More on the MN Foreclosure Mediation Plan

You know from reading our post last week on the Attorney General's Mandatory Mediation plan for fixing the foreclosure crisis is basically a foreclosure moratorium under separate cover. You also know that it is based, in part, on a plan used to halt Farm foreclosures in the 1980's. 

So, in the interest of identifying possible unintended consequences of such an action, we asked a few MN banking veterans (grizzled enough to remember the original program,) what they thought.

The following comment, from a 30+ year veteran of banking who shall remain nameless, was too good not to share:

[Attorney General Swanson] should do more research on the farm bill from the 80's.  What happened when they passed the farm foreclosure act was that banks quit lending on farms completely until they rescinded it.  It's where we got the 10 acre minimum.  Anything over 10 acres had a moratorium on foreclosure.

...we have to quit calling renters homeowners.  Until that happens this won't be fixed.

The last, absolute last, thing that we need is for lending to clamp down further based on the vagaries of "helpful" programs launched by aspirational politicians.  This is sounding more and more like a bad idea.

11/24/08 at 01:59 PM Permalink | Comments (1) | TrackBack (0)
Filed Under: Foreclosures, Housing Market Politics, Twin Cities

MN Attorney General Proposes Foreclosure Relief, Fannie/Freddie to Suspend Foreclosures

MN Attorney general Lori Swanson proposed mandatory mediation for foreclosures at a press conference yesterday.  Strib reports:

The Homeowner Lender Mediation Act, patterned after a program from the mid-1980s that helped about 14,000 Minnesota farmers stay on their land, would put a foreclosure on hold for three months if a borrower asks to renegotiate mortgage terms to an affordable level.

So this is essentially a foreclosure moratorium under separate cover.  To which we say: Fine. Great. To the extent that it helps lenders and borrowers make rational decisions, and gets servicers that aren't negotiating in good faith with borrowers to the bargaining table, it's a good thing.

We do maintain a healthy skepticism about the extent of relief a moratorium of any kind will bring.  There are simply many, many foreclosures that will happen, no matter what. It is an unfortunate fact of a declining real estate market and faltering economy.

Also, as we shared with Chris Snowbeck at the Pioneer Press on this subject, if we are going to enlist the power of the state to professionally renegotiate mortgage terms on behalf of borrowers, there's real concern in many quarters that we are rewarding many that, perhaps, took ill-considered risks, and punishing those who stayed within their means. A quick scan of the angry comments on this article at the Strib is telling.

That said, with Fannie and Freddie announcing their own foreclosure moratorium, we're mostly beyond the point where flip arguments about "moral hazard" and "unintended consequences" are even relevant to the current conversation.  The banks, the servicers, and the borrowers need time.  Time to get control of the process and allow other relief efforts to take effect.

11/21/08 at 06:13 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Consumer Protection, Credit Crunch, Fannie Mae, Foreclosures, Freddie Mac

Why a Foreclosure Rescue Plan May not Work as Intended

Deborah Solomon, writing over at the WSJ blog Real Time Economics, teases out an interesting angle on just why Treasury is reluctant to use Federal rescue funds to support a loan modification/foreclosure prevention plan in the manner being advanced by Sheila Bair at FDIC and congressional Democrats, where the government covers 50% of losses on modified loans that re-default:

Mr. Paulson and others have qualms with it, in part because they believe it provides an incentive for banks to foreclose and may convince some borrowers to stop making payments in order to qualify for government aid. Within Treasury there’s a view that if the government is going to cover half the loss, banks will modify the terms of a loan for weak borrowers they know can’t make their payments, then foreclose and get the government to make up half the loss.

See how that works?  By modifying only those loans highly likely to default again, a program intended to benefit homeowners and slow foreclosures might actually increase foreclosures, at least in the short term.

Worse yet, unlike buying shares or "troubled" assets from the banks, there's not even the veneer of government "investment." The egovernment is just paying directly for losses.

This is why bailouts get so sticky.  Once the money starts flowing, everyone involved alters their behavior to get the maximum financial benefit, with all sorts of predictably ugly results: Homeowners defaulting on purpose to get a modification, banks modifying doomed loans to halve their losses, that sort of thing. To the point where we've got multinational insurance companies buying up smallish savings and loans to hang a thrift charter around their neck and gain access to the Federal cookie jar.

11/18/08 at 03:42 PM Permalink | Comments (1) | TrackBack (0)
Filed Under: Banking Bailout, Foreclosures

Coming Soon? FDIC's Loan Modification Plan, Foreclosure Moratorium

Today's Wall Street Journal has an update on the forthcoming loan modification program from the Treasury and FDIC that we mentioned last week.  It appears they are getting closer:

And the Treasury, the Federal Deposit Insurance Corp. and other government agencies are said to be close to announcing a government program to address residential foreclosures at the root of the crisis.

Semi-related and also worth noting is that with the election over, a resurgent democrat congress will likely redouble it's pursuit of a 90 Day Moratorium on Foreclosures.  The general idea behind a moratorium is that it will (forcibly, we note) inspire servicers to consider modifications rather than foreclosures, thereby keeping people in homes.

American Banker notes that some servicers are terrified of this:

"A foreclosure moratorium would make a correction take much longer and have unintended consequences on servicers who already have liquidity constraints," said Dennis Stowe,a buyer and servicer of distressed mortgages."

The likelihood some sort of moratorium will pass as early as January has inspired at least one big bank, Chase, to institute it's own 90 day moratorium, presumably to get ahead of the coming legislative storm, and focus on modifications.

To supporters, a moratorium sounds great, albeit in a populist, "lets stick up for the little guy sort of way."   But in practice, these types of sweeping "solutions" can be riddled with problems.  And you can bet your sisters kitty that there will be consequences neither desirable nor intended from any moratorium.

Higher rates, higher down payments, higher mortgage insurance rates, a prolonged housing correction, and the possibility that we'll have to shovel more taxpayer dollars into the ailing banking system are the first few that spring to mind. There are more.

On the other hand we've already seen much the preceeding list happen, so I guess the questions worth asking are: How much worse could a moratorium make things, and whether servicer objections are as much about keeping congress out of their knickers as they are about preventing distress to future borrowers.

One thing is clear, and worth keeping in mind when the details of these efforts are put forth: Any attempt to prop up housing values will not work, and the shortest distance between where we are now and a healthy housing market is to let the correction happen, and get it over with as quickly as possible. We don't see how a moratorium helps in that regard.

Our guess is that the number of additional modifications that happen as a result of a moratorium will be small, at least if the industry and FDIC's modification track record thus far are an indication of how this will go.

For most, the best this will do is forestall the inevitable.

We'll be sure to update you when there's an official announcement.

11/06/08 at 01:19 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Banking Bailout, Credit Crunch, Foreclosures, Housing Market Politics

Born Again: When will you be eligible for a mortgage after a foreclosure or short sale?

Did you miss the fact that foreclosure filings were up 71% in the third quarter?

Which makes it a good time to remind everyone of the rules that govern when and how you'll be eligible for a mortgage after you've been foreclosed, surrendered a deed, or negotiated a short sale.

For borrowers with a foreclosure, short sale, or deed in lieu of foreclosure on their credit history, the following timelines apply before they'll be eligible for a conforming, conventional mortgage (Fannie Mae/Freddie Mac):

• Foreclosure: 5 years from completion date, minimum 680 FICO and 10% down for 7 years, investment property, second homes, cash out refinances not allowed for 7 years.

• Deed-in-Lieu of Foreclosure: 4 years, at least 10% down required for 7 years.

• Short Sale: 2 years.  4 years for Freddie Mac

For what it's worth, under FHA rules you have to wait two years before you are born-again.

Goes without saying that if you do wind up with a foreclosure (or one of it's close cousins) on your record, unless you handle the period after the foreclosure properly by re-establishing credit - no easy trick with a serious derogatory on your record - and accumulating a sizeable down payment, you are likely to be renting for a long, long time.

Or, another way to look at this: At some point in the next five years, buying may look really cheap, and you'll be locked out of the game.

10/24/08 at 09:36 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Credit, Fannie Mae, Foreclosures, Freddie Mac, Short Sales

Report: Lender-Mediated Homes 34.5% of Twin Cities Sales

Please amuse yourselves be geeking out on the updated Foreclosures and Short Sales in the Twin Cities Housing Market report (pdf) from the Minneapolis Area Association of Realtors.  Lots of great data and insight, and here's one graphic that stuck out (click to biggify):

Lender-Mediated of course being the catch-all phrase for short sales, foreclosures, et al.

Also, don't confuse this:  34.5% of sales are lender mediated.  That does not mean that 34.5% of homes in the Twin Cities are in some stage of foreclosure.

Despite the fact that every media outlet likes to shout the F Word, foreclosures, short sales, and the like remain a very small percentage of overall housing stock - perhaps 1-3%.
PDF: Foreclosures and Short Sales in the TC Market [MAAR]

10/17/08 at 01:39 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Foreclosures, Reports & Research, Short Sales, Twin Cities

Foreclosures: Heating Up in the West Metro

Graphic via Strib

Steve Brandt at the Star Tribune with an interesting find:

Foreclosure data for the first half of 2008 show that the number of sheriff's sales jumped 59 percent in suburban Hennepin, compared with the same period last year.

But the number of sales is up only 20 percent so far this year in Minneapolis, and there are indications they are leveling off on the North Side, which has been the epicenter of the state's foreclosure crisis.

Pure speculation on our part, but it seems that many of the foreclosures in Minneapolis, and especially North Minneapolis were of the more toxic variety, and simply went bad more quickly.

There was fraud in the burbs, to be sure, but the declining real estate market will take its toll, resulting in more "natural" foreclosures (job loss, divorce, speculation) in addition to those of the shady and toxic strain. It may simply take longer for the foreclosure numbers to build in these areas.

07/31/08 at 05:46 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Foreclosures, Minneapolis, Twin Cities, Western Burb's

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 (14) | TrackBack (0)
Filed Under: Foreclosures, Market Stats, Reports & Research, Short Sales, Twin Cities

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 (3) | TrackBack (0)
Filed Under: Condos & New Developments, Downtown, Foreclosures, Sexton, Twin Cities

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