TEAM EMPOWERMENT MORTGAGE CHATTER: March 16; News & Headlines; Impact Foreclosures On Housing Prices; More Banks Fix Up Foreclosures; Launch of Agent Ratings Pilot Program; Freddie Mac’s Former Chief Facing S.E.C. Action; What Buyers Want In Homes Today

During these tough times for Japan, may we remember the beauty aside from the scenes we see today

Visit The American Red Cross  website to learn how you can help with the relief efforts in Japan



“Things are seldom what they seem, skim milk masquerades as cream.” — W.S. Gilbert: Was an English dramatist, poet, and illustrator



Many areas of the nation have stabilized, but falling home prices in other areas pushed more borrowers into a negative equity position. CoreLogic’s recent study showed that in the 4th quarter of 2010 23% of borrowers nationwide, or 11.1 million, were holding “underwater” mortgages which is a collective $750 billion of negative equity. Negative equity is concentrated in the hardest hit states: Nevada (65%), Arizona (51%), Florida (47%), Michigan (36%), and California (32%).

Are we really better off winding down Freddie and Fannie entirely? Most, if not all, of the mortgage and real estate professionals in the US would suggest that we’re better off with those agencies staying around in one form or another.

Dodd-Frank is not set in stone. There is some small bit of hope that the comp issue will be delayed, although it is not likely. But House Republicans are drafting five bills to repeal or change parts of the Dodd-Frank financial-overhaul law that have been opposed by business groups. A story in the WSJ noted that the bills are to be discussed at House subcommittee hearing today. The group is not trying to reverse the entire bill, but is targeting specific provisions.

FHA Commissioner Dave Stevens, who announced his resignation last week, will be merely having a different morning commute: he will become the MBA’s president and CEO in early May. The MBA “represents more than 2,400 firms in the nation’s real estate finance industry,” although critics claim that the membership has such divergent goals and objectives that it is nearly impossible for the MBA to adequately address them. One story noted that, “An administration official said Stevens signed a pledge when he took office not to lobby any official for the remainder of the Obama administration and not to speak on official matters for two years with anyone from HUD, if he left government.”

Freddie Mac announced a new offering of multifamily mortgage-backed securities – $1 billion of Structured Pass-Through Certificates (“K Certificates”). They are expected to price next week and settle the week after, and are backed by 76 recently originated multifamily mortgages and are guaranteed by Freddie Mac. Check out FreddieMulti

Yesterday rates improved again, although they started off the day much better but then tailed off. The Treasury’s 10-year notes closed up 6+/32s (3.32%) after being better by almost 1 point earlier in the day. After starting off strong (better by about .5), agency MBS’s finished the day only better by about .125 on “below normal” volume. Traders are reporting that the Treasury market volatility is not being mirrored in the agency MBS market – a good thing for hedgers! As expected, the FOMC statement was close to January’s (which was identical to December’s), but with a little more underscoring of inflation concerns. In short, the statement was slightly more bullish. With all that has happened in Japan and the Middle East, the Fed wanted to emphasis stability so did not deviate too much from last statement.

This morning we learned from the MBA that last week’s mortgage applications fell slightly after a 15% jump the week before. The four-week moving average is up 4.9%, while the four-week moving averages for the purchase index and refinance index are up 1.6% and 6.6%, respectively. Refinancing accounts for 66.4% of total applications.

This morning we also had Housing Starts & Building Permits. Recall that initial Housing Starts numbers jumped 14.6% in January to a 596,000 annual rate, but the entire increase came from a 78% surge in multifamily starts following the rush of multifamily permits in December ahead of building code changes. Single family starts, which comprise 70% of the market, fell 1%. Last month Permits were down about 10%. Housing Starts dropped 22.5% and Building Permits dropped 8.2% – painful numbers.

We also had the Producer Price Index, which for last month was +1.6%, with the core rate (ex-food & energy) was+.2%. After this news, and given the continued impact of Japan, Europe, the Middle East, etc., the 10-yr’s yield is down to 3.28% and MBS prices are better by roughly .125.


Home values are again beginning to fall. What has caused this renewed downward pressure on prices? It can be directly tied to the number of distressed properties in the region which have shredded values in some marketplaces. Foreclosures and short sales impact prices in two major ways.

They are discounted competition to the house next door

When a home buyer decides to purchase, price is a major component in the equation. Every buyer wants to make sure they are getting an excellent deal especially after what has taking place over the last five years. According to RealtyTrac, foreclosures, on average, sell for a 41% discount and short sales sell for a 19% discount.

These distressed properties might not be in the same physical condition as the non-distressed properties. However, at sizable discounts, many purchasers are more than willing to do the necessary repairs. Every buyer who buys a distressed property is one less eligible buyer for the other homes. Less demand in a market with an oversupply of houses for sale means lower prices.

Distressed properties could impact your buyer’s appraisal

We had the honor to speak at the Leading Real Estate Companies of the World Conference and the RELO Direct Corporate Forum last week in Las Vegas. Chip Wagner of A. L. Wagner Appraisal Group, Inc also spoke. He is a third generation appraiser and an industry icon who will be inducted into Worldwide ERC‘s prestigious “Hall of Leaders” in May in recognition of his years of hard work in the field.

At the conference, Mr. Wagner explained:

“Recently appraisers have been accused of prolonging the nation’s real estate downturn by developing value opinions that are below proposed sales prices. Specifically, we have been accused for using distressed properties among the comparable sales used in the valuation process.

If a specific market area has a low amount of distressed listings and comparable sales, it is likely there is little impact on property values, and we may be seeing appreciation taking place. A “low amount” would be under 10% to 15%. In market areas where there is a high amount of distressed market competition, typically greater than 1/3 of the market, this distressed competition has to be analyzed as this is the new “norm” for that market area. Buyers active in that area are looking at all of the competing properties and making their purchase offers and buying decisions based on all of the information available to them. Sometimes the appraisers are using that data, and sometimes they are not. The important thing is that the appraiser properly research and analyze each property, understanding the differences in seller motivations and the condition between the properties.”

These properties sell at substantial discounts. When they are used as comparable sales, they could dramatically impact values.

Bottom Line

The number of distressed properties coming to market is increasing and will create downward pressure on house prices throughout 2011.


More banks are investing thousands of dollars to fix up foreclosures in trying to spur sales and appeal to a broader buying pool. Banks have inherited plenty of foreclosed homes that have everything from water damage, mold, broken windows, and missing plumbing fixtures.

But while banks used to be hesitant to invest much money in fixing up these homes, more real estate pros say that banks are heeding their suggestions for repairs and seeing the benefits of how a little investment can make these properties more sellable. As such, they are paying for new paint and carpet, refinishing damaged floors, replacing old windows, and repairing leaky roofs.

They hope to extend the foreclosed homes’ appeal past traditional investors and professional rehabbers. For example, home buyer would have trouble securing a mortgage on homes that lenders deem “uninhabitable” because of needed repairs.

The banks interest in fixing up these properties also can help the overall real estate market because the foreclosed properties can sell at a higher price.

Real estate agents say they are making more suggestions to banks on how to spruce up the properties. First, they identify the target customer for a property. For example, if the home will likely appeal to owner-occupant, agents may recommend fixes such as paint to $25,000 kitchen remodel.


The California Association of Realtors is getting behind the concept of agent ratings and reviews, sponsoring a pilot program with a multiple listing service in California’s Silicon Valley in which clients of participating agents are sent customer satisfaction surveys from a third-party vendor whenever a transaction closes.

Although it will be up to the agents whether the survey results are displayed to the public, brokerages will be able to use the client reviews to spot problem areas for agents to work on, backers said.

Six brokerages belonging to Sunnyvale-based MLSListings Inc are participating in the pilot program, which CAR says is aimed at developing an industry standard across Northern California for measuring real estate agent performance and customer service.

Brokers from Intero Real Estate Services, Bailey Properties, Alain Pinel Realtors, Sereno Group, Realty World and Legacy Real Estate have volunteered to participate in the pilot program.

Some of the brokerages participating in the pilot are requiring that all of their agents be rated by their clients, said Jim Harrison, president and CEO of the 18,000-member MLS. Others are allowing agents to opt out, he said.

“We just launched this a few weeks ago” with funding from CAR that should last about a year, Harrison said. “The objective is to see if there is enough interest in the marketplace to make it a permanent service.”

Consumer reviews can be a double-edged sword. While good reviews can be a boon for an agent’s business — Realtors often incorporate glowing testimonials from clients in their marketing — some fear their business will be harmed if they’re unfairly maligned online.

In December, began allowing consumers to rate agents they’ve worked with in the past. Other sites facilitating agent ratings or reviews include include Redfin, ZipRealty, Homethinking, AgentRank and Yelp.

In the CAR-MLSListings pilot program in Northern California, it’s up to agents to decide whether to make public the results of the customer satisfaction surveys, which are conducted by Quality Service Certification Inc.

Third-party rating service

Based in Orange County, Calif., QSC provides similar services for about 60,000 real estate professionals nationwide — in most cases through contracts with brokers, said CEO Larry Romito.

Improving customer satisfaction not only helps agents land referral and repeat business, but can also reduce the risk of consumer complaints and lawsuits, Romito said.

Agents participating in QSC’s review program sign pledges to homebuyers and sellers listing more than a dozen services they promise to deliver. Listing agents, for example, promise they will deliver a competitive or comparative market analysis (CMA) to help clients price their home, and buyer’s agents promise to do the same before helping their clients make an offer.

Agents also promise to contact their clients after they close “to assure the satisfactory completion of all service details,” and offer them the opportunity to evaluate the service they received.

All agents working with QSC have three options regarding the public display of survey results:

Withold them from the public;

Disclose only their customer satisfaction rating, a numeric score of one to five based on a minimum of four surveys;

Disclose their customer satisfaction rating, and provide detailed survey results in the form of pie charts and graphs.

If agents opt in, the information is published on QSC’s consumer-facing site and can also be displayed or linked to from multiple listing service, broker or agent website using a widget.

Value to consumers

While some agents may worry they will be portrayed unfairly online, consumers may not trust a rating system that produces only positive reviews.

Jonathan Cardella, the CEO of online brokerage and property search site, said he is “very skeptical of any user ratings when it comes to real estate agents.”

A Zillow spokeswoman, meanwhile, said reviews of local agents are “an incredibly useful tool for consumers,” and that the open-ended written comments submitted are “just as important, if not moreso” than numeric ratings.

The written comments “help consumers better understand the experience others had working with a particular agent and where the agents strengths and weaknesses lay,” Zillow spokeswoman Whitney Tyner said in an e-mail message.

Although agents have the ability to publicly respond to all reviews, Zillow will not remove reviews that “are based on legitimate experiences,” Tyner said (in February, Zillow also began allowing renters and landlords to review agents they’ve worked with).

Agents with five or more reviews have seen customer contacts increase by 134 percent, on average, she said.

Zillow and QSC each declined to provide the average customer satisfaction rating for agents they’ve collected reviews on.

Romito said QSC’s surveys are “consumer-centric” — focusing on the client’s assessment of service — and that the company is unique in employing an invitation-only, “closed system” to insure a representative sample of legitimate responses is collected.


The former chief executive of Freddie Mac may face a civil action as the government ramps up an investigation of disclosure practices at the mortgage finance giant and its sister company, Fannie Mae , people briefed on the investigation said.

The executive, Richard F. Syron, a former president of the American Stock Exchange and now an adjunct professor and trustee at Boston College, has received a so-called Wells notice from the Securities and Exchange Commission, an indication the agency is considering an enforcement action against him.

The S.E.C.’s long-running investigation is now zeroing in on how Freddie and Fannie publicly disclosed their exposure to risky loans and whether those depictions were too rosy, according to the people briefed on the investigation who spoke on the condition of anonymity because the inquiry is not complete. Although the companies offered detailed snapshots of their mortgage portfolios, the S.E.C. is exploring whether they underreported their ownership of subprime loans and mortgages that required few documents from borrowers.

The government continues to examine the potential culpability of people and agencies involved in the mortgage mess and the subsequent financial crisis.

The Justice Department has investigated Fannie and Freddie but no charges have been brought.

The S.E.C., which has faced intense criticism for bringing few prominent cases stemming from the crisis, has now spent two years interviewing former and current employees at the two companies. If the case against Fannie and Freddie officials proceeds, it may shape up to be one of the most significant actions brought by the agency in recent years.

The S.E.C. investigation centers around Fannie’s and Freddie’s disclosures from 2006 to 2008. Regulators are focusing on the way both companies reported their subprime mortgage portfolios and concentrations of loans extended to borrowers who offered little documentation, also known as Alt-A loans.

Fannie Mae and Freddie Mac were public companies that operated with a Congressional mandate to foster homeownership. They do not offer loans, but instead buy up thousands of mortgages from lenders, package them and sell them as securities to investors. The lenders, for their part, use the money to offer new loans to consumers.

During that period, however, both companies did disclose to investors breakdowns of their loan portfolios by slicing data according to borrowers’ credit scores and how much equity they had in their homes, among other things, filings show.

Fannie Mae and Freddie Mac were public companies that operated with a Congressional mandate to foster homeownership. They do not offer loans, but instead buy up thousands of mortgages from lenders, package them and sell them as securities to investors. The lenders, for their part, use the money to offer new loans to consumers.

By 2005, lawmakers and lenders began to push the companies to delve deeper into the risky subprime markets, to enhance business and offer the chance at homeownership to a segment of the population often ignored by lenders. The companies, meanwhile, sought to regain market share that they had ceded to Wall Street.

But the billions of dollars in risky mortgages acquired at the height of the real estate bubble ultimately sank the once-mighty mortgage financiers. The Bush administration rescued Fannie and Freddie from the brink of collapse in September 2008, effectively making them wards of the federal government. The companies have since tapped more than $100 billion from their government lifelines. Fannie recently requested an additional $2.6 billion from the Treasury Department while Freddie requested $500 million.

Last month, Treasury Secretary Timothy F. Geithner called for the slow wind-down of the two companies.


Buyers have a long list of what they want when home shopping, but one of their biggest desires: A good deal.

“And no matter where a seller prices their property, they’re looking to negotiate,” says Patricia Szot, president of the MetroTex Association of REALTORS®.

But that’s not all they want. recently asked real estate professionals to chime in on the top desires of their buyers when home shopping. Here are four things that made the list of top home buyer preferences:

1. Homes that are in good condition. “There’s not a lot of flexibility in that,” says Ron Phipps, president of the National Association of REALTORS®. Many buyers now take the attitude: “I’d rather spend the money getting into the house” and not have to spend more money later, Phipps says. One of the major reasons is that “buyers have limited amounts of cash,” he adds. “Even if they want to do a fixer-upper, they don’t have the money to do it.”

2. A bargain with incentives. Buyers are looking for a good deal, even when considering bank-owned properties, says Joan Pratt, real estate broker with RE/MAX Professionals in Castle Pines, Colo. “They want the short sales and the foreclosures and they want them to look like they’re owner-occupied,” she says. “They don’t want to paint. They don’t want to put carpet in. They don’t want to clean.”

And they aren’t only asking for a low price but they also want incentives to buy too. As such, sellers are offering everything from gift cards for new furniture to paint to financial assistance at closing.

3. Outdoor living areas. Homes with screen porches, outdoor kitchens, two-way fireplaces are becoming increasingly competitive in the marketplace as more buyers say they want more outdoor living space.

4. Open kitchens. “The wall between the kitchen and the family room is evaporating,” Phipps says. “The kitchen is becoming part of the gathering space.”

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