We've all heard that the biggest banks are too big to fail. If that is true, does it mean that the littlest and mid-sized banks can and must fail?
The logic bothers me.
The FDIC, the government agency that guarantees you won’t lose your money in a bank failure, recently topped 100 bank closures with another 225 banks on their watch list. The Federal Deposit Insurance Corp. (FDIC) has been heavily depleted with the closures already on record.
What happens if the FDIC runs out of money? How much do they have in reserves?
If regional, small and mid-sized banks begin to fail because commercial borrowers can't make their payments or the number of bank defaults increase, will the FDIC be able to continue without either borrowing from the US Treasury or charging higher fees?
In the 1980s during the savings and loan crisis, the FDIC was forced to borrow $15 Billion from the US Treasury and then had to repay it with interest. Although we aren’t close to the number of banks closed in the 1980s savings and loan crisis, it is no secret that the FDIC is stressed and will become more so in 2010.
The results of FDIC actions in the next 12 months will have far reaching effects on our economy and recovery.
Wednesday, November 18, 2009
Tuesday, October 27, 2009
Tips on Getting Your REO or Bank Owned Offer Accepted
Banks, like all sellers, want the most money with the fewest problems. The easiest way to achieve that is with a knowledgeable buyer paying all cash and accepting the property in its present condition or in real estate lingo, “As Is.” It is hard to have problems when someone has the money and is willing to buy without any windows, doors, dirty carpets or, heaven forbid, mold.
For most of us, that’s not too realistic. So how can you position yourself? First, like the Boy Scout motto: “Be prepared.”
Find a reputable lender and get fully approved. That means the lender truly does verify your income, down payment, job and credit worthiness. Do not go to your next door neighbor or cousin to do this, unless they are very experienced. And, don’t play games. A good REO agent will call and verify your status with your lender. Trust me they know the difference between a HELOC and money in the bank!
Be prepared to provide current bank statements verifying your down payment along with your loan approval. Be prepared to write a check for 3% of the offer price. Again, don’t play games.
Don’t get upset if the real estate agent asks you to get preapproved with the bank’s specified lender. Grin and bear it. They may have a better program and incentives your lender doesn’t have.
Ask your agent to write the Offer on the CAR Deposit Receipt or the contract specified by the bank. There are no exceptions to this process. Include an REO Advisory Addendum and “As Is” Addendum if possible. If you want time for inspections or time for your financing to be approved, make it short. Most banks want no more than 7-10 days. Have a copy of your deposit check, proof of funds and approval letter included in your offer. Ask your agent to provide a summary page for the REO agent. The more money down the better, 30 days to close the escrow and don’t ask the bank to provide a home warranty. Ask your agent to provide you with a home warranty at the close of escrow.
Please, please don’t be unrealistic. Offers for less than 90% of the List price are seldom considered. Many offers are going over the List price and the bank asking you, the buyer, to make up the difference if the property does not appraise for the Sale price. Again, be prepared.
Remember, the bank, asset manager and the REO agents have lots of files to deal with…so be patient.
Oh, by the way, the bank won’t sign your Offer until you sign and return their addendum which nullifies most of your terms and conditions. Some are very confusing and contradictory but if you don’t sign you won’t get the home. If you default after there are no contingencies in the contract, the bank will keep your deposit and if you can’t close on your contract date, you may have to pay the bank a per diem until you can close the transaction.
The transaction may be hard, the escrow difficult but in the end you will have a property that is an excellent value. You can make it shine with a coat of paint, new carpets and some grass seed. It will be a good place to live and/or an excellent investment now and in the future.
For most of us, that’s not too realistic. So how can you position yourself? First, like the Boy Scout motto: “Be prepared.”
Find a reputable lender and get fully approved. That means the lender truly does verify your income, down payment, job and credit worthiness. Do not go to your next door neighbor or cousin to do this, unless they are very experienced. And, don’t play games. A good REO agent will call and verify your status with your lender. Trust me they know the difference between a HELOC and money in the bank!
Be prepared to provide current bank statements verifying your down payment along with your loan approval. Be prepared to write a check for 3% of the offer price. Again, don’t play games.
Don’t get upset if the real estate agent asks you to get preapproved with the bank’s specified lender. Grin and bear it. They may have a better program and incentives your lender doesn’t have.
Ask your agent to write the Offer on the CAR Deposit Receipt or the contract specified by the bank. There are no exceptions to this process. Include an REO Advisory Addendum and “As Is” Addendum if possible. If you want time for inspections or time for your financing to be approved, make it short. Most banks want no more than 7-10 days. Have a copy of your deposit check, proof of funds and approval letter included in your offer. Ask your agent to provide a summary page for the REO agent. The more money down the better, 30 days to close the escrow and don’t ask the bank to provide a home warranty. Ask your agent to provide you with a home warranty at the close of escrow.
Please, please don’t be unrealistic. Offers for less than 90% of the List price are seldom considered. Many offers are going over the List price and the bank asking you, the buyer, to make up the difference if the property does not appraise for the Sale price. Again, be prepared.
Remember, the bank, asset manager and the REO agents have lots of files to deal with…so be patient.
Oh, by the way, the bank won’t sign your Offer until you sign and return their addendum which nullifies most of your terms and conditions. Some are very confusing and contradictory but if you don’t sign you won’t get the home. If you default after there are no contingencies in the contract, the bank will keep your deposit and if you can’t close on your contract date, you may have to pay the bank a per diem until you can close the transaction.
The transaction may be hard, the escrow difficult but in the end you will have a property that is an excellent value. You can make it shine with a coat of paint, new carpets and some grass seed. It will be a good place to live and/or an excellent investment now and in the future.
Friday, September 25, 2009
REOs Aren’t Always Easy
When you are on the other side, it is the crash of your dreams. It’s all your hopes, hard work and pride—gone.
It is the most devastating thing that can happen. It is like a death and you need time to mourn, but you can’t because now you have to pick up the pieces and move. Being uprooted is hard and for most, it is depressing, frustrating and sad. Many are angry at themselves and the system that let it happen.
Behind every vacant, repossessed and REO home is a story. Whether they bought it for their retirement, future investment for their children or just their own piece of the American dream, the loss has left a scar not only on that person, that family but on the psyche of the American people and our communities.
And I am often the first one to knock on the door and tell them that they have to move. I see the pain… I hear the stories. After awhile, there is no way you can protect yourself from the raw emotions you feel.
Sometimes you get angry because they let the pool go green and the lawn go brown, they took the stove and left the trash but beyond all that stuff, they are people, our people, part of our communities and a little piece of us is torn away. And that is when I apologize for what all of us have done.
Some day in the future the grass will be green again, the scars will heal and our hopes and dreams for a better future for our families will be born again.
I hope it is soon.
It is the most devastating thing that can happen. It is like a death and you need time to mourn, but you can’t because now you have to pick up the pieces and move. Being uprooted is hard and for most, it is depressing, frustrating and sad. Many are angry at themselves and the system that let it happen.
Behind every vacant, repossessed and REO home is a story. Whether they bought it for their retirement, future investment for their children or just their own piece of the American dream, the loss has left a scar not only on that person, that family but on the psyche of the American people and our communities.
And I am often the first one to knock on the door and tell them that they have to move. I see the pain… I hear the stories. After awhile, there is no way you can protect yourself from the raw emotions you feel.
Sometimes you get angry because they let the pool go green and the lawn go brown, they took the stove and left the trash but beyond all that stuff, they are people, our people, part of our communities and a little piece of us is torn away. And that is when I apologize for what all of us have done.
Some day in the future the grass will be green again, the scars will heal and our hopes and dreams for a better future for our families will be born again.
I hope it is soon.
Wednesday, August 19, 2009
To Market to Market to Buy a Fat Pig...home again, home again, jig-a-dee-jig
There may be signs of the economy recovering from the recession, but not real estate. Don’t be fooled by the newspaper and NAR articles that say the prices are up and the inventory is down.
That is true for the first half of ’09 but it is going to take several years for the “python to digest the pig” (I would love to see a cartoon of that) but the saying is so apt for the real estate market now. Did you know that Bank of America has over 55,000 properties on its books?
Think about it...that is one big pig that has to go to market! And that is only ONE of the banks. What about Wells Fargo/Wachovia/World Savings, Chase/Washington Mutual or Citibank? Then add in the FDIC which already has over 13 billion in assets and you just have to believe we are going to be eating pork chops for a long time!
That is true for the first half of ’09 but it is going to take several years for the “python to digest the pig” (I would love to see a cartoon of that) but the saying is so apt for the real estate market now. Did you know that Bank of America has over 55,000 properties on its books?
Think about it...that is one big pig that has to go to market! And that is only ONE of the banks. What about Wells Fargo/Wachovia/World Savings, Chase/Washington Mutual or Citibank? Then add in the FDIC which already has over 13 billion in assets and you just have to believe we are going to be eating pork chops for a long time!
Tuesday, August 11, 2009
Bank Closings .... Bet you didn't even know it happened.
Year to date there have been 57 banks that have closed in the US. On Friday the FDIC came in, took over and transferred assets and on Monday the new bank reopened with business as usual for 49 of the 57 banks. This is in contrast to the huge numbers of banks and savings and loans that went under in the 80’s during the savings and loan crisis.
So what happens to the REO assets of the banks that are not purchased or transferred? Most go the FDIC who assigns them to a subsidiary for management and distribution. Many of these REO or ORE portfolios are broken into smaller and/or regional packages of varying sizes to encourage more and higher bids. There is very little opportunity for the individual bidder as most of these packages are offered to a select group.
If you have a spare $10 million or so and are very well capitalized, you should be looking at websites announcing public and private sales and complete the qualifying process. Remember these are very sophisticated groups that have the knowledge and tools to fully evaluate the offerings and complete their “due diligence” before presenting their bids. For most of us, this means that there will be a waiting process until these REO assets are scrubbed and trickle down to the public. Expect 6 months to 3 years.
So what happens to the REO assets of the banks that are not purchased or transferred? Most go the FDIC who assigns them to a subsidiary for management and distribution. Many of these REO or ORE portfolios are broken into smaller and/or regional packages of varying sizes to encourage more and higher bids. There is very little opportunity for the individual bidder as most of these packages are offered to a select group.
If you have a spare $10 million or so and are very well capitalized, you should be looking at websites announcing public and private sales and complete the qualifying process. Remember these are very sophisticated groups that have the knowledge and tools to fully evaluate the offerings and complete their “due diligence” before presenting their bids. For most of us, this means that there will be a waiting process until these REO assets are scrubbed and trickle down to the public. Expect 6 months to 3 years.
Friday, July 31, 2009
What’s What and What’s Not...in the world of bank-owned property
Have you ever wondered what is really going on in the world of bank-owned property?
Well, even the “experts” aren’t sure. What we do know is that there are a lot of properties going back to the bank from the foreclosure process and not a lot coming up for sale. Last week alone there were 372 properties in Santa Clara County that went back to various banks.
Where are the REO properties hiding? There certainly weren’t 372 new listings for sale.
This is partly because of a lag time in getting the home ready for market before the property is listed on the MLS. More realistically, the banks are simply sitting on them, waiting and waiting for the market to get better or for the government to tell them what they want done with the property or simply because they don’t have systems in place to dispose of them. This is causing a huge build-up of property called “shadow inventory.”
Right now prices are up and inventories are down on all the MLS systems in the Bay Area, but what happens when the banks begin to dispose of their properties in the 4th quarter of the year? If they follow a “drip system,” a little at a time, the values will continue to hold and demand will remain strong. If they move too quickly or with too many properties, the values will decline further—this is the major concern of servicers and agents. There have been many rumors and speculation but until we enter the 4th quarter, it’s wait and see. Look for a lot more property to be on the market and continued low interest rates for buyers.
Good time to buy, you bet!
Well, even the “experts” aren’t sure. What we do know is that there are a lot of properties going back to the bank from the foreclosure process and not a lot coming up for sale. Last week alone there were 372 properties in Santa Clara County that went back to various banks.
Where are the REO properties hiding? There certainly weren’t 372 new listings for sale.
This is partly because of a lag time in getting the home ready for market before the property is listed on the MLS. More realistically, the banks are simply sitting on them, waiting and waiting for the market to get better or for the government to tell them what they want done with the property or simply because they don’t have systems in place to dispose of them. This is causing a huge build-up of property called “shadow inventory.”
Right now prices are up and inventories are down on all the MLS systems in the Bay Area, but what happens when the banks begin to dispose of their properties in the 4th quarter of the year? If they follow a “drip system,” a little at a time, the values will continue to hold and demand will remain strong. If they move too quickly or with too many properties, the values will decline further—this is the major concern of servicers and agents. There have been many rumors and speculation but until we enter the 4th quarter, it’s wait and see. Look for a lot more property to be on the market and continued low interest rates for buyers.
Good time to buy, you bet!
Saturday, March 14, 2009
Some of you wanted to know what Mark-to-Market is, so here goes:
Mark-to-Market is an accounting rule adopted in Oct 2007. It is called FAS Rule 157 and required financial firms to price mortgage-backed securities at the price where they could sell them overnight. This "fire sale pricing" was the ONLY reference point for the bank. It forced them to write down loans well below value, even if they were going to hold the asset until maturity. Remember the bank is still receiving interest on the loan and most likely will until maturity. It was put in place to add transparency in the market and to avoid another Enron.
It is one of those obscure rules that had terrible unintended consequences. Say for example you had an asset on your books of an $800,000 loan with LTV of 80%. You could loan out money based on this asset, maybe make 6 $100,000 loans--keeping sufficient equity/capital in reserve and receive interest payments. This is what banks have always done. This keeps the money rolling over and the economy moving. BUT, if that asset is valued at only $400,000, you can only loan $300,000 or less because of the equity/capital requirements. Now they needed to raise capital because they had to maintain a certain ratio of capital to liabilities.
You can see where the banks couldn't loan money, why they were so devalued, and why they are holding onto the money they received. Add in FEAR and PANIC and you have the "Law of Unintended Consequences," which happened with the run on IndyMac and after Lehman Bros. failed--a horrible financial meltdown which we will continue to feel for years.
Remember, this is only my interpretation. Best to talk to your lender for details, clarification, etc.
Mark-to-Market is an accounting rule adopted in Oct 2007. It is called FAS Rule 157 and required financial firms to price mortgage-backed securities at the price where they could sell them overnight. This "fire sale pricing" was the ONLY reference point for the bank. It forced them to write down loans well below value, even if they were going to hold the asset until maturity. Remember the bank is still receiving interest on the loan and most likely will until maturity. It was put in place to add transparency in the market and to avoid another Enron.
It is one of those obscure rules that had terrible unintended consequences. Say for example you had an asset on your books of an $800,000 loan with LTV of 80%. You could loan out money based on this asset, maybe make 6 $100,000 loans--keeping sufficient equity/capital in reserve and receive interest payments. This is what banks have always done. This keeps the money rolling over and the economy moving. BUT, if that asset is valued at only $400,000, you can only loan $300,000 or less because of the equity/capital requirements. Now they needed to raise capital because they had to maintain a certain ratio of capital to liabilities.
You can see where the banks couldn't loan money, why they were so devalued, and why they are holding onto the money they received. Add in FEAR and PANIC and you have the "Law of Unintended Consequences," which happened with the run on IndyMac and after Lehman Bros. failed--a horrible financial meltdown which we will continue to feel for years.
Remember, this is only my interpretation. Best to talk to your lender for details, clarification, etc.
Wednesday, March 11, 2009
Complete you own Bank Owned Home
Wow! Just got back from Boise, Idaho. Talked to a couple of builders and developers while I was there. What they said was they can't compete with the banks. They can't build them for what the bank is listing the property for. In some cases there is a 40% discount! Fortunately for some developers they have owned the land and can afford to wait. The question is, "how long can they wait?" Some of the builders are buying the bank owned homes, completing them and placing them back on the market.
By the way, this is something anyone can do anywhere. You don't have to go to Idaho. there are plenty in your own back yard. Think about it. You become your own contractor. There is actually good money available to do this.
By the way, this is something anyone can do anywhere. You don't have to go to Idaho. there are plenty in your own back yard. Think about it. You become your own contractor. There is actually good money available to do this.
Friday, February 27, 2009
REO and Others Defined
So what's an REO? By now, if you don't know you, must have been living on the Moon! Seriously, some people don't know what they are and the differences in bank owned and foreclosures.
Let's start with some definitions. First a REO is Real Estate Owned by a bank or another lending institution. In the 80's and with some government agencies they are called OREs or Owned Real Estate. Guess you could call them OREO's, and we did in the 80's! What that means is that the bank or other institution took them back, owns them, because someone did not make the agreed payments or comply with the agreed terms.
In California when you purchase a home you sign a note that you promise to pay the money back to the bank on certain terms. That note is secured with a Deed of Trust or Trust Deed that says if you fail to make your payments or meet the agreed terms the bank has the right to start a legal procedure to collect the debt and/or take the property to recover their loss.
This process is called a FORECLOSURE. It is a legal process where the the bank gives you time to make up the payments or correct other things like pay your taxes. If you don't do this in the time allotted then the bank, individual, or other entity then all the money you owe is due and if you don't pay all of it, plus attorney fees, etc. they will sell it. In the past you may have heard the term "at the court house steps." That's were many sales take place but they can also take place in an office or at the property.
The sale is often referred to as a FORECLOSURE SALE or FORECLOSURE AUCTION because the bank says what they want and anyone can offer more. You just have to have the cash or cashiers check with you! In this market, no one wants to buy many of them so they go back to the bank. Now the bank owns them and there you have it--an REO or ORE.
So you can see that "bank owned," REO, ORE, and foreclosed home are really one in the same.
Next time, Opportunities with Bank Owned Real Estate
Let's start with some definitions. First a REO is Real Estate Owned by a bank or another lending institution. In the 80's and with some government agencies they are called OREs or Owned Real Estate. Guess you could call them OREO's, and we did in the 80's! What that means is that the bank or other institution took them back, owns them, because someone did not make the agreed payments or comply with the agreed terms.
In California when you purchase a home you sign a note that you promise to pay the money back to the bank on certain terms. That note is secured with a Deed of Trust or Trust Deed that says if you fail to make your payments or meet the agreed terms the bank has the right to start a legal procedure to collect the debt and/or take the property to recover their loss.
This process is called a FORECLOSURE. It is a legal process where the the bank gives you time to make up the payments or correct other things like pay your taxes. If you don't do this in the time allotted then the bank, individual, or other entity then all the money you owe is due and if you don't pay all of it, plus attorney fees, etc. they will sell it. In the past you may have heard the term "at the court house steps." That's were many sales take place but they can also take place in an office or at the property.
The sale is often referred to as a FORECLOSURE SALE or FORECLOSURE AUCTION because the bank says what they want and anyone can offer more. You just have to have the cash or cashiers check with you! In this market, no one wants to buy many of them so they go back to the bank. Now the bank owns them and there you have it--an REO or ORE.
So you can see that "bank owned," REO, ORE, and foreclosed home are really one in the same.
Next time, Opportunities with Bank Owned Real Estate
Saturday, February 21, 2009
Welcome to our World
As a way of introducing myself, I have been selling real estate for over 30 years and I am just now entering the blogging world and looking forward to sharing my knowledge, adventures and experience with you. And let me tell you there have been some amazing adventures!
I have been involved in hundreds of transaction over the years—in every aspect of real estate. During the last 3 downturns in the real estate market I have worked with banks, investors, asset managers, financial planners and buyers of bank owned or REO properties. It has been very rewarding! I am eager to share with you some of the knowledge I have gained and offer you insights on this market.
While the market was racing to new heights, I had the opportunity to teach agents at a major real estate firm, Intero Real Estate Services, as the Vice President of Training and Development and Branch Manager for over 100 agents, most brand new to the business. I am proud to say that many of the agents I mentored during that time have gone on to be successful agents in Silicon Valley.
In 2007, I went back to the selling side of real estate where I focused on the REO’s or bank owned properties. I am fortunate to have a wonderful business partner, Joe Rosano, who has over 20 years of real estate experience. Together we have 23 years of REO experience. We are both Certified Residential Specialists and California licensed real estate brokers and have developed the best team in the business.
So take a ride with us and see what you can learn about REOs, foreclosures, short sales and the ins-and-outs of bank owned property.
Bonnie Wilson
I have been involved in hundreds of transaction over the years—in every aspect of real estate. During the last 3 downturns in the real estate market I have worked with banks, investors, asset managers, financial planners and buyers of bank owned or REO properties. It has been very rewarding! I am eager to share with you some of the knowledge I have gained and offer you insights on this market.
While the market was racing to new heights, I had the opportunity to teach agents at a major real estate firm, Intero Real Estate Services, as the Vice President of Training and Development and Branch Manager for over 100 agents, most brand new to the business. I am proud to say that many of the agents I mentored during that time have gone on to be successful agents in Silicon Valley.
In 2007, I went back to the selling side of real estate where I focused on the REO’s or bank owned properties. I am fortunate to have a wonderful business partner, Joe Rosano, who has over 20 years of real estate experience. Together we have 23 years of REO experience. We are both Certified Residential Specialists and California licensed real estate brokers and have developed the best team in the business.
So take a ride with us and see what you can learn about REOs, foreclosures, short sales and the ins-and-outs of bank owned property.
Bonnie Wilson
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