October 19, 2011

The Harvard Professor And I Agree…..What Do You Think?

Posted by martikilby under loan modification, Principal reduction, Underwater homes | Tags: , , , , , , |
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As I’ve mentioned more than once, I’m no Economics genius. So I was pleasantly surprised to read the October 12th NY Times article by Martin S Feldstein, a Harvard professor of Economics and former chairman of the Council of Economic Advisors. It appears that Professor Feldstein and I agree that the only way to stop the drop in home values is by principal reduction.

The professor points out that for most Americans, their homes are their primary source of wealth. Since the housing bubble burst in 2006, Americans have lost $9 trillion or 40% of their wealth. This sharp decline in wealth means less consumer spending, fewer jobs and a stalled economic recovery.

Today, nearly 15 million homeowners owe more than their homes are worth and of this group about half of the mortgages exceed the value by more than 30%. The professor maintains that housing prices continue to fall because millions of homeowners are defaulting on their mortgages and the sale of the foreclosed properties drive down prices. Because most mortgages are non recourse loans, underwater borrowers have a strong incentive to simply walk away.

Professor Feldstein suggests that instead of throwing tax dollars at ineffective programs aimed at reducing interest rates, the government should address the real problem which is that the amount of the mortgage debt exceeds the value of the home.

Here is a summary of his idea: The government would reduce mortgage principal to 110% of the home value. The cost for doing this would be split between the government and the banks. This would help about 11 million of the 15 million underwater homes at a cost of under $350 billion. Considering the millions of mortgages held by Fannie and Freddie, the government would in essence be paying itself.

This would of course be a voluntary program. In exchange for the principal write-down, the borrower would agree that the new mortgage was a full recourse loan and the government could go after other assets if he defaulted on the loan.

I think it sounds fair, as everyone makes a sacrifice and we put the brakes on strategic default. It is a huge one-time cost, but continuing to allow housing prices to fall could risk another, even more costly recession. And speaking for my short sale clients, I know that most would have gladly signed up for a principal reduction if it meant saving their home.

What do you think?

 

October 7, 2011

Mortgage Interest Rates Hit Historic Lows

Posted by martikilby under Buying a Foreclosure, Buying a Home, Buying Investment Property, Interest rates, San Diego Home Values | Tags: , , , , |
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Freddie Mac announced yesterday that for the first time in history, the average interest rate for a 30-year fixed rate mortgage has dropped below 4.00%  to 3.94%.  Rates for 15-year fixed rate mortgages are even lower, at 3.26%.  Last year at this time the 30-year rate was 4.27%  and the 15-year at 3.72%.

When you combine the low rates with prices that have generally declined throughout the county you have a great opportunity to buy more home for less money.   On a $300,000 mortgage the principal and interest payment at 4.27%  is $1479 per month.  At 3.94%  the monthly payment is $1421 per month.   That is a savings of $58 per month which may not sound like much, but over the length of the mortgage, that is a savings of over $20,880.

So whether you’re looking for your first home, a move-up, or an investment property, now is a great time to buy!  Curious about what’s available?  Give me a call and I’ll be happy to send you some listings of homes and investment opportunities throughout San Diego County.

 

October 5, 2011

So Do You Want an Offer or Not?

Posted by martikilby under Bank of America, Buying a Foreclosure, Chase Bank, REO | Tags: , , , |
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I’m currently working with a sweet young couple looking to buy their first home here in San Diego.  Yesterday we found one that seems to have most everything they’re looking for, so we sat down to talk about writing an offer.  Prior to showing them homes of course, I made sure they were pre-approved at the price point of our search.

Discussing the offer and reviewing the confidential remarks on the MLS listing sheet, I ran into the words that make my blood boil, “Offer MUST include a pre-approval by Bank of America loan officer Bill Jones.”  This makes me crazy!  Here in San Diego it appears that Bank of America and Chase require a pre-approval by one of their assigned loan officers on all of their REOs.

My buyer looked at me like I was nuts.  “Why do they need another pre-approval when I just went through the whole process at my credit union?”  He is a VA buyer and has a perfectly good pre-approval from Navy Federal Credit Union, so why in the world does he need one from B of A?  I didn’t have a very good answer for him.

I also handle some REO listings and I understand that the banks don’t want to waste time with an unqualified buyer, and that they are trying to build loan business.  But, rather than create obstacles to offers, wouldn’t it make more sense for the listing agent to request an additional pre-approval ONLY if the original one seemed a bit sketchy?  Or, if they really want the business, how about offering an incentive like a free appraisal or point reduction?

When it’s time to write an offer, I want to move quickly – not waste a couple of days chasing down more paperwork!

 

October 3, 2011

Termites Bugging Your Short Sale?

Posted by martikilby under Buying a Home, Selling your home, Short Sale | Tags: , , , |
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Termites are a fact of life in California.  Nearly every home I sell, when inspected, shows evidence of some form of termite damage or active infestation – no matter how new the home might be. 

In a traditional sale, the buyer generally requests that the seller pay for the inspection and any necessary repairs.  In a short sale however, the seller, who doesn’t have enough money to pay his mortgage, is generally not in a position to pay for any repairs, and I have yet to see a bank pick-up the cost.  So who pays?

Generally, it is the buyer who is responsible for paying for any termite damage, which could mean thousands of dollars.  The cost to tent and fumigate a 3 bdrm/2 bath home is roughly $1300, plus the cost to repair or replace any damaged wood.  It is not uncommon for total costs to exceed $5000.  This unexpected expense can cause a real problem in the transaction, and often the buyer simply has no choice but to walk away.

So how can a seller avoid losing buyers over termite issues?  Start by selecting an experienced short sale agent to list your home!  An experienced agent will have the inspection done prior to putting the home on the MLS and will make the report available to any agent and buyer writing an offer.  The agent should also make it clear in the listing that any repair costs will be the responsibility of the buyer.   In this way, the buyer knows what costs will be involved, and the offer price can reflect the anticipated expenses.  The report should also be submitted to the lender so that they understand the costs that the buyer will incur to purchase the property and will (hopefully) take that into consideration in the approval process.

Buying or selling a home “As Is”, whether it’s a short sale or foreclosure raises many disclosure issues.  If you have questions, please don’t hesitate to contact me.

 

September 20, 2011

New on HGTV: Hot Trends in Reverse Staging

Posted by martikilby under Short Sale | Tags: , , , |
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Well, probably not a show we’ll see in the new HGTV line-up, but reverse staging is a form of short sale fraud that is becoming increasingly common.   Unlike traditional staging where a home is de-cluttered and dressed-up to present the best possible appearance, reverse staging accentuates the negative features of a home.  Reverse staging is part of an attempt get a low Broker Price Opinion (BPO) of the actual value of the home by inflating repair estimates and making the home appear to be in greater disrepair than might really be the case.

A Broker Price Opinion is a mini-appraisal, ordered by the lender in a short sale to determine how much they should expect to recoup from the sale of the property.  It is ideally performed by a real estate broker or agent who is familiar with the market and is a critical component of the short sale process.  If a BPOcomes in above fair market value it becomes more difficult to get a short sale approved, as it is likely the lender will want to hold out for a high offer in line with the BPO.

Trying to manipulate the BPOto reflect a below market price is usually done to accelerate a sale.   However it is also done by agents who will hide a higher offer from the lender, rig the sale, and then turn around and flip the property for a profit.  No two ways about it….this is fraud.

In most every short sale transaction all parties are asked to sign an “Arms Length” Affidavit that acknowledges that there is no fraud in the sale of the property.  As a short sale agent, it is my ethical responsibility to protect the best interests of my clients – this includes protecting them from any involvement in a fraudulent sale.  So, reverse staging might help short sale a home more quickly, but it could also land you in jail.

 

September 14, 2011

Understanding the Short Sale Process

Posted by martikilby under Exp[erienced Short Sale Realtor, Short Sale, Short Sale Negotiation | 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.  So here is what you can expect in a short sale. 

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:  And that’s the lender.  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?  Obviously 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

Before taking a short sale listing it is 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 – It’s all about the 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 the Realtor or negotiator to speak with the lender.

Step #3  – Selling the Property

The house is 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 it 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 listing is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor 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 and often paperwork disappears and duplicates must be supplied.

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 (as in a 1st  and 2nd  mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the 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 push for a bigger contribution from the 1st  lien holder as in California they can no longer request that the sellers 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 two or more weeks.

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, and some of the items noted above may vary depending on the state you live in.  In any case, making sure you’re working with an experienced short sale Realtor is the best way to protect your interests. 

 

 

September 10, 2011

August San Diego Home Sales Statistics

Posted by martikilby under Real Estate Sales Statistics, Real Estate Values, San Diego Home Values | Tags: , |
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Overall, August was a good month and sales of detached and attached homes were up compared to August of 2010.  However, it’s the year-to-date numbers that tell the real story.

Compared to 2010, our year-to-date volume is down by 8.9%  for condos and 1.9%  for detached homes, and values have also slipped.  The median price for an attached home in August was $208,000 which is down significantly from a year ago when it was $220,500.  Detached homes have done slightly better, but the median price of $370,000 is nearly 4% down from $385,000 last year.

Some areas of course have fared better than others:

The year-to-date median price for a detached home in Cardiff  by The Sea is $892,500, up from $825,000 a year ago. Carmel Valley is also doing well with a median price of $915,500 up from $905,000.  And there has been little change in either Del Mar or La Jolla over the last year…both are holding steady at a bit over $1.3 million.

For most of the rest of the county however, home values have dropped.  We especially see this in areas that were new in 2005-2006.  Many of the homes purchased at the top of the market have now become foreclosures or short sales which tend to pull down the overall values in any neighborhood.

If you have questions about a specific area, just give me a call. 

 

 

 

September 5, 2011

How to Buy a Foreclosure

Posted by martikilby under Buying a Foreclosure | Tags: , , , |
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As we all know, foreclosures are a big part of the current real estate market, and they can offer buyers a great deal….or a disaster.  Here are a few important things to know before sinking your money into a foreclosure.

#1.  The biggest difference between buying a foreclosure and a traditional sale is that the current owner has no knowledge of the property and most likely has never even seen it!  With a traditional sale, the owner is legally bound to disclose anything and everything they know about the property that could impact the functionality or value of the property.  Not so with a foreclosure.

#2.  The second thing to understand is that the property is sold “As Is”.  This could mean anything from the home simply missing a refrigerator or stove to missing all the toilets, floor coverings and windows.   This also includes everything you don’t want, such as any old belongings or outbuildings that were not cleared.

#3.  Now this may sound like, what you see is what you get….but that would be too simple.  You also get what you often can’t see such as termites, bad electrical wiring or a failing roof or rotting pipes.  This is why it is imperative that you spend the money for a general home inspection by a qualified home inspector, and then spend the extra money for additional inspections of any areas that seem to be waving a red flag, such as a roof or plumbing.  Unless otherwise stipulated in the contract, in California you have 17 days after acceptance of your offer to complete your inspections and pull out of the deal with all of your money if you don’t like what you discover.

#4.  I’ve seen this one trip-up would-be buyers too often….make sure that the condition of the property is consistent with what your lender will approve.  For instance, if you are doing an FHA or VA loan, the house has to be habitable; no mold, floor coverings must be in place and appliances and heater must all be in working order.  Talk with your Realtor about the type of loan you are getting and make sure the houses you’re seeing will qualify.

#5.  You will be asked to sign a bank Addendum which basically relieves them of any liability.  A part of the Addendum will cover late closing.  Make sure your loan is in place and ready to close on time.  If there is a late close of escrow and it is the fault of the buyer, it will cost you about $100 a day for each day that you’re late to close escrow.

And finally, make sure you work with a Realtor who is experienced in foreclosures!  There are way too many pitfalls and potential hazards to risk your deal in the hands of an inexperienced agent.

If you have any specific questions, or would like to see foreclosure opportunities in San Diego, please don’t hesitate to give me a call!

 

August 31, 2011

Diary of a B of A Cooperative Short Sale – Part 2

Posted by martikilby under 2nd mortgage, Bank of America, Short Sale Negotiation | Tags: , , |
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As you might remember, shortly after I received this short sale listing the homeowner received a notice that the 2nd  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 2nd  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 2nd, 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 2nd  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!

 

August 29, 2011

California Realtors Looking for Help

Posted by martikilby under Bank of America, Exp[erienced Short Sale Realtor, foreclosure, Real Estate Values, Short Sale, The U.S. Economy | Tags: , , , , , , , , |
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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.

 

 

 

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