Fannie Mae notified single-family sellers and servicers last week that Property Assessed Clean Energy (PACE) Loans have automatic first lien priority over previously recorded mortgages.

Here’s the information from their May 5 lender letter:

Fannie Mae has received a number of questions from seller-servicers regarding government- sponsored energy loans, sometimes referred to as Property Assessed Clean Energy (PACE) loans. PACE loans generally have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage. As PACE programs progress through the experimental phase and beyond, Fannie Mae will issue additional guidance to lenders as may be needed from time to time.

Fannie Mae supports energy-efficiency initiatives, and is willing to engage with federal and state agencies as they consider sustainable programs to facilitate lending for energy-efficiency home retrofits, while preserving the status of mortgage loans originated as first liens.

Questions should be directed to Resource_Center@fanniemae.com with the subject line “PACE.” Lenders may also wish to consult with their federal regulators, who share concerns about PACE programs.

Last week, DRE issued a Short Sale consumer alert statewide “warning consumers and real estate agents about the perils and potential pitfalls of short sales.”

(Blatantly commercial message: we’ve had a Short Sale Buyer Advisory posted on our website for awhile now – it’s available at no charge by signing up for a free trial of our Risk Management Program.)

“The number of short sales is on the rise and many consumers do not understand the consequences of such a transaction,” DRE Commissioner Jeff Davi said. “Moreover, the Consumer Alert educates consumers and real estate agents to recognize the elements of a fraudulent or questionable deal.”

The alert is posted on DRE’s website – go here to fetch it.

At the end of 2009, almost 40 percent of California homeowners were underwater with their home loans, and 20 percent had negative equity of 25 percent or more.

A recent article at examiner.com examined the pros and cons of strategic default, or walking away from mortgage debt.

First, the cons:

Foreclosures constitute a loan default and that can crash a credit report and credit score for up to seven years.

Also, there is a potential that certain jobs tied to checking a consumer’s credit report (say, for security clearance) will become elusive. Financial services like insurance can become more expensive. Most credit, especially cheap credit will disappear for the duration of the black mark.

Perhaps only a few years will pass before creditors return with new offers, even if your credit report is still scarred by the foreclosure. However, your credit score will remain low and you’ll pay through the nose for any credit you can get.

Now the pros, according to Robert Aldana, a real estate agent with Intero Real Estate Services in San Jose:

“Too many people get caught up in the moral dilemma. You need to look out for your family and what best for you and them. Lenders do the same and will take your home if it makes sense to them regardless of how many kids you have,” Aldana said.

Aldana has another perspective.

“If you owe $600,000 on a property that is worth $300,000, with an average appreciation rate of 3 percent per year, it would take you 13.25 years just to recoup the loss and break even. That means that for the next 13.25 years, you are paying rent on your home because you are not making any money, you are barely breaking even. And probably not paying a cheap rent either,” Aldana says.

Aldana adds, “If the lender gave you a loan mod with a 3.5 percent fixed rate payment for that loan of $600,000, your payment would be approximately $2,694. Add taxes and insurance and your total payment is somewhere around $3,500 which is about $1,500 more than what you would be paying for rent on a similar home. That’s an extra $90,000 in 5 years or $180,000 in 10 years of extra payment versus rent. And that’s supposed to be OK as long as you get to say that you are a homeowner?”

I know what side I’m on…or did my walking shoes give me away?

As the housing market malaise continues, the American Dream of homeownership is facing a more realistic economic paradigm shift. More and more Americans are separating the emotional aspects of home ownership from harsh economic reality and jumping into rentals instead.

And many real estate professionals are taking note. Here is an interesting post from a real a Bay Area real estate agent on HousingStorm.com:

A person’s decision to buy or to rent is based on a combination of economic formulas and emotion. And while emotions are certainly justifiable reasons to buy a house, prudent buyers will view those emotions in context, as an “emotional premium” beyond economic fact.

David Leonhardt of the New York Times has brought attention to another measure: Price-to-Rent Ratios.

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

In many large metropolitan areas, including New York, Los Angeles, Chicago, Houston, Dallas, Atlanta and South Florida, the average ratio is now 16 or lower. It was more than 25 in several of these places at the peak of the bubble, about five years ago. With a ratio as low as 16 and interest rates as low as they are, the costs of owning can be less than the costs of renting — and buyers will end up worse off only if prices fall considerably more.

A price-to-rent ratio is simply the home price, divided by the annual rent paid for that (or a similar) home. For example, a house that rents for $1,000 per month has an annual rent of $12,000. If that house has a market value of $240,000, the price-to-rent ratio is 20.

David Leonhardt suggests this is a point to consider buying. I suggest not.

Read the full post here.

The federal tax credit for first-time homebuyers may be over, but one Las Vegas brokerage firm is trying to keep the action going with their own version.

Coldwell Banker franchises in Vegas and throughout Nevada’s Clark county are encouraging sellers to participate in a program that offers buyers a credit of 3 percent – up to $8,000 – on their home’s purchase price. Contracts must be signed by July 31, 2010.

According to a story in the Las Vegas Sun:

The program is an offshoot of what some sellers already do — negotiate 3 percent of the closing costs into the final deal, said Bob Hamrick, CEO of Coldwell Banker Premier.

“Instead of negotiating that item, we are going to make it a marketing item and create some energy around it,” Hamrick said.

Hamrick said he expects equity sellers — homeowners with equity who have their homes on the market — to participate along with homeowners who are selling their homes through short sales. Lenders selling foreclosure homes aren’t likely to get involved, he said.

As for his take on the Las Vegas housing market, Coldwell Banker CEO Jim Gillespie said the national press has lumped Southern Nevada with Arizona, California and Florida about the run-up in prices and subsequent market crash, but he said he is looking west to gauge Nevada.

“I think what is happening here is analogous with what’s taking place in California,” Gillespie said. “You are probably 18 months behind California and in the next 12 to 18 months prices should go up and you will see sales continue to increase.”

From last Friday’s Wall Street Journal Real Time Economics blog:

More homeowners are willing to walk away from their homes voluntarily, according to new research released by the University of Chicago and Northwestern University. About 31% of foreclosures in March were considered “strategic defaults,” in which homeowners walk away when the value of a mortgage exceeds the house value — even if they can afford the mortgage. That’s up from 22% in March 2009.

One likely cause: About 56% of borrowers still believed lenders wouldn’t go after them for walking away from a home, up slightly from 54% a year earlier, according to the study that was based on surveys of more than 1,000 people in March. “With more and more homeowners believing that lenders are failing to pursue those who default on their mortgages, there is a risk that a growing number of homeowners will walk away from their homes even if they can afford monthly payments,” said Paola Sapienza, a finance professor at Northwestern’s Kellogg School of Management who conducted the study with Luigi Zingales, a professor at the University of Chicago’s Booth School of Business. The latest research was released late Thursday with the two universities’ Financial Trust Index, which tracks public trust in the financial system.

Their survey showed that the likelihood of strategic default increased by 23% when homeowners learned that a neighbor with negative equity received a partial loan for forgiveness. It increased by 29% if homeowners could find alternate financing for a new home. “A key deterrent to strategic default is the fear of losing a good credit score,” Zingales said. About 74% of homeowners “believe it is very important to maintain good credit and this can be a factor in encouraging them not to walk away.”

The Financial Trust Index fell slightly to 23%, from 25% the prior quarter. The authors found that the fear of a stock market decline showed a slight increase. The fraction of people who think the stock market is overvalued also rose. The share of Americans who feared losing their jobs increased from a revised 21% in December 2009 to 26% in March 2010.

Last week California geology officials released an updated seismic activity map that includes more than 50 surface fault lines discovered over the last 20 years.

The last seismic map update was 16 years ago. The new maps are much more detailed, and have interactive digital versions that are linked to Google maps.

Since 1998, real estate agents and sellers are required to inform potential buyers if a property is within one of these active fault areas, according to the Natural Hazards Disclosure Act.

The Geologic Survey has also made detailed maps available for individual communities or property owners.

From an AP story on the new maps:

The more than 50 additional surface fault lines, among an estimated 15,000 faults in the state, are new to the statewide seismic activity map but have been mapped previously.

Some of these faults announced themselves long ago, including the system which unleashed the magnitude-7.1 Hector mine quake that rocked Southern California and neighboring states in 1999 but didn’t cause much damage because of the remoteness of its epicenter in the Mojave Desert.

Those faults were mapped within a few weeks but hadn’t been incorporated into California’s statewide map until now, he said.

The map, however, does not display faults like those that caused the 1994 Northridge quake that caused billions of dollars of destruction and dozens of deaths in metropolitan Los Angeles, or the 1983 quake that wrecked most of downtown Coalinga and damaged hundreds of homes in the Central Valley city.

Such faults aren’t on the map because they are “blind thrusts” with no surface rupture to depict.

California is #1 again, but not in a good way.

According to the newly released Q1 2010 Metropolitan Foreclosure Market Report out last week from RealtyTrac, California metros accounted for 10 of the top 20 metro foreclosure rates. Those metropolitan areas include:

1. Modesto
2. Riverside-San Bernardino-Ontario
3. Stockton
4. Merced
5. Vallejo-Fairfield
6. Bakersfield
7. Sacramento-Arden-Arcade-Roseville
8. Visalia-Porterville
9. Fresno

10. Salinas

According to the report:

Foreclosure activity declined on a year-over-year basis in 14 of the cities in the top 20 and in eight of the cities in the top 10. In contrast, foreclosure activity in the first quarter increased on an annual basis in 159 of the 206 metro areas tracked in the report, and foreclosure activity nationwide increased 16 percent from the first quarter of 2009.

“The decreasing foreclosure activity in some of the nation’s top foreclosure hot spots in the first quarter is largely the result of government intervention and other non-market influences, and not a sure signal that those areas are out of the woods yet when it comes to foreclosures,” said James J. Saccacio, chief executive officer of RealtyTrac. “For example, the federal government’s new program designed to encourage short sales, which was launched April 5, may have caused some lenders to delay initiating foreclosure against distressed properties — particularly in hard-hit housing markets where a short sale costs less than a foreclosure.

If California homebuyers didn’t get in on the federal tax credit that expired last Friday, they can still get a $10,000 credit that kicked in on Saturday, May 1 thanks to California lawmakers.

And that has touched off a “feeding frenzy”, according to an article late last week in the Los Angeles Times:

“I am looking at properties almost constantly, and it is just kind of a feeding frenzy right now, which frustrates me,” said Zeenath Shareef, 30, a Venice Beach renter and finance director for a Santa Monica consulting firm who took half days off to look for a home.

“In my mind, properties are going more quickly, and in some cases for more than what they would normally sell for, because people are in such a rush to buy ahead of this deadline,” she said. “I hear people saying, friends of mine saying, ‘I have to buy, I have to buy, I have to buy.’ “

Los Angeles shoppers opened contracts on 911 houses in March, a 32.2% increase from March 2009, according to data from the California Assn. of Realtors. While that increase was sizeable sizable, it also reflects a rebound from a period last year when the nation was gripped by the financial crisis and talk of a second Great Depression abounded.

In Santa Ana, buyers opened contracts on 190 houses in March, an 8% increase from the same month a year earlier. In San Diego, buyers opened contracts on 721 houses in March, a 7.5% increase from March 2009.

Similar data for April weren’t available yet, but real estate professionals said the incentives had added kerosene to the traditionally busy spring season and analysts expect sales and prices to rise in coming months as contracts close.

“The stimulus has worked,” said Rick Hoffman, president of Coldwell Banker Residential Brokerage in San Diego and Temecula Valley. “Buyers are confident that we have seen the bottom of the real estate market and that we are on the way back up.”

A report by Morgan Stanley analysts says that 12 percent of all mortgage defaults in February were “strategic defaults” – where homeowners decided to walk away from their mortgages. This is up from 4 percent in 2007.

From the story in the San Francisco Chronicle:

Borrowers are more likely to stop paying their mortgages the higher their credit scores and the larger their loans, the report said.

Defaults by borrowers who owe more than their homes’ values are among the biggest risks for the housing market, according to analysts including Zelman & Associates’ Ivy Zelman and Amherst Securities Group LP’s Laurie Goodman. Last month, the Obama administration said it would adjust its anti-foreclosure program to encourage reductions to borrowers’ principal amounts, instead of just the payments they make, to address the issue.

That change “gives us hope that policy makers are serious about curbing future strategic defaults,” the Morgan Stanley mortgage-bond analysts wrote.

Strategic defaults also increase based on how much more borrowers owe in housing debt than their homes are worth, they said in the report, which made use of consumer credit data from Transunion LLC and Standard & Poor’s home-price indexes.

That finding concurred with reports by Goodman, a New York- based mortgage-bond analyst, who has said that there will be as many as 12 million foreclosures over the next few years unless lenders can effectively modify borrowers’ debt.