By MOTOKO RICH
Published: April 2, 2012

RIVERSIDE, Calif. — At least 20 times a day, Alan Hladik walks into a fixer-upper and tries to figure out if it is worth buying.
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As an inspector for the Waypoint Real Estate Group, Mr. Hladik takes about 20 minutes to walk through each home, noting worn kitchen cabinets or missing roof tiles. The blistering pace is necessary to keep up with Waypoint’s appetite: the company, which has bought about 1,200 homes since 2008 — and is now buying five to seven a day — is an early entrant in a business that some deep-pocketed investors are betting is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.

But the new investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends. At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.

This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.

In February, the Federal Housing Finance Agency, which oversees the government-backed mortgage companies Fannie Mae and Freddie Mac, announced that it would sell about 2,500 homes in a pilot program in eight metropolitan areas, including Atlanta, Chicago and Los Angeles.

And Bank of America said in late March that it would begin testing a plan to allow homeowners facing foreclosure the chance to rent back their homes and wipe out their mortgage debt. Eventually, the bank said, it could sell the houses to investors.

Waypoint executives say they can handle large volumes because they have developed computer systems that help them make quick buying decisions and manage renovations and rentals.

“We realized that there is a tremendous amount of brain damage around acquiring single-family homes, renovating them and renting them out,” said Colin Wiel, a Waypoint co-founder. “We think this is a huge opportunity and we are going to treat it like a factory and create a production line to do this.”

Mr. Hladik, who is one of seven inspectors working full time for Waypoint’s Southern California office, is one cog in that production line.

On a recent morning, he walked through a vacant three-bedroom home with a red tiled roof here about 60 miles east of Los Angeles, one of the areas flooded with foreclosures after the housing market bust. Scribbling on a clipboard, he noted the dated bathroom vanities, the tatty family room carpet and a hole in a bedroom wall. Twenty minutes later, he plugged these details into a program on his iPad, choosing from drop-down menus to indicate the house had dual pane windows and that the kitchen appliances needed replacing.

The software calculated that it would take $25,413.53 to get the home in rental shape. Mr. Hladik adjusted that estimate down to $18,400 because he deemed the landscaping in good shape. He uploaded his report to Waypoint’s database, where appraisers and executives would use the calculations to determine whether and how much to bid for the house.

With just three years of experience, Waypoint is one of the industry’s grizzled veterans. But critics say newcomers could stumble. “It’s a very inefficient way to run a rental business,” said Steven Ricchiuto, chief economist at Mizuho Securities USA. “You could wind up with an inexperienced group owning properties that just deteriorate.”

The big investors are wooed by what they see as a vast opportunity. There are close to 650,000 foreclosed properties sitting on the books of lenders, according to RealtyTrac, a data provider. An additional 710,000 are in the foreclosure process, and according to the Mortgage Bankers Association, about 3.25 million borrowers are delinquent on their loans and in danger of losing their homes.

With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans. The homeownership rate has dropped from a peak of 69.2 percent in 2004 to 66 percent at the end of 2011, according to census data.

Economists say that these investors could help stabilize home prices. “If you have a lot of foreclosures in one community you will improve everybody’s home values if you take them off the market,” said Diane Swonk, the chief economist at Mesirow Financial. “If those homes are renovated and even rented, it is a lot better than having them stand empty.”

Until now, Waypoint, which focuses on the Bay Area and Southern California, has been buying foreclosed properties one by one in courthouse auctions or through traditional real estate agents.

The company, founded by Mr. Wiel, a former Boeing engineer and software entrepreneur, and Doug Brien, a one-time N.F.L. place-kicker who had invested in apartment buildings, evaluates each purchase using data from multiple listing services, Google maps and reports from its own inspectors and appraisers.

An algorithm calculates a maximum bid for each home, taking into account the cost of renovations, the potential rent and target investment returns — right now the company averages about 8 percent per property on rental income alone. By 5:30 on a recent morning, Joe Maehler, a regional director in Waypoint’s Southern California office, had logged onto his computer and pulled up a list of about 70 foreclosed properties that were being auctioned later that day in Riverside and San Bernardino Counties.

Looking at a three-bedroom bungalow in San Bernardino, he saw that Waypoint’s system had calculated a bid of $103,000. Mr. Maehler, who previously advised investors on commercial mortgage-backed securities deals, clicked on a map and saw that rents on comparable homes the company already owned could justify a higher offer. The house also had a pool, which warranted another price bump.

By the time the auctioneer opened the bidding on the lawn in front of the San Bernardino County Courthouse at $114,750, Mr. Maehler had authorized a maximum bid of just over $130,000.

As the auction proceeded, Waypoint’s bidder at the courthouse remained on the phone with Mr. Maehler in the company’s Irvine office about 50 miles away.

“Stay on it,” Mr. Maehler urged as the bidding went up in $100 increments. The bidder clinched it for $129,400.

The sting of the housing collapse, driven in part by investors who bought large bundles of securities backed by bad mortgages, makes some critics wary of the emerging market.

“I don’t have a lot of confidence that private market actors who now see another use for these houses as rentals, as opposed to owner-occupied, are necessarily going to be any more responsible financially or responsive to community needs,” said Michael Johnson, professor of public policy at the University of Massachusetts, Boston. Waypoint executives say they plan to be long-term landlords, and usually sign two-year leases. Once the company buys a property, it typically paints the house and installs new carpets, kitchen appliances and bathroom fixtures, spending an average of $20,000 to $25,000. It tries to keep existing occupants in the house — although only 10 percent have stayed so far — and offer tenants the chance to build toward a future down payment.

Waypoint’s inspectors are evaluating hundreds of properties that Fannie Mae and Freddie Mac are offering for sale. Because the inspectors are not allowed inside these homes, they are driving by 40 of them a day, estimating renovation costs by looking at eaves, windows and the conditions of lawns.

Rick Magnuson, executive managing director of GI Partners, Waypoint’s largest investment partner, said “the jury is still out” on whether Waypoint — or any other investor — can manage such a large portfolio. But, he said, “with the technology at Waypoint, we think they can get there.”
A version of this article appeared in print on April 3, 2012, on page B1 of the New York edition with the headline: Buying Homes by the Thousands.

By Steven Overly, Updated: Wednesday, March 21, 5:00 AM

Emily Morgan is hunting for a rental in Old Town Alexandria that would put her within walking distance of work and a Metro station. Her requirements: one bedroom, no noisy neighbors and a lease that begins this summer.

For eager renters like Morgan who face stiff competition, it makes sense to get a head start. “I know I need to start searching early if I’m going to find the place I want,” she said.

Washington had the third lowest vacancy rate in the nation, behind New York and Philadelphia, at the end of last year, according to Delta Associates, an Alexandria-based research firm that tracks commercial and residential real estate. At the end of 2011, the average rental price across the region stood at $1,685 — 2.1 percent more than the previous year.

But market observers say that dynamic may begin to shift in favor of renters as early as this summer. A swollen backlog of properties under construction is set to start opening to new tenants over the next two years, right when demand has begun to taper off.

“In the near term, the market will be more of a renter’s market because of the large amount of supply that’s coming online,” said A. Grant Montgomery, vice president at Delta Associates, an Alexandria-based research firm that tracks commercial and residential real estate. Two years from now, “those units will fill up, and they will have strong performance for [building] owners.”

Indeed, in the Washington region, a “renter’s market” may not feel that way. Renters should not expect to see major declines in rates or endless options in some of the most desirable neighborhoods. Apartments in Dupont Circle, for example, will continue to stretch budgets.

The Washington area market has historically been strong in good and bad economic times because of the number of people who come here for short-term government work, many of whom choose to rent rather than buy because of their lifestyle.

“It’s not like [renters are] saving $300 because rents dropped that much,” Montgomery said. “It’s more of a slowing to a halt and maybe slightly declining. We historically don’t have large rent declines in this area because of the strength of this market.”

Delta predicts that 12,472 units will come on the market in 2012, followed by 10,887 units in 2013. Although not all of those apartments may be delivered, it will be a significant influx of supply compared with the 5,800 units added to the market in an average year.

Northern Virginia will see the bulk of new stock this year, with 5,895 units expected to come on the market. The flood of units should put downward pressure on rent prices, according to Delta, but demand will remain strong in highly sought areas, including the Rosslyn-Ballston corridor.

In suburban Maryland, 3,662 units are expected to be added to the market this year. Delta analysts also predict downward pressure on rental prices there as new apartments will likely outpace demand.

In the District, 2,915 units are expected to open this year. Real estate in the city varies greatly. The Northwest quadrant has low vacancy rates and high rents; other parts of the city have more inventory and competitive prices.

But with all of these apartments, there may be relatively fewer people looking to rent.

Delta data also show that the surge in renters after the economic downturn has begun to ebb. As a result, the new buildings that come on the market will have to find tenants as people come to Washington for work or as young people leave their parents’ basements.

“Going forward, absorption of units is going to depend on strength of job growth in the region,” Montgomery said. “Our projection is that, at least over the next couple of years, we’re going to have below-average job growth in the region” as government spending slows.

But don’t celebrate just yet. Although the new buildings may take longer to ink all of the leases, they’ll still find tenants willing to pay top dollar for luxury buildings in good locations, observers say.

Scott Melnick, a managing director in Jones Lang LaSalle’s Mid-Atlantic Multifamily Group, said the burst of new rental units will fetch eager tenants. And some of those apartments may ultimately be converted to condominiums and sold as the condo market improves.

“Some of the pipeline, we know for a fact, will gradually not go into the rental pool but will go into the for-sale pool,” Melnick said. “And that’s a phenomenon that hasn’t happened for the last few years.”

But renters like Morgan in Alexandria continue the search for the right place. So far, Morgan has found two townhouses that fit her budget of $1,800 a month. But the two fell through for different reasons.

“I know they’re out there. It just takes time to find them,” Morgan said. “It’s like bargain-hunting — you have to give it some effort.”

WASHINGTON (AP) – Existing home sales dipped in February but the sales pace for the winter was the best in five years.

The National Association of Realtors says home sales fell 0.9% last month to a seasonally adjusted annual rate of 4.59 million. That followed a revised 4.63 million sold in January — the highest level since May 2010.
The last three months have been the best for winter sales in five years. The progress is encouraging ahead of the spring buying season, although sales remain below the 6 million that economists equate with healthy markets.
First-time buyers, who are critical to a housing recovery, fell slightly to 32% of all purchases, down from 33% in January. In healthy markets, first-time buyers make up at least 40%.
Copyright 2012 The Associated Press.

Sales of Previously Owned U.S. Homes Declined in February
By Timothy R. Homan – Mar 21, 2012 10:22 AM ET

Sales of previously owned U.S. houses unexpectedly fell in February, showing that the real- estate market is taking time to strengthen.
Purchases dropped 0.9 percent to a 4.59 million annual rate from a revised 4.63 million pace in January that was faster than previously estimated and the highest since May 2010, a report from National Association of Realtors showed today in Washington. The median forecast in a Bloomberg News survey called for a rise to 4.61 million.
The glut of foreclosed properties is putting more homes on the market and creating a headwind for the industry that precipitated the last recession. Still, purchases may improve as job and income growth, cheaper homes and mortgage rates near a record low keep affordability near an all-time high.
“The U.S. housing market is stabilizing, and very gradually carving out a recovery,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who correctly projected the February sales rate. “Housing demand should pick up in response to falling unemployment and attractive affordability.”
Estimates of the 77 economists surveyed by Bloomberg ranged from 4.44 million to 4.8 million after a previously reported 4.57 million pace in January.
Stocks held losses after the figures. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,403.54 at 10:27 a.m. in New York.
Existing-home sales, tabulated when a contract closes, climbed to 4.26 million last year, from 4.19 million in 2010. Demand peaked at 7.08 million in 2005 during the housing boom. In 2008, sales totaled 4.1 million, the least since 1995.
Housing Inventory
The number of previously owned homes on the market rose to 2.43 million in February from 2.33 million the previous month, today’s report showed. At the current sales pace, it would take 6.4 months to sell those houses, up from 6 months in January.
The median price of a previously owned home climbed 0.3 percent to $156,600 from $156,100 in February 2011.
Sales of existing single-family homes decreased 1 percent to an annual rate of 4.06 million. Purchases of multifamily properties, including condominiums and townhouses, held at a 530,000 pace.
Purchases declined in two of four U.S. regions, led by a 3.3 percent drop in the Northeast. Sales in the Midwest increased 1 percent.
This Year
Even with the decline in February, sales during the first two months of 2012 were the strongest in five years, adding to builder optimism.
“We finished the year on a strong note, entered the year optimistic and still feel fairly optimistic today,” Larry Nicholson, president and chief executive officer at Ryland Group Inc. (RYL), said March 6 at an investor conference in Orlando, Florida. “The good thing about the traffic we are seeing is it’s new traffic. We feel a lot better than we did a year ago. Hopefully, we can keep this trend up.”
Today’s housing report showed contract cancellations were reported by 31 percent of the group’s members in February, little changed from 33 percent a month earlier.
Of all purchases, cash transactions accounted for about 33 percent, the same as a year ago. Distressed sales, comprised of foreclosures and short sales in which the lender agrees to a transaction for less than the balance of the mortgage, accounted for 34 percent of the total, little changed from 35 percent a month earlier.
Home Foreclosures
Home foreclosures may be slow to wane in the coming months. Filings in the U.S. fell 8 percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, RealtyTrac Inc. said last week.
“February’s numbers point to a gradually rising foreclosure tide,” Brandon Moore, RealtyTrac’s chief executive officer, said in the statement. “That should result in more states posting annual increases in the coming months.”
A total of 206,900 homes received notices of default, auction or repossession last month, down 2 percent from January, the Irvine, California-based data firm said in a report. One in every 637 households got a filing.
Investors accounted for 23 percent of purchases last month, while first-time buyers were 32 percent of the market, today’s report showed.
Housing Affordability
A measure of housing affordability a month earlier climbed to a record 206.1, according to the National Association of Realtors data. A value of 100 means that a family with the national median income has enough to qualify for a median-priced property.
Federal Reserve policy makers last week said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist and aimed at holding down borrowing costs like mortgage rates.
“Business is getting better gradually,” said John Huebner, owner of Century 21 Real Estate Professionals, a brokerage with 210 sales agents in Orlando, Florida. “People are moving and houses are selling, and that’s good for us.”
More people are searching for homes online, giving his brokers more leads on sales as shoppers seek to take advantage of low interest rates and prices, Huebner said.
“If homes are priced well and in good condition, we’re seeing multiple offers,” he said.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

(Reuters) – Grubb & Ellis Co filed for bankruptcy protection amid a slower-than-expected recovery in the commercial property market, and agreed to sell nearly all its assets to the financial services brokerage BGC Partners Inc .
Howard Lutnick, chief executive of BGC and also of the boutique investment bank Cantor Fitzgerald LP, said in a statement the purchase reflects BGC’s desire to “build a premier position” in real estate services.
BGC in October bought Newmark Knight Frank, a New York real estate services company that employs more than 7,000 people.
Founded in 1958, Grubb & Ellis said it manages in excess of 250 million square feet (23.2 million square meters) of property, and employs more than 3,000 people.
Its services include tenant representation, property leasing and sales, commercial property and corporate facilities management, appraisals and commercial mortgage brokerage.
Chief Financial Officer Michael Rispoli said in a court filing Grubb & Ellis was hurt by its merger with real estate investment management company NNN Realty Advisors Inc in December 2007, which in retrospect “couldn’t have come at a worse time.”
He said losses piled up during the financial crisis, and that the Santa Ana, California-based company was further hurt by the sluggish real-estate market. Rispoli said Grubb & Ellis does not have enough cash to make it through the end of March.
An expedited sale through the bankruptcy process “is the only remaining way to allow Grubb & Ellis to preserve its business as a going concern, protect jobs, and maximize the value of the debtors’ estates,” Rispoli wrote.
Grubb & Ellis had $150 million of assets and $167 million of liabilities as of December 31, according to its petition filed Monday in U.S. Bankruptcy Court in Manhattan. Sixteen affiliates also sought protection from creditors.
The company said BGC will provide financing to keep it operating without disruption. BGC separated from Cantor Fitzgerald in 2004.
The case is In re: Grubb & Ellis Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-10685.
(Reporting by Jonathan Stempel in New York; Additional reporting by Sakthi Prasad in Bangalore; Editing by Kim Coghill, Dave Zimmerman)

Published: Tuesday, February 21, 2012, 12:20 PM     Updated: Tuesday, February 21, 2012, 12:55 PM

 By Robert Rizzuto, The Republican 

(Associated Press)This Dec. 13, 2011 photo, shows a for sale sign in front of a Newton, Mass. A bill being backed by Sen. Scott Brown would make short sales more enticing to buyers, potentially pulling up the housing market over time.

WASHINGTON D.C. – In an effort to boost the housing market and benefit both sellers and buyers, the junior senator from Massachusetts joined colleagues from both political parties in introducing the Prompt Notification of Short Sales Act.

Sen. Scott Brown, R-Mass., along Sen. Lisa Murkowski, R-Alaska, and Sen. Sherrod Brown, D-Ohio, introduced the legislation to shorten the process of a short sale, which takes place when a homeowner sells a house for less than is owed to the bank, with the bank agreeing to take a loss.

Short sales can result in a long, drawn-out process that leaves both a buyer and seller on the edge for weeks, or even months, as they await a decision from the lien holder of the property. The bill would require financial institutions to respond in writing within 75 days stating whether they accept or reject the offer, allowing the bank to include a counter offer or a request for an extension. If they fail to reply in the allotted time, a prospective home buyer would be entitled to $1,000 and recovery of any legal fees associated with the attempted purchase.

The bill borrows from a 2011 House of Representatives bill which failed to pass. That bill, however, included language which stated that without a written response from a mortgage holder after 45 days, a short sale would be considered approved.

“There are neighborhoods across the country full of empty homes and underwater owners that have legitimate offers, but unresponsive banks,” Murkowski said in a statement. “What we have here is a failure to communicate. 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.”

Scott Brown said he hopes the bill would boost the market by making short sales more enticing to buyers, thus decreasing the amount of foreclosures.

In this May 19, 2010, file photo, Sen. Scott Brown, R-Mass., stands on the balcony outside of his office on Capitol Hill in Washington. (AP Photo/Harry Hamburg, File)

“It’s time to close the communication gap between banks and prospective homeowners who are willing and able to purchase short sale properties,” he said. “Our economy needs these home sales, and this legislation would lift the real estate market and benefit neighborhoods across the country.”

The bill is being backed by the National Association of Realtors, whose members know first-hand the reluctance of buyers to deal with short sales.

John McGeough and Anthony Lamacchia, co-owners of McGeough Lamacchia Realty, Inc. in Massachusetts, said the bill would not only simplify the process, but it has the potential to pull the housing market up.

“If this bill goes into law in time it would contribute to an increase in home prices because it would get more buyers to buy short sales and more sellers to pursue short sales,” McGeough said.

The realtors said that short sale homes tend to be in better shape than foreclosures and they have sold for about 25 percent more than foreclosed homes over the past couple years in Massachusetts. The higher price, the realtors noted, means that short sale properties don’t drag down the surrounding properties like vacant foreclosures can do, while still remaining affordable for first-time home buyers.

The bill was read twice in the Senate and referred to the Committee on Banking, Housing, and Urban Affairs.

Mortgage applications pick up as rates hit record lows

February 09, 2012, 5:53 PM EST

Bloomberg

(Updates with home-price decline in sixth paragraph, loan- modification figures in eighth, foreclosure data in 11th.)

Feb. 9 (Bloomberg) — The $25 billion settlement with banks over foreclosure abuses may trigger a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With today’s agreement, banks are likely to resume property seizures.

“The best thing about the settlement, frankly, is that it will be done,” said Stan Humphries, chief economist for Seattle-based Zillow Inc., a provider of home-sales data. “The shadow of the settlement hung over the market for a year now.”

The backlog of foreclosures has trapped homeowners in properties they can no longer afford, depressed prices by increasing the number of abandoned properties and led banks to tighten mortgage credit standards because of uncertainty about their potential obligations. Foreclosure starts fell 46 percent in December from October 2010, when the investigation into the so-called robo-signing of mortgage documentation began, according to Irvine, California-based RealtyTrac Inc.

The agreement will direct $17 billion to writing down debt to buffer about 1 million homeowners from foreclosure. About 11 million U.S. homeowners have negative equity, or owe more on their mortgages than their homes are worth, according to CoreLogic Inc., a real estate data provider. That has limited their ability to sell or refinance and reduced the incentive to keep paying.

Strategic Default

Principal reductions may help cut the number of mortgage defaults by improving homeowners’ finances and reducing incentives for so-called strategic default, when homeowners walk away from a property because they have too much negative equity, according to a Federal Reserve report sent to Congress on Jan. 4. Home prices have dropped 33 percent from their July 2006 peak, according to the S&P/Case-Shiller index of values in 20 U.S. cities.

U.S. homeowners have $750 billion in negative equity, Humphries said. The settlement will help the housing market “at the margins, but little more,” according to an analysis late last month by London-based Capital Economics of the impact of the settlement on housing.

Principal was reduced on 10,772 loans, or 7.8 percent of the mortgages with payment modifications, in the third quarter of last year, according to the office of the U.S. Comptroller of the Currency. All of those loans were held by private investors or bank portfolios.

Reductions ‘Seem Small’

“There has been a lot of discussion of principal reductions and whether that’s the one measure the U.S. housing market needs to get it going again,” Paul Diggle, a property economist at Capital Economics, said in a telephone interview this week. “That may well be the case. But the amounts of principal reductions under the settlement seem small.”

The agreement announced today includes $5 billion in cash for states to pay for foreclosure-prevention initiatives. Loan servicers will refinance $3 billion in mortgages to lower homeowners’ interest rates and pay about $1.5 billion to homeowners harmed by botched foreclosures.

About 5 million homes have been lost to foreclosure in the U.S. since 2006, according to RealtyTrac.

Excluding 92 Percent

The agreement may help about 1 million homeowners with mortgage forgiveness, forbearance or loan modifications, according to Housing and Urban Development Secretary Shaun Donovan. About 750,000 more may benefit from direct payments of as much as $2,000 to compensate them for servicing errors.

For California, which has the highest number of properties in the foreclosure pipeline, banks agreed to pay $12 billion to help 250,000 homeowners with principal reductions or short sales, when a lender agrees to a sale for less than owed on the home, according to Kamala Harris, the state’s attorney general.

Florida Loan Modifications

Borrowers in Florida, the state with the second-most foreclosures, will receive an estimated $7.6 billion in benefits from loan modifications, including principal reduction, according to state Attorney General Pam Bondi.

The money set aside for mortgage-debt forgiveness also can be used for short sales. Banks have been stepping up the sales by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing as much as $35,000 in “relocation” incentives. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, according to Santa Ana, California-based CoreLogic.

The total value of the agreement with lenders including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. may grow to $40 billion if the next nine largest mortgage servicers sign on to the agreement, Donovan said. In a best-case scenario, if all banks participate fully, the deal might be worth $45 billion to homeowners and victims of foreclosure.

Testing Effectiveness

The money may have an added benefit: It will test the effectiveness of principal forgiveness in preventing defaults, and may spur a larger-scale program if successful, Diggle said.

After a six-year slide in home prices, demand is showing signs of strengthening, bolstered by a jobless rate that fell to 8.3 percent last month. The number of Americans who signed contracts to buy previously owned homes in December held near a 19-month high, indicating that stabilization in the market that began in late 2011 may continue this year.

The surge of home seizures may drive down home values, at least for a while, in a fragile market. The number of new foreclosure filings fell 34 percent last year, according to RealtyTrac, building up a backlog of homes that now may flood the market with low-cost properties.

“All of this will result in more foreclosure pain in the short term as some of the foreclosures that should have happened last year instead happen this year,” Daren Blomquist, a RealtyTrac vice president, said in an e-mail today.

About 1 million foreclosures with be completed this year, up 25 percent from 2011, according to the firm.

‘More Price Weakness’

“I think there’ll be more price weakness, because we’ll see the number of distressed sales pick up,” said Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania. “But I think the price declines will be modest. I think the banks themselves are going to be very sensitive to market prices. I don’t think they’re just going to dump property. That wouldn’t be in their best interest.”

Lenders are unlikely to flood the market because it will damage prices for all properties, according to Sam Khater, senior economist for CoreLogic. Banks may be limited by their own capacities to process foreclosures. The settlement prohibits the practice of robo-signing, which employed assembly lines of workers to sign thousands of foreclosure documents at a time without verifying them.

“You can’t dump all these properties at the same time,” Khater said. “That would be disastrous. You have to release them in a slow and measured fashion, so the market can absorb them.”

Obama Administration’s Programs

The settlement adds to a series of recently expanded government steps to protect consumers and encourage lenders to refinance homes and modify payment terms for homeowners facing foreclosure.

President Barack Obama this month proposed plans to expand loan modifications for delinquent homeowners to include some principal reductions through his administration’s Home Affordable Modification Program, or HAMP. Underwater homeowners would be able to refinance at current low interest rates through the Home Affordable Refinance Program, or HARP. Some of the refinancing plans require Congressional approval.

Programs under the administration’s Making Home Affordable program had $29.9 billion in aid pledged as of Jan. 30.

Bulk Home Purchases

Separately, Fannie Mae, the mortgage company under U.S. conservatorship, invited investors to apply for a new program to buy foreclosed homes in bulk to be managed as rental properties, under another program announced by the Federal Housing Finance Agency. The goal of that program is to reduce the inventory of foreclosures while providing rental homes to people who can’t qualify to buy or don’t want to own.

“No action, no matter how meaningful, is going to by itself entirely heal the housing market,” Obama said at an appearance with state attorneys general in Washington today. “But this settlement is a start. And we’re going to make sure that the banks live up to their end of the bargain.”

There remains a danger that “a wave of foreclosures” may destabilize the housing market, said Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School.

“The logjam has to be unleashed and it has been — this will do that,” she said. “That’s a good thing. But then there needs to be methodical loan-by-loan determination of the best resolution.”

Demand for Rentals

Investors are likely to buy many of the foreclosed homes that come on the market to take advantage of low prices and demand for rentals, Zandi said. About 21 percent of home sales in December were investor purchases, according to the National Association of Realtors.

Private equity funds including Los Angeles-based Oaktree Capital Management LP and New York-based GTIS Partners announced plans in January to buy $2.5 billion of foreclosed single-family homes to manage as rentals, focusing on states with the highest number of foreclosures, such as California, Florida and Nevada.

“There’s pretty strong investor demand, particularly in some markets where prices have overshot,” Zandi said. “They’ve gone well below what you’d expect given incomes and rents.”

–With assistance from Dan Levy in San Francisco and Lorraine Woellert in Washington. Editors: Daniel Taub, Larry Edelman

To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

By DEREK KRAVITZ | Associated Press – 5 hrs ago

This Jan. 18, 2012 photo shows a new home in a development in Pleasant Hills, Pa. …
WASHINGTON (AP) — Fewer Americans bought new homes in December. The decline made 2011 the worst year for new-home sales on records dating back nearly half a century.
The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.
About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.
The median sales prices for new homes dropped in December to $210,300. Builders continued to slash price to stay competitive in the depressed market.
Still, sales of new homes rose in the final quarter of 2011, supporting other signs of a slow turnaround that began at the end of the year.
Sales of previously occupied homes rose in December for a third straight month. Mortgage rates have never been lower. Homebuilders are slightly more hopeful because more people are saying they might consider buying this year. And home construction picked up in the final quarter of last year.
“Although this decline was unexpected, it does not change the story that housing has likely bottomed,” said Jennifer H. Lee, senior economist at BMO Capital Markets.
Ian Shepherdson, chief economist at High Frequency Economics, said easier lending requirements, historically low mortgage rates and improved hiring all point to consistent, albeit slow, rises in sales in the coming months.
“A sustained rise in new home sales is imminent,” he said. “Homebuilders say so too, and they should know.”
Hiring is critical to a housing rebound. The unemployment rate fell in December to its lowest level in nearly three years after the sixth straight month of solid job growth.
Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.
Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.
A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage
Builders ended 2011 with a third straight year of dismal home construction and the worst on record for single-family home building. But in a hopeful sign, single-family home construction, which makes up 70 percent of the market, increased in each of the last three months.

By Dan Levy

Jan. 26 (Bloomberg) — Foreclosure and distressed sales fell to 20 percent of U.S. home purchases in the third quarter of last year as legal scrutiny of property seizures reduced the number of deals, according to RealtyTrac Inc.

Transactions involving bank-owned property and short sales, where lenders accept less than the amount owed, were down from 22 percent of total home purchases in the second quarter and 30 percent a year earlier, the Irvine, California-based data seller said today in a statement.

“The sooner the market gets more clarity about accepted foreclosure procedures, primarily through the long-promised settlement between multiple states attorneys general and major lenders, the sooner the market can more efficiently dispose of these distressed properties,” RealtyTrac Chief Executive Officer Brandon Moore said in the statement.

Foreclosure sales and first-time default notices have declined since banks and servicers were accused more than a year ago of using flawed documentation to repossess homes. A proposed settlement with lenders including Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc. is getting closer to resolving the complaints, Iowa Attorney General Tom Miller said Jan. 24.

Properties in the foreclosure process or already seized by lenders sold for an average $165,322 in the third quarter, up 1 percent from the second quarter and down 3 percent from a year earlier, RealtyTrac said. The price represents an average discount of 34 percent compared with a non-foreclosure property, unchanged from the second quarter and down from a 37 percent difference a year earlier, the company said.

Repossessions to Increase

As lenders resume foreclosures, home repossessions are likely to rise about 25 percent this year from the more than 804,000 properties seized in 2011, Daren Blomquist, a RealtyTrac spokesman, said in an interview earlier this month. Banks had already begun to accelerate default and repossession proceedings in the second half of 2011, according to Moore.

A total of 221,536 homes that sold in the third quarter were in some stage of foreclosure, meaning they had received notices of default, auction or repossession, RealtyTrac said. That was down 11 percent from a revised second quarter total and 5 percent from a year earlier. Bank-owned homes made up 128,712 of those sales, and pre-foreclosure transactions, including short sales, accounted for 92,824.

Pre-foreclosure deals increased 68 percent from a year earlier in Michigan, 44 percent in North Carolina, 43 percent in Ohio and 35 percent in Georgia. Such transactions outnumbered bank-owned sales in Colorado, Florida, New Jersey and New York, according to RealtyTrac.

Biggest in Nevada

Nevada had the biggest share of foreclosure-related sales of any state, at almost 57 percent of total home purchases in the third quarter. The 13,992 bank-owned and pre-foreclosure sales represented a 24 percent increase from a year earlier, RealtyTrac said.

The share of foreclosure sales in California was 44 percent, with the state’s 62,583 transactions up 7 percent from the third quarter of 2010. The proportion in Arizona was 43 percent, with 21,619 such purchases up 19 percent.

In Florida, where courts oversee property seizures by lenders, foreclosure sales plunged to 19 percent of all deals from 39 percent in the third quarter of 2010.

Foreclosure-related transactions as a share of total sales were 34 percent in Georgia, 26 percent in Colorado and 23 percent in Michigan.

RealtyTrac sells default data from more than 2,200 counties representing 90 percent of the U.S. population. Compilation of property-title transfers delays reporting of foreclosure sales data by a quarter.

–Editors: Daniel Taub, Josh Friedman

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net