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Tuesday, May 20, 2008
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7 comments:
Deadbeat Homeowners Hit The Road
To the distress of many banks and investors, American borrowers are increasingly viewing voluntary foreclosure as a practical financial decision, stripped of its taboo. Perhaps a bigger problem is that banks don't want to talk about the problem and they don't appear to know what to do about it. As long as it persists, there will be downward pressure on home prices, especially in overbuilt markets where the supply of housing already outstrips demand.
For the homeowners, the problem is a combination of falling real estate prices and the end of low-cost teaser periods on their mortgages. Those who bought at the crest of the market are finding their mortgages worth more than their homes. Faced with payments they can't afford and houses they have no stake in, these people are just hitting the road. Though difficult to statistically isolate, there is evidence pointing to the trend.
In March, according to foreclosure database RealtyTrac, foreclosures rose 54.0% year-over-year, but bank repossessions surged at double that rate, 129.0%. What accounts for the difference? Rick Sharga, vice president of marketing at RealtyTrac, said most March repossessions likely involved walkaways: homeowners who simply mailed their keys to the bank and moved. There was no need for the banks to foreclose.
In mid-April, Chief Risk Officer Don Truslow of Wachovia acknowledged the troubling trend during a conference call: "I don't know where the tipping point is, but somewhere when a borrower crosses the 100.0% loan-to-value, somewhere north of that . . . their propensity to just default and stop paying their mortgage rises dramatically and really accelerates up."
Even more disconcerting, Truslow added that the trend was "almost regardless" of borrowers' creditworthiness. Lender's are beginning to report that loan-to-value ratios are better indicators of the likelihood of default than borrowers' FICO scores, a widely used metric of creditworthiness developed by Fair, Isaac.
http://tinyurl.com/5azl5t
I was curious about the condo-turned-apartment development by Shirlington, visible from 395 - after seeing the big rental banner go up. It's called the Io Piazza. I do have to give them credit - their website does a nice job showing floorplans and prices. One piece on info not there is parking costs - I called - it's $100/mo. for reserved, $50/mo. (and there isn't a good street parking option there, so you would surely need to get the parking).
http://www.windsorcommunities.com/Property/default.aspx?PropID=105&Region=VA
Didn't realize this blog cut off urls like that. Google "io piazza" if you want to see see apartments I've refernced above.
Fitch: REO Auctions Growing in Importance
New York-based Fitch Ratings says in a new report that REO auctions will likely become more attractive to lenders and servicers who are dealing with an influx of foreclosures on their books.
"A recently completed Fitch survey showed over 60-percent of RMBS subprime servicers using auctions to liquidate REO holdings, a number that Fitch expects will continue to increase as servicers are faced with growing REO inventories and increasing loss severities," Fitch said in a recent report.
Fitch believes the prevalent attitude towards REO auctions has always been one in which servicers feel it's better to hold onto a property and wait for a sale rather than experience greater loss severities through an auction. Fitch believes that's changing in light of today's real estate slow down.
The ratings agency concluded in its report that "taking an early loss through an auction, although appearing larger, may indeed be better than incurring an ultimately greater loss through prolonged REO liquidation efforts."
Fitch's Senior Director Mary Kelsch says areas with depreciating home values are likely to become prime REO auction markets where lenders are presented with the challenge of offloading properties in a seller's market with falling home prices.
http://tinyurl.com/6jq8tw
Check out this house's sale history:
12620 MORAY FIRTH Dr
BRISTOW, VA 20136
Date Price Appreciation
Mar 28, 2000 $258,385 --
Jul 08, 2003 $377,900 12.3%/yr
May 19, 2005 $540,750 21.2%/yr
May 10, 2007 $497,500 -4.1%/yr
Jun 20, 2007 $499,900 4.4%/yr
Now check out its listing price history:
Date Price
Feb 29, 2008 $524,775
Apr 10, 2008 $399,000
Apr 12, 2008 $350,000
Apr 28, 2008 $450,000
May 19, 2008 $474,500
Source: MRIS
Current assessed value: $402,000.
May 10 sale last year was a relocation company. June 20 sale last year was to two individuals, when the assessed value was $453,900.
It's a 3BR/3.5BA home, 2200 sqft upstairs, with a backyard that slopes steeply down to a drainage ditch.
What's going on with the asking prices? Did they get approved for a short sale, then change their minds? I don't get it.
And did anyone else see this article in the Post?
A New Lease-Purchase on Life
For Homes That Aren't Selling, It Is An Option, but Risky
By Mara Lee
Special to The Washington Post
Saturday, May 17, 2008; Page F01
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/16/AR2008051600310.html
"Michael Brown, who is using a rent-to-own arrangement on a house in Manassas that he bought from a bank in May 2007, said his buyer-tenant family has been more reliable than the other tenants he has, most of whom have paid late or been short at times.
Market rent is $2,500 for the Manassas house, Brown said. He at first agreed to $2,600 rent, with $200 a month applied to the down payment.
Brown's tenant didn't have $2,600 ready for the first month's rent after putting down a $5,000 deposit, so Brown lets him pay from each paycheck and charges $2,800 because the tenant is paying for the previous month rather than the month ahead.
That $2,800 is just enough to cover an interest-only mortgage payment for Brown. When all his tenants pay on time, he pays more toward the mortgage.
Brown said that when he bought the house, similar ones were selling in the $460,000s. He and the tenant agreed 10 months ago on a $499,000 price eight months from now.
The contract says the sales price is contingent on an appraisal at that price, and Brown said he will consider selling at a lower price if it doesn't appraise -- "if it covers all my costs."
"...For Brown's buyer-tenant to keep his payments at $2,800 a month after buying, assuming 3 percent down and a 6.5 percent rate, he would need a sales price of $405,000 -- and that's not including $177 a month for the FHA insurance, Martin said."
Is it just me, or does nothing about this arrangement make any sense?
zeropoint,
Thanks for the info. Link: IO Piazza
From the Arlington Condo Blog last year: "The 245 units began selling in the mid-$300’s to over $1 million for a 3BR penthouse suite.
This is the third Ed Peete project to go the rental route this year. The other two projects include The Joule in Virginia Square and Zoso Condominium in Clarendon. In addition, another Ed Peete condo project, the Bromptons in Cherrydale, is being torn down due to foundation issues (see earlier post). Any buyer who had a contract at IO Piazza will receive their deposit back".
Tabitha,
It does sound risky, as the title of the article says.
If anyone is interested, the Senate Banking Committee compromise lifts the cap on conforming loans to $550,000. in most "expensive markets."
http://tinyurl.com/6bggcr
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