Are properties going to flood the real estate market? Episode #364

Todd and Oana discuss whether properties will flood the real estate market or not in Las Vegas.

Todd: Hello. Welcome to Todd Miller TV. Joined here today with Oana. Middle of October. Actually today is Columbus Day, right?

Oana: I believe so.

Todd: Columbus Day 2013 and in September 1st, this law went into effect, right?

Oana: October 1st.

Todd: October 1st, this law went into effect, the Homeowner Bill of Rights.

Oana: Right.

Todd: So let’s take a step back one month to September. What did that look like for NODs?

Oana: Well, Nevada tends to be the first or the last.

Todd: OK, last in education.

Oana: OK. So we were number one in September for notices of defaults so that meant something to the order of 1 in like 259 homes in Nevada got a notice of default.

Todd: That’s a lot of homes.

Oana: That’s a lot of homes.

Todd: It’s that 1 in 259 because half are upside down.

Oana: Right.

Todd: And then you have like – I think one in six have had some form of something filed at some point but just in a month, 1 in 249.

Oana: Something like that, yeah. The reason for that is because we have the Homeowner Bill of Rights take effect October 1st. So lenders looked at that and said, “You know what? We really don’t understand what that is going to look like for us.” That still needs to still be seen. So we know what the rules are today so we’re going to go ahead and file and get the ball rolling today because then we’re not going to be subject to that.

Todd: OK. In October 1st, it was a small number of NODs.

Oana: Right, right.

Todd: OK. So what they want to know out there is how does this affect them in six months or a year because they’re thinking about I maybe want to buy or I maybe want to sell and price is going to take off again because there’s no more foreclosures. What does that look like?

Oana: Well, short term, the market has actually kind of taken a breather.

Todd: OK.

Oana: OK. So over the last couple of months, we’ve seen prices not really do anything. They haven’t gone up. They haven’t gone down.

Todd: They’re just kind of hanging out.

Oana: They’ve just kind of been hanging out and a lot of that is – a lot of things have to do nationally of course with what’s going on with the budget and then all that crazy stuff. Part of it is just the time of the year where there’s a little bit less demand and part of it is the Homeowner Bill of Rights where people particularly investors are watching that and saying, “Hey, what is going to happen to values?” This is very typical for this time of year to – for prices to remain stable and not see a jump in values.

Of course as inventory diminishes and if the demand continues, then we all know how that works. If you’ve got demand, then prices increase.

Todd: OK. Given that REO is like 10 percent maybe of our market, is this – I mean isn’t the market really regular equity sales now predominantly?

Oana: It is, it is. Half the market right now is basically equity sales, which is huge, which is wonderful. It makes for a very healthy market. It makes for a predictable market, which is great. So that’s really good.

As far as what’s going to happen with REO, well, I don’t have a crystal ball. I don’t see a whole lot of change in the short term. Maybe in the long term we might see more REO come to market. We will see. I know that part of this whole restructuring of the Homeowner Bill of Rights and that sort of thing, that part of all this was an effort to deal with the vacant properties and maybe streamlined the foreclosure process of the vacant properties which may bring more properties to market.

Todd: OK.

Oana: We all know that in Las Vegas we have somewhere in the order of about 60,000 plus vacant properties. Now how we know that is because according to the power company, we have about 60,000 doors that don’t have power on. So we assume that if they don’t have power on, they’re probably vacant.

Todd: OK. I will add this. Do you know that the banks know that the properties are vacant or not?

Oana: Absolutely. It’s funny because I went to a property last week and it was a bank-owned property and we just took control of the property and the posting on the door was from 2011.

Todd: Two years ago.

Oana: That property has been vacant since 2011 and then I got another property that was on the same block just a few units down and that one has been vacant for just as long and how I know about that, well I didn’t have a posting on it. The neighbor, who has classic cars, has been parking his classic car in our driveway for two years.

Todd: For two years.

Oana: Yes. So these properties have been sitting out there which makes the whole point of the 60,000 plus doors that are vacant.

Todd: Just so people know, when a loan goes into default, your bank hires somebody locally to do what’s called a – it’s like an occupancy check. They do a drive-by. Sometimes they take a picture to just see – to make sure the house is still there and everything and they estimate whether it’s occupied or vacant. They pay that person a small amount like 25 bucks maybe, to just do this thing.

Sometimes they do valuations and they could do the same thing and they will find out. But if they do find out it’s vacant there, it is possible they will come secure it, meaning they will send somebody out to rekey or change the lock. I had banks that have done that where they said, “Hey, we’ve already secured the house.” So they kind of know what houses are vacant and what houses are not vacant. They have a pretty good idea.

Oana: Absolutely. So in the house that was posted from 2011, not only was it posted from 2011 but they had already gone ahead and rekeyed it and winterized the house.

Todd: Winterized it, yeah.

Oana: So we know that they know exactly what’s going on with their inventory.

Todd: OK.

Oana: While there’s this perception of the banks that have no idea what’s going on with their properties, they really do know very well what’s going on with their properties. They’re constantly valuing their portfolios and that’s part of what they use to decide when to foreclose, when to bring a house to market. It all goes into their metrics of how to pick and choose which property they’re going to do what with.

Todd: And just remember this, we still have a year and about three or four months of this national mortgage settlement. That is what cost the bank is not foreclosing. It wasn’t AB-284, any of these other crazy ones. It was right about that time when the banks made this deal of the $17 billion in relief.

They voluntarily said, “We don’t care about Nevada or anybody else. We’re going to stop and try to get these loans performing because we can resell them. We can get loan mods and we can count all this for our 18 billion that we have to give.” They have a three-year window to do that.

So it will be interesting the beginning of 2015. I think it’s February when that ends and then they got to go back and see how much they did if they did their 17 billion and if that’s the case, then they’re – the states have given them relief and then they go do whatever they want pretty much.

Oana: Right.

Todd: They met under the agreements.

Oana: So I think a lot of these vacant properties will probably come to market within the next 18 months before you see the expiration of the Mortgage Relief Act. So I think these vacant ones will probably come to market. A lot of them will before that because then once that happens, then they can start foreclosures on the ones that are not vacant.

Todd: So the bottom line is we’re not going to see a flood of properties and we’re not going to see a bunch of properties not hit the market.

Oana: No, no.

Todd: So we’ve been hearing this from people for years. Oh my gosh, the flood of properties, the flood of properties. They go on YouTube. They make these videos. We’re going to have a flood of properties. Prices are going to collapse. You don’t see that happening.

Oana: No. Banks have gotten very smart about that. They’re running metrics all the time on what’s most advantageous for them and remember, it’s advantageous for them to bring these properties to market slowly because they’re going to recoup more money and at the end of the day, that’s what it’s about. These assets on the books are valued up whatever that loan is worth until they actually sell that asset. So the longer they can delay this, the more property values increase, the better off they are because the more they’re going to actually recoup.

Todd: Perfect. All right. So thank you very much.

Oana: You’re welcome.

Todd: All right. So that’s my update for today. Hope to see you on another video. Thanks.