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April 4, 2011

Robo-Signing Fallout for Loan Servicers

Posted by martikilby under foreclosure, lenders, loan modification, Short Sale | Tags: , , , , , |
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As a result of the foreclosure robo-signing mess uncovered last September, loan servicers are facing new federal and state requirements outlined in a draft settlement proposal last week.  Here are the highlights that could provide greater protection for homeowners:

  • Servicers would agree to stop dual tracking.   Hard to believe, but currently many companies will pursue foreclosure, even while the borrower is trying to get a loan modification.    This new requirement would mean that foreclosure processing would be put on hold during the loan modification process.
  • Servicers would be required to review any loan modification that is denied.  They would also have to implement a system whereby the borrower would have 10 days to appeal a modification denial.
  • Most significant is the provision that would require servicers to “implement processes reasonably designed to ensure that factual assertions made in pleadings, declarations, affidavits, or other sworn statements filed by or on behalf of the servicer are accurate and complete.”  This would help alleviate the problem of minimum wage processors signing-off on foreclosures.
  • The proposal also states that servicers may not develop compensation programs for employees that encourage foreclosure over modification or other options.   And yes, that was in place at some institutions.
  • And lastly, servicers would be required to offer one point of contact to borrowers trying to complete a loan modification, short sale or forbearance agreement.   Finally!  This alone should improve the process, or at least lessen the frustration level of speaking with a different person every time the borrower calls.

Do I think this will improve loss mitigation for borrowers?  Let’s say I’m cautiously optimistic.  At the end of the day of course, any regulation is only as good as the enforcement that backs it.

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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.

 

November 19, 2010

What to Expect in a Short Sale

Posted by martikilby under lenders, Realtor, Short Sale | Tags: , , , , , , , |
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Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3rd party that controls the fate of the deal:  The lender(s).  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

  1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
  2. Is the price offered consistent with comparable sales in the area?  The bank wants to re-coup as much of their investment as possible.
  3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Let’s start with pre-qualification of the homeowner.  Before taking a short sale listing it should be the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include: 

  1. A statement of general information
  2. Financial worksheet
  3. Handwritten letter explaining their hardship
  4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
  5. 2 months bank statements
  6. Tax returns for the last 2 years
  7. Most current statements for all retirement accounts or other assets
  8. Authorization form to allow Realtor or negotiator to speak with the lender(s)

Step #3 – Sale of the Property

The house is then listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine the offer and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the sale is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor or negotiator who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (a 1st and 2nd mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the actual review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may also request that the buyers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2nd mortgage holders won’t even begin the review process until the 1st lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional week or two.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming.  Making sure you’ve got an experienced professional on your team is the best way to protect your interests.  Questions?  Just give me a call.  619-846-9249.

 

October 31, 2010

Improve your Odds for Short Sale Approval

Posted by martikilby under foreclosure, lenders, Short Sale | Tags: , , , , |
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As I mentioned in my last post, there are several reasons why a lender might choose to foreclose versus approving a short sale.   But there are a few things you and your Realtor can do to improve your chance of having your sale approved. 

1.  Submit a quality offer.  Here are a few things your Realtor should look for in any offer you receive: 

  • The offered price shouldn’t be significantly less than market value.  The lender is less likely to approve the sale if he feels that his loss is greater than necessary.
  • The buyer can show more than sufficient funds to close the deal.  The larger the down payment the better.  Banks will consider a contribution to closing costs, but remember, they are looking for the highest possible net return on the sale.
  • The buyer agrees to put his/her earnest money deposit into escrow before short sale approval.  This shows the lender that the buyer is committed and less likely to walk away from the deal.  If the sale is not approved, the deposit is of course returned to the buyer.
  • The buyer should plan on paying for any needed repairs, including termite.  Don’t submit an offer that asks for repairs or a home warranty.
  • The offer must not be contingent on the sale of the buyer’s current home.  Buyer should be flexible about when they need to move out of their current residence.
  • The offer should be well written and easy to understand.  (More on that subject in a future post), 

2.  Submit all required documents. 

  • Make sure your Realtor has confirmed with your lender regarding every required document.  They should all be submitted at one time to help prevent certain items from getting lost in the lenders system.
  • If additional (or yes, duplicate) documents are requested, submit them as quickly as possible and have your Realtor or negotiator confirm receipt. 

3.  Remember the squeaky wheel…. 

  • Whether it is your Realtor or a professional negotiator who is representing your short sale to the bank, they need to be in regular communication with the lender, inquiring about progress on your file.  1 phone call a week is not sufficient.  The negotiator on the bank’s side needs to understand that you are very serious about gaining their approval and selling your home.
  • Ask for updates from your Realtor and make sure that there is follow-up with the lender 2-3 times per week.  You should know at all times where you are on the foreclosure timeline.  Make sure you immediately provide your Realtor with any letters you receive from your lender or any legal notices.

There are many important details in a short sale that are very different from a standard equity sale.  When listing your home, make sure you select a Realtor who is experienced with short sales.  Saving your home from foreclosure is way too important a task to trust to an inexperienced agent.

 

October 29, 2010

Why Banks May Choose Foreclosure over a Short Sale

Posted by martikilby under foreclosure, lenders, Short Sale | Tags: , , , , , |
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It has been estimated that the average cost to foreclose on a home is about $75,000 including costs to local government for lost tax revenue and services, costs to the homeowner, and the devaluation to neighbor’s properties. Of this amount, the actual cost to the bank averages about $50,000 – $60,000, including attorney’s fees, property maintenance and REO resale fees.  Considering that the hard costs of a short sale are considerably less, and the impact on local government, neighborhoods and individuals is far less destructive, it’s difficult to understand why banks seem to be dragging their feet when it comes to approving short sales.

According to a recent article in the NY Times, many lenders are concerned about fraud. It is known that some homeowners, who actually can afford their mortgage payments, falsely portray their financial picture in order to cut their losses on a property and move on.  Other homeowners may try to sell to a relative who would then sell the home back to them, a practice that is illegal.  A recent industry report estimates that short sale fraud occurs in a least 2 percent of sales and costs banks about $300 million annually.

But fear of fraud and the associated costs is a relatively minor consideration.  The more important reason shouldn’t be too surprising:  There are financial incentives in many cases to choose foreclosure over a short sale.  For instance, institutions that service loans can reap high fees from foreclosures and lenders can often collect on private mortgage insurance that protects against foreclosure losses.  Neither the same high fees nor insurance is collected when a home sells short.  Another little known fact:  A 2009 regulatory change to a federal accounting law allows banks to foreclose on a home, but not take the loss until the home sells.  By contrast, in the case of a short sale, the bank must take the loss immediately.

So obviously, the bank’s decision has nothing to do with what is best for the national or local economy, or the individual homeowner.  Check back for my next blog where I’ll discuss what you can do to improve your chances of having your short sale approved.

 

October 27, 2010

Why HAMP Loan Modifications are Failing

Posted by martikilby under lenders, loan modification, mortgage, Short Sale | Tags: , , , , |
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According to numbers released on Monday by the Treasury Department, the Home Affordable Modification Program (HAMP) continues to be an ineffective tool for homeowners.  Loan servicers completed just 28,000 modifications during September, down 16% from August.

The goal of the program was to help 3-4 million borrowers keep their homes by modifying their existing loan to an affordable level.  To date, 1,369,414 modifications have been initiated through the program, but there are only 466,708 active permanent modifications.  Through September, 699,924 trial modifications and 21,190 permanent modifications have been canceled.  That’s a failure rate of over 50%, certainly not a good track record for any program.

So why has this program failed so miserably?  According to Edward Pinto, a prominent housing consultant who recently testified before the House Oversight Committee, HAMP requirements are so confusing that servicers have difficulty complying.  In his words, “There are only two words to describe HAMP’s guidelines:  Numbing complexity.”

So from the banks perspective, the program is difficult to implement and lacks financial incentives, but what do the people most affected think? I asked several clients who tried to get loan modifications about their experience and they cited many problems with the program: 

  • The interaction with lenders was very frustrating.  They were never able to actually speak with anyone who was making a decision about their loan and could only speak with a customer service representative who had limited information and was often from an outsourced international location.
  • They were required to fax reams of documentation, over and over as it apparently was lost and never made it into their file.
  • The time period for review was way too long.  Several clients were in forbearance agreements during the process, couldn’t afford to continue to make the payments and simply gave up.
  • Even after modification, the payments were still too high.  For many borrowers going from an interest only loan to a fixed rate, their payments were actually higher after the modification.
  • The issue of value is not addressed.  Even with modification, paying on negative equity is a difficult pill for many borrowers to swallow.

My prediction?  There will be fewer borrowers even attempting a loan modification and an increase in short sales as more underwater homeowners seek a viable solution.

 

October 25, 2010

Qualifying for a Mortgage….Some DNA, Please

Posted by martikilby under lenders, mortgage | Tags: , , |
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Remember back in 2005 when anyone with a pulse could get a home loan?  Well obviously, that didn’t work very well, but the qualification paranoia we see today may be equally destructive to the housing market.

I spoke with a client the other day who was grumbling about not being able to get a line of credit.  Mind you, this gentleman used to run a bank, owns 20 rental properties, his own home is valued at $1.5 million, and he owes less than $200,000 on all 21 properties combined.  And let’s add to that the $1 million plus cash in the bank.  He applied to an investment firm (which shall remain nameless) for a $200,000  line of credit in case he finds a great real estate investment opportunity.   After 3 months of supplying documentation several times over, (seems it kept getting lost), his application was denied because they couldn’t understand that he had moved a small amount of money out of an IRA for tax reasons!

So this is a man with exceptional assets, and he can’t get a loan…what about the rest of the population?  According to an article in SmartMoney it’s getting more and more difficult to qualify for a mortgage and even the smallest negative detail can either cost you an approval or thousands of dollars over the life of your loan.  A score of 720 is the ticket these days for a conventional loan with the best rates….that is up 40 points since the housing collapse.  Ed Mierzwinski of the U.S, Public Interest Research Group says that “Credit scores are a blunt tool being abused by creditors as if they were a sharp instrument.”

Ouch.  We feel the pain.  As a Realtor in this market with so many opportunities for buyers, it is extremely frustrating to see how difficult it is for home buyers to get a loan.  Granted, the credit requirements for an FHA loan aren’t quite as stringent, but the increased level of documentation is staggering.  A recent buyer of mine left me a message that was one long scream….she said she just had to vent after being asked by her FHA lender to supply a paper trail for the money her 90 year-old mother in Eastern Europe sent to her as a gift.  She sighed and said she was just waiting for the call requesting a blood sample.

So what can you do to improve your chances of getting a loan in this market?  

  • If you’re self-employed, plan ahead.  Banks will primarily look at your last two years tax returns, so your qualifying income is based on your tax returns.  Amounts on your returns should match financial statements and bank statements.
  • If you have any skeletons in the closet, deal with them before applying.  This might include things such as an unresolved judgment or child support payment issues.
  • Be prepared to explain ANY credit inquiries for the last two years.
  • Try to avoid any late payments for a full year prior to applying.
  • Maintain balances on revolving credit below 30% of your limit.
  • Don’t apply for new credit, and don’t close accounts.  Use zero balance credit cards now and then, but pay them off right away.
  • Don’t transfer money from retirement accounts.

And finally, stay calm and realize that over the next year as the number of people with less than perfect credit increases and the market continues to stabilize, it is expected that the banks will gradually release their stranglehold on qualification standards.  But be prepared, that call for the DNA test just might be next on the list.

 

October 21, 2010

Mortgage Interest Rates Up, Volume Down. Not Good.

Posted by martikilby under foreclosure, Interest rates, lenders, mortgage, Short Sale | Tags: , , , , |
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For the first time in over 6 weeks interest rates for 15 and 30-year fixed mortgages rose…not much mind you, but they did increase.  15 year rates rose from an average of 3.62 to 3.74 percent, and the 30 year rate increased from an average of 4.21 to 4.34 percent.

According to the Mortgage Bankers Association we also saw a sharp drop in the number of applications submitted for the week ending October 15th, down by 10.5 percent from the previous week.  Refinance applications were down 11.2 percent and applications for home purchases were down 6.7 percent.

Now I’m no economics wiz, but even I can tell you that this is not good.  The MBA attributed the drop in applications to the slightly higher rates, but more importantly to public apprehension and confusion surrounding the mismanagement of foreclosure paper work by some banks and servicers.  So at a time when we have an increased number of foreclosures and short sales hitting the market, we have potential buyers of distressed properties pushing back, fearful that there could be issues in the transaction that would give them less than clear title.  And, oh yeah, let’s throw in a rate increase.

So once again, it appears that the banks are doing nothing to get us out of the mess they created….but of course, it’s not all bad for most of them.  Wells Fargo turned a profit of $3.35 billion for Q3, up from $3.24 billion a year ago.  I’m sure that warms the hearts of everyone who lost their home last quarter.

 

October 19, 2010

Finally…a Solution to the Housing Mess?

Posted by martikilby under foreclosure, lenders, Real Estate Values, REO, Short Sale | Tags: , , , , , , , , |
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Numbers were released today for the month of September that show that foreclosures and inventories of bank-owned properties are on the rise in Washington, Oregon, Nevada, Arizona, and California.  The report was issued by ForeclosureRadar, a company that tracks every foreclosure in the five western states and provides auction updates.  Although several bank and loan servicers have announced that they are suspending foreclosures while investigating internal procedures, ForeclosureRadar analysts have yet to see any impact of this suspension on the numbers.

So the report is reminding us that nothing is getting any better, and in fact it’s getting worse.  Last month in California, the number of foreclosed properties that sold declined by 15.6% while inventories of bank-owned homes increased by 5.3%. And according to ForeclosureRadar’s CEO, Sean O’Toole, “…the reality is that far more homeowners are behind on their mortgage payments than are even in foreclosure.”  To me, this spells a further increase in the number of short sales and foreclosures, with no end in sight.

However, in the middle of this disheartening news, Mr. O’Toole voiced the only logical response to the real estate crisis that I’ve heard all year. “The clear problem in the housing market today is not foreclosures, but negative equity; and as long as the focus remains on the symptom rather than the disease we will see little progress towards real solutions and this crisis will drag on for years to come.”

Finally!  Someone gets it!  Negative equity is the real problem that needs to be addressed.  As I mentioned in my earlier post about the FHA principal reduction program, reducing the principal owed to be more in line with current values is the best and quickest way to curtail the growing number of strategic defaults.  Most people who have bought a home, want to keep their home…..but it has to make financial sense, especially in today’s struggling economy.  Reducing the principal amount owed not only makes the mortgage payment more affordable, it provides an incentive to stay and pay.

So from my perspective, until the banks and investors decide that taking a loss through principal reduction is preferable to taking a loss through foreclosure, our housing market will continue to disintegrate.  How many more foreclosures and short sales will it take before the banks are ready to listen?

 

October 15, 2010

Short Sale Scams and Upfront Fees

Posted by martikilby under foreclosure, lenders, mortgage, Short Sale | Tags: , , |
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We all know the old adage, “If it sounds too good to be true, it probably is.”  Well, anyone facing foreclosure or considering a short sale should keep that in mind as there is a new breed of scam artist on the street.

Short sale scams are perpetrated at many different points in the process and can involve, knowingly or unknowingly, the homeowner, the real estate agent, the negotiator or other third party, and/or the buyer; basically anyone who is a party to the transaction. A few types of scams include fraudulent short-sale flips, negotiator scams, bogus short-sale packages, improper payments and upfront fees.

Let’s start with upfront fees, as that is the first scam that an underwater homeowner is likely to face.   To the person unable to pay their mortgage, possibly facing foreclosure, a fast solution is exactly what they are looking for.  The scammer often poses as a negotiator or real estate agent who guarantees a short sale approval in as little as two weeks.  To reinforce credibility of the claim, the scammer might say that they are related to someone on the inside, such as a bank vice president or negotiator…..some sort of relationship that gives them an insider’s advantage.  The scammer then asks for an upfront fee which could range from $1000 to $5000, and he/she might even ask for the required documentation such as pay stubs and bank statements.  At this point, the scammer has the money and proceeds to do little or nothing to work with the bank.  Two weeks later he tells the homeowner that he is sorry, but the bank will not approve the short sale.  The scam might vary, but the basic idea is that the scammer does nothing, and the home owner is not only out the money, but has lost precious time. 

Here are a few ways homeowners can protect themselves from upfront fee scams and make sure they are hiring someone who can help versus hurt their situation: 

  • Check the credentials of the individual or company that would provide the service.  If they are licensed, such as a real estate agent, check the status of their license with the department of real estate, www.dre.ca.gov
  • Ask for references, and follow through by carefully checking them.
  • Thoroughly read all documents before signing anything.  Make sure you understand everything and do not sign anything with spaces left blank, especially if told they are inconsequential.
  • Get as much information as possible and consult other professionals, family and friends before making a decision.
  • Refuse to pay any upfront fee or provide credit card information.

Check back and we’ll look as some additional red flags for short sale scams.

 

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