The analysts at Barclays Capital say a “triple-dip” in home prices will likely materialize by early next year.
The term “triple-dip” emerged in a Clear Capital report a couple of weeks ago, and Barclays says its analysis corroborates the idea.
The research firm warns that home prices will likely slip another 6 to 7 percent over the coming winter months. That would put median prices at a new low for this cycle, in fact about 3 percent below the double-dip measurement of last spring.
The Obama administration is looking into ways to support greater private sector involvement in the secondary market for home mortgages.
Officials are weighing a proposal that would allow Fannie Mae and Freddie Mac to sell off portions of their mortgage-backed securities (MBS) to private investors. According to the Wall Street Journal, these MBS carve-outs would not carry a federal guarantee but would pay a higher interest rate.
Today’s mortgage market is dependent on the two GSEs, with Fannie and Freddie funding an estimated nine in 10 new mortgages. The Journal says a small pilot program could be rolled out as early as next year to test private investors’ willingness to pick up some of the slack as the government pulls back its role in the market.
The acting director of the GSEs’ conservator, the Federal Housing Finance Agency alluded to the possibility of shared-risk securities offerings in a speech last month.
FHFA’s Edward DeMarco said there are “numerous securities structures that could be considered” as he criticized policymakers for their lack of action in reducing Fannie and Freddie’s dominance in the U.S. housing market.
Foreclosure starts soared during the month of August in states along the country’s western coast, reversing what had been a declining trend over the past several months, according to the tracking firm ForeclosureRadar.
The California-based company keeps close tabs on foreclosure activity in the states of Arizona, California, Nevada, Oregon, and Washington. ForeclosureRadar recorded a spike in the first notice filed in the foreclosure process across its five-state coverage area last month.
ForeclosureRadar says the jump appears to have been primarily driven by Bank of America and its related entities, which initiated 116 percent more foreclosures in August than in July. Wells Fargo and U.S. Bank also saw increases in foreclosure start filings, while filings by JPMorgan Chase and Citibank were essentially flat.
“Bank of America appears to be primarily responsible for the surge in foreclosure starts this month,” said Sean O’Toole, founder and CEO of ForeclosureRadar.
“Since their average time to foreclose has recently increased to more than a year, it is unclear that these foreclosure starts will lead to an increase in foreclosure sales anytime soon,” O’Toole noted.
Foreclosure sales also increased throughout most of ForeclosureRadar’s coverage area in August.
Investors bought more properties on the courthouse steps in August than in July everywhere except in Washington, while the number of properties taken back by the bank jumped significantly in Oregon and also rose in California and Nevada.
In Arizona, ForeclosureRadar found that notice of trustee sale filings jumped 15 percent between July and August, reversing a four-month downward trend.
Foreclosed properties sold back to the bank as REO, however, continued a five-month decline, with an 8.0 percent drop from July to August, and a 42.8 percent drop
compared to this time last year. Arizona investors were more active in August, with properties sold to third parties up 4.9 percent month-over-month and up 38.7 percent year-over-year.
California’s notice of default filings increased 69.5 percent to their highest level in 12 months. Notices of trustee sale were up more moderately, rising 6.0 percent month-over-month.
Activity on California courthouse steps increased in August. Properties returned to the bank as REO increased 12.3 percent from the prior month, while properties sold to third parties rose 9.9 percent. Time-to-foreclose in the Golden State increased to 333 days in August, which is 49 days longer than a year ago.
Notices of default in Nevada jumped 44.2 percent month-over-month, but fell 13.6 percent year-over-year. Notice of trustee sale filings slipped for the fifth consecutive month, dropping 9.9 percent from July.
Investor activity increased in August, with 19.8 percent more foreclosed properties sold to third parties in August than in July. Foreclosure cancellations declined for the fourth straight month, dropping 9.0 percent in August to the lowest level in 15 months.
Time-to-foreclose in Nevada jumped 14.3 percent in August when compared to July’s timeline, reaching a new record of 368 days. The time to resell a foreclosed home increased month-over-month for both banks and third-party investors, to 179 days and 108 days, respectively.
In Oregon notices of default were up in August over July by 35.6 percent, but filing activity remains 45.8 percent below this time last year.
Properties returned to the bank rose dramatically in the state, up 243.3 percent month-over-month, as Recontrust, a subsidiary of Bank of America, began to clear the 2,800 foreclosures it started in April.
Properties sold to third-party investors were up as well, 46.0 percent month-over-month and 17.4 percent year-over-year. The time-to-foreclose in Oregon dropped in August for the second month in a row, down 9 days from July to 150 days.
Washington saw a 3.4 percent increase in notice of trustee sale filings in August from July, which reversed four months of consecutive declines.
Activity on the courthouse steps slowed as foreclosures sold back to banks dropped 29.4 percent month-over month, and those sold to third-party investors were down 33.3 percent.
• 87% of consumers start their search online, yet 48% of Internet leads are
not responded to
• 90% of consumers would use the same agent again, but only 11% do
• Add these, and other equally dismaying stats, to the ability for consumers
to access information without our involvement, and then mix in our industry’s
reputation for less than stellar professionalism, and you come to an undeniable
conclusion: to be successful in the future, you will either have to compete on
price or you will have to deliver an incredible consumer experience.
If you choose to deliver on consumer experience, keep in mind that consumer
experience begins before that consumer meets you in person and extends beyond
their first transaction with your firm. Does your company deliver an amazing
consumer experience?
• Do you have a truly integrated Internet marketing strategy that includes
SEO, blogging and social media? Do people like you and find you interesting even
before they visit your website?
• Is your website easy to use? Is your content relevant to the real estate
consumer? Do you provide useful information and an engaging experience? If not,
your potential client can easily type in the next URL and you will never see
them again.
• When someone fills out a form on your website, do they receive a
professional and courteous response in less than 15 minutes? If you are not
responding in less than 15 minutes, you severely jeopardize your chance of doing
business with that consumer and give them an unfavorable view of your firm.
• When a client comes to your office, does it look fresh and exciting, or
does it look tired? Remember, the average home buyer is a lot younger than you
and most of your agents. They are used to going to the Apple Store or
Starbucks—not their grandmother’s house.
• When your agents are going to an appointment, are you confident they are
capable of delivering an amazing consumer experience worthy of your brand? When
they blog or post things on social media, are you confident they are properly
representing you in the space consumers start their home search?
• After you close a transaction do you stay engaged with that consumer in a
relevant and professional way until they are ready to buy another house? If they
started their relationship with you online, they may want to continue that
relationship online as well.
If you want to differentiate yourself, you must accept that the consumer
experience starts way before they ever express interest in doing business with
you and extends way beyond the closing. Your ability to deliver the experience
will set you apart and put you in a position to succeed versus those in your
market who choose to keep doing things the same way.
Think of brands like Zappos, Starbucks and Apple. They are known for the
experience they are delivering…are you?
We are now in the fifth year of a housing crisis in which more than 3 million
Americans have lost their homes to foreclosure, with millions more still
at risk.
Every initiative — government or private — to stem the tide of misery has
fallen leagues short in the face of continued economic gloom and the
intransigence of lenders.
So it’s an odd moment to be identifying glimmers of optimism that solutions
to the crisis might finally be emerging. Yet that may be the case.
Over the next few weeks, several initiatives aimed at reforming the
foreclosure process, holding mortgage lenders and services accountable for their
past abuses, and creating more effective mortgage workouts are coming to a
head.
They’re moving sometimes along parallel lines and sometimes at
cross-purposes, but they’re moving.
First, some context. The complexity of the foreclosure crisis stems from the
process of bundling hundreds of thousands of mortgage loans into securities
and selling them to investors.
Typically, banks and other lenders retained almost no financial interest in
the mortgages they originated, other than the duty to service them — collect
payments and pursue delinquent borrowers, say — for which they received a
fee.
Several drawbacks to that system emerged when the housing economy crashed.
Because the loans weren’t going to stay on their books, the lenders hadn’t been
too careful about whom they lent to and on what terms.
Ownership of the repackaged loans was dispersed among investors, so it’s hard
to know even today who the owners are or whether their ownership is properly
documented. This has led to further abuses, such as the infamous “robo-signing”
outbreak, in which institutions trying to foreclose on mortgages have submitted
forged documents attesting to their legal right to do so.
Perhaps the biggest problem is that although the servicers, which include
huge banks such as Bank of America and Wells Fargo, are burdened with the
responsibility to renegotiate mortgages to keep borrowers out of foreclosure,
their authority to do so on behalf of investors is murky.
As a result, though the investor, the borrower and the economy in general
benefit if a home is kept out of foreclosure, even if that means its owner makes
lower payments than were required by the original mortgage, the servicing banks
are leery of renegotiating too aggressively.
The most closely followed remedial effort involves the 50 state attorneys
general under the leadership of Iowa Atty. Gen. Tom Miller.
Last March, the group produced a 27-page proposal for foreclosure reforms
that drew fire from some consumer advocates for being too lenient — its
provisions include mandates that banks comply with state law in dealing with
borrowers, as if that’s a novel concept — and from business interests for
putting too much pressure on banks to reduce principal balances for homeowners
having trouble keeping up payments on homes with values that have fallen below
the mortgage balance.
But Miller’s group is under pressure to issue a final proposal around Labor
Day. The longer the settlement talks drag on, some observers say, the harder it
becomes to keep all the participants on board.
Indeed, a key attorney general who has been skeptical of Miller’s approach is
pursuing his own line.
New York’s Eric T. Schneiderman recently took a promising step by filing to
intervene in the proposed legal settlement between Bank of America, which
acquired mortgage king Countrywide Financial, and Bank of New York, which
managed 530 investment trusts that bought packages of Countrywide mortgages.
Schneiderman wants to block the settlement unless it’s improved.
The settlement calls for BofA to pay investors in the trusts $8.5 billion and
to commit to an improved mortgage servicing and modification process, including
giving “individualized attention” to high-risk borrowers aimed at helping them
stay in their homes.
Among the deal’s flaws, according to Schneiderman’s motion, is that the
payment is too low and the settlement indemnifies Bank of New York against
further claims for fraud in its handling of the trusts. Schneiderman says the
bank, which he contends is guilty of numerous violations of state law, had a
conflict of interest in cutting a deal that let itself off the hook. (The New
York state judge overseeing the BofA settlement talks with Bank of New York
hasn’t yet ruled on Schneiderman’s motion.) Several investors have also objected
that the two banks made the settlement privately and secretly.
Despite its shortcomings, the proposal settlement does provide a possible
framework for solving the foreclosure crisis by giving all parties something
they want: Borrowers get efforts at loan modifications from their banks, in
return for which the banks and investors would get the borrowers’ acknowledgment
that they’re owed the money. Fewer foreclosures, more loan modifications and an
end to robo-signing — in the housing world, that’s nirvana.
Schneiderman has some pretty heavy artillery to bring to the battlefield.
Most of the trusts subject to the proposed settlement fall under the
jurisdiction of New York law (the rest come under the law of Delaware, whose
attorney general, Beau Biden, is working with Schneiderman). As my colleagues
Nathaniel Popper and Alejandro Lazo reported last month, the standard for fraud
claims under New York law is less stringent than under federal law.
A third driver of solutions to the foreclosure crisis is investigations by
individual states into foreclosure abuses. California, where nearly 800,000
homes have been lost to foreclosure since 2006, according to the property
information service DataQuick, and tens of thousands more might fall in the next
year, is ground zero of the foreclosure crisis.
Atty. Gen. Kamala Harris has been playing both sides of the fence; she has
met with Schneiderman to discuss cooperating in his investigation of
securitization fraud, but is also watching the 50-state effort to see if it
produces “accountability and results” for California borrowers. Read that as: a
cash settlement commensurate with the pain caused to Californians by foreclosure
abuses, and real reform. The louder that states like California threaten
investigations, the more inclined banks may be to agree to reform.
It’s still unclear how each of these initiatives will influence the others,
or indeed if any of them will result in relief for strapped and defrauded
homeowners. Bankers have been perfectly candid about their power to draw out the
legal process indefinitely if they choose: Bank of New York has defended its
proposed $8.5-billion settlement with Bank of America in court by warning that
the alternative is “litigation …over the course of several years.”
It warns that there might be legal questions over whether Bank of America,
which acquired Countrywide in 2008, could be forced to cover judgments against
the latter. Without BofA’s deep pockets, it’s hinted, there won’t be money for
anyone.
The one incontrovertible fact about the foreclosure crisis is that voluntary
loan modification efforts, whether they’re conducted under the sponsorship of
the government’s Home Affordable Modification Program or the mortgage industry,
haven’t helped more than a handful of affected borrowers.
Bringing the banks, investors and borrowers to the same table to work out a
solution that benefits them all is the most promising idea to emerge since the
housing market first crashed. Why has it taken so long to get there?
The Obama Administration knows that they’re going to be cutting spending at some level over the next year, damaging economic performance coming into an election year. If it doesn’t happen on the debt limit deal, it’ll happen in the 2012 budget. So they’re looking elsewhere for how to use the power of the office to improve the economy and by association their political position in 2012. And they’ve hit on the point that the housing market is a giant lead weight on the economy. I noticed this trend a week or so ago, and now Nick Timiraos of the Wall Street Journal concurs:
The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery—and possibly the president’s re-election in 2012.
Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House [...]
Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.
Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.
Discussions are in early stages, and there isn’t consensus around particular ideas. A spokeswoman said the president and his advisers “are always looking at new ways” to strengthen the housing market but wouldn’t disclose details. “While we continue to consider the options available to us, it would be inaccurate to say we are proposing any of these particular ideas at this time,” White House spokeswoman Amy Brundage said.
Brundage wants to deny it, but you can just look at what has been done recently. HUD supplemented the Hardest Hit Fund with the Emergency Home Loan Program, offering no-interest loans to homeowners experiencing unemployment. Treasury set up its Principal Reduction Alternative to encourage banks to give principal reductions to struggling borrowers. There are indications this has spurred some principal reductions in very particular circumstances. And then there was the program announced last week for extended forbearance to 12 months for unemployed borrowers.
A couple things about the article. First, the notion that the housing market would work itself out is a perfect encapsulation of this Administration’s economic policy, where they hoped all along to be saved by the business cycle. Now, they’re realizing they have to be activists. It’s so distasteful. And while there are a few legislative constraints on the hole they’ve dug themselves in on overall economic policy, on housing policy they actually have some options that they’re exploring. Fannie and Freddie represent a large chunk of the market at this point, and as they have effectively been nationalized, they can be used to helpful ends. In particular, the policy of having Fannie and Freddie rent their properties – especially if they allow the owners to convert to renters – could be positive.
But Fannie and Freddie have resisted doing anything this ambitious, or even giving out loan modifications. The GSEs’ regulator has been touting his fiduciary duty to taxpayers, and while that has been good on repurchases of bad MBS, it also means that he has refused to do the kind of loan modifications that may look bad on the short-term balance sheet but overall would be superior to allowing a bunch of foreclosures.
This also explains the federal government’s attention to the foreclosure fraud settlement. They probably think that any money they can squeeze out of the banks would represent a housing stimulus, and they want it to come into play before the election. What they aren’t counting on is the fact that allowing the big banks to settle their claims will just rev the foreclosure machine faster.
Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.
“The goal is to reinstate as many borrowers in a modification that performs well,” said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”
While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.
This story kind of ignores the fact that the judiciary would still have to rubber-stamp false documentation to allow foreclosures to go through, which isn’t happening in most of the country. The BofA settlement would release a lot of investor claims, but not homeowner ones. And anyway, the final settlement is many months off.
It’s interesting to me that the Administration, having made a total mess of the housing market for three years after coming in claiming to have the magic antidote to fix it, now is scrambling to find out how to do what they said they would do in the first place.
The Obama administration is ramping up talks on how to revive the housing market,
which is weighing on the economic recovery—and possibly the president’s re-election in 2012.
Last year, advisers considered several housing-policy prescriptions but rejected them
in favor of letting the market sort things out. Since then, weak demand and a
stream of foreclosed properties have put renewed pressure on home prices,
prompting concern within the White House.
Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac
relax their rules for loans to investors, allowing those buyers to vacuum up
excess housing inventory. In certain markets, Fannie and Freddie could hold some
foreclosed homes off the market and rent them out to ease the property glut.
Officials also could sweeten incentives for banks to reduce loan balances for borrowers
who are underwater, or owe more than their homes are worth.
Home-buyer tax credits worth up to $8,000 in 2009 and 2010 gave a short-term boost to home
sales, but demand plunged after they expired. Foreclosures have put pressure on
prices and damped residential construction, traditionally an engine of job
growth during economic expansions.Discussions are in early stages, and there
isn’t consensus around particular ideas. A spokeswoman said the president and
his advisers “are always looking at new ways” to strengthen the housing market
but wouldn’t disclose details. “While we continue to consider the options
available to us, it would be inaccurate to say we are proposing any of these
particular ideas at this time,” White House spokeswoman Amy Brundage said.
“As conditions change, some options that were below the line the way the market was
18 months ago might be above the line today,” said Peter P. Swire, who teaches
law at Ohio State University and until last year was a top housing adviser to
the White House.
Most of the administration’s housing efforts have focused on helping borrowers
refinance or modify their loans to avoid foreclosure. But some economists say
too many borrowers won’t be saved through loan workouts and that the
administration must do more to soak up the flood of foreclosures by boosting
housing demand.
President Obama’s signature loan-modification program, announced during his first month in
office, has lowered payments for around 600,000 borrowers. Meanwhile, around
four million borrowers are in foreclosure or have missed three or more
consecutive mortgage payments. While mortgage-delinquency rates have fallen,
millions more remain at risk of defaulting if they experience a payment shock
because they owe more than their homes are worth.
More recent housing relief has targeted unemployed borrowers. Last week, officials
said unemployed borrowers with loans backed by the Federal Housing
Administration could miss up to 12 months of payments while they look for new
jobs. A separate $1 billion program is set to begin providing interest-free
loans of up to $50,000 for temporarily jobless borrowers this month.
Unlikely to get Congress to provide additional funds, the administration is left to
examine options that it can implement without congressional consent. Fannie and
Freddie, the so-called government-sponsored enterprises or GSEs, could be one
policy lever. “There are a number of things that we can look at on the GSE
side,” said Austan Goolsbee, departing chairman of the Council of Economic
Advisers.
Last year, officials considered a range of policies that included allowing borrowers
with loans backed by Fannie and Freddie to refinance more easily by relaxing
fees that lenders are charged for riskier borrowers.
Others outside the administration have pushed for federal entities to lend more freely
to mom-and-pop investors or to create public-private initiatives that would
allow institutional investors to buy more foreclosed properties. “Because we
have limited credit availability, we need investors to help soak up the supply,”
said Ivy Zelman, chief executive of housing-research firm Zelman &
Associates.
Fannie and Freddie also could rent, instead of sell, some of their huge inventory of
foreclosed homes, which could take some pressure off prices. The firms owned
about 218,000 properties at the end of March, and sold around 100,000 during the
first quarter, or more than one-third of all foreclosed property sales,
according to analysts at Barclays Capital. The firms could take back as many as
700,000 homes over the next year, according to estimates by economists at
Goldman Sachs.
That idea has generated interest among some housing officials but could meet
resistance from Fannie and Freddie’s independent federal regulator. Renting out
homes hasn’t been tried on a wide scale and is “riddled with risk,” said Ed
Delgado, a former Wells Fargo executive who leads the Five Star Institute, a
mortgage-industry group. “Essentially you’re converting the [firms] from
providing liquidity to a glorified national landlord for distressed assets.”
All these options could boost lending and attack the overhang of foreclosures, but
would put more risk on federal agencies and Fannie and Freddie. The mortgage
giants have cost taxpayers $138 billion and counting.
They also would require the blessing of the Federal Housing Finance Agency, which is
charged with limiting losses at Fannie and Freddie. The FHFA last year refused
to go along with an Obama administration initiative to reduce loan balances for
certain borrowers who were current on their mortgages but heavily underwater.
The agency has typically resisted programs which produce substantial, upfront
losses designed to offset potentially larger but harder to quantify long-term
losses.
The same skepticism that prompted advisers last year to push for giving the market
room to heal on its own could prevail once again. Simply focusing on the broader
economy is “one of the best things we can do for the housing market,” Mr.
Goolsbee said.
Still, the high-level housing discussions are significant because Mr. Obama hasn’t put
much emphasis on his housing policies over the past year. The administration has
taken fire from both sides over its housing-relief plans, with Democrats saying
the administration has let banks off too easily while Republicans have said the
programs wasted money. The housing market could be a top election issue for
voters in swing states such as Florida, Ohio, and Nevada.
Foreclosure filings experienced their eighth straight month of declines, according to RealtyTrac.
In May, filings fell 33% from a year earlier and 2% month-over-month, according to the online marketplace of foreclosed properties. The number of homes that were repossessed (referred to as REOs or real estate-owned properties) in May also declined to 66,879, down 3.8% from April and 29% year-over-year, the firm said.
The huge year-over-year drop in foreclosures doesn’t necessarily mean the housing market is staging a recovery, however.
James Saccacio, the CEO of RealtyTrac, says the declines are likely due to lingering effects of the “robo-signing” scandal, which broke last September, when it was discovered that banks were playing fast and loose with foreclosure documents.
In some cases, it was found that banks brought foreclosure proceedings upon homeowners when they had no standing to do so. Sloppy paperwork sometimes made it impossible to tell which entity was the rightful owner of the mortgage notes.
To help fix the mess, foreclosure proceedings were temporarily suspended. Even though the suspension has since been lifted, the pace of foreclosures remains significantly slower as banks more thoroughly review each case to ensure they are being handled legally and properly.
“Foreclosure processing delays continue to mask the true face of the foreclosure situation,” said Saccacio. “Lenders are somewhat unevenly pushing batches of bad loans through foreclosure as they overhaul their paperwork and documentation procedures.”
There’s another factor at play, as well. The banks can’t sell the homes they’ve already seized so they aren’t as incentivized to repossess more homes.
“[There's] weak demand from buyers, making it tough for lenders to unload their REO inventory,” said Saccacio. “Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.”
The banks don’t want to take on the expense of maintaining the homes — property taxes, heating costs, repairs and insurance — if they can’t sell them quickly.
Selling off the inventory of repossessed homes is crucial to the housing market, said Jim Gillespie, CEO of Coldwell Banker. Sold at steep discounts, REOs compete with new homes for buyers and have severely depressed new home sales.
“That’s a critical element for the economic recovery,” said Gillespie. “If new homes were selling anywhere close to their levels of five years ago, it would add a full point to the GDP.”
The steepest drops in filings have come from judicial states, ones in which the courts are involved in repossessions. In these states, where foreclosure proceedings are subject to the scrutiny of the courts, it appears banks are taking special care to make sure they’ve stamped out the last vestiges of the robo-signing issues.
Nevada, where most cases are handled outside of court, continued to be foreclosure central. One of every 103 households received a notice of some kind in May. However, that was an improvement of 23% compared with May 2010. Arizona, with one filing for every 210 households, and California, one for every 259, were second and third.
The judicial state of Florida, where the housing market is no better, has seen a much greater drop-off in filings over the past year, down 62%. It now has the eighth highest foreclosure rate, of one filing for every 461 households. A year ago, it was in the top four, along with the other “Sand States.”
Ongoing deterioration in real estate markets and rising levels of distressed residential and commercial properties are areas of acute concern for officials at the Federal Reserve.
“Real estate conditions have remained weak and adversely affected the performance of many banks,” Michael R. Foley, senior associate director of the division of banking supervision and regulation at the Federal Reserve, told lawmakers Thursday.
In testimony before the Senate Subcommittee on Financial Institutions and Consumer Protection, Foley said the property markets continue to present challenges for both banks and their supervisors.
“With housing values flat or deteriorating in many markets, there are renewed concerns about the health of the mortgage market and home equity loans in particular,” Foley said.
In the commercial sector too, “weak fundamentals… including high vacancy rates and declining rents, continue to place pressure on all but the highest quality properties with strong tenants,” according to Foley.
With residential and commercial property values still under strain, he says heightened levels of reserves are necessary for banks.
“[W]e expect that banks will continue to incur losses,” Foley said. “It will take time to make progress on the overhang of distressed commercial and residential real estate.”
Banks will need to take strong steps to ensure that losses are recognized in a timely manner, and that reserves and capital levels remain adequate, according to Foley.
“[R]esidential and commercial real estate remain lagging sectors,” he said.
It’s a matter of paying for past mistakes, as far as Foley is concerned, but he says it started with firms outside the banking realm.
The financial crisis revealed “critical vulnerabilities” in both the regulatory framework and the financial system as a whole, he told lawmakers.
“In the years before the crisis, non-bank financial entities proliferated by exploiting gaps in the regulatory framework,” Foley testified. “This occurred during a period of increasing asset prices and abundant capital and liquidity, which eventually led to a relaxing of underwriting standards, deterioration in risk- management practices, and rapid growth of complex and opaque financial products for both consumers and investors.”
With these deficiencies exposed, Foley says Congress stepped in with the Dodd-Frank Reform Act.
The far-reaching legislation calls for 387 sets of rules and regulations to be put into place. Over half have yet to be developed, and as a result, some federal agencies have already warned that implementation will be pushed out by several months.
To stay competitive today, you must constantly adapt to new technologies. Fax machines, car phones, voicemail and computer-based multiple listing services were all major game-changers. There’s another major game-changer afoot that will forever alter how we do business.Gone are the days of MLS books, carbon paper and handwritten messages taken by a receptionist. Technology has enabled us to chat by video anywhere in the world for free, to respond instantaneously using text messaging, and to be completely mobile. Compare this to the cost of an 89-cent per minute cell phone call just 10 years ago. Technological innovation has provided us with better solutions at a significantly cheaper cost.
Cloud computing: the real game-changer in 2011?
Although certainly not a new concept, cloud computing will be one of the most important influences on the real estate industry in 2011.
According to Wikipedia, “Cloud computing is Internet-based computing, whereby shared resources, software, and information are provided to computers and other devices on demand.” Cloud computing “frequently takes the form of Web-based tools or applications that the user can access and use through Web browser.” Major cloud computing companies include Amazon and Google.
Many agents are already using cloud computing solutions. For example, if you’re backing up your computer with an online solution such as Carbonite or Mozy , you’re backing up your computer “in the cloud.”
One of the best examples is the Google suite of services. If you are using Gmail or any other Google products, such as Google Docs, Google Calendar or Google Voice, you are also using a cloud computing solution.
Benefits of cloud computing
The biggest benefit of cloud computing for the real estate industry is the ability to go paperless. Filing and tracking paperwork takes time. One broker who made the shift said that his company requires 93 different steps to close a transaction. This is a logistical nightmare. Almost every one of those 93 steps begins with someone writing the names, addresses and phone numbers of the principals. Eliminating 92 of those steps represents a huge savings of both time and money.
PC tablets: early cloud-computing solutions
Back in 2005, I purchased a tablet PC that I still use. The PC tablets are great because they let you do everything you can do with a regular computer. They also translate your handwriting into a Microsoft Word document. Even better, your clients can also sign directly on their purchase or sale documents. Writing on a PC tablet works the same as writing on a piece of paper. They also have a touch-screen keyboard that works with a light pen rather than your finger.
The Red Tablet software that came loaded on my tablet in 2005 allowed me to “lock down” documents so they couldn’t be changed. You could also store documents in an early version of the “cloud.” An even more compelling reason to use this tablet was that it allowed you to create a detailed paper trail that included the times when every e-mail in the transaction was opened and when all documents were signed.
The iPad is hastening the shift into the cloud
Even though the early tablet PCs were very effective, not that many Realtors used them. In contrast, the industry seems to have fallen in love with the iPad . Part of the love affair may be due to the fact that so many people refuse to switch carriers to be able to use an iPhone . They can now use their current phone plus get the iPhone functionality with the iPad .
While there has been tremendous hype about the iPad , it doesn’t work very well when it comes to the handwriting features. In fact, it’s very difficult to take notes unless you’re entering them on the touch-screen keyboard. Nevertheless, it has most of the other features that the tablet PCs offer, and it is lighter and more portable. It’s the ease of use and the mobility that will drive our business to go paperless.
Cloud computing requires a major paradigm shift
If you look at the iPad , there are no external USB ports. This means that you will have to think about how you transfer files in an entirely different way. USB ports will probably go the way of floppy drives in the very near future. Instead, you will access everything wirelessly.
Part of the problem in working with video and audio files is their sheer size. When we shot our first 60-second video using a webcam, it comprised more than 100 megabytes. We had to purchase special software to reduce the file size.
With cloud computing, file sizes are no longer an issue. You can use a system like Dropbox.com to store large files — you drop your files into a folder and specify who can access that folder. No more bounced e-mails due to large file sizes, no more travel drives, and no USB ports required. It’s all done seamlessly on the Web.
The online transaction-tracking platforms work in much the same way. Everyone involved in the transaction can check in at their convenience rather than playing telephone tag. There is also a detailed digital “paper trail” that shows exactly who completed what tasks and when the tasks were completed.
No paper also means no lost documents, virtually no storage costs, and a clear digital trail showing all required steps in the transaction were completed prior to closing.
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