Matt's Take On The News

Fannie Mae Gets Tough With Walk-Away Mortgage Defaulters

Alex Finkelstein from the Real Estate Channel brings us an article that may impact quite a few people.  The subject of  “strategic defaults” or “Walk Aways” has been the topic of conversation at cocktail parties or around water coolers for sometime.  Simply put, a strategic default involves an individual who has no hardship and can afford to make payments but chooses not to.

According to Mr. Finkelstein:

“Under the new rules:

• The five-year waiting period is eliminated.
• Borrowers who can't document "extenuating circumstances" or show that they made an effort with their lender to avoid foreclosure will have to wait seven years to get a new loan.
• Those who can demonstrate hardship or attempted a workout with their lender may have to wait only three years.
• Fannie plans to step up legal actions to seek deficiency judgments in states that allow lenders to go after borrowers' other assets. In addition,
• Fannie will instruct its lender partners to monitor delinquent loans owned by Fannie, and recommend cases that warrant attention.”

In my opinion the biggest detriment for strategic defaults revolves around going after deficiency judgments.  I’m not sure that tacking on a few extra years to the “waiting period” required to secure a new loan will make much of a difference.

Fed owns nearly half of all foreclosed homes

Ryan McMaken from the Christian Science Monitor reports on a growing problem within our government.  The government owns close to 50% of all homes that have been foreclosed upon.  Mr. McMaken astutely points out that bullish calls on the state of the housing market (i.e. prices) have caused lenders, servicers, investors etc. to stand pat when evaluating offers (pre foreclosure) in the hope that housing prices would miraculous bounce back.  This is not happening anytime soon.

This is best exemplified by the following passages from the article, “The latest data for the S&P/Case-Shiller Home Price Index were released. The home price index for April is still down considerably from the July 2006 peak:

As of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively.

To paraphrase Donald Rumsfeld from a different context, it is close to impossible now to deny that the housing markets are in for a long, hard slog. Well, the places that have hit bottom are in for a slog. Some places, such as Las Vegas, are still on their way down. Comparing year over year, Las Vegas home prices actually fell 8.5 percent. April of 2009 was a disastrous month for home prices, but Vegas is now below even that.”

Mansion Foreclosures Surge

Robert Frank from the Associated Press reports on a trend that just keep on increasing.  He reports that, “The percentage of $1 million-plus loans more than 90 days delinquent rose to 13.3% in February.”  Mortgages that are delinquent and are greater than $5M also continue to rise.

Mr. Frank reports that, “Lenders to the wealthy are taking a hit. Bank of America’s U.S. Trust unit reported a nearly six fold increase in its loan-loss provision in the first quarter, to $184 million from $31 million a year earlier. “  The point here for those realtors and real estate buyers that are involved in short sales is that the higher end foreclosures are crushing banks bottom lines.  As a result they are more apt to take discounts on these mortgages in order to keep them off of their books.

Less Than One Percent Of Modified Mortgages In Obama Foreclosure Plan Involve Principal Cuts

Shahien Nasiripour from the Huffington Post reports on an alarming fact that involves principal reductions.  I speak with homeowners ,weekly, who hold out hope that the lenders are going to forgive a portion of the principal that they owe on their home.  While this is certainly possible, it is very unlikely.

Mr. Nasiripour reports that  0.1% (not 1% but one tenth of one percent!) of loan modifications resulted in principal reductions!  Only 121,000 mortgages have been modified under the Obama Administrations Home Affordable Modification Program through March 2010.  Of these only 120 (one hundred and twenty!) resulted in principal reductions.  Those that are of the half is half full crowd might say, “Yeah but it’s still possible!”  While that is certainly true. It is very unlikely.

The article reports that, “More than 11.2 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. The firm estimates that the typical "underwater" homeowner won't return to positive equity until late 2015 to early 2016.

"In some depressed markets, the typical borrower in negative equity may not experience
positive equity until 2020 or later," the firm cautions.

A January report by the State Foreclosure Prevention Working Group noted that principal reduction is the best way to stem the foreclosure crisis.

"Given the correlation between negative equity and likelihood of default, the failure to write down principal in connection with loan modifications is a glaring flaw in current efforts," the state regulators noted in their report. With so many homeowners underwater, "doing 'business as usual' only adds to the likelihood of ultimate default."

The article quotes, Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform as saying,  "The inescapable reality is that the economic problems facing our country [are] exacerbating the foreclosure problem, and until we have economic policies that enable and foster private sector job creation, efforts like HAMP will continue to fail and ultimately hurt those who need help the most,"  Unemployment is still a major problem and lynchpin in this recovery.

Lenders collecting foreclosure deficiencies

Dina ElBoghdady from the Washington Post writes about a subject that I speak to realtors and sellers about on a daily basis.  The subject is deficiency judgments!  Uneducated homeowners and realtors oftentimes assume that if a bank forecloses on a property, then the homeowners financial obligations are behind them.  While this may be true in specific states and for particular types of mortgages, it’s not true everywhere.

Dina offers the following passage which emulates the plight of many people, “After the bank foreclosed on Fernando Palacios’s home in March, he thought he was done with what he described as the most stressful financial situation of his life.

The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. ‘I really thought I was through with this house,’said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.”  Lenders are coming after judgments if they are unable to recoup what they are owed when the property goes to auction (in fact, lenders (in most cases) can recoup their losses from a short sale as well).

Another trend is that lenders are selling their rights to collect to credit collection companies.  Ms ElBoghdady writes about the Somers family who completed a short sale last year, ‘Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.’”

So people think that they are taking the easy way out when agreeing to a short sale, yet they leave the door open for a deficiency judgment.  My prediction has always been that if and when this mess settles out, the lenders that will sell their rights to collect on deficiencies in bulk to collection agencies.

The best advice comes from an attorney quoted in the article.  The passage reads, “Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. “Nobody should assume the deficiency is forgiven,” she said.”

Why a Foreclosure Defense Attorney is So Important

Gary Carlson from the Viral Socialite brings us an article that is an important one to read.  The headline says it all!  Rather than me paraphrasing a very well written article, click the link to read the entire article.  You will be glad that you did!

U.S. Housing Market Recovery Dependent on Jobs Growth, Harvard Report Says

Kathleen Howley of Bloomberg writes an interesting article that reflects on our common sense.  No matter what kind of programs our government unveils, the key is going to be sustained job growth.  Why?  Because, while the foreclosure mess is being fueled by the big bad banks and their crazy loan programs, unemployment is what will continue the foreclosure debacle.

The projected unemployment rate for 2010 is 9.6% which would be the highest rate since 1983.  The one program that seems to have helped with a slight housing recovery was the home buyers tax credit.  The credit contributed to 1 million new home sales.  This incentive has ended, so the eyes are on the bottom.  People are sitting on the sidelines, waiting to buy “when the market hits bottom.”  When will this be?  Anyone's guess.

Potential solution....buy property at distressed prices based on the actual market value.

Legal mess over foreclosures deepening

Todd Ruger of the Sarasota Herald Tribune brings us a very interesting article that discusses more legal maneuverings in the State of Florida.  The Florida Supreme Court is attempting to crack down on the often shoddy paperwork produced by the foreclosure mills that are strewn across the state.  They are focusing on incomplete filings that are being used to boot people out of their homes.

While several judges in Manatee and Sarasota Counties have used the rule to throw out several foreclosure cases in the last month, the foreclosure mills are not going down without a fight.  They are questioning the language in the rule that leaves open whether the rule is actually enforceable...yet.

Mr. Ruger comments, “The bottom line for homeowners: when a foreclosure is filed, do not give up your property easily. Rather, make sure the bank or lender retaking your home has the paperwork to show it can, attorneys say.”  Who best to fight the fight?  You got it...a foreclosure defense attorney.

I sent out a newsletter last year regarding the subject of pets and foreclosures.  Cheryl Hanna from the Rescue Examiner reminds us that 1,000,000+ pets this year will be affected by foreclosures.  I have a Labrador Retriever and 2 cats.  The loss of them would be difficult to swallow.

If you have pets or know someone that does, take the time to read the entire article.

Stagecoach log home goes to foreclosure

Tom Ross from Steamboat Today reports on a ski house that recently went to foreclosure.  While this in itself is not an interesting story, the background behind it sounds familiar.

Ultimately the house was taken back by the bank for $350,000.  The listing realtor had an offer for $330,000 placed with Chase 2 months before the auction.  Doing the math, when you incorporate holding costs, insurance, taxes etc, the bank probably would have fared better with the $330,000 offer.  Why Chase didn’t accept it is anyone's guess.

When I read the article I noticed a few things.  First and foremost was that the listing agent appears to have tried to negotiate the short sale herself.  In my opinion, that’s a huge mistake and a massive waste of time.  I noted that she was trying to communicate with the banks attorney...again a big mistake.  Who is better positioned to negotiate with a lenders attorney, a realtor or the sellers attorney?  With all due respect to the realtors that are reading this, my money is with the attorney to attorney negotiation.

While previous offers weren’t discussed, the story seems to imply that the $330,000 offer came within a few months of the sale date.  This, unfortunately, is an issue that realtors can be plagued with.  That of retail buyers coming and going.  Ask me how we address this issue (and others).

New Poll Reveals Americans' Feelings On Foreclosure

Daniel Indiviglio from the Atlantic reports on a recent poll that discusses how Americans feel with the subject of foreclosure.  While foreclosure used to be a social stigma, it is now a topic of conversation at cocktail parties.  A couple of interesting tidbits from the poll:

• 1% of respondents said that walking away is their first choice if they are unable to pay their mortgage. 69% would first try modification. Clearly, most people want to remain in their homes
• 59% polled said they would not consider walking away from their home no matter how much it is underwater. Of course, the flipside is that 41% would consider it
• 78% of those polled believed there were downsides to buying a foreclosed property. That might sound like a lot, but it's lower than the 85% who had that same response a year earlier.
• 92% of those polled said they would be willing to invest in improvements such as renovations and remodeling if they purchase a foreclosed home. Moreover, 65% of that group would be willing to invest up to 20% of the home's purchase price in upgrades. This provides a little hope that some construction jobs could return as more foreclosures continue to be bought up.
• Foreclosure activity will likely peak in 2011, according to Sharga. He says somewhere between 5 and 5.5 million mortgages are in some stage of serious delinquency. He expects foreclosures to reach normal levels in late 2013. But he also believes that banks' strategy of releasing foreclosures into the market slowly should keep prices from falling much further nationally. At the same time, however, he doesn't expect prices to rise much, if at all, over the next several years.

While statistics are just that...statistics, they do provide a window that shows what has happened.  It’s apparent that foreclosures will be with us for awhile and price stability is further away than expected.

The Other Foreclosure Menace

The national news is plastered with articles about people losing their homes due to delinquent mortgage payments.  Fred Schulte from the Huffington Post reports on another way people are losing their homes to foreclosure for much smaller amounts of money.  

When people fail to pay property taxes, city liens etc, the municipalities sell these liens to investors.  Investors earn a certain percentage when the liens are redeemed or paid off.  If the liens are not paid off, the investor has the right to foreclose, oftentimes securing the title to the house for very little money (i.e. for the price they paid for the lien).

When working on short sales, I would highly suggest (whether you are a realtor or buyer) you secure a preliminary title search.  While home owners typically have a handle on what is owed, many forget all of the liens that are attached to the property.  A preliminary title search should give you an indication of what is owed and to whom.  I hope this helps.

Phoenix foreclosures attract Canadians

Marty Hope from the Calgary Herald reports on Canadian money coming back into the market. Because Canadian currency is increasing in value relative to the American dollar, Canadians are coming into the US and buying property in droves.  Now, it’s not just because of the strength of the Canadian currency that is ringing our friends form the North down.  They are seeing properties that can be purchased, and then rented with positive cash flow.

Queens DA: Fraud Scheme Preyed on Homeowners Facing Foreclosure

Chris Herring from the Wall Street Journal reports on a foreclosure fraud scheme that was cracked in NY City.  While the scheme took advantage of people in common ways (read the article), one part of it really stuck out.  The thieves were targeting properties that had legitimate equity in them but were also in preforeclosure.  If you are reading this you need to understand that some houses can solve their own problems.  In this case, houses with equity that are in pre foreclosure can typically be sold and settle the existing debt (obviously it depends on how much equity, how much debt but we will assume that the equity will more than cover the debt).  So, if you are in a situation where the property can be sold and cover the debt without putting the property through a short sale....do the right thing.

Chase's Foreclosure Disgrace

Greg Kaufman reports on what Chase has done to 3 homeowners that have played by the rules.  The article highlights 3 people that applied for and met all of the requirements for a permanent loan modification but were denied by Chase.  Mr. Kaufman surmises that the reason behind these (and may others I’m sure) rejections revolves around the fact the loan modifications are purely voluntary.

The particular homeowners that are highlighted in this article were also awarded foreclosures by Chase!  How nice of Chase to do so!  The home owners are not laying down, though.  They are suing Chase.  Can anyone say, “Class Action”?

Kaufman points out, “It doesn’t matter whether someone is losing their home because of a bad subprime mortgage, a lost job, or because they owe more on the mortgage than the home is now worth. Every foreclosure decreases the property value of a neighbor’s home. Every dollar lost in property value--and over $7 trillion in wealth has now been lost by American households--reduces local and state revenues. As revenues are lost, so are jobs and services. And the vicious cycle which devastates our communities continues. A HAMP program that was supposed to help three to four million homeowners has only made 230,000 permanent modifications. March set a new monthly record with 367,056 foreclosure filings, up nearly 19 percent from February, according to RealtyTrac, which has been tracking foreclosure filings since 2005.

So while loan mods are oftentimes good for the public, they are not embraced by the banks and the servicing companies.  As the lenders dawdle with these applications, houses slide closer and closer towards foreclosure.

Phony Audits: A New Twist on Foreclosure Rescue Scams

The Federal Trade Commission reports on the latest flavor of the month...Forensic Loan Audits.   Forensic Loan Audits are being sold as a way for consumers to “beat the bank.”  The idea is for the auditor to comb through the mortgage documents of a seller in pre foreclosure in an attempt to provide discrepancies.  Lore has it that some of these companies promise “forgiveness of all debt.”

Some excerpts from the report include:

In exchange for an upfront fee of several hundred dollars, so-called forensic loan auditors, mortgage loan auditors, or foreclosure prevention auditors backed by forensic attorneys offer to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. The “auditors” say you can use the audit report to avoid foreclosure, accelerate the loan modification process, reduce your loan principal, or even cancel your loan.

Nothing could be further from the truth. According to the FTC and its law enforcement partners:

• there is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if they’re conducted by a licensed, legitimate and trained auditor, mortgage professional or lawyer.
• some federal laws allow you to sue your lender based on errors in your loan documents. But even if you sue and win, your lender is not required to modify your loan simply to make your payments more affordable.
• if you cancel your loan, you will lose your home and you will have to return the money you borrowed to your lender.

If you are in default on your mortgage or facing foreclosure, you may be targeted by a foreclosure rescue scam. The FTC wants you to know how to recognize the telltale signs and report them. If you are faced with foreclosure, the FTC says legitimate options are available to help you save your home.

Don’t get me wrong, there are legitimate companies that perform loan audits (typically involving attorneys) and their are legitimate reasons to have your loan docs audited.  Beware of false promises.  If the company wants to charge an up front fee, think twice.

If you want to read the bulletin, go to:

http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt177.shtm

High-End Homeowners Falling Into Foreclosure Trap

Joseph Pisani from CNBC reports on a growing trend in the distressed real estate market.  More and more Luxury Homes (defined as homes with mortgages that are equal to or greater than $1,000,000) are falling into foreclosure.  According to Mr. Pisani, in February of 2010, 4169 homes were in some stage of foreclosure, which represented an increase of 121% versus last year.

Pisani also reports, “Data shows that that may be the case around the county. The 90-day delinquency rate on home loans worth over a million dollars hit a high in February at 13.3 percent, higher than the overall rate of 8.6 percent, according to real estate data firm First American CoreLogic. Foreclosure proceedings generally begin to start after a homeowner has been at least 90 days late on a mortgage payment, experts say”

An interesting observation from the article echoes what we have been saying for a very long time, ““Lenders are far more likely to go the short sale route," says Andrew LePage, an analyst at real estate research firm DataQuick. "There’s a lot more money at stake, and maintenance can be high if a foreclosure just sits there.”  Lenders don’t want high end homes back.  They weigh their bottom line down...they are difficult to sell...they are expensive to maintain etc etc.  

So if you are not focusing on the high end market, don’t you think that you should start?

Nine years to dig out of home foreclosure inventory

Rocky Vega reports on a staggering figure.  Based on today's current glut of foreclosed homes that reside in the coffers of lenders around the world, it will take a staggering 9 years to clear the CURRENT inventory!  This doesn’t take into account the additional homes that are pouring into the trough on a daily basis.

This will affect consumers and real estate professionals alike.  While the government has chased several acronyms....I mean housing programs..around, Mr. Vega predicts that they will have little lasting affect on this debacle.

One solution is to use any means to keep properties out of foreclosures.  Methods such as short sales and loan modifications (ones that actually stick rather than tease) are examples.

Foreclosure Lawyers Face New Heat In Florida

Amir Efrati reports on a growing trend among high volume foreclosure mills.  A few weeks ago I reported on the Law Offices of David Stern and how a representative back dated a notarized document.  The second largest foreclosure mill in Florida, the Florida Default Group, is being accused of similar deeds.

According to Mr. Efrati, the Florida Attorney Attorney’s General’s office has launched an investigation of the Florida Default Group.  According to the AG’s website, it’s looking at whether the firm is “fabricating and/or presenting false and misleading documents in foreclosure cases.” It added: “These documents have been presented in court before judges as actual assignments of mortgages and have later been shown to be legally inadequate and/or insufficient.”

At issue is their relationship with a company called Lender Processing Services (LPS).  Apparently this company is called upon by the Florida Default Group to produce documents that show ownership interest by banks in mortgages.  LPS is under investigation by the Justice Department.

Man Facing Foreclosure Tries To Tear Down Home With SUV

Stephanie Sklar from New Carlisle OH report on what NOT to do when facing foreclosure!  The article describes a man that took his SUV and proceeded to destroy his house!  I guess he thought felt that if he couldn’t have it, the bank wasn’t going to get it either!  

While this is an extreme example is does demonstrate that many sellers do.  They strip fixtures (items that are physically attached to the house) from homes prior to the bank foreclosing on them.  The issue is that this practice is against the law.

So if a friend or client mentions this tact, explain to them what you have learned today.

Foreclosure rates highest in 5 years

Alex Veiga from the Associated Press reports on a record number of foreclosures during the first 3 months of 2010.  RealtyTrac Inc. reported that the number of foreclosures increased by 35% during the first quarter of 2010.  Houses that were in pre foreclosure jumped by 16% as compared to the same period in 2009.

A quote from the article reads, “We’re finally seeing the banks start to process the inventory that has been in foreclosure, but delayed in processing,” Sharga said. “We expect the pace to accelerate as the year goes on.”  What they are referring to is the “shadow inventory” that the banks have been sitting on.  The article is also quoted, ”The Obama administration’s $75 billion foreclosure prevention program has only been able to help a small fraction of troubled homeowners.”

So, unfortunately, it appears that the bloodbath is going to continue.  Stay close to those that are, or will be, in need.

Homeowners face foreclosure after told to stop paying

Lita Epstein brings us an article that hits home.  On a very frequent basis, home owners are being told by lenders and/or servicing companies to “stop paying your mortgage or your loan modification won’t be considered.”  The problem is that very few loan modifications are getting approved.  Because very few get approved and because they take an inordinate amount of time to process, guess what is happening?  You guessed it, the sellers credit is getting wrecked due to the missed payments and the house moves closer and closer to foreclosure!

Lita states the obvious but I want to reinforce one of the points.  Nothing is guaranteed unless you have it in writing.  Remember, servicing companies get paid when they service something.  When the seller goes behind in their payments, guess what?  The servicing companies have to service the delinquent loan therefore they get paid!

The article points out what I have been an advocate of:  Get an attorney on your side.  Let the attorney do battle with the lenders and the servicing companies.  Any fee paid should be worth its weight in gold!

Foreclosed? Here comes the tax man

This article from Les Christie is a very timely article.  A question that needs to be addressed BEFORE the short sale starts, is one of taxation.  If you are purchasing a short sale or if you are considering listing a short sale, you should require that the seller seek advice regarding the tax effects of a short sale.  They need to make an educated decision to pursue a short sale PRIOR to starting the process.

I would suggest that you click the link that takes you to the article.  Knowing a little will save you allot!

Why a short sale often takes so long
REAL ESTATE: It's better for some banks to 'delay and pray,' brokers say

Tom Bayles from the Sarasota Herald Tribune brings us an enlightening article describes the plethora of reasons as to, “Why a short sale often takes so long” to complete. He touches on the obvious ones which include:
• The banks are being flooded by short sale requests • The banks are under staffed • The existence of multiple liens on the house can drag a short sale out

He also touches on a few that are not so obvious:
• Loans are bundled with other loans and sold off as a portfolio that can include hundreds of individual notes. The ultimate decision to approve a short sale is now subjected to yet another layer which is the investor • Mix this in with Private Mortgage Insurance and you have another approval layer to deal with! • Another reason is better expressed through direct quotes from the article, “Some banks are urging federal regulators not to come in and force them to admit all of their problem loans, he said. "Most banks are trying to buy time. It is called the 'delay and pray strategy,'" Thomas said. "You delay valuating the house at market and pray the value will come back. If you mark it down for short sale and do that deal you have to take a hit to your capital." • Then there is “extend and pretend” This is where the bank will extend the term, lower the interest rate or grant a forbearance to the home owner. This strategy is designed to extend the inevitable so the bank doesn’t have to show the bad debt on their books. This happens frequently with higher end homes.

So now you know! Short sales can take a LONG time!

Foreclosure firm's revenues jump to $260 million

Michael Sasso from the Tampa Tribune brings us a report regarding the law offices of David Stern. David Stern is Florida’s top law firm that represents banks and their investors who are foreclosing on peoples homes. When I say “top” I am not implying that they are the best; they are the largest. They take in 5000+ files per MONTH!

Based on the headlines, one would think that the article focuses on the financial exploits of David Stern. While this is certainly part of the article, a more interesting tid bit involves fraud. Apparently, a Pasco judge has accused the law firm of forging a notary stamp. The firm claims that “it was a simple mistake.” That’s laughable!

Why is this article significant to you? If you demand that a law firm represent the seller in your short sale transaction, don’t you think the law firm is going to be aware of these deeds of mistrust? As realtors, don’t rely on those silly little addendums that you received when you got your SDPE. A good attorney will blow these up in court. Do the right thing. Make sure the seller is represented by counsel.

Foreclosures Hit Rich and Famous

Craig Karmin and James Hagerty from the Wall Street Journal report on a trend that is spreading across the countryside. Houses with mortgages of $5M or more have seen a dramatic rise in mortgage defaults. People used to make money and could afford these gargantuan money pits but, with job cuts and a struggling economy these properties are going down the tubes, like their lower cost brethren. The article states, “In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices.” Astonishing numbers!

I think that this is the beginning of a trend. Why? Because wealthy people have the means to pump good money after bad to keep a house out of foreclosure. But, the money will eventually run out. Either that, or the home owner will make a business decision and engage in a strategic foreclosure. Either way, there may be opportunity heading your way.

TO HAFA OR NOT TO HAFA...THAT IS THE QUESTION!

Our government recently introduced yet another acronym....HAFA or Home Affordability Foreclosure Avoidance . People praise this as a new foreclosure prevention program when, in fact, it is a revision to HAMP or the Home Affordability Modification Program.

Jeff Watson, a short sale attorney, has put together a video blog which breaks down what HAFA is and what it is not. I will include a link to this video at the end of this commentary. According to Jeff, HAFA:
• The home owner decides whether they will participate in HAFA, not the lender
• Not all lenders have opted into the HAFA program
• The lender dictates what price the house is listed for, not the homeowner
• There is no guarantee from the government that the house will sell
• The homeowner must make mortgage payments on the 1st of every month until the house is sold that equals 31% of the gross monthly income of the mortgage holder
• The homeowner must be able to provide the new buyer with clear title. If there are junior liens (mortgages, HELOCs, HOA liens, contractor liens, IRS liens etc. etc.), the homeowner must either pay them in full or negotiate short payoffs with a complete settlement and satisfaction with no deficiency judgment.
• HAFA lets homeowners offer up to 3% of the unpaid principal balance on a lien as full settlement. SO if a homeowner owes $10,000 to a lien holder, they are allowed to offer the home owner a maximum of $300 to fully settle the debt!!
• The homeowner is allowed a maximum of $3000 to fully SETTLE all junior liens!
• The person that buys a HAFA house can’t resell the house for 90 days.
• HAFA gives the government the right to collect very sensitive information from the home owner (see video)
• The homeowner has 120 days to sell the house at the banks price. If they don’t sell it in 120 days they can apply for a longer sales period not to exceed 365 days.
• If they can’t sell the house in 365 days, the homeowner must agree to a deed in lieu if the short sale doesn’t work
• Regarding the infamous “10 days to respond”, this have very specific criteria, terms and conditions (see the video)

So you decide, if HAFA is beneficial to the home owner. The link to Jeff's video (titled Jeff Watson Breaks Down HAFA)

Above water?
The Washington Post brings us another article about yet another “refinement” to the Treasury Department's Home Affordable Modification Program (HAMP) program. The refinement involves forbearances for those that are recently unemployed. They also involve programs that will encourage lenders and loan servicing companies to write down principal balances in order to make a mortgage more affordable.

What these programs don’t address is our bulging unemployment rates. If the government spent as much time coming up with ways to lessen unemployment as they do in coming up with the latest acronym of the month, we might be some where! Wait until you read one of my next commentaries on HAFA...it’s laughable!

Foreclosure Properties May Take 5 Years To Be Absorbed Into Market

Cheryl Reams brings us an article about a subject that people have heard about but probably know little about. That subject is the “Shadow Market” of houses that will continue to depress out housing market for years to come.

Cheryl points out that , “The shadow inventory is composed of homes with delinquent loans, bank owned properties and foreclosures that are not yet accounted for under banking regulations. Accounting rules allow banks to keep foreclosed properties off their balance sheets until a property is resold. The record number of homes in the shadow inventory will pressure housing prices in the majority of markets, but should not depress prices as much as earlier levels, according to analysts.” She quotes that there are currently 6 million properties in this inventory.....and counting......foreclosures aren’t stopping anytime soon.

Ms Reams mentions that in some states, lenders are more than 30 (thirty!) months behind in processing properties that they have taken back in foreclosure proceedings. This number continues to build.

As PBC foreclosure paperwork piles up, so does desperation

Kimberly Miller from the Palm Beach Post brings us an article regarding the mountains of paperwork that are deluging courthouse offices across the United States. Now, you may say that I am pointing out the obvious....which is partly true! But I found a little nugget that may help the real estate professionals out there help those that are seeking to buy properties “on the courthouse steps.”.

Buying properties at auction is the rage. As this article points out, the mountain of paperwork breeds chaos and confusion. One individual that is highlighted in the article paid cash for a house at auction and, 1 month later, is still waiting for the deed! As the old adage says, buyer beware!

A Bold U.S. Plan to Help Struggling Homeowners

David Streitfeld from the New York Times reports on new government initiative that, on the face of it, sounds good. The new program (I’m not quite sure what acronym they’re going to throw at it!) will target those that are behind in payments but also those that own a property that is worth less than what is owed. The plan has a provision that allows for the principal reduction of the mortgage.

The article points out a very nagging fact, “None of these programs have the force of law, and lenders have often seen no good reason to participate.” This has always been the Achilles heel of the residential mortgage meltdown. The government can’t enforce the program. They can probably encourage the lenders that took TARP money to adopt it. The problem that the government will face is that the vast majority of mortgages are owned by investors and investors aren't bound to do anything with respect to the notes that they own.

One aspect of the new program that will effect home owners is, “(that the government) had previously planned to give homeowners that sell their homes rather than let them go into foreclosure a “relocation assistance” payment of $1,500. The plan announced on Friday increases that amount to $3,000.”

Whatever the final plan looks like, I hope it helps the homeowner.

Cuyahoga County sheriff to bar appraisers from buying foreclosures
The Columbus Dispatch brings us a short but very interesting piece. The sheriff in Cleveland wants to ban any appraiser from buying houses that are sold at public foreclosure auctions. Sheriff Reid sees a potential conflict of interest. I would agree with his position but would suggest that he (and those throughout our country) take it a step further.

First, I agree with his position because there is a definite conflict of interest. My first assumption is that the appraiser is performing an appraisal for a bank on a pre foreclosure property. If an appraiser plans on purchasing a specific property that he or she is appraising for a bank his or her inclination will be to appraise it very high? Why you might ask? Because a bank uses this value to determine market value and to evaluate offers. If the value that they have been given by a rogue appraiser is too high, the banks inclination is to foreclose and auction it off.

I think they should take it a step further. I think they should ban real estate agents who perform brokers price opinions from re listing the same properties for the banks. These folks are commonly known as REO agents or Real Estate Owned Agents. There is the same conflict of interest. If an agent knows that they or their brokerage has the potential of securing a bank owned listing if the the property that they are evaluating goes into foreclosure, the real estate agents inclination will be to value the property above market. This action could produce the same outcome as a high appraisal.

SO if your involved in a short sale or preforeclosure and you find that the bank is sending out a REO agent, be ready to appeal the BPO if it doesn’t represent the just market value for the property.

Wine Is Not an Immunity to Foreclosure

Sajid Farooq from NBC writes an article that interests us. There are 10 wineries in Napa Valley that are in danger of being foreclosed upon. While Randy and I enjoy an occasional glass of good wine, we were both amazed at this data. In fact the article goes on to say that over 250 vintners haven't seen economic times in 20 years. If anyone hears of any Napa or Sonoma Wineries that are overleveraged and in danger of default, call me.

Giant bank, giant struggle in providing mortgage help
Mary Shanklin from the Orlando Sentinel reports on what many of you already know. Bank of America has a terrible reputation for approving short sales and permanent loan modifications. This is partially due to the systems that they have in place. B of A’s acquisition of Countrywide has also contributed to the poor performance.

Passages from the article include, "Realtors that I work with, if they hear Bank of America, they won't even show the property," said David Pruett, a broker for D.A. Pruett Properties.

The chairman of the Orlando Regional Realtor Association, Kathleen Gallagher McIver, said recently that Bank of America has the worst record for expediting short sales, "and there's not anyone out there who will tell you otherwise."

Another known fact about Bank of America and Countrywide is that if an offer is presented and later cancelled and then a subsequent offer is presented, the ENTIRE negotiation process starts ALL OVER AGAIN! SO what does this mean? The realtors that are reading this are at a major disadvantage. Based on B of A/Countrywides history, the likelihood of your first buyer walking away from their offer prior to their offer being approved is VERY high. This means that you will waste a TREMENDOUS amount of time when processing your own short sales (my contention is that you will ALWAYS waste your time processing any of your own short sales). When we place an offer on a property, our offers will stay in place until negotiations have reached some sort of conclusion.

While B of A presents challenges, we embrace these opportunities and opportunities presented with other lien holders attached. If you have any questions, call me!

Arizona Leads the Way in Combating Foreclosure

Dean Baker from Truthout reports on an innovative bill that is being considered by Arizona. They want to pass a law that allows home owners to stay in their homes for one year after they have been foreclosed upon!

The bill limits this benefit to low and moderate income home owners. The bill also has a provision that allows the homeowners to rent from the bank on a month to month basis.

In my opinion the bill is sending a message to the lenders and their investors.....do everything you can to avoid foreclosure (i.e. approve a loan modification, a short sale, etc) or we (Arizona) will hold you hostage for a long long time. Frankly, I hope it passes!

Lenders starting to run after 'walkaway' homeowners

Charles Feldman brings us a very good article regarding “walkaways.” There is a growing group of people that simply walk away from their homes because they are worth less than what is owed. Recently, this trend has caught the eye of bankers and they are not rolling over.

Lenders are securing the deficiency judgments by garnishing wages, stripping banks accounts and even securing IRS tax refunds. It’s not a free lunch. People must understand that simply walking away can impact them in a very negative fashion. Banks are pulling the credit of homeowners and checking to see if they are late on other debt payments (cars, credit cards etc). If they are not late on other payments, banks have been aggressively pursuing judgments.

An interesting passage from the article is, “As one Web site that helps provide homeowners with foreclosure news points out, the extent that a lender can go after you when you walk away from your home depends, to some degree, on the laws of the state you reside in. So it is important you check this out if you are giving serious thought to walking away from your underwater property. Complicating matters, the site also points out, is whether you have a second mortgage on the property. You need to take all that into your calculations when it comes to any future liability.” What does this tell you? Seek an attorney!

Obama unveils mortgage plan to help California, 4 other states

Peter Nicholas and Ashley Powers report on the governments latest flavor of the month. President Obama announced a $1.5B (yes that’s right BILLION) program designed to help just 5 states. While I live and do business in one of these states (Florida) and do business in two others (California and Arizona), it is my opinion that this is yet another band aid.

The article points out that, “The money will go toward homeowners who have lost their jobs, owe more than their houses are worth or cannot afford to make monthly payments.” While I applaud helping homeowners that are in need, I believe that the money will simply delay the inevitable.

Why not spend money to streamline the short sale process so more families can be saved from the trauma of a foreclosure?

Foreclosure stresses take human toll

In this day and age the news is filled with stats and stories about foreclosures, short sales, loan modifications etc. etc. What many fail to see is the toll foreclosures take on the human race. They take an emotional toll on those that are involved often causing the break up of family and friends. The most devastating impact can be on the children.

If you are involved, in any way, with a property that is involved with a distressed sale, be aware of the human toll.....be aware of the children.

Short sales grow as a cheaper alternative to foreclosure
Banks' resistance to the tricky transactions is softening as the number of distressed properties increases.

Alejandro Lazo from the LA Times reports on a trend that should help everyone. Lenders are finally getting clued into the fact that short sales can be a better alternative to foreclosures. Mr. Lazo reports that, “Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation's largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.” A study showed that banks (more specifically the investors that own the loans) absorb an average of a 45% loss when they foreclose when compared to a 33% loss when they approve a short sale.

The story chronicles a couples adventure thru the short sale maze. They were approved for a trial loan modification by Bank of America, but the payments were still unaffordable. This isn’t surprising. Last year, LESS than 4% of all PERMANENT loan modifications were approved. Of these, the consensus is that 60+% of these slide back into delinquency.

The article points out that junior lien holders have presented major problems with both loan modifications and short sales. Mr. Lazo is quoted, “Of the 1.2 million U.S. properties in foreclosure, about 34%, or 403,670, have a second loan, according to RealtyTrac. In California, with 280,023 properties in foreclosure, about 46%, or 128,800, have a second loan.” If you don’t have a solution for second mortgages when going into a short sale, why bother. We have a solution.

The article closes with the following passage, “She is facing foreclosure on a Glendora town house that she bought as an investment property. Quinn said she has tried to arrange a short sale four times through her lenders, Bank of America and JPMorgan. Buyers, tired of waiting months for an answer from the banks, walked away on three occasions, and the banks rejected an offer from a fourth as too low, she said. She lined up a fifth buyer, she said, but BofA balked.”

Sound familiar? Buyer after buyer after buyer walks. This wastes your time, the banks time but more importantly the sellers time. Inevitably, it will drive the house into foreclosure. Why waste your time with this kind of process when you don’t have to? Call me.

Surge in foreclosures attracts lawyers who promise to renegotiate mortgages but don’t

What is one of the biggest businesses out there in the real estate spectrum? Loan modifications. What real estate business is fraught with fraud? Loan modifications! Paul Elias from the Associated Press reports about a growing trend of “people” that are victimizing homeowners. He focuses on rogue attorneys who are comfortable in taking peoples money without delivering any service.

An important word in my rant is “rogue”. If a home owner wants to do a loan modification, a QUALIFIED attorney is a great place to start. That said, there are many people (attorneys or not) that are scamming people out of a tremendous amount of money when it comes to loan modifications. If your clients or friends are considering hiring a company to do a loan modification, make sure they check their credentials before they engage. A great place to start is the Better Business Bureau.

Remember, the home owner, if they have the time, can do this themselves.

Mortgage officials try exits softer than foreclosures

Renae Merle from the Washington Post brings us a very interesting article that discusses what lenders are trying to do to stem the avalanche of foreclosures. She discussed some solutions that I have already commented on i.e.. Fannie and Freddie doing rent backs to the home owners after they have been foreclosed on – you remember...the Government can do this but us common folk cant!! The article discusses this program in more detail. What is new is a program that Citi is going to Pilot.

According to the article, Citi, “.... plans to announce a pilot program on Thursday that would allow delinquent borrowers who don't qualify for or decline mortgage relief the opportunity to stay in their homes without making payments for up to six months before turning over the keys, in return for keeping the property in good condition.” To me this sounds like a deed in lieu. While the home owner will (supposedly) be allowed to stay in their homes for 6 months, Citi failed to mention in the article that this will still count as a foreclosure on the homeowners credit report.

Citi feels that the new program will provide “an orderly process” when bringing bank owned properties back on the market. To me, it would simply delay the process by 6 months. At least Citi is coming up with solutions unlike most lenders who simply contribute to the problem.

Reversal of fortune
After trend of rising prices, some housing markets see about-face

After trend of rising prices, some housing markets see about-face

Like many things in life, some things are too good to be true. Amy Hoak from the Wall Street Journal (MarketWatch) brings to us a very interesting article about a “double dip” in property values. Several major markets had experienced reasonable gains during the 4th quarter of 2009, only to see the gains wiped out by further price erosion. Ms Hoak reports that, “Nationwide, home values fell 5% in the fourth quarter compared with the fourth quarter a year earlier. Values fell 0.5% from the third quarter of 2009.”

Stan Humphries, Zillow's chief economist, said, “What we saw in mid-2009 was a brief respite from a larger market correction that has not yet run its course." Mr. Humphries feels that the second dip wont reach the magnitude of the first dip but is indicative of further price erosion.

Humphries further comments, “The remaining correction in home values we'll see in the first half of this year is a function of market fundamentals, such as the increasing flow of foreclosures, high levels of inventory in the market and a probable decrease in demand as the impact of the tax credit wanes and mortgage rates rise. The next few months will likely show more declines in home values in most markets, Humphries said. But he expects that, on a national basis, home prices should still hit bottom by the middle of the year. Thereafter," he said, "home values are likely to bounce along the bottom with real appreciation remaining negligible for some time."

Arizona Anti-Deficiency Laws Only Cover Foreclosure, Not Short Sales

While this article comes to us from Arizona, the message needs to be heeded everywhere! Foreclosure laws are constantly changing from state to state. What that means to you is that unless you are a real estate attorney you shouldn’t be in the business of interpreting law. The article is actually more of a message. The message is, “Consulting an attorney sounds like sound advice- no matter what state you live in.”

Short sales soar while foreclosure sales slacken

Buck Wargo from the Las Vegas Sun Times reports on a trend in Las Vegas. Mr. Wargo reports that the number of foreclosures and gone down while the number of short sales has increased. This is a trend that bodes well for homeowners. In most cases a short sale is in the best interest of a home owner as compared to a foreclosure.

Interesting excerpts from the article include, “In Las Vegas, banks make $80 per square foot on foreclosures but $130 per square foot on average in short sales, said Steve Bottfeld, executive vice president of Marketing Solutions.

“I think the bottom line is that short sales ultimately replace foreclosures because of the financial impact on the financial institutions,” Bottfeld said. “The banks are going to look at it differently and opt for more short sales.”

Analysts said short sales will get a boost in 2010 because of a push by the federal government. The Treasury Department is offering incentives on short sales by providing a $2,500 subsidy, $1,000 to the servicer and $1,500 to the seller for moving expenses. In addition, investors can get $1,000 by allowing subordinate lenders to get $3,000 in proceeds from the sale. The program is effective April 5, but servicers can implement it earlier.

Short sales make financial sense for lenders, analysts said.

In Las Vegas, banks make $80 per square foot on foreclosures but $130 per square foot on average in short sales, said Steve Bottfeld, executive vice president of Marketing Solutions.

“I think the bottom line is that short sales ultimately replace foreclosures because of the financial impact on the financial institutions,” Bottfeld said. “The banks are going to look at it differently and opt for more short sales.”

While this article comes from Nevada, other markets are experiencing the same trends. So, while people are banking on loan modifications, short sales can be a solution.

Flaws plague foreclosure relief program

Senior producer John Schoen from MSNBC, reports on the quagmire known as foreclosure relief! He reports that multiple programs that are supposed to help home owners typically don’t. No one knows how to qualify for a loan mod because the Treasury Department hasn’t released the magical formula that makes this determination. One must also understand that institutions that are servicing loans stand more to gain by dragging the process out (up to 6% of the mortgage amount ) as opposed to the $4000 the government gives to these companies for modifying a mortgage.

2.8 Million foreclosures were filed last year. Experts believe that more than 3.5 Million foreclosures will be filed this year. This is partially due to sky rocketing unemployment but also due to exotic mortgages resetting. While servicing companies can lower interest rates and extend the repayment term, they can also lower the principal that is owed by the homeowner. The problem is that lowering the principal rarely happens.

An interesting comment from the article was, “Under HAMP guidelines, lenders can deny a loan modification if the “net present value” of the new loan is less than the return they would get from not offering a new loan and going through with foreclosure instead. In other words, the official guidelines allow mortgage servicers to base their decision entirely on whether the outcome is in the best interest of the lender or investor, not the homeowner.” Somebody out there has a very strong lobby! I wonder who!?

Cage's Foreclosure Sells Quickly
While this article is specific to Nicholas Cage, it also points out what we have been saying all along. The higher end luxury market segment is fraught with foreclosures. However, the high end luxury market is also flooded with buyers looking for bargains. People are buying high end properties as long as the properties are priced correctly.

Waiver OK'd on flipping houses

Leslie Berkman from the Press Enterprise reports on a recent development with the FHA. Effective February 1, 2010 (with a tentative end date of February 1, 2011), the FHA has eliminated the 90 day seasoning requirement for people that purchase homes that are financed with FHA mortgages. Prior to the change, individuals who purchased homes, could not sell them to buyers with FHA mortgages for 90 days. This effectively shut out many a home owner from purchasing properties that were acquired by investors.

The 90 day seasoning requirement discouraged people from purchasing properties in areas that were typically funded by FHA mortgages. Why? When a person purchases something (whether it be a house, a car or grandfather clock) they want the right and the flexibility to sell it when they want. Pure and simple. So, don’t be a hater! If it helps the economy and helps people, support it! Who knows, maybe Bank of America will get a clue!

First Bank donates foreclosure in H.P.

The business journal of Winston Salem reports on a bank with a heart. Why can’t each and every lender in each and every state do what First Bank did? First Bank donated a house to a non profit organization. The house will go to a low or moderate income family that otherwise couldn’t afford a house. While this wont extinguish the glut of foreclosed properties, it will certainly help families in need. That’s what life is about, isn’t it?

Dramatic decline in foreclosures in California

The central Valley Business Times reported that foreclosures dropped dramatically in California in December of 2009. But................that's not the rest of the story. The reason behind this drop is because of the holiday foreclosure moratoriums that were in place. Lenders weren't foreclosing. Expect a dramatic increase in foreclosures in January with delinquencies and unemployment going way up.

Another interesting part of the story involved lenders auction prices. The price that lenders set when auctioning properties at the courthouse step increased by almost 7%. Investors that have been banking on purchasing properties at auction are now paying more for their properties. What does this mean? Who knows. It could mean that the market is stabilizing or it could mean that the banks are getting greedy. You decide!

Dubai’s First Foreclosure May Open Floodgates in Worst Market

Zainab Fattah from Business week wrote an interesting article that describes the ailing real estate market in Dubai. Dubai used to be the safe bet for real estate investors. Property prices quadrupled since 2002, the year when foreigners were allowed to start buying properties. The first foreclosure filing was recently recorded which challenged some long standing traditions and laws. What does this mean to us? My take is that investors that were flocking to Dubai are going to be looking to secure properties in other areas. Where you might ask? My guess is the USA.

Empty Houses Full Of Trouble

In the January 10th edition of the St. Petersburg Times, Michael Van Sickler and Jamal Thalji report on an ever increasing problem throughout the US. When a house is in imminent foreclosure or has been foreclosed upon, in many instances it is left abandoned. Besides becoming a burden for the bank, the community and the realtors that may be trying to sell the property, the house can be a source of crime and hazards. Squatters claim the empty homes as their new place to live. Thieves, who travel under the cloak of darkness, will store their ill gotten booty in empty houses during the day time.

Be vigilant when you are traveling in the neighborhoods where you sell homes. More importantly, be supportive of solutions that solve the problems of vacant homes. Can anyone say Short Sale?!

Modified Loans Can Dent Credit

In the Business Section of the St Pete Times (January 10th edition), James Thorner wrote a great article that surprised me. The scope of the article involved the negative effects of loan modifications on credit score. Prior to reading this article, I was always under the assumption that a loan modification had no impact on credit scores. Mr. Thorner reports that, "If you accept a modification through Making Home Affordable, you'll probably pay for it with a lower credit score. In some cases the impact could be as much as 100 points."

Note that this applies to people that are current on their payments!! Meg Reilly, spokesperson for the US Treasury indicates, "Borrowers, including borrowers who are are current on their loans but are asking for modifications based on imminent default, are certifying that they are unable to pay their mortgage and need government assistance. These borrowers are a greater credit risk than borrowers who are not in imminent default and it is appropriate that the additional risk be reflected in their credit profile."

So, buyer beware!

Whitney Ray from News Channel 7 in Panama City Beach has reported on 2 very sensitive subjects: Loan Modifications and Mediations with lenders.

Ms. Ray reports that after December 31st, one must be a licensed mortgage broker and hold a license from the state of Florida in order to do loan modifications. There are many companies that have jumped into the fray by setting up shop as loan modification companies. So, if any of your clients are considering loan mods, make sure that they are working with a licensed entity.

I knew about the new loan mod law, but hadn’t read much on mediations. In my opinion, this is a great step in helping people stay in their homes. As Ms. Ray reported, there have been successes when mediations have been put into place. I will be watching how this plan is rolled out and how it is implemented.

A very interesting article was written that highlights one of the many reasons (that I have discussed) that banks don’t want to foreclose on houses. Simply put, foreclosures can ultimately shut a bank down. Something not mentioned in the article is that banks will tend to negotiate more on high end homes as compared to lower end (i.e. mortgaged) homes. Why you may ask? Two reasons:

1. Affordability – Banks know that if they take a $100,000 house back into their swelling inventory, 80% of the population can afford this house. So, the likelihood of the lender selling this house quickly is high. On the other hand, a much smaller percentage (lets say 3%) of the population can afford homes of $1,000,000 or more. So, if they take these homes back they run the risk of sitting on them for an extended period of time. When they sit on these houses, the value of the property (in today's market) goes down, they continue to pay for upkeep (maintenance, taxes, insurance etc.) and they expose themselves to potential liability (slip and falls in the house, vandalism etc.)

2. Insolvency – The reason banks are being shut down is because they become insolvent which means their performing assets are outweighed by their liabilities. These liabilities include houses that they take back in foreclosure. If a bank is owed $1,000,000 on a house that they foreclose on, the banks bottom line is affected, in the negative, by $1,000,000. A bank can take back ten (10) $100,000 homes and have the same NEGATIVE affect on their bottom line as One (1) $1,000,000 home. Do you get the picture?

As banks fail, we as tax payers also suffer. When the FDIC recently took over the failed Republic Federal Bank, it cost the FDIC (Us!) $122.6M. Multiply this by the other 132 bank failures that have occurred this year (the most since 1992) and you begin to sense the enormity of the problem. Short sales can be a solution to this problem. Call me and ask me how!

Bob Tedeschi from the New York Times wrote a timely article on short sales. His observation is that they can take a ton of time. One factor that he cites involves 2nd and 3rd position lien holders that are holding out for more money than the the first lien holder will “allow”. I must ask each and everyone of you, as a real estate professional how do you handle it when a closing hinges on this scenario:

A second lien holder demands $40,000 when the 1st lien holder is only allowing them $3,000? Make the assumption that the buyer won’t bring $37,000 CASH to the table and the seller doesn’t have $37,000 either. Sorry, a prom note isn't the correct answer (do you really think a prom note is in the best interest of the home owner when there is another solution? I don’t!)

Some of you may “volunteer” their real estate commission but I would guess the majority of you can’t afford to give up that kind of commission. We deal with this EXACT situation on a monthly basis when we purchase short sales. No...I'm not going to give you the answer here. If your interested in learning how we deal with this predicament without harming the homeowner, buyer or requiring the realtor to contribute one red cent of their commission, call me or email me!

John Gittelsohn and Margaret Collins from Bloomberg wrote a very detailed article that describes banks increasing propensity to approve short sales. While lenders attempt loan modifications, it has been shown that approximately 25% of approved loan mods end up back in foreclosure. So, banks have 2 choices...either foreclose and carry the house in their inventory (thus weighing their bottom line down) or approve a short sale.

According to the writers, 40,000 short sales were closed during the first half of 2009. This represents a 6 fold increase of short sales as compared to the same period in 2008. What’s more striking, though, is that for every short sale there were 25 foreclosures started or completed!

While the Obama administration has offered financial incentives for lenders and servicers to close short sales, it is my opinion that banks are recognizing that a short sale is less expensive than a foreclosure. Some industry insiders state that a short sale can save a lender 10-15% when compared to a foreclosure. According to the article, losses on prime loans going through the foreclosure process averaged 49 percent versus 34 percent for a short sale as of Oct. 1, according to a Nov. 10 report by Laurie S. Goodman, senior managing director of Amherst Securities Group LP. For subprime loans, losses averaged 73 percent for a foreclosure compared with 59 percent for a short sale, Amherst reported.

Kathleen Howley and Dan Levy wrote a very interesting article regarding short sales in the Luxury arena (they define this as properties that are mortgaged over $1M). They point out that people that have mortgages in excess of $1M are defaulting at TWICE the rate of people that have other mortgages. They attribute this to falling values, job losses and the fact that few if any of the new government programs address these types of delinquent mortgages. Also, the value of peoples investment portfolios have taken a beating in the last year. Many rely on this income to pay bills.

Comments in the article also point to discretionary income that is being spent on these houses. Meaning that many of these properties are 2nd and 3rd homes. Owners cant justify laying out the cash in an attempt to save anything but their primary home.

Last year the percentage of mortgages in excess of $1M that were delinquent 90 days or more was 4.7%. The same rate this year is 12%. These numbers are according to data from First American CoreLogic Inc., a Santa Ana, California-based research firm. What this tells me is that the higher end properties are falling victim at a much higher rate than lower priced homes. According to Scott Simon, managing director at Pacific Investment Management Co., a Newport Beach-based investment firm, "The reason the low end stopped falling is because the government stepped in with affordable loans. There is no political will to bail out a million-dollar house."

We are seeing more and more high end homes come on the market that are overleveraged. We are also seeing lenders giving higher discounts on these homes because they can’t afford to take them back in their inventory. On the flip side, we are also seeing many savvy buyers scooping up these properties at very affordable prices. SO, if you are not addressing the high end market, you need to!

Tami Luhby of CNN Money reports on what many of us thought but didn’t actually know. Only 4% (which represents just over 31,000 homeowners) of troubled home owners have received LONG TERM relief from mortgage modifications. A proportionate number of people have been denied long term help due to reasons outside the control of lenders/servicers (i.e. people not making payments, not supplying the necessary paperwork etc.) The $75B plan called for helping 4,000,000 people!

Al Yoon has delivered yet another very interesting article regarding short sales. While the government has offered incentives to lenders and servicing companies in the past, this is the first attempt to limit the amount of time a lender has to respond to a short sale offer.

HAMP (Home Affordable Foreclosure Alternatives Program) allows mortgage servicers 10 days to “approve or disapprove a request for a short sale.” This is a very noble cause and I truly hope it works. What I don’t understand is what the penalties will be if they don’t approve or disapprove the short sale within 10 days of submittal.

What's interesting is that junior lien holders are still open to demand more than what is allowed by senior lien holders. HAMP speaks to an “aggregate cap of $3000 for junior lien holders.” However, if the 2nd lien holders don’t want to accept the $3000 they can continue to negotiate. I guess that’s what good lobbyists will do for you!

Alejandro Lazo of the LA Times has written an article that will be sure to raise some eyebrows. In this foreclosure heavy environment many people don’t understand the consequences of simply walking away from a mortgage and allowing the lenders to foreclose. It’s not like you used to hear it where people simply “turned in their keys” (in fact I don’t think it was ever as simple as that!). Foreclosures can have dire impacts on individuals.

An obvious effect of a foreclosure is on your credit score. If you have a foreclosure on your record, the likelihood of you being able to purchase a house with lender financing in the near future is remote (this TYPICALLY stands true for a “deed in lieu”........if you don’t understand what I mean, call me or email me).

Homeowners who have their house foreclosed upon also run into the very real possibility of secured deficiency judgments. After foreclosure a bank can secure a judgment by garnishing wages, stripping bank accounts and/or liening other properties. The banks ability, however, to go after judgments vary from state to state......another reason to seek counsel.

Suggest to your clients that they seek counsel that understands foreclosure defense. Make sure that these attorney's are speaking to your clients about options they may have PRIOR to starting the short sale process.

Julianne Pepitone of CNNMoney.com reports on a very disturbing fact: 1 in 4 mortgages are underwater. This doesn’t mean that 1 in 4 mortgages are in foreclosure it just means that the mortgages don’t support the underlying debt. Some people will continue to hang in there and pay on a mortgage that doesn’t equate to what the underlying properties are worth. Others will choose not to pay. Ms. Pepitone reports , “The majority of underwater mortgages are heavily concentrated in five states that have particularly suffered from the housing bust: Nevada, at 65%; Arizona, at 48%; Florida, at 45%; Michigan, at 37%; and California, at 35%.”

It looks like foreclosures are going to be with us for a long time. The question is, “What are you doing about it?”

Christopher Rugaber from the Associated Press reports on troubling new on our economy. While jobless claims have fallen about 22% since spring, companies are still reluctant to hire new employees. They are trying to do more with less. What is more troubling is that the number of homeowners that are either in foreclosure or have missed at least one payment hit a record high for the 9th straight quarter. Fixed rate loans accounted for nearly 33% of past due loans as compared to 22% during the same time last year. This tells me that foreclosures are touching all parts of our economy.

Joseph Williams from Boston.com reports that another government concern is running out of money. FHA acknowledged that they are burning through their cash reserves at an astronomical rate. What this means is that they will request more money from the government which will fire up the printing presses and devalue our dollar. It will be interesting if FHA’s policies towards first time home buyers will be effected.

According to Mr. Williams, “The FHA does not make loans itself, but insures against default. Borrowers are willing to buy the insurance because FHA-backed loans require down payments of only 3.5 percent of the purchase price. But Donovan said the agency is considering raising the minimum down payment, as well as insurance premiums for borrowers - moves that would mean fewer people would be able to get loans. When credit markets seized up at the height of the financial crisis, Donovan said, FHA picked up the slack and now holds as much as 30 percent of the mortgage market - including guaranteeing more than half of all home loans held by African-Americans and nearly 60 percent of mortgages held by Latinos.

Overall, it insured nearly a quarter of all new loans made this year, including about half of all loans to first-time homebuyers. The FHA backs about 5.3 million mortgages, up from about 4 million three years ago.”

Scary facts!

Can you say, “Law Suit”?! The high volume of foreclosures must have gotten to Chase! They actually admitted to accidentally selling a couples house at a foreclosure auction! Chase says that they are working with the couple to rectify the situation.

An observation here is that the different departments within a lender/servicing company may not be speaking with one another. The involvement of an attorney may have also helped matters.

What will they think of next?!! Alejandro Lazo from the Los Angeles Times reports that Fannie Mae has decided to turn landlord! They continue to burn money (they just requested an additional $18B (that’s Billion) from our government last week (remember...the government owns them!)) at an extraordinary rate. Some feel that this move is an attempt to generate some income in a down market. Others speculate that Fannie doesn’t want to bring more bank owned properties into their swollen inventory. What's hypocritical about this program is that the government strictly prohibits the lease back (to the home owner) of a property that is purchased in short sale.

On the other hand, this MAY turn into something positive for those that are about to lose their homes. The program is designed to keep people in their homes by exchanging their deeds for a year long rent back of their home. There are several conditions of the program (click on the link to read the entire article to understand what these conditions are.)

As a suggestion, if one of your clients or friends is in a predicament where they may lose their house to foreclosure, suggest that they ask the lender/servicing company that they send their mortgage payments to who owns their loan. If the owner/investor is Fannie Mae, they want to explore this lease back option.

Dick Hogan from News-Press.com points out what many may not know. Foreclosures are not limited to the $100,000 homes that are always in the news. More and more we are seeing higher priced homes that entering the foreclosure scene. Many homes lie partially built. Due to the size and complexity of these homes, they can take a longer time to complete as compared to their spec home brothers. As a result, buyers simply don’t move in because their home is already “upside down.”

So whether you are buying or selling, don’t forget higher priced homes.

If this isn’t a timely article, I don’t know what is! The editor for the San Francisco Chronicle says it all, “Quiet as it's kept, if homeowners had more legal advice and legal power to negotiate with lenders, the foreclosure epidemic might have turned out to be as threatening as the common cold.” I have made mention of this many, many times before. It’s refreshing to hear it from others!

The editor also comments that, “(lawyers) have better success at negotiating with lenders and potentially finding workable solutions that avoid foreclosure.” Lawyers are also trained to decipher the garbage that is spewed out of some lenders mouths when it comes to the terms and conditions of approval letters.

Melanca Clark, counsel at the Brennan Center says that, "In (California), you'd need a lawyer to raise an affirmative claim about your foreclosure. And you'd need a lawyer to determine if the lender had predatory terms, or had induced you into a refinance you didn't need, as we're finding so many of them did, which could help you contest the foreclosure. An average homeowner isn't going to know something like that."

No matter where you are or who you are....sellers MUST HAVE Legal representation during the pre foreclosure process!

Tom Kelly from the Herald Net publication wrote a very interesting article regarding bank owned financing. While we don’t purchase bank owned properties, I am sure many of you that are reading this are involved in bank owned properties (also known as REO’s). Apparently, several lenders require buyers of their properties to finance their purchase (if they aren’t paying cash) through them! Mr. Kelly points out that this is, apparently, legal.

So the lesson learned is that if you are going to purchase a bank owned property ask the listing agent if the lender/owner has any requirements for you or your buyer to use their institution to fund the transaction. It may save them a ton of time in not having to get preapproved by a lender that may not be allowed to fund the deal. Hope this helped!

Do Mortgage Lenders Make More Money When a Loan Goes into Foreclosure?

I read, with interest, an article by Ilyce Glink. In the article titled, “Do Mortgage Lenders Make More Money When a Loan Goes into Foreclosure?” she points out that loan servicing companies ( companies that collect monthly mortgage payments and distribute them to investors) make MORE money by foreclosing when compared to doing loan modifications. In addition, Ms. Glink states, “The report examined foreclosures made from 1995 through 2009 and found that loan servicers make more money by offering forbearance (where the homeowner is given a specific period of time to not make payments in an effort to regroup financially) or payment plans than by cutting principal or offering reduced interest rate payments.” So for those of you who wonder why they just don’t slash the principal.......it’s all about the money!

Two other interesting passages from the article are, "Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed."

Moreover, the report found that financial incentives offered to mortgage servicers by the government to help homeowners avoid foreclosure do not equal the profits servicers make through foreclosure. The lack of "third-party oversight allows servicers to pursue foreclosure instead of effective loan modifications that would benefit homeowners as well as investors." Credit rating agencies and bond insurers do monitor servicers, NCLC found, but they, too, generally push for foreclosure instead of loan modifications.”

Also recall that roughly 60% of home owners who do modify their loans, end up in foreclosure within 6 months. The reason is that the modifications that are done do not provide home owners with a sustainable solution but rather a simple band aid. While loan modifications make great fodder for the politicians, there are many forces acting against them.

Commercial: Is the other shoe dropping?
A commercial calamity may be upon us sooner than you think. As the author points out in the article titled, “Commercial: Is the other shoe dropping?” at the end of June 2009, Florida banks had $5.1B (that’s BILLION) in commercial and related loans on their books that were in default. That number was up 15 fold (15 TIMES) the same number in 2006. An even more astonishing number is that $530 BILLION in commercial loans (nationally) will be coming due in the next three years.

Here in lies the issue. Unlike residential loans that can be financed over 30 (and even 40 years), commercial loans are typically financed over 3 to 10 years. The end game after this period was to either sell or refinance the underlying notes. The issue that many commercial owners have is that by the end of their loan term, their properties have dropped in values which prohibits a quick sale (except via a short sale). It also prohibits a refinance for obvious reasons.

Well the guys and girls in the commercial lending sector have their own version of loan modifications. It is commonly known as the “extend and pretend” program where they will extend the existing loan lines for a short period of time. But....guess what? If the owner can’t afford the loan before maturity they wont be able to afford it after. In addition, more and more commercial owners don’t see the logic in paying off (or down) a note on a property that, in many cases, has dropped in value by millions.

So what happens? Owners walk and banks take back properties? Yes, this does happen. However, like their residential brethren, commercial loans can also be shorted. Ask me how.

Bay Area homes still taking a hit
The last article I commented on involved the increasing number of foreclosures in the Florida market. Not to be outdone, Northern California is weighing in with their own housing maladies.

Eve Mitchell from the Contra Costa Times noted a 116.4% rise in the number of homeowners that received a notice of default in September of 2009 compared to the same period last year. During the same period, the number of homes that were foreclosed on by banks decreased by 41.6%. Eve suggests that this decrease may be due to president Obama’s loan modification program. While don’t entirely I agree with her position, I hope she is correct. Unfortunately the lasting effect of these loan mod programs tend to be short lived. As many as 60% of these homeowners fall back into foreclosure after 6 months.

So from coast to coast foreclosures continue to plague our society. There are ways to help home owners through these trials and tribulations. If you are interested in learning more, call me or email me. Have a great weekend!

New Foreclosure Wave May Swamp Florida Market

Mr. Charles Smith, in the article titled, “New Foreclosure Wave May Swamp Florida Market” feels that more foreclosures are ahead in the Sunshine State. He acknowledges that there are signs of recovery but the growing wave of job losses, exotic mortgages and property devaluations continue to depress the market.

Ten percent of all loans were in foreclosure in August. An independent agency showed that there is an increasing number of loaned that are delinquent but not in foreclosure yet. These loans, unless brought current will contribute to an increase in foreclosures.

Houses are selling but at lower price points. The median price dropped to $142,000 in Florida which represents a 19% decline over last year. This phenomenon contributes to future delinquencies by causing a drop in market values in areas that are hardest hit by foreclosures.

It appears that short sales and foreclosures are going to be with us for quite a bit longer.

Second foreclosure wave likely to hit commercial property

If I have said it once I have said it many times......take out the long board because the commercial short sale wave is coming! In my “travels” I am starting to hear that the “commercial lenders are becoming more reasonable when evaluating short sale offers.” What this means is that short sales (whether residential or commercial) are going to be with us for a long time. Let me know if you have any owners of over leveraged commercial properties.

Foreclosure Rate Rises 17 Percent

As compared to the 1st quarter of 2009, foreclosure rates rose 17% in the second quarter of 2009. This is despite foreclosure prevention plans implemented by the government and several lending institutions. Rising unemployment continues to be the culprit behind many of these foreclosures. The article also points out that Option ARMS (where a borrower picks their payment over a period of years) is also a contributing factor. When the low payment period ends, the higher payment oftentimes buries the borrower causing them to miss payments. The article points out that, “More than 15 percent of these types of loans were seriously delinquent during the second quarter, compared with 5.3 percent of all mortgages, according to the report, and 10 percent were in the process of foreclosure.

Many mortgage modifications push payments .... higher

The talk of the town has been mortgage modifications. What this article points out that in many instances, the modifications leave the homeowner worse off for the long term.

The problem arises from lenders rolling all of the past due payments, interest, penalties etc etc back into what is owed. When the new mortgage amount is calculated it is oftentimes much higher than the original amount. This action does serve the purpose of keeping families in homes longer (which is good), but it burdens them with a new bill that is very difficult to handle. More and more, people slide right back into default with the higher payments.

The governments March initiative focuses on interest rate reduction rather than on principal reduction. The writer of this article suggests that this too contributes to the high volume of “re-defaults”. The programs are not focusing on permanent debt reduction but rather on a quick fix. The article states that 90% of modifications to date have strapped the borrowers with higher principal balances on their mortgages.

So while mortgage modifications can help some homeowners, all need to be cautious and fully understand the long term impact of a modification. They can’t simply focus on the instant gratification that they receive from a modification.

California Hotel Foreclosures Triple in Travel Slump

Hotel foreclosures in California more than tripled in the first nine months of this year as business travelers and vacationers cut spending.

With a decrease in personal and business travel comes an influx of commercial foreclosures that involve hotels. While the article focuses on the California market, other markets that include Florida are starting to see the same trend. Markets such as LA and San Diego have an oversupply of hotel rooms which drives occupancy rates down. When occupancy goes down, revenue goes down. When revenue goes down, mortgage/interest payments aren’t met. When banks don’t get paid they foreclose. As you may remember we also will look at distressed commercial property to purchase. Call me with any questions.

Banks' delays threaten $8,000 tax credit for many home buyers

The article focuses on the presumed expiration of the $8000 tax credit for first time home buyers, it also discusses a fact that I was unaware of. The State of Florida has a program ( Florida Home Buyer Opportunity Program ) that will advance the $8000 credit to the eligible home buyers for use at closing. For those of you in other states, your local realtor board and mortgage companies should have details on similar programs that may exist in your state.

While the article is negative in nature (I know your shocked that the press takes a negative approach to everything!), this tidbit of information may help buyers that you are working with. Many people thought that they had to wait to secure the $8000 until after their 2009 tax return was filed.

Even though the writer comments that an extension to the program is unlikely, he also points out that, “The credit was meant to spur home purchases in 2009, and premature talk of extending the giveaway into 2010 might encourage home buyers to postpone purchases.” So write your Congressional Representative and ask them to extend the credit!

U.S. Treasury set to finalize home "short sales" plan

Finally some good news from the Government! It appears that they are in the process of finalizing plans for additional incentives to mortgage companies to approve short sales. The amount of time some lenders/servicing companies are taking to approve short sales borders on crazy! Hopefully additional incentive will assist in getting more approved. A quote from the article states "Presumably, the Treasury is trying to help facilitate a transaction that will result in less loss to the lender than in the case of a foreclosure," John Burns consultants said in a research note dated Oct 1 alerting clients of an impending Treasury announcement.

Second foreclosure wave likely to hit commercial property

If I have said it once I have said it many times......take out the long board because the commercial short sale wave is coming! In my “travels” I am starting to hear that the “commercial lenders are becoming more reasonable when evaluating short sale offers.” What this means is that short sales (whether residential or commercial) are going to be with us for a long time. Let me know if you have any owners of over leveraged commercial properties.

Generation F: foreclosure may scar kids for years

When reading the national news as it pertains to pre foreclosures and foreclosures, I always see articles on the effect foreclosures have on banks, realtors, businesses, animals, condition of houses etc etc. This article is the first article that really hit home with me. It discusses the effects foreclosures have on a new group of people known as ‘Generation F” or Generation Foreclosure.

Who are these people? They cant control what the banks do or don’t do. They had no input on what documents were signed or not signed. They can’t help when it comes to job loss. They have very little input as to how the family unit is run. Have you figured out who I am speaking about yet? Generation F is made up of all of the kids that are affected by foreclosures. I have (4) children myself that range in age from 2 years old to 12 years old. I can’t imagine the effect a foreclosure would have on them.

The facts are that more than 2500 kids per DAY are displaced as a result of a house that they are living in being foreclosed on by a lien holder. Many of these kids are displaced suddenly (at least to them) because there parents either failed to plan for another place to live after there house was foreclosed or just had no other place to go. Kids are ejected from their homes to live in far reaching places. What did they do to deserve this travesty? Nothing!

You may think that I am stating the obvious. Maybe so. What you should be asking is what you can do about this growing problem. Allot of it revolves around awareness. Be aware of what you can do to either eliminate the impact or lessen it. When working with folks that are in foreclosure, that have kids make sure that their eyes are wide open. Push them to plan (EARLY in the process) where they are going to move their family.

Many people are in denial and feel that the time will never come when they have to leave their home. Hopefully the time wont come meaning (the ultimate goal is to keep these families in their homes). If they can’t stay in their homes, make sure an attorney is looking after their best interest AND NO ONE ELSE'S! Make sure that they have a plan in place to move their family in a seamless manner. Most importantly, do your best to make sure they are considering the well being of the children.