Wells Fargo announced they will provide 2 billion worth of loan modifications to nearly 15,000 homeowners. In addition, Wells Fargo will be paying out nearly 32 million to homeowners who lost their homes to foreclosure. The Loan Mods and 32 million in payouts are directed at homeowners  who had adjustable rate loans that resulted in much higher payments than they could afford.

Nevada and Arizona are set to sue Bank of American over Loan Mods. BofA is accused of providing false assurances to struggling homeowners that they wouldn’t lose their homes while their loan modification request were pending. Bank of America announced today they will begin resuming foreclosures after a holiday suspension.

We’ve handled a lot of short sales and foreclosures.  Nothing close to this size, however.  Lenders put way too much debt ($1.7 billion) on Intrawest’s high-end resort properties at places like Whistler in British Columbia and Steamboat in Colorado as the market peaked.  (Intrawest is owned by hedge fund Fortress)  They counted on expensive condo sales to help pay down the debt.  It turns out people cut back on second home purchases when the economy goes into a major recession.

Needless to say, the owners are way, way under water.  They are trying to negotiate to hold on, since they basically have no equity left in the deal and holding on is like a free option for them if the market does come back.  My guess is that this one is going back to the lender.

Cheronda Guyton, a senior vice president at Wells Fargo, is getting an enormous amount of flack from her ill-advised decision to temporarily move in to and throw parties at a recently repossessed home in Malibu Colony, a really high end subdivision.  Apparently some of the parties had her guests being dropped off by yacht (oh brother).  The previous owners had put all of their investment eggs in the Bernie Madoff basket and could no longer afford the home.

This is a disaster that Congress will use as proof that banks don’t care about borrowers.  My guess is that Wells had a legitimate reason for not listing the property yet (e.g. the prospect of an IRS tax lien on the owners, a restriction in the deed-of-lieu, etc.), but the poor decision making of its Senior VP will make it a mute point.  Let’s just hope Congress does not use this as ammunition for passing another law that adds to the deficit or to the long-term cost of mortgage finance, doesn’t work and prolongs the natural recovery of the housing market, which is well underway at least on the lower end of the market.

The Hope Now Coalition refuses to take into consideration that many homeowners don’t want help. CNN recently published an article that focused on the millions of Americans who are not taking advantage of the programs available to them to avoid foreclosure. The Hope Now team repeatedly has claimed that we need to do more to make everyone aware of the options available to them. Here is the problem, about 80% of every homeowner contacted by the Hope Now Coalition ignores them. (they are contacted after the foreclosure process has started) So why would a homeowner not want help?

Let’s say you are 100k+ upside down in your home. You see no future signs of the market turning. Is it possible you would be hurting yourself more by keeping the property? Yes, it is. Each situation is different and many homeowners feel that by keeping the property, they will only be continuing to get deeper and deeper in debt. The media, the Hope Now Coalition, and others.. need to realize that while it may not be ethical, many homeowners are better offer losing their home to foreclosure than piling on more debt in order to keep a depreciating asset.

2 interesting observations in Las Vegas and Phoenix:

Properties at a higher list price that are marked lender owned/bank owned are receiving more traffic than competing typical resales. (Priced higher to a point) How is that possible? Buyers want to feel like they are getting a deal. They see the term lender owned and they automatically associate it with discount. The reality is that many of these buyers are simply bidding up lender owned properties to prices above what they could have paid for the resale down the street. I have seen lender owned properties in Vegas have 25 offers within 2 weeks and sell at 10% above asking price. My advice to buyers is to concern yourself more with your bottom line and less with only focusing on bank owned properties.

2nd observation:

Realtors® hate dealing with short sales. Listing a short sale is easy, working with a buyer and explaining the short sale process is not so easy. Sellers are abusing the term short sale and buyer agents are beginning to respond by showing the property down the street instead. The problem is that many “short sale” listings aren’t actually ever going to be approved by the lender. Sellers need to speak with their lender and understand the process before marking the property a short sale. Agents who bring offers at list price only to find the lender baulk at the idea of a short sale agreement leads to unhappy agents. Those looking for proof of my statements, compare the # of sold short sale listings in LV and Phoenix over the past 6 months with the # of lender owned sold properties through the MLS. The lender owned properties will have a greater ratio than 20 to 1 over short sales. (when comparing CLOSED SALES)

Through our buyer rebate program, we are commonly asked to write offers on MLS listed foreclosures. I want to add a few comments to help buyers increase the chance of an accepted offer.

First- Understand your market. For example, in Las Vegas, MLS listed foreclosures are typically receiving 5-10 offers a piece. Thus, if you plan on writing an offer well below list price, understand it is doubtful you will receive any word from the lender at all. Most lenders choose to just not respond to offers they don’t like. There is nothing wrong with throwing out low ball offers, however, just keep in mind you won’t always get a reply.

Second- Do what the lender tells you to do. When the MLS listing says that you must be pre-qualified with XYZ Bank, trust me, they mean it. When you obtain financing, you can use whomever you wish. However, when you submit your offer, send the requested pre qual from the preferred lender.

Third- Date your EMD checks correctly. Don’t send a copy of a check for an offer you wrote 4 weeks ago on a different property. The person reviewing the file will notice this every time.

Fourth- Do not ask for disclosures the lender will not provide. Most lenders will not provide real property disclosures. The quickest way to have your offer declined is to ask for disclosures when the listing states no disclosures are provided.

Lenders want to get the most money for the property. They also want the simplest deal possible, the deal they feel is most likely to close. Thus, you want your offer to be clean, easy, and give the appearance that you have done this before. It is not uncommon for a lender to accept the cleanest offer over a slightly higher offer with complications.

The # of foreclosures in this county would be much lower if we demanded accountability. Too many times I see properties go back to the lender where the seller could have made the payments to maintain the asset. However, the seller simply didn’t want to do this. The idea from the seller is why keep making payments on a depreciating asset? If I am already upside down, why not just walk away? (assuming I do not see any reason to believe this trend to cease) Certainly, many sellers have no other choice but to lose their homes, however, the situation below should be illegal in my opinion. The seller simply doesn’t want to keep paying on the property. Something tells me Mr. Canseco isn’t incredibly concerned with the negative impact on his credit forthcoming. (and he is right, in this instance, he shouldn’t be) (simple measure of pros versus cons – drop in credit for 7 years – save 3 million in cash over this time by walking away now) There is something terribly wrong with this scenario/system.

http://blownmortgage.com/2008/05/07/canseco-heads-to-foreclosure/

Here is an excerpt from a Letter to the Editor concerning the Inman News story, “Banks tighten lending standards at a record pace.”

I have to wonder: How much of the current real estate problem is due to the lenders themselves?

My mother recently relocated to Las Vegas to be closer to me and my family, and began looking for a home. She was fully prequalified by her lender and had more than enough in reserve to qualify for an excellent loan/rate. She placed an offer on an REO property. The bank took THREE MONTHS to get back to her, and when they did their reply was that they had three offers, and they wanted everyone who was still interested to resubmit their offer — only on the bank’s terms — (escrow closing company, fees paid, etc.) and the highest bidder would win. What a RIDICULOUS situation! The fact that it took three months for them to get back to us alone is ludicrous! Then asking her to resubmit her offer again, for what? To wait another three months and maybe have to resubmit it again?

Happily she found another REO property with a lender that was much more reasonable and responsive to offers. But after watching this I have to wonder how much of the current sorry state of our market is due to the lenders? The listing agent on the first property stated that the reason the bank took three months to respond was because the person in charge of the file had more than 700 files on his desk and wasn’t able to keep up.

This seems to be an incredible oversight on the part of the affected lenders. While I realize that they don’t want to lose more money, the fact that they are taking so long to respond to an offer causes many buyers to become frustrated and either bid on another house or leave the market altogether.

Bottom line, when your house is on the market, you are selling something.  If you make it hard for someone to show your property or don’t respond to phone calls or offers, more often than not, they will lose interest in move on.

The Los Angeles Times pointed out concerns voiced by a Wachovia executive that customers will increasingly walk away from their mortgages because even though they have the capacity to pay, they don’t want to keep paying on an asset where they have negative equity.  A poll posed today as of this writing is skewed about 40/60 on whether to honor your contract or just walk away.  Deep down inside, I think almost everyone feels they should keep paying.  Some of the justifications on the blog comments section for not paying include: short term financial needs (need to put food on table), feeling the banks take advantage of people, the bubble was a unique situation, everyone is doing it, I can buy another home and walk away from this one and am unlikely to get charged with misrepresentation on the purchase, etc.

We are in a changing world in terms of the social stigma of foreclosures.  One thing we would recommend of sellers that are considering seller financing is to examine the difficult circumstances lenders are facing today.  Historically, the #1 tool lenders have used to reduce foreclosures was simple: require more down payment from the borrower.

Ada County Association of REALTORS® News Bulletin by Miguel Legarreta
(The following writeup was emailed to real estate brokers in the Boise area from ACAR on 12/20/07)

There has been a great deal of talk about foreclosures both around the county and certainly here in Idaho as well.  Foreclosure rates in Idaho vary from different sources, but like the rest of the nation, foreclosures have gone up. Here are a few items to point out when you are asked about foreclosures in our market.

• Even with the higher level of foreclosures, they still represent a very small segment of the marketplace – less than 1% in Ada County.  Web sites tracking foreclosures, such as www.realtytrac.com, make the rates look high and often one home is counted several times during the process inflating the numbers.
• Boise was one of the top 5 investor markets in the county during the boom.It would be reasonable to assume many of the foreclosures in our area are not traditional families, but rather out-of-area investors who simply over extended and never resided in the properties.This is part of a cleansing process and a healthy market is one in which traditional homebuyers buy a home to live and raise a family, not speculation where homes remain vacant.
• NAR has stepped up to the plate, too, with a widely applauded proposal to modify FHA rules to allow borrowers delinquent on their mortgage to refinance into safe and affordable FHA-backed financing.After a full year of a lot of hard work, discussion and education on the issue, FHA reform stands ready to become a reality.On December 14 the Senate passed S. 2338, their version of FHA reform by a vote of 93-1.A final piece of legislation will be sent to the President for his signature.
• President Bush has also announced a package of measures to help homeowners struggling to pay their mortgages amid the current sub-prime loan crisis. They include reform tax laws to help troubled borrowers refinance their loans. As a number of these adjustable rate mortgages re-adjust there will be tools in place to help legitimate homeowners with the change and the numbers are not as dire as often reported.While we all recognize the market is adjusting it is a healthy change and cleansing process which will lay the foundation for a healthy, strong market going forward.Miguel Legaretta is ACAR’s Director of Public Policy.