Distressed Property Sales, Discounts Steady in Third Quarter

Sales of distressed homes, those in some
stage of foreclosure or bank owned (REO), accounted to 20 percent of all U.S.
home sales during the third quarter of 2011
compared to 22 percent of sales in
the second quarter according to information released Thursday by
RealtyTrac.  One year earlier such
distressed sales represented 30 percent of the housing market.

There were 221,536 such distressed
property sales to third parties, 11 percent fewer than revised second quarter
figures and 5 percent fewer than in the third quarter of 2010.  Pre-foreclosure sales (generally referred to
as short sales) totaled 92,824 sales or 9 percent of all sales, down 9 percent
from the second quarter and nearly identical to the number one year earlier
when pre-foreclosure sales represented 12 percent of the market.  Sales of REO totaled 128,712 properties, down
13 percent quarter over quarter and 8 percent from the previous year.  REO sales made up 12 percent of all sales in
the quarter compared to 13 percent in Q2 and 18 percent of sales a year
earlier.

Prices for distressed homes averaged
$165,322, up one percent from Q2 but down 3 percent from one year earlier.  The average discount from the market price
for distressed properties was 34 percent, the same as in the second quarter of
2011.  The discount one year earlier
averaged 37 percent.  There were
substantial differences, however, between the prices for pre-foreclosure
properties which averaged $191,119, a discount of 24 percent below the average
market price, and REO.  The latter had an
average sales price of $146,437 in the third quarter, a discount of nearly 42
percent, unchanged from Q2 and down from 45 percent a year earlier.  In the second quarter the discount for pre-foreclosed
properties was 23 percent and was it 24 percent in the third quarter of
2011. 

In six states distressed properties
sales accounted for a larger share of the market than the 20 percent national
average.  The states were Nevada (57
percent), California (44 percent), Arizona (43 percent), Georgia (34 percent),
Colorado (26 percent) and Michigan (23 percent).

The states with the largest
discounts for distressed property sales were Missouri (56.5 percent) and Massachusetts
(51 percent.)

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California Assembly Looks at Homeowners’ Bill of Rights.

A so-called Homeowner Bill of Rights has been introduced to the California State Assembly in the form of seven bills centered primarily on the impacts of foreclosure.   California Attorney General Kamala D. Harris’s office said that the proposed legislation seeks to protect homeowners from unfair banking practices related to foreclosures and provide remedies for communities threatened by blight from foreclosed properties.

Two of the bills would provide local communities with the ability to bring increased penalties against the owners of blighted properties, even taking control of the properties if necessary.  Another bill would provide tenants the same protections against evictions hat they currently have under federal law.  Purchasers of foreclosed properties would have to honor the terms of existing leases and allow tenants at least 90 days before commencing eviction proceedings. 

There are two bills which would provide additional tools for the Attorney General to investigate and prosecute mortgage frauds and crimes.  One extends the statute of limitations on mortgage related crimes and provides funding to investigate such crimes through a $25 fee to be levied on servicers when they record a notice of default.  The final two bills in the clutch of legislation would allow the Attorney General to convene a special grand jury to investigate and indict the perpetrators of financial crimes when the victims are in multiple jurisdictions.

All seven of the bills have passed out of the appropriate legislative review committees and are heading toward a vote of the whole assembly.

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Study Hits Banks On Foreclosure Maintenance

A consumer-advocate group said in a report Wednesday that a study of foreclosed properties found that banks have higher standards for properties they own in wealthy, predominantly white, neighborhoods than low-income ones, raising a new civil-rights challenge against the mortgage industry.

The report by the National Fair Housing Alliance examined more than 1,000 foreclosed properties in nine cities: Atlanta; Baltimore; Dallas; Dayton, Ohio; Miami; Oakland, Calif., Philadelphia; Phoenix and Washington, D.C.

“This report offers evidence that banks responsible for peddling unsustainable loans to communities of color and triggering our current foreclosure crisis are continuing to damage those communities by failing to properly maintain and market the properties they own,” Shanna L. Smith, the housing alliance’s chief executive, said in a statement. The group said it is planning legal action against two banks, which it didn’t name.

The group and four of its members scrutinized foreclosed properties for problems like broken windows, trash, water damage and unkempt lawns.

The report found that properties in minority neighborhoods were 42% more likely to have shoddy maintenance than those in majority-white neighborhoods. Trash and other debris were 34% more likely to be found in foreclosures in minority neighborhoods than in white ones.

From the report:

Homes in white neighborhoods were cared for in a substantially better manner than those in communities of color. While [foreclosed] properties in predominantly white neighborhoods were more likely to have neatly manicured lawns, securely locked doors, and attractive “for sale” signs out front, homes in communities of color were more likely to have overgrown yards littered with trash, unsecured doors, broken windows, and indications of marketing as a distressed sale.

The report didn’t call out any lenders by name. But such allegations have surfaced before. Last year, the city of Los Angeles sued Deutsche Bank AG, arguing that the bank allowed foreclosed homes to fall into disrepair.

In Baltimore, the report found, 43% of foreclosed properties in African-American neighborhoods had boarded-up windows compared with 28% in white neighborhoods.

In Dayton, Ohio, 60% of foreclosures in African American neighborhoods had unsecured doors, compared with 18% in white communities. In Phoenix, 73% of foreclosed homes were missing a for-sale sign, compared with 31% in white neighborhoods.

The study did praise government-controlled mortgage finance giant Freddie Mac for providing a toll-free number for neighbors to report problems with properties and said Freddie Mac’s policies generally resulted in better care. Freddie Mac’s properties “in all neighborhoods appeared to be properly maintained and professionally marketed,” the report said.

Representatives of several large banks didn’t immediately comment or couldn’t be reached for comment.

The report was funded, in part, by two of the largest owners of foreclosures: Fannie Mae and the Department of Housing and Urban Development.

Andrew Wilson, a Fannie Mae spokesman, said the government-controlled company works with the fair-housing group “to facilitate the maintenance, marketing and sale of foreclosed properties in predominantly minority communities, including training real estate agents and examining practices of financial institutions.”

Fed’s Duke Tells Senators Housing Recovery Not Following Script

Federal Reserve Governor Elizabeth A. Duke told
members of the Senate Committee on Banking, Housing, and Urban Affairs that “the failure of the housing market to respond to lower
interest rates
as vigorously as it has in the past indicates that factors other
than financial conditions may be restraining improvement in mortgage credit and
housing market conditions and thus impeding the economic recovery.”

Six
years
after house prices first started to decline and more than two years after
the start of economic recovery, Duke said, the housing market remains a
significant drag on the U.S. economy. 
She explained that typically as an economy turns down, households postpone
purchases of durable goods such as housing. 
But when the upturn comes, improving economic prospects and diminishing
uncertainty, often helped by low interest rates, usually unleash pent-up
demand.   

“The current economic recovery has
not followed this script, in part because the problems in the housing market
are a cause of the downturn as well as a consequence of it,” she said.  The nation has lost an aggregate of $7
trillion in home equity
.  The
extraordinary fall in national house prices has resulted in $7 trillion in lost
home equity, more than half of what was there in 2006.  This fall in wealth has significantly
weakened household spending and consumer confidence.  In addition, around 12 million households are
now underwater on their mortgages and when hardships hit have been unable to
resolve mortgage payment problems by selling their homes, resulting all too
often in foreclosure, dislocation, and personal adversity. Neighborhoods and
communities suffered as well from the neglect and deterioration that accompany
vacant properties and puts further downward pressure on house prices.

These problems, Duke told the
Senators, have been exacerbated by an ongoing imbalance between supply and
demand
.  In recent years that supply of
single-family homes has greatly exceeded the demand in part because of
foreclosures which are likely to continue for quite a while.  At the same time, a host of factors have been
weighing on demand.  Families have been
reluctant or unable to purchase homes because of concerns about income,
employment, or where prices might go.  Tight
mortgage credit conditions have also been a factor.  Although some retrenchment in lending
standards was necessary after the lax standards that prevailed before the
crisis, current lending practices appear to be limiting or preventing lending,
even to creditworthy households.

Duke referred to a paper titled The U.S. Housing Market:  Current Conditions and Policy Considerations released
by the Federal Reserve on January 4, 2012.  
In the paper, she said, Federal Reserve staff discussed the benefits and
costs of a variety of policy options that have been proposed to respond to
these difficult housing issues, including increasing credit availability, exploring
the scope for further mortgage modifications including encouraging short sales
and deeds-in-lieu of foreclosure, and expanding the options available for
holders of foreclosed properties to dispose of their inventory responsibly. “Any
policy proposals, though, will require wrestling with difficult choices and
tradeoffs, as initiatives to benefit the housing market will likely involve
shifting some of the burden of adjustment from some parties to others.”

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Next Step in FHFA REO-to-Rental Initiative Announced

Investors who have prequalified to
purchase lender owned real estate (REO) under a program unveiled February 1 by
the Federal Housing Finance Agency (FHFA) were notified on Monday about the
next step in the program.  FHFA announced
that it will soon begin accepting applications from investors to demonstrate
their financial capacity, experience, and specific plans for purchasing pools
of Fannie Mae foreclosed properties in Atlanta, Chicago, Los Angeles, Phoenix,
and parts of Florida.  Central to the
program is the requirement that the properties must be rented for a specified
number of years before they can be resold.

In order to ensure compliance with
applicable securities laws and regulations, details of the sales announcement
will be sent to prequalified investors. 
Those who subsequently post a securities deposit and sign a confidentiality
agreement will be given more detailed, property specific information and can
then submit a comprehensive application. 
The applications will be reviewed by an outside firm and only investors
who are qualified through what FHFA called “this rigorous process” will be
eligible to bid.

Michael
Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy
said, “We believe that this initiative holds promise for providing support to
local neighborhoods that were especially hard hit by the housing crisis and
will help meet the rising demand for rental housing in many communities.”

Any
investors interested in the pilot program who have not prequalified may still
do so by completing the forms available on the FHFA REO Initiative page.

 

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