It was a pretty active week in the default space. We will shot gun a few of the larger stories and then I'll add my closing commentary. Now more than ever, it is important to keep your finger on the pulse with what is happening at the government level, as well as at the street level in our space.
Depression Era Decline
The first major story we'll cover is the fact that some daunting statistics came out this week. During the Great Depression era (5 year span from 1929-1933) home values plummeted by a record breaking 25.9%. This was during a massive unemployment state where millions ate their meals at government sponsored soup kitchens to survive. We've all seen the pictures and remember the stories from history class. Well....Zillow's value index report conveys a scary reality. Since values peaked nationally in Q1 2006, values have declined an astounding 25% nationally. What is worse is that we are arguably far from the bottom given the $470B in shadow inventory that has yet to hit the market/MLS. This is number to keep an eye on moving forward. Some areas like Las Vegas Nevada which have the highest percentage of homeowners underwater(severe negative equity) weighed in at 80.2%. That means 80 out of 100 homeowners in Las Vegas are upside down on their home. Values have far exceeded a 25% downturn in similar markets. Yeowwwch!!!
Mortgage Insurance Challenges Grow
Want more bad news? Ambac Financial Group has filed Ch 11 bankruptcy. Ambac is one of the nation's largest bond insurers. The New York based company insured billions in subprime mortgage securities during the heyday of housings boom years, but has taken a major hit since the market collapsed. So how does this affect us? Well, Ambac is the insurer on many of the subprime loans we will perform short sales on and the jury is still out on how the Ch 11 will affect the mortgage insurer's ability to approve a short sale in a timely fashion. Most of us know how complicated it can be to negotiate a short sale with mortgage insurance and/or mortgage pool insurance. The question is...how will these insurance companies' collapse affect us in our day to day business. I guess we will soon see. Speaking of mortgage insurance, we found out today that Bank of America is suing Old Republic's mortgage insurance division for wrongfully holding on to hundreds of millions of dollars in mortgage insurance claims on home equity loans that have defaulted.
Numbers Released of Homes Represented in Shadow Inventory
Lastly, Fitch Ratings has stuck their neck out and issued actual numbers of homes that are represented in the $470B shadow inventory. Credit rating agencies and other statistical companies have been hesitant to release their research on how many homes are represented in the massive shadow inventory numbers. It was much easier to simply state the amount of mortgage debt represented. Well, here it is, the moment we have all been waiting for. Fitch says the shadow inventory represents 7 million homes!!!!!!! And it will take an estimated 40 months to clear through that inventory. That is nearly twice the estimation given by some other statistical companies. Depending on your bent, this may be bad or good news. But the bottom line is that a commission will be earned on most of those 7 million properties. There are around 1 million active Realtors, and only around one third are full-time active. You do the math.
Are you ready?
The key moving forward is positioning. Are you properly positioned to participate in this shadow inventory once it hits the market? Are you setting your sights on REO again? You should be? Are you ramping up a short sale division in-house? You should be. Is your website up with useful information about foreclosure relief options? It should be. Prepare for the storm before the rain starts to fall. The dark clouds are forming, and moving closer than ever.
Stay Connected
A final reminder to keep in touch with us in the members forum. Share with other premium members your short sale struggles, victories, and challenges. Start the conversations that need to heard. We are empowered to help each other and ultimately, the industry as a whole. Keep your heads up! You are well positioned...
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