Homes for $10,000

On a recent tour of Jacksonville, Fla., Paul Miller, managing director of FBR Capital Markets, found plenty of houses selling for $10,000 to $25,000, with most purchase prices below $100,000. But jumbo mortgages were few and far between.

In a report published Wednesday, Miller provided anecdotal evidence of two borrowers' struggles to get loans in this tight credit market.

A top-20 golfer buying a multimillion-dollar home with a 50% down payment still had trouble getting approved by his bank, Miller said. Another borrower with a high FICO score looking at a $300,000 home could not get a loan because he had recently changed jobs and became self-employed.

"Should the mortgage market remain frozen, we expect the inventory of homes to remain high and the prospect for clearing the inventory to remain low," Miller wrote.

Banks and the government-sponsored enterprises have totally different attitudes about asset dispositions, Miller said — and astonishingly, "the government seems to be getting it right."

Fannie Mae and Freddie Mac are at least putting a little money into fixing up homes to get a higher sale price, while banks generally refuse to put more money in.

"We find this troubling, as it sounds as though the banks are not doing enough to get value out of the homes they have foreclosed upon, and we cannot figure out why," Miller wrote.

In Jacksonville, where the smell of coffee perpetually emanates from the 100-year-old Maxwell House plant downtown, one out of every 395 homes received a foreclosure filing in November.

The unemployment rate stands at 10.9% in Jacksonville, Florida's largest city, with 850,000 residents.

Eye on Foreclosures

Foreclosure filings dropped significantly in November, with fewer than 300,000 properties receiving a notice for the first time since February 2009, according to RealtyTrac Inc. data due Thursday.

Foreclosure filings, including default notices, scheduled auctions and bank repossessions, were reported on 262,339 properties last month, down 21% from October and 14% from November 2009. These are the largest month-over-month and year-over-year decreases recorded since RealtyTrac began publishing its foreclosure report in January 2005.

Foreclosure activity typically wanes at the end of the year, but the decline in foreclosure filings was exacerbated by the voluntary moratoriums several servicers put in place this fall after problems with paperwork surfaced, RealtyTrac's chief executive, James J. Saccacio, said in a press release.

Lenders foreclosed on 67,428 properties in November, a 28% decrease from October and a 12% dip from November last year. The year-to-date total of bank repossessions is now more than 980,000, above 2009's record yearend total.

Nevada had the highest state foreclosure rate for the 47th month in a row.

One in every 99 homes there received a foreclosure filing last month — almost five times the national average, RealtyTrac said.

Servicer Situation

For better or worse, next year should bring more clarity on the pervasiveness of problems in mortgage servicing, a team of analysts at Moody's Investors Service concluded.

"On the one hand, the scope of irregularities should become better defined over the next few months," Moody's said. "On the other hand, the scrutiny may lead to fresh controversies about additional servicing practices."

After it was revealed this fall that several major servicers mishandled the filing of certain foreclosure documents, Moody's placed the servicer quality ratings of 12 servicers — including the five largest residential mortgage servicers — on review for possible downgrade.

One practice that could come under the microscope is servicer advances to investors, namely whether they alter cash flows to the advantage of some investors over others, Moody's said in its 2011 outlook on the servicing industry, released Tuesday.

Also likely to face increased scrutiny is servicers' relationships with third-party vendors.

"We believe that vendor relationships, and specifically fees regarding certain servicing activities, will be an area of exposure for servicers as controls over third-party providers may have relaxed, resulting in their service levels deteriorating with the significant increase in defaults and foreclosure volumes," wrote the team of analysts, led by Gene Berman, an assistant vice president.

Moody's expects that an additional three months or more will be added to the foreclosure timetable as the document defects are challenged in court.

"In 2011, it will become evident how seriously courts will view violations of court rules on foreclosure procedures" Berman said. "Since judicial foreclosure laws vary as greatly from state to state as judicial foreclosures do from judge to judge, we could see a wide range of judicial opinions on the legality of the foreclosure processes and actions taken to remedy each situation."

Moody's also said it's likely the government will expand its modification programs, and that delinquency levels will remain high, meaning servicing costs will continue to rise.

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