Obama May Prohibit Home-Loan Foreclosures Without HAMP Review

“Good thing I haven’t paid off our home yet.:”)

http://www.napavalleyregister.com/news/local/article_6c103f22-203a-11df-b870-001cc4c03286.html

Distressed real estate market creeping into larger properties
By JENNIFER HUFFMAN Register Business Writer | Posted: Tuesday, February 23, 2010 12:00 am

One hundred and eighty-five homes in Napa County fell into foreclosure during the last quarter of 2009, and it’s not just the modest homes in middle-class neighborhoods that are back on the books of banks and lenders.

A few higher-priced homes are also in distress, such as the one at 44 Greenbriar Circle in the Silverado Highlands area of Napa.

The million-dollar home with million-dollar views sits vacant after owners defaulted on their $3.1 million mortgage. On Dec. 31, 2009, lender Lydian Mortgage took the home back. In early February, the four-bedroom, four-bath house was listed for $2.8 million, $1 million less than an earlier asking price.

Unlike the average homeowner in distress who has fewer financial resources to draw on, higher-end homeowners may attempt to avoid foreclosure by turning to attorneys, bankruptcy or other financial maneuvers, analysts said.

The strategy can pay off. Sometimes lenders will give the higher-end homeowner more leeway because they perceive they are more likely to become employed again or regain their former net worth.

Banks may feel these property owners “have a higher rate of recovery than a civil service worker on a fixed income that has nowhere to go,” Cheri Stanley with Frank Howard Allen Realtors said.

Other owners of these higher-priced homes remain in denial, she said. Some think they can negotiate with the banks endlessly. They may ignore signs of impending default. “A lot of times people bury their heads in the sand,” Stanley said.

Heidi Rickerd-Rizzo, vice president and principal of Terra Firma Global Partners, said there is a “psychological difference (with) these very high-portfolio, sophisticated clients. They do not want their story on the street.”

Rickerd-Rizzo said pride or protection of professional reputations is prompting some buyers to avoid bringing a real estate professional into the loop to help with alternatives — private sales, price reductions, rental options — until it’s too late. She cautions against that. “There’s just so much at stake. You want to start these processes early.”

Meeting with a Realtor early on sometimes can help avoid a public sale. Between 10 and 15 percent of home sales are arranged privately, she said.

Randy Gularte of Heritage Sotheby’s International Realty said that these homeowners aren’t following the familiar route to trouble — 100 percent financing of homes that then declined in value, leaving the owners with no equity.

Lenders for higher-end homes normally require a 20 percent down payment, he said, which typically insulates buyers if prices fall. But with a steep decline, even homeowners who put 20 percent down begin to be affected by lowered values, he said.

“A lot are turning to the rental market to rent them out to (try) and cover the mortgage,” Gularte said. “The problem with that is there are not a lot of tenants that can afford to pay $4,000 to $6,000 a month because they are having their own problems.”

As for the homeowners, Gularte said, “All they are trying to do is get out of it without a foreclosure.”

At the same time, “We are seeing distressed people that really need to sell but they’re not accepting the market. They still have the fallacy of, ‘I had a million dollar house, how come it’s not worth a million any more?’”

“Most sellers see the market (of) five years ago,” Gerry Bosch of Coldwell Banker said. “We’ve been so spoiled that it’s very hard to go back and say, ‘The reality is I lost 40 percent value in my home.’ No one wants to hear it.”

So what happens next?

Professionals see an extended period of the market working its way back to health.

Bosch said cash remains king, meaning investors who do not require loans to finance purchases have the jump on others. Sellers who find a cash buyer need to be prepared to discount the asking price, he said.

No one — banks, the federal government or homeowners — wants to see more foreclosures. That means private sales, loan renegotiations and reasonable attempts to tap the rental market are the options to explore, Realtors said.

The news may be good for the home on Greenbriar Circle, as a prospective buyer has made a contingency offer on the house.

“Short sales will continue to increase in the next two to three years,” Rickerd-Rizzo said, referring to sales of distressed homes for less than what the borrower owes on the property. She said she believes the number of new foreclosures will decrease. “Banks are realizing it’s much more effective to do a work-out plan with the property owner than foreclose.”

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