Listings that turn you off

Kenneth R. Harney Apr 26, 2013

WASHINGTON — With full-fledged sellers’ markets underway in dozens of metropolitan areas around the country, new research has found curious statistical patterns emerging: Even in cities where listings get multiple offers within days or hours, significant numbers of homes are sitting on the market for six months, 12 months or more with no takers.

Call them turnoff listings. Despite roaring sales paces all around them, for one reason or another these houses send shoppers scurrying away, often because of mispricing, excessive restrictions on access to buyers and agents, failure to clean or make repairs, and a variety of other marketing bungles.

Researchers at Trulia, a real estate listings site, say the existence of large numbers of unsold houses in the midst of high-activity markets is more common than generally assumed. Jed Kolko, chief economist for Trulia, suggested that “even in the tightest markets, there is a ‘long tail’ of homes languishing” unsold for extended periods.

For example, in one of the fastest-paced sales areas in the country, San Jose, Calif., — where the median time from listing to sale is just 20 days

Bank windows open a bit wider

By KENNETH R. HARNEY 04/19/2013

Using your home as an ATM no longer is a financial option, but the tools that allowed owners to pull out massive amounts of money during the boom years – equity credit lines and second mortgages – are making a comeback.

Banking and credit analysts say the dollar volumes of new originations of home equity loans are rising again – significantly so in areas of the country that are experiencing post-recession rebounds in property values. These include most of the Atlantic coastal states, the Pacific Northwest, California, Arizona, New Mexico, Texas and parts of the Midwest.

Not only have owners’ equity positions grown substantially on a national basis since 2011 – up by an estimated $1.7 trillion during the past 18 months, according to the Federal Reserve – but banks increasingly are willing to allow owners to tap that equity. Unlike during the credit bubble years of 2003-06, however, they aren’t permitting owners to go whole hog – mortgaging their homes up to 100 percent of market value with first, second and even third loans or credit lines.

Now major lenders are restricting the combined total of first and second loans against a house to no more than 85 percent of value. For instance, if your house is worth $500,000 and the balance on your first mortgage is $375,000, you’d likely be limited to a second mortgage or credit line of $50,000. Contrast this with 2007, the high-point year of home equity lending, when many lenders offered so called “piggyback” financing packages that allowed 100 percent debt without private mortgage insurance. A buyer of a $500,000 house could get a $400,000 first mortgage and a second loan of $100,000.

That ultimately didn’t work well for the banks. During the third quarter of 2012 alone, according to federal estimates, banks wrote off $4.5 billion in defaulted equity loans, often in situations where homeowners found themselves underwater and behind on both first and second loans. In such a situation, second mortgages become essentially worthless to the bank, since in a foreclosure the holder of the first mortgage gets paid off first. On underwater foreclosures, the second loan holder is left holding the bag.

Lenders this spring are also much pickier on credit quality than they were as little as six years ago. If you’ve got a delinquency-pocked credit history, and you want to pull out a substantial amount of equity using a credit line, don’t count on getting anywhere near the best rate quotes or terms available.

To illustrate, say you own a house worth $600,000 in Los Angeles with a $400,000 first mortgage balance, and you want a $100,000 equity credit line. Wells Fargo’s online equity loan calculator quoted a floating-rate “home equity account” for 10 years at 4.75 percent in mid-April for borrowers with “excellent” credit. The site defines excellent as meaning no missed payments and no delinquencies on your credit report. For a borrower with “average” credit seeking the same $100,000 credit line, by contrast, the rate jumps to 7.5 percent. The term “average” means you’ve got a credit history with delinquencies and perhaps other problems.

Matt Potere, Bank of America’s home equity product executive, said in an interview that his institution has no specific cutoffs for FICO credit scores, preferring instead to look at multiple factors simultaneously – combined loan to value (CLTV), full credit history of the applicant and the location of the property. Location factors into pricing, Potere said, because some markets have historical patterns of high volatility – prices spiral upwards for a while, then plummet. This raises the potential costs to the bank if a borrower goes delinquent during a period when values are in decline. Some jurisdictions also factor special add-on costs into quotes, such as mortgage taxes, and these can raise pricing quotes slightly.

Despite the multibillion-dollar losses that Bank of America and other large lenders have racked up on their equity loan portfolios from the bust and recession period, executives such as Potere are convinced that this time around, things will be different thanks to smarter underwriting.

Bottom line: If you have equity in your house, a need for cash in a lump sum or credit line and can get through the underwriting hoops and snares set by loss-leery lenders, go for it. Rates are low and the bank windows are opening again.

Just not as wide as they once did.

With market booming, brokers resurrect sales techniques

Kenneth R. Harney

WASHINGTON — They’re back after barely a decade: Escalation clauses in real estate contracts, “naked” contingency-free offers and lowball-priced listings designed to pull in dozens of bidders and turn routine sales transactions into auctions.

These are all techniques last seen with frequency during the frothiest months of the housing bubble in 2004-05, when prices were rising at double-digit rates, buyers thought they couldn’t lose money in real estate, and mortgage financing was available to anybody who could sign a loan application. Now they are reappearing in some of the hottest sellers’ markets from coast to coast — the byproduct of severe shortages in houses listed for sale combined with strong demand by qualified purchasers. Nationwide, according to surveys of 800-plus local markets by Realtor.com, inventories are down by 16 percent from year-ago levels. But in the hottest areas, listings are down by double or even triple that and prices are moving up fast.

Buyers, meanwhile, are out in droves, scanning newspapers and online realty sites for the latest listings, and signing up for alert services provided by realty firms. In the San Francisco Bay area, for example, agents say that realistically priced new listings are attracting dozens — sometimes even hundreds — of shoppers to open houses and stimulating bidding competitions with 30 to 50 or more participants.

Bidding wars are also increasingly frequent on well-priced listings in Washington, D.C., and its Maryland and Virginia suburbs, much of California, Seattle, Phoenix, Las Vegas,
Richmond, Va., Boston and parts of Florida, among others. In a handful of fiercely competitive areas, some listing agents reportedly are even restricting buyers’ access to properties to narrow time windows — say, a few hours on Saturday and Sunday — in order to fan the flames.

To get a leg up in such situations, some buyers and their agents are using techniques that can be effective, but that also come with drawbacks and snares. Among them:

L Contingency-free and contingency-light offers

Carl Medford, an agent with Prudential California Realty in the San Francisco East Bay market, says these are almost routine for buyers determined to win a bidding competition. He calls them “unprotected” contract offers. Essentially the idea is to strip away some or all of the customary contingencies in an offer that might irritate a seller or render the buyer’s bid less attractive. The financing contingency, which makes the entire transaction dependent on the buyer obtaining a satisfactory loan and appraisal, often is the first to go if the bidder is confident of qualifying for a mortgage, has been preapproved or is willing to pay what could be a lot more than market value.

Many buyers are also willing to delete the inspection contingency, which Medford considers much more risky, since the bidder agrees to fly blind with no way out of the deal if costly defects — tens of thousands of dollars’ worth, potentially — later arise.

L Escalation clauses

These are add-ons to contract language that keep bidders in the competition, even when the price soars well beyond the original asking amount. Typically the bidder agrees to match and exceed any verifiable, bona fide competing offers by set increments ­— say, $500 to $1,000 — up to some to some maximum amount. Tom Conner, an associate broker with RE/MAX Gateway in Gainesville, Va., says “we’re seeing them all the time now” in multiple-offer situations. The upside: Properly used, they work. Bidders with the highest maximums often get the house. Downside: If you need a mortgage, the appraisal could be a problem because it’s likely to come in lower than the purchase price. Be prepared to throw extra cash into the deal upfront.

L Lowball listings

Rather than list a house at the price that comparable recent sales in the area indicate it’s worth — say $495,000 ­— the sellers, advised by their agent, cut that to $479,000, hoping to stimulate a bidding war. Astute shoppers immediately spot the house as a “bargain,” and multiple competing offers push the final price to $520,000.

Good for the sellers, right? Probably. They get top dollar. But the ultimate buyers end up committed to a contract requiring them to pay what may be $25,000 over the likely current appraisal value — and that could have negative consequences for both the buyer and the seller.

A Boom Market Reappearing

By Kenneth R. Harney Posted 04/12//2013

WASHINGTON – They’re back after barely a decade: Escalation clauses in real estate contracts, “naked” contingency-free offers and lowball-priced listings designed to pull in dozens of bidders and turn routine sales transactions into auctions.

These are all techniques last seen with frequency during the frothiest months of the housing bubble in 2004-05, when prices were rising at double-digit rates, buyers thought they couldn’t lose money in real estate, and mortgage financing was available to anybody who could sign a loan application. Now they are reappearing in some of the hottest sellers’ markets from coast to coast – the byproduct of severe shortages in houses listed for sale combined with strong demand by qualified purchasers. Nationwide, according to surveys of 800-plus local markets by Realtor.com, inventories are down by 16 percent from year-ago levels. But in the hottest areas, listings are down by double or even triple that and prices are moving up fast.

Buyers, meanwhile, are out in droves, scanning newspapers and online realty sites for the latest listings, and signing up for alert services provided by realty firms. In the San Francisco Bay Area, for example, agents say that realistically priced new listings are attracting dozens – sometimes even hundreds – of shoppers to open houses and stimulating bidding competitions with 30 to 50 or more participants.

Bidding wars are also increasingly frequent on well-priced listings in Washington, D.C., and its Maryland and Virginia suburbs, much of California, Seattle, Phoenix, Las Vegas, Richmond, Va., Boston and parts of Florida, among others. In a handful of fiercely competitive areas, some listing agents reportedly are even restricting buyers’ access to properties to narrow time windows – say, a few hours on Saturday and Sunday – in order to fan the flames.

To get a leg up in such situations, some buyers and their agents are using techniques that can be effective, but that also come with drawbacks and snares. Among them:

* Contingency-free and contingency-light offers. Carl Medford, an agent with Prudential California Realty in the San Francisco East Bay market, says these are almost routine for buyers determined to win a bidding competition. He calls them “unprotected” contract offers. Essentially the idea is to strip away some or all of the customary contingencies in an offer that might irritate a seller or render the buyer’s bid less attractive. The financing contingency, which makes the entire transaction dependent on the buyer obtaining a satisfactory loan and appraisal, often is the first to go if the bidder is confident of qualifying for a mortgage, has been preapproved or is willing to pay what could be a lot more than market value.

Many buyers are also willing to delete the inspection contingency, which Medford considers much more risky, since the bidder agrees to fly blind with no way out of the deal if costly defects – tens of thousands of dollars’ worth, potentially – later arise. Tracy King of Teles Properties in northeast Los Angeles says she knows of buyers who have waived the inspection contingency and later discovered sewer lines clogged with roots and a chimney cracked so badly that it was condemned.

* Escalation clauses. These are add-ons to contract language that keep bidders in the competition, even when the price soars well beyond the original asking amount. Typically the bidder agrees to match and exceed any verifiable, bona fide competing offers by set increments – say, $500 to $1,000 – up to some to some maximum amount. Tom Conner, an associate broker with RE/MAX Gateway in Gainesville, Va., says “we’re seeing them all the time now” in multiple-offer situations. The upside: Properly used, they work. Bidders with the highest maximums often get the house. Downside: If you need a mortgage, the appraisal could be a problem because it’s likely to come in lower than the purchase price. Be prepared to throw extra cash into the deal upfront.

* Lowball listings. Rather than list a house at the price that comparable recent sales in the area indicate it’s worth – say $495,000 – the sellers, advised by their agent, cut that to $479,000, hoping to stimulate a bidding war. Astute shoppers immediately spot the house as a “bargain,” and multiple competing offers push the final price to $520,000.

Good for the sellers, right? Probably. They get top dollar. But the ultimate buyers end up committed to a contract requiring them to pay what may be $25,000 over the likely current appraisal value – and that could have negative consequences for both the buyer and the seller.

The Mortgage Complaint Window Is Open

Kenneth R. Harney – The Nation’s Housing

WASHINGTON – Got a beef with your mortgage company or loan servicer? Lots of people do, and thousands of them have been turning to a federal complaint hotline for action — or at least a quick response from the lender.

The Consumer Financial Protection Bureau opened up its bulging online complaint hotline files to public view last week, and the contents are startling: Though the CFPB’s complaint window is open to various financial disputes — credit cards, student loans, credit reporting agencies, bank loans to consumers — by far the biggest source of complaints is home mortgages. Nearly half of all disputes reported to the agency by consumers are mortgage related — problems with payments, escrow accounts, servicing, FHA and conventional loans, home equity lines, second mortgages, reverse mortgages, loan modification delays, application foul-ups and the like.

The new database — accessible at www.consumerfinance.gov and updated daily with fresh cases — doesn’t provide the gory details of specific alleged misdeeds. Nor does it identify the consumers filing complaints other than by ZIP code and the general nature of their dispute. But it does identify the banks or mortgage lenders that are the targets of the complaints and whether they responded to the agency to try to resolve the matter.

In the vast majority of cases, lenders have responded within 15 days — often apparently to the satisfaction of their customers. When the CFPB receives a complaint, it verifies that the consumer is indeed a customer of the bank or mortgage company, but does not attempt to determine whether the allegations by the consumer have merit. It contacts the lender, provides a secure portal for a reply, then informs the consumer about the lender’s response using a separate secure portal.

When the case is posted to the online database, it’s cataloged as either in progress, closed, closed with an explanation, closed with monetary relief to the consumer, closed with non-monetary relief or closed with dispute comments added to the file by the consumer indicating unhappiness with the lender’s response.

Does the hotline system really work? Bob Ogle of Tucson, whose case number and ZIP code are posted in the database, describes himself as a big fan. He filed a complaint about a mortgage servicing company in Texas Feb. 8 protesting a pending foreclosure action against his mother. Not only was the CFPB’s response swift — the agency contacted the loan servicer immediately and obtained a response. The foreclosure was canceled and the entire dispute resolved.

“I got a letter stopping the foreclosure on Feb. 12,” he said in a telephone interview. “How can you do better than that?”

However, banks and mortgage lenders aren’t as thrilled about the newly released complaint database as Ogle is. For one thing, they are named, even if the complaint ultimately turns out to have been unfounded. Also, the searchable feature of the database allows anyone to check on the number of complaints filed against any specific lender — which some large banks consider unfair given that their high volumes of transactions are almost guaranteed to generate more complaint filings than would smaller lenders.

For example, of the roughly 50,000 mortgage complaints in the database at the end of March, 15,179 — about 30 percent — named Bank of America. Another 8,030 named Wells Fargo, 2,257 were against JPMorgan Chase, and 2,147 named Citibank, all among the highest-volume mortgage originators and servicers active in the market. Nearly 3,400 named Ocwen Financial Corp., a company that specializes in servicing large portfolios of underwater, delinquent and subprime mortgages.

Richard Hunt, president and CEO of the Consumer Bankers Association, says the CFPB’ s approach on this is flawed. “A better service to consumers,” he said, “would have allowed for collaboration between the CFPB and financial institutions to determine if a complaint is indeed valid, prior to publication.”

Bank of America spokesman Dan Frahm maintains that his company’s disproportionate share of complaints in the database stems from its purchase of Countrywide Home Loans, which was one of the largest and most controversial loan originators and servicers during the subprime boom. Despite these legacy problems, Frahm added, 98 percent of the mortgage-related complaints sent to it by the CFPB “have been closed.”

How can you use the CFPB mortgage hotline if you’ve got a dispute with a lender or bank? There are several ways: You can file online at www.consumerfinance.gov/Complaint. Or call toll-free at 1-855-411-CFPB. Or use snail mail: CFPB, P.O. Box 4503, Iowa City, Iowa, 52244.