Behind The Mortgage

Tuesday, May 06, 2008

Foreclosures: Impact on Real Estate Market May Not be as Severe as Expected

We're talking about foreclosures and short-sales folks, or, as a new report from the Minneapolis Area Association of Realtors terms it: Lender-Mediated Sales.

Jeff Allen, research director at the MAAR and Aaron Dickinson, Edina Realty agent (and blogger) are responsible for this tight little report, entitled "Foreclosures and Short Sales in the Twin Cities Market" which gets to the heart of some questions that have been on a lot of minds lately.

Chief among them: Just how much of the current market activity is foreclosure/short sale related, and what are the broader impacts?

The report itself confirms a fact that many of us tracking the issue anecdotally have suspected: Almost 30% of closed sales (Q1 2008 - see graphic above) are/were in some stage of foreclosure or other "lender-mediated" status, such as a short sale.

One surprising data point gleaned by Jeff and Aaron was the fact that there is a fairly stark dichotomy between lender-mediated and traditional real estate activity in our market. Check out this graphic:

The key takeaway from this is that Median sales prices outside the universe of lender-mediated properties have only deteriorated by 3.9% over the last year. One possible conclusion to be drawn from this is that the rising tide of ~~foreclosures and short sales~~ lender-mediated listings and sales are not putting as much downward pressure on prices of traditionally marketed properties as we would have imagined, and has been reported.

This obvious good news is also seasoned by this fact, from the report:

The actual number of traditional seller new listings has fallen by 27.4 percent over the last two years...So clearly, homeowners are holding steady in their current residences with greater frequency and home builders are producing far less new inventory.

In other words, many sellers, sensing a bear of a market, are simply opting out, while those that are selling, aren't taking nearly the bath that one would expect.

Though it is still early on, and we have a lot of ground to cover before the real estate contraction is over, this report presents a far more optimistic view of the state of our housing market than we, and many others, would have expected.

Yes, prices are falling dramatically in the aggregate, but the bulk of the carnage is occuring in the lender-mediated market, and the traditional market is holding up rather well, all things considered.

Anyway, go read the report - too much good stuff to list it all here - and kudos to Jeff and Aaron for putting this together.

05/06/08 at 08:45 AM Permalink | Comments (12) | TrackBack (0)
Filed Under: Foreclosures, Market Stats, Reports & Research, Short Sales, Twin Cities

Thursday, May 01, 2008

Fed Cuts, Signals Pause: How Will This Impact Mortgage Rates?

The Federal reserve board o governors voted to cut the Federal Funds and Discount Rate by .25% yesterday.

Notable of course was the statement, more than the cut, which seemed to telepgraph a pause to the cutting spree begun last September. From the WSJ:

In a statement the Fed indicated that, although the economy remains under stress, the "substantial" rate cuts and other measures it has taken to lubricate the financial markets have reduced the risk of a severe recession. That language suggested that the Fed intends to pause in its rate-cutting while keeping the door open to more cuts if the economic outlook deteriorates.

Recall that after starting last September, the Fed has now cut rates by 3.25%, yet mortgage rates have only improved by about .75%, (and often worsened immediately after the cuts.) Remember, the Fed does not set mortgage rates - they are based on the price of mortgage backed securities. That said, mortgage rates are higher than they normally would be with the Fed funds rate at these levels. There are two reasons for this:

1. Credit market instability: Kept rates from falling as the market priced-in more risk for all types of home loans.
2. Inflation: All being equal, inflation will cause mortgage rates to rise.

So here's where it gets interesting. Because the Fed has now signaled a pause, and suggests that credit markets may begin firming this year, we may actually see rates improve on this news. Though it is still early, we have already seen this start to play out, as mortgage bonds have seen some slight improvement since yesterday's announcement.

Of course, conditions in the mortgage and real estate markets are still highly stressed. We expect credit, property, and other mortgage underwriting guidelines will continue to tighten this year; so even if rates fall, this may slow any housing market recovery and dampen the impact of lower rates for many classes of borrowers.

05/01/08 at 10:49 AM Permalink | Comments (1) | TrackBack (0)
Filed Under: Interest Rates, The Fed

Tuesday, April 29, 2008

Reports from the Field: Putting the 'Sex' in Sexton

We compiled the image above from this Sexton Property Listing, based on an anonymous tip:

So after reading the Strib article [on the Sexton] I went to the MLS to look at the history.

Turns out there is an active listing from one of the original owners that was foreclosed...I noticed in the details mention of “adult entertainment room”...indeed, the unit includes a lower level decked out in mirrors, couches and poles – a real business opportunity! Yikes!

Word to the wise: If you are going to install a sex room in your condo, be aware that a simple search of property tax records, or in this case a record of Sherrif's Foreclosures makes it easy to establish your identity as a known pervert. Not that we looked it up or anything.

And also: This property is currently listed for $109,900.00 (reduced from $159,900.) Last recorded sales price? $620,000.00.

That is a horse-choking $510,000.00+ loss for homecomings financial.

Bounty: Any agent who can come up with pictures of the AER (a feature that just begs for its own acronym) we'll run your next 3 open houses as posts, or get you some other similar publicity, right here on Behind The Mortgage.

04/29/08 at 03:12 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Condos & New Developments, Downtown, Foreclosures, Sexton, Twin Cities

Monday, April 28, 2008

The Mess at Sexton: More Details

Front and center in the business section today is a massive version of the photo above, via Star Tribune.

Accompanied by an article with more detail on the ongoing saga down at the Sexton, where only 36 of 123 units are occupied, and the entire project is a messy tapestry of fraud, foreclosure, and lawsuits.

"[The Sexton] doesn't come up in conversations very often, but when it does, the comment usually is something like 'That place is really a mess,'" Melchior said.

We'd expect to see some indictments for some of the principal actors soon, and one wonders whether the Sexton Building will be given similar treatment as the TJ Waconia, and is being set up for city administration/ownership/receivorship.
Sexton Building: That Place is a Mess [Strib]

04/28/08 at 03:50 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Condos & New Developments, Downtown, Foreclosures, Fraud, Minneapolis

The Fed: Will They Or Won't They?

Greg Ip at the Wall Street Journal outlines the case for and against a "pause" in Fed Cuts after this week.

Argument for further Cuts:

"There's probably a recession going on, and the Fed may want additional insurance that the recession does not become an escpecially severe one."

Argument against further cuts:

"Additional interest rate cuts could be a little bit worrisome...it could for example lead to further weakness in the dollar, it could lead to futher upward pressure on commodity prices."

In other words, it all will boil down to what the Fed believes is a larger threat to the economy - inflation, or a recession? So far, the Federal Open Market Committee has come down fimly in the recession-is-the-biggest-threat-so-inflation-be-damned camp.

Greg also goes on to make what we think is the central point to this discussion: If we are in a recession, inflation should take care of itself, as it is awfully hard for inflation to persist in the face of slumping demand and zero or negative job growth. "Awfully hard" is not the same is impossible however, and much of the global rise in prices is a result of offshore demand, so the Fed is indeed in a precarious spot here.

This week's cut is a forgone conclusion, but the big news will be if the statement released at the conclusion of the Fed meeting signals an end to cuts. This would almost certainly send mortgage bonds upward, and rates could improve.
Fed Weighs Pause After Next Cut [WSJ]

04/28/08 at 09:08 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Economy, Interest Rates, The Fed

Monday Market Commentary: Fed Meeting & Mortgage Rates

Last Week
A thin economic calendar had bonds marching to the beat of the stock market, which posted small gains for the week (Dow up .3%, NASDAQ up .8%) The notion that inflation may remain elevated and tough to contain and that an end to the Fed easing cycle may be in sight caused mortgage rates to lose ground most of the week. The 30 year fixed rate conforming benchmark increased by .125%-.25%.
This Week
A shortgage of data will not be a problem this week, as the economic calendar is PACKED with high-impact reports, with the Federal Open Market Committee announcement smack in the middle of it. This will give the markets plenty of information to assimilate and could make for a volatile week. Mortgage bonds have been fairly range bound and creeping lower, causing a net-rise in mortgage rates over the past 5 weeks, so this week will give market participants a substantial chance to re-calibrate and set direction for prices as we march into spring proper.

The Fed (meets Tue, Wed) is expected to cut the Federal Funds and discount rate by .25%. More important than the cut - remember mortgage rates often rise after a Fed cut - market participants will scrtunize the statement released on Wednesday for any hints that the Fed may be near the end of it's easing binge. If there are any strong signals that the Fed is done easing, mortgage rates could rise significantly.

Other key events on this week's calendar are outlined in the table below, but the Core PCE (a measure of inflation) and the Jobs Report on Friday stand out to us as the two most important non-Fed data points to watch. A weak job report could help mortgage rates improve, while a "hot" read on inflation could push rates higher.

04/28/08 at 08:22 AM Permalink | Comments (0) | TrackBack (0)

Friday, April 25, 2008

How Many Tickets Would You Buy?

If an organization was raffling off a $1.4 Million dollar home near Lake Minnetonka for charity, how many tickets would you buy?

Unfortunately, we won't get to see this play out:

The state Gambling Control Board has blocked an Inver Grove Heights organization from raffling off a home near Lake Minnetonka worth $1.4 million.

The proposal from CLIMB Theatre would have sold $20 raffle tickets for a chance to win the house. The group that puts on plays and teaches classes at schools had wanted to raise $200,000 for itself and $700,000 for more than 400 other nonprofits.

What we'd like to know is who, when, and why, did someone donate a Million-dollar-plus home to a theater troupe specializing in childrens "education?"

The obvious upside here? Fewer kids will have to suffer through these (excruciatingly politically correct) plays:

CLIMB produces original plays and classes for K-12th grades on topics like:

Bullying Prevention, Respect, Acceptance of Differences, Global Climate Change, Self-Control, Doing Your Best, Methamphetamine Prevention, Responsibility, Harassment Prevention, Cyberbullying Prevention, Friendship.

Gambling Board Shuts Down Home Raffle [WCCO]

04/25/08 at 12:33 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Random

Tuesday, April 22, 2008

Guilty Pleas for TJ Waconia's Balko and Helgason

This hit the streets last Thursday, but since we've been following the trajectory of this now confirmed criminal outift pretty closely:

From approximately 2005 to 2007, Helgason and Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses.

Using the TJ Group, Helgason and Balko purchased approximately 162 properties throughout the Twin Cities metropolitan area, principally in north Minneapolis.

They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than that the TJ Group had paid.

According to the plea agreements, people were told by Helgason and Balko that the investors were simply “lending” his or her credit to TJ Waconia.

Then there's this bizarre bit of drama about Minneapolis somehow "taking control" of these TJ Waconia induced foreclosures:

A judge Wednesday appointed a receiver to manage 141 Minneapolis rental homes associated with a firm accused of mortgage fraud.

The city hopes to gain ownership, fix the homes and work with neighborhoods on whether they should be resold or rented, according to Tom Streitz, its housing director.

We've gotten a few emails on this, and there are more than a few folks assuming this means that the city now owns all of these properties, or soon will.

Though the article is cheap on the details, all we can take from this is that a judge has assigned an attorney as receiver for the properties. Exactly the scope of the powers this receiver will have - let's not forget that someone else (a borrower, bank, lender, or somewhere in between) actually still owns these properties and any action by a judge does not change that - is still unclear.

Our best speculation, based on a law degree we don't have, is that due to the nature and number of foreclosures involved in this case, that the Judge wants someone to take ownwership of, coordinate, and administer tasks that the absentee owners cannot or will not do (check on general condition, report hazards, etc. etc. etc.)

But putting properties into receivorship is a long way from Minneapolis "owning" any of these properties.

Paging Sam Glover, or any other attorney willing to expand on the meaning and import of this?

04/22/08 at 02:54 PM Permalink | Comments (1) | TrackBack (0)
Filed Under: Foreclosures, Fraud, TJ Waconia

Lending Tree Lets Data Slip

If being hounded by lenders with questionable motives and expertise isn't enough to steer you away from "Lending Tree" (whom we note has gone the high-profile sports sponsorship route previously tried by Ameriquest, but instead of baseball, with our beloved PGA Tour - excuse us while we puke) how about this:

several former employees" may have shared confidential passwords with "a handful" of lenders that were not approved by the company.

The lenders then used those passwords to access customer information files that contained mortgage request data such as name, address, e-mail address, phone number, Social Security number, income and employment information.

10-1 says these "lenders" or empoyees were selling access to that data.

UPDATE: Sam Glover (of our local Caveat Emptor, riding shotgun over at Consumerist for a couple of days) hoisted this post, along with some correspondence from Lending Tree attorneys who sought the removal of one of the comments.

The backstory:

The attorney, who called twice and emailed three times before noon, requested that we remove the comment by "Lance Moore" below, which contains some interesting and provacative allegations about Lending Tree's business model, among other things.

He first emailed under the cover of "please remove the non-public URL, this guy is encouraging hackers." Then, when we redacted that url, the attorney followed up right away stating that the comment contained numerous "defamatory" comments and again requested that the comment be removed.

The attorney walked the line pretty carefully, and did not make any explicit threats, but here's the thing: Any time we get an email from a corporate attorney tossing around jargon like "defamatory" and using interrogative sentences like: "Are you refusing to remove this?" we consider that a veiled, if unspoken, threat of legal action.

After all, if they really wanted the whole comment removed, why didn't they just ask for that in the first place? That was what struck us as odd, and might mean their motives were not confined to angst over a hackable public url leading to a lender login page. Maybe related to this? from Sam at Consumerist:

a class-action lawsuit in 2006 alleged just that: banks were not really competing, just LendingTree employees. As far as I can tell, the lawsuit is ongoing.

Lending Tree Tells Clients of Breach [Charlotte Observer]
Full Copy of the Email Sent to Customers Below [via reader Alec Grebis.]

Continue reading "Lending Tree Lets Data Slip"

04/22/08 at 11:09 AM Permalink | Comments (3) | TrackBack (0)
Filed Under: Consumer Protection, Rip-Offs

Monday Tuesday Market Commentary: Rates Rise on Earnings, Inflation

Last Week:
Mortgage rates worsened by roughly .25% in the benchmark 30 year fixed conforming market. This was mostly the result of better than expected series of economic and high profile earnings reports, which gave stocks a boost, and hurt mortgage and other bonds. Persisent concerns over inflation also seemed to weigh-down the bond markets.
This Week:
The rather light economic calendar leaves the markets without the rudder of fresh data to steer by until Wednesday. The calendar also lacks heft this week, containing mostly second tier reports. Look for bonds tp take direction from stocks - rallying stocks will often take money out of bonds, and cause rates to worsen. Existing and new home sales bear watching as investors, wishfully in our opinion, look for an early bottom in real estate.

04/22/08 at 10:11 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Interest Rates

Thursday, April 17, 2008

Short Sales: Many a Slip 'Twixt the Cup and the Lip

Wall Street Journal today has published a piece that will have Real Estate Agents, Loan Officers, and home buyers who've been through the short sale meat-grinder clapping their hands in agreement.

For the unfamiliar, a short-sale is a funky sort of pre-foreclosure action where a lender decides that they are better off accepting a payoff of less than full balance than pursuing an expensive and time consuming foreclosure.

If it works, it is a win-win: The seller avoids foreclosure, the buyer may get a deal, and the lender stands to lose less.

At least that is the theory. The reality of attempting to sell or buy short often works out differently, with some estimating that as many as 80% of short sale offers (where the buyer and seller agree upon a price) fail. From the article:

Lenders average 4.5 WEEKS to respond to offers. Not everybody can wait that long.
The offers are often absurdly low, and are rejected by the lender/servicer.
There are often two lenders who must approve, not just one.
The seller cannot demonstrate that they are in enough financial distress to justify a short sale (

The last bullet contains an important point, and a key to understanding why short sales can be so tough to pull off.

Before entertaining a short sale, the lender wants to be assured that they are going to have to foreclose anyway. So what happens? The borrowers requesting a short sale (the "sellers") are asked to submit to a full financial analysis. Income, credit, and assets are all reviewed. It's literally like underwriting the borrowers all over again, except in reverse, because now the lender is trying to establish the owners can't reasonably afford the property.

It's also a fact that sellers sometimes attempt a "non-arms length" sale - selling to someone they know under some other arrangement, then buying or renting the property back at a better price. This scam happens often enough that the lender spends significant time and energy vetting the buyer to determine that there is no pre-existing relationship.