A weekend topic starting with a report by Auction.com Vice President of Market Economics Daren Blomquist. “Growing competition from a new breed of foreclosure auction buyer is evident in proprietary foreclosure sales rate data from Auction.com. More than 37% of Tampa-area properties brought to foreclosure auction on Auction.com in the third quarter of 2019 were sold to third-party buyers, well above the overall market rate of 22.8% and up compared to a year ago for the fourth consecutive quarter. ‘Real estate investors purchasing fewer than five properties a year now comprise more than half of all repeat buyers using the Auction.com platform,’ said Ali Haralson, the company’s chief business development officer.”
“Conversely many large-scale foreclosure auction buyers are proceeding with caution given their greater exposure to a home price correction, according to Lee Kearney, CEO of Spin Cos., a group of real estate investing businesses. Kearney began pulling back on his foreclosure auction purchases two years ago because he saw signs of another downturn coming in the Florida markets where he invests. The rate of home price appreciation slowed to a crawl, and he faced increasing competition from other buyers at the auction.”
“‘What you’re finding now in Tampa, the general sentiment is ‘all the stuff is sitting around, margins are declining,’ he said, noting that at one point he was purchasing as many as 50 properties a week. ‘I’m hearing all the same sentiments I was hearing 10 years ago.’”
“Southern California real estate investor Bruce Bartlett saw the warning signs back in 2005 and started selling the ‘meager’ portfolio of properties he had acquired investing part-time. ‘Flippers are the tip of the spear because they have the best information,’ said Bartlett. Home price appreciation has stalled recently in the coastal Southern California towns where Bartlett invests, causing many larger-scale investors to exit those markets. ‘[Investors] are looking at the prices they have to pay to acquire the asset, and they don’t like what they see,’ Bartlett said.”
From Mortgage Professional America. “The real estate owned (REO) market is the ‘rock bottom path’ to homeownership and residential real estate investment. These are properties on which the occupant could no longer pay the note, a short sale could not be arranged, and nobody was willing to buy it at a foreclosure auction. So, the lender that got stuck with it has withdrawn its liens and reduced the terms and conditions of sale to two short words: ‘as is.’”
“Just like any piece of real estate, however, there is a price at which both a buyer and a seller can shake hands. Today, that price might be heading lower as the number of handshakes starts to rise. Foreclosures are trending downward, but ATTOM Data Solutions reports that that is not the case for repossessions, as REOs are otherwise known.”
“‘There were 49,898 U.S. properties with foreclosure filings in November 2019, down 10% from October 2019 and down six percent from a year ago,’ according to ATTOM, which then points out that REOs are heading the other direction. ‘Lenders repossessed 13,996 U.S. properties in November 2019 (REOs), up four percent from the previous month and up 22% from a year ago.’”
From The M Report. “Federal Housing Finance Agency (FHFA) Director Mark Calabria spoke Thursday at the National Association of Homebuilders International Builders’ Show and said housing reform is key to the growth of the industry. ‘Many of the same warning signs that were ignored in the lead-up to the 2008 financial crisis have been reappearing,’ Calabria said. ‘Not only has risk been rising in recent years, but [Fannie Mae] and [Freddie Mac] have also been undercapitalized for too long.’”
“He noted that the GSE’s own or guarantee $5.5 trillion in both single and multi-family mortgages—nearly half the market. Until recently, they were limited to just $6 billion in allowable capital reserves. The U.S. Department of the Treasury and the FHFA allowed the GSEs to retain capital of up to $45 billion combined. ‘This point is absolutely critical: If Fannie and Freddie fail again, liquidity in the mortgage market will dry up. If families are unable to get a mortgage, they are unable to buy houses,’ Calabria said.”
“While he touted the strength and growth of the economy, he said ‘there are reasons to believe the foundation is vulnerable.’ Calabria said the industry has come a long way since 2008 and the Great Recession but ‘that does not mean that all is well today.’”
From Dean Baker. “Tim Geithner might have left his job as Treasury Secretary seven years ago, but his legacy lives on. The Wall Street Journal reported that the financial firm Morningstar had reached a settlement with the SEC over marketing it had done for firms whose bonds it had rated. SEC rules prohibit rating agencies from doing promotional work for firms whose bonds it rates. This is done to prevent the obvious conflict of interest, that it may give better ratings as part of a promotional effort.”
“This conflict of interest is inherent in the rating process as it is now designed. Rating agencies have an incentive to give high ratings as a way to attract business. This was one of the problems that led to the run-up in the housing bubble, the collapse of which caused the Great Recession. Rating agencies gave investment grade ratings to mortgage backed securities that they knew were filled with bad mortgages because they did not want to lose the business.”
“There is a very simple solution to this problem which was addressed in an amendment to the Dodd-Frank financial reform bill inserted by Senator Al Franken. (I worked with Senator Franken’s staff on this amendment.) The amendment would require issuers to contact the SEC, who would then select the rating agency. This would eliminate the incentive to give good ratings to attract more business. The Franken amendment passed with bipartisan support, getting 65 votes in the Senate.”
“Unfortunately, as he discusses in his autobiography, Tim Geithner arranged to have the amendment killed in the conference committee. Ensuring that the corrupt system we had in the housing bubble years was left in place.”