This is the second installment of my article looking back over the past five years at Portland housing statistics.  Part One examined the real reason for the housing crisis which officially commenced in 3Q 2007, and looked at the historic numbers for average and median (i.e. “mean”) sale prices according to the RMLS™. The link to Part One is here

 The Rest of the Story. Besides pricing over the past five years, what about time on the market?  Available inventory?  Number of listings? Closed sales? Let’s look at each one:

1.     Time on the MarketUntil 3Q 2007, an overheated real estate market was still burning through inventory.  In August 2007, the average time on the market was 56 days less than two months from listing to “pending sale.”[1]  The following month, September, 2007, banks began realizing that the drumbeat of subprime defaults was not going away.  They tightened their underwriting requirements almost immediately.  Over time, they began to even restrict borrowers from tapping their HELOCs based upon ZIP code.  As short sales and REOs began to fill the real estate marketplace, buyers and appraisers began viewing the sales figures as legitimate comps by which to gauge present value.  All the while, many potential buyers remained on the sidelines, waiting for prices to hit bottom.[2]  Many sellers who were fortunate enough to have equity during the following five years had to decide whether to wait until the market turned, or sell their home and recover far less equity than they had earlier.[3] Continue reading “Portland Metro Housing Prices – The Last Five Years [Part Two]”

“Wells Fargo’s conduct is clandestine. Rather than provide Jones with a complete history of his debt on an ongoing basis, Wells Fargo simply stopped communicating with Jones once it deemed him in default. At that point in time, fees and costs were assessed against his account and satisfied with postpetition payments intended for other debt without notice. Only through litigation was this practice discovered. Wells Fargo admitted to the same practices for all other loans in bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems with their accounts without extensive discovery.”

Honorable Elizabeth W. Magner, U.S. Bankruptcy Judge, In Re: Jones v. Wells Fargo Home Mortgage, Inc.

Introduction. In understanding what happened in this case, it is important for the layman to understand the following:  All bankruptcies in the U.S. are governed by federal law.  The concept – though not necessarily the process – is simple: The moment one files for bankruptcy, an “automatic stay” is imposed.  This means that immediately upon filing a petition in bankruptcy, no creditor may attempt to recover any monies or seek other relief against that person [called the “debtor”] without court approval.  A trustee is appointed to administer the bankrupt’s estate.  Creditors, such as Wells Fargo, must then file a “proof of claim” with the court, setting forth the amount the debtor owes them as of the date he or she filed their petition.   A bankruptcy proceeding in which a “reorganization plan” or “plan” is filed with the court is known as a “Chapter 13” bankruptcy. If the plan is opposed by any creditors or the trustee, it must be worked out, or resolved by the Bankruptcy Judge.  Once “confirmed” by the Court, the debtor and all creditors must adhere to it.

Typically, a reorganization plan will identify who, what, when and how, creditors are to be repaid by the debtor.  Any variance from the plan has to first be approved by the bankruptcy court.  Some actions and events in bankruptcy lingo are occasionally referred to “post-petition” in order to signify that they occurred after the debtor filed for bankruptcy.  Events occurring before the debtor’s bankruptcy filing are referred to as “pre-petition.” The trustee is in charge of overseeing the operations of the final confirmed plan.

In the following case, Wells Fargo was one of the debtor’s creditors, and as such, had participated in, and was bound by, the confirmed plan.  As demonstrated below, the courts jealously guard debtors who seek federal bankruptcy protection.  Any deviation from a confirmed plan by the debtor’s creditors, especially intentional deviations, can result in severe sanctions.

Discussion. The Memorandum Opinion written by the Honorable Elizabeth W. Magner, U.S. Bankruptcy Judge, could have been completed in a few pages.  Instead, she decided to take 21 pages, setting out in detail, the conduct of Wells Fargo, that you sensed was not going to end well for this Big Bank. Continue reading “Slapdown! – In Re: Jones v. Wells Fargo Home Mortgage, Inc.”

In a recent post on mortgage insurance (“MI”), I addressed what I saw as a problem, but didn’t yet fully understand the depth of it, so just issued a cautionary warning to Realtors® and sellers that they should find out, in advance, if MI was obtained on the underlying loan.  The reason for this warning was due to reports I was receiving that MI companies were requiring the payment of money or a promissory note from sellers, in order to give consent to a short sale.  Why consent was even necessary from the MI company has mystified me.

After reading some MI master policies for these carriers, and doing a little research on the Web, together with a well-placed threat to one MI carrier, I think I’m getting closer to understanding what’s going on.  Here’s a summary of what I know so far: Continue reading “Short Sale Trap: Mortgage Insurance [Part Two]”

As we know, during the easy credit era of the recent past, many, many people borrowed well in excess of 80% of their home’s purchase price.  Stated another way, there were comparatively few folks who came to the closing table with 20% or more in down payment.

Prior to the easy credit days, borrowers on conventional loans with less than a 20% down payment were required to obtain and pay for mortgage insurance.  However, with the advent of piggy-back loan programs (e.g. 80% first mortgage, 10% second mortgage, and 10% down payment), mortgage insurance programs declined substantially.

However, mortgage insurance continued to exist in some residential loan transactions, albeit to a greatly reduced degree.  Today I am seeing a few short sale transactions where the mortgage insurance company is a part of the consent process, just the same as the first lender. This can pose a real problem – and an unpleasant surprise for sellers – especially where the first lender consents to the short sale, but the mortgage insurer insists upon some form of payment from the seller, either at closing, or, more likely in the form of a promissory note.

The issue is somewhat complex – I will address this in more detail soon.   However, for the time being, I would suggest that for Realtors® taking short sale listings – especially where there is only one loan – the question needs to be asked, “Do you have mortgage insurance?”  If the answer is “yes”, efforts should be made as early as possible to determine the name of the company and their short sale policy.  These policies can vary, so it pays to find out what they are well ahead of time.

The opinions expressed below are mine alone and do not necessarily reflect the opinions of my industry client, Portland Metropolitan Association of Realtors®, their officers, directors, employees or members. – PCQ

Although some may disagree, the origins of the current housing and credit crisis can be traced directly back to the explosion of the securitization industry in the early years of this decade.  For those interested in an enlightening expose’ of this issue, watch the recent Oscar-winning documentary, Inside Job.

Although securitization of mortgages had been going on for several years, the process reached a fever pitch during the easy credit days, i.e. 2005 – 2007. Securitization is a fancy word for what Fannie and Freddie had been doing for years in the secondary market, i.e. purchasing mortgage loans, pooling them, turning them into investment grade securities, and selling them to large investors, such as pension funds.  For years the process was basically sound, in large part because these two Government Sponsored Enterprises placed strict limits on the loans they would purchase – these were known as “conforming loans,” which meant that they conformed to Fannie’s and Freddie’s institutionalized standards. Continue reading “Why People Are So Angry At the Lending and Servicing Industries – Part One”

Recently, Fannie Mae (FNMA), the giant secondary mortgage market purchaser, declared war on borrowers who engage in “strategic defaults.”  In their view, these are the borrowers who can afford to pay, but voluntarily choose not to.  It appears that in some instances, these decisions stem from reliance on some states’ laws that say a lender may not pursue personal liability against borrowers for certain loan “deficiencies.”  A deficiency is the difference between what the lender recovers in a foreclosure, and the remaining amount due under the borrower’s promissory note.

In some states, such as Oregon, lenders are prevented from recovering a judgment against their borrowers for  deficiencies arising after foreclosure of a first mortgage used to acquire their primary residence.  These anti-deficiency laws arose out of the 1930’s depression era, when banks pursued borrowers for repayment even after taking the home in foreclosure.  In 2010 Oregon passed another law (House Bill 3656) that extended anti-deficiency protection to borrowers who also took out second mortgages to pay the remaining purchase price.  These loan programs, sometimes known as “piggy-backs,” were designed by lenders to provide 100% of a borrower’s purchase price.  In the vernacular, borrowers had no “skin in the game.”  But that was OK to the banks.  They believed, like most, that if they ever had to foreclose, they could simply resell the home, perhaps at an even higher price.  Piggy-backs were not only offered, they were actively promoted, by many lenders during the 2005 -2008 period.  This was when credit was cheap, interest rates low, and real estate prices were skyrocketing.  Piggy-backs often came in the form of two simultaneous loans, the first mortgage (or in Oregon, the “trust deed”) for 80% of the purchase price, and another – the second mortgage or trust deed – for the remaining 20%. Continue reading ““Strategic Defaults” – Making Borrowers the Bad Guys?”

Making Sausage

A quick note on what appears to be a source of confusion among consumers and others about their personal liability on home loans that go into foreclosure.

Before the credit and housing boom and bust, Oregon protected homebuyers on their first mortgage if there was a shortfall in loan repayment (a “deficiency”) following foreclosure.  The law said nothing about such protection if there was a second mortgage.

During the boom times in Oregon and elsewhere, “piggy-back” loans were not uncommon. Piggy-backs were two loans, that is, a first and second mortgage, say, for 80% and 20% of the purchase price.

When Oregon real estate values collapsed in the third quarter of  2007, this left many lenders unpaid…and borrowers fearful of collection action being filed against them personally.  The lender on the first mortgage could not recover for the deficiency, but the lender on the second could. Continue reading “Making Sausage – Observations on Some Recent Oregon Legislation”