Don’t foreclose! Do a short sale

Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

“In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.”

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

Need the best help your can get with a shortsale call our expert team today @ www.california-shortsale.com

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Delinquent Mortgages at Nearly 14 Percent

Nearly 14 percent of all mortgages were in trouble in the fourth quarter of 2009, according to a report released Thursday by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

More than 4.7 percent of all mortgages were more than 90 days past due in the fourth quarter, a 21.1 percent increase from the same quarter in 2008. The number of troubled borrowers with prime mortgages increased 16.5 percent year over year.

Foreclosure sales, short sales, and deed-in-lieu-of-foreclosure actions rose by 8.6 percent from the third quarter to 163,224 and were up 44.5 percent from fourth quarter 2008.

The report, which reflects 34 million loans with nearly $6 trillion in principal balances, said: “Loan servicers reported that they expect new foreclosure actions to increase in the upcoming quarters as many of the mortgages that are seriously delinquent may eventually result in foreclosure as alternatives that prevent foreclosure are exhausted.”

Don’t go to foreclosure save your credit contact www.california-shortsale.com for a way out of your delinquent mortgage.

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Short-Sale Incentives Start April 5th

Potential buyers of short-sale homes might consider waiting until April 5th before making a formal offer. That’s the date the federal government will begin offering lenders financial incentives to hasten the process. Under the new rules, banks will seek a BPO before the property is listed for sale and let the sellers know a minimum number they are willing to accept. If the sellers bring a buyer with a good offer, the lender must accept it within 10 days. Not all sellers are eligible for the program, dubbed the Home Affordable Foreclosure Alternatives (HAFA), but enough are that it is probably worth waiting. Need help on a short sale contact www.california-shortsale.com today!!!

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More homeowners are opting for “strategic defaults”

Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.

Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she’d see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.

The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.

“There was not a chance that house was ever going to be worth anywhere near what my mortgage was,” said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. “I haven’t cheated or stolen.”

Time was when Americans would do almost anything to hang on to their homes. But that commitment appears to be fraying as more people fall behind on their loans while watching the banks and lenders that helped trigger the financial crisis return to prosperity.

Nearly one-quarter of U.S. mortgages, or about 11 million loans, are “underwater,” i.e. the houses are worth less than the balance of their loans. While home values are regaining ground — median prices rose 10% in Southern California last month to $275,000 compared with a year earlier — they remain far below the July 2007 peak of $505,000.

Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.

Stuck with properties whose negative equity won’t recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it’s smarter to walk away than to stick it out.

“There is a growing sense of anger, a growing recognition that there is a double standard if it’s OK for financial institutions to look after themselves but not OK for homeowners,” said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.

Just how many are walking away isn’t clear. But some researchers are convinced that the numbers are growing. So-called strategic defaults accounted for about 35% of defaults by U.S. homeowners in December 2009, up from 23% in March of 2009, according to Luigi Zingales, a professor at the University of Chicago’s Booth School of Business.

He and colleagues at Northwestern University’s Kellogg School of Management reached that conclusion by surveying homeowners about their attitudes and experiences with loan defaults.

They found that borrowers were more willing to walk away if someone they knew had done it, and that the greater a homeowner’s negative equity the more likely he or she was to default, even if the monthly payment was affordable.

An analysis released last year by credit bureau Experian and consulting firm Oliver Wyman estimated that nearly 1 in 5 homeowners who were seriously delinquent on their mortgages in the last three months of 2008 were walkaways.

“The fact that people are strategically defaulting — there is no question,” Zingales said. “The risk that the number of people doing this might explode is significant.”

A flood of walkaways could damage the nation’s fledgling housing recovery by swamping the market with foreclosed properties. Still, some experts are dubious that millions of underwater homeowners will pull the plug as Bloch did. Homeownership remains the cornerstone of the American dream. Moving is a hassle. And the stigma associated with a foreclosure is likely to keep many hanging on for a recovery.

The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He’s convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they’d be better off financially by dumping their homes.

But real estate veterans said old taboos were eroding fast. Jon Maddux, a former real estate investor who in 2007 founded You Walk Away, a for-profit company that guides homeowners through the process of default, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That’s changed as more homeowners have concluded that the housing market isn’t going to rebound quickly and they’d be better off cutting their losses.

“Now, it’s more of a business decision — it’s people who could afford their house but it’s an inconvenience,” Maddux said.

He and other experts said average Americans are fed up with hearing how they’re supposed to honor their debts while businesses operate by another set of rules.

Case in point: Maguire Properties Inc., one of the largest commercial landlords in California, walked away from seven prime office buildings in Los Angeles and Orange counties last year, defaulting on loans worth more than $1 billion.

Consumers typically begin to think about walking away once the value of the property has fallen to 25% less than the value of the debt, according to research conducted by Sam Khater, senior economist at real estate research firm First American CoreLogic. About 5 million people nationwide are in that situation, he said.

Some purchased their homes at the peak of the market only to see the value drop precipitously when the bubble burst. Others bought low but couldn’t resist borrowing against their rising equity to make home improvements and pay off other bills. When home values fell, they too found themselves underwater.

Ken Henrich purchased his Marysville, Calif., home for $187,000 in 2004. He and his wife later refinanced the property, tapping their increased equity to pay off credit cards. They now owe around $300,000 on a place that’s worth about $132,000. They let the four-bedroom residence slip into foreclosure and are waiting for it to be sold at auction. They’re planning on renting for a few years until they can perhaps buy again.

“We can more than make the payment,” the 54-year-old sales rep said. “The way we look at it, our credit would still be perfect years from now but we’d still owe tons more than it’s worth.”

There are consequences to walking away. A default will knock down a credit score by at least 100 points, said Craig Watts, a spokesman for FICO, the company that developed credit scores. That could make it tough to borrow money, rent an apartment or get a job because many employers now routinely check the credit histories of potential hires.

To some homeowners those consequences are a small price to pay to gain a measure of revenge against the financial institutions whose loose money helped fuel the crisis.

Joseph Shull, a 68-year-old marketing professor, said he’s planning to walk away from the town house he bought in Moorpark in June 2006.

“I’m angry, and there are a lot of people like me who are angry,” he said.

He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000.

Shull admits he overpaid for his property. But he said it fell in value in part because of “regulatory mismanagement.”

“The bank stabbed me, but at least I got in a pinprick back,” he said. “This is the new economy. The old rules don’t apply any more.”

For help with your mortgage situation contact www.california-shortsale.com

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Lawmakers to debate structure of US mortgage market, changes could take years

There would be no housing market today without the government.

Over the past 18 months, Washington has taken extraordinary steps to keep home loans available and affordable. That caused a tentative housing recovery last year. Home sales reversed their four-year descent, while prices stabilized.

One big reason: The government seized control of Fannie Mae and Freddie Mac, massive companies that purchase home loans, package them into investments and guarantee them against default. The price tag has been huge — $126 billion and growing.

Now comes the hard part: figuring out what to do next.

With the Obama administration largely mute on the issue, Congress will hold its first hearing Tuesday about how to restructure the mortgage system in the wake of the financial crisis.

Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration.

There has been plenty of talk in recent months about how to scale back reliance on those behemoths, which own or guarantee half of all mortgages.

Fannie and Freddie were effectively nationalized by regulators in September 2008, and their role in the marketplace has only grown since. Last year, they backed about 70 percent of all home loans, according to Inside Mortgage Finance, a trade publication. The duo also manage the Obama administration’s $75 billion loan modification program.

But the housing recovery remains too fragile and feeble for the government to step away. Even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run don’t see that happening anytime soon.

“The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.”

Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.

“If we rushed it, the risk is we would not achieve enough and not get consensus on something sweeping enough,” Treasury Secretary Timothy Geithner told lawmakers recently.

Geithner, in testimony prepared for Tuesday’s hearing held by the House Financial Services Committee, added that such action should wait until “a time of greater market stability.” Obama officials also plan to seek public comment on a list of questions to be published next month.

The administration is “loath to talk about drastic reform to the system until there’s more evidence that the housing markets are not going to experience a severe double-dip,” said David Min, associate director for financial markets policy at the Center for American Progress, a liberal think tank. “If you talk about drastic changes, you’ll spook investors.”

On Capitol Hill, however, Republicans are impatient. They argue that the government’s push to expand homeownership through Fannie and Freddie was the main cause of the financial crisis. They are proposing to phase out Fannie and Freddie within four years.

“Something has to be done sooner rather than later, while there is some political will,” said Rep. Scott Garrett, R.-N.J.

If lawmakers wait too long to tackle Fannie and Freddie, he said, “we will have forgotten the problems that they caused.”

But powerful interests don’t want to rock the boat too hard. The National Association of Realtors is pushing to preserve Fannie and Freddie, but as nonprofit government authorities without private shareholders.

“The disruption in the marketplace by doing something too radical would be harmful” to the housing market and the economy, said Vince Malta, a San Francisco Realtor who is testifying at Tuesday’s hearing.

And those who want to eliminate Fannie and Freddie face another hurdle — investors are still nervous. They don’t want to buy mortgage securities that don’t carry a government guarantee — whether explicitly in the case of FHA or implicitly in the case of Fannie and Freddie.

In a recent speech, David Stevens, the FHA’s commissioner, recalled meeting a group of international bankers who “peppered me with questions — very difficult questions” about what the U.S. government was doing to bring back their trust.

They all have been burned, he noted, after buying mortgage securities with triple-A ratings that turned out to be junk.

“We are at the point right now,” Stevens said, “where no one trusts the American housing finance system.”

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Is California’s high-end housing market in trouble?

While sales of low-priced foreclosed homes are sparking bidding wars in some areas and there’s talk of healing in California, a huge storm cloud hovers over the Golden state: the high-end real estate market.

In California, delinquencies on jumbo mortgages, which are too large for government backing (and start at anywhere from $417,000 to $729,750) rose for the 33rd consecutive month in February, according to a report out from Fitch Ratings on Thursday. Fitch says that 11.6% of prime jumbo loans in the state are 60 days or more delinquent.

Congress tried to help two years ago by increasing the limit for jumbo loans to as high as $729,750, and some borrowers have likely been able to take advantage of those higher government limits by refinancing. But borrowers who owe more than their homes are worth are out of luck.

While rates on jumbo loans are still around one percentage point higher than on conforming loans, it’s not really the rate that’s the problem–after all, jumbo rates below 6% are pretty good. The bigger problem is that it’s tough to qualify for a jumbo loan.  Banks require at least 20% down, and often more in shakier housing markets. Many borrowers looking to refinance don’t have much equity and aren’t too excited about sinking more money into their home to refinance.

California’s high-priced real estate has always had a large share of the jumbo market. “California is driving the national performance for this sector since it has the largest concentration of prime jumbo loans,” says Fitch managing director Vincent Barberio in a release. California’s share of the market is 44%, the state with the next highest share is New York (7%) and then Florida (6%).

Now, even though home prices have fallen by more than 30% in the state, most of these high end homes still are too costly to fall out of their jumbo status.

The question now: will these jumbo delinquencies wind up tumbling into foreclosure? Many think it’s more likely that the banks will want to keep yet more property off its books and arrange short-sales, in which the property goes for less than is owed on the mortgage.

So, for rich folks with cash the “deals,” are out there. Today the Journal reported that Hilton CEO and president Christopher Nassetta just sold his Los Angeles home for $18 million–35% less than what the 2007 purchase price and nearly $10 million off its list price.

Need help with a short sale contact www.california-shortsale.com

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Banks Pressed to Write Down Second Liens

Many homeowners are seeking to sell homes in short-sale deals, but banks are reluctant to approve them, pushing these distressed homeowners into foreclosure. Now lawmakers are stepping in to apply pressure to encourage banks to eliminate the most obvious stumbling block – second mortgages.

U.S. Rep Barney Frank, chair of the House Financial Services Committee, recently wrote a letter to the four largest U.S. banks urging them to write down second mortgages. Frank wrote that while second loans often have little value, “because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans.”

While most first mortgages are now held by Fannie Mae and Freddie Mac or other investors in mortgage securities, about $766.7 billion in second liens are held by commercial banks, savings banks, and credit unions.

Need help on getting rid of your second mortgage contact www.california-shortsale.com today!!!!

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Federal Program to Encourage Short Sales

Beginning April 5, the Obama administration will encourage delinquent borrowers to avoid foreclosure and instead give up their homes in short sales by streamlining the process.

The program will offer a cash payment to the home owner, as well as to the servicer and second-lien holder; and protect borrowers from future lender lawsuits for the unpaid mortgage balance.

To curtail fraud, lenders will have to consult real estate practitioners to assess home value and minimum acceptable offer; they then must accept any offer that is equal to or higher than that.

Need more informatio on shortsales visit www.california-shortsale.com

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Homeowners to Sell at a Loss

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In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave,

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.

The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.”

Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.

Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.

Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.

“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”

Need short sale advice contact www.california-shortsale.com today!!!

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Foreclosures now are just ‘tip of the iceberg’

Despite some reports that suggest the housing crisis may be hitting bottom, foreclosures so far represent the “tip of the iceberg,” real estate analyst, investor and lender Bruce Norris says.

Norris told hundreds of investors attending a seminar he held in Costa Mesa this past weekend that numbers indicating the appearance of  firming home prices and fewer foreclosure auctions are “illusions.”

Government repayment and loan modification programs make foreclosure numbers appear lower for now, but are delaying the inevitable inability or disinclination of homeowners in trouble to hang on to property that has dropped in value by hundreds of thousands of dollars, he says.

Meanwhile, he says,  redefaults on loan modifications are “sabotaging” government efforts.

Mortgage delinquencies will continue “skyrocketing,” he says, because:

• “The resets of the Option-Arm loans will cause a larger number of foreclosures than the subprime loans.
• “Resets are part of the problem, but a bigger concern is the owners who owe more on their home than it’s worth.
• “Commercial loans and credit card losses will soon add to the problem.”
• Unemployment is a signifcant factor. He says: “I think we will fall back into recession by the end of 2010, and the unemployment rate and underemployment rate will be about 20% in 2011.”
• Owners are finding it more and more acceptable not to make their house payments. The mindset, according to Norris: ” ‘I see my next door neighbor has stopped making his payment, and he just bought a camper.’ You can see that coming. We haven’t really been through the biggest part of the problem.”

Need to stop foreclosure contact www.california-shortsale.com

 

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