Foreclosure vs. Short Sale: study shows some surprises

This From Harris University's Real Estate Insider News:

How much impact does a short sale have on FICO® Scores? How about a foreclosure? Since I frequently hear these questions from clients and others, I thought I’d share new FICO research that sheds light on this very subject.

The FICO study simulated various types of mortgage delinquencies on three representative credit bureau profiles of consumers scoring 680, 720 and 780, respectively. I say “representative profiles” because we focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All consumers had an active currently-paid-as-agreed mortgage on file.

Results are shown below. The first chart shows the impact on the score for each stage of delinquency, and the second shows how long it takes the score to fully “recover” after the fact.




All in all, we saw:

■The magnitude of FICO® Score impact is highly dependent on the starting score.

■There’s no significant difference in score impact between short sale/deed-in-lieu/settlement and foreclosure.

■While a score may begin to improve sooner, it could take up to 7-10 years to fully recover, assuming all other obligations are paid as agreed.

■In general, the higher starting score, the longer it takes for the score to fully recover.

■Even if there’s minimal difference in score impact between moderate and severe delinquencies, there may be significant difference in time required for the score to fully recover.

This study provides good benchmarks of score impact from mortgage delinquencies. However, it is important to note that research was done only on select consumer credit profiles. Given the wide range of credit profiles that exist, results may vary beyond what’s in the charts above.
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The only surprise to me was the minimal difference in FICO damage between a Foreclosure and a short sale. Brings into question all the extra hoops and such necessary for a short sale. There is one difference though; it appears at ground level that there are time differences as a short sale often takes six months or more to resolve. Six months opportunity to save for a new start might be significant to many folks.

More as this story develops.

If you have questions about this research, I encourage you to post them here on the blog.

Buy a House, Get a Visa: Congress Looks to Lure Foreign Nationals

Attention Canadian snowbirds, well-heeled Brazilians and boom-era Chinese nationals looking for a little piece of that increasingly elusive thing called “The American Dream.”

America has your number and, literally, it’s $500,000.

In a comprehensive bill that aims to spur foreign travel and spending in the U.S., Senators Charles E. Schumer (D-NY) and Mike Lee (R-UT), have proposed providing a three-year residential visa to foreign nationals who invest at least $500,000 in residential real estate in the U.S. At least $250,000 must be spent on a primary residence where the visa holder will live for at least 180 days out of the year while paying taxes to the U.S.

Investor Warren Buffett offered an early version of this real estate inducement back in August. During an interview on PBS, Buffett suggested that if the U.S. altered policy and opened the door for “rich immigrants,” those resources would be welcomed in a struggling U.S. economy, especially in the area of residential housing.

Inducements for foreign national purchase of U.S. real estate is seen another important step towards bolstering prices and shoring up markets in foreclosure-centric areas.

“There is no silver bullet out there. And really, the path forward is a lot of small steps like this that we’re going to take,” according to Stan Humphries, Zillow’s chief economist.

Real estate analysts have said this proposal could lift demand for U.S. homes and help ease the housing crisis. According to Humphries, foreigners spent more than $80 billion on U.S. homes last year, a 24 percent increase from the year before. A quarter of those buyers were Canadian. Another 25 percent of foreign investors in residential U.S. property is made up of investors from China, Mexico, United Kingdom and India — a percentage that could be boosted should the proposal become law.

Humphries is not alone in advocating myriad measures for alleviating the real estate doldrums. Editorial writers at newspaper around the country are also weighing in.

“Offering smart and abundant pathways to foreign investment in our domestic markets and legal immigration have always been important to America’s long-term economic growth. We wish there were political will to provide even bolder solutions. But it is gratifying to see Lee and Schumer reach across the aisle to identify these politically palatable and modest ways to provide for increased tourism, foreign investment and residential immigration,” said the Deseret News in Salt Lake City, UT.

However, critics question whether the measure is an unnecessary, if not unwarranted, inducement. Debate is being waged around key issues:

■Given the level of investment already, do foreign nationals need further incentive?

■Will foreign buyers actually help spark another real estate bubble, at least in some specific markets generally attractive to non-U.S. investors?

■Is the U.S. housing market’s recovery more dependent on far more broad recovery of the entire U.S. economy?

■Is the residency visa a political ploy to fend off criticism that incentives are being given to foreign investors instead of U.S. citizens, many of whom have been forced out of the U.S. real estate market?
Schumer’s office said the inducement extends beyond the actual real estate purchase. If foreign nationals with cash to buy $500K homes are on U.S. soil, then they are spending money on gas, groceries and other goods and services that bolster local economies.

With a three-year time frame applied to the residency visa, the proposal would also create more enforcement demands. Are foreign nationals living in those properties? What happens when the visa expires?

But Congressional supporters say The Visa Improvements to Stimulate International Tourism to the United States of America Act (VISIT-USA Act) would remove bureaucratic red tape that stifles travel and investment in the U.S. Foreign buyers would not be granted work visas and they would still be subjected to criminal background checks and other safeguard measures.

The proposal has gotten the thumb’s up from the U.S. Chamber of Commerce, the U.S. Travel Assocation and the American Hotel & Lodging Association.

An Update on Housing and Financing

by Abbie Higashi

The housing market continues to bring in mixed reviews. As median sales prices and 2012 home sales predictions edge up slightly, we continue to struggle against market forces such as funding challenges and a continued stream of distressed inventory that detract from upward sales trends. Even positive events such as declining interest rates have a certain negative market impact. With, mortgage interest rates edging back down to historic lows, homeowners jumped on the opportunity to refinance into long term, fixed rate loans. While such activity is generally seen as a positive economic force, the unfortunate tangential effect was to overload processors with loan files. Even with financial institutions prioritizing purchase files for closing, the unforeseen increase in volume invariably caused delays in file reviews simply due to capacity. Many of our realtors in fact experienced delays in closing of their transactions due to such heightened residential mortgage activity where closings scheduled for September pushed into October.

Also, the major financial institutions all appear to have experienced continued funding challenges related to appraisals. As HVCC (Home Valuation Code of Conduct) metamorphosed into the industry standard for appraisals, mandated appraisal independence and advent of AMCs (Appraisal Management Companies ) have, as many feel, sacrificed local knowledge – whether produced by the Realtor, consumer, or local appraisers - for the sake of preserving an objective standard of independence. Shifts in liability and indemnification to the individual appraiser have also produced a level of conservatism that, in conjunction with other levied standards, have inadvertently led to arguably inaccurate and undervalued appraisals. As a result, transactions are delayed while homebuyers and sellers scramble to renegotiate pricing terms, seek an additional appraisal, or pull together funds to make up for the difference in originally stated loan to value and revised loan to value amounts.

Further challenges related to home financing have also surfaced directly from the lending institutions themselves. Many real estate professionals have experienced last minute conditions or de novo file reviews on the part of underwriters while operating under the belief transactions were clear to close. These have occurred with all major national lenders, including Bank of America. These unforeseen issues frustrate home buyers and home sellers not just because of the delay in closing needed to clear the conditions, but also in the many “hoops” buyers are suddenly subjected to in order to produce the information needed to meet the conditions. Many of us have heard our Buyers’ exasperated claims of having to dig through their attics to find old documents to prove, for example, that prior liens have been cleared or other properties are owned free and clear and made to feel that they are now the cause of the delay.

If there’s strength in numbers, perhaps knowing that real estate professionals across the nation are experiencing the same struggles allow us to find the strength to pull through these challenging times. Additionally, major lenders are also taking definitive steps to improve upon their underwriting and fulfillment processes and set hard standards for on time closings, with built in guarantees to consumers. Lastly, implementation of the UAD (Uniform Appraisal Dataset) in January 2012 should also assist in improving the quality and consistency of appraisals. With this in mind, we should all be able to look ahead with a degree of real optimism to balance the current sense of frustration.

.Abbie Higashi is the Corporate Broker at ZIp Realty, Inc.

Winter in Monte Nido?

Yeah, it was 100 degrees in the Valley but in Monte Nido Wednesday they created a winter wonderland using snow blowers for a Lexus Commercial on Cold Canyon Road. I often write of how much I love this part of Malibu Canyon, and there are some fantastic properties for sale here. It's funny to see it in snow, which never (well. almost never) happens. Reminds me of Taos, New Mexico.

Good News: Malibu Condo prices remain low: Bad News: Malibu Condo prices remain low

Per The Malibu Times:

Tough condo market suggests housing recovery still far off
By Rick Wallace / Special to The Malibu Times
Published:
Tuesday, October 4, 2011 11:00 PM PDT


In 2008, even amid the national housing collapse, the median price for a single-family home sale in Malibu rose from $3,050,000 to $3,250,000. It seemed Malibu's pricey lifestyle was immune to market calamity. But only on the surface.

That same year, warnings of impending doom were evident in the very same 90265 ZIP code: the condo market. While home prices were flying high, condos stopped selling. Only 44 condos sold in all of 2008, where there had been 87 such sales just two years earlier. Most particularly, condos not located directly on the sand lost their appeal to a stingier buying public: only 30 inland condos sold, compared to 70 just two years earlier.

Malibu's condo market, particularly the typical inland version, is the link between the luxurious Malibu real estate market and the rest of the real world. When the buying public wants to make a move from Santa Monica or Agoura Hills into the Malibu market, the condo market is the first point of impact; it is priced most similarly to the next lowest-tier from which the buyer steps up (or down) in wealth.

Malibu's condo market shows the way for all market prices above. Want to know how your $5 million estate is doing in the marketplace 18 months in advance? Looking at condo sales at the low end now might be a solid indicator. Homes priced at $1 million today are probably looking at market results in six months similar to what low-end condos are doing now, as a general guess.

And what are low-end condos doing now?

Not much.

Sales in 2011 have been poor, nearly matching the collapse of 2009, offering little inspiration that a recovery is coming to the housing market any time soon.

The local condo market saw a median drop from 2008 at $1,095 million to just $560,000 by 2010 for all condos, including ones directly on the sand. This year, it has inched up slightly to $590,000, hinting at some price stability. On the other hand, while 64 condos sold last year (after 40 sales for all of 2009), this year projects to 57, a slight drop. The total volume of sales is projected to be less than last year, also. Instead of a boost in the market, there has been retreat.

The median annual sales price for inland condos is even more discouraging: $1,030,000 in 2008, dropping to $505,000 last year. So far in 2011, that figure is only $495,000. Values are less than half of what they were three years ago.

During 2007, the very lowest condo sales price in Malibu was $567,000. Last year it was $252,000. So far in 2011: $272,000.

Since condos showed the way to this darker market environment, it is the commodity trusted to guide the higher price tiers out of the doldrums, to be the indicator of better times to come.

Consider how many complexes throughout Malibu are performing:

* One of Malibu's two lowest-priced neighborhoods, the 104-unit Malibu Canyon Village along Civic Center Way, had 10 sales in a spirited 2010, all at $430,000 or less. This year, there have been only four sales so far, with the highest going for $390,000.

* The Malibu Villas, near Paradise Cove, have been decimated unlike anywhere in Malibu. After a couple of sales over $1 million in 2006, (and a half-dozen sales above $800,000 during the glory days), literally nothing sold in 2008, despite dozens of listings that year. The 15 sales since have been for $500,000 or less, including a paltry three deals this year for around $400,000 each.

* The Zumirez View Terrace at Zumirez Drive and Pacific Coast Highway had many sales over $700,000 during 2005-2007, followed by a two-year slowdown. A few sales of less than $500,000 have been made in the last two years.

* Even more illustrious complexes like the Zuma Bay Villas, on the backside of Point Dume, have felt the squeeze. Just two sales have been made for 2010-11. Both of have gone for less than $1 million. By contrast, through 2006-2007, nine units sold for an average of more than $2 million.

Slim sales tallies at surprisingly low prices are the norm for virtually every complex in town. It was not supposed to be that way in 2011. The great, long-awaited hope-that a booming leap of condo sales would lead to price stability, followed by upward movement of single-family home values and a housing recovery-will have to wait longer.

Couple of things here. There's no direct link between Malibu Condos and Malibu housing. Statistically perhaps, but the number of 15 million dollar plus sales this year exceeds those of years past. It's the PRICE POINT that has changed. What HAS happened in the price point where Malibu condos languish: Single family residences have declined at that price point to where they represent a much better value for the money. Also, the writer is concentrating on complexes that just aren't the hot tickets in Malibu that other like-priced condos are. He's using medians and in a thin market that gets you into trouble with your conclusions. This complex near Latigo Canyon for example. Take a look at the location:


This complex(also pictured above the lead for this story)will always see sales because it's right on the sand. The problem with Malibu condos is that the preponderance of them are NOT on the sand, often up to a mile or more away. So there's that.

Also, Malibu condos have notoriously high HOA fees. When you factor them in it makes more sense to go SFR, and you get a private pool and yard with ocean view ( labrador not included)

Ocean this way>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
So dear reader, accept the statistics quoted in the article with a grain of sea salt.

Housing and Economic Forecast Points to Rising Activity

Home sales are expected to stay on an uptrend through 2012, although the performance will be uneven with mortgage constraints weighing on the market, according to experts at a residential real estate forum today at the Realtors® Midyear Legislative Meetings & Trade Expo here.

Lawrence Yun, NAR chief economist, said existing-home sales have been underperforming by historical standards and will rise gradually but unevenly. “If we just hold at the first-quarter sales pace of 5.1 million, sales this year would rise 4 percent, but the remainder of the year looks better,” Yun said. “We expect 5.3 million existing-home sales this year, up from 4.9 million in 2010, with additional gains in 2012 to about 5.6 million – that’s a sustainable level given the size of our population.”

Mortgage interest rates should rise gradually to 5.5 percent by the end of the year and average 6.0 percent in 2012 – still relatively affordable by historic standards.

“A huge volume of cash sales, supported by the recovery in the stock market, show that smart money is chasing real estate. This implies that there could be a sizeable pent-up demand if mortgages become more readily accessible for qualified buyers,” Yun said. “The problem isn’t with interest rates, but with the continuation of unnecessarily tight credit standards that are keeping many creditworthy buyers from getting a loan despite extraordinarily low default rates over the past two years.”

Yun said that if credit requirements returned to normal, safe standards, home sales would be 15 to 20 percent higher. He added that some parents are buying homes with cash for their children, and offering them loans which provide better returns than bank accounts or CDs.

Yun projects the Gross Domestic Product to grow 2.5 percent this year and 2.7 percent in 2012, adding 1.5 million to 2 million jobs yearly over the next two years. The unemployment rate should decline to 8.8 percent by the end of 2011 and average 8.6 percent next year, returning to a normal level of 6 percent around 2015.

Housing starts are forecast to rise but remain below long-term trends, reaching 603,000 in 2011, up from 595,000 last year, and continue growing to 908,000 in 2012. New-home sales are seen at a record low 320,000 this year, rising to 487,000 in 2012. “A recovery in new homes will be slow because of the extra price discount in the existing home market,” Yun noted. In March, the typical new single-family home cost $53,300 more than an existing home.
Inflation appears to be relatively modest for now, with the Consumer Price Index rising 2.9 percent this year. “We’ll be closely watching the impact of fuel costs on consumer spending and inflation – that would slow economic growth, job creation and home sales,” Yun said.

Apartment rents are trending up, and are likely to rise at faster rates as vacancies decline. Following the correction in home prices, it has now become more affordable to buy in most of the country. “Twice as many renters had enough income to buy a home in 2010 in comparison with 2005, so we have a much larger pool of financially qualified renters,” Yun said. “Rising rents and excellent housing affordability conditions will encourage potential buyers who’ve been on the sidelines.”

Yun expects the median existing-home price to remain near $170,000 over the next two years, which would mark four consecutive years of essentially no meaningful price change.

Frank Nothaft, chief economist at Freddie Mac, holds similar views on the outlook. “Economic activity will accelerate this year – there will be no double dip in the economy,” he said. Nothaft is more optimistic on job growth, expecting 2.0 million to 2.5 million jobs created in 2011 with unemployment dropping to 8.4 percent by the end of the year.

Nothaft expects the 30-year fixed-rate mortgage to trend up to 5.25 percent by the end of the year, and for home sales to rise 5 percent. “National home price indices are close to a bottom and prices are likely to bottom sometime this year,” he said.

Refinancing activity in 2011 will be only half of what it was last year. “As a result, banks may become more willing to lend to home buyers,” Nothaft said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries

FHA to offer 12-month grace period to unemployed borrowers

The Federal Housing Administration says the extended grace period for out-of-work borrowers applies only to FHA-backed loans.

Some unemployed Californians facing foreclosure may be able to delay or avoid losing their home. Starting August 1, the FHA will allow qualified homeowners with backed mortgages to stop making monthly payments for 12 months before the foreclosure process begins. Banks servicing the loans would need to approve of the deal.

Gugin said allowing some unemployed homeowners to go without making a monthly payment for twelve months will help some families. About a fifth of the home loan market in California are mortgages backed by the FHA, Gugin estimates.

"I don't think we're going to see a point where we go from 25 (thousand foreclosures) back to five in a year. I think it's going to be a gradual decline and perhaps this is the year where we see the gradual decline because we haven't yet," Gugin said.

"There's still the middle person in the servicer that has to implement the program, and that can still remain a challenge regardless of what the policy (is), Gugin said. "It gives us another option, but it's not a silver bullet."

The extra grace period also applies to homeowners in the government's Making Home Affordable modification program.