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 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 18, 2010

Red Flags for Detecting Short Sale Scams

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Last week I wrote about the scam of collecting upfront fees and the scammer absconding with the money without performing any services for the homeowner.  As I mentioned, there are other scams that can occur at virtually any phase of the short sale process.  Because the decision to sell short is often full of emotion, and the process itself is long and confusing to home owners, the short sale transaction is highly vulnerable to scams. 

According to the California Association of Realtors, here are some red flags that may indicate fraudulent activity.  Be wary if someone does any of the following:
• Gives an unqualified promise, such as to obtain short sale approval, stop foreclosure, or other assurances;
• Is unconcerned about the sales price, possession of the property, and other significant terms of sale;
• Is unconcerned about the short sale seller’s financial situation;
• Is involved in a sales transaction where the seller is not the current owner of the property;
• Is involved in a sales transaction where the property owner has purportedly given someone an option to purchase;
• Represents that the buyer is an entity (such as a trust or LLC), rather than an individual person;
• Creates more than one sales contract for the same property;
• Asks for something to be done immediately without delay;
• Asks for a power of attorney;
• Asks for a transfer of title or an interest in the property outside of escrow;
• Asks for signatures on a grant deed or deed of trust;
• Asks for signatures without giving a lot of time to review the documents;
• Asks for signatures on a document that has lines left blank;
• Fails to provide copies of documents signed;
• Refuses or fails to provide written confirmation of an oral promise;
• Instructs the seller, listing agent, escrow officer, or someone else not to contact the short sale lender;
• Instructs a client not to discuss his or her situation with a housing counselor, banker, accountant, attorney, family, friends, or others;
• Has an answer for everything; and
• Engages in “shop talk” that sounds glib, but doesn’t in fact make sense.

If you have any questions or concerns about any part of the transaction, make sure you consult a professional before signing anything!

 

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.

 

October 11, 2010

Why a Short Sale Blog?

Posted by martikilby under foreclosure, lenders, loan modification, real estate, REO, Short Sale | Tags: , , , , , , , , |
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If anyone had told me four years ago that today over 90% of my business would be short sales and REOs, I would have said they were crazy.  The reality of course is that the boom of those days is the bust of today, and it doesn’t look much brighter on the immediate horizon.

According to California Association of Realtors Vice President and Chief Economist, Leslie Appleton-Young, “The wild cards for 2011 include federal housing policies, actions of underwater homeowners, and the strength of the economic recovery.  What is certain is that favorable home prices and historically low interest rates will continue to make owning a home in California attractive for those who are in a position to buy.”

 OK.  Sounds like a glimmer of hope….unless you’re one of the homeowners that is underwater with no life boat in sight.  Knowing that you can no longer afford your home is incredibly stressful, and for most home owners, their lenders offer little help, despite federal programs.

This blog is dedicated to every homeowner who can’t sleep at night and is asking themselves, “What do I do now?”  My goal is to provide information that will help homeowners understand their options for buying, keeping, or selling their homes in this troubled market. With the banks and the government changing the rules every day, I’ll help make sense of the news, share my experience and insider perspective,  and have some fun along the way.  Most fear is based on lack of knowledge.  By sharing what I know and being here for your questions, I hope to take the “stress” out of distressed property sales, whether considering a short sale, or an REO purchase. 

So let me know how I can help.  If I don’t know the answer, I’ll find a reliable source that does.  It’s that simple.  Over the next two weeks I’ll be adding some good resource information about short sales, so check back soon!  Looking forward to sharing and hearing from you!

 

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