A cool graph showing the state of distressed properties. Her are some of the highlights:
According to Corelogic, 412,000 short sales were successfully completed in 2012. Corelogic anticipates 400,000 short sales to be completed in 2013.
Also according to a Corelogic report from January of 2013, “negative equity and near-negative equity mortgages accounted for 26.8 percent of all residential properties with a mortgage nationwide in the third quarter of 2012.”
Beginning next month, Fannie Mae and Freddie Mac will allow underwater homeowners to walk away from their homes in a controversial move to offer relief to homeowners who have kept up with their payments, according to Bloomberg.com. While most contention has centered around homeowners that fail to or cannot pay their mortgages, many argue that homeowners owing more than their house is worth are also victims of the recession, which Fannie and Freddie intend to address.
The two mortgage giants back the majority of home loans in America, totaling over $5.2 trillion in mortgages. If homeowners with loans backed by Fannie or Freddie can show they owe more than their house is worth but have paid their loan on time, and they can show they need to relocate due to work, illness, or other qualifying reasons, they can apply for a deed-in-lieu transaction which will forgive the difference between the home’s value and the remaining balance on the mortgage, in exchange for handing the property over.
Bloomberg reports that under specific circumstances, underwater homeowners may still be required to pay a portion of the difference as a cash contribution of up to 20 percent of their financial reserves (excluding retirement funds), or a promissory note for future no-interest repayments.
Support for this controversial move
Supporters note that previous attempts to help struggling homeowners pushed borrowers to default before they could receive help, whereas this program incentivizes only behavior that is positive and keeps their loan on track, noting that underwater homeowners didn’t make a bad purchase decision, rather were punished by lending and housing policies that crashed the economy.
“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” the director of housing finance and policy at the Center for American Progress tells Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage — not the investor, not the homeowner, and certainly not the neighborhood.”
Criticism for this controversial move
Some suspect the timing of the announcement, as the housing sector is finally beginning to improve, with home values steadily improving – with Fannie and Freddie owing taxpayers a combined $190 billion, it could stunt their ability to repay.
“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” said Phillip Swagel, a professor at the University of Maryland’s School of Public Policy in College Park, Maryland. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”
Homeowners in California are buying fake documents to delay foreclosures on their properties, a local paper reports.
Prosecutors in Stanislaus County, California, have cottoned on to the practice and begun cases against four homeowners. The four are accused of filing phony court documents - claiming the debt has been repaid or changing a trustee - in an attempt to stall foreclosure proceedings.
"It comes to a point where enough is enough. How many breaks can we give these people?” Jeff Mangar, a prosecutor with the district attorney's fraud unit, told The Modesto Bee. Staff handling filings are now aware of the practice and tip off investigators.
The counterfeit court filings are available online - for a fee - from websites claiming they can tie up banks in administrative proceedings for years. A website reviewed by the Bee claims none of its 2,600 customers have made a mortgage payment in the past two years.
Foreclosure Radar recently reported increased foreclosures cancellations in the state of California thanks to a recent change in California law that prohibits dual tracking (that’s proceeding toward foreclosure when there is a short sale or loan modification is in the works).
You’d think that the banks would be rolling out the red carpet for short sales based on the decline in the number of foreclosures. Unfortunately, that is not always the case. In fact, often times short sale guidelines from some investor note holders cause the lender to remove or reduce some of the seller fees that need to be paid from the sale proceeds. Some of the fees that the lenders continue to cut are settlement costs; title insurance; HOA document fees, transfer fees and outstanding dues; buyer closing costs; septic certification and pumping fees; property repairs; pest control fees and other non-institutional liens.
Reviewing the Settlement Statement
When you submit a short sale package to the lender (or if you are processing your short sale through Equator), you need to prepare a settlement statement that includes all of the possible seller fees associated with the closing of the transaction. It doesn’t matter whether you manually input your fees through Equator or whether you fax the settlement statement to the short sale lender, the lender will rely heavily on that statement in order to determine whether the short sale will be accepted, countered, or declined.
After reviewing the settlement statement, you may receive a call from the bank employee and he or she may tell you that the lender will not pay certain fees. So, how are you going to get the transaction closed if the lender refuses to pay certain fees? Here are some ways to get additional fees paid at or before closing:
Reach out to the buyer. If the buyer really wants the property, s/he may be willing to cover some of the unpaid fees. Speak with the buyer’s agent, and don’t forget to get permission from the lien holder for the buyer to cover these fees.
Discuss options with the seller. In certain parts of the United States, the law permits the seller to pay some of the unpaid fees at closing. Make sure to get permission from the lender for the seller to make a contribution at closing.
Negotiate. If unpaid HOA dues (or other liens) are not covered by the bank, try to negotiate. Offer 40 cents on the dollar and see how that goes. With all of your experience dealing with short sales, your negotiating skills may be much better than you think.
Provide a commission credit. While not an optimal scenario, there are certain situations where agents may want to credit commission in order to cover unpaid fees.
It’s a good idea to set expectations accordingly with respect to the short sale transaction. When taking the short sale listing, mention to the seller that there are sometimes situations where fees do need to be paid at closing. Since many short sale sellers are under the impression that a short sale is totally free, it’s a good idea to explain the entire scope of the short sale before you find yourself giving away your commission.
According to a recent article on Housing Wire, the new streamlined short sale guidelines for Fannie Mae and Freddie Mac short sales (beginning November 1) are alleged to be a win-win.
Remember that as these new short sale guidelines aim to have a more streamlined short sale when the investor owner of the loan is either Fannie Mae or Freddie Mac. These guidelines (information courtesy of the California Association of Realtors®):
Eliminate current Fannie Mae and Freddie Mac short sale programs and create a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).
Enable servicers to quickly and easily qualify certain borrowers who are current on their mortgages for short sales without waiting for an approval from Fannie Mae or Freddie Mac
Offer special treatment for military personnel with Permanent Change of Station (PCS) orders.
Standardize and clarify foreclosure suspensions on a property with an approved short sale.
May pay borrowers up to $3,000 in relocation assistance.
Offer up to $6,000 to subordinate lien holders to expedite a short sale.
According to information provided directly to Housing Wire from FHFA, servicers will have the authority to approve a standard short sale for borrowers who are 31 days or more delinquent and borrowers who are less than 31 days delinquent as long as they are facing a hardship.
If a borrower is less than 31 days delinquent and facing a hardship (e.g., divorce, death, disability or military change of station orders), servicers now have the authority to approve a short sale without sending the paperwork to Fannie Mae or Freddie Mac. Just as we have seen with previous short sale programs, this streamlined program will only be as good as the bank employees that process the short sale packages. So, is this a trick or a treat? We will just have to wait and see.
A weary consumer from midcoast Maine wrote to us recently in hopes that others could benefit from her experience. She had sought some relief from her mortgage payment in the form of what is becoming a nasty twist on advance fee schemes.
Many homeowners have had their loans renegotiated with satisfactory results. Others, like our consumer, had been swayed by a company against which the Federal Trade Commission recently filed a complaint.
The company, calling itself Advocates For Consumer Affairs, had promised a number of clients that it could lower their interest rates and cut monthly payments on the order of 50-80 percent. It could do this, it claimed, using a tool called a forensic mortgage loan audit.
The FTC cites claims on the company’s website (now defunct) which claimed “up to 95 percent of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.” The forensic audit could find these defects and use them as leverage to broker a better deal with the holder of the mortgage.
All the client had to do was pay the company several hundred dollars (in our consumer’s case, $1,800) up front. It was only later that the hard truth became clear.
The FTC reports that it’s found no evidence that forensic loan audits help with a loan modification or any other form of foreclosure relief. That’s the case even if the audit is undertaken by a trained, licensed, legitimate auditor, mortgage professional or lawyer.
Some federal laws make it possible to sue your lender based on errors in loan documents. Even if you sue and win, though, your lender doesn’t have to adjust the terms of your loan to make it more affordable.If you cancel your loan, you’ll have to return the borrowed money; that makes losing your home a real possibility.
People who are in default or are facing foreclosure are likely targets for foreclosure rescue scams. The midcoast consumer had entered into a business relationship with Advocates just weeks before the FTC hit the firm with, first, a temporary restraining order, then a preliminary injunction.
In its complaint, the FTC charged the firm:
• Did not secure interest rates or payment reductions that it promised.
• Either didn’t contact lenders or, if it did, failed to follow up.
• Failed to return phone or email inquiries seeking updates on clients’ cases.
• Didn’t give refunds to customers requesting them.
• Put consumers at risk of losing their homes and having their credit ratings damaged.
The case is pending, and the midcoast consumer, along with many others in similar situations, is out a lot of money. We would urge people with mortgage woes to visit our blog and under the “education” tab find “foreclosure prevention kit,” a link to the Pine Tree Legal Assistance website and some excellent advice on how to really deal with mortgage problems.
You also may call 888-995-HOPE any time for free personalized advice from people in housing counseling agencies certified by HUD.
ConsumerForum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write ConsumerForum, P.O. Box 486, Brewer 04412, visit necontact.wordpress.com or email firstname.lastname@example.org.