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Short Sales May Be Accelerated
Posted by: | CommentsOn Monday, the government launched a new effort to speed up the time-consuming often frustrating process of someone selling their home if they owe more than it is worth.
The federal government will give $3,000 for moving expenses to homeowners who complete such a sale – known as a short sale – or agree to turn over the deed of the property to the lender. It is designed for homeowners who are in financial trouble but who do not qualify for the administration’s $75 billion mortgage modification program.
Owners will still lose their homes, but a short sale or deed in lieu of foreclosure does not hurt a borrower’s credit score for as much time as a foreclosure. For lenders, a home usually brings more money in a short sale than a foreclosure. The bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.
Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed. If the offer is above that, the lender must accept it. That is a big change from current practice. Lenders generally do not calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.
Under the new process, Buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months. If that happens as planned, it would be a big improvement. Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.
The Treasury Department outlined the plan last November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out. That is because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.
But there are plenty of restrictions. To qualify, the home needs to be a borrower’s primary residence. In addition, homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.
Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit.
Program Will Pay Homeowners to Sell
Posted by: | CommentsProgram Will Pay Homeowners to Sell at a Loss
New York Times
Published: Monday, March 8, 2010 at 5:16 a.m.
Last Modified: Monday, March 8, 2010 at 5:16 a.m.
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.”
Mortgage Forgiveness Debt Relief Act and Debt Cancellation
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The Mortgage Forgiveness Debt Relief Act and Debt Cancellation: |
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20% of Homes Are Underwater
Posted by: | Comments20% of Homes Underwater
Real estate website Zillow.com says one of every five U.S. home owners owed more on their mortgage than their home was worth in the fourth quarter. The percentage of American single-family homes with mortgages in negative equity rose to 21.4% in the fourth quarter from 21% in the third quarter, according to the Zillow Real Estate Market Reports. U.S. home values declined again in the fourth quarter, as the Zillow Home Value Index fell 5% year-over-year and down 0.5% quarter-over-quarter, to $186,200. It was the 12th consecutive quarter of year-over-year declines, the reports showed. “The prevalence of markets in or near a double-dip situation shows that we are not yet at the bottom, in terms of home values,” Stan Humphries, Zillow chief economist, said in an interview.
One in five, or 29 of the 143 markets tracked by Zillow, had at least five consecutive month-over-month increases in home values during 2009 before values began to flatten or fall again in the second part of the year. These markets included the Boston, Atlanta and San Diego metropolitan areas. Zillow said it defines a “double dip” as two periods of sustained declines in home values separated by a brief period of stabilization or recovery. Foreclosure resales remained high, making up 20.3% of all U.S. home sales in December. Foreclosure resales also made up the majority of sales in several metropolitan areas, including Merced, California, at 68.3%; Las Vegas, at 64 percent, and Modesto, California, at 62%. Additionally, 28.5 percent of home sales nationwide sold for less than what the seller originally paid. Home values increased year-over-year in 27 of 143 markets and remained flat in 15.
FTC Outlaws Upfront Loan Modification Fees
Posted by: | CommentsFTC says no more upfront loan modification fees
The Federal Trade Commission has proposed a new rule that would prohibit third parties, including loan modification specialists and loss mitigation attorneys, from collecting payment for foreclosure prevention services until after they obtain a documented offer from a lender or servicer for a modification or other form of mortgage relief. “Homeowners facing foreclosure or struggling to make mortgage payments shouldn’t have to contend with fraudulent ‘companies’ that don’t provide what they promise,” FTC Chairman Jon Leibowitz said. “The proposed rule would outlaw up-front fees so companies can’t take the money and run.” The FTC has brought 28 cases against companies suspected of foreclosure rescue and mortgage modification scams, and state and federal law enforcement partners have brought hundreds more. According to the agency, generally these cases charged that companies do not provide the services they promise and that they misrepresent their affiliation with the government and government housing assistance programs, including the Making Home Affordable program.
“Far too many homeowners have paid up-front fees to bad actors who promised loan modifications but never delivered,” Treasury Secretary Timothy Geithner said. “I commend the FTC for proposing a strong set of safeguards to protect consumers from these predatory practices.” The proposed rule also would bar providers from telling consumers to stop communicating with their lenders or mortgage servicers. It would also require them to disclose to consumers that they are for-profit businesses, the total amount consumers will have to pay, that neither the government nor the lender has approved their services, and that there is no guarantee that the lender will agree to change their loan.
Have Home Prices Bottomed?
Posted by: | CommentsHome prices bottomed?
According to the PMI Mortgage Insurance Risk Index, the risk of home prices dropping even lower in the next two years is stabilizing in most Metropolitan Statistical Areas (MSAs). The index charts the chance that home prices will rise or fall along a yearly timeline. To do this, PMI analysts translate a percentage, which predicts the probability that house prices will be lower in two years, into a Risk Index score. A score of 100 means there is a 100% chance that the prices will be lower in two years for that MSA. According to the latest Index, risk may have peaked for many MSAs, though the average risk score remains “very high.” In Q309, risk dropped in 22 of the top-50 MSAs. Of all the 384 MSAs measured in the Index, 212, slightly more than half, had decreases in risk scores.
But even though risk declined in the majority of MSAs, the average risk score stayed above 50, dropping for the first time in over a year from 58.3 to 57.5. MSAs in Florida, California, Nevada and Arizona continued to have the highest risk scores in the nation during Q309. All MSAs in Florida, Nevada and Arizona have risk scores in the 90s. But California showed some improvement. Of the 28 MSAs measured in California, 25 saw decreases in risk scores from Q209 to Q309. North Dakota, South Dakota, Nebraska and Vermont continue to show minimal risk. North Dakota leads the nation with the lowest risk score of 1.6. The leading MSAs in terms of risk correspond closely with the MSAs holding the highest foreclosure rates in the RealtyTrac Year-End 2009 Foreclosure Report.
New HUD Policy – Quicker Foreclosure Re-Sales
Posted by: | CommentsNew HUD Policy Created to Allow Quicker Foreclosure Re-sales!
Effective February 1, 2010 the Department of Housing and Urban Development (HUD) will relax FHA rules that prohibit insuring mortgages on homes that are owned by the seller for less than 90 days – a move that could help expedite the rehabilitation and resale of foreclosure properties.
In a housing market where tighter lending requirements have made FHA financing the only option for some buyers, this 90-day policy has (1) kept some homebuyers from being able to purchase affordable homes and (2) prevented the quick resale of foreclosed properties, which affects the ability of communities to stabilize and rebuild.
Research has shown that the buying, fixing, and reselling of foreclosed properties is often achieved in less than three months time.
The temporary waiver, which will expand access to FHA mortgage insurance to many, will be in effect for a period of one year, unless extended or withdrawn by the FHA. With this in mind, now may be an excellent time to contact clients who have recently purchased a foreclosed property and those who may be on the fence about purchasing a foreclosure as a short-term investment.
“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”
To ensure FHA borrowers are protected from inflated prices, the policy has certain restrictions, including:
- All transactions must be arms-length and there can be no identity of interest between the buyer and seller.
- If the sales price of the property is 20 percent or more above the seller’s acquisition cost, the lender must meet specific conditions for the waiver to apply.
- The waiver is limited to forward mortgages, and cannot be used under the Home Equity Conversion Mortgage (HECM) purchase program.
IRS Releases New Forms
Posted by: | CommentsIRS Releases New Forms, Instructions:
The IRS has released IR-2010-6, which provides a revised Form 5405 to reflect the changes to the tax credit made in the extension and expansion legislation enacted in November 2009. The release reminds taxpayers that those claiming the credit cannot use the IRS E-File automatic system, but must file their returns manually. The revised form includes a section for repeat buyers who are eligible to claim the $6,500 tax credit. The HUD-1 or evidence of the transaction must be filed with all returns claiming the credit (both the $8,000 and $6,400 crredits). Individuals who claim the repeat-buyer credit must also provide evidence that they have owned and used the prior residence for five (5) consecutive years. Property tax or homeowner insurance records are sufficient for this purpose, the form indicates. For more details, check out the above IRS form number.
Happy Thanksgiving
Posted by: | CommentsHappy Thanksgiving,
To all of our friends and clients, I would like to take this opportunity to wish you and yours a Happy Thanksgiving.
