Inside San Diego Short Sales

As you might remember, shortly after I received this short sale listing the homeowner received a notice that the 2^nd  mortgage had been sold to a new investor, and the servicing was also transferred away from Bank of America. There is absolutely no equity in the home to provide collateral backing for the 2^nd  TD, so it seems odd that any investor would want to buy it.

Weeks later, the transferred loan is finally in the system at the new servicing company and I was able to speak to a representative.  She informed me that we would need to submit a complete short sale package directly to them for review and approval.  Now this is very different from what  B of A told me…..they said that they would negotiate the approval with the new servicer.  Hmmm.  So, do I believe Bank of America and assume that they will take care of getting the approval for the 2^nd, or do I negotiate directly with the new servicer?

Well, I think we all know what assume stands for, so there is no way I’m going to trust that  B of A will get anything done for us with the 2^nd  mortgage!  I’m having my seller pull together all of their financials and required documentation for submission and I’ll negotiate directly with the 2nd lien holder.

Meanwhile, we have yet to receive an offer, so at my request Bank of America has approved a second price reduction.  I’ve been doing some heavy Internet marketing, so hopefully the lower price will help get the right buyers in the door, soon.  Will keep you posted!

With short sales accounting for over 17% of all sales in July, and thousands of homeowners upside down on their mortgages, the California Association of Realtors believes that short sales will be a part of the real estate market place for years to come.  Economic growth just isn’t happening quickly enough to keep pace with the number of homeowners who are sinking closer to foreclosure with each passing month.  For many, opting to sell their home in a short sale is the best option because of the less damaging impact on their credit.  But agreeing to list a short sale can be the start of an uphill battle for the Realtors involved. 

One of the biggest issues facing short sale transactions is the time involved for even a preliminary review of the offer and submitted documentation.  This step alone can often take one to three months before the lender even assigns a negotiator to the file.  Another annoying reality is lost or misplaced documentation.  With many lenders one feels that there must be a trash can on the other end of the fax machine as requests for the same documentation are made over and over.  All of this takes time…and the buyer is often out there still looking for something they can buy more quickly, with less hassle.

The California Association of Realtors has recently sent urgent requests to the heads of all the major lenders, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo with recommendations about how the whole process can be streamlined.  A few of the items requested include:

• Realistic timelines
• A thorough explanation for short sales that are denied
• Up front disclosure about who really owns the loan and can make a decision
• Pre-approval of the short sale and price prior to marketing the property
• Increased pay-off to the junior lien holder

As a dues paying member of  C.A.R. and a Realtor in the short sale trenches I’d be thrilled to see even one or two of these recommendations become part of lender procedure.  In the meantime, I’ll just be the one on the phone politely nudging them along, every step of the way.

According to a NY Times article, the Justice Department is investigating whether or not there was anything improper about the ratings given to mortgage securities by Standard & Poor’s prior to the real estate meltdown.  As you’ll remember, the strong S & P ratings helped drive investor confidence in what turned out to be securities with terribly inflated values. 

The investigation actually started several months ago, prior to the U.S. credit rating getting whacked by S & P earlier this month.  But the credit downgrade added fuel to the fire as many questioned the calculations S & P used to determine our debt.  So if they miscalculated our national debt, could Standard & Poor’s have possibly made an error or two when rating mortgage securities in 2004 – 2006?  Or were their calculations driven by business motives rather than independent analysis?

The Justice Department investigation involves instances where it appears that some of the company’s analysts wanted to award lower ratings to some of the mortgage bonds, but were over-ruled by their business managers.  If the government finds enough evidence to suggest wrong-doing they will likely file a civil case again Standard & Poor’s.  It is not clear at this time if the investigation also involves the other two major rating agencies, Moody’s and Fitch.  Investigations have also been initiated by the SEC.

Now, I’m no Economics wiz, but it seems pretty obvious to me that if the S & P ratings of all of those subprime mortgage securities had been accurate and really were as risk-free and strong as they indicated, we wouldn’t be in this pickle now, would we?  By awarding troubled mortgage loans their highest ratings S & P reaped huge profits and contributed to the devastation of the real estate market and our economy.  How can a company be so irresponsible and yet still retain so much authority and power?  It would somehow be refreshing, (albeit unlikely), that Standard & Poor’s actually have to face some negative consequences for their apparent greed.

With the number of homeowners declining, the demand for rentals increasing, prices and interest rates low, and the stock market in disarray, this is a good time to consider purchasing an investment rental property.  But before you buy, make sure you understand that what appears to be a great price isn’t necessarily what you should pay.

Most real estate investors in today’s market are looking for two things:  Building long-term equity, and cash flow.  Unless you simply need a write-off, a property should pretty much pay for itself through the rental income produced.  The potential rent is therefore an important factor in determining what you should pay for a property.

Before writing an offer on a single family home, a condo, or a multi-unit building, do your research.  If the property is currently rented, income information should be available from the owner or listing agent.  However, even in that case it is important to research the local rents to make sure the current rents match the market.   A good place to start your research is online, looking up similar properties for rent in the immediate geographic area.  Another method that works well in a condo complex is to simply walk around and ask people that you meet how much rent tenants pay for comparable units.  You’d be surprised how eager most people are to give you the information you need.

Once you know what you can expect to collect in monthly rent, determine how much cash you will put down and the amount of the mortgage you will have on the property.  The property should rent for no less than 1% of the amount of the mortgage.  Thus, if you purchase a property for $200,000, put 20% down and have a mortgage of $160,000, the monthly rent you collect should equal at least $1600 a month.

There are other considerations of course, such as taxes and HOA fees, etc., but this simple 1% calculation will serve as a good starting point to determine whether or not the property you are considering is worth the asking price.

Please don’t hesitate to call for more information about buying an investment property in Southern California.  There are some great deals that I’d love to share!

In the world of real estate, being an effective representative for your client means staying on top of sales numbers and making sure that you have a clear picture of the market place.  So I spent some time today researching short sale numbers in San Diego County and found two interesting statistics: 

1. There has been little change in the number of short sales that have closed escrow this year as compared to the same period last year.

                                      Detached Homes                Attached Homes

            2011                2172                                        1508

            2010                2074                                        1578

2. The number of short sale listings that did NOT sell in the same period is much higher than I believe most people would expect. 

                                     Detached Homes                 Attached Homes

            2011                2371                                        1462

            2010                1769                                        1227

This means that roughly half of all short sale listings this year did not become successful sales transactions.  So what happened to these homes and their owners?  We can hope that some of them received permanent loan modifications or in some manner managed to reinstate their loans and keep their homes.  But it is likely that the majority became foreclosure statistics.

And why does the short sale listing failure rate seem to have increased this year over last?  Is it just because there were more attempted?  Are the bank requirements becoming more stringent?  Are there more inexperienced agents trying to handle the negotiations?

The answer is probably, “All of the above.”  But whatever the reason, don’t let your short sale become one of the failed statistics.  Make sure that you work with an experienced short sale Realtor who will pre-qualify you and your home and knowledgably guide your negotiations to a successful conclusion.

If I’ve sounded a bit like a broken record over the last 10 months, it’s because I strongly believe that principal reductions are an import key to ending the housing crisis.  People who are struggling to make payments on an upside down mortgage are more likely to avoid default if they are paying on a mortgage based on 2011 home values.  Fewer defaults mean more stable values and ultimately an end to the real estate crash.  And apparently some of the banks now agree.

According to the Wall Street Journal, Bank of America is finally bringing principal reduction modifications to the bargaining table.  For months now, B of A and the nation’s other four largest servicers have been in discussion with state and federal officials in an attempt to settle charges of inappropriate activities in connection with foreclosure proceedings.  Investigations last September revealed that several servicers used illegal affidavits and faulty paperwork in their foreclosure practices, and the banks are now hoping to settle and avoid any further liability.

The state attorneys general have pushed for principal reduction as part of the settlement, but until recently the banks have refused.  The private negotiations have been going on for months, and the June 15^th target for resolution has come and gone.  As a means of kicking the discussion into high gear, B of A has now offered principal reductions as a bargaining chip, and the other banks are expected to follow.

Of course, Bank of America is not offering principal reductions because they actually care about keeping people in their homes, but rather because they hope to make the problems caused by sloppy and illegal foreclosure practices go away.  But in any case, the end result could be the answer to the prayers of many homeowners facing default.

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Of all the articles I’ve written, posts about Bank of America and their Cooperative Short Sale Program seem to draw the most attention.  Is that because people have been disappointed in the results?  Or are they nervous about potential problems?  Well, I thought it would be interesting to share the progress of a new B of A Cooperative Short Sale that I’ve just listed to see just how good, (or bad) the process really is now that the program has been around for a while.

This sale is a bit different than most short sales I’ve done, as the owner had already begun the Cooperative program when I was hired.  Thus a lot of the initial paper work was already in the system, and the bank had ordered an appraisal.  The turn-around time on the appraisal was fairly quick, and I was pleased to see that the suggested list price approved by the bank was reasonable according to all of my research, so at least we are not dealing with an unrealistic starting price.

We did lose a couple of days as I tried to connect with the B of A representative, who will be my primary contact, but we finally spoke and she seems pleasant and knowledgeable.

So just when I thought this might be smooth sailing, the homeowner received a notice that the 2^nd mortgage had been sold to a new investor, and the servicing also transferred away from Bank of America.   So how do you sell a 2^nd mortgage that is upside down?  There is absolutely no equity in the home to provide collateral backing for the 2^nd TD, so it seems odd that it was sold at this stage of the game.

This of course throws a bit of a wrench into the works as I will now have to negotiate a totally separate approval with the new note holder, through the new servicing company…..once they even figure out that they have the account.  Sigh.  We will have to see how this affects the B of A approval process…really not sure what to expect at this point, but I’ll keep you posted.