Great news for homeowners who experienced a short sale and are ready to buy again! HUD announced yesterday that they will reduce the wait period to qualify for an FHA backed mortgage to 1 year! Previously, the wait time to qualify for an FHA backed mortgage was 2 years following a bankruptcy and 3 years following a foreclosure or short sale. According to FHA Commissioner Carol Galante, “FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

This of course does not mean that everyone will qualify. Borrowers must prove that they experienced an “economic event” where their household income fell by at least 20% for 6 months or longer. They must also document that they have fully recovered financially, and agree to take a housing counseling course prior to close of escrow.

This is very encouraging news for those of us who have helped clients through a short sale, as many have recovered and are ready to buy again while housing prices and interest rates are still relatively low. Reducing the wait time should also encourage overall housing market recovery as more people will be eligible for FHA financing. Likewise, this is good news if you are currently facing a short sale as you will now be able to buy again much more quickly.

If you have any questions about FHA reducing the wait time to borrow after a short sale, or short sales in general, please don’t hesitate to give me a call.

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Ever wonder why it was so difficult for people to get permanent loan modifications a couple of years ago? Maybe it’s because some employees were allegedly paid to make sure they were denied, at least at one bank.

According to a June 14 Bloomberg.com article, Bank of America provided employees with incentives including cash bonuses and gift cards for meeting quotas linked to sending homes into foreclosure. The allegations were revealed by past employees as part of a lawsuit filed against the banking giant earlier this month by homeowners who were denied modifications. Many who were denied loan modifications eventually lost their homes to foreclosure.

Apparently employees in the loss mitigation department were instructed to delay review, ask homeowners for items they already had in the file, and do whatever was necessary to deny permanent loan modifications. Former B of A loan servicing specialist Theresa Terrlonge said that they received restaurant gift cards and cash rewards for denying loan modifications. “I witnessed employees and managers falsify information in the systems of record, and remove documents from the homeowners’ files to make the account appear ineligible for loan modification,” said Terrelonge.

But the big rewards came for actually pushing a borrower into foreclosure. According to Simone Gordon, a loss-mitigation representative who left the company in 2012, specialists who put 10 borrowers into foreclosure, including those in a trial modification, received a $500 bonus. Bank of America insists that the allegations are inaccurate and will file an opposition to the motion to make this a class action case.

Unfortunately, I’m not terribly surprised by these allegations and find it difficult to believe that B of A was the only bank involved in this type of behavior. It’s no wonder that there have been so few successful loan modifications; the very people charged with creating positive outcomes were apparently paid to do otherwise.

Wells Fargo Incompetence Spells F*O*R*E*C*L*O*S*U*R*E*

 

I am livid.  Seeing red, as they say.  Here’s the short version:

  • Steele Group Realty took a short sale listing  because the sellers were in a loan modification program, but the husband was still unable to get a job, so the payments were not possible.  They listed as a short sale on 5/11 with  a scheduled foreclosure sale date of 5/30.
  • All seller documentation was submitted on 5/16.
  • 5/23 an executed offer with a full price, market  value offer was submitted.
  • Offer was uploaded into the Wells Fargo system by an employee who labeled the file “Customer Correspondence”.
  • 5/25 – 5/30 I am in contact with Wells Fargo short sale and foreclosure department nearly every hour to obtain a  postponement of sale date.  I made  sure that the review of the file by the short sale set-up department was  escalated.  Once they approved that this was indeed a viable short sale offer, the foreclosure would be  postponed.
  • 5/29 a processor in the short sale set-up  department reviewed the file, and did not see a file labeled “Offer”  in their imaging system, despite the fact that I had already confirmed with supervisors that the offer and all supporting documents were there.
  • 5/29 the processor who was apparently unwilling,  to look through all of the files, no matter how they were labeled,  determined that there was no offer and therefore declined the short sale option and approved the foreclosure.
  • House went to sale this morning at10:30 a.m.

I honestly can’t get over the failure of this system.  I have been on the phone since 7:00 a.m.this morning, trying to push through another review….to no avail.

This is just wrong, on every level.  Had the file been correctly labeled originally this would be a different outcome. Had the person in the set-up department taken an extra five minutes and reviewed all files, this would be a different outcome.

Buyers and sellers are devastated.  I spent hours and hours, and everyone loses, even Wells Fargo, who will now have to pay to re-market the property.  Stupid, stupid, stupid.  A clerical error by a non-decision maker has changed the lives and business outcomes of many. There is no excuse for this level of incompetence in my book.   I have never lost a short sale and this doesn’t sit well.

A couple of days ago one of my favorite loan officers shared some information about a problem facing many would-be buyers who are trying to get approved for an FHA mortgage after a short sale.  Here’s a couple of surprising things I learned that could squelch some dreams.

Most of us probably know that FHA requires a 3 year wait from the date of the short sale, (conventional 4 years), but here is the kicker:  Did you know that for DU underwriting it is actually 3 years from the reported date?  That means that if the 1st or 2nd lien holder didn’t report the account as closed until 10 months after the close of escrow, a buyer would not qualify until 3 years and 10 months after closing!

And it’s not just short sales.   FHA looks at a short sale, deed-in-lieu, foreclosure, and loan modification, (YES, even a loan mod) as the same derogatory event, and as noted above they require a 3 year wait from the reported date.  Approval for an FHA loan is normally based on running the application through the Desktop Underwriter (DU) automated underwriting program.  The DU program reads the dates entered on the credit report so if that is incorrectly reported, the loan will be denied.  In the case of a short sale, it might be helpful to find a lender who agrees to manually underwrite the loan so that the correct dates are used.

Besides the date, the other item that could trip up a buyer is how the old mortgage debt is reported.  If the account is reported as closed, but still shows the amount not paid off in the short sale as a balance on the account, the reported balance will probably disqualify them in DU by calculating a payment and inaccurately increasing their debt-to-income ratio.

Advice from my loan officer:  Following a short sale, borrowers should check their credit report from all 3 reporting agencies about 6-8 weeks after closing.  If the sale is not reported, and/or it does not show a zero balance they should contact their previous lender to get it corrected. Then, get a DU or manual underwriting approval well before shopping for a home.  It may mean the difference between buying again in 3 years versus facing an unanticipated and disappointing wait!

 

 

San Diego real estate broker Marti Kilby describes the precuations you should take when buying a foreclosed property.


 

Bankruptcy and Foreclosure

 A frequent question I receive is, “Can filing bankruptcy save my home?”  The answer is “no” and “maybe”.  And please note that I’m not an attorney and sharing this information is not intended as legal advice.

 

Foreclosure in California

Whether you’re facing an involuntary foreclosure or considering a strategic default, here is what you need to know about the process and time line for foreclosure in California.

 

Short Sale vs. Foreclosure

People often ask me if a short sale is really worth the effort.  Well, I’d be the first to admit that short sales can be a real pain for everyone involved…sellers, Realtors, buyers…and because so many fail, people often have a negative view of the short sale process.  But, do you really know the benefits over foreclosure that might make it worth the effort?  Watch this short video and see why short sale if becoming an attractive alternative to foreclosure for many homeowners.

 

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!

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

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

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

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

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