Minneapolis Foreclosures Falling?

Star Tribune has an article discussing how Sheriff’s Sales in Minneapolis might be peaking. The article gives several possible reasons for the peak in activity and discusses some of the things that are being done to help address the problem.

We’re far from through this crisis, but it seems like every few weeks there is a new data point that shows we’re finding fundamental levels and once we know where are boundaries are, I believe we’ll all feel more comfortable with the future of the housing markt.

Foreclosures and Short Sales are Comparables

A debate recently in my office between another agent and I focused on whether foreclosures and short sale properties really should be used for comparables for “normal” sales.

My esteemed colleague believes that since foreclosures and short sales are sold under “distressed” situations, they are not good comparables for other homes for sale.  My counter is that many foreclosures and short sale properties are not in bad condition and so they should sell at a fair market price regardless of their “distressed” situation.

When it comes down to it, foreclosure and short sale listings most often do sell at a discount to regular listings and should have that taken into consideration, but even in a slow market houses priced appropriately are selling quickly, so those are market prices.

What we do find is a substantial disparity on how much of an impact those foreclosures have on the houses around them.  In areas with low numbers of foreclosure and short sale properties, we find that those properties have little effect on the market as a whole.  Where there are a high number of these properties in a single area, we find the the impact is more like an exponential impact: the higher the number, the more substantial the impact each additional listing has.

Top 10 Reasons Why Countrywide is Being Stupid With REO's

Time and time again, I see Countrywide Home Loans (CHL) listing their Real Estate Owned (REO) properties on our local MLS and requiring buyers to get pre-approved with a Countrywide Retail Loan Officer prior to submission of their offer.  In fact, in their required addendums, it is specifically noted:

If the Agreement is contingent on financing, as a sales condition, Buyer must obtain a pre-approval letter from a branch office of Countrywide Home Loans, Inc. (“CHL”) for a mortgage loan in an amount and under terms sufficient for Buyer to perform its obligations under the Agreement, and such letter must accompany the Agreement.  The pre-approval shall include, but is not limited to, the pre-approval letter, a satisfactory credit report, and proof of funds sufficient to meet Buyer’s obligations under the Agreement. Buyer’s submission of proof of pre-approval is a condition precedent to Seller’s acceptance of Buyer’s offer. Seller may require Buyer to obtain, at no cost to Buyer, loan pre-approval as Seller may direct. Notwithstanding any Seller required pre-approval, Buyer is not required to obtain financing from CHL or Seller- Buyer may obtain financing from any source.  As an incentive for the Buyer to obtain financing from CHL, CHL will offer a free appraisal and a free credit report if the Buyer finances and closes the purchase of the Property through financing from CHL.

This is ludicrously stupid for the following reasons (not a complete list):

  1. Most buyers are pre-approved early in the home search process and have already chosen a lender they are comfortable with and are ready to buy NOW.
  2. Most buyers do not want to share private information with a stranger.
  3. Most buyers have no intention of working with the Countrywide Loan Officer.
  4. Countrywide pulls credit, meaning another inquiry on buyer’s credit report.
  5. Countrywide’s lending capabilities (product options) have been dramatically reduced since they are doing mostly/only loans that Fannie Mae or Freddie Mac will buy.
  6. Agents have existing relationships with loan officers that they know, trust, and can count on… they don’t like to have an ultimatium put to them any more than a buyer and don’t like interference in their client relationship.
  7. Agents often have such a long list of potential homes to show that they need to find reasons to eliminate some… this is an obvious candidate for removal.
  8. Countrywide doesn’t care who the approval is from or how solid the buyer is… if they are using financing, they HAVE TO get a pre-approval from Countrywide Retail. Period.
  9. Offering to do a free appraisal on a home that they own is akin to having the fox guard the hen house simply because he’ll do it for free… where’s the buyer’s protection when the seller is the loan originator?
  10. And finally- buyers are not stupid and they know when they’re being jerked around.  With so much inventory on the market, they can choose to tell Countrywide to keep their property and they’ll go find someone else who won’t treat them like a fool.

According to the Countrywide Foreclosure Blog, Countrywide had 14,442 REO homes listed on their site as of 12/5/07 at a total asking price of just over $3 Billion.  With so much inventory, so much competition, such a difficult buyer market, and tough times keeping Countrywide financially afloat, you would think that they would want to do everything they could to get their properties sold!

Recently I have seen several of Countrywide’s properties in the $200,000 range price reduced $30,000 and $40,000 all at once.  Such drastic price reductions have generated interest in the properties but also shows the motivation, and possibly desperation, of Countrywide to get these houses off their books.  If they eliminated their pre-approval requirement, they might see more interest from qualified buyers without having to so drastically reduce prices.

Some people suggest that Countrywide requiring a pre-approval is smart business, that it gives them an opportunity to pick up the buyer’s mortgage.  I would be surprised if they had more than a 20% capture rate on these leads (but I have no knowledgewhat their capture rate is), and the added holding costs for longer sale, disinterested buyers, and further price reductions make me think that this is a losing battle for them. 

Message to Countrywide: eliminate your CHL pre-approval requirement.  You’ll sell more houses, sell them faster, and likely at a higher price.