REO

Should Hawaii Institute a Foreclosure Moratorium?

February 14, 2011 by Michael Borger

Click for the January 2011 Hawaii Foreclosure Heat Map

I read an interesting article in yesterday’s Honolulu Star-Advertiser (I still keep screwing up the name since the merger). It discussed the possibility of a five-month moratorium on Hawaii foreclosures statewide. Immediately my brain started working overdrive trying to come up with the possible scenarios that could unfold from this course of action. My final take is that I think it is ultimately misguided. A foreclosure moratorium is based on the idea that there are mortgages being foreclosed upon that should not happen. A typical foreclosure occurs when the homeowner generally:

1. didn’t qualify for a loan modification
2. fell out of loan mod status
3. could not refinance
4. made no attempt to reinstate the loan with back payments
5. could not afford modified loan payments
6. could not successfully complete a short sale
7. made no attempt to do anything
8. just could no longer afford the payments for any other reason (payments spiked, job loss, etc.)

Now an improper foreclosure, like the kind I’m assuming to be the target of a moratorium, would be one where:

1. the lender failed to accept a reasonable short sale offer
2. the lender failed to properly process a short sale or loan modification package (fairly common with the bureaucracies and size of lender’s processing departments)
3. the lender realized they would make more money on a foreclosure than by working with the homeowner on a short sale or loan modification
4. homeowner could not get any reasonable form of customer service while the property was simultaneously headed to trustee sale

Of course, this is not an exhaustive list, but it makes a point. And that point is that nowhere in this second list does it mention improper foreclosure proceedings when the homeowner missed payments. The bottom line is that if you miss payments because you can’t afford your mortgage, then you’ll be in default and likely experience a foreclosure barring mitigative action. There’s nothing hazy about that. This takes us back to the robo-signing scandal of last fall when people were up in arms over the process but not the guidelines, yet spoke of it the other way around.

Hawaii Distressed Inventory Estimated Market Value

So What Does This Really Mean?

Now that being said, I’ve no doubt that truly improper foreclosures happen in Hawaii from time to time (as in other states), and my sympathy goes out to those homeowners. However, the bigger picture here is that those instances are few and far between. Would a moratorium stop even these rare instances from happening? Not necessarily — and only if something productive comes out of it. Right now I haven’t heard what would happen in those five months to justify its passing.

What is likely to happen, though, is that the backlog of distressed inventory grows even further. Again, these are properties that are assumed to have been legitimately foreclosed upon, i.e. the homeowner missed payments and the house proceeded toward a trustee sale. Remember, not all of Hawaii’s distressed inventory is on the market yet — there is plenty of real estate that the banks have taken back but have yet to put back on the MLS or general market for sale. Releasing too much of this at once will increase supply and effectively bring down neighborhood values and reduce their ability to recoup losses.

So if we already have a sizable backlog of real estate in the pipeline, do we want to stop the pipe from flowing altogether for five months or keep it flowing so that we can process it all and get every bit closer to a healthy Hawaii real estate market? By most counts, it’s going to take 1-2 years as it is without any intervention. RealtyTrac just released statistics that puts Hawaii #11 nationwide for foreclosure filings per housing unit. It’s foolish to think this is a result of improper foreclosure decisions; it’s instead a result of people just not being able to afford their mortgage any longer because of the general hard knocks in life.

However, some of the other propositions being thrown around have some possible merit. I’m particularly interested in the one that gives the mortgagor the option of a face-to-face meeting with the lender. To me, this could go great lengths to reducing true improper foreclosures. There’s also the idea of a homeowner option of converting a non-judicial foreclosure (the most common type in Hawaii) to a judicial foreclosure. That has some potential as well, though it would need certain checks and balances so as to prevent a swarming of the courts.

Ultimately, we need a solution that will give homeowners a better option to fight truly illegal foreclosures but one that doesn’t bring the whole thing to a screeching halt.

What are your thoughts? Is a foreclosure moratorium in the best interest of Hawaii? Or does it move us further away from where we need to be?

Another Mortgage Lender Nightmare

January 17, 2011 by Michael Borger

Is Your Mortgage Lender Robbing You?

As I sit here in Honolulu catching up on the news over the long MLK holiday weekend, I was shocked to read about yet another serious banking fiasco. It seems that JP Morgan Chase, the nation’s #2 mortgage lender, overcharged several thousand military families on their mortgages and even improperly foreclosed on fourteen homes! Some families were overcharged by more than 4% on their loans! So while active duty men and women are overseas fighting in Afghanistan, Iraq or other hot zones, their families are back home in their own fight against the unjust practices of their bank. In a nutshell, our soldiers are fighting in the name of liberty while their own rights are being abused back home. Where’s the justice in that? Now whether you agree with our military campaigns or not (a separate discussion, please), I think we all respect the job these people have and consider this information quite disturbing.

This comes on the heels of a discussion I had the other day with a representative of Wells Fargo’s liquidation department regarding a certain short sale. The representative, while polite enough, told me point blank that sometimes poor offers get quickly accepted while she often sees perfectly reasonable offers — offers that would clearly help all parties — get rejected for no reason she herself can understand — and she works there everyday. And, of course, we’re only a couple months or so past the height of the robo-signing scandal.

What does this mean about the current state of foreclosures across America? Is it a stretch to say that the patients are running the asylum? With so many families in need of a loan modification or short sale, it’s understandable if some just throw up their hands and ask “What’s the point of fighting”? While I’d disagree with that position because there are professionals who can help, it certainly makes the job difficult for those same professionals who are fighting on the homeowners’ side against these lenders who, apparently, can’t even do their own job.

Here in Hawaii, we all know how big a part the military plays in our local economy and daily lives. I don’t know of any affected personally, but it wouldn’t surprise me if some local active duty personnel were wronged by Chase’s mistakes. That ought to bother all of us.

So I ask you — how much faith do you have in the current financial system to properly assess all the current and future preforeclosures (of which there are plenty), loan modifications, refinance requests and short sale applications? Are these isolated issues or are they part of a larger systemic problem? Should we let the system just flush itself out or is there still a fight to be won?

How to Choose the Best Offer for Your Hawaii Flips

November 15, 2010 by Michael Borger

Choose the Strongest Offer!

It’s exciting, isn’t it? You acquired a property at a great price. Your contractor or handyman turned that dingy vacant house into a beautiful Hawaiian home just ready for a nice family to make their own. You’ve put it on the market, had an open house or two and are now watching the offers come in.

So how do you choose which offer to take? Highest price, right? Not necessarily. You’ll often people in the industry refer to a strong offer. What exactly makes an offer strong? Not only is it in the higher end of your total offers, but just as importantly the buyer has shown a clear intent and ability to close on the offer and terms in the purchase contract they submit. Some people will just throw out random offers but when push comes to shove, they will walk away. Or even worse, they never had the funds to begin with! What good is that??

Remember, you have holding costs. If you are wasting time chasing high but ultimately weak offers, it’s a drag on your bottom line. In the meantime while you’re being led on a wild good chase, your stronger buyers may have moved on to the house down the road.

So what’s a savvy Hawaii real estate investor to do? Ideally, you’ll have a list of cash buyers ready to go, waiting to hear that you have another property ready to go on the market. If you don’t have the house pre-sold in this fashion, then look for the offers that come with all or mostly all cash, can show proof of funds, are willing to put down a strong deposit and can close in 30 days or less. This may not lead you to the highest offer, but that’s okay!

Remember, there are always more real estate deals waiting, even in Hawaii. There are many more short sales, REOS and other attractive investment properties around the corner, so don’t worry if you didn’t get the ultimate price you were hoping for. Often times, it’s best to take your profits, congratulate yourself for a job well done and move on to the next flip.

And if you’re on the other side of the equation — as the potential real estate buyer — use the above tips to make your own offers strong to get into that next great deal!