PHOENIX — Should I stay or should I go? That is the question more Americans are asking as the housing market continues to drag.

In good times, it would have been unthinkable to stop paying the mortgage. But for Derek Figg, a 30-year-old software engineer, it now seems like the best option.

Mr. Figg felt trapped in a home he bought two years ago in the Phoenix suburb of Tempe for $340,000. He still owes about $318,000 but figures the home’s value has dropped to $230,000 or less. After agonizing over the pros and cons, he decided recently to stop making loan payments, even though he can afford them.

Mr. Figg plans to rent an apartment nearby, saving about $700 a month.

Strategic Defaults by State

See data on “strategic defaults” — homeowners who choose to default on their mortgage even though they could still afford to pay it.

• More interactive graphics and photos

A growing number of people in Arizona, California, Florida and Nevada, where home prices have plunged, are considering what is known as a “strategic default,” walking away from their mortgages not out of necessity but because they believe it is in their best financial interests.

A standard mortgage-loan document reads, “I promise to pay” the amount borrowed plus interest, and some people say that promise should remain good even if it is no longer convenient.

George Brenkert, a professor of business ethics at Georgetown University, says borrowers who can pay — and weren’t deceived by the lender about the nature of the loan — have a moral responsibility to keep paying. It would be disastrous for the economy if Americans concluded they were free to walk away from such commitments, he says.

Walking away isn’t risk-free. A foreclosure stays on a consumer’s credit record for seven years and can send a credit score (based on a scale of 300 to 850) plunging by as much as 160 points, according to Fair Isaac Corp., which provides tools for analyzing credit records. A lower credit score means auto and other loans are likely to come with much higher interest rates, and credit card issuers may charge more interest or refuse to issue a card.

In addition, many states give lenders varying degrees of scope to seize bank deposits, cars or other assets of people who default on mortgages.

Even so, in neighborhoods with high concentrations of foreclosures, “it’s going to be really difficult to prevent a cascade effect” as one strategic default emboldens others to take that drastic step, says Paola Sapienza, a professor of finance at Northwestern University. A study by researchers at Northwestern and the University of Chicago found that as many as one in four defaults may be strategic.

Kendrick Brinson/Luceo Images for The Wall Street JournalDerek Figg sits in his Tempe, Ariz., home on Tuesday. He stopped making mortgage payments in September.

Driving this phenomenon is the rising number of households that are deeply “under water,” owing much more than the current value of their homes. First American CoreLogic, a real-estate information company, estimates that 5.3 million U.S. households have mortgage balances at least 20% higher than their homes’ value, and 2.2 million of those households are at least 50% under water. The problem is concentrated in Arizona, California, Florida, Michigan and Nevada.

Josh Cotner, who owns an insurance agency, says his mortgage balance is about $100,000 more than the market value of his home in Gilbert, Ariz. Mr. Cotner could rent a bigger home nearby for $600 a month, far below the $1,655 he now pays on his mortgage, home insurance and property tax. He says he recently stopped making mortgage payments because his lender wouldn’t help him reduce the principal on his loan under a federal program in which he believes he is qualified to participate. Given the sometimes lengthy legal process of foreclosure, he may be able to stay in the home for at least another nine months without making any payments.

Banks warn they may get tough with strategic defaulters by pursuing legal claims on a borrower’s other assets. “We will try to reduce people’s payments if they have a hardship,” says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co. “But we have a financial responsibility to get people to pay what they owe if they can afford it.”

Steven Olson, a loan officer and roof installer in Roseville, Minn., defaulted in 2007 on a plot of land in Florida he had bought as an investment. “I thought I could move on with my life,” he says. But the lender, RBC Bank, a subsidiary of Royal Bank of Canada, sued him, seeking to make him pay more than $400,000 to the bank to cover its losses on the loan. Mr. Olson has hired a Florida lawyer, Roy Oppenheim, to resist the claim. An RBC spokesman declined to comment.

States where lenders generally can pursue such legal claims include Florida and Nevada but not California and Arizona, where laws generally prohibit lenders from pursuing other assets of mortgage borrowers. A new Nevada law will protect many borrowers from these judgments if they bought a home for their own use after Sept. 30, 2009.

Another risk for defaulters is that banks could sell the rights to pursue claims to collection agencies or other firms, which could then dun the borrowers for up to 20 years after a foreclosure. Such threats appear to deter some borrowers. A recent study from the Federal Reserve Bank of Richmond found that under-water borrowers were 20% more likely to default in a state where mortgage lenders can’t pursue claims on other assets than in those where they can.

Brent White, an associate law professor at the University of Arizona who has written about this issue, says homeowners should make the decision on whether to keep paying based on their own interests, “unclouded by unnecessary guilt or shame.” He says borrowers can take a cue from lenders that “ruthlessly seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility.”

But it isn’t just a matter of the borrower’s personal interest, says John Courson, chief executive of the Mortgage Bankers Association, a trade group. Defaults hurt neighborhoods by lowering property values, he says, adding: “What about the message they will send to their family and their kids and their friends?”

In Mesa, another suburb of Phoenix, low prices are helping to draw buyers who may walk away from other homes. Christina Delapp bought a house out of foreclosure in July for $49,000 in cash. She says she will stop paying the mortgage on another home she still owns in Tempe if she can’t sell in the next few months for more than the $312,000 that she owes.

Ms. Delapp, who has been jobless for 18 months, says that the new home is part of her survival strategy. “I feel very fortunate,” she says. “Regardless of what happens to my credit, we’ve managed to put together the best safety plan that I possibly could.”

Mr. Figg says that deciding to default on his loan was “the toughest decision I ever made.” He worried that if he ever loses his job he would be marooned in a home that he couldn’t sell for enough to pay off his loan, limiting his ability to find work in other parts of the country: “I couldn’t move up. I couldn’t move down. I couldn’t move out of the city. It was a very claustrophobic situation.”

By moving to an apartment, Mr. Figg expects to lower his costs by about $700 a month. He plans to put that into his savings account and says he is willing to rent for the next five years or so.

Lenders are guilty of having “manipulated” the housing market during the boom by accepting dubious appraisals, Mr. Figg says. “When I weighed everything,” he says, “I was able to sleep at night.”

By JAMES R. HAGERTY and NICK TIMIRAOS

Write to James R. Hagerty at bob.hagerty@wsj.com and Nick Timiraos at nick.timiraos@wsj.com

(http://online.wsj.com/article/SB126100260600594531.html?mod=djemRealEstate)

Justin M. Bowen

All her possessions gone, Nilly Mauck says she will miss the personal things, photographs and her fathers military records, themost.

Part-time photographer Nilly Mauck, a 31-year-old student at the College of Southern Nevada, had left Las Vegas in mid-December for a snowboarding trip to Utah and returned to stay with a friend for a few days when she received a disturbing phone call. Something was amiss at the Coronado Palms condominium on Badura Avenue that she had owned for the past two years.

She raced to her three-bedroom, two-bathroom ground-floor unit to discover the only things left in her condo were a curtain rod and a satellite dish. She said her couch, bed, dining room set, computer, clothes, pots and pans were gone. So, too, were her financial and medical documents, immigration papers from the Philippines, her fathers military records and photographs of her family, she said.

A crew that clears out foreclosed properties had been sent into Maucks condo by the Brenkus Team, a Henderson real estate group. Brenkus has accepted responsibility, saying it was just a mix-up. The foreclosure was a neighboring condo unit.

Mauck learned most of her furnishings were hauled to the dump in Sloan. She said she still has no idea what happened to her papers and photos.

Brenkus initially offered Mauck $5,000 in compensation, which she viewed as adding insult to injury.

They came into my home and violated my dignity, Mauck angrily said Wednesday while seated on the floor of her barren living room.

After she discovered the condo had been emptied last month, Mauck contacted Metro Police to file a report that her home had been broken into and everything she owned had been stolen.

Metro spokeswoman Barbara Morgan said she was unaware of any similar cases, but Mauck figures if theres not more yet, there may be soon enough.

This can happen to anybody because of all the foreclosures out there, she said.

Mauck said the removal of her property was actually Brenkus second mistake. She said the first occurred earlier in December when the company entered her unit without permission and changed the locks. When Mauck called to complain, Brenkus gave her a new set of keys, she said.

It all appears to add up to a solid lawsuit for Mauck, and she has a law that took effect Oct. 1 that will work in her favor.

Under the states old law for a case like hers, aggrieved homeowners could collect triple the amount of damages only for the real estate for the loss of the property if it was sold out from under the real owner or for loss of use of the property if the real owner was locked out, or if the building itself was damaged, for example.

The change allows for triple damages for personal property. So Mauck could be awarded three times the value of what was removed from her condo.

The laws intent was to make sure people in power banks and real estate companies could not treat Nevadans poorly without consequences. This law sends a message to people who manage real estate that they must be careful before they take over property, said Reno attorney Bill Bradley, who advocated for passage of the law as a volunteer lobbyist with the Nevada Justice Association.

The lawyer representing Brenkus in Maucks case is Albert Marquis. Ironically, he was the attorney who represented a Las Vegas couple in a high-profile foreclosure mix-up a few years ago the one that spurred the Nevada Legislature and Gov. Jim Gibbons to approve the new law.

The couple, Gerald and Katrina Thitchener, were mistakenly placed on a foreclosure list in 2002 and were out of town when their residence was cleaned out. They won a $3.1 million judgment against Countrywide Home Loans, but that award was reduced by the Supreme Court to $2.2 million. The high court disallowed the tripling of damages for the loss of personal property.

Marquis said what happened to Mauck was the result of an honest mistake. He has recommended they avoid litigation by reaching a settlement through a court-appointed arbitrator.

There is no question that Ms. Mauck is entitled to fair compensation, Marquis said. But we think that her demand for $200,000 is greatly exaggerated.

Brenkus is offering her $20,000. The company maintains it has photos that show the condo had been largely cleared out before its crew went in. Marquis said the Brenkus photos show signs the condo had been abandoned. The electricity had even been turned off, Marquis said.

Mauck has photos that she took of her condo last year showing it with more furnishings. She said that although she had fallen behind on her mortgage and had agreed with her bank to list the property for a short sale, she had no intention of moving out at the time her belongings were taken.

I have no time for this drama, Mauck said in her empty condo Wednesday. I just want my things back. For all I know I could have been scammed.

But what hurts the most, she said, is all the memories that were taken, the memories that were attached to her photographs and her fathers military records, for example.

She wonders how to put a price on those memories.

By Steve Kanigher (contact)

Saturday, Jan. 2, 2010 | 2 a.m.

(http://www.lasvegassun.com/news/2010/jan/02/they-forclosed-wrong-house/)

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis, said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

Then the carpenters can go back to work, Mr. Katari said. The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isnt going to recover.

The Treasury Department publicly maintains that its program is on track. The program is meeting its intended goal of providing immediate relief to homeowners across the country, a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone, Ms. Reilly said by e-mail. This has always been a multi-pronged effort.

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were lost through foreclosures, short sales or deeds in lieu of foreclosure, according to Moodys Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this years number will swell to 2.4 million.

I dont think theres any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis, said Mark Zandi, chief economist at Moodys Economy.com. For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater is a far more important predictor of defaults than unemployment.

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

We want to overwhelm this problem, he said. If we do go back into recession, it will be very difficult to get out.

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

Thats overly optimistic at this stage, said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. Theres a great deal of frustration and disappointment.

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.

The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.

Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month, Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. That is a meaningful amount of support.

But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.

In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.

In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.

Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.

Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)

I cried, she said. I was hysterical. I bawled my eyes out.

Later that week came another letter from Chase: Congratulations on qualifying for a Making Home Affordable loan modification!

When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.

She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first months rent on an apartment.

Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.

I could have just walked away, said Ms. Smith. If they had said, We cant work with you, Id have said: What are my options? Short sale? None of this would have happened. God knows, I never would have wanted to go through this. Id still be in grad school. I would not have paid all that money to them. I could have saved that money.

A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smiths house and sold it at the same time it was extending the loan modification offer.

There was a systems glitch, Ms. Holevas said. We are sorry that an error happened. Were trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.

Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.

In a telephone conference with reporters, Jack Schakett, Bank of Americas credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

The biggest source of concern remains the growing numbers of underwater borrowers now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

This is a conscious choice we made, not to start with principal reduction, Mr. Geithner told the Congressional Oversight Panel. We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.

Mr. Geithners explanation did not satisfy the panels chairwoman, Elizabeth Warren.

Are we creating a program in which were talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road? she asked, raising the prospect that well be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?

A good question, Mr. Geithner conceded.

What to do about it, he said. Thats a hard thing.

Peter S Goodman 1/2/10
(http://www.theledger.com/article/20100102/ZNYT01/1023014?Title=U-S-Loan-Effort-Is-Seen-as-Adding-to-Housing-Woes&tc=ar)

This year could be worse with thousands of job cuts coming at Kennedy Space Center as the shuttle program ends, leaving many workers without a way to pay their mortgages.
In all, Florida has the third highest mortgage delinquency rate in the nation, the worst foreclosure inventory and the most foreclosure starts with 456,000 pending cases.
This week, the Florida Supreme Court ordered local judges to adopt a mediation program to reduce the foreclosures jamming the states courts. Its a welcome move that can help some people stay in their homes.
But experience locally shows the impact may be limited.
The program has been in place since April in Brevard. But in its first five months of operation, only 161 cases were mediated a drop in the bucket considering November alone saw nearly 700 foreclosure filings here.
Meanwhile, the Obama administrations foreclosure prevention plan is proving to be a failure and must be adjusted.
Under the program, the government provides cash incentives to mortgage services that reduce monthly payments for homeowners in trouble. But the response of lending institutions has been a disaster.
Less than 2,000 homeowners ended up with a permanent fix as of Sept. 1, the most recent number available, according to a congressional panel monitoring the effort. Thats less than 2 percent of those who got a temporary modification under the plan.
The reason can be summed up in one word greed.
The New York Times reported in July that mortgage companies dont want to give strapped homeowners a break because they collect lucrative fees on delinquent loans, as well as fees for insurance, appraisals, title searches and legal services. That improves their troubled bottom lines while unconscionably forcing more Americans into the streets.
The Treasury Departments response has been weak. Its now trying to shame major lenders into action, publicly identifying Bank of America, Citigroup and Wells Fargo as slackers and pressuring them and others to become far more aggressive.
The fact those banks were major recipients of taxpayer bailouts and are dragging their feet to solve the mortgage crisis they created is an outrage and proof the administration should get tougher.
However, there is little indication the White House is considering bold new steps, leaving sinking homeowners at the mercy of lenders and reaching for lifelines like mediation that cant possibly rescue all who need help.
Unless that situation changes, we fear foreclosures will continue to prevent a strong economic recovery in Brevard, Florida and nationwide.

(http://www.floridatoday.com/article/20100102/BREAKINGNEWS/301010004/1006/NEWS01/Our+views++More+must+be+done+to+stem+foreclosures)

It’s especially good news when the city is slowing down on developing commercial buildings. Buyers have the opportunity to get a spot in San Clemente at a low price because of a rise in short sales here before prices shoot up when supply comes back in line with demand, said Jay Dixon of San Clemente’s Beach Cities Real Estate.

And on top of that, the low prices may trickle down to new tenants, Dixon said. When investors can typically swoop up commercial property at such low prices, they pass the savings onto their tenants, keeping leases at about 3 percent to 5 percent below typical San Clemente lease prices.

“Eventually, the market is going to come down starting in the first quarter of 2010,” Dixon said. “It’s basically supply and demand. When supply is higher then the price is lower.”

The supply has been increasing lately because small businesses in San Clemente have been struggling due to the economy. So much so that some business owners that don’t need a storefront have closed their doors and are working from home, Dixon said. The health of local businesses is a driving factor when it comes to commercial real estate, just like the health of personal finances drives home sales.

“There’s a lot of inventory on the market. There’s a lot of unemployment in California. A lot of companies are still downsizing and consolidating footage to cut costs,” he said.

Residents have been complaining about the slew of empty storefronts in downtown San Clemente at city council meetings for some time. That’s because the slowing of the market really began about a year and a half ago, but in 2010, it may nose dive, Dixon said.

The jump in Talega short sales, which are when the sale proceeds fall short of the balance owed on the property’s loan, began about six months ago and will most likely continue in the first quarter of 2010, Dixon said. Short sales won’t be coming to downtown San Clemente anytime soon. However, the empty storefronts will be sticking around as long as retail sales stay stagnant, even if building owners bring down their leases to attract tenants, Dixon said.

“If you can get your foot in the door, it could be a good investment,” Dixon said. “There’s not going to be another Del Mar street put in anytime soon.”

(http://www.ocregister.com/articles/dixon-226549-san-clemente.html)

Victims of alleged predatory lenders voicing their anguish….

“So they way overcharged me 75-thousand dollars for the house….”

“Our home is still torn up. My father is paying a 33-thousand dollar loan….”

“And I was taken to the trash house by these people….”

However, for hundreds of innocent victims in Memphis who’ve suffered at the hands of the malicious and unscrupulous activities, perpetuated by those in the predatory lending industry, there could be reason for hope. Your cries have finally been heard by Memphis and Shelby County government officials who’ve decided to take legal action against at least one of the allegedly greatest offenders of the practice in the country.

Attorney John Relman, who’ll serve as chief counsel in the lawsuit, charges, “They deliberately steered people into subprime loans that they knew qualified for prime loans that is a good loan, because they could make more money. That simple!”

In announcing, on Wednesday, the filing of a joint federal lawsuit under the Fair Housing Act against Wells Fargo, Memphis and Shelby County government heads, AC Wharton and interim Shelby County Mayor Joe Ford, explained the case will center around the alleged deliberate “targeting” of Bluff City minority communities as clients.

Relman, currently involved in a similar suit in Baltimore, charged the company’s use of an alleged systematic attempt to steer African Americans toward loans, with excessive interest rates and upfront fees, was deliberately intended to force them toward increasing their loan amounts…resulting in the highest rate of foreclosures in the country.

Relman pointed on a a series of charts, “These blue dots are all low cost loans. They’re all in the white community. You don’t see them in the African American community. When we see a foreclosure rate that is eight times greater in a minority community, then we know something is terribly wrong.”

Even more infuriating was the fact much of the information, provided in the suit by two former employees of Wells Fargo, alleges the company’s subterfuge appears to make the operation a “science of deception”…even when it came to marketing materials that were available on a special website.

Relman notes, “Among the languages that in this drop down menu that you could select in ordering marketing materials, one of the languages you can select is African American.”

Though Relman could put no dollar sign on damages the suit might seek for the city and county, Memphis Mayor AC Wharton, says filing the suit is the first round of what figures to be a full fledged fight against predatory lenders victimizing the poor and elderly in Memphis.

Mayor Wharton concluded with this warning for greed-motivated lending companies, “If you come in here? You better come in here right. Cause there’s somebody looking at you…and I think that’s the benefit right there.”

Les Smith – 12/30/09

(http://www.myfoxmemphis.com/dpp/news/tennessee/123009_city-and-county-join-lending-lawsuit)

The order, written by Chief Justice Peggy Quince, follows a recommendation made in the summer by the Task Force on Residential Mortgage Foreclosure Cases, convened by the high court.

The court said Florida has the third-highest mortgage delinquency rate in the nation, with an estimated 456,000 pending foreclosure cases statewide. Foreclosure case filings in the Sunshine State’s trial courts numbered nearly 369,000 in December 2008.

At the beginning of the last quarter of 2009, foreclosure filings statewide totaled more than 296,000.

The order allows borrowers to opt out of the program in certain cases. Mediation also can be waived if it is agreed to by the lender and borrower. Only homesteaded properties are covered under the order.

Struggling homebuyers who take advantage of the program can do so at no cost.

“Requiring borrowers to pay a portion of mediation up front would operate as a barrier to this court’s goal of efficiently managing these cases to avoid waste of judicial and party resources,” Quince’s order said.

Only mediators certified by the Florida Supreme Court will be referred cases.

“It is crucial that these non-profit organizations be independent of the judicial branch, capable of sustained operation without fiscal impact to the courts, politically and professionally neutral, and have a demonstrated ability to efficiently manage the extremely high volume of foreclosure actions in the circuit or circuits in which services are to be provided,” the order said.

The administrative order is No. AOSC09-54.

Chris Rizo 12/29/09
From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.
(http://www.legalnewsline.com/news/224764-florida-sc-orders-mediation-in-home-foreclosure-cases)

Steve Thomas of Altera Real Estate and author of a widely watched biweekly report on Orange County home inventories

Eyeball: Did Orange County housing have a bottom in 2009 full or partial?

Steve: It ultimately depends upon the price range and area. The inventory has dropped appreciably in the lower ranges. That has been matched with a surge in demand. Historically low interest rates, a dramatic increase in home affordability, a resurgence of first time home buyer and investor activity, and the $8,000 tax credit, have contributed to much stronger demand. Multiple offers are now the norm in the lower ranges. Buyers often have to write offers on several different homes until they are successful. These are the ingredients to a bottom in the lower ranges. But, demand has not been as strong in the upper ranges. Part of the problem is financing is much harder to obtain. Also, the lower range dropped sharp and fast due to distressed home sales. There have been fewer distressed home sales in the upper ranges, so the decline has not been as steep. The bottom in the upper ranges is coming. Areas with a larger concentration of newer homes, like Ladera Ranch, have already experienced a major drop in the upper ranges as well. These areas have tremendous demand and an expected market time of a little over one month.

[ Check Eyeball '09 | '08 | '07 ]

Eyeball: Driving forces in local housing good or bad in 2010?

Steve: The supply of homes, unemployment and distressed sales will have the largest influence on the housing market. We are starting 2010 with the lowest inventory in four years. This bodes well for the market. With lower inventory and stronger demand due to affordability and lower rates, prices will remain stable for almost all homes priced below $1 million. It will also continue to be true that the lower the price range, the hotter the market. Depending upon the location and competition, some areas will even see slight appreciation. Distressed sales will keep a lid on any significant appreciation. Unemployment is the other major influence on the market. If the Orange County unemployment rate does not stabilize, job related distressed sales will have a noticeable negative impact on housing by increasing the inventory. As unemployment sinks, more jobs are created and the need for housing improves. Unemployment will play an important variable in next years market. Finally, distressed sales will continue to play a significant role in the market. Currently, both short sales and foreclosures have a sales to list price ratio of 104%, illustrating just how strong demand is for these homes. Distressed sales will continue to entice many to purchase, but with so much demand, buyers cannot expect incredible deals. They will be paying very close to market value.

Eyeball: Predict 2010 gain in DataQuicks OC median home-sale price

Steve: Up 5%. I must confess that I do not like the median sales price as a gauge for value. As I mentioned earlier, the lower and upper end are two different markets. There may be more upper end sales due to next years depreciation in the upper ranges. This will skew the median sales price higher.

Eyeball: A year from now, what surprise might we be talking about?

Steve: The increase in number of completed short sales, surpassing the number of completed foreclosures, will be the surprise of 2010. Over the past several months, there have been more closed short sales than foreclosures. That fact does not make it a true surprise. Yet, it will be a surprise since so many are talking about the shadow inventory of pent up foreclosures. The Obama administration, through the U.S. Treasury, just released the Home Affordable Foreclosure Alternative Program (HAFA), providing financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu to avoid a foreclosure on an eligible loan. There are currently over 7,100 short sales that are either on the active market or are pending sales. 5,000, or 71%, are pending sales waiting for lender approval of the sale. In 2009, the government pushed lenders to modify loans. There has not been tremendous success in modifications thus far. In 2010, if a loan cannot be modified, the government wants lenders to utilize short sales. They want foreclosures to be the very last resort. In response, lenders are already gearing up to handle the volume of short sales. As a result, short sales will surge in comparison to foreclosures.

Eyeball: Thinking back over this decade, list lessons learned from the roller coaster ride?

Steve: Dont get caught up in herd mentality. Everybody seemed to ignore the fundamentals of buying a home. It is better to be conservative and be sure that not only can a borrower afford the initial loan payment; they should be able to afford any future payment changes as well. It is best to apply the worst case scenario in any change. Another valuable lesson learned is that assets, including homes, can over appreciate beyond reason. We all got caught up in unsustainable rapid appreciation and were worried that if we did not buy now, it would be too late. Homes do appreciate, but have followed a more linear path up since World War II. Appreciation was well above the line and has since corrected.

December 29th, 2009, 12:00 pm by Jon Lansner

(http://lansner.freedomblogging.com/2009/12/29/short-sales-eyed-as-home-market-force/48695/)

The delay was because the house they were buying was on the market as a short sale, which has become a larger-than-normal segment of the Hampton Roads real estate market.

“There’s nothing short about it. They should’ve called it a long sale,” Janet Dunn said with a chuckle.

Distressed sales, such as short sales, made up 17.5 percent of the November sales in Hampton Roads, according to the Real Estate Information Network. That’s down from October’s high of 19.1 percent for 2009 but more than three times the 5.3 percent for the same month last year.

A short sale occurs when a home sells for less than the amount owed on the mortgage and in closing costs. It’s often used to avoid foreclosure proceedings, which have escalated in recent years in Hampton Roads and across the nation since the collapse of the real estate market and the ensuing recession. People are defaulting on loans because of job losses, falling home values and adjustable-rate mortgages that have reset, as well as other hardships such as medical bills and divorce.

Short sales can take longer than the normal closing time, but not all of them take five months. In this case, there were two mortgages on the home, which meant negotiating with two lenders for how much they’d accept, said Sheila Dann, an Abbitt Realty real estate agent who worked with the Dunns.

“Patience is the key. If you must be in some place in a certain time frame, we really can not guarantee it,” Dann said. “We don’t know what pitfalls are ahead.”

The problem, Dann said, is that a short sale involves a lot of phone calls, a lot of getting transferred, a lot of paperwork and a lot of paperwork that’s not in the right file.

The Treasury Department has reacted by adopting new guidelines, which go into effect in April, to smooth the often-frustrating process.

Terri Nelson, a commercial workout officer in Old Point National Bank’s Phoebus office, said the bank has seen an increase in short sales.

“A few, at best, is all we’ve seen,” Nelson said. “That’s compared to years where we’ve seen none.”

The Hampton-based community bank looks at cases individually. Sometimes, the seller might still be on the hook for the shortfall. But there are situations in which “taking that amount and walking away is the best thing for everybody,” she said. Banks aren’t in the real estate-holding business.

“It behooves everybody to try to work things out,” Nelson said.

“Go in with a prepared financial statement. Coming in and saying, ‘I’ve got a problem,’ is the first step,” she said. “Use the bank or the institution as a partner and really be in it together. Then it helps everyone come out of it better.”

The Dunns were living in a 1,600-square-foot Newport News town house, and it was getting a little cramped for mom, dad, 16-year-old son Josiah and dog Rascal.

“When you have a teenager, you need a little more space,” Janet Dunn said.

The family was living in Middlesex County, in a home they built on nine acres, when they decided to move to Montana. That sale fell through, but they had already sold their Middlesex County home. So they moved into the town house and planned to stay there two years.

That was nine years ago.

After they moved in, the real estate boom hit, pricing them out of the market.

“We tried to look several times, but we just couldn’t afford anything that we wanted,” Janet Dunn said. “So we waited. When the real estate market turned normal again, we started looking.”

In fall of 2008, they found a 2,100-square-foot, two-level home in a quiet subdivision. It has upstairs and downstairs bedrooms and a room downstairs that Janet Dunn calls the “man room” set up with a TV and gaming system “where the teenage boys go and hang out,” she said.

“It’s a really cool setup,” she continued. “With the teenage boy, he got the downstairs, and we got the upstairs. It happened to be the right home layout for us.”

The seller accepted their $229,000 offer, but it took a while for the banks to come to terms with it. The property is assessed for $251,100, according to city records. The banks needed 90 percent of the appraised value before they would accept the Dunns’ offer.

When closing day finally came, they took a picture at the closing table, their real estate agent said.

“They were positive and wonderful people throughout the entire time,” Dann said.

Janet Dunn admitted they came close to giving up. When asked whether she would do it all over again, there was a great big pause, which made her laugh.

“For the right house, yes,” she finally said. “If you think, ‘Well, I might like this house,’ no.”
What is a short sale?
A short sale occurs when a home sells for less than the amount owed on the mortgage and closing costs.
How often do short sales happen here?
Distressed sales, such as short sales, made up 17.5 percent of the November sales in Hampton Roads. That’s down from October’s high of 19.1 percent for 2009 but more than three times the 5.3 percent for the same month last year.

Source: Real Estate Information Network

By Veronica Chufo

247-4741

10:24 p.m. EST, December 28, 2009
(http://www.dailypress.com/news/dp-local_short-sale_1229dec29,0,1623679,full.story)

Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

“The rich aren’t as rich as they used to be,” said Alex Rodriguez, a Miami real estate agent with JM Group USA Inc., whose listings include a $2.9-million property marketed as a short sale because the price is less than the mortgage. “People have reached the point where they can’t afford the carrying expenses of a $2-million home.”

Payments on about 12% of mortgages exceeding $1 million were 90 days or more overdue in September, compared with 6.3% on loans less than $250,000 and 7.4% on all U.S. mortgages, according to data from First American CoreLogic Inc., a Santa Ana, Calif.-based research firm. The rate for mortgages above $1 million was 4.7% a year earlier.
“You are just starting to see the tip of the iceberg with luxury short sales,” said Adrian Heyman, owner of Property Advisors, a real estate broker in Scottsdale, Ariz. “A lot of wealthy people are upside-down in their mortgages, and they just can’t afford the second or third vacation home anymore.”

Steve Holzknecht is an one such borrower who has turned to a short sale to exit a loan that now is larger than the market value of the house. In such a transaction, the lender agrees to accept less than a 100% payoff on a mortgage to expedite the property’s sale.

Holzknecht, 53, cut the asking price last month for his 7,280-square-foot home in Kirkland, Wash., by $550,000 to $1.25 million, lower than the balances of his two mortgages. Holzknecht, the former owner of Four Suns Inc., a Seattle luxury homebuilder that went out of business two months ago, built the Craftsman-style home in 2000. He declined to identify his lenders or the amount he owes.

“It’s not uncommon to see this situation on the high end of the market — homes selling for less than it would cost to build them,” said Holzknecht’s agent, Joe Flick of Roanoke Group in Seattle. The property came on the market eight months ago priced at $1.85 million, he said.

Porter Michael Peterson, a 33-year-old linebacker for the National Football League’s Atlanta Falcons, bought a mansion near Tampa, Fla., four months ago for $1.1 million — almost half the amount of the mortgage taken out by the sellers three years earlier, according to real estate records. Reggie Roberts, a spokesman for the Falcons, didn’t return a call seeking comment.

Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier, according to data from the Office of Thrift Supervision. The bank regulator doesn’t break out short sales by size of mortgage.

There are 114,000 home loans of more than $1 million, according to First American. About a quarter of all mortgaged homes in the United States have loan balances bigger than their current value, known as being upside-down or underwater, the data company said.

The Dow Jones Industrial Average lost more than half its value as it tumbled to a 12-year low in March. The number of U.S. households with a net worth of more than $1 million, not counting primary residences, fell to a five-year low of 6.7 million last year from a record 9.2 million in 2007, according to Spectrem Group, a Chicago-based consulting firm.

The financial-services industry was among the hardest hit by the recession. While Goldman Sachs Group Inc. set aside a record $16.7 billion in the first nine months of the year for employee bonuses, some Wall Street executives will see pay cuts, according to Johnson Associates Inc., a New York-based compensation-consulting firm.

Year-end bonuses for people at hedge funds, asset-management firms and insurance companies probably will drop an average 20%, the firm said.

“There’s a lot of distress,” said Tracy McLaughlin, co-owner of Morgan Lane Real Estate in Ross, Calif., north of San Francisco. “You have hedge-fund guys whose funds evaporated and a year-and-a-half later they’re still not working.”

The entry-level segment of the housing market was aided this year by an $8,000 first-time buyers tax credit that pushed resales to a 6.1 million annual pace in October, the highest since February 2007, the National Association of Realtors said in a Nov. 23 report.

President Barack Obama signed a bill last month extending the program into next year. The new version keeps the first-time buyer benefit and makes a smaller credit available to some move-up buyers. It can’t be used for homes priced above $800,000.

The Federal Reserve set out in January to lower fixed mortgage rates by purchasing $1.25 trillion of bonds backed by home loans. The 30-year fixed rate for so-called conforming loans that can be bought by Fannie Mae and Freddie Mac dropped to an all-time low of 4.71% in the week ended Dec. 4, according to McLean, Va.-based Freddie Mac, the second-largest U.S. mortgage financier. The rate rose to 4.94% in the week ended Dec. 17.
Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate and some are turning to so-called short sales to unload properties as stock-market losses and pay cuts squeeze wealthy borrowers.

The Fed purchases haven’t affected the high end of the market because they exclude so-called jumbo loans. Mortgages above the $729,750 limit set by Congress for the nation’s highest-priced markets cost almost 1 percentage point more than conforming loans, according to Keith Gumbinger, vice president at HSH Associates, a mortgage-data company in Pompton Plains, N.J. That’s quadruple the historic spread.

“There is no refinance market for you if you are underwater and outside the Fannie and Freddie framework,” Gumbinger said. “High-end neighborhoods are all suffering from the same problems of diminished income at a time when there is little equity to work with.”

Masoud Bokaie, co-founder of engineering firm BORM Associates Inc. in Irvine, Calif., owes $2.6 million on a 3,664-square-foot house with marble floors and granite counters about 10 miles away in Newport Beach. He’s waiting to hear whether lenders Luther Burbank Savings and Wells Fargo & Co. will approve a short sale.

He received an offer last month “close to” the loan balances, said Shirley Cameron, his agent at Coldwell Banker Platinum Properties in Irvine, who declined to specify how much. Bokaie said he doesn’t want to pay $7,000 a month in net costs, including the property’s mortgages and taxes, when real estate values in the area continue to tumble.

“What’s the point when the market is going in the other direction?” Bokaie said in an interview.

The U.S. median home price was $173,100 in October, 25% lower than its July 2006 peak, according to the National Association of Realtors. Prices fell 7.1% from a year earlier, the slowest pace of the year.

“The reason the low end stopped falling is because the government stepped in with affordable loans,” said Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm that runs the world’s largest bond fund. “There is no political will to bail out a million-dollar house.”

Luxury home prices probably will drop another 5% before reaching a bottom in September 2010, according to Sam Khater, senior economist at First American.

Those declines may lead to losses on jumbo mortgages that dwarf the “haircut,” or discount to full value, that banks take on short sales or foreclosures of moderately priced homes, said Alex Rodriguez, the agent with JM Group in Miami.

“When the bank takes a loss on a $3-million property, it’s a lot bigger than the loss on a home with a $150,000 mortgage,” Rodriguez said.

BY KATHLEEN M. HOWLEY and DAN LEVY
BLOOMBERG NEWS – 12/27/09

(http://www.freep.com/apps/pbcs.dll/article?AID=/20091227/BUSINESS04/912270361/1017/Business/High-end-borrowers-turning-to-short-sales&template=fullarticle)