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 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.

 

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 5, 2010

I Can’t Make My Mortgage Payments…What Should I Do?

Posted by martikilby under foreclosure, loan modification, Short Sale | Tags: , , , , , |
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First and foremost, don’t ignore the problem.   Chances are you won’t win the lottery, and your financial troubles are real.  As soon as you are 30 days late on your payment, the lender’s clock starts ticking.  There is help and you have several options.  Take a deep breath and try to look at the situation objectively.  Pick up the phone and talk to your lender.  Just remember that time is of the essence.  Acting early allows you to make the decision that is best for you.  Wait too long and your choices disappear.

Do Nothing.  It is likely the lender(s) will foreclose.  Foreclosure information will stay on your credit report for up to 7 years and may make it difficult to buy again for at least 3-5 years.

Refinance.  This is only a viable option if there is equity in your home.

Reinstatement.  This option means that you will have to pay all delinquent amounts due plus interest, attorney fees, late fees, and taxes and insurance if impounded.  If withdrawing funds from a retirement account you should consult a tax advisor.  If borrowing from friends or family make sure that all terms are in writing and that you can afford the re-payment plan. 

Loan Modification.  A loan modification re-writes your existing loan to make the monthly payments more manageable by reducing the interest rate, extending the term, and/or reducing the principal amount owed.  Your lender may participate in the government’s Home Affordable Modification Program (HAMP), which provides incentives for lenders to modify loans.  This program and loan modifications in general have limited success.  Please read my blog post dated 10/27/2010. 

Forbearance.  In a forbearance agreement your lender arranges a repayment plan that spreads out the defaulted amounts due over an extended period of time.  It may include temporary payment reductions.  You will need to supply information that shows your financial problems are temporary and you will be able to meet the repayment requirements.

Deed in Lieu of Foreclosure.   You voluntarily sign the deed back to the bank and vacate the home instead of the bank foreclosing.  Slightly better on your credit report than a foreclosure.

Bankruptcy.  Consult a bankruptcy attorney.  Filing Chapter 7 for liquidation of debt may stall foreclosure, but your lender may be allowed to resume proceedings.  Chapter 13 may halt foreclosure, but the debt of the past due amounts will be included in a 3-5 year re-payment plan. 

Short Sale.   If your home has equity, you may sell the home without lender approval.  Lacking equity, you can opt to sell the home for less than the amount owed.  This is negotiated with your lender by a qualified Real Estate Professional.  In a short sale the lender must agree to accept less than the amount of the debt owed.  This option is more favorably reported on your credit report. 

Other alternatives.  You might want to consider renting a room in your home, or getting a second job.  If you own a small business, you might qualify for an interest-free America’s Recovery Capital (ARC) loan of up to $35,000 from the Small Business Administration.  Also, if there are discrepancies in your loan documents or foreclosure paperwork, you may be able to sue your lender.  To pursue this option, consult an attorney specializing in forensic real estate work.

The most important thing you can do is not bury your head in the sand.  When a homeowner calls and tells me their home is going to auction in 5 days, there is little that can be done.  Be realistic about your financial situation.  Put it all down on paper and know exactly what you can afford today and your anticipated income over the next year.  By taking control of the situation versus letting your lender direct the action, I guarantee you will have a less stressful, healthier outcome.

Please call for a confidential, no-obligation consultation if you’d like to discuss any of these options and how they might work for  you.  To reach me quickly please call my cell phone:  619-846-9249 .  Or, leave a reply and let me know how to reach you.

 

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 12, 2010

FHA Principal Reduction Program….Will it Work?

Posted by martikilby under Internet, lenders, loan modification, REO | Tags: , , , , , , , |
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Most loan modification programs are designed to simply lower a borrower’s mortgage interest rate, thus reduce their monthly payment.  However with home values so low, a loan mod that reduces the interest rate still means that most homeowners are paying on negative equity.  They owe more than the home is worth, so even if the payment is more affordable, it could be years before any part of their monthly payment is actually paying down principal on the current value of the home.

For many homeowners, this just doesn’t make financial sense and they are allowing their homes to go to foreclosure, a practice dubbed “strategic default”.  Experts predict that the number of strategic defaults will likely increase as home prices remain stagnant and homeowners become increasingly angry with banks. Everyone including the government, industry analysts, and the public would probably agree that an increase in strategic defaults and the subsequent foreclosures will only slow the housing market recovery.

So the FHA has introduced a new Short Refinance Program aimed at borrowers who are upside down.  The goal is to reduce the actual principal amount owed to a level more in line with current home values and thus encourage homeowners to stay in their homes and continue to make payments.

Sounds like a great idea at face value, but qualifying for the program does come with a list of conditions for the homeowner, including: 

  • Be current on their mortgage payments
  • Have a credit score of at least 500
  • Have negative equity
  • Not have a current FHA mortgage
  • Occupy the property
  • And…..have a bank willing to write off 10% of the loan principal

OK, I was thinking, “This might work….” until I read the last condition.  I don’t know about you, but I haven’t heard of many banks stepping up to the plate and offering principal reductions, (Wachovia being the only exception that comes to mind).  So I’m not sure how successful this will be.  And doing the math, will a 10% reduction really be enough to encourage people to stay and pay?  In some parts of the country where the housing boom had the most impact, such as locations in CA and FL, values have dropped by as much as 50% since 2006.  So if a $500,000 mortgage is reduced to a $450,000 mortgage but the property is only worth $250,000 or even $300,000, will that be sufficient incentive to keep a borrower from walking?

I applaud the concept but am very skeptical about outcomes.  Principal reduction is, I believe, the mechanism that has the best chance of slowing strategic defaults.  The banks certainly take a big financial hit when a home goes to foreclosure…..why can’t they take the hit up front and keep people in their homes?

 

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