For most of the 22 million homeowners who owe an average of $40,000 – $65,000 more than their home is worth, the recent $25 billion dollar settlement with the banks will bring no relief. According to Robert Menendez, Chairman of the Senate’s housing subcommittee, “When you owe more than your house is worth, relief can be hard to come by.”   Among borrowers whose homes have dropped in value through no fault of their own, many choose to simply walk away, which according to Menendez, “Only exacerbates the problem.”

Menendez has introduced a bill that provides an interesting twist on the idea of principal reduction.  The Preserving American Homeownership Act would encourage lenders to write down principal balances by allowing them to share in the home’s appreciation at a later date.  The principal balance would be written down in increments over a three year period to 95% of the current value, so long as the homeowner remains current on their payments.

In exchange for the write-down, the lender would receive a fixed percentage of any future appreciation when the home is either sold or re-financed.  That share could not exceed 50%.  So if a principal balance was reduced by 25%, the bank would receive 25% of any future appreciation.

The Act would apply to primary residences only, but any homeowner could apply.  Borrowers who are in default or even in foreclosure could qualify, but would be required to make their reduced mortgage payment on time in order to remain in the program.

The article in DSNews where I read about the bill did not indicate if the Act would apply to all types of loans or whether or not the modified loans would be re-written at today’s lower interest rates. Presuming so, this Act could provide enough incentive to many underwater homeowners to persuade them to stay in their home versus initiating a strategic default.

As a fan of principal reduction, I like this idea as it seems to be a win-win situation for both homeowners and the banks.  Banks don’t take as big a hit as they would with a short sale or foreclosure, and the write-down is taken over a three year period, AND homeowners get to keep their homes with reduced payments and principal.  Even the opponents of principal reduction might find something to like about this plan!

It was just announced that the Obama Administration is making some significant changes to the Home Affordable Modification Program (HAMP). I noted 3 key points:

1. Homeowners who are struggling financially will be eligible for a 2nd evaluation with a less stringent debt-to-income ratio.
2. The program will be extended to include investor owned properties that are used as rentals.

And ….(drum roll)…

3. The  Administration will triple incentives for lenders who write down principal balances for underwater homeowners, AND they are extending this principal reduction incentive to Fannie Mae and Freddie Mac!

It’s this last item that has me excited as I’ve been a proponent of principal reduction for a long time, as noted in my blog post back in 2010. What impact all of this will have of course depends on how quickly the new rules can be put into effect and how well all participating lenders adhere to the new guidelines.

All that being said, I’ll take any good loan modification news that we can get!

La Mesa, CA Real Estate Market Update – November 2011

 

                                                 

 

 

 

La Mesa,CA is a great place to call home!  From the quaint downtown filled with restaurants and antique shops, to the views from Mt.Helix, there are many wonderful neighborhoods with their own distinctive vibe.  But like most everywhere throughout the county, real estate values continue to slip, as noted in this real estate market update.

La Mesa, CA Single Family Home Sales – November 2011

Total number of sales                       51

            Short sales                                 9

            REO sales                                   8

Average price                                     $381,197

Average days on market                 71

Average price 2010                          $417,252

Average price YTD 2011                 $387,727

Prices for single family homes have not showed a significant decline throughout the year, which may be a sign that the market is starting to level out.

La Mesa, CA Attached Home Sales – November 2011

Total number of sales                    14

            Short sales                             3

            REO sales                                2

Average price                                  $190,807

Average days on market              51

Average price 2010                        $190,580

Average price YTD 2011               $167,587

The average price for November for attached homes is surprisingly high when compared to the preceding months.  As we enter 2012 we will have to see if this is a trend, or merely a month with more sales of higher priced units.

To learn more about the La Mesa, CA real estate market, just give me a call!  I’ve lived in the area for over 20 years and would love to show you why this is such a great place to call home.

Check out the latest San Diego County home sale and value statistics. How well has your neighborhood fared in 2011? Just give me a call for specific information about your home.

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?

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.

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. 

 

 

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.

 

 

Anyone who knows me would probably say that I’m a fairly optimistic person, but lately it seems as though the real estate market is developing into a vicious cycle with no way to correct itself.   In a report released on Monday, the researchers at Capital Economics said that we could expect nationwide home prices to fall an additional 3% this year, bringing the year’s total decline to about 5%.  So, despite the fact that some markets inSan DiegoCountyhave seen modest gains in home prices over last year, overall, the picture is less than rosy.

So what are the driving forces behind this downward spiral?  Well, the obvious answer is that there are many complicated factors at play, but the cycle we’re seeing is really pretty simple:   Housing prices are falling due to low demand and too much inventory. Normally after a recession, home sales start to pick-up, but that’s not what we’re seeing.  Instead, demand is being strangled by increasingly stringent lending requirements which restrict buying power.  So instead of more buyers coming into the market to take advantage of the low interest rates, we’re seeing fewer that are able to qualify because of high credit score and/or high down payment requirements.   Even existing homeowners looking to sell and buy up or down are caught in a stalemate as most have limited or no equity to leverage against a new property. 

The cycle picks up momentum every time prices drop.  Lower prices, mean less equity for existing homeowners and for those with a mortgage, an increasing number of borrowers are choosing strategic default.  These voluntary defaults are adding to the foreclosure inventory already on the market and the estimated 5 million foreclosed homes lurking in the shadows.  And so the cycle continues; more foreclosures create a bloated inventory.  With an insufficient number of buyers able to buy, sales drop and prices fall, which breeds more foreclosures, and on, and on.

As I’ve noted before, I’m no economist and certainly don’t have all the answers, but there are clearly two actions that could put the brakes on falling prices and encourage increased sales:

  1. Congress should oppose the Quality Residential Mortgage (QRM) requirements being proposed.   The QRM would require an unnecessarily high down payment of 20% and impose a very stringent debt-to-income ratio for conventional loans.  The result would be that more borrowers would seek FHA loans, which in turn would likely raise qualification standards and insurance requirements.  The bottom line result will be fewer qualified buyers and fewer sales.
  2. Banks need to address the issue of negative equity by offering programs that provide principal reductions.  When a borrower feels that he/she is paying on lost equity that they will never recoup they are more likely to choose to default, adding to the inventory glut.

Do you have any ideas about breaking the cycle of falling prices?  I’d love to hear from you!

 

A recent study by analytics company CoreLogic reported that nearly 25% of all mortgage borrowers owe more than their home is worth.  The aggregate amount of negative equity in the U.S. was a whopping $750 billion at the end of last year.   This lost equity prevents homeowners from refinancing or moving, and according to the report, is the “dominant factor” driving the real estate market.

If you’re among the millions who are paying each month for negative equity, you probably have some questions about your options.  To help address this issue, I’m offering a FREE workshop here in San Diego covering the following:

  • Should I wait for home values to increase?  What is the future of San Diego real estate?
  • What about a loan modification?  What programs are available, how do I qualify, and how many loan modifications are actually approved?
  • If I can’t afford my payments, what are my options?
  • What is involved in the foreclosure process?  How long can I stay in my home? How will it affect my credit?
  • Will filing Bankruptcy save my home?
  • What is a strategic default?  What are the risks?
  • What is a Deed in Lieu of Foreclosure?
  • Is a short sale better than foreclosure?  What is the process? What is a HAFA short sale?
  • What about deficiency judgments and 1099s?  When can I qualify to buy again?

Saturday, June 25th  10:00 – 11:30 a.m. 

San Diego County Library, 4S Ranch

10433 Reserve Dr, San Diego, CA 92127

There is no fee or obligation for attendance, but space is limited.  Advance registration is required.  Homeowners will receive comprehensive workshop materials.

Call 1-888-464-1820 x104 to Register Today

As mentioned previously, I’m not an accountant or lawyer and you should always consult the appropriate professional before making any major decision about your home.