Sunday, February 26, 2012

Short sales are better than Foreclosures even for banks

2012 McGeough Lamacchia Realty Study Shows Short Sales Are Better for Banks Than ForeclosuresPosted in Short Sale News | 2 Comments
McGeough Lamacchia Realty compiled data from MLS for short sale and lender owned (foreclosure) homes sold in 2010 and 2011 in five major markets: Boston, Phoenix, Tucson, Southern California (Orange, Los Angeles, Riverside, and San Bernardino Counties), and Southwest Florida (Lee, Charlotte, Collier, and Hendry Counties).

The data shows that for the past two years, selling prices for short sale homes were considerably higher than prices for lender owned homes:

As you can see, the average short sale home sold for 24% more than a lender owned home in 2011. This means the banks are losing an average of $43,000 for every foreclosure sale compared to what they would have made in a short sale. And this does not include the cost of foreclosing and additional missed payments. There were more short sales and foreclosures in 2011 than in 2010, and we expect to see this increase in 2012.

Banks take in more revenue from short sales than from foreclosures so it’s not surprising many banks are offering cash incentives to distressed homeowners to move out of homes they can no longer afford. But more needs to be done to promote short sales. In 2009, the Obama Administration introduced the Making Homes Affordable Program for struggling homeowners, which included the HAFA Program that also provides homeowners with a cash incentive to do a short sale. The program has since been modified and has been a great success, however, Fannie Mae and Freddie Mac have not adopted the most recent updates.

Fannie Mae and Freddie Mac need to do more to promote short sales and make it easier for distressed homeowners to do a short sale and avoid foreclosure. An article in HousingWire last month reported that Fannie Mae and Freddie Mac actually charge servicers for taking too long to complete the foreclosure process. Bank of America, for instance, had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011. Instead of speeding up foreclosures, Fannie and Freddie should make doing a short sale easier.

* Orange, Los Angeles, Riverside and San Bernardino Counties, CA

** Lee, Charlotte, Collier, and Hendry Counties, FL. Total sales within + or -5% margin of error; however, the average selling prices are exact.

Nearly 25 % of Households Use Over 1/2 of Income for Housing Costs

Nearly 1 in 4 Households Use Over 1/2 of Income for Housing Costs

Even with falling home prices, a study from the Center for Housing Policy found that affordability is still becoming increasingly out of reach for homeowners and renters. According to the 2012 Housing Landscape report released by the Center, the share of working households paying more than half their income for housing between 2008 and 2010 went up from 21.8 percent to 23.6 percent.Source: Center for Housing Policy

As home prices dropped between 2008 and 2010, working homeowners also dealt with shrinking paychecks. For working homeowners over the two-year period, incomes dropped twice as much as housing costs, according to the study.

Jeffrey Lubell, executive director of the Whington-based Center, said this was primarily due to a drop in average hours worked among moderate-income homeowners.
“The data show that homeowners have been hit hard by the housing crisis in more ways than just lost equity,” Lubell explained. “Many working homeowners have been laid off or had their hours cut.”

According to the study, the monthly median income for working homeowners’ fell from $43,570 in 2008 to $41,413 in 2010, which is about a 5 percent decrease. The median number of hours worked per week dropped from 50 to 48 between the two years, which partly explains the decrease in income.

For renters, the monthly median income fell 4 percent from $31,570 to $30,229 between the two years. Housing costs for renters also increased, up by 4 percent over the same period.
Laura Williams, author of the report, said rent rose because of increased demand for rental housing, which was partly encouraged by the housing market crises.

“More and more people are interested in renting,” Williams said. “Some prefer it because it allows them to be more mobile in a tough job market. Others are postponing purchasing a home or facing difficulties obtaining a mortgage. Given the long lead times involved in responding to increased demand with increased supply, the rental market has tightened somewhat and rents increased.”

The five states with highest share of working households with a severe housing cost burden in 2010 were California (34%), Florida (33%), New Jersey (32%), Hawaii (30%), and Nevada (29%).

The five metropolitan areas with the highest share of working households with a severe housing cost burden in 2010 were Miami-Fort Lauderdale-Pompano Beach, Florida (43%); Los Angeles-Long Beach-Santa Ana, California (38%); San Diego-Carlsbad-San Marcos, California (37%); Riverside-San Bernardino-Ontario, California (35%); and New York-Northern New Jersey-Long Island, New York-New Jersey-Pennsylvania (35%).

Moody Analytics Outlines 25Billion Settlement Impact

Moody's Analytics Outlines Settlement Impact for Banks and Borrowers
By: Esther Cho 02/24/2012

After more than a year of intense negotiations, 49 state attorneys general and the nation’s five largest mortgage servicers reached a $25 billion settlement on February 9. While the agreement allotted specific amounts to go towards certain areas of relief for borrowers, including $10 million to write down principal on underwater mortgages, many are wondering how the decision between federal and state officials and the nation’s top servicers will impact the housing market.

Moody’s Analytics released a report with an analysis of the settlement’s expected impact on banks and borrowers.

Impact on banks

As for the servicers included in the settlement – Bank of America, Wells Fargo, J.P. Morgan and Citigroup, and Ally Financial – the report stated, “the settlement will have little to no financial effect on the banks and will remove some of the uncertainty surrounding mortgage servicing.”

More specifically, the report stated, “Bank of America, Wells Fargo, J.P. Morgan, and Citigroup have each publicly disclosed that the settlement will have little to no additional financial effect on the banks, outside of a modest reduction in interest income over the life of any modified loans.”

This is in part due to the fact that “existing litigation and loan-loss reserves mostly cover the related costs” for the banks.

The banks are still vulnerable to other lawsuits outside of the settlement from individuals or through a class action suit.

The settlement also includes new standards for how banks service loans and practice foreclosure proceedings, including a ban on robo-signing.

Impact on borrowers

The report projects that foreclosure timelines will be lengthened due to the requirement for servicers to review loans for principal forgiveness, causing a delay for servicers when referring loans to foreclosure. According to the report, Florida and California should be more significantly affected since they were awarded the highest proportion of funds from the settlement.

Borrowers will have greater protection since servicers and insurance providers will not be able to charge high premiums when force placing insurance and must instead charge commercially reasonably prices. A third-party review process will also be set in place offering more protection to borrowers since it will hold servicers accountable for meeting certain goals and deadlines.

The Mood Analytics stated that “the reviews will likely assess whether or not servicers are making reasonable and timely modification decisions on behalf of both borrowers and investors and are implementing the key operation provisions of the settlement.”

Out of the $25 billion, the settlement allocates $10 billion for principal reduction; $7 billion in relief for other types of support including forbearance and short sales; $3 billion for refinancing underwater homes; $1.5 billion for those wrongfully foreclosed on between 2008 and 2011; and $3.5 billion for state housing programs.

While the settlement proved to be a disappointment to some since it does not include Fannie Mae and Freddie Mac loans, Moody’s Analytics stated that the settlement is still significant.

“The number of distressed homeowners helped is modest in the context of the estimated 14.6 million underwater homeowners, a sore point for many critics of the settlement. Nonetheless, the number is significant,” stated Moody’s Analytics in the written report. “Keeping even half a million households out of foreclosure or a short sale would be enough to curb the flow of foreclosed, vacant properties into the market, and thus relieve downward pressure on house prices nationwide and allowing prices to stabilize this year.”

The Moody’s Analytics also expects to see Nevada, Arizona, California, Florida, Ohio, and Michigan to benefit the most since those states experienced the worse price declines and have the highest share of homes underwater.

©2012 DS News. All Rights Reserved.

HUD Secretary on CNN Money

Tuesday, February 21, 2012

FHA waives 3 year Wait Time for Short Sellers

SUBJECT: FHA Waives 3-YR Wait Time For Short Sellers

This may help a few of your clients who have already "short sold" their home...or it can make a big difference to your future clients who are considering a "short sale" in the future.

FHA has financing for homeowners who are short selling their home and wants to repurchase another home after the short sale is approved and completed thru their current lender.

There are a number of home owners who will qualify for this program by meeting the "extenuating circumstances" criteria.

If marketed correctly.....this loan program will deposit commissions into your bank account; by persuading those homeowners to "list" with you because YOU have a lender that can provide financing for their next property.

In other words...there will be "life (home ownership) after foreclosure" following their short sale.

The CAVEATS are:

1) They must be current on their mortgage and all other credit obligations for the 12 months prior to the actual short sale completion date.

Editor Note: Contrary to popular belief .. a "short sale" in and by itself is a not a credit score killer! The damage to a borrower's credit score by the number of “lates” incurred during the "ramp up" to the short sale.

Also note...there is absolutely no discernible difference between a "short sale", a foreclosure or a loan mod in relationship to Fico scores.

FHA/Fannie/ Freddie see all 3 events listed below as equally negative to each other.

2) Home owners must document "hardship" defined as:

a) Job loss and subsequent job transfer/ relocation... (a new stream of income will be needed to qualify for the new loan).

b) Catastrophic medical bills (and/ or possible death) incurred by a member of the borrower's "nuclear family" (i.e. co signer of the current mortgage..child...spouse..or other dependent as listed on the borrower's tax returns).

3) They must be downsizing and relocating. Buying a bigger home across the street will not fly.

4)Their current lender(s) must be willing to approve the short sale of their current residence.

5) Their credit scores need to be above 620 and any outstanding collections (usually medical bills) need to be paid THRU ESCROW (ONLY) at COE.

Saturday, February 11, 2012

How To Buy Real Estate After A Strategic Default

Find out how people are not precluded from buying real estate after doing strategic defaults, that is , to walk away from your underwater mortgage.


For FHA loans:  a borrower can obtain financing 2 years from discharge or dismissal of a Chapter 7 bankruptcy, 3 years from completion of a foreclosure and 3 years from completion of a deed-in-lieu of foreclosure, short sale or pre-foreclosure.

For conventional loans:  a borrower can obtain financing 4 years from discharge or dismissal of a Chapter 7 bankruptcy, 7 years from completion of a foreclosure, 4 years from completion of a deed-in-lieu of foreclosure, and 2 years after a short sale or pre-foreclosure (with 20% down payment).

Of course, these are traditional bank guidelines.  Very few real estate investors I know use traditional banks to purchase fix and flip or buy and hold deals.  If you’re looking for funding chances are you’ll need to find private or hard money lenders.

(Legal disclaimer: Deficiency laws vary from state to state; always consult an attorney before you consider a strategic default.)

Have You heard of Do Short sale and Lease It back ?

Dear Homeowner,

We’re proud to announce The SHARP Housing Program “Sell, Rent & Buy Back” program.

Currently ONLY available in California, Nevada and Arizona…(Keep coming back as we are adding states)

This program is offered through SHARP Stabilization Home Affordability Revitalization Program

This program is approved by the US Treasury and HUD.**

Call us today for specifics: 213-820-7509 I am certified by the SHARP Housing Program and represent the non-profit that purchases your home.

If the property has a Trustee Sale Date pending within 30 Days this program will not be available but we might be able to postpone to later days to make it eligible, thus do not give up.

Some lenders may choose not to participate in this program. Property must be in marketable condition and be in alignment with the surrounding neighborhood as a Single Family Residence or condominium. The home cannot be an attached Mobile Home or Prefab home not attached to a foundation.

There is a cost associated that you must pay to participate:

•$59.95 per month for the length of your participation in the program. This fee includes credit monitoring ,and counseling.

•$450.00 for an independent certified appraisal on your home. This is paid once short sale is approved and will be basis of your purchase price.

•$100 1x Fee for BPO (Broker Price Opinion).


•60 days or more late on payment as per HAFA guidelines.
•The homes first lien or mortgage reflects 20% or more in negative equity
•Home must be owner occupied.
•No pending trustee sale dates.
•1 st mortgage must be less than $729,750
•Debt to income must be less than 40%.

We’ve seen far too many American families having to make the hard choice of selling their home due to rising payments or 2nd liens. With this decision, these families have to seek another home, meet the landlords tight restrictions usually based on credit scores, pack up all their belongings and negotiate moving trucks and getting family members and friends to help them move. Not a very dignified solution to a bad financial situation.

With our “Short Sell & Rent Back” system, we make it easy and pain free for you to stay in the same home.

How does the Short Sell & Rent Back Program work?

1.As Realtors, we list your home*
2.A monthly lease rate is determined based on the appraised value of your home.
3.Under this agreement, you must keep the home clean and green…a reflection of your pride in home ownership.
4.You are required to maintain, your property insurance, property taxes and Home Owners Association fees if property is located in an HOA.
5.You contract with the non-profit organization SHARP to buy your home. SHARP will negotiate with your mortgage company to sell your home to our investor under the Federal Governments HAFA Program. This process may take 4 to 6 months for approval to sell the home under the HAFA guidelines.
6.The sale closes and you rent the property back.
7.Your mortgage company pays our fees…you don’t pay any commissions.
8.Buy the home back after 1 to 3 years at the FUTURE market value…a Win-Win!

Sincerely Yours,

Daniel Choi
Certified SHARP Housing Program Agent
(213) 820-7509

* It is a requirement with mortgage companies that the property must be listed with a licensed real estate agent.**Currently, 2 banks do not participate in this program: Indymac/OneWest and HFC

Borrowers Should Be Aware of the Effects Foreclosures, Bankruptcies and Shorts Sales Will Have on Their Credit

For homeowners facing foreclosure or bankruptcy–or considering a short sale of their property to avoid one or both–the effect the action will have on their credit is undoubtedly a huge concern.

Though keeping their homes might not be an option at this point, there could very well be another one in the not-too-distant future, so knowing when they’ll be eligible to qualify for another mortgage is important. 

Be Aware of the Rules of the Road

Earlier this year, Fannie Mae updated its credit guidelines for borrowers who experience one of these circumstances. And, in general, the wait time will now range from two to five years. 

Homeowners who lose their properties to foreclosure or file multiple bankruptcies within a seven-year period will have the longest wait–five years. 

In the case of foreclosure, additional requirements and restrictions will apply after five years and up to seven years as well, which include making a minimum 10% down-payment, having a credit score of at least 680, and having limited cash-out refinance options. Also, the purchase of second homes or investment properties is not permitted. 

A shorter time limit (three years) does apply to both foreclosures and multiple bankruptcy cases if the borrower had what Fannie Mae considers to be “extenuating circumstances” that led to the foreclosure. Of course, the borrower must provide evidence and documentation that the action resulted, from, in their words, “…nonrecurring events…beyond the borrower’s control that result  in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.”  

Borrowers who experience a deed-in-lieu foreclosure must wait the next longest period–four years. However, if they suffered what Fannie Mae considers extenuating circumstances, then they too can qualify to have their waiting period shortened (in this case to two years). 

Bankruptcies–with the exception of Chapter 13 judgments–also mean a four-year wait from the discharge or dismissal date unless–once again–extenuating circumstances apply. In that case, the wait is cut in half to two years as well. 

Two years is the standard waiting period for pre-foreclosure or short sales (whether the mortgage was delinquent or not), as well as Chapter 13 bankruptcy judgments. There are no exceptions permitted for extenuating circumstances, however. 

Requirements to re-establish credit

In all cases, there are several requirements that must be met before credit can be reestablished. These include: 
  • Having all accounts current as of the date of the mortgage application
  • Including a minimum of four credit references (one of which must be housing-related and cover the period following the foreclosure, bankruptcy or short sale)
  • Include no more than two installment or revolving debt payments thirty days past due in the last twenty-four months, or any payments sixty or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action. 
Of course, this is a general overview of Fannie Mae’s new credit guidelines; for more detailed information, please visit their web site
Knowledge is power, and knowing the credit consequences of the various actions mentioned above can help a homeowner in financial trouble decide which course to pursue. As an agent, having this information to pass along to your clients, and having a resources behind you to help keep you updated on the latest legislation and guidelines—as well as help you provide them with foreclosure-prevention options—can help make you their super hero!