Tag Archives: foreclosure

Flippin’ US Real Estate Agents

Are curious about why home prices / values haven’t dropped “at least 30% from their peak” here in NZ, but have in other countries?

Other countries, whom I have read it said that “cough…and we here in NZ sneeze” then perhaps you may find reading this expose interesting when comparing the NZ situation to that of the USA.

How fortunate we are in this part of the world that the loan situation didn’t get so far out of tune with reality. Against this sort of activity then its logical and no wonder at all why values there have dropped so much, and why there are so many foreclosures. (repossessions in Kiwi talk)

One might think the transactions on the above property were just a tad suspicious?

This week the Sarasota Herald Tribune has been telling the results of what they say is a 12 month investigation and on the surface the reporting looks quite well researched. In the land of litigation they would want to be.

This week they are currently midway through publishing their findings/revelations in regard to the devastating ramifications of what was once a very popular hobby in Florida “flipping homes.”

Amid interesting snippets like….

“More than 100 properties from Palmetto to North Port doubled in price in a single day during the recent real estate boom”

…the Sarasota Herald Tribune goes on to state that they believe the toll to “Gulf properties” so far stands at half a billion dollars.

In researching the series the paper examined more than 3,000 property “flips” since 2000 in the Florida regions of Sarasota and Manatee counties.

The photo and caption below appeared in the paper yesterday. The Realtor chap mentioned was also featured in another article just recently too.

The paper reports “Based on interviews with more than 100 investors and real estate professionals and a review of thousands of pages of deeds, mortgages, foreclosure filings and other public records, the Herald-Tribune found…”   heaps!

You may ask yourself, did they get any warning that it would be this bad, well it turns out yes, in this paper from none other than the Dept of Law Enforcement Commissioner himself. Obviously in a “still, what would he know” moment it appears practically no one took any notice of this sobering document at the time?

Here’s the articles so far published….

‘Flip that house’ fraud cost billions

The King of the Sarasota flip

Flippers’ toll: On Gulf Coast, half a billion in defaults

Flipping fraud ignored by police and prosecutors

fabulous series of Interactive charts and graphs they have put together to compliment the series too

and they still have more reports to be published so here is the home landing page or the series home to keep up to date.

** “what not to do” is probably a bit past tense because hopefully with the new stricter banking codes we should never see anything like this again.

SOURCE – Sarasota Herald Tribune Special Investigation on Flipping

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Foreclosures – Part V The Conclusion

Part V

With the previous 4 parts I’ve tried to document the important points relevant for the sub-prime / foreclosure situation in the states, and for a Kiwi or Aussie, the differences aren’t that had to spot. And in so saying, those differences can pretty easily allow any astute individual/investor located in Australasia to make there own mind up.

However now we have the basic ingredients, lets look at a recipe for trouble…..

1.      take so many people employed in a region as a real estate agent (“realtor” in US speak) that there’s bound to be some attempting shortcuts, bound to be some cowboys amongst the ranks, and just as a great trainer once said “if you are only motivated by money, sooner or later you are going to cheat”

2.      have banks, finance companies, including Fannie & Freddie, and brokers falling over themselves to loan potential home buyer’s mortgages, even if current at time of application anecdotal data suggests the figures don’t stack up. And better still pay them ridiculous bonuses for signing up a sub-prime type loan.

And on this point I find it hard to believe that banks in the US for example would have had to wait 1 or 2 quarters to see the differences highlighted above between median incomes, and those reported on mortgage applications.

US Banks, like US finance companies in the “noughties” must surely have some of the most complex and sophisticated financial data tracking programs, financial modeling/prediction, software programs available to man. Goodness me, just plain historical data should of highlighted some inconsistencies. What I mean is even if their data sets/models are a year or 2 old, after taking inflation / CPI into account, how can all the loan applicants for a particular suburb instantly be earning another 20-25% the year they apply than previously.

3.      The ability of a home buyer to buy a property with 100% down, and in many cases 105 or 110% loans, and in the case of a non-recourse loan for those states mentioned, once hard times hit, just give the keys back and walk away.

Just place these in a warm oven for a couple of years, and what do you get…..

….well since September the world has seen what happened……………

However just to show the ole adage about a silver lining in everything is true, because of all this mess there was a multi-billion dollar payday (silver lining) for someone…………

The picture above has another interesting story about inflation if you’re interested?

Foreclosures – Part IV

Summing Up

As Wikipedia points out, foreclosure is practically the last step once all other avenues have failed for a mortgagee to recoup its monies previously loaned out. And much like a bank mortgagee sale here in NZ, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs. And they are also not obligated to pay anything back to the home owner in a case where there are surplus monies left over.

As highlighted above a crucial different is in states like California, Arizona, and some others is that borrowers loans can be of a NON-RECOURSE nature. In fact in California its law. And in this case many homeowners are simply giving back their home keys and walking away. This will generally result in some nasty entries on their credit report that will come back to haunt them for the next 7 years if they apply for credit again.

Once the property has been sold, and the mortgagee has got all the money it can, it is typically said then, that “the lender has foreclosed its mortgage or lien“.

However if a promissory note was made within a recourse clause facility, and if the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee can file a claim for a deficiency judgement. (this is similar to what happens in New Zealand 99.99% of the time)

So you can see in light of these 3 main points in my preceding posts, the “foreclosure” situation is different from what we have in NZ. We can be thankful ( if that is the right term J ) to our own banking system for having more overall stringent criteria and proceedures for loan processing.

Admittedly there will be a percentage of home buyers in NZ who have over stretched themselves. This is a big consideration for anyone who has taken out a 95-100% or higher home loan in the last 24-36 months. If they can maintain their lifestyle and payments then I believe in a place like Nelson they should be ok.

However if they are living in another part of NZ that has suffered a higher change in home prices than we have, then it only needs a change of opinions in a relationship, a loss of a partners job, a new baby, etc for the reality that a financial change in income may bring.

If such an affected home owner were to place their home on today’s market, they may well find the best current price is below the figure required to pay out their mortgage.

If you find yourself in this type of scenario may I suggest, and this is based on recent buyers & home owners experience in Nelson, that you could do worse than to start your line of enquiries with a mortgage broker first to review what options are available, before proceeding to any next step.

Foreclosures – Part III

Point 3

Mortgage Walkers and Jingle Mail

Jingle Mail

Jingle mail is the newly popular term used to describe situations where a homeowner mails their house keys to the mortgage lender, stops making mortgage payments and walks away from the home. However, this is an extreme situation with serious consequences.

Mortgage “Walkers” who abandon their home are almost guaranteed to damage their credit report and credit score for several years. A foreclosure will show on the report for 7 years. Missed loan payments will also bring down their credit score, though it may rebound within a couple years if they don’t miss payments on any other loans.

If the lender forecloses on a home and sells it for less than what it owed them, in many states the lender has the right to pursue the mortgage holder to pay them the balance of the loan, called a deficiency judgment.

California and some other states are notable exceptions.

California has non-recourse laws which provide that a lender cannot come after the homeowner for additional money if a foreclosed home sells for less than the amount of the mortgage. The California law permits this only if it’s the first mortgage that hasn’t been refinanced.

In addition, some remedies, designed to help restructure the loan, allow the homeowner to keep the home and avoid foreclosure, are only available to homeowners who are still living in their home.

As mentioned earlier in most cases, once a homebuyer splits, the mortgage lenders are stuck with the loss. Americans have long been able to cut their losses from bad investments and start over. It stands to reason that when the market made houses into yet another speculative investment, Americans would do the same.

Borrowers acted rationally in response to market forces and incentives during the bubble: Buy a house because prices always go up; you can’t lose.

Many are acting rationally now: Mail the keys back and un-borrow the money, because prices are sinking fast while the debt isn’t.

SOURCE  – The Rise of the Mortgage Walkers by Nicole Gelinas   AND

Walking Away from Property and Your Mortgage by Jennifer E. King for lawyers.com

Foreclosures – Part II

Point 2

Where did the money come from, and how easy was it to get?

No-docs were used more aggressively as the boom began to fizzle.

The following appeared in a Wall St Journal article.

Brokers had extra incentives to sell those loans, which have terms that often are confusing to borrowers.

Rate Sheet via WSJ

For instance, according to a March 2007 “rate sheet” (Click on image left) distributed by New Century Financial Corp., now in bankruptcy-court protection and no longer making subprime loans, brokers could earn a “yield spread premium” equal to 2% of the loan amount — or $8,000 on a $400,000 loan — if a borrower’s interest rate was an extra 1.25 percentage points higher than the Irvine, Calif., lender’s listed rates.

Borrowers weren’t supposed to see the information. Tiny print at the bottom of the document warned: “For wholesale use only. Not for distribution to the general public.”

On average, U.S. mortgage brokers collected 1.88% of the loan amount for originating a subprime loan, compared with 1.48% for conforming loans, according to Wholesale Access, a mortgage research firm.

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And in this report of 61,000 Sacramento-area mortgages over two years, the Sacramento Bee says

In 2005, while the market was still relatively healthy, the median household income of Sacramento County homebuyers was $78,650, according to U.S. census data. The median income reported on loan applications was $90,000, a difference of 14 percent, according to records available under the Federal Home Mortgage Disclosure Act.

In 2006, as the market went cold, incomes were pumped up even more. Homebuyers in Sacramento County earned median household income of $79,735, but the median income reported on mortgage applications was $97,000, a 22 percent difference.

Income discrepancies pop up throughout the region. The median income on mortgage applications in Yolo County last year was $104,000; the median income of Yolo homebuyers was $83,400. El Dorado County homebuyers earned $100,000 but their loan applications said they earned $126,000. Placer County homebuyers earned $90,115, but loan applications said they earned $116,000.

In northern Sacramento, including Del Paso Heights and North Highlands, the median income reported on mortgage applications last year was $95,000. But the median income for all northern Sacramento households was $36,000, according to research firm Claritas.

In south Sacramento, including Meadowview, Fruitridge and Florin, the median income reported on mortgage applications was $84,000. But the median income among all south Sacramento households was only $36,000 in 2006. Only 12 percent of all households in those neighborhoods earned as much as $84,000, Claritas said.                             (From the The Sacramento Bee Published: Sunday, Nov. 18, 2007)

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….specialists spoke of a reckless culture in which lenders failed to make even basic checks on borrowers’ income. Phillip McCall, a mortgage fraud investigator, cited a case of a warehouse worker who applied for a mortgage, claiming an income of $7,500 per month: “Basic common sense is going to tell you someone in a warehouse is not going to be earnings $90,000.”

Read the full article here….

Who is to blame for this……. Part III to follow