April 2020 – REI INK

Which U.S. Housing Markets Are Most Vulnerable to Coronavirus Impact?

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Nearly half of the 50 most vulnerable counties are in New Jersey and Florida. ATTOM Data Solutions released a special report on April 7 spotlighting U.S. housing markets at the county level to show which areas are more vulnerable to the impact of the coronavirus pandemic. According to the report, the Northeast region of the U.S. has the largest concentration of the most at-risk counties, with clusters in New Jersey and Florida. On the other hand, the report indicates the West and Midwest regions are least at risk of housing market challenges. Markets are considered more or less at risk based on the percentage of housing units receiving a foreclosure notice in fourth quarter 2019, the percent of homes underwater (LTV 100 or greater) in fourth quarter 2019 and the percentage of local wages required to pay for major home ownership expenses. Rankings were based on a combination of those three categories in 483 counties in the U. S. with sufficient data to analyze. Counties were ranked in each category, from lowest to highest, with the overall conclusions based on a combination of the three rankings. The full methodology can be found on the ATTOM Data Solutions’ website. “It’s too early to tell how much effect the Coronavirus fallout will have on different housing markets around the country. But the impact is likely to be significant from region to region and county to county,” said Todd Teta, chief product officer with ATTOM Data Solutions. “What we’ve done is spotlight areas that appear to be more or less at risk based on several important factors. From that analysis, it looks like the Northeast is more at risk than other areas. As we head into the spring home buying season, the next few months will reveal how severe the impact will be.” Northeast Vulnerabilitiy Housing markets in 14 of New Jersey’s 21 counties are among the 50 most vulnerable in the country, according to the report. The Top 50 also include four in New York and three in Connecticut. The 14 counties in New Jersey include five in the New York City suburbs: Bergen, Essex, Passaic, Middlesex and Union counties. New York counties among the Top 50 most at risk include Rockland County, in the New York City metropolitan area; Orange County, in the Poughkeepsie metro area; Rensselaer County, in the Albany metro area; and Ulster County, west of Poughkeepsie. Additional High-Level Findings The 10 counties in Florida are concentrated in the northern and central sections of the state, including Flagler, Lake, Clay, Hernando and Osceola counties. Other southern counties that are in the Top 50 are spread across Delaware, Maryland, North Carolina, South Carolina, Louisiana and Virginia. Among the counties analyzed, only two in the West and five in the Midwest (all in Illinois) rank among the Top 50 most at risk. The two western counties are Shasta County, California, in the Redding metropolitan statistical area and Navajo County, Arizona, northeast of Phoenix. The Midwestern counties are McHenry County, Illinois; Kane County, Illinois; Will County, Illinois and Lake County, Illinois, all in the Chicago metro area; and Tazewell County, Illinoic, in the Peoria metro area. in the Top 50 with a population of at least 500,000 people include Bergen, Camden, Essex, Middlesex, Ocean, Passaic and Union counties in New Jersey; Lake, Will and Kane counties in Illinois; Delaware County, Pennsylvania; Prince George’s County, Maryland; and Broward County, Florida. Texas has 10 of the 50 least vulnerable counties from among the 483 included in the report, followed by Wisconsin with seven and Colorado with five. The 10 counties in Texas include three in the Dallas-Fort Worth metro area (Dallas, Collin and Tarrant counties) and two in the Midland-Odessa area (Ector and Midland counties). Eighteen of the 50 least at-risk counties have a population of at least 500,000, led by Harris County (Houston), Texas; Dallas County, Texas; King County (Seattle), Washington; Tarrant County (Fort Worth), Texas; and Santa Clara County, California, in the San Jose metro area. where median prices ranging from $160,000 to $300,000 comprise 36 of the Top 50 counties most vulnerable to the impact of the Coronavirus. with median home prices below $160,000 or above $300,000 make up 14 of the Top 50 most vulnerable to the impact of the coronavirus. Those with median prices below $160,000 are among the most affordable in the nation to local wage earners, while those where median prices exceed $300,000 have some homes with the highest equity and smallest foreclosure rates.

Vacant “Zombie” Foreclosures Increase Nationally

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ATTOM Data Solutions, Q1 2020 Vacant Property and Zombie Foreclosure Report, released at the end of February, analyzed publicly recorded real estate data collected by ATTOM Data Solutions, including foreclosure status, equity and owner-occupancy status, matched against monthly updated vacancy data. According to the report, about 282,800 homes are in the process of foreclosure, with about 8,700, or 3.1% sitting empty as “zombie” foreclosures. The percentage is up from 3% in the fourth quarter of 2019, but still significantly less than 5.8% in the first quarter of 2014. The total number of properties in the process of foreclosure in the first quarter of 2020 is down 1.9% from the fourth quarter of 2019, while the number of vacant foreclosures is up 1.7%, meaning that the level of zombie properties rose while the count of foreclosures dipped. Since 2016, the number facing possible foreclosure is down 27%, while the tally of unoccupied properties in the foreclosure pipeline has declined 53%. Zombie foreclosures continue to represent just a fragment of the 1.52 million vacant homes nationwide, comprising just one in every 175 properties, or less than one percent. The highest overall vacancy rates for all residential properties continue to be in Tennessee (2.6%), Kansas (2.6%), Mississippi (2.5%), Oklahoma (2.5%) and Indiana (2.5%). The lowest remain in New Hampshire (0.4%), Vermont (0.4%), Delaware (0.5%), Idaho (0.6%) and North Dakota (0.7%).

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Median prices again rose year-over-year in two thirds of Opportunity Zones. That’s according to ATTOM Data Solutions’ third special report analyzing qualified Opportunity Zones established by Congress in the Tax Cuts and Jobs act of 2017. The report, released in late February, examined about 3,700 zones with sufficient sales data to analyze, meaning they had at least five home sales in each quarter from 2005 through the fourth quarter of 2019. The report found that about half the zones included in the report, where there was sufficient sales data, saw median home prices rise more than the national increase of 9.4% from the fourth quarter of 2018 to the fourth quarter of 2019. The report also shows that 78% percent of the zones had median home prices in the fourth quarter of 2019 that were less than the national median of $257,000.That’s almost the same percentage as in the third quarter of 2019. About 48% of the zones had median prices of less than $150,000. Among the report’s major findings for zones with sufficient data to analyze: Median prices rose from the fourth quarter of 2018 to the fourth quarter of 2019 in 66% of the Opportunity Zones. In 34% of zones, they declined or stayed the same. Median prices in 47% of Opportunity Zones rose year-over-year more than values increased nationally. The national increase from the fourth quarter of 2018 to the fourth quarter of 2019 was 9.4%. In 20 states, year-over-year median price increases in at least half the Opportunity Zones beat the national 9.4% figure. Those with the most such zones were Pennsylvania, North Carolina, Arizona, Ohio and New Jersey. Among the Opportunity Zones with sufficient data to analyze, California had the most, with 465, followed by Florida (332), Texas (234), Pennsylvania (166) and North Carolina (165). Of the zones analyzed, 1,776 (48%) had a median price of less than $150,000 in the fourth quarter of 2019, and 594 (16%) had medians ranging from $150,000 to $199,999. Another 529 (14%) ranged from $200,000 up to the national median price of $257,000, while 817 (22%) were more than $257,000. In metropolitan statistical areas with sufficient sales data to analyze, 84% of Opportunity Zones had median fourth quarter sales prices that were less than the median values for the surrounding MSAs. Among those, 25% had median sales prices that were less than half the figure for the MSAs. At the same time, 16% of the zones had median sales prices that were equal to or above the median sales price of the broader MSAs. The Midwest continued to have the highest rate of Opportunity Zone tracts with a median home price of less than $150,000 (73%), followed by the South (58%), the Northeast (51%) and the West (12%). States with the highest percentage of census tracts meeting Opportunity Zone requirements included Wyoming (17%), Mississippi (15%), Alabama (13%), North Dakota (12%) and New Mexico (12%). Washington, D.C., was also among the leaders (14%). Nationwide, 10% of all tracts qualify.

U.S. Homeowners Four Times as Likely to be Equity-Rich Than Seriously Underwater

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ATTOM Data Solutions reports that in the fourth quarter of 2019, equity-rich properties comprised 27% of all mortgaged homes. The highest equity levels were in the San Francisco Bay area. According to ATTOM’s fourth-quarter 2019 U.S. Home Equity & Underwater Report, released in early February, 14.5 million residential properties in the U. S. were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50% or less of their estimated market value. The count of equity-rich properties in the fourth quarter of 2019 represented 26.7%, or about one in four, of the 54.5 million mortgaged homes in the U.S. That percentage was unchanged from the third quarter of 2019. The report also shows that just 3.5 million, or one in 16, mortgaged homes in the fourth quarter of 2019 were considered seriously underwater, with a combined estimated balance of loans secured by the property at least 25% more than the property’s estimated market value. That figure represented 6.4% of all U.S. properties with a mortgage, down slightly from 6.5% in the previous quarter. The top 10 states with the highest share of equity-rich properties in fourth quarter 2019 were all in the Northeast and West regions, led by California (42.8% equity-rich), Vermont (39.2%), Hawaii (38.8%), Washington (35.4%) and New York (35.1%). States with the lowest percentage of equity-rich properties were Louisiana (13.6% equity-rich),Oklahoma (14.9%), Illinois (15.3%), Arkansas (16.3%) and Alabama (16.5%).

From Salesman to CEO

by Brandon Guzman
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Drive, thick skin and a customer-focused approach propelled Brandon Guzman’s quick rise in the industry. You could say I grew up fast. I was a latchkey kid from Puerto Rico with a single mom. I didn’t have any rules. If anything, that fueled my drive to create something, succeed at something. After moving to Cleveland, Ohio, with my mother, I attended a local Catholic school and was always searching for ways to make money. At age 13, as an eager eighth grader, I officially joined the workforce as a bag boy at the Heinens—a popular local grocery chain. I walked to work after school and worked as long as they would let me. That job taught me a lot about work ethic. Entrepreneurial Spirit Emerges Early My first entrepreneurial endeavor happened the summer after my freshman year of college at Ohio University. My friends and I had all returned home and we needed to make some cash for books and tuition. So, we decided to start a lawn care company. We rented some equipment for lawn cuts and mulching, and we printed thousands of flyers that we hand delivered to every mailbox. We started to get some calls, and then referrals, and then it just took off. Sure, it was a simple business idea, but I found I loved building something from the ground up. And I learned I could outwork the competition. Once I was back at Ohio University, I tended bar every night I could while working toward my business major. After graduation, I took a job I thought would lead to a big career and a big paycheck—insurance sales. I had no idea what I was doing or talking about. I compensated by outworking every other rep in the room. I was good at sales. I have the drive for it, the thick skin, the confidence. But I did not like the company. It was stagnant. A Startup Calls A chance encounter with an investor introduced me to a new startup that was looking for its first sales rep—MFS Supply. I jumped at the offer. The idea of working at a company that had its whole future ahead of it appealed to my entrepreneurial spirit. I started with MFS Supply that Monday. As I walked into the office, I realized the reality of startups. I walked into a single room shared with the other two employees where we had to jostle for chairs. There weren’t any desks. The only bathroom was in another tenant’s office. If all of us were making calls at the same time, you couldn’t hear yourself think. I took to it immediately though. This fledgling company needed its employees to mold it, grow it, establish its brand. Growing Pains In 2007, the year I started at MFS Supply, the company sold five products into the property preservation space to about 20,000 contractors nationwide. As the subprime mortgage crisis hit and the recession enveloped the U.S., MFS Supply thrived. Banks were foreclosing on homes left and right, hiring more and more property preservation contractors to secure and winterize the properties. MFS Supply’s customer base grew to 60,000 contractors by 2008 and hit 100,000 contractors at the height of 2009. I led the charge on expanding inventory from securing products to winterization materials. In 2007, as the first and only sales rep at MFS Supply, I didn’t know what I was doing. I didn’t know the industry, the customer. I worked 10-12 hours a day, just calling customers. Not just to sell but to ask them questions, have a conversation and start educating myself on what they really needed. The idea of really collaborating with your customers, listening to them, putting them first is what made MFS Supply stand out from the competition. It’s now a core value of the company and something we do every day. This set the tone for me and the company. I built out a strong referral program with my customers, and the company grew by focusing on adding value. When I was promoted to senior account manager, I was tasked with bringing in more sales reps to support growth. The customer-focused attitude was instilled in all of us. I remember a time I had a customer who had to have product the next day for a job. But he couldn’t afford the $300 overnight shipping. Another rep and I jumped in my car and drove the three hours to his home to deliver it to him. Often we’d get a customer order after the UPS pickup cutoff. We’d box up the order and take turns driving around the neighborhood to catch a UPS truck to hand off the package. Eyeing the Future In 2010, I signed up for night classes at Baldwin Wallace and started working toward my MBA. College had prepared me for sales, but I wanted a full understanding of management, operations and finance too. My MBA classes were a key driver in my career expectations, shifting my focus beyond sales goals and toward management. The same year I graduated from the MBA program, I was promoted to director of sales. In this new role, I oversaw the birth of a new market—REITs. In 2015, these real estate investment trusts started snapping up affordable homes in bulk in the wake of the financial crisis. Invitation Homes, American Homes 4 Rent—MFS Supply was their first vendor. REITs didn’t need many securing products, they needed appliances. This was MFS Supply’s first big product diversification. Selling appliances was a different ballgame—new shipping structure, new pricing model, huge variety of SKUs, new sales knowledge. So, I built out an appliances team to support this initiative. The following year, I launched into another new market—multifamily—and was promoted to vice president of sales and marketing. The appliance game is tough. High competition, low margins and price driven. We found it was a great way to get a foot in the door in the multifamily industry but not a product we could use

Property Preservation in Illinois: Know before you go!

by Marcos Posada
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Servicers and investors should be sure to know their options when code violations and preservation issues arise. As is often the case in mortgage servicing, properties secured by defaulted mortgages can wind up vacant or in need of repair. Depending on the condition of the property, the municipality may issue code violations and file suit, naming both the owners of the property as well as anyone with a recorded interest. Neighbors also may report conditions to the city or county. In addition, the properties may be vulnerable to vandalism and thievery. Given all this, should servicers or the investor secure the property? It can be difficult to provide an easy answer. However, from a best practices approach, consider the path with the least exposure for litigation. Under the terms of the standard Fannie Mae & Freddie Mac Mortgage, the answer typically is yes, you can secure. Still, it is imperative that you always review the actual terms of the mortgage at issue. Most of the time, the mortgage will contain a paragraph relating to what actions the mortgagee may take to protect its interest in the property. The mortgage will call for the borrower to maintain the property and keep it from deteriorating. It will also include specific language allowing the mortgagee to do and pay whatever is reasonable to protect both its interest in the property and its rights under the terms of the mortgage in certain circumstances. Caution is Key From a servicing standpoint, when ample evidence suggests a property is vacant and needs securitization or repair, it may be easy to rush an order to a vendor to secure or repair the property; however, exercise caution. The cautious approach is to first review the terms of the mortgage to ensure you have the option to secure or take actions with respect to the property. Second, evaluate the potential risk and exposure. Would your actions lead to additional litigation? Is the property in foreclosure and has the foreclosure become contested? Is the mortgagor represented by counsel? Does there appear to be personal property within the property? Third, does the municipality have any vacant building registration or securitization requirements? For example, the City of Chicago requires that a mortgagee shall, within the latter of a residential building becoming vacant for more than 30 days or 10 days after a default, register the building and secure the property to prevent unlawful entry and pay a $700 registration fee. The registration must be renewed every six months for as long as the building remains vacant and unregistered by an owner and a renewal fee of $300 will apply. (Note that governmental entities are exempt from the payment of the registration and renewal fees pursuant to 13-12-126 of the municipal code of Chicago.) Additionally, the property must have a visible posted sign indicating the name, address and phone number of the registered mortgagee or mortgagee’s agent with the vacant building registration number. Further, the property must be maintained so that the exterior is clean and secure and the interior is winterized. (See 13-12-126 of the municipal code of Chicago.) Legal Consultation May Be Needed Because these situations can sometimes lead to confusion or instances in which both sides are pleading their case before the court, consult your attorney and consider seeking a court order allowing the repairs or any actions you wish to take at the property, unless you simply seek to secure the property pursuant to local ordinance requirements. The Illinois Mortgage Foreclosure Law has a specific statutory provision (735 ILCS 5/15-1701) that addresses the right to possession of mortgaged real estate during foreclosure. Specifically, in terms of residential real estate, the mortgagor/borrower shall be entitled to possession of the subject property except if the mortgagee/lender objects and shows the following elements: A sufficient basis why it should be entitled to possession. The terms of the mortgage allow the mortgagee to obtain possession. The court finds a reasonable probability the mortgagee will ultimately prevail in the pending suit. If you do elect to secure the property, ensure that ample photos are taken showing exactly what actions were taken at the property. If you do not obtain a court order, a situation may occur in which a property is secured and the mortgagor(s) or occupant(s) subsequently files a motion with the court seeking relief for time, mental anguish, lost personal items and anything that is reasonably related to being locked out of the property. In these scenarios, it can be difficult to disprove what personal property was or was not present and has subsequently disappeared. This leads to additional litigation fees in terms of having to retain counsel to defend the motion as well as extend funds for settlement, in many cases, to resolve the matter as quickly and efficiently as possible. What if your loan is current and the city or municipality files suit alleging code violations? It is equally advisable to seek the advice of counsel in this situation. If the servicer is named in a lawsuit seeking relief for municipal or building code violations and the loan is current, the servicer will still need to appear in the case and ensure the borrower is taking the appropriate steps toward curing whatever outstanding issues remain. Failing to appear could mean missing out on notice of actions the plaintiff may wish to take at the property, such as appointment of a receiver which could eventually record a lien that takes priority over the mortgage. Typically, in these cases, the court will want to be kept updated from the servicer side of things with respect to the status of the loan (i.e., current or in default). In some situations, the court may ask the servicer to take action at the property. The importance of recognizing building code violations and municipal ordinance issues is not unique to Illinois. As natural disasters continue to occur throughout the U.S. and Mother Nature reminds us of her strength, code violations and preservation issues will continue