November 10, 2010

Does this seem like a good idea? Really?

Posted by martikilby under foreclosure | Tags: , , , , , |
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Many homeowners who are facing foreclosure are turning to attorneys to help them save their homes, especially in light of the recent revelations regarding mishandled paperwork.  With few other options available, the struggling homeowners hope that an attorney will find a flaw or legal loophole that will cause the foreclosure to be dismissed.  The problem is that most of these homeowners have no way to pay the legal fees.

But one enterprising law firm in Florida came up with a solution:  If they manage to get a foreclosure dismissed, the firm takes out a second mortgage on the property to pay the legal fees!  The Ticktin Law Group in Deerfield Beach reasoned that this was a way they could find an affordable way to represent homeowners.  Other firms are now following their example with similar second mortgage programs.

OK, call me crazy, but how does this make sense?  A homeowner that presumably owes more than the house is worth and has a first mortgage they already can’t afford, now takes on additional debt in the form a second mortgage?  The lawyers point out that they are charging low interest, around 4.0%, and insist that they would never foreclose.  So, the home is saved, for the moment, but how is this a sustainable solution? Sorry, but this defies logic and seems downright predatory.  I’ll be stunned if these poor homeowners aren’t back in foreclosure a year from now.

 

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 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 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?

 

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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