August 2, 2011

Diary of a B of A Cooperative Short Sale – Part 1

Posted by martikilby under 2nd mortgage, Bank of America, Loan Servicing, mortgage, Short Sale Negotiation | Tags: , , , |
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Of all the articles I’ve written, posts about Bank of America and their Cooperative Short Sale Program seem to draw the most attention.  Is that because people have been disappointed in the results?  Or are they nervous about potential problems?  Well, I thought it would be interesting to share the progress of a new B of A Cooperative Short Sale that I’ve just listed to see just how good, (or bad) the process really is now that the program has been around for a while.

This sale is a bit different than most short sales I’ve done, as the owner had already begun the Cooperative program when I was hired.  Thus a lot of the initial paper work was already in the system, and the bank had ordered an appraisal.  The turn-around time on the appraisal was fairly quick, and I was pleased to see that the suggested list price approved by the bank was reasonable according to all of my research, so at least we are not dealing with an unrealistic starting price.

We did lose a couple of days as I tried to connect with the B of A representative, who will be my primary contact, but we finally spoke and she seems pleasant and knowledgeable.

So just when I thought this might be smooth sailing, the homeowner received a notice that the 2nd mortgage had been sold to a new investor, and the servicing also transferred away from Bank of America.   So how do you sell a 2nd mortgage that is upside down?  There is absolutely no equity in the home to provide collateral backing for the 2nd TD, so it seems odd that it was sold at this stage of the game.

This of course throws a bit of a wrench into the works as I will now have to negotiate a totally separate approval with the new note holder, through the new servicing company…..once they even figure out that they have the account.  Sigh.  We will have to see how this affects the B of A approval process…really not sure what to expect at this point, but I’ll keep you posted.

 

June 17, 2011

Do You Owe More Than Your Home is Worth? You’re Not Alone!

Posted by martikilby under foreclosure, loan modification, San Diego Home Values, Short Sale | Tags: , , , , , , , , |
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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.

 

 

June 7, 2011

Home Values are Up, No Down, No Up….

Posted by martikilby under Buying versus Renting, foreclosure, Real Estate Values, Short Sale, The U.S. Economy | Tags: , , , , |
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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!

 

May 25, 2011

Will Bankruptcy Save your Home from Foreclosure?

Posted by martikilby under Bankruptcy, foreclosure | Tags: , , , , , |
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The short answer is “No” and “Maybe”.  When faced with the prospect of losing their home to foreclosure, many people are willing to try most anything to halt the process and save their home.  Bankruptcy however, is probably not the answer.

Let me first say that I’m not an attorney, and do not intend this as legal advice.  If you are considering bankruptcy, please consult an attorney before taking any action.

Personal bankruptcy is generally filed under Chapter 7 or Chapter 13.  Under Chapter 7 most of your unsecured debt (such as credit card debt) is permanently discharged, while Chapter 13 allows you to reorganize your debt with your creditors and develop a plan to pay-off your debts over a specific period of time.  If you qualify and file personal bankruptcy under either Chapter 7 or 13, an automatic stay is put on all your creditors, including a lender that might be pursuing foreclosure.   However, this is only a temporary halt to the foreclosure process.

As mentioned above, filing Chapter 7 does not discharge your secured debts.  A mortgage is a secured debt and the collateral is your home.  If you do not pay, your lender has the right to take back the security you offered in exchange for the money advanced as a mortgage.  So filing a Chapter 7 will not save your home from foreclosure.  At any time before your unsecured debts are discharged, the court can allow your lender’s request for “relief from the automatic stay” and the foreclosure can proceed.  After discharge, the foreclosing lender is free to continue the process.

Filing Chapter 13 however may allow you to save your home from foreclosure.  In a Chapter 13 bankruptcy you are allowed to make arrangements with your creditors for repayment of debts owed, including your mortgage.  However, this is generally allowed by the courts only when you have a stable source of income that will allow you to make all payments as agreed for the entire repayment period.  There are many factors that determine if filing for protection under Chapter 13 will allow you to keep your home. The only way you will know if this will work in your particular situation is to consult an attorney.

It is also important to note that a bankruptcy will remain on your credit report for 10 years after date of filing. If this doesn’t seem like a viable solution, please read more about other options to avoid foreclosure.

 

May 16, 2011

President Obama Calls for Expanded Loan Modifications

Posted by martikilby under HAMP, loan modification, President Obama | Tags: , , , , , |
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During a town hall meeting last Thursday inWashington,D.C. the President took a comment from a woman in the audience who explained that her loan modification expires in January, 2012.   Despite having excellent credit, she can’t refinance because she owes more than the house is worth.  Without a new loan mod, or principal reduction she will not be able to make her payments and could lose her home.

The President agreed that the banks need to take a more aggressive role in protecting homeowners.  He commented to the banks, “We were there for you when you got in trouble, then you’ve got to be there for the American people when they’re having a tough time.”  (I think he just forgot to add the part about the banks creating this problem in the first place.)

“We want to see if we can get longer-term loan modifications. And in some cases, principle reduction, which will be good for the person who owns the home, but it’ll also be good for the banks over the long term,” President Obama said.  “You know what,” Obama continued, “speaking to the banks…you’re going to be better off if somebody’s still paying on their mortgage than if they get foreclosed on and you end up not only having to go through all those legal processes, but you also end up…selling the home at a fire sale price.”

Excuse me, but isn’t that stating the obvious?  Is there anything new here?  Under the current government Home Affordable Modification Program (HAMP), borrowers may receive a modification that is valid for 5 years, and under some non-HAMP programs the modification period is as short as 2 years.  But then what?  Like the woman in the town hall meeting who was fortunate enough to even get a loan mod, what happens when it expires? 

President Obama concluded by adding that his administration is working with banks to expand loan modifications.  “We’re going to be talking to the banks. And I mean, on a regular basis,” he said.

Well, I bet that has the banks shaking in their boots!  “Talking on a regular basis”, what does that mean and how is that going to change anything?  If we are ever going to see an end to the real estate depression that continues to drag down our economy we need an effective plan, not lip-service.  Someone needs to lean on the banks to make permanent, meaningful modifications that include (as I’ve been saying for over a year), principal reduction.  Come on Mr. President….you’ve shown you’ve got the muscle.  Let’s see some action!

 

April 25, 2011

Who’s Most Likely to Choose Strategic Default?

Posted by martikilby under Credit score, Fannie Mae, foreclosure, Strategic Default | Tags: , , , , , |
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Over the past few years as home values have taken a nose dive, we’ve witnessed a new group of borrowers in the default arena – enter the strategic defaulter.  A strategic default occurs when a borrower who is financially able to make their monthly mortgage payment, chooses to walk away from their property because they owe more than the home is currently worth.  The rationale is that it doesn’t make financial sense to continue to pay for negative equity, waiting and hoping that the home’s value will increase and they will re-coup their lost equity.

To banks that are already struggling to cope with the thousands of borrowers who are legitimately unable to make their mortgage payments, this group represents a growing challenge.  According to studies by the Chicago Booth School of Business, strategic defaults in September 2010 represented 35% of all defaults, up from 26% in March 2009.  Last year the problem became so large that Fannie Mae announced that it would seek stringent penalties against borrowers who are able to pay, but choose to walk away.

Hoping to stem the tide of strategic default, banks are looking for ways to identify those borrowers most likely to walk away from their mortgage obligations.  The problem however, is that to date there has been no reliable way to identify the potential strategic defaulter.  Intervention is impossible if you don’t know who you’re looking for.

FICO Research Labs may have developed the tool banks are lacking.  The credit assessment company announced that it has developed a method that analyzes consumer spending and payment habits and allows lenders to identify borrowers who are 100 times more likely to default than others.  

So what is the profile of the strategic defaulter?  They are actually quite savvy managers of their credit having higher FICO scores, lower balances on revolving debt, less retail credit usage, and fewer instances of exceeding credit limits than the general population.  FICO claims the company’s new analytics can provide loan servicers with a method of reaching two-thirds of these would-be strategic defaulters, and according to Dr. Andrew Jennings, head of FICO Labs, “The ability to spot likely strategic defaulters before delinquency enables servicers to intervene early.”

But then what?  It is one thing to identify borrowers who might choose strategic default, but, what intervention can banks offer that will actually deter would-be defaulters? If lenders follow Fannie Mae’s example and simply threaten legal action to recoup outstanding mortgage debts, I doubt that will be much of a deterrent or solve any of the real problems.

The issue comes back to a point I’ve often made in this blog:  I don’t believe we are going to see a significant reduction in defaults, both strategic and involuntary until lenders are ready to consider meaningful principal reductions for borrowers who owe more than their homes are worth.   If Savvy Bob the Homeowner is considering default because he owes $80,000 more than the home is worth, do you think he might consider staying in his home if his principal balance was reduced by $60,000?  Throw-in a lower interest rate and I’m pretty sure you’d have a deal.  Considering the bottom line expenses for banks to foreclose, costs for carrying an REO, lost revenue, and a lower net sales price, principal reduction should start to look pretty good.

So I’m all for identifying those who are likely to choose to walk away, but before banks rush to hit them over the head with penalties, l hope they’ll put some thought into resolving the equity issues that are driving strategic default and offer borrowers a meaningful alternative.

 

March 14, 2011

More Short Sales on the Horizon

Posted by martikilby under Home Ownership, loan modification, Real Estate Values, Short Sale | Tags: , , , , , |
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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.

 

February 17, 2011

Good News about the American Dream

Posted by martikilby under Buying versus Renting, foreclosure, Home Ownership, Real Estate Sales Statistics | Tags: , , , , , , |
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I’m almost feeling like we can breathe again.  We’re not out of the woods, but here in San Diego, we’re headed in the right direction.  And surprisingly, the next generation of home buyers is not running screaming into the night frightened by the plague of foreclosures, but rather embraces the idea of one day owning a home.  Check the numbers.  What do you think?

According to a January 2011 Harris poll conducted on behalf of Trulia, the American Dream of home ownership is alive and well.  70% of those surveyed say that home ownership is still part of their dream, and 78% of homeowners surveyed say that their home is the best investment they ever made.  Well, those are probably folks who didn’t buy in 2004-2006.  Buyers during those years are probably the 20% who feel trapped in an underwater equity home or the 14% who are considering just walking away.  Like I said, we’re not out of the woods.

But what I found very refreshing is that 88% of 18-34 year olds aspire to be homeowners, and overall  in the west 70% of renters plan to become homeowners.  In my estimation, this group will drive the long-term recovery, and drive the next real estate bump in value. Only 10% plan on buying in the next 24 months, but they will help prime the pump.  By 2015 we could be in the midst of the next upswing.

So when to buy?  Consult with your accountants and money managers, but my bet is now….just as we turn the corner and start to head up.

 

December 22, 2010

Fannie Mae Slaps Foreclosure Victims

Posted by martikilby under Fannie Mae, foreclosure, Loan qualification | Tags: , , , , , , , |
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Just in time for Christmas, Fannie Mae put new rules into effect on December 13th that will make it even more difficult for homeowners who have had a foreclosure to buy again.

Under the new lending guidelines that control qualification standards for Fannie Mae backed mortgages, a borrower who has had a foreclosure will now have to wait seven years before being approved for a new mortgage.  That is up from the current wait time of four years.  Another provision of the guideline revision tightens the acceptable debt-to-income ratio (DTI) to 45%, down from 55%, and includes stricter scrutiny of all installment debt.  Under the new guidelines, even one missed payment on a credit card could mean the difference between approval, and not qualifying.  Fannie Mae currently guarantees 28% of all residential loans.

While we all understand the need to move away from the “if you have a pulse, you qualify” standards of a few years ago, these new guidelines seem downright punitive!  On one hand the Fed is pumping money into banks urging them to make more loans to stimulate the economy, yet at the same time the new regulations make it more difficult for banks to lend.   And why the increase from four to seven years?  There is no rational reason for this extended wait time.  The only thing I can figure is that this is intended to scare homeowners considering strategic default into continuing to pay an inflated mortgage on a grossly devalued home.

Although there are several provisions of the new guidelines that may benefit some borrowers, overall this is not an effective way to get the housing market back on its feet.  Thanks Fannie:  You’ve just provided one more reason why I believe we’ll continue to see an increase in short sales over the coming year.

 

December 10, 2010

Staggering Stats: Trillions in Equity Lost

Posted by martikilby under Home Ownership, Real Estate Sales Statistics, Real Estate Values | Tags: , , , , |
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This year alone U.S. homes are projected to lose $1.7 trillion in value.  Since the market peaked in 2006 there has been over $9 trillion in lost equity, according to Zillow.  But let’s put that in perspective.

Zillow cites a report by the Congressional Research Service, which says that from 2001 to the end of September of this year, the war in Iraq has cost the U.S. $750.8 billion.  This means that since 2006, the dollar value of home equity lost by U.S. homeowners is greater than the cost of 12 Iraq wars!

Now some might argue that home equity in 2006 wasn’t “real” money, and that inflated prices only created the illusion of equity.  Well, most of the country based many financial decisions on that illusion and by the end of the 3rd quarter 2010; more than 23.2% of homeowners owe more than their house is worth.

Looking forward into 2011, Dr. Stan Humphries, Zillow’s chief economist, doesn’t see the market settling into a natural equilibrium of supply and demand any time soon.  “Unfortunately, with foreclosures near an all time high in late 2010, and negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” he said.

One bright spot for San Diego emerged however.  Out of the 129 market areas tracked by Zillow, only one-quarter showed any increase in value in 2010, led by Boston with a spike in residential home values of $10.8 billion and San Diego metro with an increase of $10.2 billion.

The message for San Diego homeowners:  Hang-on if you can and you’re not too far underwater.  For would-be buyers:  Don’t wait!  Prices and interest rates are on the rise.

 

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