Safeguard Properties

Housing Recovers Faster in Non-Judicial Foreclosure States

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On December 1, Boston Herald published an article titled Housing Recovers Faster in Non-Judicial Foreclosure States.

Housing recovers faster in non-judicial foreclosure states

WASHINGTON — Why have many of the local housing markets that were hit hardest during the bust — especially in California — bounced back so vigorously and quickly, with prices close to or exceeding where they were in 2005 and 2006?

And why have many others along the East Coast and in the Midwest had a slower move toward recovery, with sluggish sales and gradual increases in values?

Though multiple economic factors are at work, appraisal industry experts believe they have isolated a crucial and perhaps surprising answer: Real estate markets rebound much faster in areas where state law permits foreclosures to proceed quickly, moving homes with defaulted loans into new owners’ hands expeditiously, rather than allowing them to sit and deteriorate, tied up in court procedures for years. Prices of foreclosed homes in such areas typically are depressed and negatively affect values of neighboring properties, but they don’t remain so for lengthy periods because investors and other buyers swoop in and return them to residential use rapidly.

By contrast, in states where laws allow large numbers of homes in the process of foreclosure to remain in legal limbo, often empty and unsold, home-price recoveries are hindered because lenders are prevented from recovering and reselling the units to buyers who’ll fix them up and add value.

Pro Teck Valuation Services, a national appraisal firm based in Waltham, recently completed research in 30 major metropolitan areas that dramatically illustrates the point. All the fastest-rebounding markets in October — those with strong sales, price increases and low inventories of unsold houses — were located in so-called non-judicial states, where foreclosures can proceed without the intervention of courts.

All the worst-performing markets — where prices and sales have been less robust and there are excessive numbers of houses available but unsold — were located in judicial states, where post-default proceedings can stall foreclosure completions for two to three years or even more in some cases.

Among the best-performing areas were California markets such as Los Angeles and San Diego. California is a non-judicial state. Among the worst performers were Florida markets such as Tampa and Fort Myers, as well as parts of Illinois and Wisconsin. All of these are judicial states.

Currently, 22 states are classified as judicial foreclosure jurisdictions, including Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin. All other states handle foreclosures without court participation.

Tom O’Grady, CEO of Pro Teck, says the differing rebound patterns of judicial and non-judicial foreclosure states jumped out of the study data dramatically. “When we looked closer” at rebound performances state by state, “we observed that non-judicial states bottomed out sooner” — typically between 2009 and 2011 — “versus 2011 to 2012 for judicial states, and have seen greater appreciation since the bottom,” typically 50 percent to 80 percent compared with just 10 percent to 45 percent for judicial states, O’Grady said.

“Our hypothesis,” he added, “is that non-judicial states have been able to work through the foreclosure ‘glut’ faster, allowing them to get back into a non-distressed housing market sooner, and are therefore seeing greater appreciation.”

Judicial states, on the other hand, tend to be still struggling with homes flowing out of the foreclosure pipeline — prolonging the negative price effects on other houses for sale.

O’Grady noted that in non-judicial states such as California, foreclosures now account for just 10 percent of all sales, and home listings amount to a four-month supply — well below the national average. In slow-moving judicial states, by contrast, anywhere from 25 percent to 50 percent of all sales are foreclosures, and unsold inventory represents anywhere from a five-month to 10-month supply.

The takeaway here? Though real estate prices are popularly thought of as reflecting the “location, location, location” mantra, inherent in that concept is something less well-known: State laws governing foreclosure affect market values as well and govern how well they bounce back after a shock.

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Eminent Domain Takes Root in Areas of High Unemployment, Poverty

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On December 2, DSNews published an article titled Eminent Domain Takes Root in Areas with High Unemployment, Poverty.

Eminent Domain Takes Root in Areas with High Unemployment, Poverty

Plummeting home values across the country left many homeowners owing more on their mortgage than their home was worth, and although rising prices have lifted millions to positions of positive equity, one in five mortgage borrowers remains underwater today.

To address widespread negative equity in their local communities, at least 15 cities and counties are considering using eminent domain to seize underwater homes from lenders and investors and lower borrowers’ mortgage principal balances, according to the Urban Institute.

San Bernardino County in California was the first municipality to explore the concept of using eminent domain to combat negative equity with a plan that involves first attempting to purchase underwater loans from the mortgage holders but at an amount below the borrower’s original debt obligation and closer to the current fair market value.

If the mortgage holders refuse to eat the losses on these loans, the local government would invoke eminent domain based on the argument that such authority would prevent foreclosures and ensuing blight. The city, through its investment partner, would then refinance the loans with new terms reflecting the property’s current value.

Faced with the possibility of costly lawsuits from the lenders and investors impacted as well as warnings of the impending impact such action would have on industry participants’ willingness to do business in San Bernardino, county officials abandoned the idea in January.

Since then, a number of other cities and counties have taken up the proposal, including the California cities of Richmond, El Monte, Fontana, Ontario, Pomona, Salinas, and Stockton, as well as North Las Vegas; Chicago; Wayne County, Michigan; Brocton, Massachusetts; Suffolk County, New York; and Newark and Irvington, New Jersey.

The Urban Institute recently conducted a study to see what commonalities are shared among these 14 communities, as well as San Bernardino County.

Researchers examined American Community Survey data from 2007 to 2011 and found that all 15 communities suffer from high levels of unemployment and poverty, stagnant incomes, low housing prices, and high shares of cost-burdened homeowners.

Except for Suffolk County, all of the municipalities had unemployment rates over the five-year examination period that exceeded the national average, reaching into the mid-teens, according to the Urban Institute’s Pamela Lee, author of the report on the research findings. Unemployment ranged from 10.4 percent in North Las Vegas to 17.4 percent in Wayne County, which is double the national rate, Lee explained.

In six municipalities—El Monte, Salinas, Stockton, Chicago, Wayne County, and Newark—more than a fifth of the residents live below poverty level. The study also showed that median household income increased in only four communities; among those, Ontario, Stockton, and Newark saw increases of just 2 percent or less (Fontana’s median income rose 7 percent). In Suffolk County, real incomes dropped by 21 percent, and in Wayne County, the decline was 39 percent.

The researchers tracked residential home price changes from 2006 through 2013 and compared all the cities that have considered the eminent domain plan against the counties and states in which they reside. The data indicate none of the municipalities have recovered as well as the nation overall, according to Lee. In addition, none are improving as well as their home states, and nearly all lag behind their counties’ price recoveries.

In nearly all 15 municipalities, more than 40 percent of mortgaged homeowners are putting more than 35 percent of their income toward their monthly mortgage payments and additional costs associated with homeownership. The only exception is Wayne County, where 32 percent of borrowers are committing more than a third of their incomes to housing costs—still above the national rate of 29 percent.

“The cities and counties that have considered eminent domain are, in essence, pockets of distress left behind as the tide of the recession gradually pulls back,” Lee said.

“The negative indicators shared by municipalities that have considered the eminent domain solution indicate that their shared problems extend beyond housing. These cities have traditionally suffered from lack of investment, high crime rates, concentrated poverty, and other general barriers to opportunity,” Lee wrote in the research report. “These factors contributed to their poor performance during and after the housing crash, and the relief efforts to date, both from lenders and policymakers, have been modest relative to the scale of the problem.”

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Displaced by Hurricane Sandy, and Living in Limbo

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On December 6, The New York Times published an article titled Displaced by Hurricane Sandy, and Living in Limbo.

Displaced by Hurricane Sandy, and Living in Limbo

LONG BEACH, N.Y. — For Kathryn Fitzgerald and her young daughter, Megan, home was a modest three-bedroom house here, on a tightly packed segment of Delaware Avenue two blocks from the Atlantic Ocean. That was the only home that Megan had ever known, until Hurricane Sandy hit and a rank mixture of floodwater and untreated sewage rose to chest-high in the lower level of the house.

Since then, they have lived in rental apartments and Megan, now 9, attended an unfamiliar school in another town for a while as her mother appealed for enough aid to rebuild the life they had.

When inspectors arrived at Ms. Fitzgerald’s house in November 2012, they pronounced her house “substantially damaged,” meaning that more than half of its value had been destroyed overnight. But her homeowner’s insurance policy did not cover flood damage.

She had a federally subsidized flood insurance policy, but the company that wrote it offered her just $71,000. She appealed, arguing that her three-bedroom house had been worth more than double that, but her appeal was denied. She appealed again, and was again denied.

Lacking the wherewithal to start overhauling her house and believing that it was too vulnerable to another big storm, Ms. Fitzgerald paid $11,500 to have it torn down. Now she owns a sandlot surrounded by a fence bearing a sign that warns against trespassing.

“This has been a horrendously hard year for me,” she said. “If I don’t think of this in a way that is going to relieve the anger and upset, then I’ll just go back to crying every day.”

More than a year after one of the country’s largest-ever disaster recovery efforts began, Ms. Fitzgerald is among the more than 30,000 residents of New York and New Jersey who remain displaced by the storm, mired in a bureaucratic and financial limbo.

Imposing on relatives and draining their savings while pleading for assistance from a dizzying array of government agencies, they say they fear they will never get home.

The Federal Emergency Management Agency said it had provided $1.4 billion in direct aid to victims of the storm and $7.9 billion in flood insurance payouts, and that the Small Business Administration had made $2.4 billion in low-interest loans to homeowners and businesses. What it did not announce was that less than half of the people who sought emergency money received any, as an analysis by The New York Times of FEMA data shows, or that in many cases flood insurance covered only a fraction of the losses.

According to the analysis by The Times, in the areas in and around New York City that were hit hardest by the storm, almost half of the people who received assistance from FEMA got less than $5,000. Most of that money was intended to cover housing and other emergency costs immediately after the storm.

Hurricane Sandy was a storm like no other in the history of New York. It left more than 100 people dead and caused enormous structural damage that will take years to repair.

FEMA has received claims for nearly 16 million square feet of drywall, 56,000 furnaces and water heaters and enough paint to cover 43 million square feet.

But the most the agency gave in “individual assistance” to any single homeowner was about $36,000. The agency’s representatives instructed homeowners to file claims on their flood insurance policies, if they had one, and to apply for loans from the Small Business Administration, if they qualified. But as those first, small installments ran out, the frustration of negotiating with insurers added to the stress of being displaced.

“I think flood insurance underpayments is the single biggest reason for why the rebuilding hasn’t really taken off,” said Benjamin R. Rajotte, director of the Disaster Relief Clinic at the Touro Law Center in Central Islip, N.Y. “Frequently, people are coming in saying they received half or less of what it would take to rebuild their house, not even to raise them up but just to rebuild.”

Officials at FEMA, which oversees the national flood insurance program, said that adjusters had incentive to cover all eligible losses, but that some policyholders might be disappointed at receiving money for what things were worth, rather than what it would cost to replace them. Those with complaints may appeal the decisions.

Many residents of the region were also surprised to have claims denied for damage to the foundations of their houses because the damage was deemed to have resulted from “earth movement,” not storm flooding.

Some of those displaced, like Rochelle Grubb of Far Rockaway, Queens, had no insurance at all against a flood.

Ms. Grubb, 41, a special-needs teacher at Public School 256 in Queens, had allowed her flood insurance to lapse before her house on Beach 101st Street was inundated by the fast-rising water.

In early December, she said she had been tutoring and her husband, Timothy, had been working overtime to come up with the $270,000 they estimated it would cost them to rebuild.

Please click here to view the article in its entirety.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Baltimore, MD May Explore Use of Eminent Domain to Combat Blight

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On November 25, The Baltimore Sun published an article titled Some Call on City to Explore Eminent Domain to Combat Blight.

Some call on city to explore eminent domain to combat blight

A California city’s controversial plan to use eminent domain to help its residents burdened with mortgages worth more than their homes has caught the eye of some Baltimore leaders, who say the city might benefit from the program.

There are thousands of such underwater mortgages in Baltimore, so 4th District Councilman Bill Henry has asked the City Council to explore the possibility of using the city’s power to take mortgages from banks and then work with a private firm to refinance the loans based on current property value.

The city of Richmond, Calif., pioneered the idea by establishing an authority to offer to buy underwater loans from lenders and, if refused, seize them by eminent domain for refinancing using the home’s current value. New, private investors would fund the program, which targets loans that are difficult to refinance because they are locked up in private-label securitizations, packages of mortgages sold by investment banks.

Under eminent domain, property must be acquired for “fair market value,” which means the city could force the owner to take a loss on the face value of the loan.

Divisions of Wells Fargo & Co. and Deutsche Bank AG promptly sued Richmond over the program, saying it is driven by profit, not public good. Mortgage investors, the banks argued, would be hit with “irreparable economic harm” if the program moves forward. A federal judge dismissed the case, and a similar one filed by Bank of New York Mellon and others, saying the program has yet to go into effect. The banks appealed.

The Federal Housing Finance Administration also criticized the program, saying it would instruct Fannie Mae and Freddie Mac to stop working in municipalities that adopt such a program. Since Fannie and Freddie buy, repackage and sell most of the nation’s mortgages, that would severely crimp the availability of mortgage lending in those communities.

Underwater mortgages remain a problem around the country as the residential real estate market slowly rebounds from its collapse.

In the Baltimore-Towson area, about 13 percent of mortgages are underwater, meaning the mortgage debt is greater than the current value of the property, according to a CoreLogic analysis based on June data. In Maryland as a whole, about 17 percent of mortgages are underwater, which is considered a predictor of future default.

Some areas have much higher rates. In Baltimore’s Carrollton Ridge, for example, 41 percent of homes are underwater, with 19 percent delinquent, according to ZIP code analysis by Zillow.

“People whom I respect in the housing field believe this is an appropriate way to proceed to address that problem, and therefore I’m hopeful that the city will seek to use its eminent domain authority for this purpose,” said state Del. Samuel Rosenberg, a Baltimore Democrat who grew interested in the program last year after reading about it.

Henry asked the council Nov. 18 to look at the way Richmond is using eminent domain and issue a resolution in support of that city’s efforts. The resolution was sent to committee.

“It would be one thing if we could rely on all banks to be completely responsible property owners and maintain those properties in the same condition that an owner-occupier would, but the truth of the matter is that we can’t and a lot of times what that ends up meaning is vacant, blighted houses,” Henry said.

Richmond is working with Mortgage Resolution Partners, a San Francisco-based firm, that would arrange the refinancings under the program. The company proposed the idea in Richmond and would collect $4,500 for each mortgage refinanced there.

The firm’s staff has spoken “informally” to people in Baltimore about the Richmond program, said Steven Gluckstern, executive chairman of Mortgage Resolution Partners. He estimated that “many thousands” of people in Maryland, especially in Baltimore City and Prince George’s County, could be eligible for such a program.

“I am very confident that the legal arguments are all on the side of the cities and municipalities,” Gluckstern said. “The opposition will make it sound like, ‘Oh, they’re being ripped off. … [But] these loans trade every day.”

The city has tried to improve the housing market with broader intiatives that incentivize homeownership, but it has not focused on underwater mortgages, said Ken Strong, a deputy commissioner for Baltimore Housing. The city is “open” to those ideas, he said.

“We’re continuing to try to innovate and think of new ways to address those problems, so sure, we’d be happy to study it,” he said.

District 5 Councilwoman Rochelle “Rikki” Spector, who opposed immediate adoption of the resolution last week, said she did not know enough about the program to be willing to send a signal of support.

She said she is concerned that the city would assume the risk of the loans and that refinancing mortgages would lead to lower property values, hurting the city’s tax base.

“I don’t know anything about the program, but it seemed like nobody else did either,” she said. “It’s way beyond anything that made any sense.”

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Where America’s Vacant Homes Are

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On November 6, Forbes published an article titled Where America’s Vacant Homes Are.

Where America’s Vacant Homes Are

Trulia Chief Economist Jed Kolko looks at the latest Census data, revealing that the vacancy rate remains elevated, and an unusually high share of vacant homes are being held off the market. It’s this vacancy overhang that is holding back construction activity.

The 2013 Q3 Census Homeownership and Vacancy survey shows that the vacancy rate is still above its pre-bubble level and remains unchanged from one year earlier. This might come as a surprise to house hunters, who have struggled with limited inventory when trying to find a home to buy or rent, but an unusually high share of vacant homes today is being held off the market. The elevated vacancy rate discourages new construction activity and is therefore one of the major hurdles to a full housing recovery.

To understand why vacancies are still widespread and what impact they have, we dug deeper into the Census data as well as other data sources that report vacancies at the metro level. Here’s what we found.

Nationally, Vacancy Rate Still Above Pre-Bubble Level
In the third quarter of 2013, 10.2% of housing units were vacant, excluding vacant homes that the Census classifies as “seasonal,” such as beach homes. Vacant homes include those for sale or for rent, as well as homes “held off market” for various reasons. This vacancy rate of 10.2% – the share of homes that are empty – was unchanged from 2012 Q3 and well above the pre-bubble level. In fact, the vacancy rate today (10.2%) is closer to its peak during the recession (11.0% in Q3 2010) than before the bubble (8.8% in Q3 2000).

But wait – aren’t homes hard to find? Buyers (and renters, too) have had little to choose from because the listed inventory is low. The share of the overall housing stock that is listed for sale, based on National Association of Realtors (NAR) and Census data, rose slightly in 2013 Q3 compared to last year but is lower than at any other point during or after the bubble. In other words, the for-sale inventory is back down to its 2000 level, and tight inventory has helped fuel sharp price increases across the country over the past two years. That means there’s an inventory shortage, but not a housing shortage:

How can the for-sale inventory be relatively low while the vacancy rate is high? Because the share of vacant homes being held off the market – that is, neither for sale nor for rent – is rising. In 2013 Q3, 53.5% of vacant homes were held off market, up slightly from 52.9% in 2012 Q3 and from a low of 45% at the height of the housing bubble in 2006.

The Census data shed some light on these vacant homes being held off market. Over the past year, from 2012 Q3 to 2013 Q3, there were increases in the number of homes that were vacant because they needed repairs or were being prepared to be rented or sold. At the same time, there were declines in the number of vacant homes in foreclosures or other legal proceedings, which is consistent with other data showing big drops in the share of homes in the foreclosure process.

Many of the vacant homes now being held off the market won’t stay off the market forever. Homes under repair or being prepared to be sold or rented could come onto the market. These homes would then be added to the active inventory, which would slow down or even reverse price and rent increases while giving house hunters more housing options. However, the trend in the vacancy rate also depends on how fast vacant homes fill up, which hinges on the growth in the number of households. The Census survey showed that household formation, at 380,000 over the past year in Q3, remains below the normal level of 1.1 million; the underlying survey data showed a slight year-over-year increase in the share of Millennials (age 18-34) living with their parents. Without more new households, vacant homes will fill up slowly.

Where Are America’s Vacant Homes?
Looking at where vacant homes are helps explain why they are vacant. We estimated the share of vacant homes in each of the 100 largest metros, based on the 2000 and 2010 decennial Census, the 2010 and 2012 American Community Survey, and U.S. Postal Service data from 2012 and 2013 (see note below).

The vacancy rate is higher today than it was before the bubble in 86 of the 100 largest metros. That means that the elevated vacancy rate at the national level is widespread at the metro level, too.

More strikingly, the vacancy rate at the metro level as of October 2013 ranges from a low of 3% in San Jose to a high of 19% in Detroit – a huge gap. No other metro approaches Detroit’s high vacancy rate, but the other highest-vacancy metros include two types of metros: (1) other Rustbelt towns, like Gary and Cleveland, and (2) Sunbelt spots like Las Vegas and several Florida metros. Detroit, Gary, and Cleveland all have faced slow economic growth over several decades, and metros with slow growth (or worse, declining population or employment) tend to have more vacant homes. In contrast, Las Vegas and the Florida metros have had rapid growth and are likely to continue to, but they suffered from overbuilding during the housing bubble; in addition, Florida leads states in having the highest share of homes in the foreclosure process, which includes many vacant homes.

Metros with the Highest Vacancy Rate
# U.S. Metro Vacancy rate, Oct 2013 Difference in vacancy rate, Oct 2013 vs Apr 2000
1 Detroit, MI 19.0% 9.3%
2 Palm Bay–Melbourne–Titusville, FL 12.4% 5.0%
3 New Orleans, LA 12.3% 4.1%
4 Gary, IN 12.2% 4.4%
5 Jacksonville, FL 11.7% 1.7%
6 Birmingham, AL 11.6% 1.3%
7 Cleveland, OH 11.4% 3.9%
8 Memphis, TN-MS-AR 11.4% 2.3%
9 Las Vegas, NV 11.2% 3.5%
10 Cape Coral–Fort Myers, FL 11.1% 1.8%

The vacancy rate is lowest in coastal California and several other metros that avoided the worst of the housing bust. San Jose, as well as Ventura County and Orange County in southern California, have the lowest vacancy rates in the country – though slightly above where their vacancy rates were in 2000. Because of geographically limited land as well as building regulations, it is traditionally difficult to build much new housing on the California coast, which helps keep the vacancy rate low.

Metros with the Lowest Vacancy Rate
# U.S. Metro Vacancy rate, Oct 2013 Difference in vacancy rate, Oct 2013 vs Apr 2000
1 San Jose, CA 3.0% 0.3%
2 Ventura County, CA 3.4% 0.6%
3 Orange County, CA 3.9% 0.6%
4 Minneapolis–St. Paul, MN-WI 4.1% 1.5%
5 Denver, CO 4.4% 0.8%
6 San Francisco, CA 4.5% 0.6%
7 Middlesex County, MA 4.5% 1.7%
8 Bethesda–Rockville–Frederick, MD 4.7% 2.4%
9 Long Island, NY 4.7% 1.5%
10 Oakland, CA 5.1% 0.9%

The local vacancy rate matters for construction: builders are hesitant to build new homes where there are many vacant homes. To see the impact on construction, we looked at how metro construction activity in 2013 compares with each metro’s own “normal” over the past twenty-plus years. Among the 10 metros with the highest vacancy rate today, construction in 2013 is just 48% of the historical normal level in those metros. But among the 10 metros with the lowest vacancy rate today, construction in 2013 is right at 100% of the historical normal level in those metros. The general pattern is that metros with more vacant homes have further-below-normal construction activity.

The vacancy rate, therefore, remains a hurdle for the housing recovery. Even though listed inventory is tight, many vacant homes are being held off the market. The overall vacancy rate is above its pre-bubble level and moving downward slowly and irregularly. For construction, and the housing market overall, to return to normal, more vacant homes must be occupied.

The Census Homeownership and Vacancy Survey (HVS) often reports numbers that differ from other Census surveys. We rely on the HVS for national-level trends, comparing current with past HVS data, rather than comparing HVS data directly to other Census sources. The metro-level HVS data is based on too small a sample to use. Instead, to estimate the level and changes in vacancy rates by metro, we added together vacancy changes, excluding seasonal vacancies, from the decennial Census for 2000-2010, from the American Community Survey for 2010-2012, and from the U.S. Postal Service address file for 2012-2013. This yields the change in vacancy rate between 2000 and 2013. We used multiple sources because no one reports both current and historical metro-level vacancies, and each source defines vacancies differently.

To view the online article, please click here.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Study Shows Tornado Did Not Affect Area Foreclosures

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On October 20, The Tuscaloosa News published an article titled Tornado Did Not Affect Area Foreclosures, Study Shows.

Tornado did not affect area foreclosures, study shows

University of Alabama researchers expected to see an increase in foreclosures after the April 27, 2011, tornado devastated about 12 percent of Tuscaloosa. But when they looked at the foreclosure numbers in the tornado zone, they were surprised.

“There actually was a slight decrease in foreclosures,” said sociologist Bronwen Lichtenstein, an associate professor in UA’s criminal justice department.

Lichtenstein and Joseph Weber, an associate professor in UA’s geography department, have been studying foreclosures in the Tuscaloosa area for the last several years.

They recently had published their study looking at home foreclosures in the Tuscaloosa area during the economic downturn. That report in the academic journal Professional Geographer is titled “Old Ways, New Impacts: Race, Residential Patterns, and the Home Foreclosure Crisis in the American South.” It used Tuscaloosa to look at how the nation’s foreclosure crisis impacted a smaller city in the South.

It found the foreclosure crisis here affected people more likely to be living in poorer neighborhoods with a larger minority population, Lichtenstein said.

Following that study, Lichtenstein and Weber decided to look further in the foreclosure situation here by focusing on the tornado zone created by the April 27, 2011, tornado. They hope to eventually see that study published, too, she said.

Lichtenstein said poorer neighborhoods like Alberta and Holt had sustained some of the worst damage during the tornado. As such, she said she and Weber hypothesized that there would be an increase in foreclosures as homeowners with destroyed or heavily damaged homes walked away from the property, resulting in more foreclosures.

Weber said they looked at foreclosures in the tornado zone that occurred for two years before the tornado and for two years after it. The data showed little change in the number of foreclosures before and after the tornado. Lichtenstein said the slight decrease in foreclosures was statistically insignificant and might have reflected other factors, including an improving economy.

Lichtensteing said when the post-tornado data disproved their hypothesis, she wanted to find out why. That resulted in interviewing victims, government officials and lenders.

She learned that wealthy people whose homes were damaged or destroyed built back quickly, using insurance settlements and savings.

Most middle-class storm victims generally had adequate insurance and were able to recover, she said.

But in places like Alberta, rebuilding remained slow.

“What happened there is about 80 percent of the property is rental,” Lichtenstein said.

Those left homeless by the tornado often did not own the property, and the landlords who did were in no rush to rebuild, she said.

“If they (landlords) were insured, they got the (insurance settlement) money and did not rebuild,” Lichtenstein said.

“They are waiting for the (city’s) renewal plans, buyouts and other developments” — all that could transform the damaged neighborhoods into a more upscale area that could increase the vacant properties’ value. “They are waiting for the right moment,” she said.

Before the tornado, Alberta had a lot of Section 8 housing — properties rented to low-income people who received federal assistance to pay the rent. Those properties were older and often were more blighted, she said. The property owner now is seeing the opportunity to build something a little better, she said.

In turn, the poorer people who lived there before the tornado have had to move farther out,

“Just as the downtown is becoming more gentrified, the same will be happening in Alberta,” she said.

As for the overall Tuscaloosa-area foreclosure situation before and after the tornado, Lichtenstein said her and Weber’s studies show it affected lower-income homeowners the most. Anecdotal accounts indicated many of those homeowners got into financial trouble when they lost their jobs or had major medical expenses, she said.

But she said predatory lending also played a major role. Over the past two decades, people who might have been unable to buy a home in the past because of insufficient money for a down payments and poor credit ratings were able to get adjustable mortgages or home loans with higher interest rates.

Many of those people did not understand the consequences of such mortgages, she said, and were unable to afford them when rates adjusted upward or their income fell.

“If someone is so poor, how ethical is it to give them a loan that they cannot afford?” she asked.

Banks that made sub-prime loans usually sold the mortgages and did not incur the losses that occurred and contributed to the Great Recession.

Lichtenstein said she sees a need to better educate people so they fully understand the consequences of different mortgage loans, And in some cases, it might be necessary to deny a home loan if it is likely a buyer will end up in foreclosure.

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Oakland Abandons Anti-Foreclosure Plan Fearing Wall Street Reprisals

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On November 20, East Bay Express published an article titled Fearing Wall Street Reprisals, Oakland Council Abandons Anti-Foreclosure Plans.

Fearing Wall Street Reprisals, Oakland Council Abandons Anti-Foreclosure Plans

The Oakland City Council — fearing threats from Wall Street — abandoned plans to explore bold strategies for protecting homeowners at risk of foreclosure and instead passed a resolution “appreciating the City of Richmond’s leadership” in this area.

The council had been considering two resolutions, by Rebecca Kaplan and Desley Brooks, first introduced on November 5, that not only praised Richmond for its plans to buy and restructure troubled mortgages, using eminent domain to seize the mortgages if investors who own them refuse to sell, but also to launch an investigation of the possibility of Oakland pursuing a similar strategy.

But by last night, both motions had been stripped of plans to investigate similar strategies and simply commended Richmond for its actions, while calling on mortgage holders to cooperate with plans to help homeowners. Kaplan explained that since “Richmond got hit with threats [of lawsuits and lowered credit ratings] even before they took any action,” her reworded resolution “reduces the risk of reprisals to us.”

Later, in the public comment period, community activist Margaret Rossoff said that approach “leaves Richmond out there to take all the risks and lets Wall Street terrorize us.”

Margaretta Lin, special projects director in the Oakland Community and Economic Development Department, preceded discussion of the resolutions with a report on the array of programs Oakland already has in place to help homeowners at risk of foreclosure. Later in the meeting Mayor Jean Quan said the city has helped “hundreds” of people stay in their homes.

But Brooks and Kaplan expressed frustration that so many people have lost their homes anyway. “A lot of press is given to big national plans,” Kaplan commented, “but what we hear from people on the ground is that help is not getting to the communities.”

Representatives from the Oakland Metropolitan Chamber of Congress, the Jobs and Housing Coalition (an organization of developers), and the Oakland Association of Realtors warned that any hint that Oakland might be considering the use of eminent domain would harm the city’s credit rating, scare away investors, and open the city to liability.

Council President Pat Kernighan expressed opposition to Brooks’s resolution because its introductory paragraphs contained references to eminent domain. Councilmember Lynette Gibson McElheney, however, said she wanted to make sure the final resolution expressed opposition to the way financial institutions, with the help of the federal government, have been “gaming the system, gambling with people’s lives.”

McElheney proposed to amend Kaplan’s resolution by adding wording from Brooks’ calling on financial institutions to “stop threatening our communities with reprisals and litigation.” Kaplan accepted this as a friendly amendment and her resolution passed unanimously.

Meanwhile, in Richmond, the threatened reprisals that loomed so menacingly over the Oakland City Council meeting may turn out to be not so scary after all. Although Richmond was unable to sell bonds it issued immediately after announcing its mortgage principal reduction program, Richmond Finance Director James Goins reported on November 19 that a new bond issue is very likely to be successful. The new bonds will cost the city more — about $1 million over a 16-year period, but the city will still be able to reach its financial goals for the bond issue. Investors’ initial concerns about risks posed by the mortgage program, Goins pointed out, “is really noise,” not a genuine credit risk.

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

New Wave of U.S. Mortgage Trouble Threatens

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On November 26, Reuters published an article titled Insight: A New Wave of U.S. Mortgage Trouble Threatens.

Insight: A new wave of U.S. mortgage trouble threatens

(Reuters) – U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks.

The loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along.

More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding.

For a typical consumer, that shift can translate to their monthly payment more than tripling, a particular burden for the subprime borrowers that often took out these loans. And payments will rise further when the Federal Reserve starts to hike rates, because the loans usually carry floating interest rates.

The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows. When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender.

There are scenarios where everything works out fine. For example, if economic growth picks up, and home prices rise, borrowers may be able to refinance their main mortgage and their home equity lines of credit into a single new fixed-rate loan. Some borrowers would also be able to repay their loans by selling their homes into a strengthening market.

ONCE USED LIKE CREDIT CARDS

But some regulators, rating agencies, and analysts are alarmed. The U.S. Office of the Comptroller of the Currency, a regulator overseeing national banks, has been warning banks about the risk of home equity lines since the spring of 2012. It is pressing banks to quantify their risks and minimize them where possible.

At a conference last month in Washington, DC, Amy Crews Cutts, the chief economist at consumer credit agency Equifax, told mortgage bankers that an increase in tens of thousands of homeowners’ monthly payments on these home equity lines is a pending “wave of disaster.”

Banks marketed home equity lines of credit aggressively before the housing bubble burst, and consumers were all too happy to use these loans like a cheaper version of credit card debt, paying for vacations and cars.

The big banks, including Bank of America Corp, Wells Fargo & Co, Citigroup Inc, and JPMorgan Chase & Co have more than $10 billion of these home equity lines of credit on their books each, and in some cases much more than that.

How bad home equity lines of credit end up being for banks will hinge on the percentage of loans that default. Analysts struggle to forecast that number.

In the best case scenario, losses will edge higher from current levels, and will be entirely manageable. But the worst case scenario for some banks could be bad, eating deeply into their earnings and potentially cutting into their equity levels at a time when banks are under pressure to boost capital levels.

“We just don’t know how close people are until they ultimately do hit delinquencies,” said Darrin Benhart, the deputy comptroller for credit and market risk at the Office of the Comptroller of the Currency. Banks can get some idea from updated credit scores, but “it’s difficult to ferret that risk out,” he said.

What is happening with home equity lines of credit illustrates how the mortgage bubble that formed in the years before the financial crisis is still hurting banks, even seven years after it burst. By many measures the mortgage market has yet to recover: The federal government still backs nine out of every ten home loans, 4.6 million foreclosures have been completed, and borrowers with excellent credit scores are still being denied loans.

NO EASY WAY OUT

Banks have some options for reducing their losses. They can encourage borrowers to sign up for a workout program if they will not be able to make their payments. In some cases, they can change the terms of the lines of credit to allow borrowers to pay only interest on their loans for a longer period, or to take longer to repay principal.

A Bank of America spokesman said in a statement that the bank is reaching out to customers more than a year before they have to start repaying principal on their loans, to explain options for refinancing or modifying their loans.

But these measures will only help so much, said Crews Cutts.

“There’s no easy out on this,” she said.

Between the end of 2003 and the end of 2007, outstanding debt on banks’ home equity lines of credit jumped by 77 percent, to $611.4 billion from $346.1 billion, according to FDIC data, and while not every loan requires borrowers to start repaying principal after ten years, most do. These loans were attractive to banks during the housing boom, in part because lenders thought they could rely on the collateral value of the home to keep rising.

“These are very profitable at the beginning. People will take out these lines and make the early payments that are due,” said Anthony Sanders, a professor of real estate finance at George Mason University who used to be a mortgage bond analyst at Deutsche Bank.

But after 10 years, a consumer with a $30,000 home equity line of credit and an initial interest rate of 3.25 percent would see their required payment jumping to $293.16 from $81.25, analysts from Fitch Ratings calculate.

That’s why the loans are starting to look problematic: For home equity lines of credit made in 2003, missed payments have already started jumping.

Borrowers are delinquent on about 5.6 percent of loans made in 2003 that have hit their 10-year mark, Equifax data show, a figure that the agency estimates could rise to around 6 percent this year. That’s a big jump from 2012, when delinquencies for loans from 2003 were closer to 3 percent.

This scenario will be increasingly common in the coming years: in 2014, borrowers on $29 billion of these loans at the biggest banks will see their monthly payment jump, followed by $53 billion in 2015, $66 billion in 2016, and $73 billion in 2017.

The Federal Reserve could start raising rates as soon as July 2015, interest-rate futures markets show, which would also lift borrowers’ monthly payments. The rising payments that consumers face “is the single largest risk that impacts the home equity book in Citi Holdings,” Citigroup finance chief John Gerspach said on an October 16 conference call with analysts.

A high percentage of home equity lines of credit went to people with bad credit to begin with — over 16 percent of the home equity loans made in 2006, for example, went to people with credit scores below 659, seen by many banks as the dividing line between prime and subprime. In 2001, about 12 percent of home equity borrowers were subprime.

Banks are still getting hit by other mortgage problems too, most notably on the legal front. JPMorgan Chase & Co last week agreed to a $13 billion settlement with the U.S. government over charges it overstated the quality of home loans it sold to investors.

TIP OF THE ICEBERG

Banks have differing exposure, and disclose varying levels of information, making it difficult to figure which is most exposed. The majority of home equity lines of credit are held by the biggest banks, said the OCC’s Benhart.

At Bank of America, around $8 billion in outstanding home equity balances will reset before 2015 and another $57 billion will reset afterwards but it is unclear which years will have the highest number of resets. JPMorgan Chase said in an October regulatory filing that $9 billion will reset before 2015 and after 2017 and another $22 billion will reset in the intervening years.

At Wells Fargo, $4.5 billion of home equity balances will reset in 2014 and another $25.9 billion will reset between 2015 and 2017. At Citigroup, $1.3 billion in home equity lines of credit will reset in 2014 and another $14.8 billion will reset between 2015 and 2017.

Bank of America said that 9 percent of its outstanding home equity lines of credit that have reset were not performing. That kind of a figure would likely be manageable for big banks. But if home equity delinquencies rise to subprime-mortgage-like levels, it could spell trouble.

In terms of loan losses, “What we’ve seen so far is the tip of the iceberg. It’s relatively low in relation to what’s coming,” Equifax’s Crews Cuts said.

To view the online article, please click here.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

More Cities Considering Eminent Domain to Halt Foreclosures

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On November 15, The New York Times published an article titled More Cities Consider Using Eminent Domain to Halt Foreclosures.

More Cities Consider Using Eminent Domain to Halt Foreclosures

New cities are joining the effort to head off home foreclosures by using a twist on the power of eminent domain, despite threats of financial retaliation from Wall Street and Washington.

On Saturday, Mayor Wayne Smith of Irvington, N.J., will announce that his mostly working-class city is proceeding with a legal study of the plan. Irvington could try to head off legal action and repercussions through what are called “friendly condemnations,” in which incentives are used to persuade the owner to drop any objections, he said. “We figure if this program works it can help anywhere from 500 to 1,000 homes.”

This summer the similarly working-class city of Richmond, Calif., in a heavily industrial part of the San Francisco Bay Area, became the first to identify homes worth far less than their owners owe, and offer to buy not the houses themselves, but the mortgages. The city intends to reduce the debt on those mortgages, saying that will prevent foreclosure, blight and falling property values. If the owners of the mortgages — mostly banks and investors — balk, the letters said, the city could use eminent domain to condemn and buy them.

Since then, intense pressure from Wall Street and real estate interests, including warnings that mortgages will become difficult or impossible for Richmond residents to get, has whittled away support for the plan. The city has yet to actually use its power of eminent domain, but it is already fighting two lawsuits filed in federal courts.

Still, cities hard hit by the housing crash are showing interest. Yonkers, just north of New York City, will soon take up a resolution to study the use of eminent domain to reduce debt, and support is building in Newark as well. In California, Pomona and Oakland are moving forward.

“Things seem to be picking up steam in Minnesota, and I’ve just been contacted in the past couple of weeks by two cities in Pennsylvania as well,” said Robert Hockett, a Cornell University law professor and one of the architects of the strategy. Nationally, housing prices have begun to recover, but about one in five homeowners still owes more than the home is worth, and in cities like Richmond as many as half do.

Several local governments that have considered the plan eventually backed away, including San Bernardino County and North Las Vegas. But, Mr. Hockett said, “We’re moving into a kind of second generation of municipal interest that is more hard core — it’s interest with a spine, so to speak.”

The cities are all still in the early stages of considering the plan.

In New Jersey, the American Civil Liberties Union has also joined the effort, saying that opponents are using threats to keep cities from exercising their legal right to employ eminent domain.

Opponents of the strategy, including the institutional investors BlackRock and Pimco, Wells Fargo and the Mortgage Bankers Association, say that taking mortgages by eminent domain is a breach of individual rights and that investors will not receive fair market value for the mortgages. In Richmond, Mayor Gayle McLaughlin has asked investors to come to the table to work out a price, but they have so far declined to negotiate.

The Federal Housing Finance Agency, which oversees the mortgage giants Fannie Mae and Freddie Mac and controls most mortgages in the country, has said that the eminent domain strategy is “a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks” and that it may take legal action against cities that use it or limit mortgage activity there. In Congress, a housing finance bill by Jeb Hensarling, a Texas Republican and chairman of the Committee on Financial Services, would effectively end mortgage financing in cities that used eminent domain.

On Friday, letters signed by 10 Democratic members of Congress were expected to be sent to Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, and Shaun Donovan, secretary of housing and urban development, saying that any policies that restrict mortgage lending in areas that use eminent domain would violate anti-discrimination laws.

“We write to express our disappointment that the Federal Housing Finance Agency is actively supporting and threatening legal action against communities which consider exercising their legal rights to use eminent domain to help struggling homeowners,” the letter to Mr. DeMarco said.

Please click here to view the online article.

Related Media
NJ.com: Irvington considering eminent domain to stem foreclosure crisis

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

MI Governor Snyder Meets With HUD on Detroit Blight

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On November 15, The Detroit News published an article titled Snyder Meets With HUD Chief on Detroit Blight, Development.

Snyder meets with HUD chief on Detroit blight, development

Gov. Rick Snyder met Friday with the Obama administration’s top housing official and the point person on Detroit for 90 minutes to talk about efforts to revitalize the city.

Snyder met with Housing and Urban Development Secretary Shaun Donovan Friday morning, along with Don Graves, a deputy assistant U.S. Treasury secretary for small business, housing and community development who also is executive director of the President’s Council on Jobs and Competitiveness. The meeting took place at Graves’ Detroit office.

The working meeting focused on efforts to reduce the Motor City’s significant blight problems and look at ways to extend Midtown development and other ways to boost economic development and housing in the city.

Snyder spokeswoman Sara Wurfel confirmed the meeting took place.

“The meeting was part of constructive, ongoing dialogue and work with the Obama administration and the public-private sector to ensure the strongest partnerships possible and finding targeted ways, programs and opportunities that can assist in helping Detroit,” she said.

In June, the city said there are 66,000 vacant and blighted lots and 78,000 vacant structures.

“Approximately 38,000 structures are considered dangerous buildings. The number of dangerous structures is constantly increasing due to vacancy (particularly foreclosures) and house fires,” city emergency manager Kevyn Orr told creditors in June.

The city has about 11,000 to 12,000 fires annually — with 60 percent in blighted or unoccupied buildings. HUD is allocating $150 million to Detroit to help the city flight blight. A Detroit task force is working on how to best fight blight in the city.

Please click here to view the online article.

About Safeguard 
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders,  and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.