Where are the Best Markets for Flipping?

flipping-housesWhile flipping activity overall is down considerably from its peak reached 11 years ago, the median gross profit per flipped property is up considerably and some markets in the country are providing ample opportunities for flippers, according to data released by CoreLogic on Tuesday.

According to CoreLogic’s May 2016 MarketPulse, Principal Economist Bin He examined the levels of flipping nationwide and confirmed that the ratio of flipped homes among all residential homes was 4.4 percent for Q1 2016, down from its peak value of 6.4 percent in Q1 2005. But due to much lower overall home sales figures in 2016 than in 2005, the actual number of flips in Q1 2016 was more than 70 percent lower than its peak reached in Q2 2005.

The median gross profit per flipped property in Q1 2016 is about 17 percent higher than its peak value reached in Q3 2005 ($56,000 compared to $48,000), although the median percentage gross profit is declined from its peak of 47.7 percent in 2009 down to 41.1 percent in Q1 2016. According to He, the decline in median percentage gross profit is likely due to a significant and steady decline in the overall share of distressed inventory; CoreLogic reported that as of February 2016, the distressed sales share was slightly higher than 11 percent, which is approximately one-third of its peak reached in 2009.

5-24 Flipping tableFlorida was the state with the most flipping opportunities during Q1, according to CoreLogic. Out of the top 20 core-based statistical areas in the country ranked according to the highest share of flipped homes, eight of them were located in Florida. Seven of the top 10 markets with the highest share of flipped homes were in Florida.

The three markets with the highest flip percentage in Q1 were Memphis, Tennessee (8.80 percent); Fresno, California (8.43 percent); and Lakeland-Winter Haven, Florida (7.54 percent). In the top market for flipping, Memphis, the average number of days to flip (111) was well below the national average of 154 days and the median percent gross profit (55.6 percent) was much higher than the national average of 41.1 percent for Q1. The median gross profit in Memphis during Q1 ($38,466), however, was way down off the national average ($56,000).

Four of the top 20 CBSAs with the highest flipping percentage were located in California, including the two markets with the highest median gross profit for Q1 (San Jose, with $124,000 and Los Angeles, with $122,400). At the same time, however, those two markets had comparatively low median percentage gross profits (Los Angeles with 35.4 percent and San Jose with 20.2 percent). The markets out of the top 20 with the highest median gross percentage profits were Chicago (68.4 percent, with a median gross profit of $76,000), Richmond (68.2 percent, median gross profit of $81,000), and Palm Pay, Florida (67.4 percent, median gross profit of $58,800).

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Clinton and Trump Spar Over ‘Housing Bubble’ Remarks

Hillary Clinton

2-1 Donald Trump

The two presumptive presidential candidates have engaged in a war of words over the housing crisis, with one candidate accusing another of being excited about the prospect of making money off of millions of families losing their homes.

Presumptive Democratic presidential nominee Hillary Clinton has launched an attack against her rival, presumptive Republican nominee Donald Trump, for some comments that the latter made a decade ago regarding the forthcoming housing crisis.

According to an audio posted by CNN, Trump said in an audiobook produced for Trump University in 2006, about two years prior to the housing crisis: “I sort of hope that happens because then people like me would go in and buy. You know if you’re in a good cash position, which I’m in a good cash position today, then people like me would go in and buy like crazy. If there is a bubble burst, as they call it, you know you could make a lot of money.”

Trump also said that he didn’t believe that the crash would happen if interest rates stayed low and the dollar remained weak: “There’s just tremendous amounts of money pouring in so I don’t think that’s going to happen. I’m not a believer that the … real estate market is going to take a big hit.”

Trump’s comments from 2006 have prompted Clinton to accuse him of, among other things, “Rooting for the crisis,” “devastating millions of families,” and “hoping” the housing market crash would happen “so he could make money off of it,” all through various Tweets on Tuesday.

Trump did not back down from the comments he made a decade ago. He responded to Clinton’s attacks in a statement on Tuesday: “I am a businessman and I have made a lot of money in down markets, in some cases as much as I’ve made when markets are good. Frankly, this is the kind of thinking our country needs—understanding how to get a good result out of a very bad and sad situation. I will create jobs, bring back companies, and not make it easy for companies to leave. If they do, they will fully understand that there will be consequences. Our jobs market will flourish.”

Coalition Pushes for Stricter Wall Street Regulation

wall-st-twoWhile Republicans have long claimed that the financial system in the United States have been severely overregulated since the crisis, a group of progressives who believe that Wall Street is not regulated enough has organized a coalition in hopes of getting stricter rules passed.

Sen. Elizabeth Warren (D-Massachusetts), the architect of the controversial Consumer Financial Protection Bureau that came from the Dodd-Frank Act of 2010—the focal point of Republicans’ complaints of financial industry overregulation—led the coalition on Tuesday,according to Think Progress. Also joining in were Reps. Keith Ellison (D-Minnesota) and Nydia Velasquez (D-New York) and various labor leaders, civil rights groups, and community groups.

Tuesday’s rally comes just one week after presumptive Republican presidential nominee Donald Trump announced that he would overhaul Dodd-Frank if he is elected president.

According to Warren, the coalition is operating on two key principals—“No cheating and no pushing the risks on taxpayers”—the coalition is making five key demands:

  • Break up the largest banks
  • Ensure consumer access to non-predatory banking products
  • End the carried interest tax loophole allowing hedge fund managers to use a tax break for investment income on income they make at work
  • Rein in executive bonuses
  • Impose a financial transaction tax

In her address on Tuesday, Warren noted some of the accomplishments of Dodd-Frank—namely the more than $10 billion the CFPB has returned to consumers that the Bureau has deemed to have been harmed by predatory financial practices. But she said there is more to be done.

“We have made a lot of progress under the Dodd-Frank financial reforms,” she said. “But we’ve also got a lot more to do.”

Notably, Warren called for the breaking up of the country’s largest banks, because she believes that Dodd-Frank did not end “Too Big to Fail” as it professed to do.

The report noted that the point of the coalition is not just to lay out policy but to combine forces in hopes of getting that policy passed. Warren pointed out that she believes it will not be an easy fight, but “we didn’t take on this fight because it’s easy, we took on this fight because it’s right.”

Fairholme: Status Quo Makes Another Bailout ‘Inevitable’

Fannie-Freddie-logos-twoThe Net Worth Sweep, or the sweeping of all Fannie Mae and Freddie Mac profits into Treasury, has been under more intense scrutiny as of late since some of the documents related to Fairholme Funds’ lawsuit against the government over the Net Worth Sweep were unsealed in April.

The recently unsealed documents suggest that key government officials, namely Fannie Mae’s CFO, may have known that the GSEs were on the verge of huge profitability when the bailout agreement was amended in August 2012 to start the Net Worth Sweep.

As a preferred stockholder in the GSEs and one of the Enterprises’ largest investors, Fairholme has one of 22 current lawsuits against the government that involves the Net Worth Sweep.

“We have made enormous progress over the last 12 months, largely behind the scenes,” Fairholme CEO Bruce Berkowitz said in a recent interview. “With each passing day, we seem to be getting closer to the finish line, so I remain very optimistic.”

Add to that the fact that the GSEs’ capital buffer is being reduced by $600 million per year until it reaches zero by January 1, 2018, as well as the fact that Freddie Mac has suffered a loss in two of the last three quarters, and many stakeholders in the mortgage industry, as well as GSE investors and shareholders such as Fairholme, are deeply concerned about the possibility of another taxpayer-funded bailout.

Bruce Berkowitz

“Fannie and Freddie have over $5 trillion of liabilities outstanding, yet Treasury is milking them of all their income and forcing them to operate with no capital,” Berkowitz said. “It’s absurd. If the government takes all of your wealth every quarter as the return on a forced investment, and never allows the repayment of that forced investment, then it is inevitable that there will come a time in the future when the government will force more investment on you, another so-called bailout.”

To be clear, Berkowitz does not want to get rid of Fannie Mae and Freddie Mac; after all, he said, “Who else makes the 30-year pre-payable fixed-rate mortgage widely available through thick and thin? Who else can provide $7 trillion of liquidity to America’s housing market since 2009 helping low and moderate-income Americans buy, rent, or refinance a home?”

Berkowitz simply wants the GSEs released from government control, “the same as AIG.” He added, “I believe the United States Treasury is growing increasingly isolated as a result of its eight-year policy forcing Fannie and Freddie to remain in a state of captivity known as ‘conservatorship.’ It is a shame and a huge delay of game.”

Fannie Mae and Freddie Mac are two of the largest companies in the world, he said, and they are not going away, as evidenced by Freddie Mac hiring hundreds of new employees and Fannie Mae moving into a new million square foot office in Washington, D.C.

“It is still hard to believe that some in Washington want to eliminate them in the hope of finding something better, or at least finding something that caters better to their special interests and crony capitalists,” Berkowitz said.

‘Survivor Bill of Rights’ is Gaining Traction

avoid-foreclosureA “survivor bill of rights,” or bill that would protect families from foreclosure after the death of the primary mortgage noteholder, has gained traction in California and is likely to see a vote in the state Senate this week.

Senate Bill 1150, authored by Senators Mark Leno and Cathleen Galgiani, has already passed in the Senate Banking and Senate Judiciary Committees.

California led the nation in providing foreclosure relief in 2012 when it passed the Homeowner Bill of Rights, which offered certain protections to homeowners. That Bill of Rights did not include protections for surviving family members who are not listed on the mortgage following the death of the borrower.

“Instead of getting basic information on how to proceed with a home loan following the death of a loved one, surviving spouses and children face a labyrinth of paperwork and conflicting directions and requests, which only prolongs their grief,” Leno said. “Many family members unnecessarily lose their homes without ever knowing they had the right to assume the loan or seek foreclosure remedies. Before more families give up, we must step in.”

Under SB 1150, the responsibilities of a mortgage lender or servicer are clarified for situations in which the borrower dies and a surviving family homeowner not named on the mortgage wants to assume the loan. SB 1150 ensures that heirs are accurately educated regarding loan assumption and foreclosure preventions. The legislation also calls for a single point of contact (SPOC) to be established for the survivors to communicate with the lender, and it also gives survivors the ability to apply simultaneously for a loan modification and loan assumption.

California was one of the states hit hardest by the foreclosure crisis. Even six years after foreclosure activity in the country peaked, foreclosure levels remain elevated in the state due to the high population. According to CoreLogic, for the 12-month period ending March 31, 2016, there were 23,000 foreclosures completed in California, which ranked fourth among states behind only Florida, Michigan, and Texas. Even with the high number of completed foreclosures, California’s foreclosure inventory—percentage of residential mortgages in some state of foreclosure—was only 0.4 percent in March, which was close to one-third of the national average for the month of 1.1 percent.

Housing Forecasts Stay Calm Through Economic Storm

Forecast One BHThe recent economic slowdowns, which include April job growth of only 160,000 and 0.5 percent Q1 GDP growth, seem to have darkened everyone’s view of the economy for the remainder of the year. Despite this, both Fannie Mae and Freddie Mac have stood their ground on their positive outlook for housing for the remainder of 2016.

The Fannie Mae Economic & Strategic Research (ESR) Group this week further downgraded its forecast for the full year of 2016 down to a 1.7 percent growth rate—from last month’s forecast of 1.9 percent and the 2.2 percent at the beginning of 2016.

While the ESR group believes that the economy will bounce back somewhat during the remainder of the year, with consumer spending as an engine for growth, they don’t think it will be enough to make up for the weak first quarter.

“Consumers and businesses showed caution at the end of the first quarter,” said Fannie Mae Chief Economist Doug Duncan. “Job creation slowed in April and participation in the labor force gave back some of the recent gains. Nevertheless, the uptick in both hours worked and average hourly earnings should boost labor income and help support consumer spending in the current quarter.”

Likewise, in the May 2016 Monthly Outlook released Wednesday, Freddie Mac downwardly revised its forecast for economic growth for the remainder of the year from 2.0 percent down to 1.8 percent. Freddie Mac did say, however, they expect a “strong rebound” in subsequent quarters.

Despite the more pessimistic views about the economy for the rest of 2016, both Fannie Mae and Freddie Mac kept positive on the outlook for housing. Freddie Mac stuck to its prediction that 2016 will be the best year for home sales in a decade as near-historically low mortgage rates—averaging 3.7 percent for a 30-year fixed rate at the end of the first quarter and floating between 3.57 and 3.66 percent in April and May—work to offset rapid home price appreciation and tight inventory.

5-18 Freddie Mac Graph

“Even with tight inventories and rising house prices, we still forecast 2016 to be the best year for home sales in a decade,” Freddie Mac Chief Economist Sean Becketti said. “The first quarter of 2016 had the second-fastest first-quarter pace of home sales in the past decade, narrowly edging 2015. Home sales typically rise in the spring and summer months so we’re anticipating an acceleration in home sales, which will allow us to surpass 2007’s pace by late summer.”

According to Fannie Mae, pending home sales and low mortgage rates are likely to result in a rise in home sales in the near-term.

“Home sales are expected to pick up heading into the spring season amid the backdrop of declining mortgage rates, rising pending home sales and purchase mortgage applications, and continued easing of lending standards on residential mortgage loans,” Duncan said. “Meanwhile, the homeownership rate showed signs of stabilizing during the first quarter of this year, as the relatively high homeownership rates among baby boomers have helped offset low homeownership rates among millennials, many of whom remain on the sidelines due to ongoing affordability issues.”

Third Circuit Court Hands U.S. Bank a Victory

Gavel BHThe U.S. Court of Appeals for the Third Circuit has ruled in favor of U.S. Bank in a lawsuit in which a Pennsylvania couple sued to have their foreclosure dismissed on the grounds that U.S. Bank was not the holder of the note and did not have standing to foreclose.

The opinion on behalf of the Third Circuit Court was authored by Judge Michael A. Chagares. The court denied the appeal filed against U.S. Bank by Pennsylvania couple Lawrence and Debbie Zimmer, who were approved for a mortgage loan from Ameriquest Mortgage Company in June 2005.

According to the court ruling, the Zimmers also executed a note in favor of Ameriquest for $319,500. Five years later, in April 2010, the Zimmers entered into a loan modification agreement with Ameriquest and the note was assigned twice. The Zimmers, however, dispute the validity of those assignments. What is not disputed according to the court, however, is that the Zimmers stopped making payments in August 2010, four months after entering into the loan modification agreement, and failed to make any payments after that date.

U.S. Bank, which claims it is the holder of the mortgage, began foreclosure proceedings in April 2012. The Zimmers and their attorney claimed that it was not for the same note he signed in June 2005. The court denied U.S. Bank’s motion for summary judgment in October 2013, and both parties in the suit subsequently filed motions for summary judgment against each other.

The District Court denied the Zimmers’ summary judgment, saying they failed to produce any evidence that U.S. Bank was not the holder of the note.

“Regarding U.S. Bank’s summary judgment motion, the District Court found there was no genuine issue of material fact because the Zimmers admitted they executed the mortgage of $319,500 in favor of Ameriquest, the Zimmers are record owners and the mortgage is in default, and the Zimmers have failed to make monthly payments on the loan due since Aug. 1, 2010,” Chagares wrote in the opinion.

The Zimmers took their case to the Third Circuit Court, saying that U.S. Bank did not have standing to pursue foreclosure because the note was not properly dated, stamped or notorized; the bank’s expert, Javier Toboas, had said he believed the note did not contain proper indorsements; and U.S. bank offered two different copies of the note in summary judgement filings, according to the court.

The Third Circuit Court rejected all three of the Zimmers’ arguments, saying that there was no genuine issue of material fact on the first and third arguments about the lack of a date on the note and the assertion that U.S. Bank submitted two different notes. On the Zimmers’ claim about the Toboas opinion, Chagares said that opinion “did not concern the validity of the original note but the validity of the subsequent assignments, which is not relevant here.”

A spokesperson from U.S. Bank told DS News that the bank had no comment on the court’s ruling.