HARP2 saving small % of underwater mortgages

The HARP2 program, combined with the $25B bank settlement (providing $20B in loan modifications), will save some underwater mortgages from foreclosure and help long-term market stabilization. However, part of the bank settlement requires banks to adopt standardized (and hopefully more efficient) servicing and foreclosure processing measures. I think better processing, combined with the sheer volume of underwater mortgages is going to keep the short sale floodgates open for quite some time.

According to researchers at CoreLogic, a leading analytics firm, 11.1 million or 22.8 percent of all residential properties in the United States were worth less than the amount their homeowners owed on the mortgages used to purchase them.

The federal government originally rolled out the HARP program in 2009 to help homeowners who were underwater or near underwater. However, the program was recently broadened to reach even more borrowers. Originally, HARP applied to 895,000 underwater borrowers; and now HARP II is expected to help up to double that amount. According to HUD, about 400,000 homeowners have taken advantage of the program since it launched in April 2012…that’s less than 4% of underwater mortgages.

HARP II allows underwater homeowners who are continuing to make payments to refinance their loan. The new program offers a number of advantages over the original HARP loans. First off, there is no loan-to-value or combined loan-to-value restriction on fixed-rate loans with terms of 30 years and under. In other words, it doesn’t matter how upside-down borrowers are on their mortgages. Previously, there was a cap that restricted borrowers who owed more than 125 percent of their home’s current worth from accessing the program. In addition, an appraisal may be waived if a value for the home can be automatically generated, and the borrower only needs to have a 620 FICO score.

There are three main components to qualifying for a HARP II refinance loan. The first requirement is that the loan must be owned by either Fannie Mae or Freddie Mac. Second, the loan must have been sold to Fannie or Freddie before June 1, 2009. Third, a HARP II refinance must benefit borrowers in at least one of four ways:

  • Reduce the loan’s monthly principal and interest payment.
  • Reduce the loan’s interest rate.
  • Reduce the loan’s amortization term.
  • Transition the loan to a more stable type of loan. (i.e. interest-only to fully-amortizing, adjustable-rate to fixed-rate, 30-year to 15-year).

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Flat news at the USD Residential Real Estate Conference

We attended this years 12th Annual Residential Real Estate Conference at the University of San Diego and here is a quick summary of the event.

For both California and San Diego, the forecasts for 2012 are predicting only a slight decrease in the number of distressed homes and flat prices due to

  • Low consumer confidence
  • Tough credit qualifications 
  • Lack of hiring by employers. 

We are not yet at a long term equilibrium in home ownership rates and many more “strategic” defaults are in the pipeline for the banks & a higher % of distressed inventory is selling as short sales vs. REO. This strategy is helping banks minimize their losses and are processing the short sales in half the time.


At GII We can attest to all of this through our deals. It appears that not only will our single-family renovate and sell strategy fit the market conditions in 2012 it may be time to start buying and holding more properties.


Highlights from Fannie Mae chief economist Doug Duncan, PhD:


  • New housing starts at long term rate for household formation by 2015
  • 20% of us home values are underwater
  • 0% growth in small business hiring in 2012
  • 1.6% growth in US GDP in 2012
  • Gdp is at prerecession levels but employment has not recovered and will remain at same level through 2012
  • 75% of americans think economy is headed in wrong direction
  • Reaching levels of historical % of ownership and rental properties
  • Long term home ownership level expected to be 65%

Highlights from USD Assistant Professor Ryan Ratcliff, PhD:


  • 12% unemployment rate in CA
  • SD nonfarm unemployment increased 7% and has only declined 3%
  • CA average resale home price down 5% year over year
  • SD resale prices have only declined slightly year over year
  • $100-300k is the price range of most distressed sales in 2011 in San Diego
  • Best CA employment gains were in high tech and business services, worst sectors were manufacturing and construction.

Highlights from USD Associate Professor Alan Gin, PhD:


  • Best SD employment gains were in health care services, admin. and support services, real estate and hospitality (theme parks)
  • SD gained 24k jobs in 2011
  • SD unemployment rate dipped just below 10%
  • Gin’s local consumer confidence indicator is down 2% in SD
  • Job growth in SD expected to be 15-20k in 2012
  • 5k home and multifamily units authorized in 2011 – up from 3k in 2009 and 3.5k in 2010
  • 2.5k of the 5k in 2011 were multifamily (comprised mostly from a couple big projects – this is up 128% from last year

Burnham-Moores Center Presentation Slides

Presentations from the 12th Annual Residential Real Estate Conference,
December 13, 2011:



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Experts: Troubled Asset Cycling May Speed Up

Amid reminders from real estate researcher Foresight Analytics that billions of dollars in real estate may go back to lenders this year, panelists at an Urban Land Institute meeting in San Francisco shared glimpses of how the real estate is trickling out. Titled “Asset Advisory, Receivership and Workout Strategies Emerging in the Downturn,” the panel revealed to more than 150 attendees that relationships and experience are key to stepping into the deal-flow.

“First and foremost, owners of troubled assets are seeking operating partners, advisors and receivers who really know the real estate, and can move quickly,” said Jerry Hunt, managing partner of Quattro Realty Advisors. Panelists agreed that there are many qualified firms, and bankers are turning to people they feel they can trust.

And where are all the asset-sales that were predicted? “Banks don’t want to sell in bulk portfolios because of the tremendous discount, whereas individual note-sales attain higher values,” said Curtis Chinn, formerly of Central Pacific Bank and now SVP of special assets for East West Bank, who characterized his comments as industry-perspective and not that of a particular bank. He said that while sales are increasing, banks have commitments to their own shareholders and are maximizing their position, following an FDIC road-map in October that enables more patient loan workouts.

But the rising tide of defaulting assets may speed the process, noted Steve Duffy, managing director of Moss Adams Capital. Unwilling owners of troubled real estate can only handle so much, and will face capital-structure issues and staff-capacity issues, he said.

“At the end of the day, lenders have to make an assessment: Are we better off if we take control of this asset or not?” he said. “To the extent that stakeholders can see a meaningful gap between the borrower’s restructuring plan and forced liquidation, it will point toward a restructuring alternative with the borrower. To the extent that there is not a meaningful gap, it will point to recycling of the asset,” he added, which is often a sale to a best-offer in reasonable time.

“Every significant real estate recession has followed with a great period of opportunity, and many believe the current recession will lead to one of the greatest wealth building opportunities of the current generation,” said real estate receiver Tony Theophilos, a partner at Starr Finley attorneys.

{I like that paragraph and believe that – cg}

“This real estate cycle is different than prior ones for three reasons: the speed of information, the complexity of the lender groups, and the large number of qualified investors today given the rise of opportunistic-investing of the early 90s,” said Duffy. “There is a tremendous amount of money present and waiting that was not in the last two commercial real estate cycles.”

According to Matt Anderson, a partner at Foresight Analytics, “There is more optimism at present that prices are rebounding, but it is really too early to say since increases of recent months are based on thin trading volume.

Experts: Troubled Asset Cycling May Speed Up. Click here for full article

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San Diego Apartment activity is on upswing – SignOnSanDiego.com

Apartment activity is on upswing – SignOnSanDiego.com.

San Diego County’s apartment market ranks second nationally after Washington, D.C., in its outlook for stability and possible growth in 2010, according to Marcus & Millichap’s annual apartment report covering 44 metro areas. Two other reports came to the same conclusion: San Diego’s rental market is on the way up.

“With property performance expected to be steady throughout much of the metro area, investment activity will likely pick up this year,” said Kent Williams, regional manager of the real estate investment services firm’s San Diego office.

Marcus & Millichap is a great company and Kent has really done a great job leading the San Diego office. In my opinion until something causes owners of buildings to sell, things like foreclosures, high vacancy and credit losses, etc. we will have light volume.

I think (my guess is as good as yours!) is 2010 will start off slow continuing from last years anemic sales volume (15% or so compared to 2004) and the second half will pick up some steam but slowly. In talking to some friends of mine like Aaron Bove (later in this article, who will probably deny our friendship but eh what can you do?) and others I am starting to hear of some deals that are almost piquing my interest. I will probably be a buyer myself towards the later half of 2010 or early 2011. It will most likely these deals will be value added deals that were previously bought by novice investors who were ok with all the crap that goes into operating apartments when they were getting 20% increases in equity per year. Now that the buildings have not been maintained or operated well I believe we will see some motivation.

As much as I would like to see rock bottom prices with huge CAP rates I don’t think that is where the deal flow will come from. It will probably take a little more creativity this time around doing things like subject to, master leases, wraps, or partnering with the current owners in some capacity. The goal for me is to control mismanaged buildings and bring them back through good operational management to bring the vacancy and credit loss down and reduce expenses. Nothing like a little tenants & toilets phone calls in the middle of the night eh?

Aaron Bove, an apartment expert at Marcus & Millichap, said the outlook for complexes will vary depending on location and quality. Middle-market complexes, charging an average of $950 to $1,200 for two-bedroom units, are likely to fare best. Bove also said investors favor coastal areas.

One factor that may push vacancies down, the company said, is the arrival this spring of the aircraft carrier Carl Vinson. Its shipboard crew of 3,200 will be home-ported in San Diego, “providing a boost to rental housing demand.”

Thanks for the info Aaron I did not know this was happening. I have been wondering when we would start getting some of the military back. If most of the rest of our troops get back within the next 5 years in combination with the lack of apartments being built San Diego apartment owners may just see some upside in the rents. Probably not until then and unemployment becomes much lower.

Bove said he could not estimate how many more military households will seek local housing off the base. But he said it is common for landlords to hear from military tenants in certain areas.

Asked why vacancies should go up at a time of rising demand, Bove said supply is being boosted as many formerly owner-occupied condos and foreclosed houses become rentals. Also, some renters are doubling up or moving in with relatives.

I am seeing this in my own properties.

“They say the economy is getting better, but talk to the person out there right now and see whether that’s the truth,” he said.

Totally agree. There seems to be a lag of what we have on the news and what is really happening, the hangover is still there and peoples savings have run out and were just about to see a big wave of people on unemployment run out of benefits.

Still, he said, San Diego is better off than most metro areas, as Marcus & Millichap’s national apartment index indicates.

“San Diego has been one of the first markets to go into the downturn, and we see signs of San Diego being one of the first to come out,” Bove said.

If you are in the market to buy apartments right now Aaron is a top notch broker and you’d be doing yourself a favor to talk to him. Just don’t call him for no money down, 10 CAP deals at the beach. There not there and it’s tough to get brokers to work to hard on deals where the principal is hoping to get in through some Carlton Sheets infomercial program. Remember this is a relationship business and San Diego has a small Real Estate community. If you burn good brokers time it get’s around quickly.

Seconding that prediction was Sarah Bridge, owner of RealFacts, a Novato company that monitors 37 apartment markets around the country and 24 in California . While some areas, such as Phoenix and Las Vegas, are classified as “code red,” meaning apartment vacancies are rising rapidly despite deeply discounted rents, she said San Diego is on the mend.

“San Diego is poised for recovery unless something really goes wrong in the economy, and we are all going to have another big drop,” Bridge said.

In its report on the apartment market, RealFacts listed San Diego’s average rent at $1,357 in the fourth quarter, down 1.5 percent from the third quarter and off 2.8 percent year over year. Its 5.7 percent vacancy rate for the quarter was down from 6 percent in the third quarter but up 0.4 percent year over year. It was one of 12 areas to see a quarterly decrease nationally, and it tied with San Jose and Oxnard in having the lowest vacancy rate.

The company’s San Diego findings were based on a survey of 438 properties holding 98,892 units.

This may or may not be true but personally doesn’t matter as much to me since this is not my niche. There are over 15,000 apartment buildings in San Diego and most companies only focus on the large developments or in this case 438 of the 15,000 + properties. That is not the market my tenants are coming from or going to or I’ll be buying in the next few years.

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