Fulton Homes is taking one of the more interesting steps yet in dissuading homebuyers from foreclosed properties.

Things have been pretty good for builders the last couple months. After two years of sideways growth, construction activity has been charting upward, builder confidence has been rising, and, in the most positive news of all, there have huge increases in multifamily originations, which suggest future developments for builders to anticipate.

What all that good news does not change, though, is the distressed property market, which still poses the most substantial challenge to not only a construction recovery, but a housing market recovery, and one builder is taking some interesting steps to confront that fact.

Fulton Homes, an Arizona-based builder, has begun marketing a “Foreclosure Calculator” on its website, an application that proclaims to represent the true cost of foreclosed homes. Web users are asked to input the listing price of a home, its square footage, and the condition of the property. Then, the application calculates the “real” cost by adding the assumed rehabilitation and legal costs to the overall price of the property – and then, users ar directed to view new construction properties by Fulton in the same price range.

The reason for Fulton’s strategy is simple – homebuilders cannot compete with the irresistible listing prices of foreclosed properties. According to the latest data from RealtyTrac, foreclosed homes are sold, on average, at a 34 percent discount, and no builder, regardless of its cost-management system or labor force, can sell properties for such a price and still make a profit.

Thus, as AgentGenius pointed out in a recent article, Fulton is aggressively promoting its calculator app to dissuade homebuyers from considering foreclosed properties.

“As an example,” the article stated, “a 1,755-square-foot foreclosure home in Arizona listed for $81,500 in ‘poor’ condition that has outstanding liens but no current occupants will cost an average of $42,908 cash investment in the form of repairs, appliances, painting and the like, making the total investment $124,408 … Some consumers believe that the $81,500 price tag is their cost, but when buying a distressed home, it is often much more.”

Foreclosures are expected to increase in the coming months, so builders can expect added competition from heavily discounted properties; Fulton’s strategy, though, is among the more original approaches to the home-price dichotomy that we’ve yet seen. Do you see their strategy working, and reinvigorating interest in new construction?

Homes sales for Illinois and Chicago were all sunshine and happiness in January, though troubles may loom ahead.

Year-over-year homes in Illinois increased 16.1 percent in January to 6,435 homes, the strongest showing for the embattled housing market since 2007, according to data released today by the Illinois Association of Realtors (IAR).

Loretta Alonzo, the president of IAR, said that historically low interest rates, coupled with employment gains and housing affordability, contributed to the big increase in sales.

“Whether you’re a seller or a buyer, there are positives to this data,” Alonzo said. “After years of standing on the sidelines, buyers are finding this is the right time to get into affordable housing. While sellers may not be getting all of the money they want for a house, they are getting traffic and interest at levels that haven’t been seen in several years.”

The statewide median price in January was $122,500, down 9.3 percent from $135,000 in January 2011.

Sales in the nine-county Chicago Primary Metropolitan Statistical Area were similarly positive, rising 15.7 percent from January 2011. As with Illinois’ sales, though, the median price in January 2012 did decline by 11.4 percent from last year.

For just the city of Chicago, January 2012 home sales were up 5.7 percent year-over-year, and prices were down just 0.7 percent.

Bob Floss, president of the Chicago Association of Realtors, said the relatively mild winter of 2012 has influenced sales.

“January gave 2012 a solid start in sales of homes in the city of Chicago,” Floss said. “Motivated buyers and sellers moving in what has been a mild Chicago winter has helped move both distressed and traditional properties. We will be closely watching the impact of pricing on the market and how homebuyers and investors react to what could be a new norm.”

And that “new norm” that Floss refers to will shape the market going forward, according to comments by Dr. Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory of the University of Illinois, especially in light of the mortgage settlement.

“Now that the major legal bottlenecks for processing foreclosed properties appear to have been resolved, it is likely that these properties will assume a significant share of sales in 2012,” Hewings said. “This provides mixed news for the housing market; it is positive in the sense that the large backlog can now begin to be removed from the inventory. However, it is likely to continue to dampen any prospect of near-term housing price recovery.”

Existing-home sales rose again in January, but inventories continued their decline.

Existing-home sales rose by 4.3 percent from December to January, marking the third time in the last four months that the key housing measure has shown monthly gains, according to the latest data from the National Association of Realtors (NAR).

Lawrence Yun, NAR’s chief economist, said the recent uptick in sales suggests that buyers are responding to favorable market conditions.

“The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents,” Yun said.

Moe Veissi, NAR’s president, also said that a newfound buyer confidence is driving sales.

“Word has been spreading about the record high housing affordability conditions and our members are reporting an increase in foot traffic compared with a year ago,” Veissi said. “With other favorable market factors, these are hopeful indicators leading into the spring home-buying season. We’re cautiously optimistic that an uptrend will continue this year.”

In total, existing-home sales were at a seasonally-adjusted, annual rate of 4.57 million for January, a 0.7 percent increase over January 2011′s sales. In addition, NAR also reported on housing inventories, which continued their downward slide and fell to 2.31 homes, or, 6.1 months of supply. Inventories peaked at 4.04 million in July 2007, and are now 20.6 percent lower than they were in 2011.

Yun suggested that the inventory situation was neither good nor bad, and even took a subtle swipe at recent government action in the REO market.

“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,” he said. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.”

Yun’s comments on rental conversion programs, though, are at odds with a recent report from the Financial Times that we just wrote about.

Other details in NAR’s report included: median price continued to drop in January, falling 2.0 percent year-over-year to $154,700; investors purchased 23 percent of January’s homes, up from 21 percent in December; and contract failures continued to affect transaction, with 33 percent of agents reporting such difficulties (9 percent reported contract failures a year ago).

Existing-home sales in the Midwest increased 1.0 percent in December, which was 3.2 percent higher than January 2011. The median price in the Midwest was $122,000, down 3.9 percent from a year ago.

The gavel may fall on Quicken Loans, as the lender is being sued for unearned fees.

A lawsuit involving lender Quicken Loans began its arguments before the Supreme Court today, with the future of closing fees that lenders charge hanging in the balance.

Officially called Freeman v. Quicken Loans Inc., the case originated in 2007, when the Freeman, Bennet and Smith families obtained mortgages from Quicken Loans and were charged what the families considered unearned fees on the mortgages.

The Freemans and Bennetts were charged “loan discount fees” and the Smiths with “loan origination fees” and “loan processing fees.” According to court documents, the first two families allege that the interest rates on their loans were not reduced to a corresponding amount to the fees that Quicken Loans charged, while the Smiths allege that the origination fees were a doubling of the processing fees.

At the heart of the case is the Real Estate Settlement Procedures Act (RESPA), a law that prohibits servicers from charging unearned fees if the fee is divided between two or more parties (in other words, it prohibits the charging of kickbacks). The Freemans et. al. are arguing that RESPA should apply to unearned fees even if the servicer does not split the additional, unearned earnings with another party.

Thus far, they have been unsuccessful in their arguments. In both preceding cases before the lower Federal courts, Quicken Loans has asked for a summary judgement in the case (that the case be thrown out before arguments commence), arguing that RESPA only applies to fees that are divided between parties. The courts granted Quicken Loans’ request, and the families have appealed the decision to the Supreme Court.

Though Quicken Loans prevailed in the earlier cases, Ronald Mann, a Columbia University professor of law and blogger for SCOTUS Blog, the Supreme Cout’s official blog, wrote that he anticipates a much different outcome for the case before the nation’s highest court.

The problem, Mann wrote, is that Quicken Loans has a difficult case to argue, given the precarious relationship the case has with RESPA’s application.

“The central problem for Quicken is offering any reason why Congress would want to prohibit an unearned fee if it is split between two parties but tolerate it if the originator keeps the entire fee,” he explained.  “Quicken does a workmanlike job here of presenting the classic argument that Congress is entitled to regulate incrementally and pick and choose among the types of conduct it will remedy at any particular time. But the weakness of the statutory argument coupled with the strange policy outcome leaves Quicken in a tenuous position for next week’s oral argument.”

“My best guess is that the result here will be a straight-on reversal of the lower court’s strangely narrow reading of RESPA,” Mann wrote.

Jason Shapiro is a broker/principal at Rising Realty in Chicago.

In today’s competitive real estate market, a great looking and staged home can give a seller a leg up on their competition. With the over-saturation of home inventory on the market and the influx of new properties coming to market this year because of foreclosures, it has become even more important to have a strategy to set ones home apart from its nearby competition. Hiring an experienced staging company may be the move that ultimately sells your home in the shortest time and at the highest price.

Staging has become such a hot button these days that some sellers are now hiring a home stager before a Realtor. This demonstrates a trend where how your home looks is becoming as important as the real estate agent you hire.

Research demonstrates that homes that are staged sell faster and at higher prices than homes that aren’t staged. So, hiring the right stager who has the right design vision for your home and a Realtor that targets the right price point will continue to be the biggest factors in selling ones home.

I’m frequently asked how to find the right stager for a particular seller. The answer depends on what the seller can afford to spend on their house staging design and how quickly they are looking to sell.

The more a home is staged has an impact on buyers who walk through the home, and some are better at visualizing than others if space is left empty. A vacant home has a colder and less personal feel and appeal to a potential buyer than a home that has furniture and accessories appropriately placed by a home staging designer.

I’m frequently asked how to find the right stager for a particular seller. The answer depends on what the seller can afford to spend on their house staging design and how quickly they are looking to sell.

The more a home is staged has an impact on buyers who walk through the home and some are better at visualizing than others if space is left empty. A vacant home has a colder and less personal feel and appeal to a potential buyer than a home that has furniture and accessories appropriately placed by a home staging designer.

It’s also helpful to ask fellow realtors who they have worked with staging and their experiences. Additionally, more and more sellers are hiring stagers to redesign and help work with them moving around the clients’ existing furniture and accessories.

This is known as occupied home staging where the stager doesn’t need to bring in additional furniture and will work with the seller’s existing personals. This is an affordable way of touching up the current property with a designers minor personal vision.

Jason Shapiro is a broker/principal at Rising Realty in Chicago; he can be reached at:

Office: 773.897.0614
Fax: 773.395.9553
Cell: 847.910.0567
www.risingrealty.com

Servicemember debts could be wiped out from provisions in the mortgage settlement.

The state attorneys general mortgage settlement received almost immediate criticism from homeowner and housing advocates alike after its Feb. 9 announcement, with common complaints being the limited reach of the settlement and the numerous consumer groups that were either unaffected or helped only minimally.

According to an HSH analysis, though, at least one group of homeowners will receive an adequate settlement as part of the agreement – veterans whose homes were wrongfully foreclosed on.

Citing Department of Justice figures, the article cited several instances of net benefit for home-owning veterans, all of which are payouts in addition to the original $26 billion settlement.

For instance, four of the five banks involved in the settlement – JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial Inc. (formerly GMAC) – will conduct full reviews of all servicemember foreclosures since Jan. 1, 2006 to see if the foreclosures comply with the Servicemembers Civil Relief Act (SCRA).

In addition, Citigroup, Wells Fargo and Ally will review all loans to servicemembers after Jan. 1, 2008 and determine if they were charged more than 6 percent interest in their mortgage after a valid request for a lower interest rate, which is also in violation of the SCRA. If such a case is found, the services must pay the service member triple the amount charged beyond 6 percent or $500 (whichever is larger).

Lastly, and perhaps most substantially, Wells Fargo, Citigroup and Ally are required to provide any servicemember who was the victim of a wrongful foreclosure with a minimum payment of $116,785, plus the servicemember’s lost equity and interest.

Polyana da Costa, of Bankrate.com, said in the HSH article that the veterans portion of the settlement far exceeds the other portions of the agreement.

“Now that is what I call a settlement,” da Costa said. “It’s certainly much better than the mere $2,000 that nonmilitary borrowers may receive under the $25 billion federal-state mortgage settlement.”

Short sales have historically taken quite a bit of time, but a new bill in the Senate seeks to correct that flaw.

Short sales have rightfully earned a reputation of being slow, plodding and, in some occasions, maddening, but a new bill introduced in the Senate yesterday seeks to cut through all the red tape and simplify the process.

Brought before the floor by Lisa Murkowski, a Republican Senator from Alaska, the bill would give servicers 75 days to reply to a homeowner’s written request, a period during which they must approve, deny or request an extension for up to 21 days.

If the servicer fails to meet the bill’s stipulations, the homeowner would receive $1,000 for each infraction.

Murkowski said in a statement quoted by HousingWire that communication is a big part of her bill. And she referenced “Cool Hand Luke,” while she was at it.

“What we have here is a failure to communicate,” she said. “Why don’t we make it easier for Americans trying to participate in the housing market, regardless of whether the answer is ‘yes,’ ‘no’ or ‘maybe?’”

HousingWire also quoted Moe Veissi, president of the National Association of Realtors, who said Realtors support “any effort to improve the process for approving short sales.”

A truly bipartisan effort, the bill is co-sponsored by Sens. Scott Brown, R-Mass., and Sherrod Brown, D-Ohio. HousingWire noted that of six short sale bills introduced in Congress, only Murkowski’s bill made it through committee. For instance, one bill, introduced by Rep. Thomas Rooney, R-Fla., would automatically approve a short sale, unless a lender or servicer responds within 45-days.

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Housing inventories have been declining recently, but that does not mean they are necessarily manageable.

Throughout 2011, housing inventory had been on a steady decline, a development that should be welcome, given the constant analyses on the excess housing supply as a result of boom-era overbuilding. As details emerge over the nature of those inventory declines, though, some economists are questioning the positivity of housing’s increasingly shrinking supply.

Year-over-year, visible inventories were down 17 percent in January, and the latest projections indicate that they could fall even lower to six months supply, a level not seen since early 2006.

And as previously stated, some analysts have been very high on the declining inventories, most notably the National Association of Realtors. In a December press release on existing-home sales, the association’s Chief Economist, Lawrence Yun, said stability was the key end result for falling inventories.

“Since setting a record of 4.04 million in July 2007, inventories have trended down and supplies are moving close to price stabilization levels,” he said.

As is often the case in economics, though, there are several killjoys to the happy stats, most of them involving the shadow inventory, a topic we’ve reported on before and one that represents a true challenge to the present housing recovery.

In a Financial Times article on inventories, analysts from RBC Capital highlighted how when shadow properties are counted, full housing inventories are nowhere near their normal levels.

“[W]e have to keep in mind that the shadow inventory component remains a major source of downside pressure for home prices in the medium term,” the analysts said. “And while the 4Q delinquency data did show a decline in this inventory glut, it remains north of 17 months’ worth of supply at current sales rates. It certainly is moving in the right direction, but ‘normal’ is still a long ways away and the path there looks likely to be drawn-out. The housing market remains extremely oversupplied and, until this changes, the bottom in home prices will continue to elude us.”

Credit Suisse stressed the same points in a report on inventories that FT cited.

“Has housing turned the corner? The U.S. housing sector has been cheap by most measures for some time, but excess supply, driven by a steady stream of distressed homes, will continue to put downward pressure on home prices for the time being,” the report stated, leaving some room for optimism. “A vigorous housing recovery is probably a year or two away (at least), but home construction and home sales have bottomed out, and we expect modest growth in residential investment this year (3 percent).”

Another uplifting note involves the government’s REO conversion program, a plan Credit Suisse specifically recommended as the best option to combat the shadow inventory’s effect. Designed to sell distressed properties to investors in bulk, discounted packages, the investors would then manage the properties as rentals, increasing not only the property’s value, but also saving community tax bases, creating jobs for rehabilitation projects, and meeting the country’s growing demand for rental units. And through its initial stages, things seem to be going well.

Reports indicate that Freddie Mac is deviating from the government's REO plan with its own offering.

The White House and the Federal Housing Finance Agency (FHFA) are hard at work on a distressed housing program that would convert REO properties into investor-managed rental homes, and though the program seems to be going well in its initial stages, Freddie Mac, the GSE uninvolved in the program, is pursuing its own conversion program.

According to a Reuters piece on the program, Freddie Mac has begun discussing the plan’s details with investors that differ quite substantially from the government’s plan involving Fannie Mae. As with the government’s plan, Freddie would secure a special line of credit for investors to purchase the REO properties at low leverage levels, with the loans possibly being securitized in the same way the GSEs securitize other loan offerings.

Where the program would differ, though, would be how it would allow investors to individually choose the properties they wanted to purchase, rather than sell the homes in discounted bulk packages, as the government is planning.

A senior investor quoted in the Reuters piece spoke to the benefits of Freddie’s approach.

“Freddie is more likely to allow investors to buy what they want to buy, through any channel, and lend to anyone who is a qualified operator with a portfolio,” said the investor. “This allows institutional investors to buy properties that they think most prudent, which will surely garner the highest overall price, compared with the ‘bulk sale’ method used by Fannie.”

As Reuters noted, though, the approach does have its critics, who allege that by allowing investors to cherry pick their properties, the vacant homes in most dire need of repair (and in the most dire economic climates) would be allowed to languish, and home values would only continue to decrease in those regions.

There are still details that need to be worked out, though, regarding the programs. A Freddie spokesman would not confirm or deny the program’s existence with Reuters, and the quoted investor said there are still hurdles that need to be cleared before the program can officially begin.

“This proposed product is moving along quickly, though the FHFA might be a hurdle,” the investor said. “There are questions as to whether this product would require a change in Freddie Mac’s charter, as it represents an expansion of the GSE’s activities at a time when the government is supposed to be diminishing them. But it is nearly approved.”