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OCTOBER 2014

Named the Nations Best Newsletter by the National Association of Real Estate Editors

Housing Landmines: Are Mortgage Flares Ups Coming Soon?


OCTOBER 2014
volume 8 issue 10
CONTENTS

This is the first article in a two-part investigating series focusing on the devastating effects of
ballooning debt among U.S. mortgage borrowers. The Housing Landmine series will examine
how a tetrad of staggering mortgage debt in the form of HAMP redefault, HELOC resets,
underwater mortgages and non-performing loans, or NPLs are hindering the nascent
residential real estate market. Part one will explore two legs of the tetrad the federal
governments failed HAMP program and the potentially dangerous effects on housing that
billions of dollars of outstanding home equity lines of credit, or HELOCs, pose to the fragile U.S.
economy. Next month, we will investigate how underwater borrowers and non-performing loans
are putting a strain on new and existing home sales. And examine how these four boulders of
housing debt could come cascading down on the still fragile housing recovery.
By Octavio Nuiry, Managing Editor

After the housing bubble burst in


2006, it ushered in the foreclosure
crisis, with 5.5 million borrowers losing
their homes to banks. Now that the
foreclosure tidal wave has receded,
most believe that the foreclose storm
is over. Nationwide, foreclosure activity
is down 9 percent from a year ago in
July, according to RealtyTrac the 47th
consecutive month where foreclosure
activity decreased annually.
But the foreclosure numbers
could be reversed in 2015, as a tetrad
of housing landmines HAMP re-

defaults, HELOC resets, a staggering 8.1


million underwater borrowers and nonperforming loans could upend the
shaky housing recovery. This tetrad
of mortgage risk could threaten the
nascent housing recovery, triggering
a surge in defaults, repossessions
and short sales. In other words, the
foreclosure crisis hasnt receded; it was
intentionally delayed by government
manipulation. The can was kicked down
the road. And next year, foreclosure
activity could spike again.

Heres why.
Continued Next Page

My Take by
Brian Mushaney

News Briefs

10 Legal Briefs
11 Financial News
12 State Spotlight:
Central Florida

18 Book Review:
Other Peoples
Houses By
Jennifer Taub

OCTOBER 2014
HAMPered by Government Loans
Five years ago, when President Barack Obama traveled
to Meza, Ariz. on February 18, 2009, along with
Treasury Department secretary Timothy J. Geithner,
HUD chairman Shaun Donovan and FDIC chairman
Sheila Bair, to announce his signature housing recovery
program, one in five borrowers owed more on their
mortgage than their home was worth,
banks were repossessing over 300,000
homes every month and home prices
had tumbled 30 percent from their 2009
peak. The cornerstone of Obamas $75
billion flagship Making Homes Affordable
Program was a loan modification
plan named the Home Affordability
Modification Program, or HAMP, and a
refinance program, known as the Home
Affordable Refinance Program, or HARP,
which paid lenders an incentive fee for
each modified loan.

All of us will pay a steeper price if we
allow this crisis to continue to deepen a
crisis which is unraveling home ownership,
the middle class and the American Dream
itself, Obama told an audience gathered
at Dobson High School in Meza, Ariz.
And we will pursue the housing plan Im
outlining today. And through this plan, we
will help between 7 and 9 million families
restructure or refinance their mortgages.
Critics pounced on the presidents
ambitious plan, arguing HAMP was too
strict on its qualification requirements.
Some argued that HAMP was not
appealing to lenders. Others claimed the
voluntary program was destined to fail.

was a program designed to look good in a press release,


not to fix the housing market. I dont think helping home
owners was ever a priority for them.

Bair believed that the program was too rigid in its
qualification requirements, claiming that the HAMP
program was destine to fail because it was voluntary and
that the banks would scuttle it.
Almost immediately, the HAMP
program ran into trouble. Instead of saving
a borrowers home, the process of applying
for a HAMP loan modification often led to
foreclosure. Many borrowers didnt qualify
for the voluntary program. Most lenders
lost refinancing documents. And millions of
applicants were rejected. Not surprisingly,
the extensive documentation scared off
millions of other underwater borrowers.

Sheila Bair
Former Chairman
Federal Deposit Insurnace
Corporation
I cringed as he threw
out what I considered
to be wildly inflated
numbers on the programs
impact. To require every
borrower to essentially
prove that he or she could
qualify for a new loan was
stupid ... HAMP was a
program designed to look
good in a press release,
not to fix the housing
market. I dont think
helping home owners was
ever a priority for them.

I cringed as he threw out what I


considered to be wildly inflated numbers
on the programs impact, wrote Sheila
Bair in her 2012 book Bull By the Horns,
referring to president Obamas rosy
pledge to help 9 million families modify
their underwater loans. To require every borrower to
essentially prove that he or she could qualify for a new loan
was stupid the loan had already been made. And given
the huge number of loans that needed to be reworked, as
well as the problem of ill-trained, understaffed servicers,
the cumbersome process was doomed to failure. HAMP


Sadly, Obamas housing fix faltered.
It didnt deliver on the vow to modify as
many as 9 million delinquent loans. In
the end, by July 2014, five years since it
debuted, only 1.4 million borrowers had
received a mortgage modification through
HAMP a far cry from the promised 9
million. And 350,000 borrowers defaulted
again on their mortgages and were evicted
from their homes.
Nobody should be surprised by
HAMPs failure, according to Neil M.
Barofsky, the former special inspector
general of Troubled Asset Relief Program
from 2010 to 2012. Barofsky said that in
2012 Treasury Secretary Timothy Geithner
had told him HAMP was not designed
to help distressed borrowers, but was
implemented to help the banks ride out
the foreclosure crisis.


We estimate that they can handle ten
million foreclosures, over time Geithner
told Barofsky, referring to the banks. This
program will help foam the runway for them.

So HAMP was designed to foam the runway for Wall
Street banks by stretching out the foreclosures, giving
the banks more time to absorb losses while the other
parts of the bailouts juiced bank profits that could then
Continued Next Page

OCTOBER 2014
fill the capital holes created by housing losses, writes
Barofsky.
At the start, TARP earmarked only $75 billion for
HAMP remods out of a $700 billion bank bailout approved
by Congress in 2008 to help homeowners. By 2010, the
HAMP program was cut to $30 billion.
As of July 2014, a mere $4 billion total
has been spent for loan modifications,
according to the latest Office of the
Comptroller of the Currency report.

After almost five years, HAMP
continues to face considerable challenges,
including getting new homeowners into
permanent
mortgage
modifications
and keeping homeowners in those
modifications
from
re-defaulting,
according to the latest SIGTARP report
released July 30, 2014. Through June
30, 2014, only 1.4 million homeowners
have received a permanent HAMP
modification, while servicers rejected
more than 5.5 million homeowners from
HAMP. Overall, only 1 in 6 homeowners
that applied for HAMP received a
permanent modification. Additionally,
the number of homeowners entering
HAMP has steadily declined from 512,712
in 2010 to just 141,920 in 2013.

But things could get worse, the report
said.

program. However, the bulk of homeowners in HAMP


who started participating in the program in 2009 and
2010 are falling out of the program at ever more alarming
rates. Approximately half of all homeowners who
entered HAMP in 2009 have fallen out of the program.
Homeowners who entered the program in 2010 have redefaulted at a rate of 40 percent.

But now the chickens are coming home
to roost.

Neil Barofsky
Former Special
Inspector General
Troubled Asset Relief
Program (TARP)

So HAMP would
foam the runway
by stretching out the
foreclosures, giving the
banks more time to
absorb losses while the
other parts of the bailouts
juiced bank profits
that could then fill the
capital holes created by
housing losses.

To understand the Kafkaesque


HAMP numbers, its important to know
how government bureaucrats tally
HAMP numbers. First, borrowers who
have defaulted on a HAMP refinance or
who are close to defaulting, have to be
approved for a trial payment period. Next, if everything
goes smoothly, struggling borrowers are moved into the
permanent modification column, where they are placed
in debtor limbo for three months.

However, HAMP also faces a significant challenge of
borrowers re-defaulting out of HAMP, the report warned.
Already, 398,222 homeowners have not been able to
keep up with their mortgage payments even though
payments were lowered by HAMP. Overall 29 percent
of homeowners in HAMP have already fallen out of the

Got HAMP? Mortgage Payments Will


Increase Soon and So Will Re-Defaults
Already, nearly 400,000 have re-defaulted
on their HAMP modifications. Between
now and 2021, almost 90 percent of the
HAMP loan modifications will see increases
in their mortgage interest rate, including
almost 300,000 next year, according to
the SIGTARP report. And with almost half
of homeowners who got help in 2009 redefaulting on their mortgages, we could
potentially see a spike in foreclosures in
the next few years.
The longer a homeowner remains in
HAMP, the more likely he or she is to redefault out of the program, according to
the TARP report. Re-defaults of the oldest
HAMP modifications are at a 46 percent
re-default rate, a rate that continues to
increase as the modifications age.
Nevertheless, Treasury Secretary Jack
Lew announced in June that the Making
Home Affordable program, which includes
HAMP and HARP, which were slated
to expire at the end of 2014, would be
extended through 2015.

Attorney Jennifer Taub, author of Other Peoples


Houses, believes the banks are to blame, writing:
HAMP didnt work because the banks didnt want it to.
Homeowners were being dual-tracked; strung along on
their modifications applications while the foreclosure
process proceeded. In sworn statements filed in federal
court, several Bank of America employees claimed that
they had frequently lied to homeowners and were paid
bonuses if they sent them into foreclosure.

Borrowers who got government loan modifications


Continued Next Page

OCTOBER 2014
during the financial crisis to avoid foreclosures will begin
to see monthly payments rise starting this year, fueling
fears that borrowers will re-default on their mortgages at
an alarming rate, a federal watchdog report said.

The first higher payments will hit an estimated 30,000
HAMP homeowners this year, and the interest rate will
go up one percentage point per year
until it adjusts to the rate agreed upon at
modification. The reset rates will range
from 4 percent to 5.4 percent, according
to a TARP Inspector General report. Half
of all HAMP loan mods reside in just four
states: California, Florida, Illinois and New
York.

boom, equity extraction started at $613 billion in 2002,


and rose to $914 billion by 2005, according to Robert
Stowe England, author of the Black Box Casino: How Wall
Streets Risky Shadow Banking Crashed Global Finance.
In only four years, total equity extraction hit $3.08 trillion.

During the housing boom, two things made HELOCs


attractive to borrowers historically low
interest rates and the tax advantages
of using your home as an ATM, or
automatic teller machine. Income tax
rules made borrowing against a homes
equity attractive. Because mortgage
interest payments could be deducted for
income tax purposes, the interest paid
on home equity lines of credit could also

In the next two years, these interest
be deducted, while interest on credit card
rate adjustments made on mortgage
debt or other debt was not deductible.
modifications in 2009 will reset to
Therefore, borrowers often paid off other
higher rates and could cause additional
debt with a home equity loan, whose
defaults. If a homeowner cannot make
interest would be deducted for income tax
the payment, they could lose their home
purposes.
Jennifer Taub
to foreclosure.
Attorney and author of
Outstanding debt on banks home
Other
Peoples Houses
HELOC Payment Shock
equity lines of credit stood at $499 billion
The sad truth, however, is that HAMP
in July, according to FDIC data. And
re-defaults are the first big boulder in
borrowers who opened home equity lines
HAMP didnt work
an avalanche of mortgage debt resets
of credit during the housing boom should
because the banks didnt
that will cascade down the still troubled
brace themselves for increases in their
want it to. Homeowners
lending market, rattling through much
monthly mortgage payments.
were being dual-tracked;
of the housing market next year and
strung along on their
peaking in 2017.
HELOCs are also known as a second
modification applications
lien, second mortgage, closed-end second
while the foreclosure

Next year, in addition to a surge in
(CES) or a junior lien, and offer borrowers
process proceeded.
HAMP re-defaults, an overhang of home
a great deal of flexibility in terms of the
equity lines of credit or HELOCs that
amount borrowed and when to repay
borrowers took out during the housing
the loan most home equity loans only
boom, will adjust to higher interest rates,
require that interest be paid until the end
forcing many borrowers into increased payments, as of the so-called draw period (typically 5 to 10-years),
borrowers are compelled to pay both principal and after which the loan amortizes. During the draw period
interest on second loans. As of December 2013, some 16 borrowers pay only interest and payments are low.
million U.S. consumers held $474 billion in HELOC debt
that is outstanding today, according to TransUnion.
After the draw period ends, the pay-down
period begins where withdrawals are not allowed and
Broke USA: Refinance Boom Fuels Next Recession
the balance must be paid in full. During the pay-down
Starting in 2002, there was a wave of cash-out refinancing, period, typically during the 11th year, borrowers have
along with a surge in second mortgages and home equity to start paying both interest and principal, triggering a
lines of credit that began to wipe out the equity of homes payment spike that often leads to default. On an $80,000
all across America. Increasingly, prudent mortgages were balance, for example, monthly payments could nearly
converted into non-prime mortgages by borrowers who double from $467 to $719 a payment shock of an
were house rich but cash poor. During the refinancing additional $252 each month, according to TransUnion.
Continued Next Page

OCTOBER 2014
More American mortgage borrowers have home
equity loans and lines of credit that are facing resets
and higher payments just as foreclosures are starting
to recede. During the housing boom from 2000 to 2007,
HELOCs were aggressively marketed to consumers by
lenders and many consumers tapped their home equity
to remodel their homes, buy new cars, boats, RVs, travel
and finance their childrens college education.

But now the bills are coming due.


After more than a year of rising home prices, the
housing market is starting to show signs of a slowdown.
Existing home sales are floundering, new home sales are
flat, and home prices are leveling off even declining in
some markets.

The financial shock associated with a HELOC
payment increasing to cover both principal and interest
can cause liquidity issues for some borrowers; this
dynamic is driving significant concern in the lending
marketplace, said Steve Chaouki, head of financial
services at TransUnion. Up to $79 billion of those HELOC
balances could be at elevated risk of default in the next
few years.

Nationwide, about 15 percent of the $79 billion


dollars of these accounts may be at risk of defaulting in
the next few years, TransUnion estimates. Even more
sobering is nearly half of these loans have balances of
over $100,000.

Unlike other residential loans, which were securitized
and sold to the GSEs or Wall Street, banks and credit
unions often keep more than 80 percent of HELOCs
on their balance sheets, exposing them to default risk.
Most HELOCs were originated between 2004 and 2007.
In 2005, banks originated 65.7 billion in HELOCs. The
volume jumped to $74.7 billion in 2006, and peaked at
$80 billion 2007, according to TransUnion. (See chart
below: Total HELOC Balances as of 12/2013 by Vintage)
Tip of the Iceberg: HELOC End-of-Draw Risk is Significant
HELOC exposure is declining, but significant volumes
are still scheduled to reach end-of-draw periods between
2014 and 2018, according to an OCC Spring 2014
Semiannual Risk Perspective reported. While improving,
substantial challenges remain, and the OCC will continue
to monitor exposure to mitigate the risks. (See chart on
page 6: Total HELOC End-of-Draw Volume)

TOTAL HELOC BALANCES AS OF 12/2013-BY VINTAGE

Source: Trans Union

Continued Next Page

OCTOBER 2014

TOTAL HELOC END-OF-DRAW VOLUME

The OCC estimates that 60 percent of all HELOC


balances will start amortizing between 2014 and 2017,
resetting to higher payments that could cause a spike in
delinquencies and foreclosure activity. A handful of banks
have the largest exposure to credit line payment shock,
including Bank of America, JPMorgan Chase and Wells
Fargo. Approximately $30 billion in HELOCs will resent in
2014. Reset balances will rise to $52 billion in 2015, $62
billion in 2016 and $68 billion in 2017, the OCC estimates.

Banks now face an aftershock of the pre-crisis lending
boom, even though many lenders have moved away from
interest-only home equity loans. The three biggest home
equity lenders Bank of America Corp., Wells Fargo &
Co. and JPMorgan Chase & Co. held 36 percent of the
$691.5 billion debt as of the first quarter, according to
Federal Reserve data.
The typical HELOC resets into amortization after
10 years of interest only payments and borrowers who
are a decade removed from their origination will have
to begin repaying the principal balance. Today, HELOCs
opened between 2003 and 2008 account for 60 percent
of outstanding loans.

Indeed, the collapse of the U.S. residential real


estate market is happening again right before our eyes
in slow motion. In 2013, the majority of the houses sold
in the United States were bought not buy individual
homebuyers, but large institutional investors. Often, the
Wall Street investors owned tens of thousands of homes,
which they rented out to people that lost their homes to
foreclosure. This spike in buying by cash investors caused
housing prices to rise the last two years.


These resets are a very serious issue, Amy Crews
Cutts, chief economist at consumer credit agency Equifax,
the credit reporting firm, told The Wall Street Journal,
arguing that home equity lines of credit is a pending
wave of disaster.

MY TAKE By Brian Mushaney

OCTOBER 2014

RealtyTrac Executive Vice President, Data Solutions

Why Affordability Represents a Red Flag for the Housing Recovery


In a lot of ways real estate today
should be a buyers paradise:
Property values remain at or below
their historic affordability levels
in most markets, lenders have $2
trillion in excess cash available to
lend, and foreclosures have fallen to
levels last seen in 2006.

So why have home sales stalled in recent months?


A real estate market that should be flying high is instead a
real estate market thats faltering. This isnt the way the script
should read. If things are seemingly so good then how come
were not seeing more home sales?

The explanation is complex but the short version is this:
Incomes are down in many markets. Prices and mortgage
rates which should be hugely attractive to large numbers of
buyers are simply off limits because paychecks are smaller.
Worse, were not selling a lot of homes to first-time buyers and
that could mean housing woes for years to come.
We usually think of the income-versus-cost problem in
terms of absolute affordability think the 30 percent that a
depression-era grandparent might advise as the maximum
percentage to be spent on housing but thats not quite the
right measure. If you look at affordability through this absolute
lens you often get the wrong result because markets vary
enormously.

The better approach is using a relative affordability
measure that compares a market or micro-market to itself
rather than other markets. For instance, the percentage
income sufficient to buy a home in Omaha is unlikely to work
in San Francisco. This is not a problem if you live in Omaha
but its a very big issue if you move to California and attempt
to spend the same amount on housing as in Omaha even
given that median household incomes in San Francisco are 45
percent higher than in Omaha.

A RealtyTrac analysis of relative affordability from January
2000 to May 2014 in more than 1,000 counties nationwide
found that in Douglas County, Neb. (Omaha), the historical
norm for percent of median household income needed to buy

a median-priced home is 17 percent while in San Francisco


County its 75 percent. People want to live in San Francisco so
bad theyre willing to fork over a bigger chunk of their income to
do so. The national average over the last 14 years is 19 percent
of median household income needed to buy a median-priced
home.

Another way to look at this is to use MITs Living Wage
Calculator. With this device we can see that it takes $18.64
per hour for a household with two adults and two children to
make it in Douglas County, Neb. In San Francisco County the
same couple needs $25.44 per hour.

For our purposes affordability issues raise two issues:
First, we want communities to be affordable because without
affordability you soon run out of teachers, first responders
and a thousand other professions on which we all rely. Second,
when affordability sags you have fewer first-time home buyers
and that means trouble.
First-Time Home Buyers and Affordability
Data from RealtyTrac plainly shows that home sales at the
lower end of the price spectrum the place where you are
most likely to find first-time purchasers has fallen through
the floor. Its the clearest demonstration of a first-time buyer
affordability gap to be found.

In terms of real estate, the big affordability issue is that
if first-time buyers are not purchasing homes then move-up
sellers cant sell. If they cant sell they cant move and the next
layer of owners with still-higher priced homes cannot market
their properties. There is a domino effect felt through the
housing market when sales to first-time buyers slow.

How did things get so strange and what does it mean to
buyers, sellers and investors? Lets look at some specifics.
Home Prices
Rather than looking at national trends the better option is to
examine smaller pieces of the puzzle. For instance, the National
Association of Realtors has a quarterly review of metro prices.
Its most-recent review of metro home prices looked at values
in 170 metropolitan statistical areas and found that in the first
quarter prices rose in 125 metro zones and fell in 45.
Continued Next Page

OCTOBER 2014
But home price appreciation is slow. RealtyTrac found
that home price appreciation slowed compared to a year ago
in 65 percent of the metro areas we tracked in our July sales
report (119 out of 183 total metro areas).

Yes, home values have risen during the past year in most
markets but the more important point is that real estate
values have yet to reach the previous peaks in most areas.
The Federal Housing Finance Agency (FHFA) says home prices
rose 0.4 in May but remained 6.5 percent below the high-water
mark seen just before the brunt of the mortgage meltdown
hit.

The affordability result: Home values remain depressed
when compared with past highs.
Mortgage Rates
Lender vaults are stuffed with cash. According to one estimate
banks are now sitting on $2 trillion in excess funds and the
predictable result is that mortgage rates have stalled. Freddie
Mac says that at the end of July the typical 30-year fixed-rate
mortgage was priced at 4.12 percent. Back in April 2007
mortgage rates for the same loan stood at 6.18 percent.

The rate differential is huge. Borrow $200,000 at 4.12 and
the monthly cost for principal and interest is $958.72. At 6.18
percent the monthly expense is $1,222.34.

The affordability result: In todays world people worry
about rates in the 4 percent range because theyre higher
than the record-low rates seen in 2012 when interest levels
reached a 65-year low. However, the more important point
is this: According to Standard & Poors the average mortgage
rate during the past 40 years has been 8.6 percent. Todays
rates reflect a discount of better than 50 percent.
Income
It follows that if home prices are down from 2007 and mortgage
rates are half off then affordability should be soaring but that
isnt the case. The problem is that in a market filled with great
real estate deals and cheap financing incomes are down.
If you had a household income of $51,017 in 2012 the
national average you earned 9 percent less than the typical
household in 1999. In terms of buying power, it takes $1,430
today to purchase goods and services worth $1,000 in 1999.

A RealtyTrac analysis of median household income data
at the county level shows that median household incomes
decreased between 2008 and 2012 in real terms in 43 percent
of the nations more than 3,100 counties. Among all counties,
even those with increasing income, the average change in
income between 2008 and 2012 was just 2 percent.


Meanwhile the costs of goods and services as measured
by the Consumer Price Index increased 9 percent during that
time period, even as median home prices dropped 22 percent,
according to RealtyTrac data. But since 2012 home prices have
bounced back and risen 22 percent as of July 2012 while the
CPI has risen 3 percent during the same time period. Median
income data is only available at this time through 2012, but
its unlikely that incomes have jumped 10 percent over the
past two years after rising just 2 percent in the four years
between 2008 and 2012 enough to catch up with the overall
12 percent rise in the CPI between 2008 and July 2014.

The bottom line: consumers now need to spend more of
their income on other goods and services and have less left
over for housing than they did prior to the Great Recession.

The affordability result: The place where you most clearly
see the impact of reduced affordability is with first-time home
buyers. NAR says that first-time buyers in June represented
just 28 percent of all existing home purchasers. Thats down
from past levels of 40 percent or so.

The core barrier to greater real estate sales has nothing
to do with either home prices or mortgage rates. Theyre
demonstrably affordable. Instead, the problem has to do
with jobs and income. Simply put, we dont have enough jobs,
the jobs we do have dont pay enough and the result is that
homeownership levels are at their lowest point in 19 years,
according to the U.S. Census Bureau.

Brian Mushaney, RealtyTracs Executive Vice President for Data


Solutions, heads the companys expanding file licensing division,
which includes the RealtyTrac License Platform, launched in
2014 to allow customers to host our nationwide dataset on
their servers, merge it with other datasets, and create derivative
products that they can resell under their own brand.
Over nearly three decades in title, data and analytics, Brian has
become a leader in real estate data technology, developing a
variety of innovative tools for major firms along the way.
Before coming to RealtyTrac in 2014, he was Senior Vice
President at X1 Analytics, creating the data and analytics team
that provided analytic products to financial institutions and
investors across the country. He previously worked with LPS,
most recently as its Vice President Sales Manager for Data
Solutions, and before that as Vice President of Fidelity National
Data Services, where he oversaw the creation of the data and
analytics group. He also held a series of top executive positions
within Fidelity Information Services, IDM Corporation and
Chicago Title.

OCTOBER 2014

NEWS BRIEFS
News Corp Acquires Move Inc. for $950
Million
News Corp, the massive media empire owned by Australian
billionaire Rupert Murdock, announced Sept. 30 that it would
acquire real estate listing company Move Inc., the third-most
trafficked real estate website in the U.S., for $950 million in
an all cash offer.
Move Inc. owns several online companies, including
Move.com, Realtor.com, and other online listing websites.
Move Inc. has an agreement with the National Association of
Realtors, which provides the company with real estate data
from more than 800 multiple listing services, generating real
estate listing information as soon as a home comes on the
market.

The news comes on the heels of the merger of Zillow and
Trulia in July.
News Corps entrance into the U.S. real estate market
may finally give Move the marketing muscle to aggressively
compete with Zillow and Trulia. News Corp owner of the
newspapers in Australia, England and the U.S., including The
Wall Street Journal and the New York Post sees synergies
with its core businesses as dwindling print advertising
revenues have migrated to the Web.
Move will become an operating business of News Corp
and remain headquartered in San Jose, California. The
company, started in 1993, has 913 employees.
SOURCES: Wall Street Journal, News Corp

Household Formation Slows


Household formation is a key driver of housing demand, but
household formation is down because lack of jobs for young
adults and many young people are continuing to move in
with family or doubling up with roommates, which could
slow home sales, according to a new Census Bureau survey.

In September, the U.S. Census Bureau showed that the
United States added just 476,000 households in the year that
ended in March, compared with an average of 1.3 million in
2012 in 2011.

Young people are not forming households because


many are unemployed or underemployed. According to
the Bureau of Labor Statistics, the unemployment rate for
Americans under 25 is 12.2 percent, more than twice the rate
for 25-to-54 year olds. Moreover, many of the jobs obtained
by Millennials are part-time versus full-time jobs. Millennials
are also overrepresented among the long-term unemployed,
the ranks of which include 400,000 young adults who have
never worked in their lives, but have wanted to work for six
months in a row.

Additionally, Millennials are delaying getting married and
having children, which has a visible impact on homeownership
rates among their cohort.
SOURCES: U.S. Census Bureau, Bureau of Labor Statistics

Arkansas Realtor Beverly Carter Murdered


Arkansas real estate agent Beverly Carter was murdered Sept.
30, showing a house to what she thought was a prospective
buyer. She was an agent at Crye-Leike Real Estate Services in
Little Rock, Ark.
Thirty-three year old Arron Lewis is accused of killing
Carter. Officers claim he has not admitted to killing her, and
didnt give them any information on the location of her body.
Lewis is an ex-convict with a lengthy arrest record, mostly for
theft on active parole since last year.

When asked by reporters why Carter was targeted, Lewis
responded: Because she was just a woman that worked
alone a rich broker.

Investigators said they used cell phone data to help find
her body, which they found in a shallow grave about a half
hours drive from the home where she is believed to have
met Lewis.
Her death is a tragic reminder of the hidden perils real
estate agents face. Some said that Carter, a 50 year old
mother of two and grandmother of four, should not have
met a perspective buyer alone, but Brenda Rhoads, the
principal broker at Crye-Leike, dismissed those critiques,
saying: Thats our job.
SOURCE: The New York Times

LEGAL BRIEFS
Supreme Court Takes Up Housing
Discrimination Case
The U.S. Supreme Court will hear a case involving whether
people suing for housing discrimination must prove they
were victims of intentional bias, in a case that may give longsought protection to the lending industry.
The high court will consider whether Texas
housing officials violated the U.S. Fair Housing Act by
disproportionately awarding low income housing tax credits
to developers who own properties in poor, low-income
neighborhoods.

The legal theory is known as disparate impact. It allows
the government or private plaintiffs to use statistics to show
that seemingly race neutral polices disproportionately harm
racial minorities. The disparate impact theory is opposed by
business interests because it allows for a broad range of
business decisions related to housing to be subject to civil
rights litigation.

OCTOBER 2014

Every Virginian was harmed by the financial crisis, said
Herring in a written statement. Homes were lost, retirement
accounts were devastated, small businesses saw their credit
dry up almost overnight, and state and federal budget cuts
hurt vulnerable Virginians. It will take many more years to
recover the economic strength and stability we lost, but I
will not allow Virginians to be left holding the bag for the
reckless, fraudulent business practices of a few big banks
who thought they were above the law. These banks lied to
Virginia, and taxpayers and state employees lost hundreds
of millions of dollars as a result.
Herring said the banks including Barclays Capital,
Citigroup, Credit Suisse, Goldman Sachs and JPMorgan
Chase knowingly packaged faulty home mortgages into
securities and sold them to pension funds like the Virginia
Retirement System. The pension fund, which has 600,000
members, purchased 220 residential mortgage backed
securities in 2004.
SOURCE: Virginia Attorney Generals Office

Nevada High Court Makes Key Ruling on HOA


The nine justices will weigh a lawsuit filed against Texas
by Inclusive Communities Project Inc., which works to place
low-income tenants in wealthy, majority white suburbs of
Dallas. Inclusive Communities says Texas broke the law
through its process for allocating the credits made available
under the federal Low Income Housing Tax Credit Program,
which gives credits to developers providing housing for lowincome people.

The Nevada Supreme Court ruled on Sept. 18, that a lien


held by a homeowners association (HOA) can override a
deed of trust involving a first mortgage on the property.

A ruling is expected in June, 2015. The case is Texas


Department of Housing and Community Affairs v. The Inclusive
Communities Project.

In 2012, the former homeowners fell delinquent on


their association dues and defaulted on their obligations to
U.S. Bank. The Southern Highlands Community Association
(SHHOA) and U.S. Bank separately initiated non-judicial
foreclosure proceedings. SFR Investments Pool 1, LLC
purchased the property at the SHHOAs trustees sale and
filed an action to quiet title and enjoin the trustees sale on
U.S. Banks deed of trust, alleging that the SHHOA trustees
deed extinguished U.S. Banks deed of trust.

SOURCE: Bloomberg

Virginia Sues 13 Banks, for Alleging Fraud


Virginia Attorney General Mark R. Herring on Sept. 16
announced a $1.15 billion lawsuit against 13 of the nations
largest banks, accusing them of misrepresentation on
bonds made up of residential mortgages.

The lawsuit, filed in Richmond Circuit Court, is the
largest financial fraud action ever brought by the state of
Virginia.


In its ruling on SFR Investments Pool 1, LLC v. U.S. Bank, the
court ruled that an HOA super priority lien is a true superpriority lien, and that a properly conducted foreclosure on
the HOA lien extinguishes a first deed of trust.

The court, in an opinion written by Justice Kristina


Pickering, agreed with SFR Investments Pool 1, LLC.
SOURCE: Las Vegas Journal Review

10

FINANCIAL BRIEFS
Mortgages: FHA Loans Plunge 19
Percent
Tension between lenders and regulators are heating up in
the slow housing recovery as Washington regulators and
major banks haggle over who pays when risker mortgages
go bad. Federal Housing Administration loans, given to
borrowers with weaker credit scores and requiring small
down payments, plunged 19 percent in the nine month
ending June 30, compared with a year earlier, according
to Bloomberg. The largest U.S. home lenders are refusing
to underwrite FHA mortgages because of concerns that
they will be penalized when loans default. FHA insured
420,709 purchase loans in the nine month through June
30, compared with 516,588 mortgages during the same
period in 2013, according to HUD data.

Refinancing: Bernanke Cant


Refinance
Former Fed chairman Ben S. Bernanke said the mortgage
market is so tight that even he is having a hard time
refinancing his own home loan. Speaking at conference
in Chicago on Oct. 2, Bernanke said: I recently tried to
refinance my mortgage and I was unsuccessful in doing
so, according to Bloomberg. I think its entirely possible
that lenders may have gone a little bit too far on
mortgage credit condistions, Bernanke said. He went on
the say: The housing area is one area where regulation
has not yet got it right. I think the tightness of mortgage
credit, lending is still probably excessive.

Fraud: Real Housewives of New


Jersey Stars Sentenced
Real Housewives of New Jersey stars Teresa and
Joe Giudice are both headed to prison, according to
NewJersey.com. On Oct. 2, Joe was sentenced to 41
months in prison by a New Jersey federal judge. Teresa
was sentenced to 15 months. The couple pleaded guity
March 4 to multiple federal fraud charges, including
conspiring to commit mail and wire fraud and lying on
mortgage and loan applications. In addition to prison

11

OCTOBER 2014
terms, judge Esther Salas ordered the couple to forfeit
$414,588. Additionally, the judge fined Joe $10,000 and
Teresa $8,000. The jail terms will be staggered to make
sure the Giudices four daughters will be taken care of.

Sale: Chinese Buy Iconic Waldorf


Astoria for $1.9 Billion
Hilton Worldwide Holding sold its flagship hotel, the
Waldorf-Astoria in Manhattan, to Anbang Insurance
Group, a Chinese insurance company for $1.9 billion,
according to The Wall Street Journal. The nearly $2 billion
price tag is the steepest ever for a U.S. hotel, paying $1.4
million per room. The Waldorf, which opened in 1931, has
1,413 rooms and covers a full city block on Park Avenue,
making the luxury Art Deco landmark one of the largest
hotels in the world. Hilton will continue to operate the
Waldorf under a 100-year management agreement that
begins when the sale closes.

THE LATEST INDUSTRY


NEWS AND TRENDS
www.RealtyTrac.com/Content

OCTOBER 2014

STATE SPOTLIGHT

Central Florida Still Foreclosure Central


By Daren Blomquist, Executive Editor

Central Florida remains foreclosure central in a U.S.


housing market that has largely moved past the worst of
the foreclosure tsunami triggered by a bursting housing
bubble in 2006.
I have one agent here, she only does bank owned,
and shes done $6 million (in sales) so far this year and
only by herself, said Debbie Payne, broker-owner at RE/
MAX Navigator Real Estate in Clermont, about a half
hour west of Orlando in Lake County. (See chart: Orlando
Metro Foreclosure Auctions)


Foreclosure activity increased 42 percent from a year
ago in September in the Orlando metropolitan statistical
area, which includes Lake, Orange, Osceola and Seminole
counties in central Florida. September marked the fifth
month in the last six months where foreclosure activity
increased from a year ago in Orlando, and the metro
areas foreclosure rate in the third quarter ranked highest
among all metro areas with a population of 200,000 or
more. One in every 117 Orlando-area housing units had
a foreclosure filing in the third quarter, more than three
times the national average.

Continued Next Page

ORLANDO METRO FORECLOSURE AUCTIONS

12

OCTOBER 2014
Real Estate Tug-of-War
Payne, a 29-year veteran of Florida real estate, said the tug
of war between a real estate recovery and lingering distress
from the last housing bust continues to be very much a
reality in Central Florida, with many neighborhoods still
weighed down with foreclosures that have been sitting
vacant for years growing mold from the heat and humidity
that are hallmarks of the region.

Then you have a home next door that is deserving of that
$120 a square foot, thats very challenging,
she said, explaining the $120 per square
foot is for properties that have been kept
in good condition by homeowners not in
foreclosure.

It sold for $2.5 million and it never fully came to


market before the bank accepted an offer, Salerno said
of the 12,000 square foot property in Longwood. We
were in market prep and evaluation when an offer came
in and the bank responded to an offer before it was
listed.

Salerno said he lists 10 to 15 bank-owned properties,
or REOs, a year for a regional bank, and noted that its not
uncommon for some banks to accept offers before listing
a property.
A lot of properties do get sold as
theyre coming to market, said Salerno,
noting that is not the case for Fannie Mae
REOs. Other banks will take offers in that
period where they are just evaluating
what they have.

You still have this battle, continued


Payne, a Florida native who previously
worked in the Naples market before moving
to Central Florida in 1999. Getting the nice
homes sold for what they really are worth
instead of letting the foreclosures drag
them down.
Payne said foreclosures in her local
market are severely backlogged and being
released slowly by banks so as not to
disrupt the emerging market recovery.

They hold them because if they flooded
the market, now prices are going to go back
down. Thats one thing we dont want them
to do because that will negatively impact the
prices, she said. A lot of the investors who
are holding the paper on the foreclosures,
they know that too they see that the
market is trending up, so they are like, OK,
Ill hold it in inventory for a little bit longer.

The $2.5 million REO, which sits on


seven acres, sold to an owner-occupant
buyer, according to Salerno.
Debbie Payne
Broker-owner
RE/MAX Navigator
Real Estate
I have one agent here,
she only does bank
owned, and shes done
$6 million (in sales)
so far this year and
only by herself.

They are so backlogged I dont know when well see


something back to reasonable. I would say three to four
years, she added.
$2.5 Million Bank-Owned Sale
Alan Salerno recently closed his biggest sale ever and it
was on a bank-owned property.
It showed up on RealtyTrac as bank owned, said
Salerno, broker-owner at Florida Home Team Realty in
Altamonte Springs, a northeast Orlando suburb in Seminole
County.

The property was in really good


condition but it sold at a distressed
sales price, he said, noting the property
features 3,500 square feet of decks, a
swimming pool and a resistance pool
along with an elevator. It didnt have a
wine cellar, but thats about the only thing
it didnt have.

Listed Foreclosures Increasing


The discounted price on the Longwood
REO is not the norm for bank-owned
properties being listed recently in the
higher-end Seminole County, where the
average price per square foot is around $150, according
to Salerno.
Our inventory is increasing but our bank-owned
properties are being put on the market at or above
market price. They are not being sold at a discount,
he said, advising prospective buyers looking for a
discount to consider other properties in addition to just
foreclosures. You could probably get a better discount
with a homeowner who has a life event and needs to
move than you could with a bank-owned property at this
point.

Further west of Orlando, in Brevard County, Robby


Continued Next Page

13

OCTOBER 2014
Alan Salerno
Florida Home
Team Realty
Altamonte Springs, Fla.

of appreciation are just around the corner,


Robertson added.

Our inventory is increasing


but our bank-owned properties
are being put on the market at
or above market price. They are
not being sold at a discount.
Robertson, Realtor/owner and managing general partner
of Pioneer Properties in Melbourne, said hes also seeing
more foreclosures now being listed for sale, and he
believes those distressed listings are holding the price
down in his market, which spans all the way to the east
coast of the state and includes Cape Canaveral.
Yes, the shadow inventory is rapidly becoming a
listed property. Foreclosures are becoming a major part
of our active inventory, wrote Robertson in an email.


Short sales accounted for 9.7 percent of all
residential property sales in August in the Palm
Bay-Melbourne-Titusville metro area comprised
of Brevard County, according to RealtyTrac. That
was the ninth highest share of short sales among
metro areas nationwide with a population of
500,000 or more despite being down from 14.9
percent of all sales in August 2013. (See chart:
Central Florida Short Sales Subsiding)


The share of short sales in the Orlando metro area was
second highest in the nation in August 2014 at 13.6 percent,
but that was also down from 18.4 percent of all residential
sales in August 2013.
Foreclosure Auctions Skyrocketing
Meanwhile sales to third party investors at the foreclosure
auction in Central Florida are skyrocketing compared to
a year ago. In the Palm Bay-Melbourne-Titusville metro
those sales represented 3.8 percent of all residential sales
in August 2014, up from 0.8 percent a year ago, while in
the Orlando metro area those foreclosure auction sales
represented 4.9 percent of all residential sales, up from

Short Sales Subsiding


But even as more bank-owned properties are being
Continued Next Page
listed, short sales are becoming
scarce, according to Robertson,
who gets short sale referrals
from local foreclosure defense
attorneys who are not able to
CENTRAL FLORIDA SHORT SALES SUBSIDING
help distressed homeowners
avoid foreclosure.

Almost all of the homeowners
choosing to go the route of a
strategic default, suffering a loss
of income due to unemployment,
investors, etc. have come and
gone, wrote Robertson, who
said he has personally handled
143 short sales from cradle to
grave since 2006. The only short
sales remaining are homeowners
moving out of the area.
A large portion of remaining
homeowners are those that
elected to hold on during the
worst of times and they are
sure not giving in as the hopes

14

OCTOBER 2014
2.3 percent a year ago.

RealtyTrac data also shows more of those foreclosure
auctions to come in the region, with a 36 percent yearto-date increase in scheduled foreclosure auctions in the
Orlando metro area compared to the same time period
in 2013 and a 131 percent year-to-date increase in the
Palm Bay-Melbourne-Titusville metro area.

and they cant, she said, adding that she sometimes has
to have tough conversations with homeowners who fully
leveraged their home equity near the top of the market.


In the northern part of the Orlando metro area, Crystal
McCall, broker associate at Keller Williams Cornerstone
Realty in Ocala, also noted the slowdown in short sales, a
trend she welcomes.


Orlando-area homes sold in August 2014 for a median
price of $150,000, a rebound of 66 percent from the
bottom of the market, in March 2011, when the median
sales price was $90,150, but still 40 below the peak of
$249,000 in January 2007, according to RealtyTrac data.

Ive done more than Ive wanted to of short sales,


said McCall, who has been working the Central Florida
market for 34 years. I personally try to avoid them like
the plague, because the banks arent working with us like
they used to.
Nagging Negative Equity
McCall noted that there are still a sizable group of
homeowners in her market who are underwater on their
homes, owing more on the mortgage the property is
worth.
Those people are still waiting to sell. People who
refinanced in 06, 07, 08 now they want to sell their home

They already got their equity, now they have to pay


the bank And they get upset when I tell them that. Your
house is not worth 650 anymore its worth 300.

That sharp boom-bust pattern has left 30 percent of


homeowners still seriously under water in the Orlando
metro area, meaning they owe at least 25 percent more
than the estimated value of their home. That 30 percent
seriously underwater is the eighth highest in the country
among metro areas with a population of 500,000 or
more, and was slightly below the 31 percent seriously
underwater in the Palm Bay-Melbourne-Titusville metro
area, which ranked third highest nationwide. (See chart:
Central Florida Ranks High for Negative Equity)

One alternative for equity-challenged homeowners is


Continued Next Page

CENTRAL FLORIDA RANKS HIGH FOR NEGATIVE EQUITY

15

OCTOBER 2014
to trade up into a new, energy efficient home, according
to McCall, who said she has successfully marketed this
option recently to homeowners in the area.
Maybe they are not going to make any money out
of the old home, but they can buy this
new energy efficient home, she said
that energy efficiency can save the
homeowners quite a bit of money in the
long term. You have to take peoples
mind off making a large profit, which you
cant do in this market, and on to what
can we do on the other side of the fence.
Investor with $10 Million to Spend
The sharp correction in home prices in
Central Florida that has left nearly onethird of homeowners still underwater is
also attracting bargain-hunting investors
to the region, which still has relatively
low-priced housing despite the strong
rebound over the last three years.

We have a lot of investors here who
can buy a house for 70 grand and turn
around and rent it for $700 to $900 a
month, said McCall, who noted there
is strong rental demand from former
homeowners in the region who lost their
homes to foreclosure over the past seven
years. The people who lost their homes
have to live somewhere so they have to
rent.

to buy 20 properties. I want 10 homes in Clermont, I


want 10 homes in Orlando, that sort of thing. They tell me
what type of product they want and we go from there,
said Payne, who explained that the large investors will
often select one broker to handle all of their purchases in
a county. The one I met last week, theyve
got $10 million to spend.
Investors Cashing Out
But in higher-priced Seminole County,
institutional investors have begun to cash
out their rental property portfolio after
saturating the market over the last two
years, according to Salerno, the Altamonte
Springs broker-owner.

Crystal McCall
Broker Associate
Keller Williams
Cornerstone Realty
Ocala, Fla.

Ive done more than


Ive wanted to of short
sales. I personally try
to avoid them like the
plague, because the
banks arent working with
us like they used to.


McCall said most of the investors she
has encountered in and around Ocala
are individual investors buying a handful of properties at
most, as opposed to the mammoth institutional investors
buying up large portfolios of properties.

I sell bank properties, and those are the first ones
(investors) get on, and I have not seen the big portfolio
investors come in, she said. Mostly its just Joe investor
who has $800,000 in his retirement account and is going
to come here and buy houses and use 1031 exchanges.

The investor houses that were


purchased a year or two years ago are
going to start coming back on the resale market, he said. Theyre finding a
$150,000 dollar home is not like managing
an apartment complex.

And the prices have increased, and
theyre just going to enjoy some of their
increased appreciation, continued Salerno,
noting that investor purchases have also
slowed down. A year ago you couldnt list
a three-bedroom, two-bathroom house
without a blind investor offer thats all
stopped.

Salerno dubbed the emerging


investor-listed inventory a sub-shadow
inventory that he argued is a more
concerning trend than the much-feared
shadow inventory of foreclosure properties.

Ive seen a couple people have listed 10 homes for an
investor, he said, noting that overall inventory of homes
for sale in Orange and Seminole counties was at 13,084
in August 2014, nearly double the 6,900 listed for sale just
five months earlier in March 2014.

But further south, closer to the city of Orlando,


Payne said she is getting interest from some institutional
investors.

Prices Stagnating
The rise in inventory means longer times on market and
slowing home price appreciation, according to Salerno,
who said prices over the last six months have been
basically flat in his market.

Their pre-qualification letters come in and they want

RealtyTrac data shows median residential property

16

OCTOBER 2014
sales prices in Orlando increased 11 percent from a year
ago in August, but that 11 percent increase is down from
a 20 percent year-over-year increase in August 2013.
Meanwhile, home price appreciation is still accelerating
in the Ocala metro area, with median sales prices up 13
percent from a year ago in August 2014 compared to a
7 percent annual increase in August 2013. (See chart:
Orlando Metro Median Home Sales Prices)

In Lake County specifically where median sales
prices were up 4 percent in August compared to a year
ago, down from a 14 percent annual increase a year
earlier Payne also expects price appreciation to
continue to slow.
If I had to rub my crystal ball, I would say home
prices are not going to be trending too much higher than
they are now, she said, noting that was not her outlook
a year ago when she advised some homeowners wanting
to sell that they should hold out for more appreciation. I
have homeowners last year who I told, you know lets just
wait until the end of 2014, and now Im calling them back
because weve seen a 20 percent increase in prices.

Robertson, the Brevard County Realtor, is seeing a


similar trend of slowing appreciation in his market.
We have an amazing lack of inventory, yet price
increases have remained flat for well over a year. One of
our Realtor-Associates is a Certified Florida Appraiser who
is very active in the appraisal business. He has noticed the
exact same thing despite the optimistic comments from
some of our local Realtors, wrote Robertson, who added
that some builders with bloated inventories of land have
started to do some spec building, trying to stem the flow
of red ink from those land investments. Personally, I have
concerns if this is going to work for those builders and if it
is going to hurt or help the overall market conditions.

Still, Robertson struck a positive note for the future of
the Central Florida housing market.
Like the entire nation the large banks fraud and
deceptive business practices brought us all to our knees,
he wrote. Nonetheless, our market has begun a slow
climb out of a very deep hole.


I could sell it for $80 a square foot in 2013, but now
in 2014 I can get them $95 a square foot or $100 a square
foot, she added.

ORLANDO METRO MEDIAN HOME SALES PRICES

17

OCTOBER 2014

BOOK REVIEW

Other Peoples Houses


By Octavio Nuiry, Managing Editor

In 1984, Harriet and Leonard


Nobelman borrowed $68,250
to buy a one-bedroom
condominium in north Dallas,
Texas, with an adjustable
rate mortgage. The mortgage
broker swiftly sold the couples
mortgage on the secondary
market to American Savings
and Loan Association of
Stockton, Calif., the largest S&L
in the nation.
Five years later, both the
Nobelmans were jobless,
the condos valued had
dropped by half and their
ARM loan shot up sharply. Financially, the couple was insolvent
so they attempted to reduce their mortgage principal, using
the bankruptcy courts to modify their mortgage. But they were
unsuccessful.

Meanwhile, American Savings and Loan Association failed
during the Savings & Loan crisis and the government took
over the troubled savings and loan. The government sold
American Savings and Loan Association to a group of investors
who created a new entity American Savings Bank. However,
American Savings Bank wasnt just some random S&L; it was the
successor to American Savings and Loan Association, and the
largest American bank failure until Washington Mutual imploded
in 2008, which itself purchased American Savings Bank in 1996.
Although American Savings Bank was not the original lender,
nor was it the servicer of the Nobelmans loan, the S&L expected
to be paid the full principal balance, interest and fees.

The Nobelmans fought their case all the way to the U.S.
Supreme Court. By 1992, when the Supreme Court agreed to
hear the Nobelmans case, the condos value dropped a striking
67 percent, falling from $71,000 to a mere $23,500.

In her new book, Other Peoples Houses: How Decades of
Bailouts, Captive Regulators, and Toxic Bankers Made Home

Mortgages a Thrilling Business, (Yale University Press, 2014)


Vermont Law School professor Jennifer Taub uses the Nobelman
and American Savings Bank stories to illustrate how financial
deregulation in the 1980s laid the groundwork for the housing
bubble of 2008.

As Taub writes, thanks to a 1993 Supreme Court ruling in
Nobelman v. American Savings Bank, homeowners saddled with
mortgage debt cant modify their mortgages in the bankruptcy
courts.

Ultimately, the unanimous Supreme Court decision, written
by Clarence Thomas, prevented the Nobelmans and millions
of borrowers since from modifying the principal value of a
mortgage through Chapter 13 bankruptcy. Three years later,
Harriet Nobelmans condo was auctioned off at a foreclosure
auction.
Fast forward to 2008 and the housing crisis, and the
Nobelman v. American Savings Bank decision suddenly becomes
very important.

In the first part of her book, she carefully reconstructs a
dizzying array of shady Texas developers, land flippers and
S&L executives that received government support, while the
Nobelmans were too small to save. Taub introduces readers
to a string of murky businessmen: convicted fraudster Danny
Faulkner, nicknamed the Condo King, a flamboyant former
illiterate Mississippi house painter who transformed himself into
a high-roller developer who served four years of a 20 year prison
sentence for real estate fraud that cost the U.S. government
(taxpayers) $1 billion. Faulkner and others bought land along
the Interstate 30 corridor in eastern Dallas County, where the
Nobelmans purchased their condo, and flipped the properties
among business partners. The transactions happened as many
as eight times in a day and drove up property values on paper
overnight, driving up values up 400 percent. The fraud eventually
left some buyers with property worth far less than they paid.

Another Texas S&L scandal figure Taub writes about is
former Garland Mayor James L. Toler, a convicted fraudster who
served five years of a 20 year prison sentence for real estate
Continued Next Page

18

OCTOBER 2014
fraud. In 1981, Toler formed a partnership with Faulkner to buy
65 acres on Faulkner Point on the shores of Lake Ray Hubbard.
Faulkner Point became one of the infamous condominium
projects in the I-30 corridor, which experienced a boom that
later was found to be fueled by hundreds of millions of dollars
in questionable real estate loans. In 1991, Toler and Faulkner
were convicted in the longest S&L fraud trial in Texas history.

and no one else. Bank of Americas CEO Brian Moynigan


told the Commission: Over the course of the crisis, we, as an
industry, caused a lot of damage. Never has it been clearer how
poor business judgments we have made have affected Main
Street.

Drawing on her experience as a corporate lawyer and


business law scholar, Taub shows how government officials
Shinning a new light on the similarities
helped bankers inflate the housing bubble
between the Savings and Loan debacle of
through toxic mortgages, and then when
Through this narrative, it
the 1980s, when over 1,000 banks went belly
the house of cards collapsed, overlooked the
becomes clear that the 2008
up, and the financial crisis of 2008, where 5
plight of millions of distressed borrowers
crisis was a continuation
million homeowners lost their homes to toxic
who eventually joined the ranks of the five
of the S&L debacle with the
mortgages, Taub reminds us that the same
million homeowners who lost their homes
same players, some just
reckless Wall Street banks, operating under
to foreclosure. Taub worries about how
operating under new names.
new names, received government bailouts,
dangerous the financial system remains
In both occurrences, the
while taxpayers on Main Street were left with
despite modest reforms like Dodd-Frank.
same reckless banks
the trillion dollar tab.
The top six banks are larger than they were
engaging in high-risk
before the crisis.
practices failed, and the
Surprisingly, the same players and
same lax regulators
practices that triggered the S&L crisis are

For Taub, the financial system isnt
overlooked
fraud and abuse.
still in place today, argues Taub. She asserts
broken; its rigged. Its working as it was
that despite modest regulatory reform, the
designed to work. There are winners and
underling disease that sparked the housing
there are losers. The winners are the banks,
crisis remains uncured.
and the losers are ordinary Americans. And the bankers are
using other peoples houses to game the system, Taub argues.
In chapter sixteen, Taub concludes by dispelling many
myths about the financial crisis and the subsequent housing
This is truly an amazing book because Taubs painstaking
bust, including nobody saw it coming that the financial crisis research shows that essentially Nobelmans v. American Savings
was unavoidable, and that bankers are the victims of greedy Bank was a massive bailout of the banking industry by the
homeowners who borrowed money and did not pay it back.
Supreme Court. Taubs thoroughly researched book (she
includes 80 pages of footnotes) is a valuable response to the
Quoting JPMorgan Chase CEO Jaime Dimon testifying unfounded claims that irresponsible borrowers sparked the
before the Financial Crisis Inquiry Commission, Dimon told housing collapse.
the Commission: I blame the management teams 100 percent

DOWNLOAD REALTYTRACS FREE 2014 GUIDE TO SHORT SALES

19

August 2014

State-by-State Foreclosure Activity Summary

TOP 20

Rank

Foreclosure rates in
the Nations 20 largest
metros in August 2014

Rank

Metro

Housing
Units Per
Foreclosure
Filing (Rate)

Macon, GA

154

Atlantic City, NJ

292

Orlando, FL

4
5

Default

Auction

REO

Total

1/every X HU
(rate)

U.S. Total

39,378

51,192

26,343

116,913

1,126

6.83

-9.06

Alabama

936

113

1,049

2,071

-0.76

-19.18

22

Alaska

45

113

37

195

1,566

-24.71

77.27

17

Arizona

1,639

501

2,140

1,328

2.34

-28.02

30

% from
July 14

% from
Aug 13

46

Arkansas

54

115

169

7,792

-49.25

-73.51

13

California

6,211

4,940

2,152

13,303

1,027

0.47

-12.11

20

Colorado

1,273

205

1,478

1,496

23.17

56.90

12

Connecticut

815

176

518

1,509

984

5.97

-22.14

Delaware

365

110

69

544

746

27.10

-13.92

District of Columbia

11

15

19,778

-60.53

66.67

Florida

6,468

10,723

5,277

22,468

400

17.23

-3.87

Georgia

2,811

4,204

7,015

582

79.87

51.41

40

Hawaii

53

33

34

120

4,332

-6.98

-38.14

23

Idaho

98

253

73

424

1,572

28.48

50.89

Illinois

1,984

2,688

1,612

6,284

842

-11.34

-13.79
-25.85

Indiana

1,430

1,165

537

3,132

893

2.05

16

Iowa

338

402

303

1,043

1,282

109.86

9.44

294

39

Kansas

81

69

163

313

3,940

-38.26

-32.69

Jacksonville, FL

300

34

Kentucky

63

422

372

857

2,250

1.06

-26.31

27

Louisiana

223

483

350

1,056

1,860

-31.74

-26.00

Miami, FL

359

26

Maine

246

73

99

418

1,725

-13.28

-28.79

Maryland

2,565

1,698

207

4,470

532

3.98

14.85

37

Massachusetts

552

336

139

1,027

2,730

10.31

-14.20

24

Michigan

2,057

762

2,819

1,608

-17.26

-28.03

32

Minnesota

713

356

1,069

2,196

-5.40

-36.75

44

Mississippi

181

39

220

5,792

-20.00

40.13

38

Missouri

532

261

793

3,418

7.74

-44.12

Palm Bay, FL

368

Tampa, FL

407

Pensacola, FL

426

Cape Coral, FL

430

10

State

Lakeland, FL

441

43

Montana

73

13

86

5,598

352.63

82.98

41

Nebraska

123

25

154

5,177

26.23

-27.70

Nevada

1,415

628

194

2,237

524

22.11

-30.87

New Hampshire

159

82

241

2,548

-15.14

-37.08

11

Ocala, FL

448

35
4

New Jersey

4,470

1,522

442

6,434

553

114.61

84.67

12

Las Vegas, NV

451

28

New Mexico

229

74

176

479

1,880

12.71

-35.70

31

New York

2,812

618

277

3,707

2,186

-17.53

-12.51

13

Trenton, NJ

467

11

North Carolina

2,458

1,433

571

4,462

969

35.42

88.99

50

North Dakota

-100.00

-100.00
-36.03

14

Columbus, GA

483

15

Rockford, IL

508

16

Port St. Lucie, FL

510

Ohio

2,132

2,566

1,406

6,104

840

-0.08

18

Oklahoma

444

514

257

1,215

1,370

19.00

53.99

19

Oregon

223

702

266

1,191

1,405

7.78

-15.35

21

Pennsylvania

1,106

1,582

1,012

3,700

1,504

-12.07

-12.51

29

Rhode Island

131

95

226

2,047

-11.02

-31.52

10

South Carolina

1,134

681

433

2,248

949

-5.94

-13.70

17

Baltimore, MD

514

18

Bakersfield, CA

523

45

South Dakota

33

16

49

7,424

44.12

-37.18

47

Tennessee

173

183

356

7,898

-41.64

-78.58

19

Sarasota, FL

552

36

Texas

17

2,937

765

3,719

2,683

-32.01

-12.16

14

Utah

343

410

134

887

1,105

-8.56

-36.19

48

Vermont

15

15

30

10,741

-6.25

-28.57

33

Virginia

988

522

1,510

2,229

10.70

-4.07

25

Washington

55

1,308

351

1,714

1,683

-14.64

-31.39

49

West Virginia

18

41

59

14,953

-13.24

-42.72

15

Wisconsin

878

696

552

2,126

1,233

16.17

-22.72

42

Wyoming

34

15

49

5,335

-36.36

-33.78

20

Deltona Beach, FL

572

Residential Sales Counts & Median Prices by State August 2014


Annualized Sales
U.S. Total

4,508,559

% from July 2104

% from Aug 2013

Median Sales Price

% from July 2014

% from Aug 2013

Distressed
Discount%

-0.47%

-16.16%

$195,000

3%

15%

37%

Alabama

45,678

0.06%

0.53%

$129,000

3%

0%

43%

Alaska*

9,715

-1.96%

-11.14%

$249,979

0%

4%

Arizona

150,728

-0.74%

-16.62%

$175,000

1%

5%

22%

Arkansas

28,071

1.22%

-16.51%

$135,000

3%

5%

46%

California

437,504

-1.46%

-22.53%

$377,000

1%

8%

30%

Colorado

115,409

-0.25%

-13.02%

$248,500

1%

6%

32%

Connecticut

19,342

$219,900

-4%

2%

Delaware

14,790

-1.88%

-12.82%

$190,000

0%

-3%

48%

District of Columbia

8,428

-1.37%

-16.38%

$509,500

0%

7%

45%

Florida

506,579

0.94%

-13.99%

$147,501

1%

13%

29%

Georgia

179,365

-0.28%

-17.09%

$149,000

1%

11%

44%

Hawaii

19,293

-2.19%

-18.89%

$450,000

2%

5%

Idaho*

18,347

$179,900

-3%

0%

Illinois

177,153

-0.83%

-10.19%

$185,000

3%

12%

Indiana*

67,344

-3.30%

-24.33%

$130,000

-4%

4%

Iowa

32,264

-3.44%

-17.31%

$137,000

1%

3%

Kansas*

15,695

-4.35%

4.14%

$143,900

-2%

4%

$120,000

0%

-10%

-1.29%

-21.53%

$149,900

-6%

0%

$195,000

-2%

6%

1.47%

-14.68%

$250,000

2%

2%

$325,000

-1%

7%

Kentucky

25,249

Louisiana*

37,792

Maine*

17,781

Maryland

79,147

Massachusetts

37,823

47%

47%

52%

42%

Michigan

138,536

-1.22%

-20.98%

$127,000

6%

24%

61%

Minnesota

67,732

0.11%

-23.59%

$202,500

3%

14%

35%

Mississippi*

7,059

-4.48%

-3.54%

$147,500

-4%

6%

-0.79%

-14.32%

$139,900

-3%

4%

$255,000

0%

2%

Missouri*

78,711

Montana*

9,273

Nebraska

26,288

-2.20%

-10.66%

$143,000

1%

6%

36%

Nevada

69,874

-0.17%

-14.58%

$175,000

3%

10%

22%

New Hampshire

11,428

-8.70%

-6.47%

$229,900

-2%

2%

New Jersey

114,216

0.00%

-12.81%

$285,000

5%

0%

New Mexico*

29,890

1.12%

-14.72%

$198,000

-1%

2%

New York

148,615

0.62%

-9.60%

$310,000

1%

5%

25%

North Carolina

169,185

1.04%

-9.53%

$158,000

-1%

7%

43%

North Dakota

5,864

$178,500

-3%

-8%

Ohio

170,937

0.72%

-12.72%

$130,000

4%

24%

55%

Oklahoma

53,307

-2.11%

-19.55%

$132,000

2%

7%

54%

Oregon

64,609

-0.32%

-9.97%

$245,000

2%

7%

25%

Pennsylvania

150,734

0.20%

-13.72%

$151,000

2%

0%

55%

Rhode Island

6,235

$239,000

-2%

4%

South Carolina

94,078

$150,000

3%

13%

$169,900

1%

7%

0.14%

-12.76%

South Dakota

21

43%

Tennessee

112,785

-1.07%

-10.45%

$135,000

1%

11%

Texas*

461,421

0.66%

-16.11%

$185,000

-2%

0%

-3.11%

-25.05%

$242,000

0%

3%

$211,000

8%

42%

49%

Utah*

56,055

Vermont

12,207

7%

64%

Virginia

87,993

-0.40%

-25.48%

$326,000

0%

19%

39%

Washington

113,438

-0.61%

-8.21%

$257,100

3%

9%

31%

West Virginia

6,116

0.78%

-21.54%

$127,900

-1%

6%

66%

Wisconsin

63,843

-1.25%

-22.56%

$163,500

2%

8%

56%

Wyoming*

5,032

-4.97%

-19.94%

$237,000

-3%

1%

Foreclosure News Report is a monthly publication


dedicated to helping foreclosure investors succeed by
providing them with timely and relevant information
about the foreclosure market.
EXECUTIVE EDITOR
Daren Blomquist
MANAGING EDITOR
Octavio Nuiry
WRITERS
Daren Blomquist, Octavio Nuiry, Peter Miller
ART DIRECTION
Eunice Seo
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