Posts Tagged ‘Banks’

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What is a Housing Bubble? Is One Forming?

July 7, 2015

Bubble-2-KCM

The recent talk of Greece and its financial challenges has some questioning whether the U.S. could also return to the crisis we experienced in 2008. Some are looking at the rise in real estate values and wondering whether we are in the middle of another housing price bubble.

What actually is a price bubble?

Here is the definition according to Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania:

“A price bubble is a rise in price based on the expectation that the price will rise. Sooner or later something happens to erode confidence in continued price increases, at which point the bubble bursts and prices drop. What makes it a price bubble is that the cause of the price increase is an expectation that the price will increase, which sooner or later must reverse itself.”

Does Professor Guttentag believe we are in another housing bubble?

In a recent article, he explained:

“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible — because we recently lived through one.”

What are home prices doing?

Though home values are continuing to appreciate, the acceleration of the increases has slowed to year-over-year numbers which reflect a healthy housing market. Here is a chart showing year-over-year appreciation since January of last year:

Case-Shiller

We can see that appreciation rates have dropped from double digit numbers to more normal rates of 5% or lower.

Bottom Line

We think Nick Timiraos of the Wall Street Journal put it best in a recent tweet:

“Predictions of a new national home price bubble look unfounded for now, according to data.”

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What’s happening in Orlando real estate?

July 1, 2012

What an interesting time in real estate. Homes ARE selling and I have had a great year to date. I’m grateful for that. But there is a lot of work to be done. In what direction are we moving as a nation?

The majority of homes sold are still distress sales. Homes that are NOT distressed (in foreclosure or short sale) are selling fast and furious. These homes are generally well cared for and the Seller can make a decision quickly. People are tired of waiting on banks and on being required to accept homes in shabby condition or AS IS without regard to repairs. I truly believe that buyers want to work with homes that they KNOW are well-maintained and show pride of ownership.

So who is buying distressed properties? Mostly investors with a lot of cash. Are we turning into a society of renters? Time will tell. I can tell you that there are a lot of people looking for rental homes. I probably get five to ten calls per day of someone looking for a rental house.

I am happy for the uptick in home sales but I will be happier when we see loans easier to obtain (even qualified buyers are unduly pressured during the loan process), appraisers realizing that the market is getting stronger and buyers not afraid to make decisions. WE NEED TO MOVE TOWARD A COUNTRY OF CONFIDENT CITIZENS.

I love our country as we approach this July 4th holiday and I pray that we will see our nation move in a positive direction with everyone working to the better good of our nation. May it be so.

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Short Sales Get Shorter: New Deadlines to go into Effect

March 16, 2012

As part of a settlement with state attorneys general, the five largest mortgage servicers are adopting new requirements for short sales, which is expected to speed-up what has been known as a lengthy process.

Here are some of the new requirements for servicers under the settlement:

·     1.   Servicers must provide borrowers with a decision within 30 days after receiving a short sale package request.

·      2.  Servicers will be required to notify a borrower, also within 30 days, if any necessary documents are missing to process the short sale request.

·      3. Servicers must notify a borrower immediately if a deficiency payment is needed to approve the short sale. They also must provide an estimated amount for the deficiency payment needed for the short sale.

·      4.  Servicers are also required to form an internal group to review all short sale requests.

·     5.    Banks will be considered in violation of the settlement requirements if they take longer than 30 days on more than 10 percent of the short sale requests.
Violations can carry fines of up to $1 million and $5 million for repeat offenses.

“If a real estate broker can get a checklist from the bank detailing what documentation is needed, everything can be provided up front, and the bank will be required to give a thumbs-up or a thumbs-down within 30 days,” short sale specialist Chris Hanson with the Hanson Law Firm told HousingWire. “That’s not a bad deal.”

Source: Realtor Magazine

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Real Estate Ruins –

April 21, 2011

 

Real Estate in Ruins

As I was driving through a luxurious Orlando neighborhood recently, I noticed a number of homes that were obviously in foreclosure. The signs were everywhere including the overgrown lawns, the newspapers piled in the driveway and the general look of decay.

It dawned on me that without proper love and care – the earth has a way of reclaiming what it once lost. The house was covered in vines which were starting to smother the home. It was at once appalling and then again, mesmerizing. I guess the old adage “it’s not nice to fool “Mother Nature” really can come true. You can lay down all the bricks and mortar that you need to make a mansion or a modest home but left untended, Mother Nature is going to take it back and do so with a vengeance.

So goes the state of real estate. Real estate in the US is in ruins! No one is tending the real estate market and no banks, politicians or even news anchors seem to be alarmed. Banks have just disclosed that they wrote one-third (1/3) fewer loans the first quarter of this year than in the past. That is an ASTOUNDING fact. While is sounds wonderful to have a 4.45% interest rate, it is meaningless if no bank is giving out loans. It’s catastrophic. Right now we live in a world full of smoke and mirrors. It’s all fake advertising. It’s all for naught.

Banks are getting richer and bank CEO’s are reaping huge profits but not on real estate. Our country must stand up for a call to action for loans to be written to credit-worthy customers. We are in the weeds and we are going to be in a hole so deep it will take decade(s) to recovery.

As real estate goes – so goes the economy. As an example, I had a client with a two-year old foreclosure BUT $100,000 down payment on a $200,000 house and I could NOT get him a loan. Why? Because the lenders said his foreclosure had to be past three years. 50% down is almost unheard of and yet we could not get this buyer a loan.

PLEASE, please won’t someone get serious about the condition of our economy and realize that without loans and without buyers – we have no real estate? The effect is deep and sinks to the core of all business. No real estate builders, no real estate materials (bricks, shingles, asphalt, etc.), no handymen, no appliances, no furniture…I could go on and on. The lack of sales is affecting everyone and it is affecting you whether you understand this or not.

Let’s get back to business. Let’s sell some homes. Won’t someone make a stand?

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What’s behind door number ??????????????

February 1, 2011

There was a popular game show once that gave contestants the option to pick door number one, two or three to gamble on attaining a prize. Sometimes it was a car and sometimes it was a donkey. It was all about a game of chance and whether the contestant would win a grand prize or a booby prize.

Well…welcome to real estate in 2011. We have options but some are grand and some are not so grand. It all depends on what we are going to pick.

Through one door is the road to recovery with lenders writing loans, revamped credit scoring system and someone realizing that trying to negotiate settlement on loans is better than foreclosing on half of American homeowners?

Yet another door is this constant tease of do we foreclose or not because the court system has reacted in a crazy manner to the even more INSANE behavior of attorneys in the foreclosure process. We are witnessing – for the first time in recent history – the complete and absolute breakdown of our judicial system and the ethics of the legal profession. Insanity reigns.

Finally we have the banks. I could write a massive epistle on the sins of our lending institutions. From a real estate perspective, it seems no one knows what they are doing when it comes to banking. Even bankers are in a flux with the Mortgage Banking Association strategically defaulted on their own office building. No one in the news seems to discuss this very much. Oh the irony! In other words, the main organization that represents the banking industry walked away from their debt rather than repay their own bank loan.

I don’t know which door to pick because I don’t know if we have a sane person left running the (a) our country, (b) banks or (c) Wall Street. From my perspective, it all looks like a booby prize right now behind doors one, two or three. Won’t someone prove me wrong?

http://online.wsj.com/article/SB10001424052748704829704575049111428912890.html

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Mortgage Modifications – Let’s help the GOOD GUYS!

March 28, 2010

 

OregonianLive.com recently reported the following:

Democrats in Congress yesterday declared that President Obama’s HAMP program designed to help people avoid foreclosure had “failed miserably.” And a government watchdog criticized HAMP for “spreading out the foreclosure crisis” over several years by failing to help enough people.
 
A year into the program, which originally aimed to aid 3 to 4 million borrowers, servicers placed only 170,000 trial modifications into permanent status.
 
Meanwhile, a federal report showed that
more than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report. The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year.

Politics aside, this does NOT come as a surprise to me. The modification of loan program is a colossal failure and will continue to be so unless the federal government and the banking industry realize that loan modifications should FIRST help those who CAN AFFORD TO PAY.

That’s right – you need to modify the loans of people whose homes are adversely affected by declining values and the current foreclosure crisis. The people who have been paying on time, paying off their mortgages and are not delinquent should be given a chance to benefit from the current economic crisis?

Why?

Because they may be the next victims of the economic tsunami if they are not given a chance to recover some of the lost value of their property. I see it…on a daily basis…the great people of our nation who are tired of the struggle and they are wondering why they don’t catch a break.

The facts don’t lie – at least 50% of the people who have received the modifications (AND THERE ARE VERY FEW FOR THE RECORD – THIS IS A DEBACLE OF EPIC PROPORTIONS) have still defaulted after modification. The current system for loan modifications is not working on so many levels. But at the end of the day, if you can’t make your payments – loan modifications are just buying you a little more time before the foreclosure gavel strikes.

Either way – our government must fix this economic crisis, restore the housing market – and get people working. But most importantly – they need to RESTORE CONSUMER CONFIDENCE to all our citizens and not just those in financial distress. When will the good guys catch a break?

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You should be worried!

January 8, 2010
Friday, Jan. 08, 2010

Bank Lending Is Still Down. Should We Be

Worried?

By STEPHEN GANDEL

 

Move over, commercial lending and home foreclosures. The falling number of bank loans is emerging as the No. 1 economic concern of 2010. But while many expect the credit crunch to continue, the problem of bank loans might not be as bad as many people think.

“If the economic indicators were not recovering, then bank lending would be prime culprit,” says top Wall Street strategist Edward Yardeni. “The weak borrowing market just doesn’t seem to be stopping the economic turnaround.”

Nonetheless, many policymakers and analysts are worried. In late December, President Obama summoned the heads of the nation’s largest banks to the White House to urge them to make more loans to small and medium-sized businesses. Federal Reserve Chairman Ben Bernanke, too, has mentioned in recent speeches the continued credit crunch as an economic concern. (See how Americans are spending now.)

Indeed, the numbers are eye-catching. As of Dec. 23, which is the latest date for available data from the Federal Reserve, bank lending at nearly $6.7 trillion was down $100 billion from the month before. In the past year, the volume of loans outstanding by banks in the U.S. has fallen just over $500 billion. Bank loans have been trending down for a while. Worse, most analysts don’t see bank lending turning around anytime soon. Paul Miller of FBR Capital says a combination of banks wanting to take fewer risks and lower demand for credit from consumers and businesses will cause banks to continue to make fewer loans this year than last.

“Available credit for the U.S. is receding and that’s the economy’s real lifeblood,” says Christopher Whalen of research firm Institutional Risk Analytics. “This is a disaster.”

But while bank loans are falling, the well of credit for corporations is far from dry. In fact, the 22 largest banks in the Treasury’s Troubled Asset Relief Program issued or renewed $127 billion in business loans in November, roughly the same as five months ago. And at a recent $6.7 trillion, bank lending is at the same level it was in the end of 2007, when the economy was still expanding. That would be a problem if we had serious inflation. When asset prices rise and loan values don’t, that can signal economic stagnation. But at a time when many asset prices are falling, it makes sense that loan volumes would be falling as well. After all, the collateral is worth less. (See pictures of TIME’s Wall Street covers.)

What’s more, unlike during the height of the credit crunch, corporations are able to raise money from investors. On Tuesday alone, corporations sold $23.5 billion in bonds, which was the second most active day in debt sales by companies on record. In 2009, corporations issued $712 billion in investment-grade bonds, up from $646 billion in 2008.

Bank analyst John McDonald of Wall Street firm Bernstein Research says most people are focused on how the lack of loans will hurt bank earnings. Lending is after all how banks make money. But in the past year or so banks have had to sock more and more cash away into their reserves to account for their growing bad loans. That’s caused earnings to plummet. With loans falling, reserve ratios — the measure of reserves to loans — are growing. That means banks will be able to divert less of their operation profits into those rainy-day accounts, which should boost bottom lines.

Finally, unlike the stock market or consumer confidence, bank lending is a lagging indicator. Businesses look for loans to expand once the economy is growing and orders are coming in again. And banks, since they get hurt so badly in recessions, particularly this one, become very risk-adverse at the beginning of economic cycles. “In the initial stages of a recovery banks are never handing out cash,” says Lakshman Achuthan, who is a managing director at Economic Cycle Research Institute. “It never happens that way, and we have had plenty of recoveries.”