Archive for March, 2011

When Will Housing Finally Hit Bottom? Housing Recovery On The Horizon?

Have you noticed that the national focus on the housing crash has subsided….

…Its almost like Americans have simply come to accept that home prices continue to crash with no clear end in sight. Housing news no longer makes the headlines…almost makes you start to believe that the housing crash is over.

Not even close.

The real bottom line question is…when will home values stop falling…and start leveling off?

Based on an expert panel of 111 leading housing economists there won’t be any sort of bottoming until…2013. Home prices at the national level are now less than 1 percent away from establishing a new post-crash low. Obviously, more home value loss pushes more homeowners underwater. It’s expected that this year there will be 20,000,000 homeowners underwater, 40% of all homeowners with a mortgage.

What will the historic continued erosion of home value value lead to? A huge increase in REO Listings. Also reported today, the Federal government confirmed that January home prices nationally have fallen to the lowest point since May 2004 and they are 16.5 percent below the April 2007 peak during the housing boom.

The Federal Housing Financing Administration found that prices fell 0.3 percent from December to January and for the 12 months ending in January, U.S. prices fell 3.9 percent. Robert Shiller, co-founder and chief economist of MacroMarkets, the firm conducting the monthly survey of experts. The survey is based upon the projected path of the S&P/Case-Shiller U.S. National Home Price Index over the coming five years.

“This uninspiring view must be influenced by the persistently weak market fundamentals – high unemployment, supply overhang, an unabated foreclosure crisis, and constrained mortgage credit”

More from MacroMarkets:

“Many more experts are now projecting a double-dip after witnessing the double-dead cat bounce that came in the wake of expired government stimulus programs. In December, only 15% of our panelists were projecting that a new post-crash low would materialize for national home prices. Now, just three months later, almost 50% foresee a double-dip happening this year, and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming 5 years”

The table below summarizes the panel’s March projections for home prices for the coming 5 years.

Expected Home Price Changes By Year

S&P/Case-Shiller U.S. National Home Price Index

(Mean of all Panelist Responses)

Year-over-Year Cumulative

Year (Q4 vs Q4 Prior Year) (Q4 vs Q4 2010)

2011 -1.38% -1.38%

2012 1.26% -0.09%

2013 2.72% 2.67%

2014 3.19% 5.98%

2015 3.42% 9.64%

Source: MacroMarkets Home Price Expectations Survey, March 2011

5 Ways to Stop the Foreclosure Process

Not ready to walk away from your mortgage, but looking for an alternative to the foreclosure process?

As a Short Sale Specialist, I help families in the San Jose Bay Area navigate their underwater mortgages and find suitable solutions to their loan issues. In some situations it’s too late to do anything, but wait for the bank to take their home. But when a client comes to me early enough in the process, we can usually find an alternative that doesn’t leave them out in the cold.

Here is a list of Foreclosure alternatives that are available to you in the early stages of the process:

1. Foreclosure Workout

Up until the time your home is scheduled for auction, most lenders would rather work out a compromise that would allow you to get back on track with your mortgage than take your home in a foreclosure.

2. Short Sale

After your lender files an NOD (Notice of Default) but before they schedule an auction date, if you get an offer from a buyer, you lender must consider it. If they foreclose on your home, the lender is going to simply turn around and try to resell it; if you present them with a reasonable short sale offer, they may see it as saving them the time, effort and trouble of finding a qualified buyer in a soft market.

So, if your home is on the market, continue to aggressively seek a buyer for it, even after your lender initiates the foreclosure process.

3. Bankruptcy

Bankruptcy stops foreclosure dead in its tracks. Once you file a bankruptcy petition, federal law prohibits any debt collectors, including your mortgage lender, from continuing collection activities. Foreclosure is considered a collection activity, and so the day your lender becomes aware that you have filed for bankruptcy, the foreclosure process will effectively be frozen. But here’s the rub; once you get to court, the bankruptcy trustee’s role is simply to play referee or mediator between you and your creditors.

Bankruptcy really just buys you more time to replace your lost job or recover financially from a temporary disability; it doesn’t let you off the hook for your debts. The law requires your mortgage company and other creditors to work in good faith with you to formulate a reasonable repayment plan so you can get back on track. Consult with a bankruptcy attorney regarding whether filing for bankruptcy is a good strategy for you.

4. Assumption/Lease-Option

Most loans these days are no longer assumable. The average mortgage now contains a “due on sale” clause by which the borrower agrees to pay the loan off entirely if and when they transfer the property. However, if you are facing foreclosure, you might be able to persuade your lender to modify your loan, delete this clause and allow another buyer to assume your loan. The lender may want to assess the new buyer’s qualifications, but it can be a win-win-win option for all. You might be able to negotiate a down payment from the buyer which you can use to pay off your outstanding past due mortgage balance.

In a lease-option scenario, the buyer becomes your tenant, and you continue owning the property until the buyer has saved enough down payment money, improved their credit sufficiently or sold their other home. In some situations, the buyer will make a one-time, lump option payment upfront, paying you to obtain the option to purchase your home. You can apply the option payment to bringing your mortgage current. Then, the buyer will make lease payments monthly which you, the seller, then apply to your mortgage.

To successfully use a lease-option to stop the foreclosure process, you must negotiate lease payments that cover most or all of your mortgage payment, property tax and insurance obligations — enough that you can make up any difference and still pay to live somewhere else.

5. Deed in Lieu

A deed in lieu of foreclosure is exactly what it sounds like. The homeowner facing foreclosure signs the deed to the home back over to the bank — voluntarily. This sound like it would be a great option, but actually has the same impact on a homeowner’s credit that foreclosure does.

Lenders are very reluctant to agree to take a home back through a deed in lieu of foreclosure for a number of reasons: They fear the homeowner will sue later alleging they didn’t understand what was happening, the lender must pay any second or third mortgages or home equity lines of credit (HELOCs) off before executing a deed in lieu, and the lender wants to be certain that the borrower’s financial distress is real. Allowing the foreclosure process to proceed is one way the lender can be sure the borrower is not faking poverty.

If you’re not sure where to start or what to do about the foreclosure process, feel free to call me for a FREE consultation and I’ll help you go over your options and get you started on the path that’s right for you.

 

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Underwater Mortgage Crisis Lingers

On Tuesday, data released by CoreLogic Inc., a leading provider of information, analytics and business services, stated that nearly 23.1% or 11.1 million of all U.S. residential mortgage properties were underwater in the 4th quarter of 2010. The figures stood even higher than the 22.5% or 10.8 million households’ loans that were underwater in the preceding quarter.

The total amount of underwater mortgages was $751 billion in the fourth reported quarter, up from $744 billion in the earlier quarter, but down from $800 billion in the year-ago quarter. CoreLogic used data related to 48 million properties with a mortgage (85% of all mortgages in the U.S.) as the base.

In December, home prices had fallen to its lowest point since the housing bust. This was the driving factor behind the 3% rise in underwater mortgages during the quarter. Additionally, about 2.4 million borrowers’ home value was merely 5% more than the loan value (close to underwater).

As per CoreLogic’s report, Nevada had the highest rate of underwater mortgage. About 65% of the mortgaged home property in Nevada was underwater, followed by 51% in Arizona, 47% in Florida, 36% in Michigan and 32% in California. However, there were just nine states that had less than 10% of their total mortgaged home property underwater.

When a mortgage is underwater, the homeowner cannot refinance the loan and has almost no alternative but to continue making payments with a hope that the property will finally regain its original value. But with high levels of foreclosure and unemployment, home prices are further expected to fall by another 5%-10% this year.

With further declines in home prices, the biggest rises in underwater mortgages are expected in Alabama, Idaho and Oregon as they have the largest number of properties that are close to underwater presently.

Moreover, underwater mortgage slows down home sales. Homeowners, who would have otherwise sold their houses, will now wait for the home prices to rise before selling. Also, at times the mortgage providers do not allow the borrowers to sell their property at lower price than owed on the mortgage.

Further, many banks require about 20% of the home value as down payment, which again makes it increasingly difficult for the home owners to sell their property. However, Obama administration is planning for a 10% down payment requirement on loans guaranteed by Fannie Mae and Freddie Mac.

At present, underwater mortgage is one of the menacing problems confronted by the U.S. financial markets. Despite the introduction of Home Affordable Modification Program (HAMP) by the government in 2008, underwater mortgage problem has not diminished.

Currently, state attorneys general are trying to resolve issues related to improper mortgage foreclosures with various large mortgage providers such as JPMorgan Chase & Co. and Bank of America Corporation.

We believe that until underwater mortgages fall and foreclosure mess is resolved, the recovery in the housing and mortgage markets will remain very slow.

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Should You Choose a Short Sale Over a Foreclosure?


Over the past couple of years I often get asked by past Clients this question: We have been making our mortgage payments every month even though our home is underwater. We owe a lot more than our home is worth. Now, we’re thinking about walking away from our home and letting it go to foreclosure, but everyone we talk to are telling us that we may qualify for a short sale. Which is better for us? A short sale or a foreclosure?”

Answer: Whether you should do a short sale or let the home go to foreclosure depends on a number of factors. While for some homeowners, it is easier to throw up your hands and let the bank take your home that might not be the wisest thing to do.

Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
• You are in control of the sale, not the bank.
• You may sleep better at night knowing who is buying your home.
• You will spare yourself the social stigma of the “F” word, foreclosure.
• Contrary to popular belief, you can be current on your payments and still affect a short sale.
• Your home sale will be handled like any other home sale.

Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.

Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.

Affects on Credit After a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word “short sale” on your credit report. It may say “pay as agreed” or “paid as less than agreed,” among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.
The point drop is typically due to being in default that is behind on your payments.

Affects on Credit After a Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.

Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.

Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.

Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee’s sale.

Loan Application Questions After a Short Sale
Loan applications do not ask questions about a short sale. You may report that you sold your home.

Loan Application Questions After a Foreclosure
You are required to answer the question: “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years.” If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.

Length of Time to Move After a Short Sale
If you’ve had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.

Length of Time to Move After a Foreclosure
Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.

Taxation After a Short Sale
A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.

Taxation After a Foreclosure
Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.
In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.

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