly $19 Million higher.

Although all of these 123 properties have active sale dates many are still being postponed. In fact the largest loan, where the total debt now exceeds the original loan amount by more than 1 Million dollars, has been postponing since January, and was just postponed again until June.

We remain as convinced as ever that these delays are simply part of the current game of Foreclosure Roulette. Hopefully someday soon lenders stop playing games and begin really dealing with the looming shadow of delinquent and underwater borrowers. Whether through loan modifications, short sales, or even foreclosure it’s time to move forward.

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Truly shocking news this week for our real estate industry.

Weakness across the US. Biggest weakness in all home prices other than ‘first time buyer’ (or investor) ranges. The much hoped for uptick in spring home sales won’t happen.

Bottom line: its going to get worse before it gets better. Be ready..

* Double Dip in home values is here. Home values are falling faster…by a larger percent NOW than anytime in the last 12 months. In other words, massive negative momentum.

* Newly built homes plunged 17%. 250,000 new homes sold in Feb..a new record low.

* New and existing home prices down. New homes down 9%. Spread is nearly $60,000 between a new home and a resell. Killing new construction.

* Mortgage apps are at record lows

* 33% of all buyers are cash.

* FHA loans are getting more expensive in April.

* More foreclosures coming in the next 30-60 days. Banks are speeding up the paperwork.

* Huge inventories. 5-6 year supply of homes for sale. Enough homes for sale NOW to supply the market for the next 5-6 YEARS. That is not taking into account the number of homes coming on the market..shadow inventory.

* Homes have depreciated more during THIS housing crash than even The Great Depression.

* The most striking numbers: vacant homes. The 1990 census found 10.3 million vacant, and 10.4 million in 2000; in 2010, 15 million were empty.

* Gary Shilling expects home values to fall…nationally…by ANOTHER 20%!

And now, to the Video..

New home sales fell to a historic all-time low and all signs seem to be pointing to a double dip in the housing market, reports CNBC’s Diana Olick. Brian Westbury, First Trust Advisors, and Gary Shilling, A. Gary Shilling & Co., discuss.

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Whats Next?

So…Where are we heading in this market? Countless moratoriums at the Federal and State level. Moratoriums from the banks themselves trying to work out loan mod’s. Local Judges refusing to evict homeowners., Local sheriff’s doing the same. Now we have programs like HAMP and Court decisions like National Bank v. Kesler. There is such an underpinning of resentment from the American people against not only the Banks but corporate America as well. Will this sentiment continue to stall the inevitable? I for one am of the opinion that the market must be allowed to run its course. Real estate is and always has been cyclical. Yes, this is one of the worst markets we have seen in decades but “this too shall pass”.There is a huge amount of shadow inventory the banks are holding. Release it. By all means, do loan mod’s for people who are able to, for people who were duped into loans they could not afford. Help those that we can but at the end of the day these loan mod’s are mere Band-Aids, just delaying the inevitable by a year or two. Put the homes that are foreclosed on the market. Foreclose on the homeowners that have no justifiable means to pay those notes and let the market work its way out. It will be ugly or uglier than it has already been…But we will see quicker return to normalcy. The Government would be better served by spending to create jobs so that MORE homeowners do not lose their homes.So, how do we repair it once it hits “Sea Level”?Keep interest rate levels low and keep the tax incentive for first time home buyers.Ease restrictions on investors purchasing multiple properties. (This is key to the rebuilding)Ease restrictions on homeowners who have had foreclosures and or BK’s to get back into the market.Create restrictions so Banks can no longer offer exotic loans (I hear new ARM programs are coming)There are many others but I would love to hear some other ideas.
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Another housing slump coming?

From MSN Money today. BofA and Wells Fargo have both been on the record stating that the "shadow inventory" does not exist. This is the third published report I have read that sates otherwise. As servicers continue to trickle product into the market there is a strong chance that this will prolong the housing slump for more than originally thought. The tsunami we have all heard about, while driving prices continually lower might rid the market of this distressed inventory faster and perhaps hasten a quicker recovery...Thoughts?Analysts say 7 million soon-to-be foreclosed properties have yet to hit the market.Posted by Elizabeth Strott on Thursday, September 24, 2009 8:59 AMAny optimists touting a housing recovery might want to pause and think about this: Amherst Securities Group analysts believe the market faces another major hurdle because about 7 million properties that are likely to be seized by lenders have yet to hit the market.The "huge shadow inventory" reflects mortgages already being foreclosed upon or now delinquent and likely to be and, assuming no other properties are on the market, it would take 1.35 years to sell this inventory based on the current pace of existing-home sales, analyst Laurie Goodman wrote in a note to clients.In 2005, there were 1.27 million properties in the same situation.There have been a number of recent economic reports hinting at a recovery for the housing market. In May and June, the S&P/Case-Shiller 20-city index of home prices rose, the first month-over-month increases in values since 2006. Prices for U.S. homes rose by 0.3% in July from June, the Federal Housing Finance Agency reported earlier this week."The favorable seasonals will disappear over the coming months, and the reality of a 7-million-unit housing overhang is likely to set in," the analysts said, according to Bloomberg News .Meanwhile, The Wall Street Journal reported on Wednesday that real-estate agents and analysts worry that when the shadow inventory is unleashed, it could cause a big bump in the road to recovery and add a new layer of difficulty for the housing market.Ivy Zelman, the chief executive of Zelman & Associates, a research firm based in Cleveland, believes 3 million to 4 million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble "a fire hose or a garden hose or a drip," she told the paper.
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BPO or “Broker Price Opinion” is the back bone of the REO (Real Estate Owned) industry. This is the tool that banks, lenders, investors and perhaps most importantly the asset managers use to determine the value of a property once they have taken it back at auction and again after it has been on the market for 90 or more days. For this article I will refer to all of these individuals / entities as “Asset Managers”, if that is OK.A BPO is typically tasked to two or more agents to submit their opinions. Having multiple reports, it is now possible for the asset managers to determine a realistic price to list a home for, when it is assigned to an REO Agent.If the values are out of skew, the asset managers will ask for clarifications and may order an additional BPO – just to get a good feel for the property. As a BPO agent, you are the eyes and ears of the lender. This is why this is such an important task in the REO process.TYPES OF BPO’SThere are three different types of reports that a BPO agent may be asked to perform. The first is a drive-by or exterior BPO. This requires a physical trip to the subject and an assessment of the property as well as the neighborhood. The second is an interior or full BPO. An Interior BPO requires that the BPO agent gain access to the interior of the property and make a full assessment based on the condition and amenities of the property. Finally there is a Valuation or desk-top BPO report. A Valuation is simply looking at the property on paper and determining what it should sell for, with all things being equal.Perhaps the most common BPO is the drive by, or Exterior BPO. The entire process should take about 2 hours. I know there are people out there telling you they knock them out in 30 minutes – well, unless you live in a city like New York and every one of your BPO’s is in the same building, then trust me, you will easily have a couple of hours invested – even after you have completed hundreds of them, as I have.The purpose of the BPO is to provide the Asset Manager with a fairly accurate estimate of the property’s value in the current market – which means today. The opinion is made from looking at comparable properties that have recently sold and are currently on the market. Adjustments are made for all the different reasons that separate one property from another. For example, an adjustment would be made for properties that are larger or smaller than the subject. Is the lot size bigger or smaller then the subject?Yes, there are many difference that are almost a ‘give me’ that shouldn’t need to be discussed, if you are an experienced REALTOR®. What makes you a trusted expert is when you can document, adjust and report for the more subtle differences between the subject and the comps. Is one of the properties on an exterior lot (meaning does it back to an exterior street – away from the tract)? Are there improvements that may go over looked, like RV access or perhaps a custom iron gate replacing wood fencing? If the subject and comp are from different tracts – do you document the differences, regardless of how similar they are?On an Interior BPO, you have to be aware of upgrades – are kitchen cabinets, Granite, Corian, White Tile or Formica? Are the cabinets upgraded? What type of tile is on the floor – 12” tile? 16” tile, 18” tile? 20 tile”? Is it Travertine? How many rooms is it in? Does the fireplace have a matching tile surround? Is the carpet an upgrade?What about damage? It is obvious if there are holes in the wall or malicious damage. Are there missing electrical switch plates of outlet covers? Are the ceiling fans or lights missing? Has the closet organizer been stripped, leaving an empty closet? Are all of the drawers in place, or were they used as moving boxes? Are all of the appliances there? Are the appliances’ an upgrade?These questions a local expert could answer. Can You? Do you include this level of detail in your BPO?PICTURESEvery BPO requires that you take digital pictures that can be uploaded – either through a website or perhaps an email. Today, I do not know of any companies that still require that pictures be sent through the snail mail – but it has not been so long ago when that was the norm.For a Drive-By BPO, you will generally be required to take 3 pictures as a minimum – the front of the subject, address verification and a street scene. However, many clients will want more and there is nothing more frustrating to miss a picture that a new client wants, because you were doing what you considered to be the ‘norm’.Every home that I take exterior pictures of I always start with the exterior of the home followed by two address verification shots and two street scenes. The minimum any BPO will require is one of each of these.I take the 2 address verifications, if possible from two different sources – just in case one picture does not turn out right. I’ll take the curb painted with the number or the mailbox, if it is at the street. Then I look for the number on the structure itself. Sometimes this can be a challenge – for example the numbers can be painted the same color as the house.When I take the exterior, I always use my zoom to have the house fill my view finder. My clients are not interested in looking at a band of black asphalt in front of the home that looks far away – they want to see the house and what condition it is in. They also use this picture to verify that you are taking pictures of the right house. (OK, I admit I have taken the wrong pictures more than once – but I’m not going into that here.)I’ll take a picture of the street, going in each direction. If the subject is on a corner, I’ll also get pictures of the side street as well as a corner shot of the subject.What you will learn is you can never take too many pictures – remember, they are digital; it’s not like you have to pay for developing. I will never submit all of the pictures I take – but I do use them. When I am taking pictures, I average 3 homes per trip. By the time I get back to loading then and completing my BPO, it is more than possible I can get homes confused with one another (heck, I can take pictures of the wrong house, so cut me some slack – I’m getting old).I do provide as many pictures as possible, giving the Asset Manager as clear an understanding of what the property looks like and it’s current condition.The other pictures that I will always take include at least one each of each side of the property. If I can gain access to the back yard, I’ll also get one of the back of the property as well as the back yard. Remember, these pictures will help me when I am writing my report and help me offer as accurate an opinion of the value as possible – and that is what I am getting paid for.As I assess the property, I will take a photo of every nuance that I want / need to remember. This will include any apparent damage, needed repairs or deferred maintenance. I will also take pictures of any positive features that I can use to help separate this home from the others.Interior PicturesWhen taking pictures for an Interior BPO, I always start with the front door open and then go in and take at least 3 pictures of every room – each from a different corner. As mentioned earlier, I will document any damage or deferred maintenance.. I will also take pictures of all upgrades.I walk the house, room by room so I can keep everything straight. Lets say it is a 5 bedroom home, I definitely want to make sure that I document each room with the right pictures. That may be easy when every room is painted a different color, but when they are all white, be careful. The way I do this is I always start with a picture from the bedroom door, then one from across the room looking towards the entrance followed by a 3rd with a picture of the closet (half open so I can see the inside). Any damage would be taken between the first pictured and the closet picture. Then I am ready for the next room.COMPSMore often than not, I like to do my research prior to going out and taking a look at the subject. First, I check my local Title website and pull all of the property characteristics and enter them into the BPO form. Once I know what the subject looks like on paper, I will search the MLS for comps as close as possible to the subject.There are times when I can find all of my cops in the same tract – but most of the time I have to expand my search. It is very important that you fully understand the criteria each company will tolerate. I have clients that will allow me 25% variance in the square footage and others that insist I remain within 10%.Suburban BPO’s generally allow for a one mile radius of where the comps can come from. 90% of my market is suburban – the remaining is rural where I can go 10 miles out. I have not lived in an urban area since 1992 – so check with your client if this is your market.Bedroom and bath room count is usually within tolerance of plus or minus one – but there are times when you just need to expand outside this and other criteria. Consult with your Asset Manager and seek their guidance on how they would like you to proceed. The important thing is that you completely document any variance you make. Let me take this back, the CRITICAL thing that you do is document any variance and the reason why you selected this comp.Remember, for every BPO you do, one of your peers is doing the exact same report and chances are you will never learn who it is – but the lender knows who to give the work to in the future if you mess this up.NEIGHBORHOODAll BPO’s require you to document the positive and negative aspects of the neighborhood the subject is in. Not only the neighborhood, but how about the next door neighbor. I just did a BPO where there was a RV parked right next to the property line and the subject driveway, making it impossible for a car to back out of the garage and driveway and see if anyone is coming from that direction. Well, that’s just one of the subtle little details that can make a difference and account for an adjustment in value.Is the neighborhood close to schools? Shopping? Entertainment? Commuter routes? Restaurants? Parks? Places of worship?...or is it in a secluded upscale neighborhood that residents don’t mind driving an extra couple of mile to get where they want to be?Are there negative or obsolete features? Are there overhead electrical lines? Is there a flood channel? A large vacant field that may attract rodents? How close is it to a landfill? Is there a prison at the end of the street?You get the idea – tell it like it is – Good, Bad or just downright Ugly!MARKET CONDITIONSWhen it is all said and done, you must analyze your data as you client will and offer your opinion of the value. Different clients will want different values. I created an excel spreadsheet where I can plug in the variables in a grid format and make adjustments with a variable number that I can change from report to report.When I’m finished with the BPO, I have just recently started saving a copy of the worksheet. I save it to the folder I created in ‘My Pictures’ for the BPO. This allows me to keep all of my info for each BPO in one location, even though this is not a picture.I do save all of my pictures – not sure why, other than I have a massive hard drive and I might as well use it for something. Truth is I have done a BPO for the same property – a year and a half later. This allowed me to go back and see the transition of the property – not that this is relevant for my BPO at hand, but for my market knowledge, which is why I am an expert in my local real estate market.The basic value the Asset Manager is typically looking for in a BPO is the current AS-IS Value and a REPAIRED VALUE. They many want to know what these values would be with a 30 day window to sell as well as a 30 to 90 day window and perhaps even a 90+ window.There are times when I am not comfortable with he results, based on the overall market. Here in my market, we have 2 cities, an area of unincorporated county - all in 5 zip codes with about 100,000 residents. We are isolated, so yes there are nuances between each zip code and area of the valley, it is still one market.I will use this opportunity to offer market data outside of the 1 mile radius the report is based on. For example, I may have a 4 bedroom 2500 sq ft home built in 2003. The comps may have come from across the mile radius and not the same tract. The data may tell me this home should sell for $180,000…but I am just not comfortable with that number so I’ll run the numbers valley wide and let the asset manager know that there are 45 (or however many) homes that are both newer and larger than the subject and priced between $150K and $180K – letting them know that the competition is not from the 1 mile radius, but from across the valley..FINAL DETAILSIn parting, I would need to offer this last little bit of advise if you are going to be successful with your BPO’s and ultimately your REO’s.TIME is of the ESSENCE!As REALTORS® we have been taught that time is always of the essence and believe me when I tell you, it is no more so than when working with Asset Managers who are often from different states and time zones. They are under a lot of pressure to get their job done and their performance is based on your performance.So, never ever run late – get the job done and get it done early. Most BPO’s are due in 72 hours – my goal is always 48. This is true when you are listing REO properties as well – everything is task oriented and time lines are critical – this is how you will build your business and your reputation in the REO world.John Occhi, REO REALTOR®Century 21 Crest – CrestREOJohn Occhi is a REO REALTOR® thatspecializes in the sale of bankowned homes in the Inland Empireregion of Southern California. Hehas helped many buyers acquiregreat deals on these REO homes.His company, CrestREO, the REODivision of Century 21 Crest – the77th largest C21 in the Nation, hasSold Over $1Billion in REO Sales.

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