SF Bay Area Real Estate Lawyer & Attorney : David Winton Law Firm : Mortgage, Appraisal : Marin County, Alameda, San Fransisco, California

A recent blog post by the Wall Street Journal includes a revealing and useful map on the delinquency, foreclosure, subprime and various other stats from metro areas around the country.   Find it here.   Actually, when I first looked at it, I thought it was California-only data, but that's probably because of the top 13 delinquency rates in the US, 6 of them--including 4 of the top 5 spots--are here in California. 

Against a national average of 3.86%, the winners are...

• Merced, California at 9.78%.
• Stockton, California at 8.73, and
• Riverside, California at 8.03.

This map is an interactive sort of thing, and there are other specific mortgage-related maps that you can play around with.  For instance, want to know which state's mortgage brokers made the most subprime loans during the "boom?"  It's there.  And...Yes.  California wins again.  29.4% of all real property secured loans made made in the state in 2006 were subprime-- "hard money" as the industry refers to them.  Here's a direct link.  What's really frightening is the dollar volume:  $155 billion. 

The only conclusion you can really reach in looking at this material is that it's a bloodbath, and it's worse in California--by a vast margin--than anywhere else in the country.

What I have to wonder is who was the genius who came up with the idea of speculating with $155 billion in junior deeds of trust in markets like Merced, Stocton and Riverside?  Where was the adult supervision?  Didn't anyone learn anything at all from the S&L crisis?  Or, the dot com fiasco? 

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Sure, why not. Bargains everywhere right?  Maybe.  I wouldn't say that buying foreclosures in this market qualifies as "contrarian investing" but...

At least do yourself a favor and spend some time learning the ropes first.   It's not--as its promoters would have us believe--like shooting fish in a barrel, especially now that investing in the declining market has become the new vogue.  Here's a blog post by Temecula California realtor article Kathy Neilsen on what to do and what not to do.  I wouldn't say it's the first,  last or only word, but it's a great start and a helpful perspective from a pro if you're thinking of  diving into this shark pond.

 

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A while back I wrote a piece on the advisability of "short sales," with a reference to TMG West and its principal Bill Gordon.   Wanting to stay current  on the subject I called Bill the other day to see how things in that segment of the market were going, and it turns out that the news isn't great.

Instead of getting easier, short sales seem to be getting more difficult to get done.  According to Bill's experience, some lenders (Ocwen Financial, for instance) are reported to have instituted policies halting them altogether, while still others, like Countrywide, have restricted the review process to the last few days before the completion of the foreclosure sale itself.

To me the most telling news of my phone conversation with Bill is that his company has stopped doing them altogether.  They're just too hard to get done and more often than not they wind up wasting everyone's time. 

For those who are unsure of what, exactly, a short sale is, just today there is an article in the Philadelphia Enquirer describing the process.  It doesn't say much as to whether these things make any sense, but it does give you some of the basic info. 

My own spin on whether they are worth the effort to even attempt is that it depends.   On who the lender is.  On what the difference between your loans and the value of the property.  On whether the property is a principal residence, second home or investment vehicle.  On what the rest of your financial condition looks like.  On whether you stand to gain anything or whether the risks outweigh the benefits.   

Be careful of short sale boosters.  But then that goes for anyone in this market who advocates a one size fits all remedy to a distressed real estate asset.  There is no single solution...except for a market turnaround. 

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This topic is a real bugaboo that seems to be attracting quite a bit of attention these days, what with foreclosures, short sales, bankruptcies and walk-aways in full bloom in the garden known as the mortgage meltdown.  Unfortunately, there seems to be more misinformation and urban myth floating around than good professional advice.  If you have any reservations at all about your status, don't make any assumptions about this subject without consulting a lawyer or accountant. 

The short answer is that Congress did pass the Mortgage Forgiveness Debt Relief Act of 2007, which does provide a lot of relief, and will probably benefit most of the folks that are most in need of the relief it provides.  But if you have investment property or a HELOC, keep reading. 
   
First of all, the general rule is that forgiven debt gives rise to "ordinary income" which is a taxable event ordinarily reported on IRS Form 1099.  Historically, there has been an exception that if the taxpayer is insolvent (which means only that their debts exceed their assets) then the forgiven debt is not taxable to the extent of the insolvency.  This means simply that if I owe $100 but my assets are only $80, then I am "insolvent" to the measurable tune of $20, and the amount of the forgiven debt that is not taxable would be limited to that $20.   The filing of a bankruptcy petition gives rise to a "presumption of insolvency" which usually is the end of the issue and the taxpayer won't be taxed on the forgiven debt.  Absent a bankruptcy petition, you would normally have to prove the insolvency to the IRS in order to avoid the tax.

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In what has got to be one of the most absurd cases of political window dressing from an administration renowned for its absurd political window dressing, someone very clever inside the Beltway, together with six of the nation's largest mortgage lenders, has come up with what they're calling "Project Lifeline."  As a solution to a problem it's about on par with putting a band aid on a severed limb. But as an act of political theater? I can't help but think "Karl Rove." Anything so useless, so hollowly symbolic, so hostile to the lower middle class...and so appealingly named, has gotta have his finger prints all over it. For two analyses of this proposed legislation, here's how it was reported by Business Week, and here's kind of a wonkish economist's analysis of this blunderbuss. And these critics aren't even part of the liberal media.

For a discussion of why this is more comedy then remedy, read on...

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On her award winning daily radio program Fresh Air, NPR's Terry Gross recently interviewed NY Times financial reporter Gretchen Morgenson.   It's most definitely worth a listen if you, like me, are trying to figure out a way to wrap your brain around how this whole thing happened and why it's having the ripple effects it's having.  Unfortunately, Morgenson concludes that it's not over yet, and we still have quite a way to go before the hemorrhaging stops.

One interesting observation she shares is why the Fed's recent interest rate cuts don't seem to be finding their way into the mortgage rates that you and I go looking for when we want to refinance our mortgages.  (For purposes of simplicity, we'll skip the discussion of the relationship between short term discount rates and long term mortgage rates.)

Basically, says Morgenson, it boils down to nothing more mysterious than the need for mortgage lenders to make back on the new "good" loans what they're losing on the bad loans they already made.  She predicts that, eventually, the cuts will trickle down (remember that term?) to street level, though she doesn't suggest when that might be.

Meanwhile, here in Bay Area, while we are "blessed" with residential markets that seem to defy gravity better than most, we are still not completely exempt.  Back in January, Carolyn Said, of the San Francisco Chronicle, penned a very tight summary of the current condition of the nine-county Bay Area,  pulling her data from the real estate economics research firm Dataquick and Zip Realty.

Here are the bullets:

• Median home price:  Down about 5% from a year ago, and about 11% from its July 2007 high.
• Sales volume down about 40% from its previous year's high.
• Inventory levels?  Well, that question is hardly even worth asking given the answer.  They're just up all over the place, from 23% to 99%, depending on location.

So, the long and short of it is there's plenty of things to pick from, some bargains to be had on the sale price end, but no bargains to be found in financing.  Yet. 

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The latest craze around these parts--at least with stressed out under-water homeowners and under-employed residential sales agents--is the "short sale."  A short sale is nothing more than a sale of a piece of real estate for less than the amount of the total debt secured by it. The concept is attractive, though the reality is significantly less so.  Whether it's worth the hassles and heartburn is going to depend on your particular situation. 

However, assuming you've decided to actually go through with trying to do this, here are some thoughts and cautions...

First of all, I don't take any credit at all for the following advice and observations.  They come from a recent seminar I attended hosted by Fidelity National Title in Novato, at which the guest speaker was Bill Gordon of TMG West.   Although based in Burlingame, California, TMG's website indicates that they're doing these all up and down the West Coast.  Bill gave a seminar to a group of brokers and sales agents recently and he knows his stuff.  He was kind enough to allow me to attend, and was even patient with me when I couldn't keep my mouth shut a couple of times.

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