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Even though the state of Nevada’s foreclosure volume dropped 22 percent in February compared to the previous month, the state still held firm at the top of the country’s foreclosure filing rate for the 50^th straight month[1]. One in every 119 homes in the state is in foreclosure according to RealtyTrac. To make matters look even bleaker, experts believe that the improvement in foreclosure numbers seen in the past few months are likely more of a result of lenders being more tentative about filing for foreclosure because of robo-signer fallout than an actual improvement in the numbers of delinquent loans. In fact, according to some analyses, nearly one in three homeowners in default have not made a mortgage payment in two years, while another 17 percent have not paid in 18 to 23 months[2].

Interestingly, some analysts believe that this long-term default could be a “boon to the economy” as it has freed up money for spending. This seems to be specious reasoning, however, since lenders are taking a serious hit and the market state requires constant Fed intervention.

What do you think about these numbers? Should people who are not paying be permitted to stay in their homes long-term?

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Let us know what you think of this catch-22 below.

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[1] http://www.rgj.com/article/20110309/BIZ/110309061/0/TT/Nevada-No-1-foreclosures-50th-straight-month?odyssey=nav|head

[2] http://www.favstocks.com/nearly-13rd-of-home-owners-in-the-u-s-in-default-have-not-made-a-payment-in-2-years-a-boon-to-the-economy/2939659/

Although many lenders are still shedding commercial real estate assets, JP Morgan Chase is back in the commercial lending business[1]. And that business is booming as the lack of competition enables the bank along with fellow companies like Wells Fargo and PNC Financial Services Group to offer terms that appeal to borrowers and keep the lenders on secure financial footing. “There hasn’t been a lot of new development activity,” explains Todd Maclin, JP Morgan Chase & Company’s commercial banking head, explaining that this has led to improvement in lending terms[2].

JP Morgan is not just making new loans, either. Last year, the lender bought $3.5 billion worth of loans from Citibank. Maclin was notorious while other lenders were making “crazy” commercial loans for refusing for years to engage in the practice. As a result, JP Morgan’s commercial banking is on solid footing, and chief executive Jamie Dimon credits Maclin with the lender’s “outstanding job navigating the treacherous commercial real estate market.” The lender is particular interested in multifamily apartment projects in “expensive cities” and is enforcing “stricter loan terms” with no “Mickey House” terms in the fine print.

While Maclin says he’s more than willing to stop lending at the first signs of trouble, for now he’s ready to make some deals. Are you following his lead and getting involved in commercial real estate again?

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Let us know what you think of this market and JP Morgan Chase in particular in the space below.

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[1] http://www.crainsnewyork.com/article/20110329/REAL_ESTATE/110329866

[2] http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103281058dowjonesdjonline000194&title=jpmorgans-commercial-real-estate-contarian-now-wants-to-lend

Once again the Federal Housing Administration (FHA) has announced that it will be extending its anti-flipping waiver, allowing buyers to continue to use FHA-insured loans to purchase homes that are being resold within 90 days of their purchase[1]. The law was originally enacted in 2003 to “ease fraudulent transactions” in which investors bought houses for low prices and then sold them for higher ones, relying on the fast pace of appreciation and the buying mania at that time to make the house salable at a higher value (FHA believes that these values were inflated) rather than taking time to make improvements to the property. The FHA found that buyers in these transactions were more likely to default on their loans and that incidences of straw buyers and unethical appraisal methods were much higher on flips. As a result, the administration opted to stop insuring home loans on these properties.

However, when the market crashed, real estate needed investors who were willing to buy houses in distress and possibly at discounts. For this reason, the FHA decided to waive its anti-flipping rule in February of 2010, and the waiver has now been extended to December 31, 2011. Sean O’Toole, CEO of ForeclosureRadar.com, says that real estate investors are actually far better for neighborhoods than banks selling REO properties, because “investors who buy at auction do more repairs and leave the properties in better condition…whereas the banks tend to sell them more as-is.”

There are some restrictions on 90-day resales using FHA loans[2]:

1. The property cannot have been flipped before

2. The property must be “fairly and openly marketed for sale”

3. Properties sold for more than 20 percent above acquisition cost may be subject to extra scrutiny

4. Transactions must be “arms-length,” meaning that there is no shared interest between the buyer and the seller

Many real estate investors feel that they have been unfairly demonized for the real estate market crash and that this waiver is not nearly enough to make up for the negativity they have experienced as they do business in the wake of the housing crisis. Do you think that the FHA is being fair in this situation?

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Let us know what you’ve experienced as a real estate investor in the past few years.

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[1] http://www.foxbusiness.com/personal-finance/2011/03/24/fha-insuring-flipped-houses/

[2] http://www.realestateindustrynews.com/real-estate-market/fha-extends-anti-flipping-waiver/

In 2005, Tulare County in California auctioned off a piece of land containing part – but not all – of the delinquent owner’s vacation property. Yesterday, that auction was rescinded and the land returned[1]. The owners had invested more than $200,000 in the land and in fixing up the vacation home for retirement. After the auction, they were left with about a quarter of their home and part of a free-standing garage.The owners cited multiple paperwork errors in their failure to pay or even be aware of their delinquent taxes, and the county agreed it was in error.

The property was auctioned off to recoup $2,700 in unpaid taxes. The property owners purchased only part of a parcel of land when they bought property for their vacation and retirement home, leaving the remainder under the ownership of another owner. However, because a mistake occurred in the property transfer, no one - old owner or new - was notified when the lots were placed on delinquent status for unpaid taxes and then put up for auction. The new owners paid taxes on their portion of the land, but that did not cover the entire bulk of the property, which was originally five separate parcels. The county also failed to post notices of tax default auction on the property itself. These notices are only required if there are improvements on the property, and the improvements of a vacation home and a garage were missed by county inspectors and not on file.

Ultimately, the county opted to refund $22,900 to the auction buyers along with around $700 in interest, and the titles of all the land parcels have been corrected. The current owners are paying the back taxes. The purchasers, who did not want to return the properties, argued that the county was not complying with its own laws but ultimately their pleas fell on deaf ears.

Do you think that this was a good solution for the problem? How do you check out your properties ahead of time to avoid these types of fiascos?

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Let us know what you think of this crazy situation below.

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[1] http://www.visaliatimesdelta.com/article/20110324/NEWS01/103240311/1002/Club-Latinoamericano-del-Valle-Central-presents-play-Feb-25/Tulare-County-rescinds-2005-tax-auction-home-California-Hot-Springs?odyssey=nav|head

It has seemed like just about everyone is taking issue with the federal proposal for a settlement between lenders, borrowers, attorneys general and the government in the wake of the robo-signer fiasco. However, nearly everyone agrees that some type of settlement must be reached in order for consumer confidence in lending to be restored. However, just what that settlement should entail has been highly disputed, ranging from forced principal reductions to massive payouts to more lender bailouts. Suffice it to say: nobody’s really happy.

Now, the FDIC believes it may have a new solution: a cash-for-keys option that could pay delinquent borrowers up to $21,000 to move out[1]. Perhaps not surprisingly, when Sheila Barr, FDIC chairman, announced this proposal late last week, it was not well received. However, Barr and supporters insist that this could be a way to “teach mortgage servicers a valuable lesson” while still alleviating the threat of stagnation to the housing recovery[2]. Distressed homeowners could turn in their keys and leave homes quickly in good condition. Lenders would be able to return the homes to the market much faster and likely get a better return on the property when it sold. However, this money has to come from somewhere, and there are some reports that Fannie Mae and Freddie Mac could be involved in the settlement – thereby tying up more taxpayer dollars in a period of time when the government-controlled GSEs are supposed to be phasing out.

Do you think that this elevated cash-for-keys incentive might work to satisfy lenders and borrowers? Is it fair, given that the people potentially injured by the robo-signer fiasco are largely already out of their homes?

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Let us know what you think of this latest settlement proposal below.

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[1] http://www.dsnews.com/articles/servicers-asked-to-consider-21000-cash-for-keys-option-2011-03-25

[2] http://www.zacks.com/stock/news/49932/Will+Cash+for+Keys+Fix+Foreclosure%3F

According to the Association of Foreign Investors in Real Estate (AFIRE), the U.S. real estate market is looking the best for foreign investors that it has in a decade[1]. And according to Tere Blanca, the CEO of Blanca Commercial Real Estate in Miami, Florida, Miami’s strong international trade presence will likely expand throughout the next decade and contribute to a spike in foreign appetite for real estate investment in that region. Blanca credits Brazil’s rising GDP with much of Miami’s good fortune. “Wealth creation in Brazil is now starting to look for cross-border opportunities, and Miami certainly is a natural,” she explained. However, Blanca believes that failure to invest in certain attractive city assets now – like high speed rail and transportation solutions – could hurt the city’s chances. She noted that right now, Miami is “being identified and recognized by other foreign capital as a place to explore,” but emphasized that any area of the U.S. hoping to attract foreign investors in real estate have to make “the right investments” in their own real estate in order to attract others.

Not surprisingly, real estate analysts hope that commercial real estate investor interest will bleed into other areas of the market[2]. Greater Downtown Miami’s condo supply is still vastly overstocked, although developers in the area are working to change the appeal of the area to attract more renters as well as owners. Given the oft-stated “oversupply” of real estate in the country at the present time, it seems like foreign investment money could resolve a lot of problems for the U.S. housing market. Do you think that foreign investors hold the key to a real estate recovery in the commercial sector? How about the residential market? Both?

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Let us know what you think about a greater foreign presence in our real estate market in the space below.

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[1] http://www.globest.com/news/1879_1879/miami/308387-1.html

[2] http://www.miamiherald.com/2011/03/28/2134620/fort-lauderdales-little-secret.html

All over the country, residential property vacancy rates are on the rise[1]. Of course, there are some areas that are booming – e.g. New York City and Washington D.C. – but in most areas more and more homeowners are going into foreclosure or simply opting to walk away even as lenders slow their eviction processes or even suspend them all together while the entire country waits to see how the robo-signer debacle and settlement will ultimately resolve. Interestingly, however, the risk of loan defaults is plateauing due, in part, to an economic recovery but also thanks to the threat of inflation that has been hovering on the economic horizon[2]. Sure, loans originated today are still 41 percent more likely to go through a default than those originated in the 1990s, but that is actually “much less than the worst vintages of this [real estate] cycle,” points out the University Financial Associates LLC (UFA), who developed the mortgage default risk index. Loans originated between 2006 and 2008 are more than twice as likely to default as loans originated in the baseline of the 1990s. Based on this information, the firm concluded, “mortgage originators need not be as apprehensive about new originations.” And that number could improve significantly if inflation really kicks in.

Dennis Capozza, UFA’s founding principal, believes that if “inflation rates keep on rising, default risks will drop more quickly, and this will bring about a faster recovery in mortgage and housing markets.” Many analysts promote the idea that real estate is one of the “inflation-proof” methods of investing out there because mortgage rates, unlike rental rates, can be fixed in place. As a result, an investor who purchases a property today can rent it out in the future for an inflated value while continuing to pay today’s low monthly payment. Strategic defaults are also likely to make less sense in the face of inflation because homeowners who walk away and opt to rent might not really be getting such a good deal if rental rates climb according to projections. Some investors are already reporting 12 percent returns on rental property investments, and many analysts believe that this is only the beginning[3]. Thanks to a much larger renting population, a dearth of new construction and rock-bottom property prices, home-buying and real estate investing – for those who can do it – is likely to continue to make a lot of sense. And for those who have purchased a home, walking away is going to look a lot less attractive in the future as rental rates skyrocket. As a result, the number of defaults could decrease and hungry investors could start finally snapping up properties as lenders loosen lending restrictions thanks to lower default risks.

Do you think, as some experts claim, that inflation could actually save the housing market?

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Let us know what you think about strategic defaulting and the possibility of inflation in the space below.

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[1] http://money.cnn.com/2011/03/28/real_estate/us_housing_vacancy_rates/

[2] http://www.dsnews.com/articles/ufas-default-risk-index-finds-plateau-lower-expected-as-inflation-rises-2011-03-25

[3] http://finance.fortune.cnn.com/2011/03/28/real-estate-its-time-to-buy-again/

In Marion County, Indiana, tax lien sales are used to help the county government recoup losses when property owners fail to pay their taxes. Unfortunately, the system is “backing up” as unsold, delinquent properties pile up debt and fail to move at the auctions[1]. For example, one structurally unsound, vacant motel property has outstanding taxes in the sum of $70,000. Not surprisingly, it did not sell at the last auction and now must wait until a tax surplus sale in order to have its debt cleared and be offered at a more “reasonable” price. Furthermore, if the properties appraise high enough, then the city-county council in the area may opt to refuse to approve a tax title deed, which erases back taxes and liens before the auction so that buyers can bid directly on the property. Of the 3500 properties currently in the surplus pool, probably only 200 or so will be included in the tax surplus sale.

Many tax lien investors like surplus sales because they can get steep discounts on properties and buy the deeds directly rather than buying tax liens and then waiting months or years to redeem the liens or foreclose on the properties. However, the value of these properties is likely to fluctuate far more, making these purchases higher risk in some cases since they may be damaged or otherwise “handicapped.” Do you personally like tax surplus sales?

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Let us know what type of tax lien or tax deed sales you like best.

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[1] http://blogs.indystar.com/starwatch/2011/03/18/3500-properties-waiting-for-tax-surplus-sale/

While the attorneys general of all 50 states are in agreement that something must be done about last year’s robo-signer debacle in order to compensate homeowners who were harmed by the incident and restore faith in the nation’s lenders, some AGs believe that the proposed settlement plan issued by the group will create a serious “moral hazard” that will “reward those who simply choose not to pay their mortgage.” The AGs believe that the “reward” – loan principal reductions to the tune of $20 billion for underwater borrowers – does not have a close enough link to the documentation issues that originally created the robo-signer crisis in the first place[1].

Tom Miller, who is the leader of the investigation and AG in Iowa, pointed out that the proposed settlement is simply an “opening bid in the negotiations,” as bank regulators, members of Congress and a group of AGs have all raised objections to the proposal already. Miller emphasized that “we are trying to shift the servicing industry from a dysfunctional one to a functional one” in an interview. Critics of the proposal say that the settlement plan reaches beyond the appropriate scope of government enforcement of lending practices and that strategic defaults are likely to occur in higher volumes should the settlement be enforced in current form[2]. Currently four AGs, Pam Bondi (FL), Greg Abbott (TX), Kenneth Cuccinelli (VA) and Alan Wilson (SC) have expressed their concerns about the settlement publicly via a letter to Miller.

Do you think that the write-down requirement is a good and fair one?

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Let us know what you think should be done about the banks below.

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[1] http://www.statesman.com/business/abbott-joins-in-objection-to-mortgage-servicers-settlement-1343903.html

[2] http://www.housingwire.com/2011/03/23/four-ags-say-foreclosure-settlement-proposal-promotes-strategic-default

While there are some benefits to requiring lenders to keep “skin in the game” by retaining 5 percent of the risk in the loans that they make, one commercial real estate trade group is arguing that this required risk could “crimp the availability of credit to the commercial real estate market” and potentially hinder growth in this sector[1]. More flexibility is needed for commercial real estate loans, argue members of the board of directors of the New York-based Commercial Real Estate Finance Council. The group, which is campaigning for more flexibility for commercial loans or even an exemption from the 5 percent requirement, is working on a set of standards for commercial mortgage-backed securities (CMBS) that might serve as a template for loans that could be exempt from the requirement. While this sounds like they are simply trying to evade new regulations, this loophole was deliberately written into the law in order to help protect the CMBS market if other lending reforms and regulations take place.

Senator Mike Crapo (R-ID), authored the provision in the Frank-Dodd law that allows for exemptions in the commercial market, and recently sent a letter to Treasury Secretary Timothy Geithner highlighting the need for commercial exemptions from the risk retention requirement[2]. Crapo believes that regulators should “craft rules for each asset class…[or] credit availability could be disrupted at a time when it is desperately needed.” The risk retention rules do not go into effect until April 2013, but the Commercial Real Estate Finance Council hopes to establish regulations far in advance of this so that a framework for commercial lending will be in place long before the potential credit crimp occurs.

Do you think that commercial loans should be exempt from the risk-retention rule? If so, what do you think should be done to insure transparency and ethical lending in this market in its place?

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Let us know what you think of the proposed exemptions below.

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[1] http://online.wsj.com/article/BT-CO-20110323-714364.html

[2] http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103231655dowjonesdjonline000486&title=commercial-real-estate-group-seeks-exclusion-from-dodd-frank