Thursday, January 27, 2011

Foreclosure Fiasco -- Las Vegas: Still the Foreclosure King


NEW YORK (CNN Money)
By Les Christie, staff writer January 27, 2011: 6:04 AM ET


Las Vegas is once again the foreclosure king.

One out of every 9 homes in Sin City received some kind of default notice in 2010, according a report released Thursday by RealtyTrac. That's five times higher than the national average.

But there is a silver lining: The foreclosure rate is actually dropping in Vegas, down 7% compared to the end of 2009.

In fact, rates fell in all top-10 foreclosure markets of 2010. In No. 2 Cape Coral, Fla., for example, filings dropped 28%. In third place Modesto, Calif., they fell 13%; and forth place Phoenix dipped 7%.

But even as foreclosures fell in the worst-hit areas, they rose in 72% of the 206 metro areas covered by RealtyTrac's report.

"It really says that the foreclosure problem has spread well beyond the core states," said Rick Sharga, spokesman for RealtyTrac.

Foreclosures have spread beyond the original bubble cities as the economy melted down. Unemployment rates spiked nearly everywhere, and people out of work can't make their mortgage payments.

As a result, there is now a cohort of metro areas that didn't enjoy the housing boom but are now enduring double-digit foreclosure spikes. For example, Houston foreclosures grew by 26% -- the biggest jump by any of the 20 largest metro areas -- to one for every 62 households. The city suffered from a bleak job picture, with unemployment rising to 8.6% in November from 8.1% a year earlier.

Atlanta rose to 25th place with a 21% jump in 2010 filings following a 42% spike in 2009. And Salt Lake City filings ballooned by 30% in 2010, good for 27th place.

Bubble markets still rule

Bubble state cities still dominate the top of the list, however, accounting for 19 of the 20 top markets. And the easing in these worst-hit markets may be temporary, said Sharga.

"The servicers are backed up with foreclosures and may have slowed down their actions until they could get the back-up out of the pipeline," he said.

He forecasts a foreclosure rise again in the Sand States this year as banks restart their engines. Overall, he thinks, foreclosures should plateau and stay at about the same level throughout 2012.

"Until jobs come back, we won't see much of a change," he said.

Tuesday, January 25, 2011

Lenders Reluctant to Modify Loans for a Lengthy Period

“Lenders usually are reluctant to modify a commercial real estate loan for more than 12-18 months,” stated Kevin Levine, Executive Vice President of Strategic Asset Solutions (SAS) of Woodland Hills, California. “In some instances, they will agree to consider an extension of the loan modification subject to review and at the lender’s sole discretion‚” Levine said.   

Levine explained that there are multiple modification alternatives available with regard to a problem commercial real estate loan. “The simplest loan modification is for the lender to reduce the interest rate, thereby limiting the monthly payment,” he said. “Another solution is to provide for interest-only payments for a time, then increase the monthly principal payments after the modification period ends or add the deferred principal to a balloon payment. The lender also can extend the loan term. And in a few cases, the parties may even negotiate a principal reduction.” Levine explained that the various loan modification alternatives are not mutually exclusive, and may be combined. “For example, the lender could agree to reduce the interest rate, allow interest-only payments, and extend the terms of the loan, all as provisions of one loan modification,” Levine explained.

“The benefit of any loan modification to the borrower is that it buys time for the economy and the real estate market to turn around and recover and, in the case of an owner-occupant, for the buyer’s underlying business to be restored to profitability,” Levine continued. “However, if the economic and real estate market fundamentals do not significantly improve during the modification period, the borrower may find it is back in the same untenable circumstance when the modification expires,” he said.

Levine reported that he is seeing many situations in which a loan modification was granted to an investor-borrower in hopes that the property’s rent roll would stabilize. But all too often, the borrower finds that even at full occupancy, gross rental income has been reduced due to the general decline in market rates. “Of course, this depends upon the quality of building, specific market, and other relevant factors,” Levine said. “The only constant is that every situation is different,” he commented.

“The barriers often present to achieving the borrower’s objectives through a loan modification are a principal reason we will attempt to negotiate a short sale of the property to a third party,” Levine said. “And a third choice, in appropriate situations, is to attempt to have a third party purchase the note from the lender. Each of these approaches has different legal, financial and tax consequences for the borrower depending upon his or her specific circumstances.”