Housing mess cure keys on liquidity

By Tom Kelly

Tom DiMercurio has spent nearly 40 years analyzing, managing and selling foreclosed properties.

He is the brains behind BuyBankHomes.com, a Web site that provides foreclosure information to interested parties such as consumers, investors and real estate agents. When a bank finds itself with a ton of real-estate-owned inventory, he’s often called on to propose a liquidation strategy.

Now, DiMercurio is spending his own money in offering a solution to a national foreclosure problem that seems to be getting larger every day. He’s made two trips to the nation’s capital trying to get in front of lawmakers with an idea that he believes could stabilize neighborhoods torn apart by empty homes no longer properly maintained.

He’s written Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, about a meeting to discuss a plan similar to the successful one he devised for the devastated Houston market of 1986-88. He would welcome the chance to chat with James Lockhart, the chief executive and chairman of the Oversight Board of the Federal Housing Finance Agency that oversees Fannie Mae and Freddie Mac, about a fix-and-finance idea that would help eliminate the negative stigma of a foreclosed home.

Here’s the core of the pitch: If Fannie and Freddie (who collectively have more than 100,000 foreclosed homes) allocated $5 billion for rehabilitation of those properties and $20 billion for financing, they could self-finance all of their newly refurbished inventory with low down payments, reduced closing costs, quick turn-around times while removing 100,000 assets without affecting liquidity — allowing that cash for other transactions. Fannie and Freddie would then have a $25 billion book of new loans from borrowers who value the homes.

“My view is this is largely a liquidity-neutral play for Fannie and Freddie,” DiMercurio said. “The $25 billion is non-earning now and the removal of one-eighth of the growing foreclosure inventory would help to stabilize many neighborhoods. It also assists in the very mission of Fannie and Freddie.”

Special financing makes sense, especially now, given the continuing liquidity problems and credit tightening restrictions making the sale of foreclosed and conventional homes increasingly difficult.

How did the nation get into such a predicament?

A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by developers, a flip-and-run mindset for speculators and unrealistic expectations for first-time homebuyers blinded by the low payments of a short-term loan. While the equity gained by rising home prices can cover many ill-conceived loan mistakes, a flat or sinking market only compounds problems for lenders and owners.

DiMercurio managed Fannie Mae’s Houston operation from 1986-88 when one-third of all Fannie Mae’s national foreclosed inventory was situated in the five counties surrounding the nation’s fourth largest city. The Houston experience, in the sheer volume of localized foreclosures and the severity of the absolute value decline from peak to valley, rivaled the worst financial performance in U.S. history.

During the Houston slump, brought on by a declining oil industry, the resale market was challenged by a widely held public view that foreclosed homes were surely the result of a building defect or other shortcoming that made them less desirable than a regular (nonforeclosure) residential property. DiMercurio’s team, working with Fannie Mae in Washington, D.C., conceived a plan to brand “Fannie Mae as the Best Housekeeper in Houston” celebrating the like-new condition of restored Fannie Mae-acquired properties.

Offered with below-market, fixed-interest rates, a maximum of a 97 percent loan-to-value for owner-occupants, reduced closing costs, 30-day closings and refurbishment to a like-new condition, Fannie Mae homes were extremely popular in the Houston residential real estate market for several years.

“Rehabbed homes and self-financing discourage low-price sales to investors who have to make a profit,” DiMercurio said. “They also discourage auctions which often set the bottom value. And, low down payment loans are not counterintuitive. Borrowers pay when they perceive value … that’s why many are not paying now.”

To accelerate the rehabilitation process, Fannie Mae’s Houston office operated like a consolidated real estate disposition and construction company. A contractor/builder partner bought carpet, paint and roofing material by the container load directly from the warehouse, reducing the costs of refurbishing the foreclosed homes.

In order to rekindle the home-buying process, we must find a way to show buyers what they pay for today will not be less tomorrow. More owner-buyers mean stronger neighborhoods.

Tom Kelly’s book “Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border” is available in retail stores and at tomkelly.com.
© 2009The Daily Herald Co., Everett, WA

The Committee for Stabilizing America’s Neighborhoods

PAC

Re: The Committee for Stabilizing America’s Neighborhoods

The Board of Directors of Paradigm Default Services and The Mercury Alliance, the two companies which are operated by my partners, Ruben and Tiana Estrada and I, have approved an initial expenditure of $5,000 to initiate and form, a new political action committee (PAC) to offer guidance to lawmakers and the new administration about stabilizing America’s neighborhoods. “The Committee for Stabilizing America’s Neighborhoods” is a broad based coalition of Realtors, Realtists and others interested and connected to the practice of residential real estate and those involved in the housing business. This PAC has been established and registered in Washington. The Committee wants to share what we know and think of how the assaults on the viability of our neighborhoods might best be mitigated. Of course, the Committee’s purview will include suggestions as to the implementation of the “bail out”, suggestions on how the administration of a new RTC-like infrastructure (TARP) might better manage the disposition of assets from failed federally-guaranteed institutions and our belief that Realtors stand to assist their neighborhoods as the best disposition avenue.

Additionally, the Committee will recommend liquidation channels which are supportive of neighborhoods as opposed to auction sales at fire-sale pricing which serve only to exacerbate losses and further downward price spirals. Throughout the history of our country, America’s developing neighborhoods have been well supported and represented by its’ licensed real estate professionals who work and live in these very neighborhoods.

The Committee intends to leverage relationships to force corporate absentee property owners to fulfill tax, assessment and property maintenance responsibilities. The Committee supports education to ensure that loss mitigation alternatives are offered and understood in the same manner, and to the same degree, that RESPA has attempted to inform homebuyers of salient loan details.

We expect to be loud and pro-active in recommending that Federal disposition programs do nothing further to undermine fragile communities and neighborhoods under stress. The Committee hopes to propose and gain support from lenders of a Pledge to Stabilize American Neighborhoods thereby ensuring that the necessary standard of care in the maintenance of bank-owned assets helps to stabilize our neighborhoods as the stakeholder and neighbor the bank or servicer has now become.

The Committee believes that Realtors should play a prominent role in the disposition of assets acquired by the Government. We want to see the government committed to allowing open access for all experienced real estate service providers and not just the well-connected government contractor lobby because they are experts at government contracting and bidding.

No doubt there may, and will likely be, other initiatives and concerns added to our agenda over time. Our PAC is not a one election platform.

If you believe as we that the time is clearly here for us to stand and be counted, please pass this invitation letter to fellow associates who may be interested in having a small part in working toward improving the future of America’s neighborhoods.

Today is the first day of our initiative to stabilize America and its neighborhoods! And we are now collecting contributions for this use.

Note: On Wednesday, November 5, 2008, Ruben and I and L. J. Jennings of the NAREB have a meeting with the Honorable James Lockhart III, Director of the Federal Housing Finance Agency, Office of the Federal Housing Enterprise Oversight (OFHEO) who supervises the activities of both FannieMae and FreddieMac. Additionally, we have requested meetings with the Director of the FDIC, the presidents of FannieMae and FreddieMac, several congressmen and senators.

Tom DiMercurio, Chairman
Ruben Estrada, Treasurer

Contributions can be made payable to:

The Committee for Stabilizing America’s Neighborhoods

c/o Ruben Estrada, Treasurer

303 E. 17th Street, Suite 108

Denver, Colorado 80203

The phone is shared with Paradigm Default Services, LLC: 303-551-8980.

A website will be shortly unveiled.

Posted:  10/30/2008.

$700 Billion Bill Passed

Phoenix out of the Ashes

Minutes ago the gavel fell in Washington indicating that the $700 Billion Bail Out Bill had passed.  Earlier this week the bill failed to pass based on the lack of detail in the bill itself.  Only days later the bill was detailed enough for the Congress to see it as the bill the United States needed to pass in order to rescue our economy.

After one of the worst job market statistics was announced and spending was down, this bill represents the possibility of hope on the horizon.  People need job security.  Real estate needs to sell.  People need to be given options to prevent foreclosure.  Let us all pray that this bill was the right decision in order to move our great country in the right direction.

Just like any tragic moment in history, Americans prove their tenacity, cohesiveness, and compassion.  Thesee are the traits that grew our nation to the most powerful nation in the world.  And, these are the traits that will rise us out of the ashes yet again.

Wachovia to be Bought by Wells Fargo

Dick Kovacevich, chairman of Wells Fargo

Wachovia agreed to sell itself to Wells Fargo in a $15.4 billion takeover, scrapping a federally backed deal Citigroup put together. Citigroup is considering suing the banks and may sweeten its bid.

A federal takeover of Wachovia which included Citigroup, Inc. was undone Friday as Wells Fargo & Co. slid in to make a powerful offer.  The upsides of this arrangement versus the Citigroup arrangement are:

 

• Wachovia remains whole
• A higher price is being offered (less debt to write off)
• US taxpayers aren’t hit with the damage

Citigroup is not taking this laying down, however.  Those familiar with Citigroup say that the company has been pumping money into Wachovia already and intend to sweeten the deal later this week to secure it’s deal.

Bailout Plan Rejected – Nation is Stunned

 

Wall Street

After what seemed to be the final meeting to resolve issues regarding the nation’s $700 billion bailout, the entire global population stares stunned at headlines everywhere reading, “Bailout Plan Rejected”, or “Markets Plunge”, or Forcing New Scramble to Solve Crisis“.

 

As the Dow dropped to 777.68 points yesterday to set a a new record drop on record, Wachovia gets rescued by Citigroup, Inc. (now being called “Citichovia” – a little tongue-in-cheek reference resemling such Hollywood names as “Brangelina“), and The House of Representatives “defeate the White House’s historic financial-rescue package”, American’s and nations around the world wonder if we have yet to see the bottom of this market.

 

As of today here is the ranking of America’s largest banks:

1. Bank of America (B of A combined with Merrill Lynch)
2. J.P. Morgan Chase (Chase combined with Washington Mutual)
3. Citigroup (Citi combined with Wachovia)

The next 4 largest banks are (in order):  Wells Fargo, SunTrust Banks, U.S. Bancorp, and National City.

Paradigm Default Services, and Paradigm Default Systems

PDS Blog

As many of our readers know, Paradigm Default Services (PDS) is an agent-centric default servicing (asset management) business model.  The goal of PDS is to “shift” with the new market, putting a heavy emphasis on the knowledge and expertise of the local real estate professional.  Is that to say that we assume every REO specialist has the best interest and training in mind when it comes to valuation?  Absolutely not.

For this reason Paradigm Default Systems has been implemented.  PDSystems, formerly NFSTI, is an REO training and resources division of PDS.  Our business model has the inexperienced REO specialist in mind for a very specific reason.  First, as many quality agents around the country are finding out, the REO industry is in “lockdown” after a tsunami of licensed agents discovered this niche and began registering for new REO business online in droves.  The initial problem here was that the asset management companies around the world weren’t ready for this influx of agents and had very little in the way of quality assurance when selecting each agent for new business.
PDS realizes that much of the untapped portion of the real estate agent pool contains great potential.  Needless to say, these inexperienced REO agents are hungry, eager, excited, and ready to learn.  PDS has taken on the initiative of pro-active REO education which will be required of all new agent-vendors prior to receiving listing assignments.  Ongoing coaching will soon be made available to the agent-vendor staff, allowing for easy access to experienced leaders in the industry who can quickly offer insight and guidance.

Largest Banking Rescue in US History…A Deal is Made.

The White House and Congressional leaders have come to an agreement after several days of meeting, many times on very little sleep.  The decision is to move forward with the $700 billion bailout plan proposed earlier in the month of September.  The US Treasury will be accountable for major crucial issues still to be determined, such as; which assets it will buy, and how it will decide the property values.

The Treasury intends to hire a team of Asset Managers to valuate the portfolios of the institutions seeking bailout.  The portfolio will then receive a value based on current market conditions and evaluated for the bailout program.  Several institution and product types are currently being considered.  See full article…

Senator Chris Dodd, a central player in the negotiations, was quoted as saying, “I’m pleased that we’ve come to a result”, “I think it’s dreadful that we had to come to this result”.  Many of the individuals heading up this plan have gone on little to no sleep in the past few weeks, knowing full well that “If we don’t do this, it’s coming down on our heads.” (Henry Paulson).

There is still much to be determined, but in the wake of Washington Mutual getting seized late last week it seems that this was our financial pillar’s only recourse.

Next Wave of Foreclosures Hits

 

Prime Loans

Well, we’ve all been waiting to see what happens next in the real estate foreclosure market.  Fannie and Freddie have had us on pins and needles.  GW has been working on solutions at the Fed level.  Cities continue to rise in foreclosures.  What next?  How about Prime mortgages going into default?

 

Yes, that’s right, prime mortgages are now following the subprime meltdown.  According to CNN, this news will almost certainly curtail the housing recovery.  

LoanPerformance, a unit of First American CoreLogic, reports that Prime loans under $417,000 have increased in delinquency from 1.38% in May 2007 to 2.44% in May 2008.  That same statistic for prime loans greater than $417,000 went from 1.11% to 4.03%.

On top of everything else, reports that loans issued in 2007 are showing a delinquency rate higher than any prior year, indicating an ongoing default concern that has not reached its slow-down point.

Confessions of a Subprime Lender

 

Richard Bitner's "Confessions of a Subprime Lender"

After reading about Richard Bitner’s recent book entitled “Confessions of a Subprime Lender” I faced the possibility that this section of our generation will be known for our economic blunders. Then the thought occurred to me that we could either be known for our amaziing ability to screw up, or we could be known as the generation who made things right.

 

It’s easy to understand the draw to the subprime boom back in the early 2000’s after reading bits of Mr. Bitner’s publication. After realizing the awful truth about the lending industry – that its boundaries were too looose – Bitner bailed out based on ethics more than anything. I hope that is the truth.

As I continued to look into the Bitner facts it was revealed that his company Kellner Mortgage is listed on the Implode-O-Meter – a website dedicated to tracking the foreclosure bust from the lending side. It was nice to see that Implode-O-Meter is also tracking Non-Imploded Lenders as well.

All of this (along with the fact that I just saw Lehman Brothers SBF pop up on the Implode-O-Meter) brings me to a thought that logically concludes that we are NOT in the worst of this market yet. Not only are we not in the worst of the market, but I’d be willing to stick my neck out on the chopping block to say that we are still years (not weeks or months) away from the worst. When I think about the fact that commercial loans are still unaccounted for on the whole, it stirs up a sick feeling inside. I live in a newer development where the builder went bankrupt, and the project was cut short by about 1/2 of the planned building. And they were one of the big builders!

For those out there involved in REO, I think there’s still a very long row to hoe. For those not yet in REO, it appears that more assistance is needed.

Press Release

New Default Servicer Focuses on Broker-Centric Model

DENVER, June 19 /PRNewswire/ — Paradigm Default Services, LLC. announced today that it has initiated REO, third-party servicing designed to serve the needs of clients and investors who are awash in a sea of sub-prime foreclosures nationwide. Paradigm is both an operational platform for handling lender acquired properties and an acquisitions vehicle for synergistic business units closely connected and supportive of its default servicing business. A company spokesman explains that Paradigm is creating a special default servicing unit which will provide “cradle-to-grave” hands-on servicing taking loans from initial default to re-performance or liquidation. Paradigm acts as a third-party facilitator between lenders and local real estate brokers throughout the nation to ensure that the myriad of details of local asset management: taking possession of foreclosed collateral, readying it for sale, marketing it and closing the sale, are capably discharged without liability. The task of an REO outsourcer is to translate and effectuate a lender’s disposition objectives in a timely and prudent fashion, eliminating risk and maximizing net recoveries while making the process transparent and legally compliant. REO outsource companies rely on numerous sub-specialties to accomplish their work. Title experts, attorneys, appraisers, property preservation contractors and local brokers all take direction from, and have their actions orchestrated by, the outsourcer. The principal force behind Paradigm is Tom Di Mercurio, 60, who will acts as Chief Executive Officer and strategist for the company. Di Mercurio has had a storied career in the administration and disposition of bad loans and REO. In 1986, he was awarded Fannie Mae’s coveted “Chairman’s Award” for proposing limits on foreclosure fees on uncontested foreclosure fees. Fee limitations were subsequently adopted by FreddieMac, HUD and VA. More recently Di Mercurio has led FGB Realty Advisors, Fidelity National Asset Management Solutions, and The Mercury Alliance, LLC. He is a frequent speaker at National conferences and is often quoted in the national press. Although his industry biography lists him as a career mortgage banker and distressed loan specialist, Di Mercurio sees himself as a “broker’s broker.” He has been a member of the National Association of Realtors (NAR) since 1973 and is a member of NAREB and NAHREP. As a first in the industry, each Paradigm employee who transacts real estate through its brokers will be licensed as a real estate agent or broker — “Brokers dealing with brokers.” “As the industry deals with exponentially increasing defaults and foreclosures,” explains Di Mercurio, “I believe our offering will be well- received because it is fundamentally founded on our unique program to recruit and retain the best broker talent — the most important component to any successful REO liquidation!” For more information: http://www.paradigmdefaultservices.com