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February 22, 2011

Short Sale vs. Foreclosure: You Be the Judge

Posted by martikilby under Credit score, Credit Scores, foreclosure, Short Sale | Tags: , , , , , , , , , , |
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Short sales can be a real pain for everyone involved…sellers, Realtors, buyers…and because so many fail, people are often left with a negative view of the short sale process.  But, do you really know the benefits that might make it worth the effort?

As I’ve mentioned before, I work with an exceptional short sale negotiation company that has a 99% success rate in getting approvals.  The president of that company recently put together a nice chart outlining the benefits of a short sale vs. a foreclosure and I’ll share the highlights.

Future Ability to Purchase a Home:    When you apply for a home loan, there is a question on the application that asks, “Have you had a property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years?”  A positive response may impact your ability to qualify and will certainly influence the interest rate you are charged.  Currently, there is no question on the loan application with regard to short sales.

Impact on Credit Score:    With a foreclosure, credit scores can drop 250 – 300 points.  Conversely, with a short sale only late payments will impact the credit score.  After a short sale, the mortgage that was paid-off short will be reported as ‘paid as agreed’, ‘negotiated’, or ‘settled for less than agreed’.  This can lower your score as little as 50 points and will usually have little to no effect in twelve to eighteen months.

Impact on Credit History:   Foreclosure remains on your credit history for seven years.  Since short sales are not specifically reported their impact is only as great as the number of missed payments, as noted above.

Deficiency Judgment:  Unless you’re in a state with anti-deficiency laws, the bank can pursue a deficiency judgment.  In a successful short sale, the bank will waive the right to pursue a deficiency judgment.

Current and Future Employment and Security Clearance:   Many employers require credit checks for all employees, and certainly for anyone hoping to attain a security clearance.  While individual companies and agencies have different requirements, a foreclosure can have a negative impact on your ability to get a job, keep your job, or get certain clearances.

Of course I’m not a lawyer or accountant, and each individual’s situation is different, and not everyone will qualify for a short sale.  You should always consult the appropriate professional for advice.  But as a real estate professional, I would definitely give the short sale serious consideration before deciding to just walk away.  For a confidential consultation just give me a call at 619-846-9249.

 

February 17, 2011

Good News about the American Dream

Posted by martikilby under Buying versus Renting, foreclosure, Home Ownership, Real Estate Sales Statistics | Tags: , , , , , , |
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I’m almost feeling like we can breathe again.  We’re not out of the woods, but here in San Diego, we’re headed in the right direction.  And surprisingly, the next generation of home buyers is not running screaming into the night frightened by the plague of foreclosures, but rather embraces the idea of one day owning a home.  Check the numbers.  What do you think?

According to a January 2011 Harris poll conducted on behalf of Trulia, the American Dream of home ownership is alive and well.  70% of those surveyed say that home ownership is still part of their dream, and 78% of homeowners surveyed say that their home is the best investment they ever made.  Well, those are probably folks who didn’t buy in 2004-2006.  Buyers during those years are probably the 20% who feel trapped in an underwater equity home or the 14% who are considering just walking away.  Like I said, we’re not out of the woods.

But what I found very refreshing is that 88% of 18-34 year olds aspire to be homeowners, and overall  in the west 70% of renters plan to become homeowners.  In my estimation, this group will drive the long-term recovery, and drive the next real estate bump in value. Only 10% plan on buying in the next 24 months, but they will help prime the pump.  By 2015 we could be in the midst of the next upswing.

So when to buy?  Consult with your accountants and money managers, but my bet is now….just as we turn the corner and start to head up.

 

January 18, 2011

Is the REO Sales System Really this Bad?

Posted by martikilby under foreclosure, REO, Selling REOs | Tags: , , , |
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If you’ve ever wondered why we’re drowning in REO properties, it could be that banks are stupid.  No, I shouldn’t say that.  Let’s rephrase that more politely to read, “People in banks who make decisions about liquidating foreclosed properties perhaps lack any trace of common sense.”   See if you agree.

Last night I received an email from the asset manager in charge of one of my foreclosure listings.  In case you aren’t familiar with the lingo, the asset manager is often an employee of a third party company that is assigned bulk REOs by a bank.  It is his/her job to hire a Realtor to market the individual properties, act as an intermediary between the Realtor with the listing and the bank, and get the properties sold as quickly as possible for the most money. It is a stressful, high-pressure job.

I like the asset manager on this deal, and so far we’ve worked well together.  I’ve been waiting though for her to open escrow on a sale they approved early last week….an all cash offer of over $300K on a home that needs more than $50K in repairs.  The buyer is ready to close, and I can’t understand the hold-up.  So my asset manager sends me the following email, “We have an issue on this one. The offer is $80 under what I can accept. And no I am not kidding. Is the buyer willing to come up $80?”

$80 dollars????  Are you kidding me?  On a $300K all cash deal?  Geez! I’ll write the check myself!  Let’s just get it done!  So this is what we’re dealing with….a system that is so screwed-up that the person in charge of unloading foreclosed homes doesn’t have the authority to waive $80 bucks!  Sigh.  It’s going to be a long road back to a ‘normal’ real estate market…..

 

January 14, 2011

Lipstick on a Pig?

Posted by martikilby under foreclosure, Real Estate Sales Statistics, REO | Tags: , , , , , , |
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In an underwhelming report issued this week by Field Asset Services, the company revealed that people would rather buy a foreclosure that has new paint, carpet and appliances than a foreclosed home that has not been spruced-up.  Really?

Field Asset Services is a Texas based company that provides cleaning and rehab services to banks and companies holding REO properties.  In an independent study during the first half of 2010, 17,252 properties were tracked across 13 states.  The homes that were not rehabilitated were on the market for an average of 222 days while those that were rehabbed sold in 69 days.

The benefits are obvious.  Not only do banks cut their expenses associated with holding a property but neighborhood values are also improved by reducing the number of vacant homes.  It is also more likely that the home will be sold for more and bought by someone who is going to live in it versus an investor looking for a flip.  Everyone wins.

So at a cost of only $4000 – $8000 for the average rehab, why aren’t more banks willing to put some lipstick on the pig?  I wish I knew the answer to that one!  I was assigned a foreclosure listing back in September.  In early December, the bank finally got around to asking me for quotes to rehab the place.  I supplied 2 quotes at roughly $4200 each…..and I’m still waiting.   They won’t let me list the condo in the MLS, and won’t let me sell it to an investor…..because they’re still trying to decide if fixing the place is worth it!  Crazy!  And people wonder why there is a glut of REOs on the market?  I say slap on the make-up and get ‘em movin’!

 

January 12, 2011

Struggling HAFA Gets Some Updates

Posted by martikilby under foreclosure, HAFA, Short Sale | Tags: , , , , , |
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It’s no secret that the government’s short sale program, HAFA, has had less than stellar results.  The Home Affordable Foreclosure Alternative program was started in April 2010 to provide alternatives to foreclosure when a loan modification wouldn’t work.  Through September, the program has processed only 342 short sales or deed-in-lieu transactions.  This number is ridiculously low considering that third-party technology provider Equator, who provides the platform for processing short sales for several banks, including B of A, reports that over 117,000 HAFA short sales were initiated in the period from April – October.   What happened to all of those transactions?

Mortgage servicers and Realtors have complained about the confusing rules and the stringent requirements for participation that have made it difficult to complete a transaction.  In December the California Association of Realtors sent a letter to government regulators complaining about the program and requesting specific changes to expedite approvals.  The government responded quickly and issed a directive on December 28 that made some significant changes to the program.  Here are a few of the highlights:

  • Servicers are no longer required to verify that an applicant’s mortgage payment exceeds 31% of their gross income, although a hardship must still be demonstrated.
  • Applicants do not need to be currently living in the home so long as it was their principal residence in the last 12 months.
  • Payments to subordinate lien holders are no longer capped at 6%, but have an aggregate cap of $6,000.
  • Servicers participating in the HAFA program will be required to either approve, disapprove or provide a counter to any complete short sale application and purchase offer within 30 days.
  • Servicers who pay contractors to assist in processing the short sale cannot charge those fees to the borrower or deduct it from the real estate commissions.

Will these changes improve the approval rate?  Probably, but the key will lie in how well the banks comply and the rules are enforced.

 

December 29, 2010

Taking a Bet on Real Estate in 2011? Here’s My Predictions

Posted by martikilby under foreclosure, Home Ownership, Interest rates, loan modification, Real Estate Sales Statistics, Real Estate Values, REO, Short Sale | Tags: , , , , , , , , , , , |
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Once again, Santa forgot to bring me a crystal ball.  So this look into the future of the housing market is based on trends from the past year, projections from those that crunch the numbers, and my gut feelings based on life in the real estate trenches.

Foreclosures continued to be the top story in 2010 with robo-signing and questionable practices making headlines.  In 2011 so-called shadow inventory will be making news as it grows and clogs the pipeline.  This includes borrowers that are 90 days or more delinquent, homes in foreclosure, and bank-owned properties not yet on the market.  S & P estimates that it will take 41 months to clear the backlog, continuing to slow the recovery.

Short sales will increase as the government and lenders try to stem the deluge of foreclosures that add to the shadow inventory.   Right now about 35% of defaults end in a cure or short sale.  I see that number growing as banks and the government iron out the problems with HAFA (Home Affordable Foreclosure Alternatives), and the processing of short sales is streamlined.

Loan modifications will continue to be largely unsuccessful.   There is some hope for small improvement in the numbers if the FHA principal reduction program can be expanded.

Mortgage interest rates jumped this last month, but are gradually heading down.   Frank Nothaft, chief economist for Freddie Mac foresees rates staying below 5.00% throughout the year.  Let’s hope he’s right.

Home sales will increase, especially for first-time buyers, provided interest rates remain low and the economy continues to improve.  If unemployment continues to decrease and incomes increase we should see an increase in home sales over 2010 by the 2nd half of the New Year.

Home values throughout most of the country will reach the bottom by mid-year and many areas, such as San Diego County will see modest gains of 2.00 – 4.00%.  The exception continues to be the luxury home market where home prices in locations such as La Jolla and Rancho Santa Fe will continue to decline.

My advice?  If you own a home and are not terribly upside-down, hang tight.  Looking to buy?  Do it now!  This is a great time to purchase your first home or pick-up an investment property.  Struggling with your payments?  Let’s explore your options, before it’s too late.  Overall, I’m cautiously optimistic.

Best wishes for a happy, healthy and prosperous New Year!

 

December 22, 2010

Fannie Mae Slaps Foreclosure Victims

Posted by martikilby under Fannie Mae, foreclosure, Loan qualification | Tags: , , , , , , , |
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Just in time for Christmas, Fannie Mae put new rules into effect on December 13th that will make it even more difficult for homeowners who have had a foreclosure to buy again.

Under the new lending guidelines that control qualification standards for Fannie Mae backed mortgages, a borrower who has had a foreclosure will now have to wait seven years before being approved for a new mortgage.  That is up from the current wait time of four years.  Another provision of the guideline revision tightens the acceptable debt-to-income ratio (DTI) to 45%, down from 55%, and includes stricter scrutiny of all installment debt.  Under the new guidelines, even one missed payment on a credit card could mean the difference between approval, and not qualifying.  Fannie Mae currently guarantees 28% of all residential loans.

While we all understand the need to move away from the “if you have a pulse, you qualify” standards of a few years ago, these new guidelines seem downright punitive!  On one hand the Fed is pumping money into banks urging them to make more loans to stimulate the economy, yet at the same time the new regulations make it more difficult for banks to lend.   And why the increase from four to seven years?  There is no rational reason for this extended wait time.  The only thing I can figure is that this is intended to scare homeowners considering strategic default into continuing to pay an inflated mortgage on a grossly devalued home.

Although there are several provisions of the new guidelines that may benefit some borrowers, overall this is not an effective way to get the housing market back on its feet.  Thanks Fannie:  You’ve just provided one more reason why I believe we’ll continue to see an increase in short sales over the coming year.

 

December 21, 2010

Hope for Homeowners Facing Foreclosure

Posted by martikilby under foreclosure, loan modification | Tags: , , , , , , , |
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Finally, it appears that something is working to help save homes and stop foreclosures.  In a report released on Monday, NeighborWorks America revealed that a homeowner who works with a housing counselor is nearly two times more likely to avoid foreclosure than those that receive no counseling.

NeighborWorks America is the administrator of the National Foreclosure Mitigation Counseling Program (NFMC) established by the federal government in 2008.  The first two years of the program were analyzed by the Urban Institute of Washington, D.C, and revealed the value of counseling intervention in not only reducing the number of foreclosures for homeowners who were counseled, but in mortgage modification.  Homeowners who worked with a counselor to get their mortgages modified ended up with reductions averaging $555 a month, compared to savings of $288 for those that did not work with a counselor. 

Another benefit of working with a counselor is that the re-default rate is lower.  After receiving a loan modification 49% of non-counseled borrowers re-default after 8 months, compared to 36% of those counseled.  This still seems high, but overall the report clearly demonstrated the value of counseling as 55% of those in foreclosure that sought counseling were able to cure the foreclosure and save their home within 12 months.

The report did not indicate if the lenders involved in the modifications reduced principal balances or simply modified rate and term.  And while counseling may be useful in many cases, I still believe that principal reductions are the only real tool to stop the foreclosure flood as counseling does not address the issue of strategic default.

 

December 6, 2010

2nd Lien Holders Standing in the Way of Recovery

Posted by martikilby under 2nd mortgage, foreclosure, Short Sale | Tags: , , , , , , |
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Over the past two years we’ve seen an increase in the number of short sales as underwater homeowners try to avoid foreclosure.  Realtors and Federal policy makers have applauded this movement as a means to encourage sales and spur the market recovery.  Too often however, 2nd lien holders are blocking the short sale and forcing homeowners into foreclosure.

In a short sale, the property is offered for sale for less than what is owed.  Provided the final sales price is reasonable, and the homeowners can prove that they are unable to continue to make mortgage payments, most lenders will accept the short sale as it costs them far less to take the loss than to foreclose.  However, if there is a 2nd mortgage on the property it becomes a much more complicated transaction.

When there are two or more liens on the property, the 1st mortgage is in the primary position and when reviewing a short sale, the lender will generally approve only a token payment of $2000 – $3000 to the junior lien holder.  So on a sale of a $320,000 property with a $400,000 1st mortgage and a $50,000 2nd mortgage the lender in the first position will recoup approximately 80% of the original loan amount (less fees and expenses), but the 2nd mortgage holder will recoup only about 5 – 6% of their investment.

As a result, 2nd lien holders are in no hurry to approve a short sale and what develops is a sort of “chicken game” between the negotiator for the first mortgage, the negotiator for the 2nd, and the Realtor or negotiator representing the homeowner.  The poor buyer who is trying to purchase the home is at the mercy of everyone involved.  Often the lender in the 2nd position will ask either the homeowner or the buyer to come up with additional funds to at least get them a 10% return.  Although this might only be a few thousand dollars, that might be enough to kill the deal.  For the 2nd lien holder, they might choose to just wait for a better offer where the buyer will agree to pay, or they will agree to the sale but file a deficiency judgment against the homeowners.

According to CoreLogic, a company that tracks foreclosure data, of the 1.33 million homes that are in some stage of foreclosure, over a third have a 2nd mortgage.  Many of these 2nd mortgages were underwritten to allow the homeowner or buyer to borrow 90 -100% of the home’s inflated value.  Sorry if I’m not sympathetic, but it was a risk the banks knowingly took.  The strategy back-fired as values plummeted, but now the banks holding these 2nd mortgages need to just write-off the loss and get out of the way. 

How to protect yourself in a short sale transaction with a 2nd mortgage?  Make sure your Realtor knows how to play the game.

 

November 29, 2010

Beware Forensic Audit Loan Scams

Posted by martikilby under foreclosure, lenders, loan modification, mortgage | Tags: , , , , , , , |
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Behind on your mortgage?  Beware.  You could become the target of a growing scam by foreclosure prevention “specialists” who use deception and outright lies to sell services that promise relief to distressed homeowners.

In the scam, homeowners are asked to pay an upfront fee to retain the services of an auditor, who is supposedly backed by an audit attorney.  This fee might be as much as 1.0% of the principal balance.  On a $350,000 loan that could be as much as $3500, and some audit companies even charge a monthly retainer of $1000.  For this fee, the audit team then offers to review your loan documents to determine if your lender complied with all state and federal lending laws.  The auditors propose that if irregularities are discovered, you can use the audit report as ammunition against your lender to stop foreclosure, get your loan modified, the principal reduced, or even cancel the loan.

Not true.  According to the FTC there is no evidence that forensic loan audits will help you get a modification or any other foreclosure relief, even if conducted by a legitimate attorney.  Some federal laws may allow you to sue your lender for errors in your loan documents, but even if you win your lender is not required to modify your loan.

The bottom line is that if it sounds too good to be true, it probably is and looking for lender errors or omissions is not going to save your home.  But you do have options.  For free guidance visit www.hopenow.com , view the options I discussed  in a previous post, or for immediate answers, please don’t hesitate to contact me directly.

 

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