Friday, March 30, 2012

Core Logic: U.S. Foreclosure Rate Slows in February, Yet Over 65,000 Properties Still Processed

According to CoreLogic's latest National Foreclosure Report for February, foreclosure inventory and 90+ delinquency rates, there were approximately 65,000 completed foreclosures in February 2012. That is less than 66,000 properties in February 2011, and 71,000 in January 2012.

The number of completed foreclosures for the 12 months ending in February was 862,000. From the start of the financial crisis in September 2008, there have been approximately 3.4 million completed foreclosures.

Approximately 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in the foreclosure inventory as of February 2012 compared to 1.5 million, or 3.6 percent, in February 2011 and 1.4 million, or 3.4 percent, in January 2012. Nationally, the number of borrowers in the foreclosure inventory decreased by 115,000, a decline of 7.6 percent, in February 2012 compared to February 2011.

"The pace of completed foreclosures is down slightly compared to January, running at an annualized pace of 670,000, but compares favorably to the pace of completed foreclosures in February a year ago. Even though the pace of completed foreclosures has slowed, the overall foreclosure inventory is decreasing because REO sales were up in February," said Mark Fleming, chief economist for CoreLogic. "With the spring buying season upon us, the inventory may decline further as the pace of distressed-asset sales rises along with the rest of the housing market."

"In February, more than 60 major markets saw a decrease in their foreclosure rates compared to a year ago," said Anand Nallathambi, president and CEO of CoreLogic. "This combined with faster REO-clearing rates, better employment news, and continued historically low interest rates are all positive signs of improvement in the housing economy."

The share of borrowers nationally that were 90 or more days late on their mortgage payment fell to 7.3 percent in February 2012 from 7.8 percent in February 2011, but inched up from 7.2 percent in January 2012. At the same time, the inventory of real estate owned (REO) assets held by servicers nationwide grew faster in February 2012 than the pace of REO sales, as measured by the distressed clearing ratio. The distressed clearing ratio is calculated by dividing the number of REO sales by the number of completed foreclosures; the higher the ratio, the faster the pace of REO sales relative to the pace of completed foreclosures. The distressed clearing ratio for February 2012 was 0.73, up from 0.66 in January 2012.

Report Highlights as of February 2012


•The five states with the largest number of completed foreclosures during the 12 months ending in February 2012 were: California (154,000), Florida (87,000), Michigan (64,000), Arizona (63,000) and Texas (58,000). These five states account for 49.4 percent of all completed foreclosures nationally.
•The percent of homeowners nationally who were more than 90 days late on their mortgage payments, including homes in foreclosure and REO, was 7.3 percent for February 2012 compared to 7.8 percent for February 2011, and 7.2 percent in January 2012.
•The five states with the highest foreclosure rates were: Florida (12.0 percent), New Jersey (6.6 percent), Illinois (5.4 percent), Nevada (5.0 percent) and New York (4.9 percent).
•The five states with the lowest foreclosure rates were: Wyoming (0.7 percent), Alaska (0.8 percent), North Dakota (0.8 percent), Nebraska (1.0 percent) and Montana (1.4 percent).
•Of the top 100 markets, measured by Core Based Statistical Areas (CBSAs) population, 33 are showing an increase in the year-over-year change in the number of foreclosures in February 2012, two less than in January 2012 when 35* of the top CBSAs were showing an increase in the year-over-year change in the number of foreclosures.
•Of the top 100 CBSAs, 61 have lower foreclosure rates than a year ago.

Saturday, March 10, 2012

Suzie Orman on Underwater Mortgages and Short sale

Tuesday, August 17, 2010 9:09 PM EDT

Interview: Suze Orman on underwater mortgages and personal finance
By Hao Li


Suze Orman is a personal finance guru in the United States. She is the host of The Suze Orman Show on CNBC and author of seven New York Times Best Sellers. Her website is www.suzeorman.com.

IBT speaks to Orman about the current economic situation for Americans and her opinion on options for people with underwater mortgages and seniors living on fixed income.

IBT: From the perspective of the American people, and as an advocate of the American people, what would you tell the government right now? What do Americans need from them at this point?



Suze Orman: I think more than what the people need from the government, at this point, this far into it, it's what the American people can do for themselves. It is obvious that the government cannot save them. It is obvious real estate, the stock market, and all those things are not going to save them.



It is obvious that regulation is trying to help them, but there is always a way around regulation when you're a major financial institution.



You have got to be involved with your money, you have to have an understanding of person finance, you have go to make sure that everything you're doing for you makes sense regardless of what someone else is telling you.



The past few years have been a vivid example of, “if you don't save yourself, nobody else will.” In terms of the government, it's obvious that jobs have to be created. It is absolutely unacceptable that you have this many people unemployed.



Something has to be done about all the mortgages that are underwater. I am a firm believer that many people who are underwater in the U.S. were not people who got loans they couldn't afford and were trying to scam the system. They were hardworking, good people.



But because of the lack of oversight of the banks, the mortgage companies, and Wall Street*, we had a severe recession, very close to a depression. Everybody cut back, they lost their jobs. They weren't able to pay their mortgages, their home values went down. It was really [through] no fault of their own. They were the victim of a corporate crime and no one is paying the dues on it except them. It's a travesty that no one is willing to help them.



IBT: What do you think regulators should do about underwater mortgages?



Suze Orman: This is a very difficult [situation] because it's very unfair [for] those people who have been paying their mortgages every single month, even if their mortgages are underwater. They have been very responsible and [some] of them get absolutely no help.



I really think we should have reset all mortgages, across the board, to current fair market values. It's absolutely nuts that some people bought homes and put a lot of money down, but now their mortgages are underwater.



I can give you an example of a $600,000 home in Tampa, Florida, and $120,000 was already put down. The house is now worth about $150,000. There is no help for this person because it's a rental property. But it was a legitimate purchase for them. But there was no help for them, and there was no choice for them, so they walked away and claimed bankruptcy. How sad is that! All for somebody to buy that house for $150,000, when they could have just let these people stay and reset the mortgage at $150,000. What's the difference!?**



IBT: Let's talk about personal finance scenarios. What should you do if your mortgage is underwater, and you're basically one broken refrigerator away from not being able to make your mortgage payment?



Suze Orman: In the U.S., the very first thing you should do is not touch a penny from a retirement account. Remember that money, especially in a 401-k plan, is absolutely protected from bankruptcy.



[Having said that], you should continue to pay the mortgage as long as you can, ethically. But if you honest-to-God cannot pay for it, then stop paying for it. Do not put the money on a credit card. Do not take it out of anything else that you have. Do not borrow it from somebody else. Stop paying for it!



At that point, you have the choice of foreclosure, deed in lieu of foreclosure, or a short sale. You should call up the financial institution that holds your mortgage, and if you really cannot afford the payments on this house, you should immediately put it up for a short sale. If a bank will not allow you to do a short sale, then foreclosure or deed in lieu of foreclosure are your options. If your banks still refuses to work with you on any level, then walk away.



IBT: If you're a senior citizen living on a fixed income, what would you recommend?



Suze Orman: Back in 2006, I started to tell everybody to buy municipal bonds. Many of the reporters [back then] made fun of me for getting out of the stock market and putting 99 percent of my [portfolio] in municipal bonds. This is back in 2006, 2007, and here we go, my bonds portfolio is absolutely skyrocketing at this point, especially since April of this year.



With that said, there are still wonderful municipal bonds that you can easily get a 4 percent tax-free return on.



IBT: So you're telling them to switch to municipal bonds right now?



Suze Orman: Well, if they have money in money market accounts, they should be looking at [investments that can generate] income. Income is the goal, not access to the principal***. It is my personal belief that interest rates will stay low for [a while]. Therefore, if you're a senior citizen and you need to pay your bills, you're not going to make it with a 1 percent or ½ percent interest rate [income that is also] taxable.



You can possibly take that money and get a 4 or 5 percent tax-free rate in a municipal bond. Also, you might want to look at individual stocks that pay you a good dividend yield. There are many of them out there, if you do not care about the ups and downs of your principal. If all you care about is being able to pay your bills with the income this money is generating for you, then high-dividend, secure dividend-paying stocks are a wonderful thing to look at.



If you need diversification, there is nothing wrong with looking at some of the high-yielding dividend paying Exchange Traded Funds (ETFs).



IBT: What other advice can you give regarding retirement from the expense side?



Suze Orman: Normally, your largest monthly payment is your mortgage payment. Many senior citizens still own a home. As you get older, once you know you're going to stay in a home for the rest of your life, pay off the mortgage!



It is your largest monthly expense. As time goes on, the tax deduction goes away. If you're still paying [sizable] monthly mortgages [as a senior], how much money are you going to need in your 401-k plan to generate, after taxes, [that amount]?



IBT: So people should reduce their fixed costs, or their financial obligations? Is that the general attitude?



Suze Orman: It's the general attitude as they are getting older and nearing retirement. When you are younger, [it's different]. Now is the time, the next year or two – I don't think you need to rush, I don't think it's going anywhere – but if you want to buy a piece of real estate, you can get a steal of a deal.



[If] you buy a property, your mortgage payment, your property taxes, as well as your insurance may be equal to or lower than what a rent payment is in your area! You would have a debt payment [if you buy a house], but that's okay. As you're younger, debt at these interest rates is something you can leverage to your good.



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*These three players are blamed for their role in causing the sub-prime mortgage crisis and the Great Recession. Banks and mortgage companies are blamed for their predatory lending practices and for originating massive amounts of subprime loans. Wall Street is blamed for bundling these questionable loans into securities and peddling them to greedy and/or naïve institutional investors like pension funds. Of course, other players, like reckless home buyers and ratings agencies, are also to blame for this mess.



**While the idea of resetting all mortgages to fair market value is somewhat radical, it does make sense on some level. The bankruptcy and foreclosure process is economically inefficient and costly for banks. For home-buyers, it undoubtedly takes an emotional and financial toll to be put out of their homes. Therefore, both parties should benefit from avoiding the foreclosure process. For the example Suze Orman mentioned, the home-buyers would essentially start at “zero” with a $150,000 mortgage. In other words, he would not just have to pay $30,000 more.



***As a reminder, she said access to the principal, not preservation. In other words, the investments should not lose the principal, but it might not make sense for seniors to keep their money in conveniently accessible savings or money market accounts and earn very little return.

Friday, March 2, 2012

WSJ:Number of ‘Under Water’ Borrowers Rises

March 1, 2012, 4:18 PM ET.Number of ‘Under Water’ Borrowers Rises.


The number of U.S. homeowners owing more on their home loans than their properties are worth increased at the end of last year, highlighting a continuing source of weakness for the economy.

CoreLogic, a real estate data provider, said Thursday that 11.1 million, or 22.8%, of American households with a mortgage were “under water” at the end of last year. That was up from 10.7 million, or 22.1%, of properties in the third quarter of 2011.

In addition, fourth-quarter data showed that about 2.5 million borrowers had less than 5% equity in their homes, CoreLogic said.

The figures were the highest level of negative equity since the third quarter of 2009, when CoreLogic started reporting negative equity statistics using its current methodology.

Negative equity is closely linked with foreclosures, since homeowners without equity in their properties have trouble refinancing or selling their homes in the event they lose their job or need to relocate. As the Federal Reserve noted in a January paper, negative equity “constrains a homeowner’s ability to remedy financial difficulties.”

Nevada had the highest level of negative equity at the end of last year at 61% of all properties with a home loan. It was followed by Arizona (48%), Florida (44%), Michigan (35%) and Georgia (33%).

“Negative equity will take an extended period of time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures,” said Mark Fleming, chief economist with CoreLogic.

Of those “under water” borrowers, 6.7 million had no second mortgage. They owed 130% of their property’s value on average. The remaining 4.4 million had two loans. On average, they owed 138% of their property’s value.