Marin County Real Estate Blog

There is widespread speculation that the IPO of Facebook could in fact affect the real estate market. It is quite possible that it could be affected locally, in the regions in and around the Facebook headquarters in Menlo Park where employees work and live, however, there is not telling how the real estate market will be affected on a larger level.

Things could be looking very green in Silicon Valley, thanks to an influx of cash that could come from Facebook’s initial public offering. Even the state of California is expecting a windfall from the filing — saying that hundreds of millions of dollars could help the cash-strapped state in the coming year.

Though the company is simply expected to file to go public Wednesday, according to a report from the San Jose Mercury News, the possibility of a big IPO from Facebook has generated some excitement for Silicon Valley real estate agents, especially in the company’s hometown of Menlo Park, Calif.

 In seven years, the social networking site has grown from a project hatched in a college dorm to the largest social networking site in the world, well on its way to hitting its goal of having 1 billion users.

NEW YORK (CNNMoney) — Foreclosure filings and repossessions fell to their lowest level since 2007 last year.

Total filings, including default notices and bank repossessions were down 33% for the year to 2.7 million, according to RealtyTrac, the online marketer of foreclosed properties.

One in every 69 homes had at least one foreclosure filing during the year, while 804,000 homes were repossessed. That’s a significant improvement from the peaks reached in 2010 — when 1.05 million homes were repossessed — and the lowest levels seen since 2007.

More than 4 million homes have been lost to foreclosure over the past five years.

While the declines seem like good news for the housing market, where a flood of foreclosed homes has depressed home prices, much of it is due to processing delays caused by fall-out from the “robo-signing” scandal that broke in late 2010.

During the year, banks spent more time making sure paperwork was legal and proper, creating a backlog in the foreclosure pipeline. As a result, the average time it took to process a foreclosure climbed to 348 days during the fourth quarter, up from 305 days a year earlier.

“Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year,” said Brandon Moore, chief executive officer of RealtyTrac.

However, Moore said there were “strong signs” during the second half of the year that lenders are working through foreclosure backlogs in certain markets. He expects foreclosure activity to rise above 2011′s level but remain below the peak hit in 2010.

Low rates offer some help for homeowners

Early in 2011, many forecasters were predicting a wave of foreclosures due to resetting adjustable-rate mortgages, but low mortgage rates helped many borrowers refinance into more affordable loans, said Moore.

The government helped as well, through efforts like the Home Affordable Refinance Program (HARP), which made refinancing easier for borrowers who owe more on their mortgage than their homes are worth.

Government foreclosure prevention programs, including HARP and the Home Affordable Modification Program (HAMP), have started about 5.5 million mortgage modifications since April 2009, according to the U.S. Department of Housing and Urban Development.

“Programs like HAMP and HARP have definitely made a dent in the foreclosure problem,” said Moore “However, they are certainly not living up to their billing of preventing several million foreclosures. In addition, many [HAMP] homeowners fall back into foreclosure later on.”

Of course, there were still plenty of factors working against homeowners in 2011, including the continued erosion in home prices. Falling prices rob homeowners of home equity, which they can tap if they need emergency cash.

Foreclosure hot spots

Hot spots for foreclosures remain mostly in “bubble states,” where speculative investors helped drive up home prices beyond their fundamental values during the mid-2000s housing boom.

Nevada, where one out of every 16 households received some kind of default notice during the year, was the worst hit of all, a distinction it has held for the fifth consecutive year.

Arizona had the second highest foreclosure rate and California came in third. Florida, which had been running neck-and-neck with the other “Sand States” in past years, fell to seventh, behind Georgia, Utah and Michigan.

Among metro areas, Las Vegas suffered from the highest foreclosure rate in 2011. California put seven cities in the top 10, led by Stockton in the second slot. Other cities in the top 10 included Phoenix, which finished sixth, and Reno, Nev. was eighth. 

Average fixed mortgage rates in the U.S. over the past week finished the year near all-time lows, with the 30-year home loan at 3.95%.

According Freddie Mac’s weekly survey of mortgage rates, the rate for a 30-year fixed-rate mortgage has been at or below 4% for the past nine consecutive weeks and only twice in 2011 did it average above 5%.

The 30-year fixed-rate mortgage averaged 3.95% for the week ended Thursday, up from 3.91% the previous week and below 4.86% a year ago. Rates on 15-year fixed-rate mortgages averaged 3.24%, up from 3.21% last week and below 4.20% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.88%, up from 2.85% yet below 3.77% of a year ago. One-year Treasury-indexed ARM rates averaged 2.78%, up from 2.77% in the prior week and below 3.26% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required payments of 0.7 percentage point and 0.8 percentage point, respectively. Five-year and one-year adjustable rate mortgages required an average payment of 0.6 percentage point. A point is 1% of the mortgage amount, charged as prepaid interest.

Good news from Washington regarding a turnaround in the housing market, as more building is slated for the coming year:

The percentage of American homeowners behind on their mortgage payments is expected to decline in the coming year according to a forecast provided by credit reporting agency TransUnion.  The group also predicted that credit card delinquencies will remain at the same historic levels they’re at now, a reflection that the recession taught consumers a valuable lesson about spending within their means.

In its annual forecast of the two delinquency rates, TransUnion predicted that mortgage delinquencies, where owners fall behind by at least 60 days, will fall from its current 5.9 percent rate to about 5 percent by the end of 2012, though it noted that the rate will actually rise slightly at the beginning of next year.  Historically, mortgage delinquency rates tend to hover between 1.5 and 2 percent, but soared as high as 6.9 percent during the recent economic downturn.  Since peaking in late 2009, the national rate of mortgage delinquencies has been dropping steadily, but is still way above normal levels.

Analysts explain that the chief reason for the falling delinquency rate is that foreclosures are working their way through the system, reducing the number of outstanding delinquencies, though banks are also requiring higher credit scores and down payments when extending home loans, thus reducing the risk that those borrowers will fall behind in their payments.  Another factor is the stabilization of home prices.  When home prices fall, it increases the number of underwater homeowners, or those whose homes are worth less than the balance on their mortgage.

These underwater homeowners often choose to walk away from a home rather than continuing to pump more money in than they’ll ever get out, increasing the delinquency rate in the process.  According to TransUnion’s forecast, the highest rates of mortgage delinquency will occur in Florida, Nevada and the District of Columbia next year, while North and South Dakota and Wisconsin will experience the lowest rates.

In this changing real estate market (despite record low interest rates), some lenders are still requiring excellent credit and income for a home purchase. In some cases, a lender may require a down payment of more than the conventional 20%.

Faced with finicky lenders, would-be home buyers are increasingly turning to Dad, Grandma or rich Uncle Barton—even perfect strangers they met online. While these solutions are understandable, given the abundant bargains on the market, they also present significant risks.

This year, one-third of first-time home buyers received a cash gift or a loan for a down payment from family or friends, according to the National Association of Realtors. That is up from a historical average of 27%.

Meanwhile, so-called peer-to-peer lending sites Prosper and Lending Club say demand for home-related financing is on the rise. And Weemba, a social-networking site, launched a platform in September to connect lenders directly with prospective home buyers and other borrowers. 

In so-called intrafamily loans, the borrower often saves on interest since parents are likely to charge less than the banks, says Michael Garry, a fee-only financial planner in Newtown, Pa. And parent lenders can earn a higher return from their child’s interest payments than they would on a certificate of deposit or money-market fund. Under federal law, on a loan of more than nine years, parents in most cases must charge at least roughly 2.8%.

Consumers who want to look beyond the family can apply at online sites like Lending Club and Prosper. If approved for a loan after a screening by the companies, applicants may then receive money from investors.

At Miami-based Weemba, some 3,000 registered users have started posting loan proposals during the past couple months. Thirty companies including banks and credit unions—up from just a dozen in September—review the applicants and directly contact those they are interested in.

However, these alternative routes to financing can be expensive for borrowers. Rates at Lending Club run from around 7% to 28%, and at Prosper from roughly 7% to 35%. The companies say these rates, which are fixed, are higher than traditional mortgage rates in part because their loans are unsecured.

Recently published reports state that the number of Americans who signed contracts to buy homes jumped in October to the highest level in a year. But the gain follows three months of declines and isn’t enough to signal a housing recovery.The National Association of Realtors said Wednesday its index of sales agreements rose 10.4 percent last month to a reading of 93.3. 100 is considered healthy. The last time it was that high was in April 2010, one month before a federal home-buying tax credit expired.

Short sales contingent inventory has been at a relatively high level primarily because many of these properties stay on the market much longer than equity sales and REO sales.  In September, an equity sale typically stayed on the market for 52 days before opening escrow, an REO remained on the market for 36 days, but a short sale property stayed on the market for 111 days.  Short sales stay on the market for a much longer time frame because of the additional time needed for lenders to approve a short sale offer.  There are multiple reasons for the long approval process:

•  Lenders may not be devoting enough staff to handle the ongoing volume of short sales

•  The loan on the short sale property may be bundled into mortgage-backed securities,
    making it more time consuming for the mortgage servicer to identify the owner of the mortgage
    and obtain permission to sell the property

•  Lenders may be waiting to see if they could get a better deal through a foreclosure sale than the
   short sale offer

•  Lenders may agree to list a property as a short sale while also pursuing foreclosure on that
   property in anticipation of an insurance payout to cover the loss of the property through  mortgage insurance.

The inventory level for short sales is likely to remain high in the foreseeable future as long as the log jam situation mentioned above remains an issue with the lenders.

The top executives at mortgage giants Fannie Mae and Freddie Mac responded Wednesday to complaints about how much they’re paid.  Fannie Mae CEO Michael Williams told the House Oversight Committee:  “We need to compensate our executives and employees to ensure that we have and keep the leadership we need to continue our progress.”  The discussion began when Congressmen from both parties expressed outrage last week at the fact that Fannie and Freddie were paying out a combined $12.79 million in bonuses to 10 executives.

Between them, government controlled Fannie Mae and Freddie Mac have received nearly $170 billion in taxpayer bailout funds since they were seized by government officials in 2008.  The House Financial Services committee passed a measure on Tuesday that would block the controversial bonuses, but still must pass a full vote on the House floor.

A similar bill has been introduced in the Senate, where it is currently being debated.  In testimony delivered to the House committee, Fannie and Freddie’s CEOs claimed that reducing the compensation would be disruptive and would hinder the firms’ ability to attract talent skilled enough to handle the extreme challenges facing the firms.  Interestingly, neither executive defended the bonuses by citing specific performance goals or achievements.

Supporters of the bill, meanwhile, claim that executives at the two companies should not receive massive bonuses because they have failed to follow a Presidential order charging the two agencies, as well as the FHFA, to “maximize housing assistance.”  Officials from both parties believe that Fannie and Freddie should eventually be shut down, but understand that that can’t happen for years because the two agencies play such a large role in the current US housing finance system.