Monday, February 15, 2010, 2:33pm MST

Bill would let foreclosure bidders buy out lesser lienholders

Denver Business Journal

Senate Bill 93, a state measure related to Colorado foreclosure law, was to be heard in the Senate Business, Labor and Technology Committee on Monday.

The bill, sponsored by Sen. Kevin Lundberg, R-Berthoud, would give the successful bidder for a home at foreclosure auction the right to buy out lesser holders of liens against the property, or junior lienholders, such as those with mechanic’s liens. The junior lienholders would have to accept the payment from the bidder and release the lien, according to the bill.

Lundberg contends, in a statement, that his bill “will get rid of a loophole that exists in the current law, and give more clarity and evenhandedness to the foreclosure process. … This is a good policy that will make foreclosure sales more competitive, and should help the overall housing market recover.”

SB 93 was introduced in the Senate on Jan. 20, and assigned to the Business, Labor and Technology Committee. The committee heard witness testimony on Feb. 1, according to the Legislature.

Colorado law currently states that the successful bidder in a home foreclosure sale gets a certificate of purchase (COP) entitling them to a confirmation deed, unless the property is redeemed by a junior lienholder. But sometimes, a junior lien is bought by someone who won’t accept payment from the COP holder and exercises their right, as an unpaid lienholder, to redeem the property.

Lundberg contends that if potential bidders for a home know of a lien purchase, they may be discouraged from bidding on the property and “this may depress sales prices of foreclosed homes, leaving defaulting homeowners with little or not cash proceeds from the sale or a greater deficiency,” the bill states.

— Paula Moore

Close to Home: Aurora, Colo., boasts some sales bargains

Close to Home: Aurora, Colo., boasts some sales bargains

By Christine Dugas, USA TODAY

Aurora, Colo., is considered an extension of Denver but is big enough to be the state's third-largest city.

A major benefit of living in Aurora: home prices.

"Denver does not have the same affordability that Aurora does," says David Barber, president of the Aurora Association of Realtors.

Like many other cities' housing markets, Aurora's has benefited from the first-time home buyer tax credit.

•Sales status. In October and November many first-time home buyers rushed to take advantage of the federal tax credit before the November deadline, Barber says. By year's end, the expanded tax credit extension provided home buyers with more time to make decisions, which may have been a contributor to December sales that were 26.9% lower than the same month in 2008.

Home buyers are starting to resurface. Even high-end homes are attracting more attention because of the expanded tax credit.

"It's not taking people who weren't considering buying a home and putting them into the market," Barber says of the tax credit extension. "But it's helping move forward people who have been vacillating about whether or not it's time to move into a new home."

•Price points. In the city's core neighborhoods, modest homes built in the 1940s and 1950s abound.

Aurora's median sales price in December jumped 10.6% from December a year ago. Home foreclosures have slowed, which pushed prices up, as did a reduction in home inventory because of brisk fall sales.

•Local economy. Aurora's unemployment rate is included in the Denver metro area's, which was 7.5% in December, the same as the state's but lower than the national rate.

Many Aurora residents live and work in the construction and retail industries, which suffered in the recession, says Gary Horvath, managing director of the Business Research Division at the Leeds School of Business at the University of Colorado.

But Aurora gets some job stability from Buckley Air Force Base and a Raytheon facility. It is also home to the Anschutz Medical Campus, an education, research and patient-care facility. Anschutz is expanding and recently added a biotechnology facility. It is also building a VA Hospital.

•Hot 'hoods. Aurora is not a typical urban environment because it boasts many parks, green spaces, and bicycle and walking trails, Barber says.

The Anschutz expansion is revitalizing nearby neighborhoods because of the many doctors, nurses and support personnel working there.

"There was a lot of foreclosure in those areas, and now because of the impact of the medical center, we are finding people coming in and buying those houses," Barber says. "They are rehabbing them and turning them into very nice homes."

A few years ago, home prices there ranged from $60,000 to $80,000, Barber says, but now reach $120,000. And values likely will continue rising, he says.

• REAL ESTATE
• FEBRUARY 8, 2010

Builders Start to Look Up

Beazer, D.R. Horton See a Drop in Cancellation Rates

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By PAUL VIGNA and JOHN SHIPMAN

Home builders are looking a lot less bad. And that's good.

Fewer write-downs and new-home order cancellations along with improved order rates are some of the most positive signs from home builders since the housing market began to roll over four years ago.

View Full Image

Associated Press

New Beazer homes, in a Feb. 2 photo, that are under construction in Gilbert, Ariz.

Aside from the nation's banks, no industry was humbled by the recession quite as much as home builders. But, similar to the banks, builders got a lot of support from Uncle Sam, which has helped some recently return to profitability.

Supports such as the first-time home-buyer tax credit, longer tax-loss carry-backs as well as huge write-downs in land and inventory values, have allowed builders to, for lack of a better term, rebuild themselves. Many are leaner, and less burdened with debt, which should enable them to turn reliably profitable once the economy improves.

The 14 publicly traded home builders have written off an aggregate $33.65 billion since the first quarter of 2006 through the end of 2009's third quarter, according to Moody's Investors Service senior credit officer Joseph Snider.

New-Home Orders Rise

Beazer Homes USA Inc. said Friday fiscal first quarter new-home orders rose almost 37% to 728, and its cancellation rate fell to 27% from 46% a year earlier.

The company's quarterly tax benefit was $101 million, helping Beazer post a $48 million profit. Impairments were $8.8 million versus $12.4 million last year.

"We cannot say that the impairment cycle is done," Beazer Chief Financial Officer Allan Merrill said, "but we can say that improving absorption rates and firming prices are currently reducing the probability of significant additional impairments."

D.R. Horton Inc. last week booked a $149.2 million tax benefit in its fiscal first quarter, helping it post a $192 million profit after losing $62.2 million a year earlier.

The company also posted a 45% increase in new orders, and its cancellation rate fell to 26% from 38% a year ago. Pre-tax charges for inventory impairments and write-offs fell to $1.2 million, compared with $56.2 million in the year-earlier quarter.

Company Expectations

D.R. Horton Chief Financial Officer Bill Wheat said the company expects fiscal 2010 impairments to be "substantially lower" than 2009's.

Pending homes sales last week came in higher than expected, but any continuing improvement for the builders obviously hinges on matters largely out of their hands. And given Friday's January jobs report, it may be some time before those matters turn in their favor.

"You have to have job growth in the economy, and there is obviously no job growth to speak of today," D.R. Horton Chief Executive Donald Tomnitz said last week.

The Upshot comments on trends in corporate earnings.

FHA halts 90-day "flip rule" for one year

business
FHA halts 90-day "flip rule" for one year
By Tom LaRocque
Special to The Denver Post
Posted: 02/07/2010 01:00:00 AM MST

Real estate investor Mike Duever, checking out a home in Aurora on Tuesday, welcomes the change. "It speaks to the importance of the investors in helping to revive the market," he says. (Hyoung Chang, The Denver Post )

Real estate investor Mike Duever bought a two-bedroom ranch home in north Denver last fall. Last week, three and a half months after purchasing the property, he sold it to a young couple who are now happily settling in.

With that buy-sell schedule, Duever satisfied a minimum requirement long held by the Federal Housing Administration. Short-term investors had to hold a property at least 90 days before selling to an FHA-backed borrower.

That is, until recently. The FHA on Monday temporarily suspended its 90-day "flip rule." The aim is to "facilitate the return of repaired and habitable properties to the market in a timely fashion," according to an announcement by the U.S. Department of Housing and Urban Development.

"I was happy and surprised to see the change," said Duever, reflecting the sentiments of many investors. "It speaks to the importance of the investors in helping to revive the market."

Duever has bought and sold properties around Denver since 2003, he said.

The 90-day restriction was written originally to impede investors from colluding with appraisers and lenders to push up prices. Investors have long argued that such collusion is not inherent to flipping of properties — it is loan fraud, and it's already illegal.

"All other guidance concerning property-flipping remains unchanged," said the HUD announcement. The suspension will last one year unless it is extended further.

Brad Podhajsky, an investor and licensed broker, leads the Investors Realty Resource, based in Greenwood Village. He echoes sentiments in favor of lifting the restriction.

"Many, maybe most, investor properties are listed through the (Multiple Listing Service), so Realtors will benefit too," Podhajsky said. Homes sold through a MLS generate commission sales for brokers.

The 90-day limit is waived only if the property has "no pattern of previous flipping" in the past 12 months.

If the new sale price exceeds the recent purchase price by 20 percent or more, the lender must be prepared to justify the mark-up with a file documenting the renovations.

The FHA policy shift nearly coincides with a move in the opposite direction affecting conventional (non-FHA) borrowers. The countervailing measure comes from Fannie Mae and Freddie Mac, the government-sponsored enterprises that repurchase most conventional loans.

Beginning April 1, conventional borrowers may purchase properties only if they have been held for 90 days. Excepted from that rule will be borrowers with down payments of 20 percent or more.

One financial-services-industry watcher contends that neither of the rule changes will have much practical significance.

"It's much ado about nothing," said Brian Brady, managing director of Worldwide Credit Corp., based in San Diego. Brady writes the Mortgage Rates Report blog.

Conventional lenders today are more conservative than they're required to be, he said. The same will be true for FHA lenders, he predicted.

"My best guess is that while HUD will be willing to insure loans for properties sold in less than 90 days, lenders generally won't make those loans. If they do, they'll charge higher interest rates to offset the risk," he said.

Conventional lenders backed by Fannie Mae will have no quarrel with the 90-day minimum, he said, "because that's what they're already doing."

Read more: http://www.denverpost.com/businessheadlines/ci_14346677#ixzz0f2vZes7F

US mortgage sector braced for end of Fed help

By Michael Mackenzie in New York

Published: February 3 2010 22:46 | Last updated: February 3 2010 22:46

Cold turkey time is rapidly approaching for the US mortgage market as the Federal Reserve gets ready to end its mammoth $1,250bn buying programme at the end of March.

The prospect of such a large buyer moving to the sidelines means that the “artificial market” created by the Fed’s hefty purchases – part of a monetary policy strategy aimed at reducing mortgage borrowing costs – should result in more normal mortgage rates, likely to be at a higher level.

The question is, how much higher? There is a great deal of uncertainty among many investors on exactly how to position themselves for the withdrawal of the Fed from the mortgage market. Many want higher rates, as it makes the investments more attractive. Yet the Fed wants to keep mortgage rates low to help home-buyers.

In a survey of some of the 4,000 people attending a securitisation conference this week, 73 per cent of respondents expected spreads on mortgage-backed securities to go “much wider” when the Fed ceases buying mortgage bonds, backed by mortgage agencies Fannie Mae and Freddie Mac. But the impact is hard to pin down.

When the Fed began buying mortgages last January, the average 30-year coupon on Fannie Mae mortgage paper tumbled to a low of 3.68 per cent, having surged above 6 per cent during the worst of the financial crisis in late 2008.

Since November, the mortgage coupon has eased from a high of 4.60 per cent to a low of 3.90 per cent and is currently about 4.40 per cent.

That places the 30-year coupon about 70 basis points above the 10-year Treasury yield.

Before the financial crisis, 30-year mortgage paper tended to trade 100bps to 125bps above the 10-year note, suggesting that the market needs to sell off between 30bps and 50bps once the Fed halts its buying. Roger Lehman, a mortgage securities analyst at Bank of America Merrill Lynch expects mortgage spreads will widen modestly by some 20-30bps, and not excessively, say beyond 75bps.

“Once spreads widen by 20-30bps, there will be demand mainly from banks and money managers,” he says.

Certainly the Fed’s buying has been met with grateful selling by mortgage investors over the past year, resulting in many portfolios being extremely underweight the sector.

For example, Pimco’s flagship Total Return Fund of $202bn, managed by Bill Gross, currently has 17 per cent of its assets in mortgages after being about 83 per cent a year ago.

Kent Wosepka, money manager at Standish Mellon, says they remain “pretty underweight mortgages in our portfolios” and are watching to see how the market copes once the Fed steps away.

Gerald Lucas, senior investment adviser at Deutsche Bank, said he expected current coupon mortgage spreads would slowly widen by between 20-30bps, but that buyers should step up. “Investors are so underweight mortgages, that a widening in spreads will be contained by pent-up demand to own the paper,” he said.

Reinforcing the scenario of a modest widening in spreads is the targeted nature of the Fed’s buying.

Mr Lucas says that the Fed and Treasury between them hold about 80 per cent of the current 30-year mortgage paper with coupons of 4 per cent and 4.5 per cent.

The current Fannie Mae 30-year coupon trades about 4.40 per cent and when money managers start to buy mortgages, they will want the current paper, not older issues at higher yields.

Given the fact that the Fed and Treasury own so much of the current coupon sector, that should help limit a rise in mortgage spreads, says Mr Lucas.

Not all investors are so sure that less supply will help limit spread widening.

With the Fed and Treasury owning so much of the current mortgage coupons, there is far less available for investors and much less liquidity, which could exacerbate changes in rates.

That is particularly the case should rates rise. Under such a scenario, holders of mortgages usually sell some of their portfolio in order to maintain a balance between their overall holding and the level of rates.

This type of technical selling has in the past been violent and amid poorer liquidity conditions could easily compound an unruly sell-off.

“It seems unlikely we will have a gradual widening in mortgage spreads,” says Mr Wosepka. “That’s not normally the case in markets.”

Indeed, some analysts see the Fed’s purchases as having removed volatility from the market. Once it stops, more volatility will return, by definition. The spectre of instability and a sudden jump in rates is high on the Fed’s watch list.

Policymakers said after their meeting last week: “The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.”

That language is considered a code for further Fed buying should rates rise sharply, say analysts and investors.

Mr Lehman says that sharply wider mortgage spreads are likely to result in the government using Fannie and Freddie to step in and stabilise the market with buying. On Christmas eve the government announced that it would provide unlimited support for the mortgage giants over the next three years rather than cap their federal credit line at $400bn.

“If that doesn’t work we would not rule out the possibility that they may step in a bigger way,” says Mr Lehman.

Additional reporting by Aline van Duyn

Only 1,072 Permanent Loan Modifications in Colorado

Only 1,072 Permanent Loan Modifications in Colorado

Only 1,072 permanent loan modifications have been made to homeowners in Colorado facing foreclosure, according to the latest government data.

"That is the proverbial drop in the ocean," said Byron Koste, director of the Colorado Real Estate Center at the University of Colorado in Boulder. "That will have no impact at all. The only impact it has is that 1,000 families are better off."

The latest report from the federal government shows that as of the end of December, there were 11,170 homeowners in "active trials," for loan modifications. The trial modifications are required before the loan can be made permanent. Colorado ranked No. 19 in the nation for the number of active trials and permanent loan modifications. The 1,072 permanent loan modifications represents 8.8 percent of the trials, which is slightly better than the 8.4 percent ratio nationally. Nationwide, at the end of December there were 787,221 trial modifications and 66,465 permanent modifications. The goal of the program is to provide 3 to 4 million homeowners with lower mortgage payments through 2012.

Koste said he is surprised that there were even 1,072 permanent loan modifications in the state. Even though a focal point of the Obama Administration's year-old $75 billion war on foreclosure is modifying loans to keep people in their homes, banks have no incentive to play along, Koste said.

"There is no bank in a hurry to write down a loan," Koste said.

Friday, January 29, 2010

Homes held back? The shadow market knows

Denver Business Journal - by Paula Moore

Kathleen Lavine | Business Journal

James and Barbara Browning with one of their Denver listings, the Croke Patterson mansion at 11th Avenue and Pennsylvania Street, a bank-owned property.

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Denver-area residential real estate brokers fear a flood of foreclosed homes still held by lenders — the “shadow market” — will be put up for sale in 2010, depressing home prices and values even more than they already have been in the recession.

A big influx of homes coming on the market all at once would hurt the recovery in the local housing market, according to real estate experts. Brokers already anticipate a sharp drop in home sales in the second half of 2010, after federal homebuyer tax credits expire June 30.

Those who believe in the shadow-market effect vary widely about how big it is. Estimates nationwide put it beween hundreds of thousands to several million homes held by lenders, but not officially on the market.

Shadow-inventory estimates are based on extrapolations by real estate and financial companies using data such as loan-deliquency figures, and comparisons of bank-owned homes to listings of for-sale homes, as well as comparing for-sale homes, default notices and auction dates.

For example, RealtyTrac Inc., an online seller of foreclosure homes, found in a spring 2009 study that only 30 percent of foreclosed homes were listed for sale by Multiple Listing Services in four states, including California.

One national report put metro Denver’s shadow market at nearly 14,000 homes, relatively low compared to cities that have been harder hit by the recession.

“There’s no question you hear a lot of [brokers] talking about it,” Will Roberts, broker owner of MB BrokerForDenver.com LLC and former president of the Denver Board of Realtors, said of the shadow market.

But some Denver-area residential brokers aren’t even sure there is a shadow market.

“I’ve got to say I’m leery of it. … It’s like the boogeyman,” said Charles Roberts, broker owner at Your Castle Real Estate LLC in Lakewood and Denver Board of Realtors board member.

Some lenders with Denver-area operations, in their defense, contend they put foreclosure homes on the market for sale as fast as they can, largely because of federal regulatory pressure to sell those homes, as well as the cost of holding and maintaining the properties. Banks also hire real estate agents to sell foreclosure homes.

“It is our practice not to hold that inventory, because our goal is to get it ready for immediate sale,” said Kevin Waetke, spokesman for Wells Fargo Home Mortgage.

Wells Fargo & Company (NYSE: WFC) — along with Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Company (NYSE: JPM) and Citigroup Inc. (NYSE: C) — are among the country’s largest mortgage lenders.

“Most banks that are carrying this kind of inventory have regulatory pressure to move it off their books. … Most banks don’t want to own real estate because of the carrying expense,” said Bruce Alexander, president and CEO of VectraBank Colorado NA.

Alexander also pointed out that banks often sell mortgages to loan pools that are packaged into mortgage-backed securities. “Part of the problem is a lot of these loans are in pools, and it’s hard to … separate out properties and get them on the market,” he said.

Some Denver-area real estate brokers believe that an increase they’ve seen this year in broker price opinions (BPOs), which banks and mortgage companies use to value foreclosed properties before disposing of them, signals more bank-owned homes will be listed for sale in the next few quarters.

“There’s been an uptick in BPOs requested for banks,” said James Browning, broker owner of Westminster-based The Browning Group LLC and a specialist in selling bank-owned properties. “What that has meant in the past is that the banks are gearing up for inventory coming on the market.”

The shadow market generally is defined as homes that have been foreclosed on by their mortgage lender because a loan is in arrears, but haven’t yet been put on the market for sale.

Homes whose owners want to put them on the market, but are holding off until selling prices improve, also sometimes get lumped into this category.

Reasons for the delay in selling foreclosed homes, according to brokers and mortgage experts, include lenders waiting for home prices to go up, and being so overwhelmed with foreclosure homes that it takes a while to put them on the market. Longer waiting periods before a default notice is issued, and government-imposed requirements such as foreclosure moratoriums, also are clogging the sales pipeline for such homes.

National real estate- and mortgage-related companies such as RealtyTrac.com and Trulia.com recently have been warning about the shadow market. Trulia.com CEO Pete Flint has said a significant number of shadow homes could hit the market in the next four to six months.

Amherst Securities Group LP of Austin, Texas, a dealer and marketer of mortgage-backed securities, among other things, estimated the U.S. shadow market’s size at roughly 7 million properties in a report released in September 2009.

“That housing overhang is the single-largest impediment to a recovery of the housing market,” the report said.

The report calculated metro Denver’s shadow-market inventory at 13,888 homes.

Of 20 major cities included in the Amherst report, Los Angeles had the highest estimated shadow inventory, at 81,389 homes, followed by Las Vegas (52,849) and Phoenix (44,868). Boston had the lowest inventory, at 1,037.