Tag Archives: Foreclosures

The real cost of mortgage fraud

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Many believe mortgage fraud is partly to blame for the wave of foreclosures that are swamping many housing markets. And a quick scan at national headlines speaks to the depth of the issue.

In early January alone, there were several high profile convictions:

  • Six people in Boston were arraigned in a $2 million mortgage fraud scheme.
  • A Naples, Fla. man was sentenced to seven years in prison and ordered to pay more than $11 million in restitution for setting up straw deals to obtain inflated mortgages.
  • A Colorado man was sentenced to 31 years in prison after a mortgage fraud scheme.
  • Two North Carolina men were sentenced for their part in a $6 million mortgage fraud scam.
  • Two New Jersey men were convicted in a multimillion-dollar mortgage fraud and property flipping scheme.

Those are just a few of the many early January mortgage fraud headlines from coast to coast. Indeed, prosecution of mortgage fraud is on the rise as the U.S. Justice Department makes the issue a priority. U.S. Attorney A. Brian Albritton has publicly declared that “Mortgage fraud will not be tolerated.”

The Cost of Mortgage Fraud

When you examine the cost of mortgage fraud, it’s easy to see why the federal government is cracking down on the crime. Again, many believe mortgage fraud added to the financial crisis in the subprime mortgage industry and the fall of banks. Consider the latest statistics compiled by the Mortgage Asset Research Institute on the pervasiveness of mortgage fraud:

  • As of March 2008, the Federal Bureau of Investigation (FBI) was investigating more than 1,200 mortgage fraud cases – that’s a 50 percent increase from 2006.
  • The FBI also reports that about half of the mortgage fraud cases it is investigating report losses exceeding $1 million and some exceed $10 million.
  • According to the Financial Crimes Enforcement Network, the number of suspicious activity reports (SARs) submitted relating to mortgage loan fraud increased 1,411 percent from 1996 to 2005.
  • According to the TowerGroup, losses from mortgage fraud were about $2.5 billion in 2008 – and the firm expects comparable losses to continue for the next few years.

Although there is a level of fraud that exists where home buyers and/or their mortgage brokers falsify documents in order to get a loan approval, the FBI estimates fraud for profit accounts for up to 80 percent of the problem. That leaves 20 percent – or more – of the issue in the hands of consumers and mortgage brokers.

Keep Client Safe with the SAFE Act

As a real estate broker, you can help protect your clients. Relying on inflated appraisals, disguising purchase loans as refinances, or working with an exclusive appraiser are red flags and could be signs of potential fraud. The federal government has put measures in place, such as the Secure and Fair Enforcement of Mortgage Licensing, or SAFE Act, to discourage mortgage brokers from these practices. A key component of The Housing and Economic Recovery Act of 2008, the SAFE Act aims to better protect consumers and curb fraud by encouraging states to establish minimum standards for licensing and registration of state-licensed mortgage loan originators and has also established a nationwide mortgage licensing system and registry for the residential mortgage industry to increase the accountability and tracking of loan originators. If a broker is convicted, that conviction would be listed in the registry.

The bad news is the registry is not yet publicly available. The good news is systems are actively being put in place to protect homebuyers from dishonest mortgage brokers so the housing market will be less prone to negative impacts from mortgage fraud in the future.

Source: KW Blog

This month in real estate – january 2010

Keller Williams Realty, Real Estate News, , , , , , , , , , , , , , , , ,
Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.

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Shadow inventory may slow housing recovery

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The housing market has shown some signs of life recently. Existing home sales are up, prompting some optimism. But at the same time, an untold number of houses that have yet to hit the market are waiting in the wings.

And the bigger that so-called shadow inventory, the further off the housing recovery might be.

‘The Tip Of The Iceberg’

By the official count, about 3.5 million homes are on the market right now. Given the rate of home sales, that’s roughly twice the normal supply.

But “that could just be the tip of the iceberg,” says Stan Humphries, chief economist for the real estate Web site Zillow.

It’s not what is already for sale that worries economists like him; it’s the number of homes that might hit the market in the months to come.

“The portion of the iceberg below the waterline is inventory that’s waiting to come into the market at some point,” Humphries says. “And as it bleeds into the market over time, it continues to put downward pressure on prices.”

Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale — a number that’s increasing. It also includes homes that owners want to sell but are waiting to put on the market until it improves.

In a recent survey, Zillow found that nearly a third of homeowners would have considered putting their homes up for sale if the market were better. Nationally, that would mean between 11 million and 30 million homes that aren’t listed but are waiting on the sidelines.

Stuck With Unwanted Homes

The would-be sellers include people like Jennifer Dalzell. She and her husband bought a five-bedroom row house just four years ago in the shadow of the nation’s capital. Her husband is in the military, so they move around a lot.

Dalzell says she’s watched the appraised value of their home plummet along with their retirement savings and mutual funds. Her husband will be moving to his new gig in Africa without the family, in part because they don’t want to sell at what she believes is the bottom of the market.

“Because we can wait, we’ll wait until we feel that we can get a better price for the house,” Dalzell says. “I think the market will come back. It feels like there’s money out there, and people are just sort of waiting. And I guess we’re contributing to that waiting game.”

There are no records that quantify how many people like Dalzell there are. In fact, sizing up the shadow inventory is tough.

“Unfortunately, our data are very delayed, and we really don’t have a sense of exactly where we are,” Former Federal Reserve Chairman Alan Greenspan said at the National Association of Realtors conference in May.

The key question, Greenspan said, is quantifying how many single-family dwellings are available for sale.

Number Of Foreclosed Homes Unclear

But it’s not clear how many more homes will be heading into foreclosure. If prices keep falling, that number is bound to grow.

Government data released Tuesday showed the number of homes going through the foreclosure process jumped 22 percent during the first quarter. The number of homeowners who are seriously delinquent on their mortgages is also up. Delinquencies are growing the fastest among borrowers who had good credit scores.

And that’s only part of the challenge. As banks take possession of more foreclosed homes, not all of those are listed — sometimes because they are holding back inventory so they don’t flood the market.

“I do know that banks are holding onto inventory, and what they’re doing is they’re metering them out at an appropriate level to what the market will bear,” says Pat Lashinsky, chief executive of online brokerage site ZipRealty.

He says this strategy has paid off for banks — even if it also pushes a full housing recovery further out.

“By not flooding the market, they were getting better pricing on the homes that they owned,” Lashinsky says. “And instead of people coming in and offering less than what the prices were, they were ending up in multiple-offer situations and getting more for the homes.”

Lashinsky adds that a large shadow inventory is not all bad because it creates a kind of buffer. Having so many people hold back prevents a free-fall in home prices. And when the economy recovers, he says, there will be plenty of homes to buy.

This Month In Real Estate – December 2009

Financial/Mortgage Industry, First Time Home Buyer, Foreclosures & Short Sales, Keller Williams Realty, National, Real Estate News, , , , , , , , , , , , ,
Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.

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If you don’t buy a house now, you’re either stupid or broke

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Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth By Marc Roth.

Well, you may not be stupid or broke. Maybe you already have a house and you don’t want to move. Or maybe you’re a Trappist monk and have forsworn all earthly possessions. Or whatever.  But if you want to buy a house, now is the time, and if you don’t act soon, you will regret it. Here’s why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity. And it is exactly that, based on what the graph shows us. Let’s look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.  But they weren’t happy soon thereafter.  From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.

Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels.  They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990.  For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%.  We’ve since spent the last nine years, until very recently, at 6% to 7%.  So you can see why 5% is so remarkable.  So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high.  The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years. 

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low. 

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.  Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed.  While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide.  

Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.  Loan Costs Stay with me now.  We are at 5%.   As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again.  If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000. 

Let’s put that into perspective.  You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs).  You would like to own a $240,000 home.  However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring).  Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool.  In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy.  And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months. 

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000.  At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger. 

What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home.

If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

Source: Business Week

New FHA guidelines may help condo sales

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New FHA Guidelines Could Aid Condo Sales New Federal Housing Administration condo-loan guidelines that took effect Dec. 8 could make it much easier for condo buyers to get a loan. Under previous guidelines, half the units in a new condo development had to be sold before the FHA would underwrite a mortgage in the complex. New guidelines cut the requirement to 30 percent and raise the ceiling on FHA loans in a development to 50 percent from 30 percent.

The new rules also allow condo associations to turn down an accepted offer if they agree that it’s too low—unless they will be violating the Fair Housing Act. This is expected to motivate many associations to seek FHA-approved status for their buildings.  Even if they solve the vacancy problem, FHA loans can be a tough sell in some buildings, says Miami-area practitioner Madeleine Romanello, an associate with Douglas Elliman Florida. “An FHA loan still has the connotation of being low-income.

Condo boards say, ‘No, we don’t do FHA.’ They don’t understand that the FHA is the only game in town. We could be moving tons of condos if we could get their buildings FHA-approved,” Romanello says.

Source: Investor’s Business Daily

U.S. regulators close AmTrust and Tattnall banks

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Cleveland, Ohio’s Amtrust Bank was seized by regulators Friday, making it the fourth largest institution to go under in 2009. Five smaller institutions – three in Georgia and one each in Illinois and Virginia – were also shuttered over the weekend.

These latest six closings bring the total number of failed banks for the year to 130, and are expected to cost the FDIC’s already-depleted insurance fund a combined $2.4 billion. As DSNews.com previously reported, the agency’s reserve used to protect consumers’ deposits has slipped into the red – $8.2 billion in the hole at the end of the third quarter.

The failure of Amtrust alone will cost the FDIC an estimated $2 billion. Established in 1889 as The Ohio Savings and Loan Company, Amtrust was a nationwide originator of home mortgages and also offered construction and development loans. But according to a statement from its regulator, the Office of Thrift Supervision (OTS), Amtrust “was in an unsafe and unsound condition because of substantial loan losses, deteriorating asset quality, and insufficient capital.” OTS said a high level of AmTrust’s problem assets was attributable to residential and land acquisition, development, and construction lending concentrated in Florida, California, Arizona, and Nevada.

In an FDIC-assisted transaction, New York Community Bank in Westbury, New York agreed to acquire all of Amtrust’s $8 billion in deposits, wholesale borrowings of approximately $3 billion, and “certain assets,” Community Bank said in a press statement. According to the New York institution, these assets, totaling $11 billion, include performing single-family mortgage and consumer loans of approximately $6 billion which are subject to a loss-share agreement with the FDIC; cash of approximately $4 billion; and securities of approximately $1 billion.

Community Bank, though, was quick to point out that it declined to take on any non-performing loans serviced by AmTrust Bank or any other REOs; construction, land, or development loans; private-label securities, or mortgage servicing rights. The FDIC said it will retain these assets for later disposition.

The FDIC also transferred to New York Community Bank all qualified financial contracts to which AmTrust was a party, and said as part of the overall transaction, Community Bank has issued it a cash participant instrument, which the FDIC has until December 23 to exercise, allowing it to obtain shares of common stock in Community Bank.

Georgia leads the nation with the most bank collapses in 2009. Regulators closed three more institutions in the state on Friday, bringing that total to 24 for the year.

The Buckhead Community Bank in Atlanta, Georgia was acquired by State Bank and Trust Company of Macon, Georgia. The Buckhead Community Bank had six branches in Georgia operating under various names. State Bank also assumed all of the failed institution’s $838 million in deposits and total assets of $874 million. The FDIC estimates the cost to its deposit insurance fund will be $241.4 million.

State Bank and Trust Company also took over the operations of First Security National Bank in Norcross, Georgia. First Security had four branches, deposits of $123 million, and total assets of $128 million. The FDIC said it expects First Security’s failure to cost $30.1 million.

The Tattnall Bank of Reidsville, Georgia was acquired by HeritageBank of the South. in Albany, Georgia. The Tattnall Bank had two branches, $47.3 million in deposits, and total assets of $49.6 million. Its failure is expected to cost the FDIC $13.9 million.

Illinois is second in the nation when it comes to failed banks, with 20 in 2009. Benchmark Bank in Aurora, Illinois is the latest institution to join that list. Chicago’s MB Financial Bank agreed to take over Benchmark’s five branches, its $181 million in deposits, and purchased approximately $139 million of its $170 million in assets. The cost of Benchmark’s collapse is estimated at $64 million.

Greater Atlantic Bank in Reston, Virginia was also closed by the OTS. The FDIC brokered a deal with Sonabank of McLean, Virginia, to acquire the failed institution’s five branches, its $179 million in deposits, and total assets of $203 million. The FDIC expects Greater Atlantic’s closure to cost its insurance fund $35 million.

Info Source: dsnews.com

Government Tax Credit EXTENDED AND EXPANDED!!

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tax_credit

President Obama is expected to sign a bill passed by Congress today extending and expanding the first-time homebuyer tax credit to homes under contract before May 1.

The credit, equal to 10 percent of a home’s purchase price, remains capped at $8,000 for first-time homebuyers, but income limits have been raised.

Congress also approved an expansion of the credit to allow homeowners who have been in a principal residence for at least five of the last eight years to claim a tax credit of up to $6,500 if they sell that home and buy another.

That will provide an incentive not only for entry level, but move-up buyers — a goal supported by real estate industry groups.

An extension of the existing tax credit — currently set to expire at the end of the month — was controversial, as it will cost an estimated $10.8 billion over 10 years. Critics said most of those who have claimed it would have bought a home anyway.

Earlier this year, former real estate broker Sen. Johnny Isakson, R-Ga., introduced a standalone bill that would have raised the ceiling on the tax credit to $15,000 and lifted first-time homebuyer and income restrictions.

In the end, lawmakers who supported an extension of the tax credit were forced to add it as an amendment to a bill extending federal unemployment benefits, HR 3548, to gain passage.

The bill was amended in the Senate last week and approved Wednesday in a unanimous 98-0 vote.

House lawmakers passed the bill today in a 403-12 vote, with all 12 no votes cast by Republicans.

The Obama administration had previously indicated it would support the more limited extension of the homebuyer tax credit included in HR 3548 (see story).

Although income limits for claiming the credit will be raised from $75,000 to $125,000 for individuals and from $125,000 to $225,000 for couples, homes purchases exceeding $800,000 will not be eligible.

Real estate industry groups hailed the extension of the credit as a necessary step to sustain a fragile recovery in housing markets.

“At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum,” Robert E. Story Jr., chairman of the Mortgage Bankers Association, said in a statement. 

Tax Credit Comparison Chart

This Month In Real Estate – October 2009

Keller Williams Realty, National, Real Estate News, , , , , , , , , , , , , , , , , ,
Each month, This Month in Real Estate provides expert opinion and analysis on real estate trends across the nation. The aim of the consumer-oriented segments is to provide real information on real estate.
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Yes, The Housing Market Has Rarely Looked Better

Financial/Mortgage Industry, First Time Home Buyer, For Sale, Foreclosures & Short Sales, National, Real Estate News, , , , , , , , , , , , , , , , ,

0906_ehsPassing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver’s salary, let alone something that nice.

Last week, Standard & Poor’s reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.

In short, the data suggest that real-estate prices hit a bottom some time during the second quarter, and have now begun to rise. There’s no way to be certain that this marks the end of the long, painful correction that followed the real-estate bubble, but clearly prices are no longer in free-fall. That means if you’ve been sitting on the fence, it’s time to act.

Ordinarily I’d never try to time the real-estate market, but I can understand why buyers have been cautious. Few want to buy in down markets, just as stock buyers avoid bear markets. And for most people, of course, buying a house is a much bigger decision than buying a stock. But with real-estate prices nationally now down about 30% from their 2006 peak and showing signs of turning up, the prices aren’t likely to go much lower. Every real-estate market is local, and so there may be a few exceptions. Overall, though, I can’t imagine a better time to buy than now.

In addition to bargain prices, buyers also should find plenty of homes to choose from. The inventory of unsold homes was 4.09 million units in July, up 7.3% from June, according to the National Association of Realtors. And mortgage rates this week were at a two-month low of close to 5%, according to Zillow. Even the stricter appraisal process is working to the advantage of buyers. Appraisals are coming in far lower than most sellers have been expecting, forcing them to face the new reality of sharply lower prices. And with stricter standards, lenders aren’t going to let buyers borrow more than they can afford, which protects buyers and helps to keep prices down.

Unless you’re really prepared to accept the demands (and headaches) of being a landlord, I don’t recommend direct ownership of real estate as an investment. The days of buyers lining up to flip Miami Beach and Las Vegas condos are mercifully gone.

There are much easier ways to make money in real estate, such as real-estate investment trusts or buying shares in home builders and other housing-related businesses (such as Home Depot). Historically, the mean rate of return on real estate has been around 3%, according to research from Yale economist Robert Shiller, who co-developed the Case-Shiller index. Shares in REITs and other stocks have often done much better.

But there’s a good reason homeownership has been such a central part of the American dream. It delivers security, pride of ownership, a sense of community and decent investment returns as a bonus. I felt glad for my driver in Florida. He represents the other side of the foreclosure crisis. For every hardship story, and no doubt there are many, others are realizing their dreams of home ownership and getting what may well turn out to be the deals of their lives.