ONE STEP FORWARD, TWO STEPS BACKWARD
This week, the S&P 500 is on track to have one of its best weeks in a year. The market closed last Friday, July 2, 2010 at about 1022.58. At time of this writing, the S&P stood at 1077.62; this yields a gain of more than 5% in a short (4 day) week of trading. Many big corporations, including some big banks like Bank of America, report earnings next week and investors continue to wonder whether we are on the edge of a double dip recession or a sustained rally.
Although the market has shown good signs of life this week, I think the best indicator of stability in the economy right now is going to be a stabilization and possible increase (albeit a very modest increase) in home values. Here in Arizona, the idea that home values will trend upward is optimistic but with all the foreclosures and bank owned properties, I am hesitant in thinking there will be a sustained bull housing market.
Politics aside, the current legal battle between Arizona and the Federal Government will likely have some implications for the housing market here. Time will tell whether the hot button immigration issues here will lead to an influx of homeowners or an outflow of people leaving, but personally I don’t think too many people will make the most important purchase of their life based on court battles.
Right now, so many homes are for sale, with many more owned by the banks, that it is truly difficult for stabilization to occur. Simple supply and demand dictates that too much supply and not enough demand will drive down prices because of a flooded market.
What scares me the most is the idea that even if there is stabilization, the banks could easily derail a recovery. Right now, the banks own massive amounts of homes, and a lot of banks are not putting them on the market because of the weak demand for housing. What this means is that as soon as the market starts to pick up, we will start to see more bank owned houses that are currently vacant put up for sale. This will again flood the market with supply without lockstep increases in demand, driving down prices yet again.
The obvious message of this is clear, people needing to sell their homes will face a saturated market; homeowners will be forced to compete for buyers with the banks that have the time and resources to wait out a sale and the means to finance a potential buyer.
With so many foreclosures happening the banks continue to stockpile their inventory of homes. Obviously the housing market is not a prime seller’s market right now, so these banks will likely sit on these repossessed houses, keeping them vacant, until property values show signs of appreciating. That’s when the market will be flooded yet again with these bank owned homes, killing off any increases in home values. One step forward, two steps backward.
The effect of supply without demand will also negatively impact the refinance market as well. When prices go up, the supply will be again flooded, bringing down values. What this means for homeowners needing to refinance is high volatility in appraisals. Imagine that in 2011, your neighborhood sees an increase in home prices and you successfully refinance given the newfound equity in your home; the bank suddenly puts two or three homes they own, that have sat vacant, for sale in your neighborhood to profit from the appreciation; this flood of supply will inherently drag down all the home values of the neighborhood; your home value will go down with the neighborhood, quite possibly putting the newly refinanced into a position of being underwater. This could lead to an increase in strategic defaults. One step forward, two steps backward.
Got questions? Send me an e-mail: Matt@desertedgelegal.com
DISCLAIMER:
****MATT AZARI IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HIS OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****
Principal Reduction Coming to AZ?
Wall Street got their bailout, that’s bitter, yet old news; however the outspoken thought on the minds of the rest of America remains, where’s the bailout for Main Street? Under a new plan called Save My Home AZ, expected to launch in September of 2010, some Arizona homeowners may finally get some much needed help in reducing the balance of their mortgages by $100,000 or more. The program is a trial run, paving the way for a broader reaching program to keep homeowners in their homes.
Back in February, the Arizona Department of Housing received $125 million in federal funds to help stabilize Arizona’s declining home market. Recently, Washington, D.C. gave its blessing to allow Arizona to use the money to reduce mortgage balances for up to 1,850 households. Here are the details:
- Borrowers can receive up to $50,000 in state-issued funds to use towards what they owe on their mortgage
- 75% of the funds will be issued in Maricopa County
- These “loans” will in all probability not have to be repaid in full
- Households that have seen their incomes slashed can receive up to $12,000, to be applied to up to 1,000 households
- Incentivize lenders to work with homeowners to settle second mortgages by offering the lender up to $5,000 if they settle with the homeowner
Though this plan will certainly not neutralize the foreclosure situation across Arizona, it is a start. The pilot-program promises to show what outcomes can be expected by directly helping distressed homeowners instead of the trickle down bailouts we have seen over the past year that seem to only benefit the banks.
However, like any bit of good news that sounds too good to be true, the devil is in the details. The biggest red flag is that participation by the lenders is optional. Additionally, the program relies on a matching system where the lender matches the dollar amount of federal funds received by homeowners. With so many big lenders out there refusing to negotiate mortgage modifications, there is definitely cause for skepticism as to whether the big lenders will capitulate and participate. Moreover, eligibility guidelines are quite narrow (see “Guidelines” below), meaning the majority of the 50,000 expected foreclosures in AZ this year will not be stopped by this program.
On its face, this plan does offer a bit of pragmatism, which has been noticeably absent throughout this entire housing crisis. For example, homeowners who receive these home-saving funds would be obligated to repay portions of the “loans” if they sell the home within ten years or if the home appreciates in value.
I remain skeptical for several reasons. First, why now? Where was this program last year or the year before? It almost seems as though it is too little too late. Like previous modification programs, this plan seems plagued by strict and narrow guidelines, disqualifying most homeowners. When I worked as a mortgage banker, supposedly modification programs were available to homeowners with Freddie or Fannie backed loans; however never once did I connect with a client who qualified, regardless of whether their loan was Fannie or Freddie.
Second, is $125 million in funds enough to spur any sort of a noticeable correction in the Arizona housing market? With an expected 50,000 foreclosures in AZ this year alone, $125 million sounds like a drop in the bucket. Just for a simple comparison, figure the mortgage balance of each foreclosure averaged over the 50,000 expected foreclosures is $50,000 (completely hypothetical, just a round figure to use as an example). That yields $2.5 billion, so the $125 million in federal funds covers a mere 5%, hardly enough to correct the housing crisis here in AZ.
My biggest skepticism lies with the lenders; with participation optional, it seems unlikely that most big lenders will voluntarily take part in this plan. If they will, why wouldn’t they just negotiate with homeowners to settle a modification from the get go?
Guidelines:
Foreclosures must be imminent. Households must have exhausted all options for remaining current on payments.
Modest primary residences. Assistance may only be used for borrowers’ primary residences, and may only help households with incomes at or below 120 percent of the area’s median income.
Personal responsibility. Money may not go to borrowers who face foreclosure for “self-inflicted” reasons, such as refinancing to take out equity or basing mortgages on undocumented income.
Hardships. Applicants must demonstrate hardship, such as reduced income due to underemployment, medical condition, divorce or death.
Source: “Proposal for use of HFA Hardest-Hit Fund (Third Revision),” Arizona Department of Housing
If you have any questions, please feel free to email me at matt@desertedgelegal.com.
DISCLAIMER:
****MATT AZARI IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HIS OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****
Announcing DIYSTOPFORECLOSURE.COM
So here it is, the big announcement we were going to make a few weeks ago about our new project. I just wanted to let you know that our new site, called www.DIYSTOPFORECLOSURE.com is up and ready for those of you who are interested in joining.
It’s free to sign up during the first thirty days of our launch, and as the site grows, we’ll be adding more features. The site will become subscription based shortly, so I encourage you to join and check it out while it’s still free.
Josh and I will continue to maintain the ForeclosureIndustry.com blog, but we’ll be available to answer more questions in-depth for the members of DIY. We’ll also have forms, videos and other in-depth content that subscribers will have access to so that they can start planning their foreclosure defense.
My original idea was to have a database where homeowners can find information related to foreclosure in their specific region, and this site is the outcome of that idea. I like the idea of homeowners helping each other stop foreclosure because I think a grassroots effort can yield big results.
See you there!
Christine
The Foreclosure Game is Changing and So Are We
If you’ve been reading my previous posts, you’ve probably picked up that the foreclosure game has changed, at least for us. The court decisions and all the new information I’ve learned in the past few weeks has convinced me that the market has spoken and we’re changing some things to better help you fight foreclosure on your own.
To my frustration, I’ve had a tough time finding lawyers who would even listen to me. I never thought it would be as difficult as it has been. I know one great lawyer in LA who gets it, but beyond that, I haven’t heard from any lawyers out there who understand enough to help homeowners without charging a lot of money. Money that a lot of you just don’t have right now.
So, I’ve heard you! And because it’s obvious to me that there are very few resources out there to help you, we’re changing some things here too.
First of all, we will make BIG announcement on Monday about a new resource we’re launching. This will be the culmination of several things Josh and I have been talking about behind the scenes, so please check back on Monday for that news and a special offer.
Second, Desert Edge Legal Services (my company) is moving away from the loan audit process as we’ve been doing it. We have enough information from the court decisions to know that homeowners aren’t winning based on TILA, RESPA, HOEPA, UCC, RICO, etc.
Thus, it seems to me that the analysis of TILA and RESPA aren’t even needed anymore, so we’re not going to focus on TILA/RESPA at all unless you are working with an attorney who tells you he or she wants one, or you’re going to DIY and you’re current on your house payments. Judges seem to take people more seriously if they aren’t behind on their payments or are represented by an attorney.
I’m actually pretty happy about this development, because audits take a lot of time to complete. In addition, because we have had a lot of trouble finding lawyers who understood how to help homeowners, the loan audit as a tool hasn’t been as useful as I would have liked.
It was the best tool we had in our arsenal and better than nothing, but it’s clear to me that the overwhelming majority of you are facing foreclosure on your own and there are few good resources out there to help you.
So, we’ve decided to expand our services – we are now offering a customized review of your documents and an analysis of the chain of assignment to determine what’s going on in your particular case and how you can fight on your own. If you don’t speak up about what’s happening with the fraudulent MERS assignments and the problems with securitization of your home loans, the courts will let a pretender lender take your house without proving they have authority to do so.
So, if you have a pending Notice of Trustee’s sale and are under the gun to do something sooner rather than later, a loan audit isn’t going to help you – but understanding what is happening with the chain of assignment WILL help you go into a courtroom and stall a foreclosure if the fact pattern is there.
Third, we are going to bring on an attorney in some capacity in the spring that can help some of you with representation or find someone in your area who can help you. It’s been my experience that a lot of attorneys have their egos involved and will not talk to me because I’m a paralegal and not an attorney. However, I will be involved with the training of this attorney and the plan is to help more of you for a reasonable fee. I might be wrong on this, but I still think you have a better shot at winning if you have an attorney who gets it.
Fourth, you’ll start seeing more information from Josh. He’s was behind the scenes mostly in 2009, but demand is picking up, so if you ask us for help, you might get a call back from Josh.
Finally, I’ve been kicking around the idea of going to law school part time here in Phoenix in 2010. I won’t be done in time to help our readers with this crisis, but it’s been bothering me that I haven’t taken that final step – on some level, I feel like I’ve missed the boat on the foreclosure crisis. On the other hand, I also think things happen for a reason, so it will all work out the way it’s supposed to.
If you need our help, as always, send me an e-mail: Christine@DesertEdgeLegal.com. I will spend fifteen or so minutes on the phone with you to see if I can help you and we’ll go from there.
Stay tuned for Monday’s announcement!
