If Greece accepts the terms of a new aid package it's expected to get a haircut on its debt. But Sr. Editor Paddy Hirsch explain why that haircut is more like a scalping -- and it's not Greece that will suffer the pain.

Such an innocuous word: haircut. It conjures up one of those Norman Rockwell images of a kid in a barber's chair. Sometimes the kid is smiling, sometimes scowling. Either way, it's just a haircut, no big deal. In a few weeks, the hair grows back and the kid comes back for another shearing. At some point in the cycle, everyone's happy.

Not so if you're a bank lending money to Greece, and you've agreed to a 50 percent haircut on that debt. This haircut is less like a trim at the local barber shop and more like a visit to "Sweeney Todd." After this haircut, there's no growing back. In this haircut, you're agreeing to allow Greece to cut its debt to you in half. That's a scalping.

Greece owes about $280 billion to banks right now. That is, it has sold roughly $280 billion in bonds that the banks are holding. Under the bailout that the banks have agreed to, that debt will be cut in half: Greece will only owe the banks about $140 billion.

So Greece is happy(ish). But the banks are in a hole. Banks, of course, make their money from borrowing from depositors like you and I, and lending that money out... to countries like Greece. In other words, that $280 billion isn't the banks' money, it's money that belongs to depositors. And those depositors are going to want that money back. And now, thanks to Greece, the banks are $140 billion short.

The question now is: Will the bank have the money it takes to pay its depositors? In the past, the thought that an institution might not have enough money to make its depositors good was enough to trigger a run on the bank. That would cause the bank to collapse. And because the world's banks are tightly connected these days, one collapse can trigger the meltdown of the entire financial system.

That hasn't happened yet in Europe; the banks have said they'll be OK, and European governments say they'll support the banks. But there are no guarantees. This is Europe, which is a coalition of sovereign governments, the individual leaders of which can throw a plan into disarray at any moment. Just look at Slovenia's holdout on the plan, or Greek Prime Minister George Papandreou's vacillation over a referendum on the bailout. This drama is still playing out, although it's beginning to look more like Tarantino than Homer.

ORLANDO, Fla. – Nov. 28, 2011 -- Without context, a single number is meaningless. Yet when you put numbers together, you might have the right combination. The same is true with monthly statistics. By themselves, a monthly statistic is just a snapshot. But by combining statistics over time, we notice trends, which provide greater insight into the real estate market and thus help your business.

Florida sales have been trending upward in 2011. Sales improved nine out of ten months in 2011 compared to 2010. Similarly Florida, employment has established a positive trend in 2011.

Florida employment level in October 2011 was 7,268,400. The number is higher than the previous two months and is an improvement against the 7,174,500 employed in October 2010. It represents a 1.3% increase year-over-year. As employment rose throughout the year, unemployment declined. Florida unemployment dropped to 10.3% in October compared to 10.6% in September and 11.8% the previous year.

Yet all this good news generally is overlooked. The positive trends, in both sales and employment, should be at the forefront of Realtors’ minds. These are signs that the Florida real estate market will tighten up. Make sure your clients know the current market conditions and help them anticipate what will happen in the future. Our real estate numbers would, in fact, be even better were it not for tight financing that is restricting eligible buyers and preventing sales. In October, NAR reported the percentage of contracts that failed rose to 33 percent. You should assist clients in finding financing options that work for them. It’s a win-win-win. The seller closes, the buyer becomes an owner, and you make the sale!

Indian River foreclosed properties among best bargains in the nation

■ Discount rate of 53 percent comes in second in nation


By Paul Ivice

Special to Treasure Coast Newspapers

Foreclosed properties in Indian River County were among the best bargains in the nation during the second quarter of this year, RealtyTrac said in a report released Thursday.

A total of 268 Indian River County homes in some phase of foreclosure were purchased by third parties during the quarter at an average price of $97,175, or 53 percent below the average sales price of homes not in foreclosure, California-based Realty-Trac said in its secondquarter foreclosure sales report.

Of those sales, 140 were bank-owned repossessions (REOs), for which the average discount was 58 percent. The 128 preforeclosure sales, mostly short sales, had an average discount of 47 percent.

The average discount in Indian River County in the previous quarter and a year ago was about 46 percent.

Among metropolitan statistical areas with at least 100 foreclosurerelated sales during the second quarter, only Louisville, Ky., posted a higher foreclosure discount at 54 percent, said Realty-Trac, a leading online marketplace for foreclosure homes.

Adam Preuss, owner of Adam Preuss Appraisal Services Inc. in Sebastian, said, “My dad always told me that you make money in real estate when you buy, not when you sell.

“There’s no doubt that now is the time to buy,” said Preuss, who also is president of the Indian River County Realtors Association. “Someday, the economy will improve and some will have prospered from investing when the market was low and others will wish they would have.”

W.D. “Chic” Acosta, Seacoast National Bank’s executive vice president for mortgage banking, said, “Indian River County was clearly the last of the three (Treasure Coast) counties where homeowners capitulated, but you’re seeing that process speed up now as part of the economic process we’re going through.”

Acosta said the average home price in Indian River County is higher, so struggling homeowners did not capitulate as quickly.

“Martin and St. Lucie counties have been bouncing on the bottom, but maybe Indian River County is now finding that bottom,” Acosta said. “Now they are finally capitulating, so there are bigger drops.”

The discount on foreclosure sales in St. Lucie County averaged 25 percent; in Martin County it was 20percent. Statewide, the average discount was 33 percent, slightly higher than the national average discount of 32 percent.

The volume of Indian River County foreclosure sales in the second quarter was generally slower, down 9 percent from the first quarter of 2011 and 11 percent (about the national average) from a year ago.

Those sales constituted 30 percent of all home sales, slightly higher than the 26 percent from last year but down from 36 percent last quarter.

In contrast, foreclosure sales in St. Lucie County were 44 percent of all home sales, while in Martin County they were 19 percent. Statewide, they were 35 percent of all home sales, slightly above the 31 percent national average.

“With average prices on distressed real estate trending down and average discounts trending up, this report is clearly good news for well-positioned buyers and investors looking for bargain real estate that will build them wealth in the long term and often cash flowas rental real estate in the short term,” RealtyTrac CEO James Saccacio said in a news release.

Less evident, is the good news in the report for distressed homeowners looking to sell and lenders with large portfolios of delinquent loans, Saccacio said. “The jump in pre-foreclosure sales volume coupled with bigger discounts on pre-foreclosures and a shorter average time to sell pre-foreclosures all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales — a t least in some areas,” Saccacio said. “This gives distressed homeowners who do not qualify for loan modification or refinancing — or who are not interested in those options and want to sell — a better chance of completing a short sale to avoid foreclosure.”

Get a primer on Fannie Mae, Freddie Mac, and the rest of the family of government-sponsored and government-owned firms that securitize mortgages and loans.

Meet the Maes from Marketplace on Vimeo.

Many Home Owners in Denial About Price

Marketplace Senior Editor Paddy Hirsch gives a bubbly explanation of the intricacies of "collateralized debt obligations" -- those financial instruments that got us into this financial mess.

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

Definition 1 – Foreclosed but not listed.  Some analysts say the “shadow inventory” is the homes which the has bank foreclosed on but not sold.  These are homes that are not on the market but owned by the bank (REOs not listed on the market).

Definition 2 – Homes in the foreclosure process as well as delinquent mortgages where foreclosure proceedings are imminent.

Definition 3 – All homes delinquent, short sales not on the market, REOs not on the market, and anything in the foreclosure process.

Definition 4 – All of the above plus modified loans (as they have a large percentage of failing anyway, pay option-arms about to be reset, and lots sitting idle with builders in trouble.

I’m going to go with Standards & Poor’s definition which most similar to Definition 3, all delinquent loans, not just REO’s.

If you go with this definition, then naturally your focus is to look at delinquency rates which are widely published.  So to say we have no way of knowing the true size of the shadow inventory is false.  The mortgage banker’s recent survey with data ending in the 4^th quarter shows that 9.47% of all loans are delinquent.  Yikes!  That’s a scary number; however the number was down slightly when seasonally adjusted.  Also according to this recent survey 50% of all past –due mortgages were 90 days or further past due.  This is the highest number in the history of the mortgage banker survey.  Usually you’d see a large glut of 30-day past-due balances, which becomes smaller at the 60-day mark, and there would be smaller yet number of 90-day balances (assuming homes were being liquidated with efficiency).

With fewer loans at the 30-day mark, it seems the glut of sub-prime loans is being flushed through the system but only so slowly that it is creating the large inventory (the 90-day past due loans).  The government and banks are trying loan modifications, short sales, and foreclosure work outs to reduce these properties flooding the market.  Unfortunately distressed assets are distressed assets, especially when they have negative equity.

Standard & Poors sees this shift in lender strategy as temporary as lenders will realize that these toxic assets are unredeemable in most cases.   Therefore these homes, estimated at 33 month’s supply or 5-7 million, will eventually hit the market.   If they do, home prices could head lower because of increased inventories.  The saving grace for the market could the limited new home construction, recent loss in builder confidence, a growing economy, and continued political pressure on banks to keep foreclosure as a tool of last resort.

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.