For those of us in the industry, it hardly comes as any surprise that Bank of America has failed to help thousands of Americans receive a permanent loan modification through the Home Affordable Modification Program (HAMP).  And it now looks like they might have some explaining to do:  A judge has denied the bank’s request to dismiss a case involving tens of thousands of homeowners who claim they were refused help through the HAMP program.

As you remember, HAMP uses federal funds to help struggling homeowners.   Under the program, Bank of America is required to provide foreclosure alternatives and permanent loan modifications to eligible homeowners.

However, according to Steve Berman, managing partner of Hagens Berman, the firm representing the homeowners. Bank of America has refused to permanently modify the loans of thousands of borrowers, even after successfully completing a Trial Period Plan (TPP).  “The vast majority tell us the same thing: Bank of America claims to have lost their paperwork, failed to return phone calls, made false claims about the status of their loan and even taken actions toward foreclosure without informing homeowners of their options,”  said Berman.

In the lawsuit, Berman seeks to prove that Bank of America “intentionally postpones homeowners’ requests to modify mortgages, depriving borrowers of federal bailout funds that could save them from foreclosure.”

“The bank ends up reaping the financial benefits provided by taxpayer dollars financing TARP-funds and also collects higher fees and interest rates associated with stressed home loans,” Berman added.

The case will be limited to homeowners who entered a TPP, but were denied a permanent modification.  Judge Rya Zobel also ruled that homeowners in nine state, including California could pursue claims in their states where consumer protection laws are stronger. 

So if you’re a homeowner in the middle of trying to get a HAMPmodification form B of A, the outlook is not encouraging.  The federal government has cut-off HAMPfunds to Bank of America until they make improvements in how they administer the program, which could mean more foreclosures and short sales on the horizon for Bank of America borrowers.

Everyday I wake up, turn on my computer and read all the real estate news.  But pretty soon I’m scratching my head, wondering whether or not anyone really has a clue about what’s going on.  One story says values have double-dipped at a new low, another says they’re on the rise.  Some “experts” insist that reducing unemployment will drive the real estate recovery, while others have the statistics to “prove” that a stronger real estate market will be what heals the national economy.  No wonder the real estate market is stagnant – everyone is paralyzed by uncertainty!

As noted previously, I have no crystal ball.  Nor do I have a doctorate in economics.  However, I do know one thing that will help heal both the real estate market and the overall economy:   Would-be buyers and defaulting owners – take action now!  

If you are thinking about buying a property, quit thinking and start doing!  This is a fabulous buyer’s market and both prices and interest rates are at incredible lows.  If you’re worried that you won’t get the absolute lowest price because values might continue to drop, you’re probably wrong.  Most experts believe that we’ll see some slight ups and downs in value over the next 2 years, but it will be more of a bumpy road versus a roller coaster dive.   If you wait another year to buy, you’ll lose 12 months of mortgage interest deduction, and the enjoyment of owning your own home or investment property.

On the other hand, if you’re unable to continue to make your mortgage payments it’s definitely time to take action.  You probably won’t win the lottery, so call your bank and try to get a loan modification.  If that doesn’t work, consider a short sale.  Avoiding a foreclosure through short sale is generally not only better for the seller, but it will help the real estate market and economy.  Banks are choking on foreclosure inventory, and as those homes are released into the sales system they are often neglected and tend to lower home values.  Reducing the number of new foreclosures is key to recovery for everyone.

So if you’re still unsure and have questions about buying or selling, just give me a call.  I’m ready when you are to help turn this market around!

No secret, actually.  The success of your short sale all comes down to your listing agent.  Really.  Negotiating a short sale is one of the most challenging jobs in real estate today. An agent representing a short sale client is responsible for helping them get out from under a huge financial burden and save their credit, and responsible to the new buyers for closing the deal in a reasonable length of time.   Without the right agent representing your interests it’s easy for the deal to fall apart and your home go to foreclosure. 

Here are some important questions to ask a perspective agent before listing your home as a short sale: 

1)      What is their short sale experience and what percentage of attempted sales have they successfully closed?  This is not the time to hire an inexperienced agent as short sales are an intricate process that requires an understanding of lender procedures and requirements.

2)      Do they do their own negotiation, or do they work with a professional negotiator?  An experienced, professional negotiator may be a real plus as that leaves the agent with more time to focus on marketing your home and finding a qualified buyer.  Also, a professional negotiator will have established relationships with a greater number of lenders which can often help expedite approvals.

3)      Will the agent pre-qualify you for the short sale?  Although the lender will have the final word, an agent should be familiar with all required documentation and be able to pre-qualify you for a short sale.  If economic hardship cannot be proven it is unlikely that the bank will approve a short sale.  They should also be able to let you know if you might be eligible for HAFA.

4)      How will the agent determine the list price of your home?   Listing your home too low may get you a quick offer, but it’s likely the bank will counter and you may lose your buyer.  Remember, the bank needs to recoup as much of the loan amount as the market will bear.

5)      What is the process?  An agent should be able to explain the entire process and timeline and describe exactly how and when you will be updated on progress.  They should also be able to provide information about the pros and cons of moving early in the process or staying in your home until closing.

6)      How will they market your home?  Over 90% of buyers begin their home buying search online.  Make sure your agent can provide an extensive online presence for your listing.

7)      What is the outcome that you can expect?  The agent should be able to discuss the potential outcomes including 1099s and deficiency judgments. They should also make recommendations to you about seeking the advice of other professionals, such as a lawyer and accountant.

8)      And finally, can they provide you with references of past short sale clients?   Hearing from a satisfied client can go a long way to easing your concerns.

A short sale is a complicated transaction, but it needn’t be stressful.  Please don’t hesitate to contact me with your questions or concerns.  I have a 100% short sale success track record and look forward to hearing from you.

May got off to an interesting start with the release of several foreclosure reports that frankly, seem a bit contradictory.  There was good news.  There was bad news.  And I’m not quite sure analysts have a handle on what it all really means to the housing market.

Let’s start with the good news:  Mortgage delinquencies are down.  According to data from Lender Processing Services (LPS), delinquencies are down by 20% compared to this time last year.  At the end of March there were 6,333,040 loans nationwide that were past due or in foreclosure.  Sounds like a lot, but that is the lowest level since 2008.  The report would seem to indicate that modifications are helping as 23% of loans that were 90 days past due a year ago are current today.

Now here is where it gets confusing.  The same report showed that at the end of March foreclosure inventory was at an all time high – 2.2 million loans.  This inventory represents loans that have been referred to a foreclosure attorney but have not yet reached foreclosure sale.  The number of new foreclosure actions was 270,681 in March which is a 33% increase over the previous month.  So foreclosures are up but delinquencies are down?

Another piece of bad news was delivered in a HUD report detailing sales of FHA foreclosed homes.  HUD manages the disposition of homes that had FHA loans that were repossessed.  At the end of February there were 68,801 homes in the HUD inventory.  That is a 50% increase over the previous year.  The monthly sale of HUD homes has dropped from ahigh pointof 8,893 last June to a low of just 2,632 in January.  Thus new foreclosures are entering the market at an increased rate while sales have significantly stalled.

One factor not considered in the LPS report was the increase in the number of short sales over the last year.  In addition to loan modifications, which have not been very effective, short sales are presumably impacting the decreased delinquency rate as more homeowners are opting to sell short earlier in the delinquency cycle versus riding out the foreclosure timeline.    If you are a homeowner that owes more than your home is worth and are struggling to make your payments, the bright spot on the horizon might just be a short sale should a loan modification not provide the relief you need.

For the real estate industry overall, this jumble of numbers would seem to indicate that we’re still a long way from recovery.  With foreclosures increasing and sales decreasing, a bloated inventory of homes on the market will likely keep prices fairly stagnant in most markets.

A survey released on Monday shows that nationally, nearly half of all home sales in March involved distressed properties; either foreclosed homes or short sales.  This is the second highest level seen in the past 12 months.   And while this might not seem like good news, the statistics actually provide a glimmer of hope. 

The Housing Pulse Tracking Survey reported that short sales rose from 17.0% of total sales in February to 19.6% in March, and at the same time REO sales fell from 14.9% to 12.0%.  this is an all-time high for short sales.

So why is this a good thing?   Short sales, though not as speedy as we would like, are resolved much more quickly than foreclosures.  An REO can sit empty on the market for months, often falling into disrepair.  REOs are used as comparables by appraisers and thus drag down neighborhood property values.  Smaller numbers of REOs would be a positive sign for improved home values in the months ahead.

Additionally, from the point of view of an individual, a short sale is usually preferable in terms of both short and long-term impact.    A few of the advantages include the fact that a short sale does not have near the negative impact on a borrower’s credit score as a foreclosure;  there is no set time limit that disallows a borrower from buying again, and a short sale is not reported on a credit report for 7 years, as is a foreclosure.

If you have any questions about short sales, or any other real estate questions, please don’t hesitate to give me a call at 619-846-9249.

As a result of the foreclosure robo-signing mess uncovered last September, loan servicers are facing new federal and state requirements outlined in a draft settlement proposal last week.  Here are the highlights that could provide greater protection for homeowners:

  • Servicers would agree to stop dual tracking.   Hard to believe, but currently many companies will pursue foreclosure, even while the borrower is trying to get a loan modification.    This new requirement would mean that foreclosure processing would be put on hold during the loan modification process.
  • Servicers would be required to review any loan modification that is denied.  They would also have to implement a system whereby the borrower would have 10 days to appeal a modification denial.
  • Most significant is the provision that would require servicers to “implement processes reasonably designed to ensure that factual assertions made in pleadings, declarations, affidavits, or other sworn statements filed by or on behalf of the servicer are accurate and complete.”  This would help alleviate the problem of minimum wage processors signing-off on foreclosures.
  • The proposal also states that servicers may not develop compensation programs for employees that encourage foreclosure over modification or other options.   And yes, that was in place at some institutions.
  • And lastly, servicers would be required to offer one point of contact to borrowers trying to complete a loan modification, short sale or forbearance agreement.   Finally!  This alone should improve the process, or at least lessen the frustration level of speaking with a different person every time the borrower calls.

Do I think this will improve loss mitigation for borrowers?  Let’s say I’m cautiously optimistic.  At the end of the day of course, any regulation is only as good as the enforcement that backs it.

Research and analytics company CoreLogic reported last week that 23% of all homeowners owe more on their mortgage than their home is worth.  All together, the negative equity of our nation’s homes is around $750 billion. 

I don’t know about you, but I find it pretty scary that nearly one quarter of all homes have negative equity.  Even if those homeowners don’t default and continue to pay their mortgage, this is a huge deterrent to recovery for the housing market.  In a healthy market, many of these folks would be selling and buying, either trading up or downsizing, or simply moving to a different location.  Instead, 11.1 million homeowners are stuck in their homes, unable to sell because of negative equity.

As noted in previous posts, I don’t have a crystal ball and I’m certainly not an economist, but as I’ve mentioned, one possible solution seems pretty obvious:  Principal reduction.  Since the top of the market in April of 2006, home values have dipped by an average of 32.8%.  The majority of the people who are underwater today bought or refinanced at the height of the market…..what if their mortgages were reduced by 30%?  Do you think that would help reduce defaults and stimulate sales?  Of course it would!

Logically, this seems like a good idea.  If banks are going to lose the money anyway if a home is foreclosed or sold short, why not take the loss up front and bring some real stability back to the housing market?  Although a few banks have offered some principal reductions, it is rare, and I have yet to hear a really good answer as to why more don’t. If you understand what seems to be some twisted bank logic, please explain it to me.

In the meantime, I predict that we will see an increase in short sales. As banks are providing few meaningful loan modifications and with the economy still shaky, even those people intent on staying in their homes despite negative equity may be forced to sell because of loss of job, decreased income or relocation.  Fighting $750 billion in negative equity is a not a battle that will be quickly won.

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!

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.

It has been estimated that the average cost to foreclose on a home is about $75,000 including costs to local government for lost tax revenue and services, costs to the homeowner, and the devaluation to neighbor’s properties. Of this amount, the actual cost to the bank averages about $50,000 – $60,000, including attorney’s fees, property maintenance and REO resale fees.  Considering that the hard costs of a short sale are considerably less, and the impact on local government, neighborhoods and individuals is far less destructive, it’s difficult to understand why banks seem to be dragging their feet when it comes to approving short sales.

According to a recent article in the NY Times, many lenders are concerned about fraud. It is known that some homeowners, who actually can afford their mortgage payments, falsely portray their financial picture in order to cut their losses on a property and move on.  Other homeowners may try to sell to a relative who would then sell the home back to them, a practice that is illegal.  A recent industry report estimates that short sale fraud occurs in a least 2 percent of sales and costs banks about $300 million annually.

But fear of fraud and the associated costs is a relatively minor consideration.  The more important reason shouldn’t be too surprising:  There are financial incentives in many cases to choose foreclosure over a short sale.  For instance, institutions that service loans can reap high fees from foreclosures and lenders can often collect on private mortgage insurance that protects against foreclosure losses.  Neither the same high fees nor insurance is collected when a home sells short.  Another little known fact:  A 2009 regulatory change to a federal accounting law allows banks to foreclose on a home, but not take the loss until the home sells.  By contrast, in the case of a short sale, the bank must take the loss immediately.

So obviously, the bank’s decision has nothing to do with what is best for the national or local economy, or the individual homeowner.  Check back for my next blog where I’ll discuss what you can do to improve your chances of having your short sale approved.