Strategic Defaults…Who Is Doing Them, How Many Are Happening…How Bad Will It Get?
Back in 07 when this phenomena was one of those topics we would receive criticism for reporting on. The critics suggested that by reporting the topic we were somehow endorsing agents to counsel their clients to walk-away from their mortgage obligations.
Of course, nothing could be further from the truth…if anything we coached agents how-to help homeowners keep their homes.
Now, several years into the never ending real estate bubble deflation death spiral strategic defaults have gone…as the kids say…viral. When we were growing up the understanding was that the last thing you don’t pay is your mortgage. In other words, always pay your mortgage. Now, oh my…how times have changed.
Of course, the new HAFA Guidelines actually seem to give incentives to defaulting homeowners to do short sales or deeds in lieu. At this point, we applaud the Obama Administrations continued focus on slowing the rate of foreclosure. Read about the new 2010 Treasury Department Short Sale Guidelines NOW. The market will shift back to the positive once the rate of foreclosures stops increasing.
Afterall, its hard for anyone to have confidence in the housing market when you are constantly hearing about home values sliding and foreclosure rates increasing….
Interesting story from Reuters….
How widespread are strategic defaults? Laurie Goodman and her team at Amherst Mortgage Insight yesterday released a report that shows they are indeed on the rise and for reasons we might suspect: negative equity and a more borrower-friendly environment.
The second reason should be kept in mind as we consider President Obama’s soon-to-be-announced plan to encourage principal reduction. If the plan is structured so that it gives incentives to default in order to secure principal forgiveness, well, expect defaults to spike.
Strategic default isn’t necessarily synonymous with mailing your keys to the bank and walking away. It may simply mean a borrower choosing to stop payments to the bank when economic incentives would have him do so. Amherst has come up with a novel metric to measure strategic default — the “default transition rate.” DTR looks at the percentage of borrowers who’ve never been more than one payment behind on their mortgage suddenly missing two payments in a row.
Lo and behold, negative equity leads more folks to strategically default, regardless of their credit score and whether they took out a liar loan:
Aparently, borrowers are intentionally defaulting to take advantage of the [HAMP] modification program. Or at least to take advantage of extra time living in the house rent free, courtesy of the modification program.
Amherst concludes:
Borrowers respond to their economic incentives. This has always been the case, be it for refinancing or for defaulting on mortgages that are deeply underwater. Over the past year, however, property values have been largely steady, but the environment has become much more kind to borrowers. There have been foreclosure moratoriums, the emergence of the HAMP modification effort, and the attendant increases of time spent in the delinquency/foreclosure pipeline, as well as a stretching out of the liquidation process in judicial states. As a result, borrowers can stay in their home rent free for a much longer period than was previously the case. However, few of these benefits apply to investor properties. Thus, when we look at the difference pre- and post-HAMP in the behavior of owner-occupied borrowers versus that of non-owner occupants—we find a dramatic difference in performance. Owner-occupied borrowers behave far worse than their non-owner occupied counterparts.
Tuesday, March 30, 2010
THE END OF THE GREAT RECESSION? IS IT TIME TO CELEBRATE?
Breaking News: Case/ Shiller Housing Index Shows Second Month In A Row Of INCREASE IN SALES!
“The animal spirits seem to be coming back,” said Robert Shiller, Yale economics professor and developer of the Standard & Poor’s/Case Shiller Home Price indexes. “The psychology does seem to be changing.”
The national home-price index released on Tuesday rose for the second straight month in June, fueling hopes the housing downturn, which is in its third year, is waning. Still, the index was off roughly 15% in the second quarter from the year-ago period. See Economic Report.
In a teleconference Tuesday, Shiller was reluctant to call a definitive bottom in home prices, saying he’s seeing “conflicting signals” in the housing market.
Well then, I will do it. There is a clear bottom in most housing markets for homes that are less than $200,000. Will this last? I think it will. There first time buyers and investors out there that there won’t be any further significant value decreases for homes less than $200k. Now, with that said, if the ‘First Time Buyer Credit of $8,000′ is not renewed….and if the banks make the mistake of dumping too many foreclosures on the market too fast…all bets are off.
On the positive side, the rise in home prices in May and June is a “sudden break in momentum” from years of nearly steady, punishing declines that may signal a turning point. “The roller coaster is now going up,” Shiller said.
Yet he noted what appeared to be a housing recovery in early 2008 “fizzled” when prices resumed their decline. And a long-term chart of home prices makes it look like “we are still in the process of a bursting bubble.” Shiller expressed “great reluctance” to forecast where prices will go from here with the U.S. economy in the midst of the most severe recession since the Great Depression.
Where will prices go? There WILL BE more depreciation for the more expensive…non first time buyer/ Investor price ranges. In some cases this depreciation will be dramatic. We are predicting that the next wave of foreclosures will force the ‘upper end’ housing markets to lose as much as 30%+ over the next 12-24 months.
“Unemployment looks like a bad indicator for the housing market,” Shiller said.
There are other challenges that could snuff out the nascent revival in home prices. One of the biggest threats is the mounting wave of foreclosures as more strapped borrowers struggle to meet their monthly mortgage payments. The First-time buyer tax credit is set to go away in November, and rising interest rates could also dampen sales, economists say.
The First-time buyer tax credit is set to go away in November, and rising interest rates could also dampen sales, economists say.
IF they don’t renew the buyer credit then YES…we are in trouble. But, they will. And I bet they will increase the ‘$credit’ AND make it available to everyone.
Here is an interesting thought for you….the $8000 buyer credit created demand..in many markets there has been so much demand that agents are selling the less expensive homes in 24 hours. What has this in turn caused…competing offers and increasing prices. So, someone was motivated to buy a home because they were getting a ‘credit’ from the government…they may of thought..”heck yeah I will buy now…I will get $8000 in free money”. As a result of this prices are pushed up. Buyers pay MORE for the home than they other wise would have. So, their $8000 in free money is in essence wiped out by the increase in price they are paying….
Indeed, recent experience has taught homeowners that prices can be very volatile, said David Blitzer, chairman of the index committee at S&P, during Tuesday’s call.
On a national level, home prices are back to levels last seen in 2003, but the cities that saw the biggest run-ups also fell the hardest.
“The idea that they could never go down was wrong,” Blitzer said.
He added the data coming out of the housing market in recent months have been encouraging, but warned against breaking out the champagne just yet. Commenting on so-called shadow inventory, he said many sellers have been waiting for an uptick in house prices to put their homes on the market, Blitzer said. This could exacerbate the supply glut and push a recovery further into the future.
Source: MarketWatch.com
Breaking News: Case/ Shiller Housing Index Shows Second Month In A Row Of INCREASE IN SALES!
“The animal spirits seem to be coming back,” said Robert Shiller, Yale economics professor and developer of the Standard & Poor’s/Case Shiller Home Price indexes. “The psychology does seem to be changing.”
The national home-price index released on Tuesday rose for the second straight month in June, fueling hopes the housing downturn, which is in its third year, is waning. Still, the index was off roughly 15% in the second quarter from the year-ago period. See Economic Report.
In a teleconference Tuesday, Shiller was reluctant to call a definitive bottom in home prices, saying he’s seeing “conflicting signals” in the housing market.
Well then, I will do it. There is a clear bottom in most housing markets for homes that are less than $200,000. Will this last? I think it will. There first time buyers and investors out there that there won’t be any further significant value decreases for homes less than $200k. Now, with that said, if the ‘First Time Buyer Credit of $8,000′ is not renewed….and if the banks make the mistake of dumping too many foreclosures on the market too fast…all bets are off.
On the positive side, the rise in home prices in May and June is a “sudden break in momentum” from years of nearly steady, punishing declines that may signal a turning point. “The roller coaster is now going up,” Shiller said.
Yet he noted what appeared to be a housing recovery in early 2008 “fizzled” when prices resumed their decline. And a long-term chart of home prices makes it look like “we are still in the process of a bursting bubble.” Shiller expressed “great reluctance” to forecast where prices will go from here with the U.S. economy in the midst of the most severe recession since the Great Depression.
Where will prices go? There WILL BE more depreciation for the more expensive…non first time buyer/ Investor price ranges. In some cases this depreciation will be dramatic. We are predicting that the next wave of foreclosures will force the ‘upper end’ housing markets to lose as much as 30%+ over the next 12-24 months.
“Unemployment looks like a bad indicator for the housing market,” Shiller said.
There are other challenges that could snuff out the nascent revival in home prices. One of the biggest threats is the mounting wave of foreclosures as more strapped borrowers struggle to meet their monthly mortgage payments. The First-time buyer tax credit is set to go away in November, and rising interest rates could also dampen sales, economists say.
The First-time buyer tax credit is set to go away in November, and rising interest rates could also dampen sales, economists say.
IF they don’t renew the buyer credit then YES…we are in trouble. But, they will. And I bet they will increase the ‘$credit’ AND make it available to everyone.
Here is an interesting thought for you….the $8000 buyer credit created demand..in many markets there has been so much demand that agents are selling the less expensive homes in 24 hours. What has this in turn caused…competing offers and increasing prices. So, someone was motivated to buy a home because they were getting a ‘credit’ from the government…they may of thought..”heck yeah I will buy now…I will get $8000 in free money”. As a result of this prices are pushed up. Buyers pay MORE for the home than they other wise would have. So, their $8000 in free money is in essence wiped out by the increase in price they are paying….
Indeed, recent experience has taught homeowners that prices can be very volatile, said David Blitzer, chairman of the index committee at S&P, during Tuesday’s call.
On a national level, home prices are back to levels last seen in 2003, but the cities that saw the biggest run-ups also fell the hardest.
“The idea that they could never go down was wrong,” Blitzer said.
He added the data coming out of the housing market in recent months have been encouraging, but warned against breaking out the champagne just yet. Commenting on so-called shadow inventory, he said many sellers have been waiting for an uptick in house prices to put their homes on the market, Blitzer said. This could exacerbate the supply glut and push a recovery further into the future.
Source: MarketWatch.com
Wednesday, March 24, 2010
TAX CREDIT HAS BEEN EXTENDED!!!
Governor Arnold Schwarzenegger’s proposal to extend the $10,000 first time home buyer tax credit has been passed by California Legislature. The tax credit would begin May 1st, 1 day after the Federal Tax Credit ends April 30th.
The previous California tax credit limited to a total of $100 million for new home purchases only was exhausted eight months before the proposed deadline. The initial bill credited over 10,000 home buyers. The new bill appears to double the amount assistance.
New California First Time Home Buyer Tax Credit Highlights
• $200 million in funds available on a first come, first serve basis – could help over 20,000 home buyers
• New homes for any taxpayer and new/existing homes for first time home buyers
• “Qualified principal residence” means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer, is eligible for the homeowner’s exemption under Section 218, and has either never been occupied or is purchased by a first-time home buyer.
• $10,000 tax credit or 5% of purchase price (whichever is lower)
• Credit given in 3 payments to a taxpayer’s personal income tax returns over 3 year period
Combine reduced prices in homes, 40 year low in interest rates and an incentive back from the state of California and you have the Perfect Storm. If this doesn’t cause a small frenzy during peak purchase season (Spring and Summer), I don’t know what will.
LADIES AND GENTLEMEN......START YOUR ENGINES!!!!
Governor Arnold Schwarzenegger’s proposal to extend the $10,000 first time home buyer tax credit has been passed by California Legislature. The tax credit would begin May 1st, 1 day after the Federal Tax Credit ends April 30th.
The previous California tax credit limited to a total of $100 million for new home purchases only was exhausted eight months before the proposed deadline. The initial bill credited over 10,000 home buyers. The new bill appears to double the amount assistance.
New California First Time Home Buyer Tax Credit Highlights
• $200 million in funds available on a first come, first serve basis – could help over 20,000 home buyers
• New homes for any taxpayer and new/existing homes for first time home buyers
• “Qualified principal residence” means a single-family residence, whether detached or attached, that is purchased to be the principal residence of the taxpayer, is eligible for the homeowner’s exemption under Section 218, and has either never been occupied or is purchased by a first-time home buyer.
• $10,000 tax credit or 5% of purchase price (whichever is lower)
• Credit given in 3 payments to a taxpayer’s personal income tax returns over 3 year period
Combine reduced prices in homes, 40 year low in interest rates and an incentive back from the state of California and you have the Perfect Storm. If this doesn’t cause a small frenzy during peak purchase season (Spring and Summer), I don’t know what will.
LADIES AND GENTLEMEN......START YOUR ENGINES!!!!
PSAR vs SDAR
Not long ago, we moved our business from the PASR (Realtor's association) to SDAR. Basically because they offered a better rate..
I soon noticed that SDAR had done a good job luring me in, but their follow up was terrible, it took many weeks to even get everything working more or less as it should. in the end I appear to have never sold a house before, my history was lost, but I thought I could live with that.
A couple days ago, we were going through a tough transaction and Richard D'Ascoli (VP in PSAR), without even asking if we were still members of his association, went all out to help us, and played a vital part in removing almost $20,000 in City penalties and fees that were killing our transaction. Not only did he contact the right people, he did it on the same day, I received calls from the city and a solution within 24 hours.
Thank you Richard!!!
In an environment in which us, Realtors are almost getting used to being belittled by banks and other "players" in the market, Richard D'Ascoli is a breath of fresh air. He has definitely got my vote and my loyalty, I am moving back to PSAR TODAY!!!
Not long ago, we moved our business from the PASR (Realtor's association) to SDAR. Basically because they offered a better rate..
I soon noticed that SDAR had done a good job luring me in, but their follow up was terrible, it took many weeks to even get everything working more or less as it should. in the end I appear to have never sold a house before, my history was lost, but I thought I could live with that.
A couple days ago, we were going through a tough transaction and Richard D'Ascoli (VP in PSAR), without even asking if we were still members of his association, went all out to help us, and played a vital part in removing almost $20,000 in City penalties and fees that were killing our transaction. Not only did he contact the right people, he did it on the same day, I received calls from the city and a solution within 24 hours.
Thank you Richard!!!
In an environment in which us, Realtors are almost getting used to being belittled by banks and other "players" in the market, Richard D'Ascoli is a breath of fresh air. He has definitely got my vote and my loyalty, I am moving back to PSAR TODAY!!!
Monday, March 22, 2010
HOW IS THE REAL ESTATE MARKET LOOKING? WHAT IS IN THE FUTURE?...REALLY!!
Homebuilders continue to struggle. Groundbreaking for new homes fell 5.9% to a seasonally adjusted annual rate of 575,000 units in February, according to data released by the Commerce Department. The drop-off in starts wasn't unexpected; bad weather in many parts of the country impeded starts, but it appears to have impeded them more than many economists had expected.
Given the drop in starts, we shouldn't be surprised that homebuilder confidence dropped as well. The Housing Market Index, a measure of homebuilder confidence, declined to 15 in March from an already low 17 in February. Fifty is the demarcation line – half optimistic, half pessimistic. The last time the index was above 50 was in April 2006.
Homebuilder confidence will continue to sag over the next couple months. Credit for new projects has been difficult to snare while foreclosed and REO properties continue to weigh on inventory and prices. The good news is REO supply should improve as the year progresses. In a Wall Street Journal article, Barclay's Capital reports that lenders held 645,800 properties in January, a 4.6% increase from December, but that's 200,000 fewer than the peak of November 2008. Barclay's expects the number of REO properties to increase in April and then decline over the remainder of the year.
Pricing remains a hot issue as well – for everyone. The national data is schizophrenic. The Case-Shiller Home Price Index has shown national improvement in pricing over the past few months, but then we get newer data from First American CoreLogic's Home Price Index, which shows national home prices were down 1.9% in January. CoreLogic projects prices will continue to decline another 3.7% before bottoming in April. After that, CoreLogic expects a modest recovery for the balance of 2010.
We shouldn't read too much into national pricing. Real estate is heterogeneous and local. What's happening in Vegas, stays in Vegas, especially for someone whose niche is San Francisco or Washington D.C. A national price, therefore, really means little in the grand scheme of things.
Mortgage rates, on the other hand, are more uniform across the country. And, yes, rates continue to hold steady at historically low levels. But we'll say it again: We don't expect rates will hold these lows in perpetuity.
Reading Between the Lines
There is something telling in the fact that mortgage rates barely budged last week. The Federal Reserve held the federal funds rate at 0%, while also stating that its interest-rate target would remain at this exceptionally low level for "an extended period.”
Meanwhile, inflation – a major variable in determining interest rates – appears non-existent. U.S. producer prices posted their biggest decline in seven months, falling 0.6%, in February. On the consumer side, prices were unchanged after rising 0.2% in January. Over the past year, core inflation, which excludes volatile energy and food prices, has risen only 1.3%, the lowest annual gain in six years.
And yet with all this favorable credit-market news, mortgage rates held firm, which tells us there is no going lower. It also tells us that when the news starts tilting toward more inflation and the Fed starts reconsidering its low-rate policy rates will move higher.
So, we'll continue to advise locking in at today's low rates, because at this point only an unforeseen, extraordinary event will move them meaningfully lower. We doubt the same can be said for the other direction. Indeed, we think it will take little more than a whiff of inflation and a little equivocating on the Federal Reserve's part to get rates moving north again.
Homebuilders continue to struggle. Groundbreaking for new homes fell 5.9% to a seasonally adjusted annual rate of 575,000 units in February, according to data released by the Commerce Department. The drop-off in starts wasn't unexpected; bad weather in many parts of the country impeded starts, but it appears to have impeded them more than many economists had expected.
Given the drop in starts, we shouldn't be surprised that homebuilder confidence dropped as well. The Housing Market Index, a measure of homebuilder confidence, declined to 15 in March from an already low 17 in February. Fifty is the demarcation line – half optimistic, half pessimistic. The last time the index was above 50 was in April 2006.
Homebuilder confidence will continue to sag over the next couple months. Credit for new projects has been difficult to snare while foreclosed and REO properties continue to weigh on inventory and prices. The good news is REO supply should improve as the year progresses. In a Wall Street Journal article, Barclay's Capital reports that lenders held 645,800 properties in January, a 4.6% increase from December, but that's 200,000 fewer than the peak of November 2008. Barclay's expects the number of REO properties to increase in April and then decline over the remainder of the year.
Pricing remains a hot issue as well – for everyone. The national data is schizophrenic. The Case-Shiller Home Price Index has shown national improvement in pricing over the past few months, but then we get newer data from First American CoreLogic's Home Price Index, which shows national home prices were down 1.9% in January. CoreLogic projects prices will continue to decline another 3.7% before bottoming in April. After that, CoreLogic expects a modest recovery for the balance of 2010.
We shouldn't read too much into national pricing. Real estate is heterogeneous and local. What's happening in Vegas, stays in Vegas, especially for someone whose niche is San Francisco or Washington D.C. A national price, therefore, really means little in the grand scheme of things.
Mortgage rates, on the other hand, are more uniform across the country. And, yes, rates continue to hold steady at historically low levels. But we'll say it again: We don't expect rates will hold these lows in perpetuity.
Reading Between the Lines
There is something telling in the fact that mortgage rates barely budged last week. The Federal Reserve held the federal funds rate at 0%, while also stating that its interest-rate target would remain at this exceptionally low level for "an extended period.”
Meanwhile, inflation – a major variable in determining interest rates – appears non-existent. U.S. producer prices posted their biggest decline in seven months, falling 0.6%, in February. On the consumer side, prices were unchanged after rising 0.2% in January. Over the past year, core inflation, which excludes volatile energy and food prices, has risen only 1.3%, the lowest annual gain in six years.
And yet with all this favorable credit-market news, mortgage rates held firm, which tells us there is no going lower. It also tells us that when the news starts tilting toward more inflation and the Fed starts reconsidering its low-rate policy rates will move higher.
So, we'll continue to advise locking in at today's low rates, because at this point only an unforeseen, extraordinary event will move them meaningfully lower. We doubt the same can be said for the other direction. Indeed, we think it will take little more than a whiff of inflation and a little equivocating on the Federal Reserve's part to get rates moving north again.
Tuesday, March 16, 2010
UNDISCLOSED SHORT SALE PAYMENTS? JAIL???
Undisclosed payments in short sale transactions, especially those paid outside of escrow, may violate the law, including RESPA, laws against loan fraud, and licensing laws. Short sale agents have increasingly reported to C.A.R. about requests for agents and their clients to pay junior lienholders and others, oftentimes outside of escrow.
One common scenario is when a short sale seller's senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014).
Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent's participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.
Credit and more information:
- Attorney General's Office
California Department of Justice
800-952-5225 Phone
http://takeaction.realtoractioncenter.com/ct/3pA7IIY1ATxl/
- Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735 Phone
http://takeaction.realtoractioncenter.com/ct/edA7IIY1ATxp/
- Federal Bureau of Investigation (FBI)
202-324-3000 Phone
http://takeaction.realtoractioncenter.com/ct/e7A7IIY1ATxP/
One common scenario is when a short sale seller's senior lender authorizes a payment of $3,000, for example, to extinguish a junior lien, but the junior lender demands that the buyer pays an additional $9,000 outside of escrow. Not only would it be risky for a buyer to pay outside of escrow, but concealing this additional payment from a federally-insured senior lender may constitute loan fraud, which is a crime punishable by 30 years imprisonment plus a $1 million fine (18 U.S.C. section 1014).
Furthermore, omitting from the HUD-1 Statement any charges paid at settlement by either a buyer or seller may violate the Real Estate Settlement Procedures Act (RESPA) (Appendix A to 24 C.F.R. Part 3500). Depending on the specific circumstances, carrying out these payment requests may also violate other laws and regulations, and an agent's participation in the scheme may be subject to license revocation by the Department of Real Estate or other disciplinary action.
Credit and more information:
- Attorney General's Office
California Department of Justice
800-952-5225 Phone
http://takeaction.realtoractioncenter.com/ct/3pA7IIY1ATxl/
- Department of Housing and Urban Development (HUD)
HUD Office of Inspector General Hotline (GFI)
800-347-3735 Phone
http://takeaction.realtoractioncenter.com/ct/edA7IIY1ATxp/
- Federal Bureau of Investigation (FBI)
202-324-3000 Phone
http://takeaction.realtoractioncenter.com/ct/e7A7IIY1ATxP/
Thursday, March 11, 2010
Who qualifies for HAMP
In very few words:
- Has to be your primary residence
- Current loan to value ratio is 75% or greater.
- Loans that are ARM, pay option or hybrids are elegible
- Loan originated before 2009
- Unpaid balance not higher than $729,750
- You have to qualify for your payment not being more than 31% of your gross documented income.
- You don't need to be delinquent.
- Bank can initiate foreclosure process but not sale.
- Must be "arms length" (not to your family)
- Buyers cannot resell in less than 90 days.
- Debt forgiven will not be taxed (under law expiring in 2012) (Check tax advisor)
(some of these conditions are particular to specific Banks, for more detail, please contact me and request more information)
GOOD LUCK.
If you don't qualify, your bank should give you a letter of approval to short sale the house at an approved price (with minimum net proceeds requirement), then you call your realtor (hope you consider me) and he will do the rest.
The seller will receive an incentive of $1,500 (relocation assistance.
Call me 619-517-6791 or email henry@houseinsandiego.com
I will provide you with more detailed information about the HAFA and HAMP programs.
Wednesday, March 10, 2010
Free Analysis of your home value and debt alternatives
As a way of giving back to our community, houseINsandiego is working hard, putting together a very complete and personalized package that includes:
- Property profile of your home
- Debt analysis
- Debt to value ratio (based on Current assessed value)
- Calculation of time it will take to break even, if you are upside down.
- What are your options (Description, advantages and disadvantages of each: Loan Mod. Short sale, Deed in lieu, Foreclosure, Bankruptcy)
- When is the market going to recover
- Other interesting and important information.
We are delivering initially to certain areas of East Chula Vista, but if you call or email us, and let us know your home address, we will taylor one of these profiles for your particular case and deliver it to you right away.
Contact: houseINsandiego at (888)454-5888 x30
or email: henry@houseinsandiego.com
**Hablamos Espanol, si usted no habla Ingles, o prefiere comunicarse en Espanol, le atenderemos con la misma calidad de servicio.
Monday, March 8, 2010
SHORT SALES will become the next big trend in Real Estate
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.
To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.
Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.
For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.
For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.
The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”
Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.
Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.
Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.
Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”
There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.
“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.”
Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.
“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”
But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.
Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.
Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.
“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”
Mr. Reddy still lives in the apartment complex where he bought that condo, but is now a renter paying about half of his old mortgage payment. Another benefit, he said: “The place I’m in now is nicer and a little bigger.”
Credit for this article goes to: DAVID STREITFELD
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.
To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.
Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.
For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.
For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.
The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”
Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.
Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.
Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.
Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”
There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.
“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.”
Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.
“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”
But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.
Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.
Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.
“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”
Mr. Reddy still lives in the apartment complex where he bought that condo, but is now a renter paying about half of his old mortgage payment. Another benefit, he said: “The place I’m in now is nicer and a little bigger.”
Credit for this article goes to: DAVID STREITFELD
Monday, March 1, 2010
EQUATOR AND BANK OF AMERICA....Agents, get ready to do somebody elses work too!! AND PAY TO GET WORK AS WELL!!!
Short sales for Bank of America and some other banks will now be handled through Equator, a privately owned company that will profit from selling subscriptions, areas of influence, certifications, and other services to the Real Estate Agents, (that is if they are interested in working with this banks....they could also find a different job).
The following are some of the goodies that we will be looking at:
EQUATOR requires the Borrower/seller to describe their hardship, if the seller has an undue hardship like military relocation or death, there is no way to input that information into the system...hardships are all the same to the system.
SELLER needs to upload their financial docuements (statements, etc...) Equator doesn't care if the seller does not have a scanner. Each of the documents have to be scanned and cataloged for Equator, so the bank has everything served at the table when they decide to consider it. Obviously this job will have to be done by the Agents.
AGENT needs to all input all the figures in the HUD statement and spend time figuring out all numbers, just to be asked to UPLOAD THE HUD sheet at the end, meaning: more work for the agent and complete disregard for his/her time;
There is no information for the agent as to what is expected to be input in different fields, for example: "SETTLEMENT FEES" do they mean ESCROW CHARGES OR THE SETTLEMENT CHARGES TO SELLER? OR SETTLEMENT COSTS, What does it mean (all costs??)
Asks for closing date. (if only we knew when they will approve??), we have an offer with BofA in my office that has been negotiated for ONE YEAR, vice-presidents come and go, I have lost 3 or 4 buyers, and still these guys cannot approve or reject the short sale.....closing date, yeah right!
IN THEIR "hud" There is not a field for NHD that is required by law.
Why is the commission is always 5% when the industry standard is 6%, and recent legislation HAMP and HAFA has determined that if the loan belongs to Fannie Mae or Freddie mac the Commission shouldn't be reduced. Why should we reduce our commission when we need to wait 4 to 12 months for the short sale to be approved??? We should reduce their salaries instead, they are the ones that are incompetent, bureaucratic and ineficient.
AGENt is required to know the first 5 digits of the Buyer's Social Security; phone number; address and Birthdate. Who gives that information??, the buyer is not the negotiating agent's client, tell me if you would give a stranger these numbers? doesn't it scream like identity theft?
AGENT is asked to upload photo and MLS# and in the same window is asked to upload the MLS Sheet that includes photo and MLS#. (Just for the sake of making agents work a little more, who cares)
When a message is sent to us through equator, and we try to reply, we get the e-mail back undelivered = GENERIC.BACI@BANKOFAMERICA.COM. Meaning: This system does not work yet, or nobody is looking at your answers!
The assigned tasks are supposed to triger an e-mail to the Agent to login to equator, but it doesn't, we need to check it every day, to see when someone decided to give us a break.
Equator sells registration to each zipcode so if an agent wants his client to be able to pick him out of the agents that are "suggested" or authorized by Equator, he HAS to pay for that zipcode, then better pay extra to get your photo in there, or even more if you want to be certified so the banks pick you, and even more if you want the banks to see your resume and be in a "prime" position..... and this is just the beginning of what will be the way banks work, doesn't this look unfair for the agents?, where is our Department of Real Estate, or our Boards of Realtors to protect us from this huge plan to extract money from us, in order to be able to work?
The following are some of the goodies that we will be looking at:
EQUATOR requires the Borrower/seller to describe their hardship, if the seller has an undue hardship like military relocation or death, there is no way to input that information into the system...hardships are all the same to the system.
SELLER needs to upload their financial docuements (statements, etc...) Equator doesn't care if the seller does not have a scanner. Each of the documents have to be scanned and cataloged for Equator, so the bank has everything served at the table when they decide to consider it. Obviously this job will have to be done by the Agents.
AGENT needs to all input all the figures in the HUD statement and spend time figuring out all numbers, just to be asked to UPLOAD THE HUD sheet at the end, meaning: more work for the agent and complete disregard for his/her time;
There is no information for the agent as to what is expected to be input in different fields, for example: "SETTLEMENT FEES" do they mean ESCROW CHARGES OR THE SETTLEMENT CHARGES TO SELLER? OR SETTLEMENT COSTS, What does it mean (all costs??)
Asks for closing date. (if only we knew when they will approve??), we have an offer with BofA in my office that has been negotiated for ONE YEAR, vice-presidents come and go, I have lost 3 or 4 buyers, and still these guys cannot approve or reject the short sale.....closing date, yeah right!
IN THEIR "hud" There is not a field for NHD that is required by law.
Why is the commission is always 5% when the industry standard is 6%, and recent legislation HAMP and HAFA has determined that if the loan belongs to Fannie Mae or Freddie mac the Commission shouldn't be reduced. Why should we reduce our commission when we need to wait 4 to 12 months for the short sale to be approved??? We should reduce their salaries instead, they are the ones that are incompetent, bureaucratic and ineficient.
AGENt is required to know the first 5 digits of the Buyer's Social Security; phone number; address and Birthdate. Who gives that information??, the buyer is not the negotiating agent's client, tell me if you would give a stranger these numbers? doesn't it scream like identity theft?
AGENT is asked to upload photo and MLS# and in the same window is asked to upload the MLS Sheet that includes photo and MLS#. (Just for the sake of making agents work a little more, who cares)
When a message is sent to us through equator, and we try to reply, we get the e-mail back undelivered = GENERIC.BACI@BANKOFAMERICA.COM. Meaning: This system does not work yet, or nobody is looking at your answers!
The assigned tasks are supposed to triger an e-mail to the Agent to login to equator, but it doesn't, we need to check it every day, to see when someone decided to give us a break.
Equator sells registration to each zipcode so if an agent wants his client to be able to pick him out of the agents that are "suggested" or authorized by Equator, he HAS to pay for that zipcode, then better pay extra to get your photo in there, or even more if you want to be certified so the banks pick you, and even more if you want the banks to see your resume and be in a "prime" position..... and this is just the beginning of what will be the way banks work, doesn't this look unfair for the agents?, where is our Department of Real Estate, or our Boards of Realtors to protect us from this huge plan to extract money from us, in order to be able to work?
Subscribe to:
Posts (Atom)
Posts
