The up side of a down market

[JWM in SD]

“Tough times in the real estate industry mean booming business for Michael S. Buescher, a Trabuco construction contractor who specializes in cleaning and fixing up repossessed homes.

As more property owners fail to refinance or repay their subprime loans, Buescher’s pay days are getting bigger and bigger.

In Orange County, the number of foreclosures through May hit 1,031 – seven-fold the number a year ago. Default notices soared 121 percent, to 4,520 homes, during the first five months of the year.

“We get more every day,” Buescher said. “We’ve been waiting eight years for this to start happening again.””

Hey Scruffy Dog, maybe this is how unemployment will stay low right??

Or maybe this is where more jobs will be gained to keep real estate up…right Scruffy?

“Mike Roberts, a real estate agent and radio host, has revived his Laguna Niguel company Trust Solutions Inc., which offers homeowners who are upside-down on their loans a legal method for selling their property without having to go through lender approval. The process, Roberts said, has the advantage of getting the seller out of an unaffordable loan without the penalties of a foreclosure or short sale. For buyers, it can mean acquiring homes at a lower property tax rate.

So far this year, Roberts said Trust Solutions has negotiated one or two deals a month. But he expects business to pick up as more homeowners find themselves underwater.

“I suspect by late summer we’ll be doing one a day,” he said. “That’s what we were doing the last time the market was in trouble in ’94, ’95, ’96 and early ’97.””

Or how about this Scruffy?:
“It’s not Buescher’s business to understand why people lost their home. To encourage renters to leave, he’ll offer a few hundred dollars. If he finds a squatter, he’ll ask the cops to arrest them for trespassing.

If the bank agrees to pay for it, Buescher will repaint the walls and replace the carpets. He recommends neutral, vanilla colors to avoid turning off potential buyers.

As the repairs get more complex, Buescher’s fees escalate. Granite counters, a reshingled roof, new wiring – they all make his cash register ring.

“My job is to convince the client to spend more money to sell the house,” he said. “But at this point, the banks aren’t willing, because the market hasn’t hit bottom.”

What do you think Scruffy, does Matthew Padilla at the OC Register have it right or not?????

http://www.ocregister.com/ocregister/money/homepage/article_1750424.php

[Allan from Fallbrook]

JWM: Wow. I know that parts of San Diego County, as well as Inland Empire and Riverside/San Berdoo were having problems, but Orange County? The OC has usually been pretty resistant to downward pricing pressures.

It’s also interesting to note that the major RE players are shifting gears to take advantage of the “new paradigm” emerging. Much like sharks sensing blood in the water, these guys know enough to realize that the market has changed and to make the necessary moves to capitalize on that.

Of course, I am sure that Scruffy will insist that this is nothing other than a temporary setback and all will be well shortly. Shortly, however, might be several years off.

[Allan from Fallbrook]

JWM: Wow. I know that parts of San Diego County, as well as Inland Empire and Riverside/San Berdoo were having problems, but Orange County? The OC has usually been pretty resistant to downward pricing pressures.

It’s also interesting to note that the major RE players are shifting gears to take advantage of the “new paradigm” emerging. Much like sharks sensing blood in the water, these guys know enough to realize that the market has changed and to make the necessary moves to capitalize on that.

Of course, I am sure that Scruffy will insist that this is nothing other than a temporary setback and all will be well shortly. Shortly, however, might be several years off.

[patientrenter]

JWM, Good info.

Do you know what makes this Mike Roberts scheme tick? (BTW, He’s a 10-year member of the board of the CAR.)

Here’s one scenario:

Owner bought for $100,000 way back. HELOC’d out $400,000 since. Home is worth less than $500,000, say $450,000. Owner can’t make payments, is on a tight pre-foreclosure deadline, and doesn’t want bankruptcy or short sale on credit record.

Buyer can afford the payments on the owner’s current loans. Buyer doesn’t declare much of his income to the IRS, but can’t get a liar, er, stated income, loan quickly enough. So buyer takes over some or all of the loan payments, may or may not move into the home, and negotiates a fraction of the (assumed) gain on sale 5 years from now.

There’s extra tax stuff that may or may not be dodgy and important.

It seems to depend on the buyer assuming the home will appreciate by enough to pay off the loan value and repay the buyer’s share of the loan payments, plus hefty interest. In other words, the buyer depends on the market rebounding in 5 years or less. So these buyers are the same people buying in 2006 on a flip mentality who wouldn’t qualify for a 2007 loan. The price they pay to get in in 2007 is taking on the loan amount instead of the lower market value.

I’m sure Mike Roberts isn’t too distressed that this prevents a short sale that would (a) lower comps and (b) soak up some of the limited demand from people who actually qualify for 2007 loans.

Long may the (now more ingenious) flipper-driven boom continue! [/sarcasm]

Patient renter in OC

[patientrenter]

JWM, Good info.

Do you know what makes this Mike Roberts scheme tick? (BTW, He’s a 10-year member of the board of the CAR.)

Here’s one scenario:

Owner bought for $100,000 way back. HELOC’d out $400,000 since. Home is worth less than $500,000, say $450,000. Owner can’t make payments, is on a tight pre-foreclosure deadline, and doesn’t want bankruptcy or short sale on credit record.

Buyer can afford the payments on the owner’s current loans. Buyer doesn’t declare much of his income to the IRS, but can’t get a liar, er, stated income, loan quickly enough. So buyer takes over some or all of the loan payments, may or may not move into the home, and negotiates a fraction of the (assumed) gain on sale 5 years from now.

There’s extra tax stuff that may or may not be dodgy and important.

It seems to depend on the buyer assuming the home will appreciate by enough to pay off the loan value and repay the buyer’s share of the loan payments, plus hefty interest. In other words, the buyer depends on the market rebounding in 5 years or less. So these buyers are the same people buying in 2006 on a flip mentality who wouldn’t qualify for a 2007 loan. The price they pay to get in in 2007 is taking on the loan amount instead of the lower market value.

I’m sure Mike Roberts isn’t too distressed that this prevents a short sale that would (a) lower comps and (b) soak up some of the limited demand from people who actually qualify for 2007 loans.

Long may the (now more ingenious) flipper-driven boom continue! [/sarcasm]

Patient renter in OC

[LA_Renter]

The OC is looking like the San Fernando Valley in unit sales

“O.C. housing suffers slowest-selling start since ’95
For the month of May, DataQuick reports this morning that 2,675 homes sold or 29 percent below a year ago. It’s the slowest-selling May in the 20 years DataQuick has tracked the market.”

http://blogs.ocregister.com/lansner/archives/2007/06/oc_housing_suffer.html#comments

Yes the almighty OC home sales are plummeting too!!

[LA_Renter]

The OC is looking like the San Fernando Valley in unit sales

“O.C. housing suffers slowest-selling start since ’95
For the month of May, DataQuick reports this morning that 2,675 homes sold or 29 percent below a year ago. It’s the slowest-selling May in the 20 years DataQuick has tracked the market.”

http://blogs.ocregister.com/lansner/archives/2007/06/oc_housing_suffer.html#comments

Yes the almighty OC home sales are plummeting too!!

[patientrenter]

LA_R, thanks for that. We got sales and price data for May from DataQuick a few weeks ago, published in the LA Times. I thought it showed 2,333 OC sales = 1,683 SFRs and 650 condos. This is different from the 2,675 number here. Do you know what the difference is, and why they’d be making an announcement now?

Patient renter in OC

[patientrenter]

LA_R, thanks for that. We got sales and price data for May from DataQuick a few weeks ago, published in the LA Times. I thought it showed 2,333 OC sales = 1,683 SFRs and 650 condos. This is different from the 2,675 number here. Do you know what the difference is, and why they’d be making an announcement now?

Patient renter in OC

[JWM in SD]

that is intersting PR, but I think that position still ignores the fundamentals of the market. If I were the bank, I would want to know what the financial position of the assuming buyer is. Second, why would anyone with an ounce of common sense assume the heloc’ed loan value for some stupid FB who got themselves in trouble? I wouldn’t fund some else’s bad consumption decisions.

[JWM in SD]

that is intersting PR, but I think that position still ignores the fundamentals of the market. If I were the bank, I would want to know what the financial position of the assuming buyer is. Second, why would anyone with an ounce of common sense assume the heloc’ed loan value for some stupid FB who got themselves in trouble? I wouldn’t fund some else’s bad consumption decisions.

[patientrenter]

“Second, why would anyone with an ounce of common sense assume the heloc’ed loan value for some stupid FB who got themselves in trouble? I wouldn’t fund some else’s bad consumption decisions.”

Me neither! But there are flippers out there who can’t get loans today. With this arrangement, it looks like they can get most of the potential future gain in home price without taking on most of the potential future loss, just like they could in 2006. Sweet! There may also be people not reporting income to the IRS who are having a harder time getting stated income loans for their future home.

Lenders have an incentive to go along becuase they keep getting payments with no write-down, and because it doesn’t sound as though Mike Roberts and company are informing them fully of the changes. (A big selling point of this arrangement is that it doesn’t have to go through the lender’s approval process.) Think about it. Why are lenders selling REO homes at a loss today? Because they want to? Of course not. They would much prefer to keep getting payments as long as possible. A possible loss in 5 years almost always sounds better to a loan servicer than a certain loss today.

Patient renter in OC

[patientrenter]

“Second, why would anyone with an ounce of common sense assume the heloc’ed loan value for some stupid FB who got themselves in trouble? I wouldn’t fund some else’s bad consumption decisions.”

Me neither! But there are flippers out there who can’t get loans today. With this arrangement, it looks like they can get most of the potential future gain in home price without taking on most of the potential future loss, just like they could in 2006. Sweet! There may also be people not reporting income to the IRS who are having a harder time getting stated income loans for their future home.

Lenders have an incentive to go along becuase they keep getting payments with no write-down, and because it doesn’t sound as though Mike Roberts and company are informing them fully of the changes. (A big selling point of this arrangement is that it doesn’t have to go through the lender’s approval process.) Think about it. Why are lenders selling REO homes at a loss today? Because they want to? Of course not. They would much prefer to keep getting payments as long as possible. A possible loss in 5 years almost always sounds better to a loan servicer than a certain loss today.

Patient renter in OC

[JWM in SD]

but the flipper still needs to find a greater who still has to get a regular loan.

[JWM in SD]

but the flipper still needs to find a greater who still has to get a regular loan.

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