Bulk Sales vs regular Bank Sales

What are they thinking?? Bulk sales are only going to benefit large investors and take away many opportunities for first time buyers to purchase at the bottom floor in the market...

Viewpoints: Bulk sales of foreclosed homes are a bad solution for California

Special to The Sacramento Bee

PUBLISHED SATURDAY, FEB. 25, 2012

Bad solutions often are born of good intentions.

Consider the federal government's proposal to rapidly and dramatically reduce the supply of newly foreclosed homes coming onto the market from Fannie Mae, Freddie Mac and the Federal Housing Administration through the bulk sale of foreclosed homes to Wall Street investors.

On the surface, it's a well-intentioned idea – and an experiment that may even prove to be a reasonable solution in states where there is a huge inventory of unsold foreclosures.

However, it's a terrible idea for most California homeowners, small investors, landlords and property managers, and an even worse idea for taxpayers. Unlike Detroit or Las Vegas, where entire neighborhoods of foreclosed homes sit empty month after month, bank-owned homes in most California communities already are closing in an average of only 60 days – and often above the list price – without government intervention. So strong are sales of foreclosures in our state that the overall inventory of properties has fallen to levels considered low even in a normal real estate market.

Nationwide, Fannie Mae, Freddie Mac and the FHA sold nearly 375,000 foreclosed homes over the past year, the vast majority through conventional sales to owner-occupants, mom and pop investors, or nonprofits. What's more, these homes are being sold through local real estate brokers and agents for an average discount of only 5 percent to 6 percent from the market price. Bulk sales are certain to bring a smaller percentage return.

So what's wrong with experimenting with bulk sales? In a real estate market as unique as California's, the disadvantages are enormous.

For one, the federal government isn't talking about selling groups of two, three, or even 10 or 12 homes. The bulk sales they propose would aggregate hundreds, if not thousands, of properties into investment pools of at least $50 million to be auctioned to the highest bidder. At that price, only large Wall Street investment syndicates, hedge funds and institutional investors – who have little to no interest in communities – are likely participants. Additionally, the winning bidder must agree to convert these homes into rental properties for an unspecified period of time, potentially further delaying a housing recovery.

Imagine the bailout that may be needed if this experiment in institutionalized property management doesn't pay off. And imagine what converting hundreds – or thousands – of homes into rentals might do to the rental market and home values.

Despite the potential for collateral damage in states like California, it is likely the federal government will carry out this ill-conceived idea.

Should the government choose to move forward, we urge regulators to take great care to avoid implementing this plan in communities where home prices could be further depressed, thus damaging individual homeowners, investors, landlords and property managers, as well as discouraging future individual and small-group investment.

In addition, investors should not be prevented from utilizing properties they purchase in the most efficient manner. That may mean allowing some or all of these homes to be sold, rather than forcing them to be rented for a period of time before being dumped back on the market. By allowing the marketplace to determine the best use of a property, the federal government will further encourage participation by local investors, preserve home values, minimize the cost to taxpayers and maximize the potential that Fannie Mae, Freddie Mac and the FHA will receive the greatest return on each property sale.

Finally, the federal government should take steps to enable small local investors to participate in bulk sales opportunities and thus retain a financial stake in their communities. For this to occur, and to encourage a diverse set of participants, investment pools should not exceed $5 million. The proposed sales range of between $50 million and $1 billion is simply too high to ensure either broad local participation or investor diversity.

Wall Street does not need another gift at the expense of taxpayers.

© Copyright The Sacramento Bee. All rights reserved.

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LeFrancis Arnold is president of the California Association of Realtors.

• Read more articles by LeFrancis Arnold

http://www.sacbee.com/2012/02/25/v-print/4289176/bulk-sales-of-foreclosed-homes.html

Principal Reduction discussions

latimes.com article... hmm, the private banks seem more willing to give principal reductions than Fannie and Freddie...

Principal reduction isn't ideal fix for foreclosures, official says

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, tells a Senate panel that forcing Fannie Mae and Freddie Mac to reduce the balances on troubled mortgages would hurt taxpayers.

By Jim Puzzanghera, Los Angeles Times

February 29, 2012

Reporting from Washington

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The regulator over Fannie Mae and Freddie Mac pushed back against mounting pressure that the mortgage finance giants start reducing the principal owed on troubled loans, insisting the practice could hurt taxpayers and that alternatives were better at avoiding foreclosures.

Edward J. DeMarco, acting director of the Federal Housing Finance Agency, told U.S. senators Tuesday that reducing the principal on mortgages owned or guaranteed by Fannie and Freddie would not protect taxpayers.

The government has pumped about $183 billion in taxpayer money into the companies, which the agency seized in 2008 as they teetered on the brink of bankruptcy.

Lawmakers, especially Democrats, have maintained that the agency needed to direct Fannie and Freddie to write down the mortgage principal on loans that exceeded the value of homes when struggling borrowers were facing foreclosures.

Five of the nation's major banks agreed to similar terms to settle a nationwide lawsuit. Fannie and Freddie, which own or guarantee 60% of existing mortgages and back 75% of all new mortgages, was not part of that lawsuit.

DeMarco said executives at Fannie and Freddie advised him that it wasn't "in the best interest of the companies" to write down mortgage principal to reduce foreclosures. The companies would lose part of the total amounts lent out.

He touted other steps, such as interest rate reductions that Fannie and Freddie have approved, to help keep struggling homeowners from defaulting.

"Foreclosure is the worst possible outcome in most instances. It is the most costly, it is the most devastating to the family, and it is the most devastating to the neighborhood," DeMarco told the Senate Banking Committee.

The agency has "a responsibility to find all prudent actions" to prevent foreclosures, he said. Refinancing, modifying the lengths of loans and deferring payments on mortgage principal are more effective at keeping people in their homes without increasing the risk of losses at Fannie and Freddie, DeMarco said.

Democrats argued that principal reductions would help stabilize the housing market, ultimately reducing taxpayer losses on the Fannie and Freddie bailout because mortgages would not end up in foreclosures.

"In my view, the FHFA has shown a dismal lack of initiative in the housing crisis and needs to be far more aggressive in taking steps that can help both homeowners and taxpayers," said Sen. Robert Menendez (D-N.J.).

"The banks are finding it profitable to give principal reductions to about 20% of their own loans while, ironically, the government isn't allowing principal reductions on any loans," he said.

Housing and Urban Development Secretary Shaun Donovan said that principal reduction was the one foreclosure-prevention tool that the administration has made the least progress in employing.

But FHFA is an independent agency. DeMarco had been chief operating officer at the agency and became acting director in 2009. The White House has tried to replace him, but Senate Republicans blocked confirmation of President Obama's nominee for the job.

Republicans, who oppose more government intervention in the housing market, praised DeMarco. But he acknowledged that "there appears to be a lot of criticism" of his performance.

California Atty. Gen. Kamala D. Harris has called on DeMarco to resign.

In a letter released Monday, she asked him to freeze foreclosures in the state until the agency did a "thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers."

Also Monday, 115 House members wrote to DeMarco to urge him to allow Fannie and Freddie to write down loan principals.

jim.puzzanghera@latimes.com

Copyright © 2012, Los Angeles Times

http://www.latimes.com/business/la-fi-demarco-foreclosures-20120229,0,2285952,print.story

Points and Loans...

Thoughts about Points and loans...

THE NEW YORK TIMES...

February 23, 2012

Points Lose Favor

By VICKIE ELMER

WITH interest rates at or near record lows, many borrowers are seeing little reason to pay points when buying or refinancing a home. Some are even opting for what’s known as “negative points,” agreeing to a slightly higher rate to help pay closing costs.

The trend away from points, which buy down the interest rate in exchange for an upfront fee, partly reflects borrower sentiment that rates are already low enough, the industry experts say.

In New York and other areas with a mobile population, many people avoid mortgages with points, because they know they won’t be staying put long enough to break even on the costs, which typically takes five to seven years, according to Norman Calvo, the president of Universal Mortgage, a mortgage broker in Brooklyn.

“If you’re young and buying your first apartment,” Mr. Calvo said, “chances are you’re going to be moving on.”

Only about 5 percent of Universal’s customers pay points, he said. Nationwide, 32 percent of loans for purchases had paid points in December, down from 47 percent in December 2008, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac.

A point equals 1 percent of the loan amount, so paying one point on a $250,000 refinancing costs an extra $2,500 at closing, atop other mortgage fees, taxes and escrow amounts. Paying a point usually reduces the interest rate by 0.25 points over its term, so for instance instead of 4 percent, the rate is 3.75 percent.

The average number of points paid in 2011, according to a Freddie Mac survey, was 0.7 percentage points, less than half the levels people paid in the 1990s. The average has been 0.7 percent for three years, after it hit a low of 0.4 percent in 2007; in 1995 it averaged 1.8 percent, according to Freddie Mac data.

The chief advantage to paying points is you lower your rate and your monthly payment based on a one-time charge, said Neil Diamond, a mortgage banker with Legacy Real Estate in Commack, N.Y. Your mortgage professional should take time to find out what works for your circumstances, then structure the loan and fees and commission accordingly, he said.

So how do you know if paying points is worthwhile? There are two key considerations: how long you plan to live in a home, and how much you can afford in closing costs.

Many mortgage professionals suggest a rule of thumb on living in a home for at least five years to reap the savings. Others suggest doing an analysis of your financial goals, along with a direct comparison of no-point and point mortgages. Once you’ve filled out a mortgage application, ask for good-faith estimates on both options, said Chanda Gaither, a housing counselor with La Casa de Don Pedro, which works on affordable housing and neighborhood development in Newark.

People should also consider how much cash they have in reserve for emergencies and unexpected housing costs, Ms. Gaither said; that may be more important than a slightly lower rate.

Sometimes a seller will offer to pay a point or two on the mortgage as a concession. But, “with rates as low as they are, people are not coming out of their pockets to pay for points,” especially for refinancings, said Russell Tucker, a senior vice president of Investors Home Mortgage in Short Hills, N.J.

Some borrowers, meanwhile, go for negative points, which is also called a lender rebate or points in reverse. In exchange for accepting a higher rate, the lender agrees to give the borrower a credit, which is usually used for closing costs.

Mr. Calvo says these rebates can be “a really, really great option” to defray costs, especially for larger mortgages. He said he recently closed a $2 million loan on which the borrower agreed to accept a rate of 4.75 percent, instead of 4.5 percent, in exchange for a $20,000 credit in closing costs.

http://www.nytimes.com/2012/02/26/realestate/mortgages-points-lose-favor.html?_r=2&ref=realestate&pagewanted=print