The NY Times is reporting on a new Obama initiative to create a financial incentive for banks and home sellers alike to do short sales. A few highlights from the article:
•Program starts April 5, 2010
•Lenders will be "compelled" to accept short sales. We'll see about that.
•The administration wants to streamline the process. We'll see about that too.
•Financial incentives are $1,500 to the home seller, $1,000 to the lender, and $1,000 to a subordinate lender.
•Agents will be used to valuate the properties, but lenders will not be forced to accept offers beneath the agent valuation.
That last point is the rub: BPOs, or broker price opinions, are inconsistent and often unreliable. I do them, and I do not accept BPOs outside of a very small geographic footprint; however, many BPO agents are from far away and do robotic, formulaic, price per square foot hatchet jobs which do not accurately reflect market conditions. Once this happens, a short sale can be set back 6 months (yes, 6 months) or derailed completely. All because some guy from 50 miles away didn't care to do his homework for the $45 fee.
The piece details another thing which I have long believed: lender are skeptical about short sales. A number of quotes detail suspicion of fraud and that is unfortunate. In the short sales I broker, I see nothing but earnest buyers and sellers. We never sell to investors. I have never sold anyone a home and then done a short sale on their old place (strategic default). Banks are engaging in "prevent defense" with this mentality. You throw the baby out with the bath water when you assume fraud at the expense of people who are seeking relief in good faith.
We'll see going forward if this works. The worst thing about short sales is the abhorrent length of time and ridiculous red tape they consume. If the administration can indeed shorten and streamline the process, I'll be the worst to give them credit. This much is true: something has to be done, because too many good people are suffering.
Monday, March 29, 2010
Thursday, March 25, 2010
Tuesday, March 23, 2010
First-time homebuyer's tax credit extended for second time
California lawmakers have voted to extend a $10,000 tax credit for first-time homebuyers.
The credit will apply to first-time buyers who purchase new or existing homes between May 1 and Dec. 31 of this year. It is for 5 percent of the purchase price, or up to $10,000. The bill received bipartisan support in the Assembly and Senate on Monday and will be sent to Gov. Arnold Schwarzenegger.
The governor, who proposed the extended tax credit as part of his job-creation initiative, is expected to sign the bill.
California recently passed a tax break that capped the total credit available at $100 million on new homes purchased between March 1, 2009, and March 1, 2010.
The new bill increases that cap to $200 million and applies to new and existing home.
http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/03/22/state/n181320D40.DTL
The credit will apply to first-time buyers who purchase new or existing homes between May 1 and Dec. 31 of this year. It is for 5 percent of the purchase price, or up to $10,000. The bill received bipartisan support in the Assembly and Senate on Monday and will be sent to Gov. Arnold Schwarzenegger.
The governor, who proposed the extended tax credit as part of his job-creation initiative, is expected to sign the bill.
California recently passed a tax break that capped the total credit available at $100 million on new homes purchased between March 1, 2009, and March 1, 2010.
The new bill increases that cap to $200 million and applies to new and existing home.
http://sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/03/22/state/n181320D40.DTL
Sunday, March 14, 2010
Obama's Short Sale Program Unfolds April 5th
The Obama Administration’s new short sale plan, which begins April 5, calls for banks to agree to not pursue borrowers for any deficiency judgments after a short sale, requires second lien holders to accept a maximum of $3000 to settle their debt, allots $1000 to mortgage servicers for a successful short sale, and allows for up to $1,500 in “relocation” assistance to borrowers.
The plan – Home Affordable Foreclosure Alternatives, or HAFA – is for borrowers who qualify for or have participated in the Home Affordable Modification Program, or HAMP, but have not been able to make their new reduced mortgage payments through the trial period. It is also for any borrower who has tried to modify their loan through HAMP and now requests a short sale in order to avoid foreclosure.
The program calls for banks to decide what they are willing to take $ wise in the short sale before the property goes on the market, so that the buyer, real estate broker and seller know what price the property needs to sell for in order for the bank to approve the short sale. It also requires lenders and servicers to use uniform documentation and short sale terms, prevents them from reducing the real estate agent’s commissions in a short sale and greatly expedites the lender’s short sale approval process to ten business days after receipt of an offer.
HAFA also allows lenders to offer a deed in lieu of foreclosure to borrowers with government insured loans without requiring borrowers to first put the property on the market for 90 days, which is the typical protocol for a deed in lieu of foreclosure.
With all of this said, the glaring, overwhelming problem with HAFA, like all government programs to date geared toward preventing foreclosures, (starting with the Bush Administration’s Housing Economic Recovery Act), is that bank participation will be voluntary and on the individual lender’s terms.
HAMP, which set out to help 3.4 million borrowers, to date has modified less than 120,000 borrowers’ loans, and even for the loans that have been modified, the lasting impact is questionable.
The good news with short sales is that, at least in my experience thus far in 2010, the nation’s lenders, simply by virtue of the fact that they have had the past 3 years to practice, are starting to move faster on short sales and issue approvals with less stringent qualifying criteria. This means that, without regard to government programs, the average homeowner has a better chance doing a successful short sale than ever before.
The plan – Home Affordable Foreclosure Alternatives, or HAFA – is for borrowers who qualify for or have participated in the Home Affordable Modification Program, or HAMP, but have not been able to make their new reduced mortgage payments through the trial period. It is also for any borrower who has tried to modify their loan through HAMP and now requests a short sale in order to avoid foreclosure.
The program calls for banks to decide what they are willing to take $ wise in the short sale before the property goes on the market, so that the buyer, real estate broker and seller know what price the property needs to sell for in order for the bank to approve the short sale. It also requires lenders and servicers to use uniform documentation and short sale terms, prevents them from reducing the real estate agent’s commissions in a short sale and greatly expedites the lender’s short sale approval process to ten business days after receipt of an offer.
HAFA also allows lenders to offer a deed in lieu of foreclosure to borrowers with government insured loans without requiring borrowers to first put the property on the market for 90 days, which is the typical protocol for a deed in lieu of foreclosure.
With all of this said, the glaring, overwhelming problem with HAFA, like all government programs to date geared toward preventing foreclosures, (starting with the Bush Administration’s Housing Economic Recovery Act), is that bank participation will be voluntary and on the individual lender’s terms.
HAMP, which set out to help 3.4 million borrowers, to date has modified less than 120,000 borrowers’ loans, and even for the loans that have been modified, the lasting impact is questionable.
The good news with short sales is that, at least in my experience thus far in 2010, the nation’s lenders, simply by virtue of the fact that they have had the past 3 years to practice, are starting to move faster on short sales and issue approvals with less stringent qualifying criteria. This means that, without regard to government programs, the average homeowner has a better chance doing a successful short sale than ever before.
Tuesday, February 23, 2010
Fannie Mae Offers Helping Hand to Foreclosure Buyers
The largest U.S. mortgage-financing company, Fannie Mae, is offering an unusual incentive to any qualified buyer wishing to purchase one of their foreclosed properties -- as much as a 3.5 percent in closing-costs assistance or an equivalent amount in appliances.
The offer is good through May 1, said officials at the D.C.-based company. Terry Edwards, Executive Vice President of Credit Portfolio Management, described it as a win-win situation.
In a time when the housing market is flooded with foreclosed properties, company officials hoped the incentive, along with the federal home tax credit, would get more buyers looking. The federal program currently offers new home buyers a home tax credit of up to 8000 dollars and existing homeowners may claim a credit of up to 6500 dollars when they purchase a new residence.
The federal home tax credit is only available on houses purchased by April 30, 2010 and closed by June 30, 2010. Many analysts believe that with mortgage rates predicted to rise, now is the time for qualified buyers to act and take advantage of the federal government incentive.
Currently Fannie Mae has a stock of foreclosures that increase during a three-year housing slump when home prices crashed. Edwards said the incentive is designed to foster sales in a still-weak housing market.
He said attracting qualified buyers and reducing the inventory of foreclosures are essential to "stabilizing neighborhoods and helping the market recover."
Eligible properties are listed on HomePath Web site, which would not only include detailed information about a property for sale, but also information about the community and nearby schools. The company also has properties that are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, which offers home buyers an opportunity to purchase with as little as a 3 percent down payment.
Fannie Mae sold 89,691 foreclosed homes in the third quarter, up from 39,864 in the previous period, according the company's recent quarterly filing. Fannie Mae had 72,275 such homes, called real-estate-owned properties, as of Sept. 30.
The offer is good through May 1, said officials at the D.C.-based company. Terry Edwards, Executive Vice President of Credit Portfolio Management, described it as a win-win situation.
In a time when the housing market is flooded with foreclosed properties, company officials hoped the incentive, along with the federal home tax credit, would get more buyers looking. The federal program currently offers new home buyers a home tax credit of up to 8000 dollars and existing homeowners may claim a credit of up to 6500 dollars when they purchase a new residence.
The federal home tax credit is only available on houses purchased by April 30, 2010 and closed by June 30, 2010. Many analysts believe that with mortgage rates predicted to rise, now is the time for qualified buyers to act and take advantage of the federal government incentive.
Currently Fannie Mae has a stock of foreclosures that increase during a three-year housing slump when home prices crashed. Edwards said the incentive is designed to foster sales in a still-weak housing market.
He said attracting qualified buyers and reducing the inventory of foreclosures are essential to "stabilizing neighborhoods and helping the market recover."
Eligible properties are listed on HomePath Web site, which would not only include detailed information about a property for sale, but also information about the community and nearby schools. The company also has properties that are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, which offers home buyers an opportunity to purchase with as little as a 3 percent down payment.
Fannie Mae sold 89,691 foreclosed homes in the third quarter, up from 39,864 in the previous period, according the company's recent quarterly filing. Fannie Mae had 72,275 such homes, called real-estate-owned properties, as of Sept. 30.
Thursday, February 18, 2010
Buying a Short Sale? Here Are The Questions You Need To Ask.
The "Short" in short sale is NOT in reference to the time it will take to complete the transaction. Potential short sale buyers... you need to know and accept this. While good real estate agents on both sides of the short sale transaction can and will make a difference, a short sale, by it's nature, will take longer than a traditional sale. When buying a short sale you, and your agent, are to some degree at the mercy of the seller and their real estate agent (Not to mention the lender(s)). Let me explain what I mean by this. If the seller's agent is not doing their job correctly you will have to deal with the consequences. At best the transaction time may be lengthened or the bank's counter-offers may be more extreme. At worst, the sale may collapse altogether. It is a lot of work for the selling agent to address a short sale correctly. Fortunately there are some questions you, the buyer, and your agent can, and should, be asking that will determine if the selling agent "knows their stuff" and is willing to put in the work to make the sale happen:
1) Is there more than one lender involved?
If there is a second mortgage (or perhaps even a 3rd mortgage!) the transaction will be more complicated and likely take longer. Second mortgages have been known to "spoil" a short sale transaction by requiring a short payoff much higher than your offer will allow. Multiple mortgage short sale transactions are not impossible. They will likely require more time and suffering though. Be prepared.
2) Has a short sale packet been submitted to the bank?
Once your offer has been made and accepted by the seller you should know the exact date that a COMPLETE short sale package was submitted to the lender(s) and the exact date that the selling agent has verified receipt of the package(s). A long delay between acceptance of your offer by the seller and submission of the short sale package(s) may indicate that either the seller or the seller's agent are not motivated or not experienced with short sale transactions.
3) Has a lender "negotiator" been assigned to the short sale file?
Short sales are eventually assigned to a lender negotiator. This is an important step in the progress of a short sale. You and your agent should request in advance to be notified by the seller's agent when this has transpired. If it takes longer than 60 days to obtain assignment to a negotiator it could indicate that the sellers agent is not proficient with short sales. You and your agent should determine what the sellers agent is doing at this point to escalate the case. This is a general rule of thumb. Every short sale is different. A long duration until assignment could indicate that either the seller is uncooperative or that their agent is not proficient at moving the process along.
4) Has the BPO been completed?
Generally the lender will have at least one BPO (Broker's Price Opinion) done to ascertain the current market value of the property. When the BPO is ordered is a matter of policy that varies from lender to lender and negotiator to negotiator. It is always a good sign though as it indicates that progress is being made on the short sale within the lenders structure. The seller's agent should be actively pressing for this step until it is completed.
5) Has the price or net proceeds amount been bank approved?
Essentially this is the approval of the short payoff by the lender(s). Often the lender will make a counter-offer rather than accept the transaction as submitted. Your alternative at this point is to accept the counter (meaning "pay more") or stand pat and let the seller's agent negotiate further with the lender. This is over-simplification as the lenders will often apply a "line-item" mentality to a short sale transaction and seek to control the specifics of a short sale settlement (amount they will pay for realtor commissions, title insurance, payoff to jr. liens, etc.).
On a side note, you will also want to know if the bank "previously approved" another offer prior to yours. This may provide you with insight as to where your offer stands in relations to what they are willing to settle for. If your offer is well below the "previously approved" short payoff you may want to reconsider buying the property or raising your offer.
While a short sale provides buyers with an opportunity to purchase a home below market value, buyers must be prepared to endure the negative aspects of a short sale transaction. Make sure the seller is committed to the sale and is cooperative in providing documentation. Discern whether the selling agent has the right combination of experience, skill and effort to make the transaction work. Ask the questions I have mentioned as you move through the process! You will be glad you did.
1) Is there more than one lender involved?
If there is a second mortgage (or perhaps even a 3rd mortgage!) the transaction will be more complicated and likely take longer. Second mortgages have been known to "spoil" a short sale transaction by requiring a short payoff much higher than your offer will allow. Multiple mortgage short sale transactions are not impossible. They will likely require more time and suffering though. Be prepared.
2) Has a short sale packet been submitted to the bank?
Once your offer has been made and accepted by the seller you should know the exact date that a COMPLETE short sale package was submitted to the lender(s) and the exact date that the selling agent has verified receipt of the package(s). A long delay between acceptance of your offer by the seller and submission of the short sale package(s) may indicate that either the seller or the seller's agent are not motivated or not experienced with short sale transactions.
3) Has a lender "negotiator" been assigned to the short sale file?
Short sales are eventually assigned to a lender negotiator. This is an important step in the progress of a short sale. You and your agent should request in advance to be notified by the seller's agent when this has transpired. If it takes longer than 60 days to obtain assignment to a negotiator it could indicate that the sellers agent is not proficient with short sales. You and your agent should determine what the sellers agent is doing at this point to escalate the case. This is a general rule of thumb. Every short sale is different. A long duration until assignment could indicate that either the seller is uncooperative or that their agent is not proficient at moving the process along.
4) Has the BPO been completed?
Generally the lender will have at least one BPO (Broker's Price Opinion) done to ascertain the current market value of the property. When the BPO is ordered is a matter of policy that varies from lender to lender and negotiator to negotiator. It is always a good sign though as it indicates that progress is being made on the short sale within the lenders structure. The seller's agent should be actively pressing for this step until it is completed.
5) Has the price or net proceeds amount been bank approved?
Essentially this is the approval of the short payoff by the lender(s). Often the lender will make a counter-offer rather than accept the transaction as submitted. Your alternative at this point is to accept the counter (meaning "pay more") or stand pat and let the seller's agent negotiate further with the lender. This is over-simplification as the lenders will often apply a "line-item" mentality to a short sale transaction and seek to control the specifics of a short sale settlement (amount they will pay for realtor commissions, title insurance, payoff to jr. liens, etc.).
On a side note, you will also want to know if the bank "previously approved" another offer prior to yours. This may provide you with insight as to where your offer stands in relations to what they are willing to settle for. If your offer is well below the "previously approved" short payoff you may want to reconsider buying the property or raising your offer.
While a short sale provides buyers with an opportunity to purchase a home below market value, buyers must be prepared to endure the negative aspects of a short sale transaction. Make sure the seller is committed to the sale and is cooperative in providing documentation. Discern whether the selling agent has the right combination of experience, skill and effort to make the transaction work. Ask the questions I have mentioned as you move through the process! You will be glad you did.
Thursday, February 11, 2010
Citigroup allowing Distressed Homeowners to stay in their homes for 6 months.
WASHINGTON – Citigroup Inc. plans to let homeowners on the verge of foreclosure stay in their homes for six months — if they turn over the deed to their property.
Citi said Thursday it is launching the pilot program, dubbed "Foreclosure Alternatives," this week in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. Initially, about 1,000 homeowners are expected to participate. Citi may expand the program nationwide.
In a normal foreclosure, a lender assumes legal control of the property and evicts the homeowner. But Citi's program, like other "deed in lieu of foreclosure" efforts, allows the homeowner to avoid a completed foreclosure. While the owner must still leave the home after six months, the program results in a less severe hit to the borrower's credit score.
The policy is an attempt to deal with what lenders see as a growing phenomenon: borrowers who choose to default on their mortgages. Close to one in every three U.S. homeowners owe more on their mortgages than their homes are worth, according to Moody's Economy.com.
Many housing analysts say these borrowers — particularly those who owe at least 20 percent more than their home's current value — are choosing to walk away because they see little chance that home prices will come back.
Also, many states have lengthened the time it takes to complete a foreclosure, making the process more time-consuming and expensive for the lending industry.
"Why should we all go through the foreclosure process and evict people?" said Sanjiv Das, Citi's top mortgage executive. Avoiding foreclosure, Das said, is "less painful for our borrowers as well as for us."
Borrowers in Citi's program will still need to pay their utility bills. But Citi will pay at least $1,000 in relocation costs and will consider helping out with other expenses. Citi also plans to provide relocation counseling.
The program is intended to help borrowers who don't qualify for a mortgage modification or a short sale — one in which the lender agrees to sell a home for less than the total mortgage amount.
Citi's policy is similar to one announced in November by Fannie Mae, the government-controlled mortgage finance company. Fannie is allowing homeowners to hand back the deed to their properties, then rent them back at market rates.
Citi said Thursday it is launching the pilot program, dubbed "Foreclosure Alternatives," this week in Texas, Florida, Illinois, Michigan, New Jersey and Ohio. Initially, about 1,000 homeowners are expected to participate. Citi may expand the program nationwide.
In a normal foreclosure, a lender assumes legal control of the property and evicts the homeowner. But Citi's program, like other "deed in lieu of foreclosure" efforts, allows the homeowner to avoid a completed foreclosure. While the owner must still leave the home after six months, the program results in a less severe hit to the borrower's credit score.
The policy is an attempt to deal with what lenders see as a growing phenomenon: borrowers who choose to default on their mortgages. Close to one in every three U.S. homeowners owe more on their mortgages than their homes are worth, according to Moody's Economy.com.
Many housing analysts say these borrowers — particularly those who owe at least 20 percent more than their home's current value — are choosing to walk away because they see little chance that home prices will come back.
Also, many states have lengthened the time it takes to complete a foreclosure, making the process more time-consuming and expensive for the lending industry.
"Why should we all go through the foreclosure process and evict people?" said Sanjiv Das, Citi's top mortgage executive. Avoiding foreclosure, Das said, is "less painful for our borrowers as well as for us."
Borrowers in Citi's program will still need to pay their utility bills. But Citi will pay at least $1,000 in relocation costs and will consider helping out with other expenses. Citi also plans to provide relocation counseling.
The program is intended to help borrowers who don't qualify for a mortgage modification or a short sale — one in which the lender agrees to sell a home for less than the total mortgage amount.
Citi's policy is similar to one announced in November by Fannie Mae, the government-controlled mortgage finance company. Fannie is allowing homeowners to hand back the deed to their properties, then rent them back at market rates.
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